IN THE SUPREME COURT OF THE STATE OF DELAWARE 

IN RE INVESTORS BANCORP, § 

INC. STOCKHOLDER § No. 169, 2017 

LITIGATION § 

 § Court Below – Court of Chancery 

 § of the State of Delaware 

 § 

 § C.A. No. 12327-VCS 

 § 

 

 Submitted: October 4, 2017 

 Decided: December 13, 2017 

Before STRINE, Chief Justice; VALIHURA, VAUGHN, SEITZ, and 

TRAYNOR, Justices. 

Upon appeal from the Court of Chancery: REVERSED and REMANDED. 

Steve J. Purcell, Esquire (Argued), Purcell Julie & Lefkowitz LLP, New York, New 

York; David A. Jenkins, Esquire, Neal C. Belgam, Esquire, and Clarissa R. 

Chenoweth, Esquire, Smith Katzenstein & Jenkins LLP, Wilmington, Delaware, for 

Plaintiffs-Below, Appellants Robert Elburn and Dieter Soehnel. 

Kenneth J. Nachbar, Esquire (Argued) and Zi-Xiang Shen, Esquire, Morris, Nichols, 

Arsht & Tunnell LLP, Wilmington, Delaware, for Defendants-Below, Appellees 

Robert C. Albanese, Dennis M. Bone, Doreen R. Byrnes, Domenick A. Cama, 

Robert M. Cashill, William V. Cosgrove, Kevin Cummings, Brian D. Dittenhafer, 

Brendan J. Dugan, James J. Garibaldi, Michele N. Siekerka, and James H. Ward III, 

and Nominal Defendant-Below, Appellee Investors Bancorp, Inc. 

 
2 

SEITZ, Justice: 

 In this appeal we consider the limits of the stockholder ratification defense 

when directors make equity awards to themselves under the general parameters of 

an equity incentive plan. In the absence of stockholder approval, if a stockholder 

properly challenges equity incentive plan awards the directors grant to themselves, 

the directors must prove that the awards are entirely fair to the corporation. But, 

when the stockholders have approved an equity incentive plan, the affirmative 

defense of stockholder ratification comes into play. Stated generally, stockholder 

ratification means a majority of fully informed, uncoerced, and disinterested 

stockholders approved board action, which, if challenged, typically leads to a 

deferential business judgment standard of review. 

For equity incentive plans in which the award terms are fixed and the directors 

have no discretion how they allocate the awards, the stockholders know exactly what 

they are being asked to approve. But, other plans—like the equity incentive plan in 

this appeal—create a pool of equity awards that the directors can later award to 

themselves in amounts and on terms they decide. The Court of Chancery has 

recognized a ratification defense for such discretionary plans as long as the plan has 

“meaningful limits” on the awards directors can make to themselves.1

 If the 

 

1 Seinfeld v. Slager, C.A. No. 6462-VCG, 2012 WL 2501105, at *11–12 (Del. Ch. June 29, 

2012). 
3 

discretionary plan does not contain meaningful limits, the awards, if challenged, are 

subject to an entire fairness standard of review. 

Stockholder ratification serves an important purpose—directors can take selfinterested action secure in the knowledge that the stockholders have expressed their 

approval. But, when directors make discretionary awards to themselves, that 

discretion must be exercised consistent with their fiduciary duties. Human nature 

being what it is,2

 self-interested discretionary acts by directors should in an 

appropriate case be subject to review by the Court of Chancery. 

We balance the competing concerns—utility of the ratification defense and 

the need for judicial scrutiny of certain self-interested discretionary acts by 

directors—by focusing on the specificity of the acts submitted to the stockholders 

for approval. When the directors submit their specific compensation decisions for 

approval by fully informed, uncoerced, and disinterested stockholders, ratification 

is properly asserted as a defense in support of a motion to dismiss. The same applies 

for self-executing plans, meaning plans that make awards over time based on fixed 

criteria, with the specific amounts and terms approved by the stockholders. But, 

when stockholders have approved an equity incentive plan that gives the directors 

 

2 Gottlieb v. Heyden Chem. Corp., 90 A.2d 660, 663 (1952) (“Human nature being what it is, the 

law, in its wisdom, does not presume that directors will be competent judges of the fair treatment 

of their company where fairness must be at their own personal expense. In such a situation the 

burden is upon the directors to prove not only that the transaction was in good faith, but also that 

its intrinsic fairness will withstand the most searching and objective analysis.”). 
4 

discretion to grant themselves awards within general parameters, and a stockholder 

properly alleges that the directors inequitably exercised that discretion, then the 

ratification defense is unavailable to dismiss the suit, and the directors will be 

required to prove the fairness of the awards to the corporation. 

Here, the Equity Incentive Plan (“EIP”) approved by the stockholders left it 

to the discretion of the directors to allocate up to 30% of all option or restricted stock 

shares available as awards to themselves. The plaintiffs have alleged facts leading 

to a pleading stage reasonable inference that the directors breached their fiduciary 

duties by awarding excessive equity awards to themselves under the EIP. Thus, a 

stockholder ratification defense is not available to dismiss the case, and the directors 

must demonstrate the fairness of the awards to the Company. We therefore reverse 

the Court of Chancery’s decision dismissing the complaint and remand for further 

proceedings consistent with this opinion. 

I. 

 According to the allegations of the complaint, which we must accept as true 

at this stage of the proceedings,3

 the plaintiffs are stockholders of Investors Bancorp, 

Inc. (“Investors Bancorp” or the “Company”) and were stockholders at the time of 

 

3 In re Gen. Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (“In deciding a motion 

to dismiss under Rule 12(b)(6), a trial court must accept as true all of the well-pleaded allegations 

of fact and draw reasonable inferences in the plaintiff’s favor.”). 
5 

the awards challenged in this case. The defendants fall into two groups—ten nonemployee director defendants4

 and two executive director defendants.5 Investors 

Bancorp, the nominal defendant, is a Delaware corporation with its principal place 

of business in Short Hills, New Jersey. Investors Bancorp is a holding company for 

Investors Bank, a New Jersey chartered savings bank with corporate headquarters in 

Short Hills, New Jersey. The Company operates 143 banking branches in New 

Jersey and New York. In 2014, after a mutual-to-stock conversion,6

 Investors 

Bancorp conducted a second-step offering to the public, which is when the plaintiffs 

acquired their shares. In this second-step offering, the Company sold 219,580,695 

shares and raised about $2.15 billion. 

