Yet Another Reason to Consider Separate Annual Limits on Director Equity Awards

Greg Gautam • June 18, 2015

As reported in a prior blog post , public company employers that are adopting or amending equity-based compensation plans should consider adding a separate annual limit on director equity awards.  In a recent Delaware Chancery Court opinion ( Calma v. Templeton ), the Chancery Court refused to grant the board of directors of Citrix Systems, Inc. the protection afforded by the business judgment rule when they approved equity awards to themselves under the Company’s 2005 shareholder-approved equity compensation plan. The Chancery Court’s failure to review the director equity awards using the business judgment rule meant that the shareholder derivative action in Calma could proceed to trial under a more plaintiff-friendly “entire fairness” standard of review.

The equity compensation plan at issue provided that the maximum number of shares that could be awarded to any one participant (including any director) at any given time under the plan was 1,000,000. The plan did not impose a separate sublimit on director equity awards and, based on Citrix’s stock price at the time plaintiffs brought suit in Calma , the Chancery Court noted that the board could have awarded each director $55,000,000 worth of restricted stock unit awards.

In reaching its decision, the Court drew upon the principles set forth in its 2012 ruling in Seinfeld v. Slager.  Even though the Citrix equity plan was approved by the Citrix shareholders, Citrix did not ask its shareholders to take “any action bearing specifically on the magnitude of compensation for the Company’s non-employee directors.” The Citrix equity plan did not set forth any “director-specific ceilings” on the amounts the directors could receive under the equity plan independent from the generic annual limits applicable to other equity plan participants.  In light of Seinfeld v. Slager and this more recent decision in Calma v. Templeton, employers interested in the deferential standard or review afforded by the business judgment rule may wish to consider (1) adding a separate, meaningful annual limit for director equity awards, and (2) asking the shareholders to approve the director-specific limit.

Employee burnout: what it is and how to prevent it

By Mardy Gould • May 24, 2024
Employee burnout has become an epidemic in today’s modern workplace. So much so that the World Health Organization (WHO) officially recognizes it as an “occupational phenomenon.”1 While many used to consider mounting workplace stress an individual employee problem, these days, it’s become an employer’s responsibility to prevent burnout before it hurts productivity and business performance—not to mention your employees’ physical and mental health. Luckily, you can prevent burnout from affecting your workforce in several ways. This article will explore the causes and signs of employee burnout and the steps you can take to create a positive work environment where employees feel safe from toxic stress levels.

Form 720 and PCORI fee FAQs

By Mardy Gould • May 23, 2024
If you're a small business owner, you may have heard of the acronym PCORI and the fees that come with it. But what is PCORI, and how does it apply to your organization? Under the Affordable Care Act (ACA), sponsors of self-insured health plans must pay a fee to fund the federal Patient-Centered Outcomes Research Institute (PCORI). PCORI is an independent organization the ACA created to conduct research to help healthcare consumers make better decisions for their specific needs and outcomes. It also performs research related to clinical effectiveness. Employers offering a self-insured medical reimbursement health plan, such as a health reimbursement arrangement (HRA), must pay this fee by July 31 each year via Form 7201. This fee was initially set to expire in 2019, but Congress extended it through September 30, 20292, due to the Further Consolidated Appropriations Act of 20203.
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