Heller v. Boylan - 29 N.Y.S.2d 653 (Sup. Ct. 1941)

Rule:

Directors of a corporation acting as a body in good faith have a right to fix compensation of executive officers for services rendered to the corporation and ordinarily their decision as to the amount of compensation is final except where the circumstances show oppression, fraud, abuse, bad faith, or other breach of trust. If clear oppression, bad faith, or other breach of trust is shown, the courts will give redress and determine to what extent the compensation is excessive. But plaintiffs must bring the case within one of the exceptions that are in each case predicated on a breach of legal duty with consequent damage to the corporation. 

Facts:

Plaintiff stockholders filed a derivative action suit seeking to recover from defendant recipient directors and defendant non-recipient directors for alleged improper payments arising from an incentive compensation by-law of the company. The stockholders alleged that large bonus payments bore no relation to the value of the services for which they were given and that the directors committed waste and spoliation in giving away corporate property against the protest of stockholders. The stockholders also alleged that the company's treasurer misinterpreted the by-law to the officers’ undue enrichment. 

Issue:

Was the compensation paid to the senior and some of the junior managing officers so excessive that it constituted a gift or waste of funds?

Answer:

No

Conclusion:

The court held that the incentive compensation payments should remain undisturbed, that defendant recipient directors were to restore to the company $ 2,018,033.44 representing the total overpayments made due to the treasurer's misinterpretation of the by-law, and that the stockholders’ objections to all other payments as miscomputations were overruled. The court also held that the profits of the company to be shared by the directors were restricted to those earned in the manufacture and sale of tobacco and that profits of its subsidiaries not engaged in the business were excluded from compensation.