 The board sets director compensation based on recommendations of the 

Compensation and Benefits Committee (“Committee”), composed of seven of the 

ten non-employee directors. In 2014, the non-employee directors were compensated 

by (i) a monthly cash retainer; (ii) cash awards for attending board and board 

 

4

 Robert C. Albanese, Dennis M. Bone, Doreen R. Byrnes, Robert M. Cashill, William V. 

Cosgrove, Brian D. Dittenhafer, Brendan J. Dugan, James J. Garibaldi, Michele N. Siekerka, and 

James H. Ward III. 

5

 Kevin Cummings, the Company’s President and CEO, and Domenick A. Cama, the Company’s 

COO and Senior Executive Vice President. 

6

 In May 2014, a mutual-to-stock conversion transformed Investors Bank from a two-tier mutual 

holding company into a fully public stock holding company. App. to Opening Br. at 29 (Compl., 

In re Investors Bancorp, Inc. Stockholder Litig., No. 12327-VCS, ¶ 29 (Del. Ch. June 7, 2016)). 

Through the conversion, MHC, Old Investors Bancorp’s parent company, merged into Old 

Investors Bancorp, which merged into Investors Bancorp—the Company that is the subject of this 

suit. Id. Old Investors Bancorp shares not held by MHC were converted into Investors Bancorp 

shares, and the common shares of MHC were sold. Id.
6 

committee meetings; and (iii) perquisites and personal benefits. The chairman of 

each committee received an additional annual retainer. As the Court of Chancery 

noted, the annual compensation for all non-employee directors ranged from $97,200 

to $207,005, with $133,340 as the average amount of compensation per director: 

Name 

Investors 

Bancorp 

Cash Fees 

Bank Cash 

Fees 

All Other 

Compensation Total 

Albanese $56,500 $73,200 $343 $130,043 

Bone $37,500 $73,200 $264 $110,964 

Byrnes $59,500 $73,200 $9,898 $142,598 

Cashill $48,000 $146,400 $12,605 $207,005 

Cosgrove $24,000 $73,200 $32,970 $130,170 

Dittenhafer $59,500 $73,200 $13,392 $146,092 

Dugan $45,000 $73,200 - $118,200 

Garibaldi $24,000 $73,200 - $97,200 

Siekerka $45,000 $73,200 $230 $118,430 

Ward $59,500 $73,200 - $132,700 

Total $1,333,402 

In 2014, Cummings, the Company’s President and CEO, received (i) a 

$1,000,000 base salary; (ii) an Annual Cash Incentive Award of up to 150% of his 

base salary contingent on certain performance goals; and (iii) perquisites and 

benefits valued at $278,400, which totaled $2,778,700. Cama, the Company’s COO 

and Senior Executive Vice President, received annual compensation consisting of 

(i) a $675,000 base salary; (ii) an Annual Cash Incentive Award of up to 120% of 
7 

his base salary; and (iii) perquisites and benefits valued at $180,794, which totaled 

$1,665,794.7

 At the end of 2014, following completion of the conversion plan, the 

Committee met to review 2014 director compensation and set compensation for 

2015. Gregory Keshishian, a compensation consultant from GK Partners, Inc., 

presented to the board a study of director compensation for eighteen publicly held 

peer companies. According to the study, these companies paid their non-employee 

directors an average of $157,350 in total compensation. The Company’s $133,340 

average non-employee director compensation in 2014 fell close to the study average. 

Following the presentation, the Committee recommended to the board that the nonemployee director compensation package remain the same for 2015. The only 

change was to increase the fees paid for attending committee meetings from $1,500 

to $2,500. 

 The Committee also reviewed the compensation package for executive 

officers. After GK Partners reviewed peer-average figures with the committee, the 

committee unanimously recommended no changes to Cummings’ or Cama’s annual 

salary, but recommended an increase in the 2015 Annual Cash Incentive Award from 

 

7

 App. to Opening Br. at 30–34 (Compl. ¶¶ 32–40). 
8 

150% to 200%, and 120% to 160% of their base salaries, respectively.8

 The 

Committee did not discuss any additional equity awards at the December or February 

meetings. 

 Just a few months after setting the 2015 board compensation, in March, 2015, 

the board proposed the 2015 EIP. The EIP was intended to “provide additional 

incentives for [the Company’s] officers, employees and directors to promote [the 

Company’s] growth and performance and to further align their interests with those 

of [the Company’s] stockholders . . . and give [the Company] the flexibility [needed] 

to continue to attract, motivate and retain highly qualified officers, employees and 

directors.”9

 The Company reserved 30,881,296 common shares for restricted stock 

awards, restricted stock units, incentive stock options, and non-qualified stock 

options for the Company’s 1,800 officers, employees, non-employee directors, and 

service providers. The EIP has limits within each category. Of the total shares, a 

maximum of 17,646,455 can be issued for stock options or restricted stock awards 

 

8

 App. to Opening Br. at 38 (Compl. ¶ 54). The Committee did not define the precise performance 

metrics that would be used to set the Annual Cash Incentive Award percentage Cummings or Cama 

would receive, noting only that receiving the full amount would “entail a significant degree of 

challenge.” Id. at 39 (Compl. ¶ 57). The metrics were later determined at the February 23, 2015 

Committee meeting and included net income, successful conversion of the core operating system, 

and certain personal goals. Id. at 40 (Compl. ¶ 59). 

