Three Simple Rules for Stress-Free Board Pay

Three Simple Rules for Stress-Free Board PayZoom inDownload PDF

Board pay has always been an interesting — and sometimes uncomfortable — topic for outside directors.

It’s uncommon to set one’s own pay level, and doing so as a steward of a corporation and its shareholders can be uncomfortable. Add to this the December 2017 Investors Bancorp lawsuit — which brought a new challenge to protections under the “business judgement” rule — and a subsequent ruling by the Delaware Supreme Court, and board pay has even the most coolheaded outside directors wringing their hands in anticipation of potential criticisms of their best efforts at getting it right.

We offer here three simple rules for stress-free board pay, even where the long-standing and board-favorable business judgment rule has taken a major hit. By following these rules (which are reflective of leading practice today), outside directors are unlikely to become a target for plaintiffs’ lawyers.

Pay responsibly

Practice great hygiene

Tell your story

Following these simple rules will help protect your board from external challenge. Director pay can
be simple and safe. By establishing clear parameters for director pay, boards can proactively communicate with the external audience the what, how, and why of director pay. And in doing so, boards can protect themselves from potential legal challenge — even where the business judgment rule has been softened by the Investors Bancorp decision.