Delaware Case Raises Question About Structuring Director Compensation

A recent opinion of the Delaware Chancery Court addresses the legal standard applicable to directors’ decisions about their own pay under Delaware law, an important topic as to which there is little prior law. The opinion raises the question of whether companies should adopt and seek shareholder approval of plans that specify, in sufficient detail to qualify for business judgment rule protection, the amount and type of compensation to be paid to their directors. Regardless of the approach taken, board members should be aware of the scrutiny that their compensation decisions will draw as compensation continues to be a focus for investors and governance gadflies.