In the last few years, Delaware courts have issued several rulings in lawsuits involving complaints of excessive compensation to non-employee directors . The takeaways from these cases can be summarized as follows:
The remainder of this article breaks down these proposed action items in greater detail.
Annual Review of Director Compensation by the Compensation Committee
Meaningful Shareholder Approved Limit on Director Compensation
Disclosing Director Compensation
Sample Director Compensation Limit in Equity/Incentive Plan
"The maximum number of shares of stock subject to stock awards granted under the Plan or otherwise during any one fiscal year to any non-employee director, taken together with any cash fees paid by the Company to such non-employee director during such fiscal year for service as an non-employee director, will not exceed $[____] in total value (calculating the value of any such awards based on the grant date fair value of such awards for financial reporting purposes), including for this purpose, the value of any stock awards that are received in lieu of all or a portion of any annual committee cash retainers or other similar cash based payments and excluding, for this purpose, the value of any dividend equivalent payments paid pursuant to any stock award granted in a previous fiscal year."
Sample Director Compensation Disclosure in Proxy
"Decisions regarding our non-employee director compensation program are approved by our full board of directors based on recommendations by our compensation committee. In making such recommendations, our compensation committee takes into consideration the director compensation practices of peer companies and whether such recommendations align with the interests of our shareholders.
Like our executive officers, our compensation committee reviews the total compensation of our non-employee directors and each element of our director compensation program annually. At the direction of our compensation committee, [INSERT NAME OF COMPENSATION CONSULTANT] annually analyzes the competitive position of the Company's director compensation program against the peer group used for executive compensation purposes (see page [__] for information about the peer group) and examines how each element of our director compensation program compares to members of the peer group. Total non-employee director compensation is targeted at the median of peer group total director compensation.
[INSERT NAME OF COMPENSATION CONSULTANT]'s analysis in [INSERT DATE] showed that overall compensation for non-employee directors was [around/below] the peer group average and median, though [INSERT COMPONENT] was [above/below] the peer group average and median. [INSERT ADDITIONAL FINDINGS.] As a result, our compensation committee recommended, and our board of directors approved, the following changes to our director compensation program for fiscal [INSERT YEAR] to achieve an overall compensation structure in line with the median of the peer group [and to [INSERT ANY ADDITIONAL REASONS FOR CHANGES]]: [INSERT CHANGES]."
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 See for example: Calma v. Templeton, 114 A.3d 563 (Del. Ch. 2015) and Seinfeld v. Slager, 2012 Del. Ch. LEXIS 139 (Del. Ch. 2012) and Espinoza v. Zuckerberg, (124 A.3d 47 (Del. Ch. 2015).
 A company could also gain the protection of the business judgement rule for its director compensation program, if its shareholders approve the terms of the program itself. However, any subsequent material increases in director compensation would need to be approved by shareholders to retain the protection of the business judgement rule. By adopting a maximum limit, a company has more flexibility to adjust the amounts of director compensation that it pays, provided such amounts do not exceed the limit. Based on current market practice, we suggest including some multiple of the median of total director compensation paid by peer companies.