In Seinfeld v. Slager, the Delaware Chancery Court gave a reduced level of deference to the Republic Services, Inc. board’s decision to grant equity incentive awards to its own members under a shareholder-approved equity incentive plan. As a result, the court denied the defendants’ motion to dismiss the award-related claims. The court emphasized that the plan placed no meaningful limits on the board’s discretion to set and structure the awards, thus making the directors “interested in self-dealing transactions” and barring the application of the deferential business judgment rule to the board’s decision to issue the awards. As a result of this decision, companies may want to revisit the terms of their director equity incentive plans with an eye towards including thoughtful, specific limitations on the board’s discretion to issue awards to directors each year.

The Republic Services, Inc. directors enjoyed broad discretion under the terms of the stock incentive plan, subject only to a maximum of 10.5 million shares that could be issued under the plan and individual annual limits of no more than 2.5 million shares subject to stock options and stock appreciation rights, no more than 1.25 million shares subject to performance shares, restricted stock awards and common shares, and no more than $4 million in grant date value of performance units.

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