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"Say on pay" legal recourse stokes controversy

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Compensation issues have exploded as a proxy issue, thanks in part to Dodd-Frank, which put "say on pay" up for a vote by most nonacclerated filers.

In 2012, less than 3 percent of the say-on-pay votes ending up as a rebuke to management on pay practices. But in the cases in which shareholders actually voted "no" on pay, the votes generated lots of controversy and media coverage. The rebuke to Citigroup CEO Vikram Pandit and other executives was a great example of that, but the Dodd- Frank-required vote is non-binding. Even if the "no" vote wins by a large amount, the board is under no obligation to act.

That has prompted some lawyers to bring suits, aiming to compel action.

"But the settlements to date have produced no changes in executive compensation and no money for investors. In fact, the main financial beneficiary so far has been a small New York law firm that brought the bulk of the cases," according to Reuters, which identified the firm Faruqi & Faruqi.

The lawsuits do not challenge compensation packages directly. Instead, the lawsuits accuse companies of failing to give shareholders enough information to make informed votes on compensation.

"Some 20 public companies including Microsoft Corp, H&R Block Inc and Clorox Co have been hit with these lawsuits in the past year…At least six of the new cases have resulted in settlements in which the companies have agreed to give shareholders more information on the pay of their executives or on the employee share plans. The settlements have also resulted in fees of up to $625,000 for the lawyers who brought the cases," notes Thomson Reuters News & Insight.

The firm says the settlements they have struck with companies benefit shareholders by giving them the information they need to make investment decisions and insight about decisions on pay. There has yet to be any cash remuneration for shareholders, which has prompted some criticism. One lawyer called it "a shakedown for a quick buck."

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