In a significant development, Tesla’s directors, led by Elon Musk, have decided to return $735 million, equivalent to 3.1 million Tesla stock options, to the company. This decision comes as part of a settlement to resolve a lawsuit filed by the shareholders. As per the agreement, Tesla directors will forgo any compensation for the years 2021, 2022, and 2023, and there will be a revision in the way compensation is determined moving forward.

The legal dispute arose when the Police and Fire Retirement System of the City of Detroit filed a lawsuit against Tesla in 2020. The retirement fund, which holds Tesla stocks, alleged that the directors had excessively granted themselves approximately 11 million stock options between 2017 and 2020, going far beyond the norms expected for a corporate board.

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Tesla had previously defended the stock options, arguing that they were crucial to incentivizing the directors and aligning their objectives with those of the investors. The company pointed out that its extraordinary growth had led to a tenfold increase in stock value, which naturally translated into more stock options for both its directors and Elon Musk himself.

The settlement by Tesla’s directors is a substantial victory for the company and its shareholders. Notably, the $56 billion compensation package of Elon Musk remains unaffected by this resolution. Shareholders had previously challenged Musk’s compensation package, and the decision on that case is expected to be announced soon.

The lawsuit, categorized as a derivative lawsuit, is one of the most significant wins for such a case in the court of Chancery. It highlights the ongoing concern of corporate governance and excessive compensation practices in some cases.

Elon Musk and Tesla have experienced their fair share of legal battles. Just last month, Musk successfully defended against a lawsuit from Tesla shareholders, who accused him of violating securities laws related to the acquisition of the struggling rooftop solar company, SolarCity, in 2016.

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