In general, directors are entitled to compensation under Delaware law and as required in the company`s administrative documents. Directors and officers who win their business will be compensated. Under Delaware law, directors and officers are “compensated for expenses (including legal fees) that have been effectively and reasonably borne by that person” if they “succeed on the merits or to defend a claim, question or matter.”  If compensation agreements are so important, why do they not require all directors and executives of companies? There are two primary misunderstandings that could lead some otherwise very experienced businessmen to ignore the importance of compensation agreements: insurance. As a general rule, the compensation agreement requires the company to provide D-O liability insurance that protects the beneficiary of the exemption to the same extent as the company`s current D-Os and its related companies. 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. Faced with rising insurance rates, many companies are looking to a future where they may not be able to afford the level of D-O insurance coverage that was once the norm for managers and executives. When developing compensation agreements, it is important to ensure that the agreement strikes the right balance between the interests of each director or senior public servant, the interests of the corporation and the legal restrictions imposed by the corporation`s current status (such as the Canada Business Corporations Act and similar provincial statutes). Below is a summary of several issues to consider when preparing a compensation agreement for directors and officers: this is only a small selection of the types of protection measures that can be included in a compensation agreement and may not be available from another source.