The suit, filed by the Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund, alleged that Lululemon's compensation committee voted to "boost the maximum payout of the executive bonuses plan just before a $60 million recall of yoga pants," the Associated Press reported.
It claimed the amendment to the company's executive bonus plan raised bonuses by as much as one-third, the AP wrote.
According to the lawsuit, Lululemon should not have raised pay because the board already knew about the problem that would later lead to a recall of 17% of its pants for being too sheer.
Lululemon recalled the pants in March after noticing a manufacturing defect that made them see-through.
Analysts blame the problems on Lululemon's quick expansion and lack of control over its supply chain.
The incident was the brand's fourth quality control issue in a year and led to the departure of its chief product officer.