Lawsuits in the Wake of Say-on-Pay

Chicago partner Brad Andreozzi and associate Doug Murray authored an article titled, “Lawsuits in the Wake of Say-on-Pay,” which was published in the Corporate Governance Advisor.

In January 2011, the SEC adopted Final Rules on “say-on-pay” under Section 951 of the Dodd-Frank Act. The rules provide that public companies must provide shareholders with advisory votes on the compensation of named executive officers (NEOs).

Brad and Doug, of the Commercial Litigation and Corporate & Securities Practice Groups respectively, discuss the troubling development of lawsuits following in the wake of shareholder “no” votes on say-on-pay. 

Plaintiffs have argued that shareholders’ “disapproval” of a company’s executive compensation plan supports claims that the directors breached their fiduciary duties when they approved the plans, and that the directors are therefore personally liable for damages to the company resulting from allegedly excessive compensation payments to NEOs

Brad and Doug discuss the lawsuits, their impact and what directors can do to limit liability. They argue that plaintiffs in these cases are attempting an end-run around the Dodd-Frank Act's explicit provisions that the shareholder votes are advisory and that the outcome of the votes is not intended to alter the directors' fiduciary duties.