I found a pretty good post on the State Bar Business Law Section blog highlighting issues of compliance with the SEC rules required of “public” companies.   The part on director compensation caught my eye.  It discusses whether the court, when listening to shareholders complain about director compensation, should use the business judgment rule or the “fairness standard.”     The paragraph below advises companies how to anticipate the issue in advance and what to do to avoid shareholder derivative lawsuits on the issue.

Director Compensation in the Spotlight. *** the Delaware courts have shifted direction towards more shareholder protection by applying an entire fairness standard of review instead of the business judgment rule with respect to claims of excessive director compensation.  In order to avoid a lawsuit (or win on a motion to dismiss) companies should consider setting forth in their equity compensation plan a shareholder-approved cap (based either on a number of shares or cash value) representing the maximum amount that the company will compensate its non-employee directors in equity, which cap should be set at a meaningful limit.  This cap should be included in the equity plan when the plan is next brought to shareholders for approval.  In the meantime, companies should evaluate director pay each year and make adjustments accordingly and confirm that director compensation is in line with the company’s peer group.  Unless the courts provide clearer guidance on this topic, we expect that plaintiffs will continue to file shareholder derivative claims with regard to perceived excesses in director pay.  {emphasis added by MJH)

This post shows very nicely why it is so expensive to be a “public company.”  The amount of reporting disclosures required seems to me to be overwhelming.