Human Capital & Careers

Judge Nixes Settlement on Excess Pay

The proposal was challenged by a shareholder who asserted that the concessions were puny compared with potential claims.
Stephen TaubMay 20, 2005

So much for the proposed legal settlement between shareholders of Fairchild Corp. and two of the company’s top executives. Vice Chancellor Leo Strine of the Delaware Court of Chancery rejected the proposed agreement as inadequate, according to The Washington Post.

“Cosmetic whimper” he called it, in fact, reported the Associated Press. “Get something real.”

A shareholder lawsuit filed in November asserted that a number of top executives unjustifiably received certain payments related to compensation, loans, and reimbursements. Under the settlement proposed in March, chairman and chief executive officer Jeffrey Steiner agreed to make a $1.5 million payment to the company for legal expenses; to reduce his base salary by 20 percent, and to cut his term of employment in half.

His son Eric, the company’s president, agreed to have his current term of employment reduced by a year, to a two-year term, and his base salary reduced by 15 percent.

The proposal was challenged by a shareholder who asserted that the concessions were puny compared with potential claims of more than $55 million, according to the Post.

In his ruling, Strine stated that the proposed settlement didn’t offer enough protection to Fairchild shareholders against indications of what he termed “a grotesque lack of controls in a company that has no profits,” reported the AP.

The lawsuit is the third against Fairchild and the Steiners, and the judge reportedly bemoaned the fact that the prior two suits did little to cause the company and its allegedly “supine” board to change its ways. “What you can do is put in place some real structural protections that will involve a real infusion of backbone into the board,” Strine reportedly said.

In a similar case, two lawsuits filed in February challenged the compensation of Abercrombie & Fitch chief executive officer Michael Jeffries. The complaints alleged, among other things, that the company’s board and its compensation committee breached their fiduciary duties in granting stock options and an increase in cash compensation to Jeffries, and in approving his current employment agreement. The complaints also asserted that the disclosures related to Jeffries’ compensation were deficient.

Last month, Abercrombie & Fitch announced that it will cut Jeffries’s “stay bonus” from $12 million to $6 million. The company added that in the future it will tie that bonus to certain performance measures.