9 Id. at 328 (Investors Bancorp, Inc., Proxy Statement for the 2014 Annual Meeting of 

Stockholders, at 40 (June 9, 2015) [hereinafter 2014 Proxy])). 
9 

and 13,234,841 for restricted stock units or performance shares. Those limits are 

further broken down for employee and non-employee directors: 

 A maximum of 4,411,613 shares, in the aggregate (25% of the 

shares available for stock option awards), may be issued or delivered 

to any one employee pursuant to the exercise of stock options; 

 A maximum of 3,308,710 shares, in the aggregate (25% of the 

shares available for restricted stock awards and restricted stock 

units), may be issued or delivered to any one employee as a 

restricted stock or restricted stock unit grant; and 

 The maximum number of shares that may be issued or delivered to 

all non-employee directors, in the aggregate, pursuant to the 

exercise of stock options or grants of restricted stock or restricted 

stock units shall be 30% of all option or restricted stock shares 

available for awards, “all of which may be granted in any calendar 

year.”10

 According to the proxy sent to stockholders, “[t]he number, types and terms 

of awards to be made pursuant to the [EIP] are subject to the discretion of the 

Committee and have not been determined at this time, and will not be determined 

until subsequent to stockholder approval.”11 At the Company’s June 9, 2015 annual 

meeting, 96.25% of the voting shares approved the EIP (79.1% of the total shares 

outstanding).12

 

10 In re Investors Bancorp, Inc. Stockholder Litig., C.A. No. 12327-VCS, 2017 WL 1277672, at 

*4 (Del. Ch. Apr. 5, 2017) (quoting App. to Answering Br. at 351 (2014 Proxy, at 72 § 3.3). 

11 App. to Answering Br. at 336 (2014 Proxy, at 46). 

12 In re Investors Bancorp, Inc. Stockholder Litig., 2017 WL 1277672, at *4. 
10 

 Three days after stockholders approved the EIP, the Committee held the first 

of four meetings and eventually approved awards of restricted stock and stock 

options to all board members. According to the complaint, these awards were not 

part of the final 2015 compensation package nor discussed in any prior meetings.13 

The first meeting took place on June 12, 2015. The Committee met with Cummings, 

Cama, Keshishian (the compensation consultant), and representatives from Luse 

Gorman (outside counsel) “to begin the process of determining the allocation of 

shares.”14 

At the second meeting on June 16, 2015, the Committee met with Keshishian, 

the Luse Gorman representatives, and the full board except Siekerka and Ward, to 

“gather input” from outside experts and Committee members.15 They considered a 

list of the stock options and awards granted by the 164 companies that underwent 

mutual-to-stock conversions in the last twenty years.16 Luse Gorman presented an 

analysis of these companies, selected “based on the size of the company and the size 

of the equity sold in the second step offering, and the size of the equity plan.”17 The 

complaint alleges that the first two are arbitrary and the third is “a textbook example 

 

13 App. to Opening Br. at 41, 45–46 (Compl. ¶ 61, 27–29 ¶ 72). 

14 Id. at 46 (Compl. ¶ 73). It is unclear when these meetings were planned; but as of the first 

meeting, the three future meetings had already been scheduled. Id. 

15 Id. at 47 (Compl. ¶ 75). 

16 Id. 17 Id. at 73 (Compl. ¶ 120). 
11 

of results driven by self-selection bias.”18 The plaintiffs also claim that Luse 

Gorman did not compare five other companies on the list that met the criteria and 

had more recently undergone conversions—each of which granted significantly 

lower awards.19 

At the third meeting on June 19, 2015, the Committee met with Cummings, 

Cama, Keshishian, and the representatives from Luse Gorman “to have a thorough 

discussion of all the major decisions” regarding the allocation of shares.20 They 

analyzed the circumstances surrounding the peer companies’ awards and discussed 

the EIP, noting the stockholders’ authorization of director awards of up to 30% of 

the EIP’s restricted stock options.21 Cama proposed and the attendees approved the 

specific awards—including those to Cama and Cummings.22 According to the 

plaintiffs, however, the 2016 Proxy disclosed that Cummings and Cama did not 

attend meetings when their “compensation is being determined.”23 The Committee 

held a fourth and final meeting on June 23, 2015 when the entire board, after hearing 

from Keshishian and the Luse Gorman representatives, “approve[d] all the 

 

18 Id. at 47 (Compl. ¶ 75). 

19 Id. at 71–74 (Compl. ¶¶ 117–22). 

20 Id. at 47 (Compl. ¶ 76). 

21 Id. at 4748 (Compl. ¶¶ 7677). 

22 App. to Opening Br. at 129 (Pls.’ Opposition to Defs.’ Mot. to Dismiss 15, In re Investors 

Bancorp, Inc. Stockholder Litig., C.A. No. 12327-VCS (Del. Ch. Oct. 13, 2016). 

23 App. to Opening Br. at 48 (Compl. ¶ 77). 
12 

components of the incentive stock and option grants for Directors and 

Management.”24 

The board awarded themselves 7.8 million shares.25 Non-employee directors 

each received 250,000 stock options—valued at $780,000—and 100,000 restricted 

shares—valued at $1,254,000; Cashill and Dittenhafer received 150,000 restricted 

shares—valued at $1,881,000—due to their years of service. The non-employee 

director awards totaled $21,594,000 and averaged $2,159,400. Peer companies’ 

non-employee awards averaged $175,817. Cummings received 1,333,333 stock 

options and 1,000,000 restricted shares, valued at $16,699,999 and alleged to be 

1,759% higher than the peer companies’ average compensation for executive 

directors. Cama received 1,066,666 stock options and 600,000 restricted shares, 

valued at $13,359,998 and alleged to be 2,571% higher than the peer companies’ 

average. 

 According to the complaint, the total fair value of the awards was 

$51,653,997, broken down by board member as follows:26

Name Restricted 

Stock 

Stock 

Options Total 

Cummings $12,540,000 $4,159,999 $16,699,999

Cama $10,032,000 $3,327,998 $13,359,998

Albanese $1,254,000 $780,000 $2,034,000 

 

24 Id. (Compl. ¶ 78). 

25 Id. at 50 (Compl. ¶ 82). 

26 Id. at 51 (Compl. ¶ 32); In re Investors Bancorp, Inc. Stockholder Litig., 2017 WL 1277672, at 

*5. 
13 

Bone $1,254,000 $780,000 $2,034,000 

Byrnes $1,254,000 $780,000 $2,034,000 

Cashill $1,881,000 $780,000 $2,661,000 

Cosgrove $1,254,000 $780,000 $2,034,000 

Dittenhafer $1,881,000 $780,000 $2,661,000 

Dugan $1,254,000 $780,000 $2,034,000 

Garibaldi $1,254,000 $780,000 $2,034,000 

Siekerka $1,254,000 $780,000 $2,034,000 

Ward $1,254,000 $780,000 $2,034,000 

Total $51,653,997 

 After the Company disclosed the awards, stockholders filed three separate 

complaints in the Court of Chancery alleging breaches of fiduciary duty by the 

directors for awarding themselves excessive compensation. Following the filing of 

a consolidated complaint, the defendants moved to dismiss under Court of Chancery 

Rule 12(b)(6) for failure to state a claim and under Court of Chancery Rule 23.1 for 

failure to make a demand before filing suit. 

