1. IS THERE A “SAY” ON
SAY-ON-PAY
By Juan E. Monteverde
FARUQI & FARUQI, LLP
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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
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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
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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
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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.
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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)
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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
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8. THE FUTURE
• Better proxies so investors can
cast informed votes
• And perhaps a binding vote
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