In an early test of “say-on-pay” voting, a shareholder sued Hercules Offshore Inc. directors and top executives, demanding that they return big pay increases that shareholders voted against.
At last month’s shareholder meeting, 59 percent of Hercules’ shareholders voted against the 2010 pay package, a rare defeat of a compensation package.
Such nonbinding votes are now required as part of last year’s Dodd-Frank package of Wall Street reforms. Less than 2 percent of the 2,300 compensation plans voted upon have been rejected by shareholders, according to the Hercules lawsuit.
The lawsuit by New York shareholder Pinchus Raul accuses Hercules’ directors and executives of unjustly enriching themselves even as the shallow-water rig contractor’s operating losses widened and revenue fell.
“The 2010 executive compensation rejected by the shareholders raised executive compensation by two to three times while at the same time the company’s performance was dismal,” said the complaint filed in federal district court in Delaware.
Hercules did not immediately return a call for comment.
The company’s board had recommended shareholders approve the 2010 compensation. The company’s proxy statement said that Hercules aimed to balance retaining executives against aligning pay with performance. It noted that several unnamed Hercules executives had taken 10 percent pay cuts.
The 2010 pay for Hercules Chief Executive Officer and President John Rynd rose 90 percent to $2.5 million and pay for Stephen Butz, the chief financial officer, rose 190 percent to $1 million, according to the lawsuit.
In addition to seeking to claw back the pay, the lawsuit seeks to reform the company’s pay structure. It also names as a defendant the company’s compensation adviser, Frederic W. Cook & Co.
Cook declined to comment.
Companies provide details about executive pay in their annual proxy statements, which summarize the previous year’s compensation and offer guidelines for setting future pay.
Several legal experts have raised concerns that say-on-pay votes could lead to a spike in lawsuits against companies.
Hercules is the sixth company involved in a say-on-pay lawsuit, according to Broc Romanek at CompensationStandards.com.
Shares of Hercules were down 4.8 percent at $5.12 in afternoon trading on Nasdaq.
The case is Raul v. Rynd et al, U.S. District Court, District of Delaware, No. 11-0560.
(Reporting by Tom Hals, editing by Gerald E. McCormick)
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