Business Judgment Rules The Roost In Exec Pay Analysis

Law360, New York (April 5, 2013, 10:43 AM EDT) -- The Delaware Supreme Court recently upheld a Delaware Chancery Court ruling holding that a company’s board of directors did not commit corporate waste in implementing a bonus plan under which payments to executives would not be tax deductible to the company under Internal Revenue Code Section 162(m) (Section 162(m)).[1]

In its Jan. 14, 2013, decision in Freedman v. Adams, the court focused on the board’s exercise of its business judgment in affirmatively choosing not to adopt a more tax efficient Section 162(m)-compliant bonus plan in order to retain flexibility in its structuring of incentive compensation arrangements. This ruling affirms both the...

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