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 & Lefkow itz LLP, New York, New York; David A. Jenkins, Esquire, Neal C. Belgam, Esquire, and Clarissa R. Chenoweth, Esquire, Smith Katzenstein & Jenkins LLP, Wilmi ngton, 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, Dela ware, for Defendant s-Below, Appellees Robert C. Albanese, Denni s M. Bone, Doreen R. By rnes, Domenick A. Cama, Robert M. Cashill, William V. Cosgrove, Kevin Cummings , Brian D. Dittenhafer, Brendan J. Dugan, James J. Garibaldi, Michele N. Siek erka, and James H. Ward III, and Nominal Defendant-Below, A ppellee Investors Bancorp, Inc.2 SEITZ , Justice: In this appeal we consid er the limits of the stoc kholder ratification defense when directors make equity awards to th emselves under the gene ral parameters of an equity incentive plan. In the absence of stockholder approval, if a stockholder properly challenges equity incentive plan aw ards the directors grant to themselves, the directors must prove that the awards ar e entirely fair to the corporation. But, when the stockholders have approved an equity incentive plan, the affirmative defense of stockholder ratification comes in to play. Stated generally, stockholder ratification means a majority of fully informed, uncoerced, and disinterested stockholders approved board action, which, if challenge d, typically leads to a deferential business judgmen t standard of review. For equity incentive plans in which the award terms are fixed and the directors have no discretion how they allocate the aw ards, the stockholders know exactly what they are being asked to approve. But, othe r 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 th ey decide. The Court of Chancery has recognized a ratification defense for such di scretionary plans as long as the plan has “meaningful limits” on the awards di rectors 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 meaningf ul limits, the awards, if challenged, are subject to an entire fairness standard of review. Stockholder ratification serves an importa nt purpose—directors can take selfinterested action secure in the knowledge that the stockhol ders have expressed their approval. But, when directors make di scretionary awards to themselves, that discretion must be exercised consistent with their fiducia ry 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—u tility 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, a nd disinterested stockholders, ratification is properly asserted as a defe nse in support of a motion to dismiss. The same applies for self-executing plans, meaning plans th at make awards over time based on fixed criteria, with the specific amounts and te rms 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 natu re being what it is, the law, in its wisdom, does not presume that director s 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 wi thin general paramete rs, and a stockholder properly alleges that the directors inequita bly exercised that discretion, then the ratification defense is unavailable to dism iss the suit, and the directors will be required to prove the fairness of the awar ds to the corporation. Here, the Equity Incentive Plan (“EIP”) approved by th e 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 th at the directors breached their fiduciary duties by awarding excessive equity awards to themselves under the EIP. Thus, a stockholder ratification defense is not availa ble 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 dismissi ng the complaint and remand for further proceedings consistent with this opinion.
I. According to the allegations of the co mplaint, which we mu st 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 th e well-pleaded allegations of fact and draw reasonable infere nces in the plaintiff’s favor.”).5 the awards challenged in this case. The defendants fall in to two groups—ten nonemployee director defendants 4 and two executive director defendants. 5 Investors Bancorp, the nominal defendant, is a Delawa re 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 Compa ny operates 143 banking branches in New Jersey and New York. In 2014, af ter 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-st ep offering, the Company sold 219,580,695 shares and raised about $2.15 billion. The board sets director compensa tion based on recommendations of the Compensation and Benefits Committee (“Co mmittee”), 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 transf ormed 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 Ba ncorp’s parent company, merged into Old Investors Bancorp, which merged in to Investors Bancorp—the Company that is the subject of this suit. Id. Old Investors Bancorp shares not held by MHC were convert ed into Investors Bancorp shares, and the common shares of MHC were sold. Id

