Three years on: Lessons from ‘say on pay’ shareholder litigation

Courts defer to boards of directors concerning executive compensation proposals

January 2014 will mark the third anniversary of the SEC’s enactment of shareholder “say on pay” rules for public companies. For most companies, “say on pay” has created little controversy. The experience of the past three years shows that shareholders regularly approve the executive compensation proposals put before them.

In a significant number of cases, however, they have not. When that has occurred, boards of directors have often decided to adopt the proposals anyway. In many of those cases, the boards’ decisions have been challenged through litigation. Affirming the application of the business judgment rule in the face of the say on pay rules, courts have largely upheld the authority of boards of directors to make informed decisions about executive compensation even in the absence of favorable shareholder votes. Nevertheless, the say on pay rules have re-focused the attention of the securities plaintiffs’ bar on the area of executive compensation.

Contributing Author

author image

William Sullivan

William Sullivan is the global chair of the Paul Hastings Litigation Department. Previously, Mr. Sullivan served as the chair of the firm's Securities Litigation and...

Bio and more articles

author image

Timothy Reynolds

Tim Reynolds is an associate in the Litigation practice of Paul Hastings and is based in the firm's Los Angeles office. Mr. Reynolds' practice focuses...

Bio and more articles

Contributing Author

author image

Sarah Kelly-Kilgore

Sarah Kelly-Kilgore is an associate in the Litigation practice of Paul Hastings and is based in the firm’s Los Angeles office. Ms. Kilgore’s practice focuses...

Bio and more articles

Join the Conversation

Advertisement. Closing in 15 seconds.