Settlement of Calma v. Templeton Provides Guidance on Setting Director Pay

In response to recent lawsuits by the plaintiffs’ bar, I have previously posted about why public company employers may wish to consider adding a separate annual limit on non-employee director equity awards. Just last month the Delaware Chancery Court approved a settlement of Calma v. Templeton, a case in which Calma challenged the size of director equity awards granted under Citrix’s shareholder-approved equity compensation plan.  Among other things, the settlement provides what some practitioners believe to be a reasonable framework for structuring director compensation programs on a go-forward basis.  Key provisions of the settlement are as follows:

  • Citrix agreed to amend its equity compensation plan to incorporate a $795,000 cap on the value of equity awards that may be granted to any one non-employee director in any one year.  In addition, Citrix agreed to include the amendment as a proxy proposal at its 2017 annual meeting of shareholders.
  • Beginning in 2017, Citrix agreed to provide enhanced proxy disclosures that describe: (i) the company’s compensation philosophy and rationale underlying the director compensation program; (ii) the process by which decisions concerning non-employee director compensation are made (including a description of the role and analysis provided by the compensation committee’s compensation consultant); and (iii) the specific annual awards granted to the non-employee directors in that particular year.
  • Citrix will amend its compensation committee charter to provide that the compensation committee will be responsible for: (i) conducting an annual review and assessment of all compensation (both cash and equity) paid to each non-employee director; (ii) engaging a compensation consultant to advise the committee relative to the compensation (both cash and equity) that will be paid to non-employee directors, which shall include analysis as to the amount and type of compensation paid and comparative data deemed appropriate by such consultant.
  • Payment by Citrix of $425,000 in legal fees and expenses to counsel for Calma.

Although many public companies already follow a process similar to the process set forth above, some companies (including new public companies) do not.  Accordingly, public companies may wish to review the Calma v. Templeton settlement and compare their processes for establishing director compensation to those described in the settlement.

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