Proxy statement disclosures regarding executive compensation may require special attention this year as the plaintiffs’ bar increasingly pursues strike suits alleging inadequate or misleading disclosure. At least 18 such suits were filed in various state courts last year seeking injunction of annual meeting shareholder votes on say-on-pay and votes to increase the authorized share reserve under equity compensation plans. The basis of the allegations is that the proxy statement does not provide all of the information needed for an informed shareholder vote.

Some of these suits have been settled for over $600,000 (despite many commentators asserting the suits are without merit) because the cost of settlement is perceived as less than the cost and consequences of postponing the annual meeting.

It is no coincidence that the suits attack the same types of disclosures that the SEC has long stated are often inadequate, namely compensation data for peer group companies. Commission guidance has consistently stated that when companies engage in “benchmarking,” they must provide meaningful insight into the basis for selecting the peer group of companies, and the relationship between actual compensation paid and the data used to benchmark the peer group. One of the drawbacks of the Commission’s “principles-based” approach to executive compensation disclosure is that each company must decide the material aspects of its benchmarking, which in turn leaves room for strike suits alleging insufficient disclosure.