## Facts

- Eleanor M. Wilderman (50% stockholder) brought a derivative action and related individual claims against Joseph M. Wilderman (president, director, 50% stockholder, and former husband) and Marble Craft Company, Inc., a closely held Delaware corporation.
- The parties jointly founded the business, incorporated it in 1961, and each held one-half of the outstanding shares; Joseph primarily managed operations and business development, while Eleanor performed bookkeeping and office work.
- After the marriage broke down, the two director-stockholders became deadlocked, including over Joseph’s compensation.
- By April 1971, the board had authorized Joseph’s salary only up to $400 per week ($20,800 per year) and could not agree on any increase.
- Despite the deadlock, Joseph caused the corporation to pay him substantially more than the authorized level, including:
  - Fiscal 1971: $20,800 salary plus a $71,738.71 bonus (about $92,538.71 total).
  - Fiscal 1972: $35,000.
  - Fiscal 1973: $86,893.40.
- During the same period, Eleanor received about $7,800 per year for her work.
- Eleanor sought restitution to the corporation of allegedly excessive and unauthorized compensation, adjustments to pension-plan contributions tied to the challenged pay, injunctive limits on unilateral disbursements or asset transfers, and continuation of a court-appointed custodian due to corporate deadlock under 8 Del. C. § 226.
- Evidence included expert testimony that reasonable compensation for Joseph’s services was about $25,000–$35,000 annually and that tax authorities had disallowed part of the corporation’s salary deduction as excessive.

## Issues

1. Whether a director-officer was authorized to pay himself compensation above the maximum salary approved by the board when the board was deadlocked.
2. Whether the amounts paid to the director-officer for fiscal years 1971–1973 constituted reasonable compensation or excessive, recoverable payments.
3. Who bears the burden of proving reasonableness when the director-recipient’s vote was necessary to set his compensation.
4. What equitable relief was appropriate, including repayment to the corporation, pension-plan restoration, and custodianship-related relief, and whether marital-property counterclaims should be decided in the corporate case.

## Decision

- The Court of Chancery held that Joseph lacked corporate authorization to pay himself above the compensation level the board had approved during the deadlock.
- Because Joseph’s own vote was necessary to fix his compensation, the court placed the burden on him to prove the reasonableness of the amounts paid.
- The court found Joseph’s total compensation excessive for fiscal 1971 and fiscal 1973, but left the fiscal 1972 compensation undisturbed as reasonable.
- The court set reasonable compensation at $45,000 for fiscal 1971 and fiscal 1973 and ordered Joseph to repay the excess (totaling $89,431.40) to the corporate treasury with interest.
- The court required restoration of corresponding excess pension-plan contributions attributable to the excessive compensation.
- The court treated the repaid sums as corporate profits available for dividend distribution in the ordinary course and addressed custodianship in light of ongoing deadlock, while declining to resolve certain marital-property-type counterclaims in the corporate proceeding.

## Legal Principles

- When a director’s vote is necessary to fix his own compensation, the director bears the burden to prove that the compensation is reasonable due to the fiduciary duties owed to the corporation and its stockholders.
- Courts give more deference to executive compensation set by a disinterested board; stricter scrutiny applies when the recipient effectively sets his own pay.
- Reasonableness of compensation may be evaluated by multiple considerations, including comparable compensation, the executive’s ability and services, company performance, prior compensation levels, the relationship between pay and services rendered, internal pay comparisons, and tax treatment of the compensation.
- Payments of excessive and unauthorized compensation may be recovered in equity for the corporation, and related benefit-plan contributions tied to the improper payments may also be restored.

## Conclusion

The Court of Chancery held that a director who unilaterally increased his own compensation during a board deadlock had to prove reasonableness, ordered repayment of compensation deemed excessive for two fiscal years with interest, required restoration of related pension contributions, and treated the recovery as corporate profit rather than a direct allocation between the former spouses.


Wilderman v. Wilderman, 315 A.2d 610 (Del. Ch. 1974)