## Facts

- Investors Bancorp, Inc. completed a mutual-to-stock conversion and proposed a stockholder-approved Equity Incentive Plan (EIP) creating a pool of equity awards for officers, employees, and directors.
- The EIP set overall numerical caps but left the board broad discretion to determine the number, type, and terms of awards after stockholder approval.
- The proxy materials stated that specific awards would not be determined until after stockholder approval.
- Stockholders approved the EIP at the 2015 annual meeting, with more than 96% of voting shares in favor.
- After approval, the compensation committee recommended, and the full board approved, substantial awards to all directors, including themselves.
- Plaintiffs alleged that non-employee directors each received unusually large option and restricted stock grants compared to peer-company director compensation.
- Plaintiffs alleged that the CEO and COO received equity awards valued in the tens of millions of dollars, far exceeding peer compensation and their prior-year pay.
- Plaintiffs alleged the awards were not tied to future performance and instead rewarded past services related to the conversion transaction.
- Stockholders filed a derivative action asserting breach of fiduciary duty and unjust enrichment based on allegedly unfair and excessive self-awards.

## Issues

1. Whether stockholder approval of a discretionary equity incentive plan with general limits ratifies later, specific equity awards that directors grant to themselves, thereby triggering business-judgment review.
2. Whether discretionary director self-awards made under such a plan are subject to entire fairness review when stockholders did not approve the specific award amounts.
3. Whether demand on the board was excused because a majority of directors were interested in, or faced liability from, the challenged self-compensation decisions.

## Decision

- The Delaware Supreme Court reversed the dismissal and remanded.
- Stockholder approval of the EIP’s general parameters did not ratify the directors’ later discretionary self-awards.
- Because the challenged grants were self-interested discretionary acts not specifically approved by stockholders, the claims were subject to entire fairness review if properly pleaded.
- The ratification defense could not support dismissal at the pleading stage where plaintiffs alleged the directors inequitably exercised discretion under the plan.
- Demand was excused because directors who received the awards were interested in the transaction, and a majority faced a substantial likelihood of liability.

## Legal Principles

- Director decisions setting their own compensation are self-interested transactions that, when properly challenged absent specific stockholder approval, are reviewed for entire fairness.
- Stockholder ratification requires approval by fully informed, uncoerced, disinterested stockholders of the specific challenged decision; approval of only a broad framework does not ratify later discretionary self-dealing.
- A “self-executing” compensation plan with fixed award terms can support ratification because stockholders can evaluate the exact compensation being approved.
- A discretionary equity plan that leaves directors free to determine their own awards within general caps does not, without more, shift review to business judgment for later self-awards.
- Demand is excused where a majority of the board is interested in the challenged compensation or faces a substantial likelihood of liability arising from the same compensation program.

## Conclusion

The court held that stockholders’ approval of a discretionary equity plan with general limits did not ratify later director self-awards set through the board’s discretion; accordingly, the challenged grants were subject to entire fairness review and the derivative plaintiffs were excused from making a pre-suit demand.


In re Investors Bancorp, Inc. Stockholder Litig., 177 A.3d 1208 (Del. 2017)