 The Court of Chancery granted both motions and dismissed the plaintiffs’ 

complaint.27 Relying on the court’s earlier decisions in In re 3COM Corp.

28 and 

Calma on Behalf of Citrix Systems, Inc. v. Templeton,

29 the court dismissed the 

complaint against the non-employee directors because the EIP contained 

“meaningful, specific limits on awards to all director beneficiaries” like the 3COM

plan, as opposed to the broad-based plan in Citrix that contained a generic limit 

 

27 In re Investors Bancorp, Inc. Stockholder Litig., 2017 WL 1277672, at *12. 

28 C.A. No. 16721, 1999 WL 1009210 (Del. Ch. Oct. 25, 1999). 

29 114 A.3d 563 (Del. Ch. 2015). 
14 

covering director and non-director beneficiaries.30 The court also dismissed the 

claims directed to the executive directors because the plaintiffs failed to make a presuit demand on the board. 

 We review the Court of Chancery decision dismissing the complaint de 

novo.

31 

II.

Unless restricted by the certificate of incorporation or bylaws, Section 141(h) 

of Delaware General Corporation Law (“DGCL”) authorizes the board “to fix the 

compensation of directors.”32 Although authorized to do so by statute, when the 

board fixes its compensation, it is self-interested in the decision because the directors 

are deciding how much they should reward themselves for board service.33 If no 

other factors are involved, the board’s decision will “lie outside the business 

judgment rule’s presumptive protection, so that, where properly challenged, the 

receipt of self-determined benefits is subject to an affirmative showing that the 

 

30 In re Investors Bancorp, Inc. Stockholder Litig., 2017 WL 1277672, at *8. 

31 Gantler v. Stephens, 965 A.2d 695, 703 (Del. 2009). 

32 8 Del. C. § 141(h). 

33 Texlon Corp. v. Meyerson, 802 A.2d 257, 262 (Del. 2002). 
15 

compensation arrangements are fair to the corporation.”34 In other words, the entire 

fairness standard of review will apply.35

Other factors do sometimes come into play. When a fully informed, 

uncoerced, and disinterested majority of stockholders approve the board’s 

authorized corporate action, the stockholders are said to have ratified the corporate 

act. Stockholder ratification of corporate acts applies in different corporate law 

settings.36 Here, we address the affirmative defense of stockholder ratification of 

director self-compensation decisions. 

A.

Early Supreme Court cases recognized a ratification defense by directors 

when reviewing their self-compensation decisions. In the 1952 decision Kerbs v. 

California Eastern Airways, Inc., a stockholder filed suit against the directors 

attacking a stock option and profit sharing plan on a number of grounds.37 As to the 

 

34 Id. at 257; see also Gottlieb, 90 A.2d at 663 (“[W]here a majority of the directors representing 

the corporation are conferring benefits upon themselves out of the assets of the corporation, we do 

not understand [the business judgment rule] to have any application what[so]ever.”). 

35 Citrix, 114 A.3d at 577 (quoting Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 

1993)) (“[T]he Court reviews the directors’ decision under the entire fairness standard, in which 

case the directors must establish ‘to the court’s satisfaction that the transaction was the product of 

both fair dealing and fair price.’”). 

36 See, e.g., Gantler, 965 A.2d at 712 (proposal to reclassify shares); In re Gen. Motors (Hughes) 

S’holder Litig., 897 A.2d at 166 (series of financial transactions splitting off a subsidiary); Stroud 

v. Grace, 606 A.2d 75, 84 (Del. 1992) (amendments to a company’s charter and bylaws); Fliegler 

v. Lawrence, 361 A.2d 218, 220 (Del. 1976) (director decision to exercise an option for shares); 

Kleinman v. Saminsky, 200 A.2d 572, 575 (Del. 1964) (underwriting contracts and management 

fees). 

37 90 A.2d 652. 
16 

stock option plan, 250,000 shares of the corporation’s unissued stock were granted 

in specific amounts to named executives of the corporation at a $1 per share exercise 

price.38 The profit sharing plan was based on a mathematical formula tied to the 

financial performance of the corporation.39 Both plans were approved at a board 

meeting where five of the eight directors were beneficiaries of both plans.40 The 

stockholders approved the plans. 

Addressing the effect of stockholder approval of the stock option plan, our 

Court held that “ratification cures any voidable defect in the action of the [b]oard. 

Stockholder ratification of voidable acts of directors is effective for all purposes 

unless the action of the directors constituted a gift of corporate assets to themselves 

or was ultra vires, illegal, or fraudulent.”41 As to the profit sharing plan, the Court 

viewed things differently because “the effectiveness of such ratification depends 

upon the type of notice sent to the stockholder and the explanation to them of the 

plan itself,”42 and the record on appeal was insufficient to determine the adequacy of 

the disclosures.43

 

38 Id. at 655. 

39 Id. 

40 Id. 

41 Id. (citations omitted). 

42 Id. at 65960. 

43 Id. at 655. 
17 

The stock option plan approved by the stockholders in Kerbs was selfexecuting, meaning once approved by the stockholders, implementing the awards 

required no discretion by the directors.44 The Court addressed a similar dispute in a 

case decided the following day. In Gottlieb v. Heyden Chemical Corp.,

45 the 

restricted stock option plan granted specific company officers—six of whom were 

board members—present and future options to purchase fixed amounts of common 

stock at prices to be set by the board, subject to a price collar. The plan was 

contingent upon ratification by a majority of the stockholders.46 In advance of the 

stockholder meeting, the board disclosed the names of the officers receiving the 

awards, the number of shares allocated to each, the price per share, and the schedule 

for future issuances.47 The stockholders approved the plan.48

After initially denying the stockholder’s challenge to the plan, on reargument, 

the Court noted the effect of stockholder ratification. For the current awards 

specifically approved by the stockholders: 

Where there is stockholder ratification, . . . the burden of proof is shifted 

to the objector. In such a case the objecting stockholder must convince 

the court that no person of ordinary sound business judgment would be 

 

44 Id.

45 90 A.2d 660 (Del. 1960). 

