Companies will need to act carefully when creating compensation packages for their directors in order to avoid potential litigation, as demonstrated by a recent Delaware court decision. In Calma v. Templeton, the company’s shareholders claimed that the company’s board of directors unlawfully awarded excessive compensation packages to its eight independent directors in the form of cash and restricted stock units (RSUs). The only limit on compensation imposed by the package was that no director could receive more than one million shares (or RSUs) per calendar year. Based on the company’s stock price, one million RSUs were worth more than $55 million. While the court did not go so far as to hold that the board committed corporate waste, it did hold that the company’s plan established no “meaningful limits” on the compensation packages that directors could receive in any year.
In light of this ruling, companies should carefully review their policies on directors’ compensation and consider whether any actions should be taken to reduce the risk of potential claims.