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Compensation Plans: Director-Specific Limits

A recent decision by the Delaware Court of Chancery serves as a reminder that boards of directors of Delaware corporations should consider amending their companies’ director compensation plans to include specific limits on the amount of compensation that a director may be awarded in a given year, and obtaining stockholder approval of such compensation plans.

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A recent decision by the Delaware Court of Chancery, In re Investors Bancorp Shareholder Litigation, C.A. No. 12327-VCS, serves as a reminder that boards of directors of Delaware corporations should consider amending their companies’ director compensation plans to include specific limits on the amount of compensation (both cash and equity) that a director may be awarded in a given year, and obtaining stockholder approval of such compensation plans. As the teachings of the Court of Chancery’s decision in Investors Bancorp confirm, doing so can afford a decision by directors to grant themselves compensation under such plans judicial review under the deferential business judgment rule, rather than under Delaware’s most stringent standard of review in fiduciary duty actions, entire fairness.

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