Federal Court Rejects Shareholder “Say-on-Pay” Suit


The U.S. District Court for the Northern District of California on March 7, 2012 dismissed a derivative suit brought by shareholders of Intersil Corporation for breach of fiduciary duty premised on shareholders’ disapproval of the company’s executive compensation plan in a non-binding “say-on-pay” vote mandated under the Dodd-Frank Act. In dismissing the case, however, the court pointedly sought to determine what weight should be accorded negative “say-on-pay” votes.

Among the numerous requirements included in the Dodd-Frank Act, which was enacted in July 2010, was a requirement for all public companies to conduct a non-binding shareholder vote on executive compensation at least once every three years. Nearly 2,200 issuers held “say-on-pay” votes in 2011. Notwithstanding the non-binding nature of “say-on-pay” votes and the express intent of Congress to avoid challenging a board of directors’ fiduciary duties, share-holders have launched lawsuits against a growing number of companies, and their senior executive officers, directors, and outside compensation consultants, as a result of negative “say-on-pay” votes.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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