Courts have recently rendered two say-on-pay decisions. The first is Gordon v. Symantec Corporation. The recent decision follows on the heels of an earlier dismissal. The plaintiff then filed an amended complaint. In the amended complaint, plaintiff claimed the proxy was materially misleading because it failed to provide a fair summary of the advice, counsel and analysis provided to the board and/or the compensation committee by the compensation consultant. Some of the deficiencies alleged include:
- Nondisclosure of certain information had the likely effect of causing shareholders to assume that Symantec’s performance metrics are generally aligned with the 50th to 65th percentile of its peer group andws misleading.
- Failure to disclose total shareholder return, or TSR, as a key metric for an informed shareholder vote on compensation.
- Failure to disclose a fair summary of the peer benchmarking analysis. Plaintiff claimed without the information shareholders were unable to determine if executive compensation was being appropriately targeted and if executive salaries were properly aligned with performance metrics and, as a result, were unable to cast informed votes on the say-on-pay proposal.
The court held the plaintiff failed to allege a direct disclosure claim because the purported omissions only allege the possibility of harm to Symantec. Assuming the plaintiffs alleged a direct disclosure claim, the court found the plaintiff’s case should still be dismissed. The court found:
- None of the compensation-related information was rendered materially misleading by omission of information about the financial performance of Symantec or the other companies in the peer group.
- It was not substantially likely that disclosure of the comparative TSR information would have significantly altered the total mix of information available to the Symantec shareholders.
- The proxy adequately disclosed what the pay targets were based on, as well as the fact that compensation may be above the positioning benchmark based on consideration of factors other than performance.
The defendants in Dennis v Pico Holdings, Inc. removed state course case to federal court, which was originally filed following a failed say-on-pay vote. The Ninth Circuit remanded the case to state court. The Ninth Circuit held that that removal of the suits from state court was improper because the plaintiffs asserted state-law causes of action, and, under the well-pleaded complaint rule, their allegations regarding the say-on-pay vote were insufficient to establish federal-question jurisdiction. The panel rejected defendants’ arguments that federal jurisdiction existed under § 27 of the Securities Exchange Act of 1934, the “significant federal issue” rule, or the complete preemption doctrine.