Many compensation and pension actions require the approval of a company’s board of directors, or a committee of the board, and for good reason. Employers should not skimp on the finalization of corporate approval via signed and dated board or committee resolutions.
U.S. Case in Point: A federal judge in New York recently denied enhanced retirement benefits to the CFO that would have been due to him under the terms of an amended SERP because the board resolutions from seven years before his retirement seem to have never been finalized. The court ruled against the executive seeking benefits, despite the undisputed facts that the board had agreed “in concept” to the SERP enhancements and that two other executives had been paid out under the amended plan terms. The reason? Under the terms of the SERP, only the Board could amend the plan and the Board never formally approved the amendments.
Now, we’ll never know from the facts in this case whether the failure to approve the amendments was due to administrative oversight, or, as defendants alleged, wrong-doing by the executives in their attempt to amend the SERP for their personal benefit. Plus, in this case, there is the added background fact that defendant (an acquirer of the plan sponsor) is now in bankruptcy, which shouldn’t, but sometimes does, influence a court’s opinion. But as a practical matter, executives nearly always direct the design and implementation of benefit plan changes, even when they are participants. Therefore, executives should be mindful of their fiduciary duty to their employer as they navigate this conflict of interest.
There is a take-away lesson from story: Always follow corporate formalities through to completion when adopting or changing compensation plans – including signatures and dates with unambiguous approval language. Further, don’t forget to formally delegate authority to officers to finalize or change amendments, whenever delegation is appropriate.
Special thank you to Michael Melbinger for bringing this new case to my attention.