.6 committee meetings; and (iii) perquisites a nd 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 averag e 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 Pre sident 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 perfo rmance goals; and (iii) perquisites and benefits valued at $278,400, which tota led $2,778,700. Cama, the Company’s COO and Senior Executive Vice President, rece ived annual compensation consisting of (i) a $675,000 base salary; (ii) an Annual Cash Incentive Award of up to 120% of7 his base salary; and (iii) pe rquisites and benefits valu ed 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 compensati on 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 to tal compensation. The Company’s $133,340 average non-employee director compensation in 2014 fell close to the study average. Following the presentation, the Committe e recommended to the board that the nonemployee director compensa tion package remain the sa me 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 ch anges 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 th eir base salaries, respectively. 8 The Committee did not discuss any additional equ ity 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 E IP was intended to “p rovide 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 reta in highly qualified officers, employees and directors.” 9 The Company reserved 30,881,296 co mmon shares for restricted stock awards, restricted stock units, incentiv e stock options, a nd non-qualified stock options for the Company’s 1,800 officers, employees, non-employee directors, and service providers. The EIP has limits with in each category. Of the total shares, a maximum of 17,646,455 can be issued for st ock 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, successf ul 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 awar ds), 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 deli vered 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 th e 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 whic h may be granted in any calendar year.” 10
According to the proxy sent to stoc kholders, “[t]he numbe r, types and terms of awards to be made pursuant to the [E IP] 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 appr oved 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 Comm ittee 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 packag e nor discussed in any prior meetings. 13 The first meeting took place on June 12, 2015. The Committee me t with Cummings, Cama, Keshishian (the compensation cons ultant), and representatives from Luse Gorman (outside counsel) “to begin the pr ocess of determining the allocation of shares.” 14 At the second meeting on June 16, 20 15, the Committee met with Keshishian, the Luse Gorman representa tives, and the full board except Siekerka and Ward, to “gather input” from outside e xperts and Committee members. 15 They considered a list of the stock options and awards gr anted 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 “b ased on the size of th e company and the size of the equity sold in the second step o ffering, and the size of the equity plan.” 17 The complaint alleges that the fi rst 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 thes e 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 compan ies on the list that met the criteria and had more recently undergon e 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 th e 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 disclose d that Cummings and Cama did not attend meetings when their “com pensation is being determined.” 23 The Committee held a fourth and final m eeting on June 23, 2015 when th e 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.’ O pposition 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 a nd 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—value d 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 thei r years of service. The non-employee director awards totaled $21,594,000 and av eraged $2,159,400. Peer companies’ non-employee awards averaged $175,817. Cummings received 1,333,333 stock options and 1,000,000 restricted shares, va lued at $16,699,999 and alleged to be 1,759% higher than the peer companie s’ average compen sation for executive directors. Cama received 1,066,666 stock options and 600,000 restricted shares, valued at $13,359,998 and a lleged to be 2,571% higher th an the peer companies’
average. According to the complaint, the to tal 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 awar ds, stockholders filed three separate complaints in the Court of Chancery alle ging 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 clai m and under Court of Ch ancery 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 Sy stems, Inc. v. Templeton , 29 the court dismissed the complaint against the non-employee di rectors 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 execu tive directors because the plai ntiffs failed to make a presuit demand on the board. We review the Court of Chancer y decision dismissing the complaint de

novo . 31
II. Unless restricted by the certificate of in corporation or byla ws, Section 141(h) of Delaware General Corporation Law (“DG CL”) 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-inter ested in the decision because the directors are deciding how much th ey 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 su bject 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 sometime s come into play. Wh en 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-compensa tion 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 major ity of the directors representing the corporation are confe rring benefits upon themselves out of th e assets of the co rporation, 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’ decisi on 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 tran sactions 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) (underwrit ing contracts and management fees). 37 90 A.2d 652.16 stock option plan, 250,000 shares of the co rporation’s unissued stock were granted in specific amounts to named executives of th e 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 direct ors 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 voida ble 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 e ffectiveness 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 insuffic ient 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 spec ific 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, s ubject 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 pri ce per share, and the schedule for future issuances. 