NACD - National Association of Corporate Directors

Ruling Points to More Attention for Director Compensation

A December ruling by the Delaware Supreme Court could have an impact at companies where the board sets pay for its directors, the Wall Street Journal (Jan. 2, DiPietro) warns. "The decision reversed a lower-court ruling that upheld equity awards given to board members at bank holding company Investors Bancorp," notes the newspaper. "The Supreme Court decision means boards no longer will be able to rely on the business judgment rule protection to justify such equity awards." Instead, director compensation will be judged by the more narrow "entire fairness" standard, states Steven M. Haas, a partner at the law firm of Hunton & Williams. In a client note, Haas wrote: "This ruling will likely cause companies to rethink the terms of future equity plans. "For boards making discretionary director compensation decisions, they should work closely with outside advisors to help establish the fairness of the compensation."

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