Jenner & Block

“Say You, Sue Me? Unsuccessful Say on Pay Votes and Litigation,” Bloomberg Law Reports - Corporate and M&A Law

In this article, Jenner & Block Partners Jerry J. Burgdoerfer and Elaine Wolff and Associate Alexander J. May review the Dodd-Frank Act’s provision regarding shareholder advisory votes on executive compensation, or “Say on Pay” votes, and examine issues raised by five pending derivative suits brought by shareholders of public companies that had unsuccessful “Say on Pay” votes during the 2011 proxy season.  The plaintiffs in these suits are claiming that the failure to modify or otherwise rescind the executive pay packages after the negative votes constitute a breach of fiduciary duty by the companies’ directors, breach of contract by the compensation consultants, and unjust enrichment on the part of the executives.  The authors caution that, regardless of the legal outcome of any litigation, reputational risks and negative publicity can be long-lasting effects of an unsuccessful “Say on Pay” vote, and conclude by suggesting that “…a robust, responsive and regular dialogue with a company’s shareholders…throughout the year will help avoid any surprises when the votes are tallied after the company’s annual shareholder meeting.”