Elon Muskthe controversial businessman and founder of Tesla, along with other members of the company’s board of directors, has agreed to return more than $735 million in compensation to settle a lawsuit filed by shareholders for overcharging.
Specifically, the lawsuit alleged that Tesla’s directors had overcompensated themselves, far exceeding corporate standards.
As it explains Ars Technicathe lawsuit claimed that the company’s directors, including Musk and his brother Kimbal, had been paid unfairly and generously, costing the company tens, if not hundreds of millions of dollars.
The agreement reached requires that directors return $458,649,785 in stock options and $276,616,720 in cash and/or stock. Additionally, they agreed to forgo stock options and other compensation for their service on the board in the years 2021, 2022 and 2023.
Excessive control of Musk in payments
The lawsuit also alleged that Elon Musk had excessive control over director pay, installing family and friends on the board and by avoiding independent oversight of the company.
Under the agreement, future compensation packages for directors must be voted on by shareholders and subject to a majority vote of approval by non-Tesla shareholders. An independent compensation consultant will be retained to advise on appropriate compensation each year.
This agreement, which is pending judicial approval, represents one of the largest payments in a derivative case in the Court of Chancery. Although Tesla had previously argued that he used stock options to align director incentives with investor objectives, the shareholder lawsuit contended that excessive compensation was awarded and that directors were prepared to continue this practice.
The case adds to other legal challenges Elon Musk and Tesla have faced over compensation and other issues. However, This agreement will make it possible to resolve the lawsuit and establish new controls over the compensation of directors in the company.