Say on "Say on Pay" by Juan Monteverde

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Say on "Say on Pay" by Juan Monteverde

  1. 1. IS THERE A “SAY” ON SAY-ON-PAY By Juan E. Monteverde FARUQI & FARUQI, LLP 1
  2. 2. WHAT’S SAY ON PAY • The Dodd–Frank Wall Street Reform and Consumer Protection Act §951 required a new say on pay vote • Important because concerns by shareholders exist that corporate compensation practices are not properly aligned with company performance • But it is an advisory vote 2
  3. 3. ADVISORY VOTE: PROXY STILL REQUIRED • Advisory vote means companies can disregard vote and it is non-binding • Nevertheless, companies must issue a proxy and disclose material information about its compensation practices • Some companies hire compensation consultants who perform analysis and SOMETIMES disclose the analysis performed 3
  4. 4. PROXY DISCLOSURES • Amounts of monies or options awarded to NEO(s) – Top Management • Peer Groups – disclose who are the competitors of the company • Benchmarking Analysis – how did the company compare within the Peer Group ONLY SOMETIMES disclosed 4
  5. 5. LITIGATION HISTORY • Derivative Action – A lawsuit brought by shareholders on the corporation’s behalf to remedy or prevent a wrong to the corporation. – Shareholders must make a pre-suit demand or demonstrate that such a demand would have been futile. – Shareholders will litigate post vote after negative sayon-pay vote and seek disgorgement of compensation improperly given to management. 5
  6. 6. LITIGATION HISTORY (cont’d) • Direct Action – A lawsuit brought by shareholders on their own behalf and other shareholders. The case is filed as a purported class action. – Shareholders will litigate pre vote to seek enjoining a shareholder meeting. • Likelihood of success on the merits – material information omitted • Irreparable harm – misinformed vote cannot be compensated with damages – Knee v. Brocade – Injunction granted (share increase to plan not say-on-pay directly) – Mancuso v. Clorox – Injunction denied but straight to trial (defs just lost MSJ) 6
  7. 7. POTENTIAL REMEDIES • Damages (disgorgement of improperly granted compensation) • Therapeutic relief – – – Supplemental disclosures before vote Rescind vote and proposal Rescind vote and new vote with material information disclosed 7
  8. 8. THE FUTURE • Better proxies so investors can cast informed votes • And perhaps a binding vote 8

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