“Say on pay” may well become “Hey, you are sued.”
Aside from an unprecedented federal intrusion into corporate governance matters — traditionally the province of state law — the say-on-pay vote required by the Dodd-Frank Wall Street Reform and Consumer Protection Act carries the significant risk of a shareholder derivative lawsuit following an adverse SOP vote. At last count, seven such shareholder derivative lawsuits — five in 2011 and two in 2010 — have been filed after failed SOP votes. Although appearing at first blush to be no more than nuisance actions, one lawsuit settled for a $1.75 million payment to the plaintiffs’ attorneys while another resulted in a $525,000 payment. The lawsuits target not only corporate officers and directors, but also the outside compensation consultants that advised the boards.
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