The first wave of "say on pay" litigation involved lawsuits brought by shareholders following a negative advisory say on pay vote under the Dodd-Frank Act. The second wave of say on pay litigation, which picked up in 2012, involved plaintiffs' efforts to enjoin upcoming shareholder votes on compensation or employee share plans on the grounds of inadequate or insufficient proxy disclosure.
Now there is a "third wave" of executive compensation litigation, according to a February 21, 2013 memo from the Pillsbury Winthrop Shaw Pittman law firm entitled "Proxy Season Brings a Third Wave of 'Gotcha' Shareholder Litigation" (here). In these third wave lawsuits, the plaintiffs allege that companies issued stock options or restricted stock units to executives in amounts that exceed the limits of the companies' stock plans. According to the law firm memo, this latest litigation wave "has not crested yet."
As the memo details, the first two waves of say on pay litigation has not been particularly successful for the plaintiffs. Indeed, the memo includes detailed appendices laying out how the cases have fared in the courts. Among other things, the statistics in the memo show that in most cases the companies targeted in the second wave cases successfully fought the plaintiffs' efforts to obtain preliminary injunctions; according to the memo, "the plaintiffs' bar was beaten in 80% of the motions for preliminary injunction."
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Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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