Compensation paid to executives and directors may raise both duty of care and duty of loyalty issues. More recently, executive compensation in publicly traded corporations has also raised public policy issues given the large amounts.
Compensation policy is generally established within the ordinary course of buisness, in order to retain and reward those who manage the business. Proper form and amounts of compensation can align the interests of the managers with those of the shareholders by encouraging maximization of shareholder reutrns, thereby lowering agency costs. In that sense, compensation issues are the kind of decisions that should be protected by the business judgment rule and not subejct to direct judicial scrutiny. But compensation can also be a form of self-dealing where those who manage reward each other excessively, at the expense and exclusion of the shareholders. However, because compensation is a common business decision, even if it involves self-dealing, it differs form other interested transactions which may not be in the usual course of business.
Compensation issues can differ in the closely held corporations. Large payment of compensation to those in control can eliminate funds available to pay dividends to the minority shareholders. In that context, the decision may be part of a plan to oppress the minority, eventually forcing them to sell out at a low price to the control group. Then, it is likely that the minority shareholders will try to seek judicial review using fiduciary duty claims. In the context of a closely held corporation, courts may be more likely to evaluate compensation policy under the stricter standard of the duty of loyalty.