Wednesday’s Blog Settlement of Lawsuit over Director Compensation Offers Useful Guidance triggered several questions on best practices for setting director compensation. By coincidence, this month we officially begin to prepare for setting 2017 compensation and the 2017 proxy season, including board and compensation committee meetings. During one of these meetings, executive compensation professionals should consider discussing the evolving best practices in director compensation (if such discussion has not already occurred). Your directors are almost certainly reading about these issues in publications and articles targeted to directors. And, as this Blog has been discussing for years, plaintiffs’ lawyers have found litigation over directors’ compensation to be much more profitable than litigation over executives’ pay (because the board’s decisions over executive pay are protected by the business judgment rule, which may not be available to “interested” directors setting their own pay).

Among the evolving best practices we have in mind are as follows:

Independent Review. If the board has not done so recently, it should request—or have the company request—a review the boards’ compensation by a consultant not retained by the board. Independent review should alert the board to any anomalies and make it easier to defend the board compensation levels. Read More