This Executive Compensation Blog recently posted on the proposed settlement of a lawsuit (Solak v. Barrett, et. al.) alleging that the directors of Clovis Oncology breached of their fiduciary duties and wasted corporate assets by paying themselves excessive compensation. Here, we will note a second proposed settlement and emphasize the importance of this issue.

Similar claims were made against the directors of OvaScience, Inc. in Fulton v. Dipp, et. al., and a similar settlement has been proposed. As with the settlement in Solak, the Fulton settlement would require the OvaScience Board to take certain “corrective action” and adopt certain “corporate governance reforms,” including submitting a binding proposal to approve a new director compensation plan to stockholders at the company’s next annual meeting.

However, the proposed settlement in Fulton is even stricter than that in Solak. The director compensation program that OvaScience must submit to stockholders would limit total annual compensation payable to incumbent non-employee directors to $300,000, including all cash, equity awards, and fees awarded for board and committee service. Recall that the Clovis Oncology settlement allowed annual compensation between $350,000 and $425,000 and additional fees for committee membership and chairmanship.

We have been posting on the litigation risk posed by Director compensation since August 2012. Sadly (amazingly?), some Boards/Companies still seem not to have received the message (one has to wonder who or where are their lawyers?). So we will say it again: Any company/board that does not have its act together on director pay is asking for a lawsuit.