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Director Compensation Subject to Entire Fairness Standard
In Calma v. Templeton, C.A. No. 9579-CB (Del. Ch. April 30, 2015), the Delaware Court of Chancery denied the motion to dismiss filed by Citrix Systems, Inc. (Citrix) and its directors in a derivative suit brought by shareholders. The suit alleged that Citrix's directors breached their fiduciary duty by paying excessive compensation to the company's non-employee directors from 2011 through 2013 in connection with awards of restricted stock units (RSUs) under the Citrix 2005 Equity Incentive Plan (Plan). In a challenge to the business judgment rule, the plaintiffs were allowed to proceed with their breach of fiduciary duty claim, and the court noted that the awards were subject to review under the “entire fairness” standard.
Background
The Plan permitted grants of equity compensation in the form of RSUs, stock options and other types of equity awards. It was approved by Citrix stockholders in 2005. Employees, directors, officers, consultants and advisers of Citrix were eligible to receive awards. The Plan limited the total number of RSUs that a participant could receive in a calendar year to 1 million, but it did not otherwise limit annual compensation or awards under the Plan. The Plan granted authority to the compensation committee to decide how many RSUs to award to participants, subject only to the 1 million RSU per year per participant limit. It contained no sub-limits by position, such as a limit for non-employee directors or officers. Based on the price of Citrix stock at the time the case was filed, a grant of 1 million RSUs to a single participant would have been worth over $55 million.
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