We have blogged (incessantly, some would say) on the sudden rash of lawsuits alleging improper or excessive compensation to non-employee directors. Last week, the parties in one of the more prominent shareholder derivative actions in this area, Calma v. Templeton, et. al. (Citrix Systems), reached a settlement of their litigation in the Delaware Chancery Court. Citrix and its board members continued to deny any violations of law or other wrongdoing. However, they decided to settle the litigation to avoid costly and protracted litigation.
Citrix agreed to implement and maintain the follow corporate governance reforms for a period of no less than five years:
Limits on Annual Equity Compensation Grants for Non-Employee Directors. The company agreed to amend its Equity Incentive Plan to cap the grant-date value of the annual equity compensation grant awarded to each non-employee director at no more than $795,000 as of the grant date. The amendment also will specify the types of annual equity compensation grants available to non-employee directors; describe the vesting, exercisability and settlement of those annual equity compensation grants.
Stockholder Approval. The company will submit these amendments to the EIP to stockholders for approval at the 2017 annual stockholder meeting.
Enhanced Disclosures on Director Compensation Practices. The company will provide enhanced disclosures in its proxy statement, beginning in 2017, including, but not limited to: (i) a description of the compensation philosophy and rationale underlying non-employee director compensation; (ii) the process by which decisions were made concerning non-employee director compensation, including the role and analysis of the independent compensation consultant retained by the compensation committee; and (iii) the specific annual awards of non-employee director compensation in that particular year.
Enhanced Mandate for Compensation Committee. The board will amend the compensation committee charter to clarify that the committee is responsible for: (i) conducting an annual review and assessment of all compensation, including cash and equity-based compensation, paid to the non-employee directors by the company; (ii) engaging an independent compensation consultant annually to advise the committee with regard to the cash and equity-based compensation of non-employee directors to be awarded, including with respect to (a) the amount and type of compensation to be paid, and (b) comparative data deemed appropriate by such consultant; and (iii) recommending to the board on the basis of its annual review and assessment the compensation to be awarded to non-employee directors.
Legal Fees. The company will pay $425,000 in fees to plaintiffs’ counsel.
These settlement terms provide a good template for boards to consider in adopting best practices for setting non-employee directors’ compensation.