Plaintiffs’ lawyers have recently attempted to convert a negative shareholder advisory “say on pay” vote under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) into a breach of fiduciary duty where the board of directors implements a compensation program and awards thereunder. A U.S. district court in Oregon has rejected such a claim on procedural grounds, applying Delaware corporate law in affirming the business judgment presumption for the directors’ vote. Plumbers Local No. 137 Pension Fund v. Davis.

While the “say on pay” rules issued by the Securities and Exchange Commission are mandated by Dodd-Frank, it is those SEC rules that require companies to have such a vote. More importantly, the vote is on ALL executive compensation and its elements, not any specific aspect thereof.

The company in question, Umpqua Holdings Corp., indicated in its corporate proxy statement that its executives had met their independent and collective goals for 2010 and were rewarded with incentive pay. The board approved the compensation program and awards thereunder and then submitted the program and awards to shareholders for an advisory vote under Dodd-Frank. A majority of the shareholders rejected the entire package – not any specific aspect thereof.

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