August 23, 2022
Director Compensation: Court Strikes Down Broad Settlement Release
Back in 2019, director compensation was in the spotlight due to litigation over pay to Goldman Sachs’ board members. That case ultimately settled – and one of the terms of the settlement was that future claims would be released if shareholders approved the director compensation program in the future.
On Twitter last week, Ann Lipton pointed out that the settlement has now been overturned – as improper for immunizing future compensation arrangements, versus the arrangement that had been challenged.
The part that’s important for anyone structuring compensation arrangements and advising boards is that in its opinion, the Delaware Supreme Court made sure to point out that the Investors Bancorp ratification defense invokes a deferential “business judgment rule” standard of review – but it doesn’t bar claims entirely. Submitting a compensation plan for shareholder ratification gets you a very long way, but you may still have to go to court and make an argument.
– Liz Dunshee