46 Id. at 661. 

47 Id. at 662.

48 Id. 
18 

expected to entertain the view that the consideration furnished by the 

individual directors is a fair exchange for the options conferred.49

But, for the options subject to future awards, the court explained that they 

were not ratified because the 25,500 shares had not been placed into any contracts 

prior to approval.50 The stockholders only approved the allocation of shares “of a 

certain general pattern,” but “nobody [knew] what all of the terms of these future 

contracts [would] be.”51 The Court concluded that ratification “cannot be taken to 

have approved specific bargains not yet proposed.”52 Thus, after Kerbs and Gottlieb, 

directors could successfully assert the ratification defense when the stockholders 

were fully informed and approved stock option plans containing specific director 

awards. But the award of “specific bargains not yet proposed” could not be ratified 

by general stockholder approval of the compensation plan.53

 

49 Gottlieb, 91 A.2d at 58; see id. (“Where there was stockholder ratification, however, the court 

will look into the transaction only far enough to see whether the terms are so unequal as to amount 

to waste, or whether, on the other hand, the question is such a close one as to call for the exercise 

of what is commonly called ‘business judgment.’”). 

50 Id. at 5960. 

51 Id. at 60. 

52 Id. In another early case, Kaufman v. Shoenberg, 91 A.2d 786 (Del. Ch. 1952), the Court of 

Chancery addressed a stockholder challenge to the consideration the corporation received for a 

restricted stock option plan. The plan in Kaufman did not specify the awards to be issued, but the 

awards were administered by a board committee that did not receive options under the plan. Id. at 

788–89, 793. The Chancellor held that “independent stockholder ratification of an interested 

director transaction” led to the conclusion that “the objecting stockholder has the burden of 

showing that no person of ordinary sound business judgment would say that the consideration 

received for the options was a fair exchange for the options granted.” Id. at 791. 

53 Gottlieb, 91 A.2d at 58. 
19 

Our Court has not considered ratification of director self-compensation 

decisions since Kerbs and Gottlieb. The Court of Chancery has, however, continued 

to develop this area of the law. 

B.

Following the Supreme Court’s lead recognizing the ratification defense only 

when specific acts are presented to the stockholders for approval, the Court of 

Chancery in Steiner v. Meyerson54 and Lewis v. Vogelstein55 recognized the directors’ 

ratification defense when awards made to directors under equity compensation plans 

were specific as to amounts and value. In Steiner, the stock option plan granted each 

non-employee director “an option to purchase 25,000 shares upon election to the 

Telxon board, and an additional 10,000 shares on the anniversary of his election 

while he remains on the board.”56 In Lewis, the plan provided for two categories of 

director compensation: (i) one-time grants of 15,000 options per director; and (ii) 

annual grants of up to 10,000 options per director depending on length of board 

service.57 The plans were self-executing, meaning that no further director action was 

required to implement the awards as they were earned. In both cases, the Court of 

 

54 C.A. No. 13139, 1995 WL 441999 (Del. Ch. July 19, 1995). 

55 699 A.2d at 338. 

56 1995 WL 441999, at *5.

57 699 A.2d at 329–30. 
20 

Chancery held that the stockholders validly ratified the awards, and the standard of 

review following ratification was waste.58

Two Court of Chancery decisions following Steiner and Lewis addressed a 

twist in previous cases that bears directly on this appeal—the plans approved by the 

stockholders set upper limits on the amounts to be awarded, but allowed the directors 

to decide the specific awards or change the conditions of the awards after stockholder 

approval.59 In In re 3COM Corp. Shareholders Litigation, the option grants were 

based on “specific ceilings on the awarding of options each year” which “differ 

based on specific categories of service, such as service on a committee, position as 

a lead director, and chairing the [b]oard.”60 The plaintiff alleged in conclusory 

fashion that grants made by the board were “lavish and excessive compensation 

tantamount to a waste of corporate assets.”61 Because the board exercised its 

discretion within the specific limits approved by the stockholders, the Court of 

 

58 In Lewis, Chancellor Allen explored the ratification defense through the lens of agency, finding 

that ratification “contemplates the ex post conferring upon or confirming of the legal authority of 

an agent in circumstances in which the agent had no authority or arguably had no authority. . . . 

[T]he effect of informed ratification is to validate or affirm the act of the agent as the act of the 

principal.” 699 A.2d at 334 (citing Restatement (Second) of Agency § 82 (1958)). The Chancellor 

also observed that the standard of review following stockholder ratification of director selfcompensation decisions evolved from the Kerbs proportionality or reasonableness standard when 

considering the adequacy of the consideration to a waste standard. Id. at 338 (citing Michelson v 

Lewis, 407 A.2d 211 (Del. 1979)). 

59 In re 3Com Corp. S’holders Litig., 1999 WL 1009210, at *2–3; Criden v. Steinberg, 2000 WL 

354390, at *2 (Del. Ch. Mar. 23, 2000). 

60 1999 WL 1009210, at *3 n.9. 

61 Id. at *1. 
21 

Chancery determined that the stockholder approval of the plan parameters extended 

to the specific awards made after plan approval.62 Thus, the directors’ post-approval 

compensation decisions were subject to the business judgment rule standard of 

review, requiring the directors to show waste.63

In Criden v. Steinberg, the Court of Chancery addressed a broad-based stock 

option plan that allowed the directors to re-price the options after stockholder 

approval of the plan.64 The re-pricing decisions, although not submitted to the 

stockholders for approval, were subject to a business judgment standard of review.65 

According to the court, the stockholders approved a plan setting the re-pricing 

parameters, and the directors re-priced the options within those parameters.66 Thus, 

the directors’ decisions were reviewed under a business judgment rule standard of 

review. 

After 3COM and Criden, the Court of Chancery decided Sample v. Morgan.

67 

In Sample, the Court addressed two non-employee directors on the compensation 

committee who awarded 200,000 shares to the company’s three employee directors 

under a management stock incentive plan.68 A disinterested majority of Randall 

 

62 Id. at *2. 

63 Id.

64 2000 WL 354390. 

