Recent Case Law Suggests Corporations Should Implement Limits on Director Equity Awards

By on September 8, 2015

Recent case law suggests that corporations should consider implementing limits on director equity awards similar to those implemented for executives. The current practice is to include director equity awards in stockholder approved “omnibus” stock plans that also cover executive officers and key employees. However, unlike for certain executives, there are no regulatory requirements regarding limits on directory equity compensation.

Two recent cases brought by shareholders arguing that corporations essentially overpaid their directors are leading companies to revisit the practice of not having any limits on director equity compensation. Both cases survived motions to dismiss; one case is settled while the other remains active. In an article published by Bloomberg BNA, Andrew C. Liazos, partner at McDermott Will & Emery, noted that additional cases are being filed regarding director compensation using a variety of state corporate law claims.

Given the case law and threat of additional litigation, corporations should begin designing limits for director equity compensation. For more discussion on this topic, read the attached presentation co-authored by Mr. Liazos.

Andrew Liazos
Andrew C. Liazos heads the Firm's Executive Compensation Group and the Boston Employee Benefits Practice. Andrew focuses his practice on compensation and benefit matters, including related securities, M&A, IPO, private equity, international and litigation matters. Clients range from Fortune 500 companies to compensation committees to individual executives in employment and severance negotiations. Read Andrew Liazos' full bio.