I have written before on the advisability of amending or drafting your stock incentive plan to contain a limit on the number of shares that may be awarded to any non-employee director in any year (see, for example,Recent Court Decisions Concerning Director Compensation” and “Litigation Over Executive and Director Compensation Takes Another Turn for the Worse”), but we are seeing another development on that issue.

I am a member of a group of benefits and compensation practice group heads and senior practitioners in Chicago that meets every month to share information and discuss new issues (known as the “RIPpers” or Retirement Income Planners). Most of the members are also members of the NASPP. Recently, a distinguished practitioner asked whether members of the group were adding “meaningful limits” to their Stock Incentive Plan documents for shareholder approval and, if so, whether we were also including a limit on total director compensation, usually cash (e.g., including annual retainers, meeting fees, etc., not provided through the Stock Plan). Of course, all are adding “meaningful limits” to their Stock Plans, but a few agreed that adding a limit on overall compensation seems to be an evolving best practice.

The reason for this, as you may have guessed, is to reduce risk of lawsuits over non-employee director compensation, which lately have begun to include claims as to the cash component or total amount of the compensation. To repeat my previous entreaties (“Delaware Courts Approve Another Lawsuit Suit Over Director Stock Awards”), if you haven’t already, consider making one or both of these changes before your annual shareholders meeting.