The SEC has mandated public companies to vote at least every three years on executive comp; shareholders must take a nonbinding (advisory) vote on whether they approve comp levels and golden parachutes.  The idea is, no doubt, to pressure the board to keep a cap on management greed.

Without speculating on whether or not boards of directors will in fact feel pressured on such matters, we can look at a recent case in which a court threw out a lawsuit by a Teamsters retirement fund, which raised one issue under the SEC say on pay scheme.

In September a Georgia court, interpreting Delaware law, threw out a claim by the Teamsters Fund against the directors for allowing excessive compensation for a management team that brought a $34 Million loss to the bottom line.  As with most law suits, there are a lot of issues and twists and turns, but what is of interest here is the claim that the directors breached their fiduciary duties by recommending that shareholders approve the compensation in its advisory vote which was compelled by the Dodd-Frank Act.

Among various holdings, some of which the court went out of its way to reach (the judge shot the plaintiffs down six ways to Sunday), the court found that since a board can in the exercise of its business judgment compensate any way it chooses (absent fraud or self-interest), it cannot be a breach of duty to ask the shareholders to bless the board decision in a process compelled by SEC regulation.  The court notes that in any event no conclusion can be supported based on a negative shareholder vote, or a positive shareholder vote, as say on pay votes are non-binding and thus failure to have shareholder approval does not at all prove excessive pay, let alone a breach of duty.

Less than 2% of companies which have held the required say on pay vote have experienced shareholder negative votes.  It is not at all clear that Dodd Frank and the say on pay SEC rules have accomplished anything of use, although I suppose a downward trend in executive comp (not in evidence yet) might in the future alter that preliminary analysis.

Law buffs might want to look at Teamsters Local 237 vs McCarthy et al, filed September 16 2011 with the Deputy Clerk of the Superior Court of Fulton County, Georgia.  If you have trouble finding it, let me know.