Tesla Inc's directors agreed to return $735 million to the company in order to settle the accusation that they overpaid themselves in one of the largest shareholder settlements of its kind, a Monday filing stated in a Delaware court. 

The agreement ends a 2020 lawsuit filed by a retirement fund that owns Tesla stock, which challenged stock options issued to Tesla directors beginning in June 2017. However, the settlement has no bearing on Elon Musk's $56 billion remuneration package, which is being contested by shareholders in a separate action that went to trial last year. A decision in the Musk lawsuit is likely soon.

According to a court document, the directors, which included Oracle co-founder Larry Ellison, agreed to repay the equivalent value of 3.1 million Tesla stock options.

The directors were given credit for acting in good faith and in the best interests of Tesla stockholders but agreed to settle to eliminate the risk of litigation to themselves and to the company, the court filing said. 

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They were accused of providing themselves unfair and disproportionate compensation in the form of about 11 million stock options from 2017 to 2020, which reportedly far surpassed corporate board guidelines.

The Police and Fire Retirement System of the City of Detroit in 2020 introduced the case and the settlement was set to be paid to Tesla to benefit the company using a derivative lawsuit. That said, the settlement is one of the largest ever derivative cases in the court of chancery. a major venue for shareholder litigation. 

Tesla and Musk have a history of battling lawsuits. Musk has won defamation lawsuits, securities law violations, and shareholder lawsuits accusing him of coercing Tesla into buying SolarCity at trial. As part of the settlement, the directors gave up any compensation for 2021, 2022, and 2023, and the board decided to change the way compensation is determined.

On that note, Tesla has defended itself against the case by claiming that the firm saw nearly unparalleled growth, with its stock price increasing tenfold. Along with the increase in stock value, the value of stock options granted to the directors and Musk increased dramatically.

The company argued it used the stock options to ensure that the incentives of directors were aligned with the goals of investors.

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