65 Id. at *3–4. 

66 Id. at *4. 

67 Sample v. Morgan, 914 A.2d 647 (Del. Ch. 2007). 

68 The company granted 100,000 shares to the CEO, 75,000 shares to the Vice President of 

Manufacturing, and 25,000 shares to the CFO. Id. at 654. 
22 

Bearings’ stockholders had previously approved the plan, which authorized up to 

200,000 shares, with no parameters on how the shares should be awarded. The court 

rejected a ratification defense and stated: 

[T]he Delaware doctrine of ratification does not embrace a “blank 

check” theory. When uncoerced, fully informed, and disinterested 

stockholders approve a specific corporate action, the doctrine of 

ratification, in most situations, precludes claims for breach of fiduciary 

duty attacking that action. But the mere approval by stockholders of a 

request by directors for the authority to take action within broad 

parameters does not insulate all future action by the directors within 

those parameters from attack. Although the fact of stockholder 

approval might have some bearing on consideration of a fiduciary duty 

claim in that context, it does not, by itself, preclude such a claim. An 

essential aspect of our form of corporate law is the balance between law 

(in the form of statute and contract, including the contracts governing 

the internal affairs of corporations, such as charters and bylaws) and 

equity (in the form of concepts of fiduciary duty). Stockholders can 

entrust directors with broad legal authority precisely because they know 

that that authority must be exercised consistently with equitable 

principles of fiduciary duty. Therefore, the entrustment to the 

[compensation committee] of the authority to issue up to 200,000 shares 

to key employees under discretionary terms and conditions cannot 

reasonably be interpreted as a license for the [c]ommittee and other 

directors making proposals to it to do whatever they wished, 

unconstrained by equity. Rather, it is best understood as a decision by 

the stockholders to give the directors broad legal authority and to rely 

upon the policing of equity to ensure that that authority would be 

utilized properly. For this reason alone, the directors’ ratification 

argument fails.69

The court in Sample did not address either 3COM or Criden. But, in Seinfeld 

v. Slager,

70 the court addressed 3COM and a concern that recognizing ratification for 

 

69 Id. at 663–64. 

70 2012 WL 2501105, at *11–12. 
23 

plans approved by stockholders with only general parameters for making 

compensation awards provided insufficient protection from possible self-dealing. 

The plan in Seinfeld was a broad-based plan applying to directors, officers, and 

employees.71 Unlike the plan in 3COM, where each category of beneficiaries had an 

upper limit on what they could receive, the Seinfeld plan contained a single generic 

limit on awards, with no restrictions on how the awards could be distributed to the 

different classes of beneficiaries.72 Rather than essentially approve a blank check, 

or in the Vice Chancellor’s words—give the directors carte blanche—to make 

awards as the directors saw fit, the court required “some meaningful limit imposed 

by the stockholders on the [b]oard for the plan to be consecrated by 3COM and 

receive the blessing of the business judgment rule.”73 Thus, after Seinfeld, directors 

could retain the discretion to make awards after stockholder plan approval, but the 

plan had to contain meaningful limits on the awards the directors could make to 

themselves before ratification could be successfully asserted. 

Finally, in Cambridge Retirement System v. Bosnjak, although the plan did 

not set forth the specific compensation awarded to the directors, the specific awards 

 

71 Id. at *10. 

72 Id.

73 Id. at *12. The court went on to hold that “[i]f a board is free to use its absolute discretion under 

even a stockholder-approved plan, with little guidance as to the total pay that can be awarded, a 

board will ultimately have to show that the transaction is entirely fair.” Id.
24 

were submitted to the stockholders for approval.74 Thus, the court found that the 

directors could assert a ratification defense.75 And, in Calma on Behalf of Citrix 

Systems, Inc. v. Templeton, Chancellor Bouchard, after a thorough review of the case 

law, determined that directors could not assert a ratification defense when the 

incentive plan had generic limits on compensation for all the plan beneficiaries.76 

The court denied a ratification defense, holding “when the [b]oard sought 

stockholder approval of the broad parameters of the plan and the generic limits 

specified therein, Citrix stockholders were not asked to approve any action specific 

to director compensation.”77

III. 

A. 

As ratification has evolved for stockholder-approved equity incentive plans, 

the courts have recognized the defense in three situations—when stockholders 

approved the specific director awards; when the plan was self-executing, meaning 

the directors had no discretion when making the awards; or when directors exercised 

discretion and determined the amounts and terms of the awards after stockholder 

approval. The first two scenarios present no real problems. When stockholders 

 

74 C.A. No. 9178-CB, 2014 WL 2930869, at *2 (Del. Ch. June 26, 2014). 

75 Id. at *8–9; see also Desimone, 924 A.2d at 917 (dismissing a claim challenging option grants 

because stockholders approved the specific amount to be granted). 

76 114 A.3d 563. 

77 Id. at 588 (emphasis omitted). 
25 

know precisely what they are approving, ratification will generally apply. The rub 

comes, however, in the third scenario, when directors retain discretion to make 

awards under the general parameters of equity incentive plans. The defendants rely 

on 3COM and Criden, where the Court of Chancery recognized a stockholder 

ratification defense even though the directors’ self-compensation awards were not 

submitted for stockholder approval.78 As noted earlier, in 3COM, the Court of 

Chancery recognized ratification for director-specific compensation plans, where the 

plans contained specific limits for awards depending on factors set forth in the plan.79 

In Criden, the court upheld a ratification defense when the plan authorized the 

directors to re-price the options after stockholder approval.80

The court’s decisions in 3COM and Criden opened the door to the difficulties 

raised in this appeal. After those decisions, the Court of Chancery had to square 

3COM and Criden—and their expanded use of ratification for discretionary plans—

with existing precedent, which only recognized ratification when stockholders 

 

78 Answering Br. at 17–18, 23; In re 3COM Corp., 1999 WL 1009210; Criden, 2000 WL 354390. 

The defendants also rely on Steiner, 1995 WL 441999, and Cambridge Ret. Sys. v. Bosnjak, 2014 

WL 2930869, but those cases are not helpful to their argument. The plan in Steiner was selfexecuting. 1995 WL 441999, at *4 (“The plan grants each director an option to purchase 25,000 

shares upon election to the Telxon board, and an additional 10,000 shares on the anniversary of 

his election while he remains on the board.”). In Cambridge Retirement System, the stockholders 

approved the specific awards made by the directors. 2014 WL 2930869, at *8 (“Unilife 

stockholders approved the grant of up to 100,000 options to two of the [c]ompany’s outside 

directors and, in 2011, approved the grant of up to 45,000 stock-based awards to six of the 

Company’s outside directors.”). 

