Executive compensation decisions are core functions of a board
of directors and, absent unusual circumstances, are protected by
the business judgment rule. As Delaware courts have
repeatedly recognized, the size and structure of executive
compensation are inherently matters of business judgment, and so,
appropriately, directors have broad discretion in their executive
compensation decisions. In light of the broad deference given
to directors' executive compensation decisions, courts rarely
second-guess those decisions. That is particularly so when
the board or committee setting executive compensation retains and
relies on the advice of an independent compensation consultant.
Nevertheless, despite the high hurdle to challenging
compensation packages, shareholder plaintiffs continue to
aggressively challenge executive compensation decisions, in
particular at companies that have performed poorly and received
negative or low say-on-pay advisory votes.