47 The stockholders approved the plan. 48 After initially denying the stockholder’s ch allenge 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 th e 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 ex change 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 ra tification “cannot be taken to have approved specific bargains not yet proposed.” 52 Thus, after Kerbs and Gottlieb , directors could successfully assert the ra tification defense when the stockholders were fully informed and approved stock option plans containing specific director awards. But the award of “s pecific 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 ot her hand, the question is such a clos e 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 ch allenge 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 th at “the objecting stockholder has the burden of showing that no person of ordi nary sound business judgment woul d 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 ratifica tion 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 r ecognizing the ratification defense only when specific acts are presented to the stockholders for approval, the Court of Chancery in Steiner v. Meyerson 54 and Lewis v. Vogelstein 55 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 purch ase 25,000 shares upon election to the Telxon board, and an add itional 10,000 shares on the a nniversary 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 10,00 0 options per director de pending on length of board service. 57 The plans were self-executing, mean ing that no further director action was required to implement the awards as they were earned. In bot h 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 direc tly 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 awardi ng of options each year” which “differ based on specific categories of service, such as servic e 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 a pproved by the stockholders, the Court of

58 In Lewis , Chancellor Allen explored the ratification defense through the lens of agency, finding that ratification “contemplates th e ex post conferring upon or confir ming of the legal authority of an agent in circumstances in which the agent ha d no authority or arguably had no authority. . . . [T]he effect of informed ratificati on is to validate or affirm the act of the agent as the act of the principal.” 699 A.2d at 334 (citing Restatement (Sec ond) of Agency § 82 (1958)). The Chancellor also observed that the standard of review foll owing stockholder ratifica tion of director selfcompensation decisions evolved from the Kerbs proportionality or reasonableness standard when considering the adequacy of the co nsideration 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 addr essed 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, we re subject to a business j udgment 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 unde r 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-empl oyee 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 CE O, 75,000 shares to the Vice President of Manufacturing, and 25,000 shares to the CFO. Id. at 654.22 Bearings’ stockholders had previously ap proved the plan, which authorized up to 200,000 shares, with no parame ters on how the shares shoul d be awarded. The court rejected a ratification defense and stated: [T]he Delaware doctrine of ratif ication does not embrace a “blank check” theory. When uncoerced, fully informed, and disinterested stockholders approve a specific co rporate action, the doctrine of ratification, in most situations, pr ecludes claims for breach of fiduciary duty attacking that action. But the mere approval by stockholders of a request by directors for the author ity to take action within broad parameters does not insulate all fu ture 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 corp orate law is the balance between law (in the form of statute and contr act, 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 au thority precisely because they know that that authority must be exer cised consistently with equitable principles of fiduciary duty. Th erefore, the entrustment to the [compensation committee] of the aut hority to issue up to 200,000 shares to key employees under discretiona ry terms and c onditions cannot reasonably be interpreted as a li cense 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 director s 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 re cognizing 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 pl an 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 stockhol der plan approval, but the plan had to contain meaningful limits on the awards the direct ors could make to themselves before ratification c ould be successfully asserted. Finally, in Cambridge Retirement System v. Bosnjak , although the plan did not set forth the specific compensation awar ded 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 comp ensation for all the plan beneficiaries. 76
The court denied a ratification defens e, holding “when the [b]oard sought stockholder approval of the br oad parameters of the plan and the generic limits specified therein, Citrix stockholders we re not asked to appr ove any action specific to director compensation.” 77
III.