79 1999 WL 1009210, at *3. 

80 2000 WL 354390, at *4. 
26 

approved the specific awards. The Court of Chancery tried to harmonize the 

decisions by requiring “meaningful limits” on the amounts directors could award to 

themselves. 

We think, however, when it comes to the discretion directors exercise 

following stockholder approval of an equity incentive plan, ratification cannot be 

used to foreclose the Court of Chancery from reviewing those further discretionary 

actions when a breach of fiduciary duty claim has been properly alleged. As the 

Court of Chancery emphasized in Sample, using an expression coined many years 

ago, director action is “twice-tested,” first for legal authorization, and second by 

equity.81 When stockholders approve the general parameters of an equity 

compensation plan and allow directors to exercise their “broad legal authority” under 

the plan, they do so “precisely because they know that that authority must be 

exercised consistently with equitable principles of fiduciary duty.”82 The 

stockholders have granted the directors the legal authority to make awards. But, the 

directors’ exercise of that authority must be done consistent with their fiduciary 

duties. Given that the actual awards are self-interested decisions not approved by 

the stockholders, if the directors acted inequitably when making the awards, their 

 

81 Sample, 914 A.2d at 672 (Strine, V.C.) (citing Adolf A. Berle, Corporate Powers as Powers in 

Trust, 44 HARV. L. REV. 1049, 1049 (1931)) (“Corporate acts thus must be ‘twice-tested’—once 

by the law and again by equity.”). 

82 Id. at 584. 
27 

“inequitable action does not become permissible simply because it is legally 

possible”83 under the general authority granted by the stockholders. 

The Sample case underlines the need for continued equitable review of selfinterested discretionary director self-compensation decisions. As noted before, the 

plaintiffs in Sample alleged that the board adopted “a self-dealing plan to entrench 

the Company under the then-current management and massively dilute the equity 

interests of the public holders to benefit management personally.”84 If ratification 

could be invoked at the outset, those breach of fiduciary duty allegations would be 

insulated from judicial review. Other cases reinforce the same point—when a 

stockholder properly alleges that the directors breached their fiduciary duties when 

exercising their discretion after stockholders approve the general parameters of an 

equity incentive plan, the directors should have to demonstrate that their selfinterested actions were entirely fair to the company.85 

 

83 Schnell v. Chris-Craft Ind., Inc., 285 A.2d 487, 489 (Del. 1971). As noted in Desimone v. 

Barrows, 924 A.2d 908, 917 (Del. Ch. 2007), “[s]pecifying the precise amount and form of director 

compensation . . . ‘ensure[s] integrity’ in the underlying principal–agent relationship between 

stockholders and directors.” 

84 914 A.2d at 659 (Pet’rs’ Second Am. Class Action & Derivative Compl. ¶ 55, Sample, 2005 WL 

5769871 (Del. Ch. May 24, 2015)). 

85 For example, in Seinfeld, the Court of Chancery refused to extend stockholder approval of the 

plan to the awards themselves. 2012 WL 2501105, at *12. The directors had the “theoretical 

ability to award themselves as much as tens of millions of dollars per year, with few limitations.” 

Id. The board was also “free to use its absolute discretion . . . with little guidance as to the total 

pay that can be awarded.” Id. In Citrix, where the stockholders challenged the awards as out of 

line with peer group compensation, the plan broadly authorized payments as high as $55 million a 

year to any one person. 114 A.3d at 587–88. Because the plan lacked any restrictions on the 

amounts the directors could allocate to themselves, ratification could not be used to prevent 
28 

B. 

The Investors Bancorp EIP is a discretionary plan as described above. It 

covers about 1,800 officers, employees, non-employee directors, and service 

providers. Specific to the directors, the plan reserves 30,881,296 shares of common 

stock for restricted stock awards, restricted stock units, incentive stock options, and 

non-qualified stock options for the Company’s officers, employees, non-employee 

directors, and service providers.86 Of those reserved shares and other equity, the 

non-employee directors were entitled to up to 30% of all option and restricted stock 

shares, all of which could be granted in any calendar year.87 But, “[t]he number, 

types, and terms of the awards to be made pursuant to the [EIP] are subject to the 

discretion of the Committee and have not been determined at this time, and will not 

be determined until subsequent to stockholder approval.”88 

When submitted to the stockholders for approval, the stockholders were told 

that “[b]y approving the Plan, stockholders will give [the Company] the flexibility 

[it] need[s] to continue to attract, motivate and retain highly qualified officers, 

employees and directors by offering a competitive compensation program that is 

 

equitable review. Id. at 588. In both cases, if the directors acted inequitably in exercising their 

broad discretionary powers under the plans, those decisions should be subject to review by the 

Court of Chancery. 

86 Opening Br. at 11; App. to Answering Br. at 349 (Investors Bancorp, Inc., 2014 Proxy, Appendix 

A: Equity Incentive Plan, at A-5 § 3.2(a) (June 9, 2015) [hereinafter EIP]). 

87 App. to Answering Br. at 349–50 (EIP, at A-5 § 3.3). 

88 Id. at 336 (2014 Proxy, at 57). 
29 

linked to the performance of [the Company’s] common stock.”89 The complaint 

alleges that this representation was reasonably interpreted as forward-looking. In 

other words, by approving the EIP, stockholders understood that the directors would 

reward Company employees for future performance, not past services. 

