December 22, 2017Alerts

The Delaware Supreme Court Eliminates the Defense of Stockholder Ratification to Director Compensation Decisions Made Pursuant to Discretionary Equity Incentive Plans

In its December 2017 decision, In re Investors Bancorp, Inc. Stockholder Litigation, the Delaware Supreme Court revived claims challenging director compensation decisions a board made pursuant to a stockholder-approved, discretionary equity incentive plan that included beneficiary-specific limits. In reversing the Court of Chancery’s decision to dismiss those claims, the court held: “[W]hen it comes to the discretion directors exercise following stockholder approval of an equity incentive plan, ratification cannot be used to foreclose the Court of Chancery from reviewing those further discretionary actions when a breach of fiduciary duty claim has been properly alleged.”3 In so holding, the Supreme Court uprooted a nearly 20 year-old line of Court of Chancery precedents that have recognized the ratification defense as a bar to claims against directors for compensation decisions made pursuant to an equity plan that meaningfully cabins their discretion.