Pillsbury Winthrop Shaw Pittman

Is proxy disclosure shareholder litigation on executive compensation finally over?

By Sarah A Good, Cindy V Schlaefer, Laura C Hurtado and Dorothy Kaslow

Since the advent of ‘say-on-pay’ more than three years ago, the plaintiffs’ securities bar has attempted to rustle up claims relating to executive compensation matters discussed in proxy statements. The first wave against those companies with failed ‘say-on-pay’ votes that nonetheless approved the compensation quickly sprang up and then ended. The second wave sought to enjoin annual meetings due to the purported inadequacy of disclosures in proxy statements; it largely failed despite two early successes. Undeterred, plaintiffs’ lawyers filed a third wave of shareholder litigation alleging that companies granted compensation in excess of applicable stock plan limits, which was not tax-deductible under Internal Revenue Code Section 162(m) despite affirmations to the contrary in proxy statements. While the third wave continues, it too is stalling.

The height of the proxy season has passed, and so it is time to check the pulse of shareholder litigation concerning executive compensation matters. Our prior client alerts in November 2012 and February 2013 outlined the three waves of shareholder litigation concerning executive compensation. The first two waves have died while the third wave is waning. Below and in the attached appendices, we update our metrics on the three waves of shareholder litigation. In addition, we offer tips to issuers to avoid being targeted in the third wave.

The first wave of shareholder litigation filed against companies approving executive compensation proposals that failed say-on-pay votes has long been over. No new cases have been filed since September 2012. Courts granted 50 per cent of motions to dismiss those complaints, which targeted 21 public companies…

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