December 7, 2004

Here Comes Those Executive Compensation Lawsuits

Last week, I blogged about the new lawsuit filed against the CEO, President, CFO and General Counsel – as well against each director – of Fairchild Corp. Following on the heels of an executive compenation lawsuit against Nortel, the WSJ correctly called this “one of the first of a new wave of Delaware lawsuits challenging excessive pay for corporate leaders.” Both the Fairchild and Nortel complaints are posted in’s “Executive Compensation Litigation Portal.”

The complaint focuses on six areas:

– related-party transactions
– triggered change-of-control payments, without executives losing their jobs
– excessive salary and bonus – and huge advances on SERP payments
– reimbursement of legal fees
– interest-free loans
– nepotism

Interestingly, this complaint appears to be cobbled together from disclosures in SEC filings (can’t imagine what they might find that wasn’t disclosed) – which is a departure from the Cendant and Disney complaints that were replete with details taken from board minutes and other records that are not readily available.

Obviously, putting together the Fairchild complaint was easy to do in comparison. Given that the Wall Street Journal reported last year that three-quarters of the S&P 500 companies disclosed at least one related party transaction – the pool of potential defendants for this new breed of lawsuit appears to be quite large.

SEC Inquires Into How Much is Too Much

Further reflecting the SEC’s interest in executive compensation, check out this speech by the SEC’s Chief Economist into whether overall CEO pay is excessive – and not a proper allocation of resources. Some of Chester’s comments are too “economist” in nature for my tastes – but just the fact that the SEC’s Chief Economist is putting this issue out on the table is quite noteworthy.

NASD’s Shelf Offering Proposal

Yesterday, the SEC issued a proposing release seeking comment on the NASD proposed rule changes to its rules regarding the filing requirements and regulation of shelf offerings by NASD members – offerings of securities registered by issuers with the SEC pursuant to SEC Rule 415.