After stockholders approved the EIP, the board eventually approved just under 

half of the stock options available to the directors and nearly thirty percent of the 

shares available to the directors as restricted stock awards, based predominately on 

a five-year going forward vesting period. The plaintiffs argue that the directors 

breached their fiduciary duties by granting themselves these awards because they 

were unfair and excessive.90 According to the plaintiffs, the stockholders were told 

the EIP would reward future performance, but the Board instead used the EIP awards 

to reward past efforts for the mutual-to-stock conversion—which the directors had 

already accounted for in determining their 2015 compensation packages.91 Also, 

according to the plaintiffs, the rewards were inordinately higher than peer 

companies’. As alleged in the complaint, the Board paid each non-employee director 

more than $2,100,000 in 2015,92 which “eclips[ed] director pay at every Wall Street 

 

89 Id. at 329 (2014 Proxy, at 50). 

90 App. to Opening Br. at 50 (Compl. ¶ 83). 

91 Id. at 42–43 (Compl. ¶ 65). 

92 App. to Opening Br. at 136 (Pls.’ Opposition to Defs.’ Mot. to Dismiss 22 (citing Compl. ¶¶ 88–

89)). 
30 

firm.”93 This significantly exceeded the Company’s non-employee director 

compensation in 2014, which ranged from $97,200 to $207,005.94 It also far 

surpassed the $198,000 median pay at similarly sized companies and the $260,000 

median pay at much larger companies.95 And the awards were over twenty-three 

times more than the $87,556 median award granted to other companies’ nonemployee directors after mutual-to-stock conversions.96 

In addition, according to the complaint, Cama and Cummings’ compensation 

far exceeded their prior compensation and that of peer companies. Cummings’ 

$20,006,957 total compensation in 2015 was seven times more than his 2014 

compensation package of $2,778,000.97 And Cama’s $15,318,257 compensation 

was nine times more than his 2014 compensation package of $1,665,794.98 

Cummings’ $16,699,999 award was 3,683% higher than the median award other 

companies granted their CEOs after mutual-to-stock conversions. And Cama’s 

 

93 Id. at 58 (Compl. ¶ 96 (quoting Caleb Melby, New Jersey Bank Pays Directors More than at 

Any Finance Firm, BLOOMBERG (May 5, 2016, 5:00AM), 

https://www.bloomberg.com/news/articles/2016-05-05/new-jersey-bank-pays-directors-morethan-any-wall-street-board)). 

94 Id. at 32 (Compl. ¶ 35). 

95 Id. at 57–58 (Compl. ¶ 95). Plaintiffs allege the 75th percentile of pay at these companies was 

$227,000. Id. 96 Id. at 51–54 (Compl. ¶¶ 85–86). As alleged in the complaint, the average award at these 

companies was $175,817. Id. 97 Id. at 32–33, 64 (Compl. ¶¶ 37, 105). According to plaintiffs, CEO compensation at peer 

companies averaged $4,170,000—approximately one-fifth of Cummings’ compensation and onefourth of Cama’s. App. to Opening Br. at 139 (Pls.’ Opposition to Defs.’ Mot. to Dismiss 25).

98 Id. at 33 (Compl. 15 ¶ 38). 
31 

$13,359,998 award was 5,384% higher than the median other companies granted 

their second-highest paid executives after the conversions.99

The plaintiffs have alleged facts leading to a pleading stage reasonable 

inference that the directors breached their fiduciary duties in making unfair and 

excessive discretionary awards to themselves after stockholder approval of the EIP. 

Because the stockholders did not ratify the specific awards the directors made under 

the EIP, the directors must demonstrate the fairness of the awards to the Company. 

IV.

 The parties raise a last issue—whether the plaintiffs are excused from making 

a demand on the board under Court of Chancery Rule 23.1 for the awards made to 

executive directors Cama and Cummings. The directors do not contest that they are 

interested for the awards they made to themselves. But, according to the directors, 

the awards made to the two executive directors were not part of a “single transaction” 

because these awards were made as part of a series of compensation meetings 

 

99 Id. at 64 (Compl. ¶ 104). The average awards at peer companies were $898,490 for CEOs and 

$510,435 for the second-highest paid executives. Id. at 61–64 (Compl. ¶ 103). The plaintiffs also 

point out that this discrepancy with peer companies greatly exceeds the discrepancies in Citrix, in 

which the Court of Chancery found the plaintiffs sufficiently alleged an unfair compensation 

claim. In Citrix, non-employee director compensation ranged from $303,360 to $425,570, which 

was “on average over $100,000 more” than peer companies that had “stock significantly 

outperforming Citrix.” Pls.’ S’holder Derivative Compl. ¶¶ 2, 9–10, Citrix, No. 9579-CB, 2014 

WL 1873725 (Del. Ch. May 6, 2014). Since the board’s change in director compensation, the peer 

companies’ stock increased 5% on average, while Citrix’s stock performed 43% worse. Id. ¶ 28. 

The court found these numbers stated a cognizable claim of unfair compensation and allowed the 

case to proceed. Citrix, 114 A.3d at 589–90. 
32 

following the EIP’s adoption. Further, they argue, the plaintiffs failed to 

demonstrate a “quid pro quo” between the non-employee directors and Cama and 

Cummings. Thus, the non-employee directors claim they would be capable of 

exercising independent judgment to consider a demand challenging the board’s 

awards to the executive directors. 

 Demand is futile when (1) a majority of the board is disinterested and 

independent, or (2) the challenged transaction was otherwise the product of a valid 

exercise of business judgment.100 Although showing a quid pro quo might be one 

way of proving interestedness or lack of independence, it is not a requirement. 

Rather, the focus is on the acts being challenged and the relationship between those 

acts and the directors who approved them. Here, immediately after the Investors 

Bancorp stockholders approved the EIP, the directors held a series of nearly 

contemporaneous meetings that resulted in awards to both the non-employee 

directors and the executive directors. It is implausible to us that the non-employee 

directors could independently consider a demand when to do so would require those 

directors to call into question the grants they made to themselves. In other words, 

“[i]t strains reason to argue that a defendant–director could act independently to 

evaluate the merits of bringing a legal action against any of the other defendants if 

 

100 Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984), overruled on other grounds by Brehm v. 

Eisner, 746 A.2d 244 (Del. 2000). 
33 

the director participated in the identical challenged misconduct.”101 Thus, demand 

is excused for the claims made against non-employee and executive directors. 

V.

The Investors Bancorp stockholders approved the general parameters of the 

EIP. The plaintiffs have properly alleged, however, that the directors, when 

exercising their discretion under the EIP, acted inequitably in granting themselves 

unfair and excessive awards. Because the stockholders did not ratify the specific 

awards under the EIP, the affirmative defense of ratification cannot not be used to 

dismiss the complaint. The plaintiffs have also demonstrated that demand would be 

futile as to all directors. Thus, the Court of Chancery’s decision is reversed, and the 

case is remanded for further proceedings consistent with this opinion. 

 

101 Needham v. Cruver, C.A. No. 12428, 1993 WL 179336, *3 (Del. Ch. May 12, 1993).