On March 6, 2019, the parties in In re Investors Bancorp Stockholder Litigation filed a Stipulation and Agreement of Compromise, Settlement and Release (settlement agreement) with the Delaware Chancery Court that would settle the derivative action filed in 2016 by certain stockholders of Investors Bancorp, Inc., claiming that the board of directors breached their fiduciary duties and were unjustly enriched by granting themselves excessive equity compensation in the form of stock options and restricted stock units (RSUs).

In 2015, the board of directors of Investors Bancorp adopted an equity incentive plan, which was approved by the company's stockholders at the subsequent annual meeting. The plan included a limit on the total number of common shares that would be reserved for equity awards granted under the plan and further limits, including a limit on the maximum number of shares that could be issued to non-employee directors. The stockholders were informed in the proxy statement that the number, types, and terms of awards to be made under the plan would be subject to the discretion of the board's compensation committee and would not be determined until after the stockholder vote.

Shortly after the stockholder vote, the directors of Investors Bancorp granted themselves equity compensation under the plan in the form of stock options and RSUs with an aggregate value of over $51.65 million (the 2015 Equity Awards).

In June 2016, the plaintiff stockholders brought a derivative action, claiming that the equity compensation far exceeded director pay at every peer firm and the directors' own prior compensation, and, contrary to disclosure in the proxy statement, rewarded the directors' past and not future performance. The plaintiffs sought:

In April 2017, the Delaware Chancery Court, following its own precedent, granted the directors' motion to dismiss the complaint ( (Del. Ch. Apr. 5, 2017)). The Chancery Court ruled that the equity incentive plan as submitted to the stockholders contained "meaningful limits" on the compensation that directors could award themselves, thereby entitling their decisions to deference under the business judgment standard of review rather than the more stringent entire fairness standard.

On appeal, the Delaware Supreme Court reversed the Chancery Court's decision and remanded it back to the Chancery Court for further proceedings (177 A.3d 1208 (Del. 2017)). The Supreme Court rejected the Chancery Court's distinction between meaningful limits and generic limits in equity incentive plans, instead holding that discretionary decisions by directors to award themselves compensation under an equity incentive plan previously approved by stockholders are reviewable for their entire fairness when the plaintiff stockholders properly allege breach of fiduciary duty, regardless of any meaningful limits on awards built into the plan. For more information on the Delaware Supreme Court's decision and a discussion of prior Chancery Court precedent, see Legal Update, In re Investors Bancorp: Delaware Supreme Court Overturns Chancery Court Precedent on Director Compensation Review.

Following the Delaware Supreme Court's decision, the parties engaged in two mediation sessions and reached a settlement in December 2018.

Under the settlement agreement, the parties agree that:

The parties also agree to a mutual release of claims related to the 2015 Equity Awards and certain compensation paid in 2014 and 2015.

A copy of the fully executed settlement agreement was filed with the Delaware Chancery Court on March 6, 2019. The settlement required court approval, and a hearing on the matter was held on May 23, 2019. The Chancery Court issued an order and final judgment approving the settlement on June 21, 2019.

The Investors Bancorp case is significant for boards adopting equity incentive plans. While it remains a best practice to build meaningful limits on director compensation into shareholder-approved plans, doing so will not insulate the board's decisions from scrutiny under the entire fairness standard if awards are so out of line with peer compensation or the company's prior practice as to raise a reasonable inference of breach of fiduciary duty. These inferences can also be raised if the board's process is materially weak or the disclosure to shareholders is materially inaccurate or misleading.