A. As ratification has evolved for stoc kholder-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 presen t 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, ra tification will generally apply. The rub comes, however, in the third scenario, wh en directors retain discretion to make awards under the general parame ters of equity incentive pl ans. The defendants rely

on 3COM and Criden , where the Court of Chancery recognized a stockholder ratification defense even though the director s’ self-compensati on awards were not submitted for stoc kholder approval. 78 As noted earlier, in 3COM , the Court of Chancery recognized ratification for direct or-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 defe nse 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 deci sions, the Court of Chancery had to square 3COM and Criden —and their expanded use of ratifi cation for discretionary plans— with existing precedent, which only rec ognized 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 helpfu l to their argument. The plan in Steinerwas 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 rema ins on the board.”). In Cambridge Retirement System , the stockholders approved the specific awards made by the di rectors. 2014 WL 293 0869, at *8 (“Unilife stockholders approved the grant of up to 100,000 options to two of th e [c]ompany’s outside directors and, in 2011, approved th e 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 Cour t 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 equ ity incentive plan, ratification cannot be used to foreclose the Court of Chancery from reviewing those further discretionary actions when a breach of fiduciary duty cl aim has been properly alleged. As the Court of Chancery emphasized in Sample , using an expression coined many years ago, director action is “twice-tested,” fi rst for legal authorization, and second by equity. 81 When stockholders approve the ge neral parameters of an equity compensation plan and allow directors to ex ercise their “broad legal authority” under the plan, they do so “precisely because they know that that authority must be exercised consistently with equita ble principles of fiduciary duty.” 82 The stockholders have granted the directors the le gal authority to make awards. But, the directors’ exercise of that authority must be done consistent with their fiduciary duties. Given that the actual awards ar e self-interested decisions not approved by the stockholders, if the directors acted in equitably 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 H ARV

. L. R EV . 1049, 1049 (1931)) (“Corporate acts t hus must be ‘twice-tested’—once by the law and again by equity.”). 82 Id. at 584.27 “inequitable action does not become perm issible simply because it is legally possible” 83 under the general authority gr anted by the stockholders. The Sample case underlines the need for con tinued equitable review of selfinterested discretionary director self-com pensation 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 manage ment 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 a llegations would be insulated from judicial review. Other cases reinforce the same point—when a stockholder properly alleges that the direct ors 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 en tirely 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 th e underlying principal–ag ent relationship between stockholders and directors.” 84 914 A.2d at 659 (Pet’rs’ Second Am. Cl ass 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, w ith few limitations.” Id. The board was also “free to use its absolute di scretion . . . 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 broadl y 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 alloca te to themselves, ratification could not be used to prevent28 B. The Investors Bancorp EIP is a discreti onary plan as described above. It covers about 1,800 officers, employees , non-employee directors, and service providers. Specific to the directors, the pl an 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 awar ds 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 reta in 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 th e 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 [t he Company’s] common stock.” 89 The complaint alleges that this representation was reason ably interpreted as forward-looking. In other words, by approving the EIP, stockholde rs understood that the directors would reward Company employees for future performance, not past services. After stockholders approved the EIP, th e 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 restri cted 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 aw ards because they were unfair and excessive. 90 According to the plaintiffs, the stockholders were told the EIP would reward future performance, but the Board in stead used the EIP awards to reward past efforts for the mutual-t o-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 th e 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 si milarly 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 aw ard granted to other companies’ nonemployee directors after mutual-to-stock conversions. 96 In addition, according to the compla int, 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 201 4 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 mu tual-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 , B LOOMBERG (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 th e 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 peercompanies averaged $4,170,000—approximately one-fifth of Cummings’ compensation and onefourth of Cama’s. App. to Opening Br. at 139 (P ls.’ 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 execu tives after the conversions. 99 The plaintiffs have alleged facts le ading to a pleading stage reasonable inference that the director s breached their fiduciary duties in making unfair and excessive discretionary awards to themselv es after stockholder a pproval 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—whethe r the plaintiffs are excused from making a demand on the board under Court of Chan cery 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 th emselves. But, according to the directors, the awards made to the two ex ecutive 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 co mpanies greatly exceeds the discrepancies in Citrix , in which the Court of Chancery foun d the plaintiffs sufficiently alleged an unfair compensation claim. In Citrix , non-employee director compensatio n 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 di rector compensation, the peer companies’ stock increased 5% on average, wh ile 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 direct ors claim they would be capable of exercising independent judgment to cons ider 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 trans action 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 cha llenged and the relati onship between those acts and the directors who approved them. Here, immediately after the Investors Bancorp stockholders approved the EIP, th e 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 th ey made to themselves . In other words, “[i]t strains reason to argue that a defend ant–director could act independently to evaluate the merits of bringing a legal ac tion against any of th e 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 th e identical challenged misconduct.” 101 Thus, demand is excused for the claims made agains t non-employee and executive directors.
V. The Investors Bancorp stockholders appr oved 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 th e stockholders did not ratify the specific awards under the EIP, the affirmative defe nse 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 Cour t 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).