Say on Pay Lawsuits - Is this Time Different?

19 Pages Posted: 16 Dec 2011 Last revised: 27 Jan 2012

See all articles by Kenneth B. Davis

Kenneth B. Davis

University of Wisconsin Law School

Keith L. Johnson

Global Investor Collaboration Services, LLC; Reinhart Institutional Investor Services

Date Written: December 14, 2011


The first season of advisory shareholder "say on pay" votes under the Dodd-Frank Act has led to a number of derivative lawsuits challenging the compensation of senior executives at companies where shareholders voted against pay practices. The authors argue that boards might not always be automatically protected by the "business judgment rule" in these suits. First, unique policy considerations presented by say on pay votes can distinguish the cases from a typical corporate derivative lawsuit. That could invite closer scrutiny of executive pay decisions under a stricter judicial standard of review and increase chances that shareholders will be excused from the procedural requirement to file a demand with the board and defer to its decision on whether to allow the action. Second, institutional investors have an incentive to use say on pay litigation as one of the few viable means through which they can address ineffective and recalcitrant boards. The authors conclude by suggesting that boards improve disclosure, engage with key shareholders and resolve the causes of failed executive say on pay votes in order to reduce exposure to risks of loss in say on pay lawsuits.

Keywords: Corporate Governance, Institutional Investors, Say on Pay, Executive Compensation, Derivative Litigation

JEL Classification: K41

Suggested Citation

Davis, Kenneth B. and Johnson, Keith L., Say on Pay Lawsuits - Is this Time Different? (December 14, 2011). Univ. of Wisconsin Legal Studies Research Paper No. 1182, Available at SSRN:

Kenneth B. Davis (Contact Author)

University of Wisconsin Law School ( email )

975 Bascom Mall
Madison, WI 53706
United States

Keith L. Johnson

Global Investor Collaboration Services, LLC ( email )

1710 Bohland Avenue
St. Paul, MN MN 55116
United States

Reinhart Institutional Investor Services ( email )

22 E. Mifflin Street
Suite 700
Madison, WI 53703
United States


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