Does A Director Have A Contractual Right To Compensation?

Yesterday, I wrote about stockholder challenges to director compensation.  Today’s post considers what happens when a director joins a board.  When someone is invited to join a board, she may ask about compensation.  The company may refer the candidate to the disclosure regarding compensation in the company’s proxy statement.  When the candidate agrees to join the board, does that create a contract?

It so happens that this precise issue was litigated a few years back in Race v. Bally Techs., Inc., 2008 U.S. Dist. LEXIS 98362 (N.D. Cal. Nov. 25, 2008).  The defendant in that case was a Nevada corporation and it argued that the unpaid director could not pursue a breach of contract claim because NRS 78.140 (which was discussed in yesterday’s post) vests the board of directors with the authority to determine director compensation.

Judge Claudia Ann Wilkin noted that neither party had cited “any case brought by a corporate director to recover compensation he or she claimed was owed in exchange for his or her service on the board.”  Thus, she turned to ordinary principles of California contract law.   Why is a bit of a mystery because the defendant was incorporated in Nevada and Judge Wilkin provided no choice of law analysis.  In any event, she found that nothing in her analysis of California contract law to be repugnant to Nevada law.

Board resolutions don’t usually provide the same degree of specificity of a written agreement.  Thus, it is not surprising that the parties disputed the terms of the contract.  The plaintiff argued that options granted at the annual stockholders’ meeting were compensation for service in the prior year while the corporation argued that they were compensation for the ensuing year.  Judge Wilkin didn’t decide this issue because she was ruling on motions for summary judgment.  Thus, her decision was limited to whether there was a triable issue of fact (she found that there was).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Allen Matkins Leck Gamble Mallory & Natsis LLP | Attorney Advertising

Written by:


Allen Matkins Leck Gamble Mallory & Natsis LLP on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.