Richards Layton & Finger

Delaware Insider: Executive Compensation Lessons from Freedman v. Adams

March 2013

On January 14, 2013, in Freedman v. Adams, 58 A.3d 414 (Del. 2013), the Delaware Supreme Court reaffirmed that executive compensation decisions are business judgments vested in the board of directors that will rarely be second-guessed absent a showing that the board acted on an ill-informed basis or in bad faith. In Freedman, the plaintiff alleged that the board's decision not to adopt a compensation plan under Section 162(m) of the Internal Revenue Code - which provides public companies the ability to deduct from their taxes qualified, performance-based compensation in excess of $1 million paid to covered employees - constituted corporate waste. The Court of Chancery and then the Delaware Supreme Court disagreed.