In a Dec. 19, 2017, decision, In re Investors Bancorp Stockholder Litigation, No. 169, 2017 (Del. Dec. 19, 2017), the Delaware Supreme Court considered the limits of a stockholder ratification defense when directors make equity awards to themselves under an equity incentive plan or “EIP.” Justice Collins J. Seitz Jr. wrote for a unanimous court that when “stockholders did not ratify the specific awards the directors made under the EIP,” and instead ratified only “general parameters” for director compensation, the proper standard for review of those awards is entire fairness. As the Supreme Court itself acknowledged, this was the first time it addressed ratification of director self-compensation decisions since its 1952 decision in Gottlieb v. Heyden Chemical, 90 A.2d 660 (Del. 1952).

In 2015, the board of directors of Investors Bancorp, Inc. proposed an EIP, pursuant to which the company reserved shares of common stock for various types of stock awards to the company’s officers, employees, and directors. In particular, the EIP provided that nonemployee directors could, in the aggregate, receive a maximum of “30 percent of all option or restricted stock shares available for awards, all of which may be granted in any calendar year.” However, the EIP provided that the exact terms of the awards would not be determined until after stockholders approved the EIP, and would be subject to the discretion of the board’s compensation committee. The EIP was approved by 96.25 percent of voting shares at the company’s 2015 annual meeting. Soon thereafter, the compensation committee approved equity awards to all board members, with the awards to nonemployee directors totaling over $21.5 million and averaging over $2 million per director, which allegedly far surpassed the $198,000 median pay for non-employee directors at similarly sized companies.