In other words, there are exclusions and coverage restrictions that may not exist in a personal compensation contract. 1. Make sure compensation agreements are well built. This includes details of how the process works to compensate directors and officers, and what happens in the event of a conflict between a director and the company that compensates the director. In practice, many liability cases are dismissed or resolved outside the courts instead of tried by court, so that issues of “minimum standards of behaviour” are not decided through the courts. State laws generally require compensation when a director or officer successfully defends a right to the merits (Delaware law uses the phrase “on the merits or in some other way,” which is useful for comparison situations). Many states, such as Delaware, do not require a director or officer to “fully succeed” in recovering compensation; On the contrary, compensation is required “to the extent that a director or officer is confirmed.” Compensation provisions are defined in a company`s statutes and statutes. The provision of D-O insurance is another topic that the written compensation contract will often address. The agreement includes the company`s obligation to continue to obtain D-O insurance coverage for the person as long as it is commercially available.
The written compensation agreement may also provide that the insurance protects the person to the same extent as the directors and executives of the company at the time. Actions to consider. There are several ways to reduce the risk of personal liability of directors and officers, given the compensation limitations described above and changes in expenses. This is only a small selection of the types of protections that can be included in a compensation agreement and may not be available from another source. Delaware law allows a corporate deed to include a provision that eliminates a director`s personal liability for financial damages for breach of duty of care. 8 Del.C. 102 (b) (7). It also allows a company to exempt a director or manager from liability for a breach of duty of care. 8 Del.C. No. 145 a) – b).
These provisions reflect strong public policies that promote compensation for directors to ensure that highly qualified individuals wish to serve. But the officer, who relies exclusively on these protections, is doing herself a disservice. She should also seek a separate compensation agreement between her and the group.