By Tom Hals

WILMINGTON, Delaware (Reuters) -Tesla Inc's directors agreed to settle a shareholder lawsuit challenging their compensation by returning to the company the value of 3.1 million stock options, worth $735 million, according to a Monday filing in a Delaware court.

The settlement resolves a 2020 lawsuit by a retirement fund which holds Tesla stock and challenged stock options that were granted to Tesla directors starting in June 2017.

The settlement does not impact the $56-billion compensation package of Elon Musk, which is being challenged by shareholders in a separate lawsuit that went to trial last year. A ruling is expected soon in the Musk case.

(Reporting by Tom Hals in Wilmington, DelawareEditing by Nick Zieminski)