Which method cannot be used for compensating a director?

The method that cannot be used for compensating a director is the vote of stockholders representing a majority. In most corporate governance structures, the authority to set or approve the compensation of directors generally rests with the board of directors rather than the stockholders.

This avenue of compensation would typically be viewed as inappropriate, as it can create a disconnect between the independent decision-making nature of a board and the interests of shareholders. The business judgment rule emphasizes that boards should have the autonomy to establish director compensation to align incentives, manage governance effectively, and ensure the board can attract qualified members.

In contrast, compensation can indeed be established through provisions in the by-laws, allowing flexibility as to how directors are paid, including salaries, bonuses, or other benefits. Additionally, the board can vote to provide per diem payments to directors for attendance at meetings or other business-related activities, as well as approve other forms of compensation. These mechanisms ensure that director compensation is managed within the confines of the board, aligned with governance best practices.