Board of Directors benefits

[Guest jimmus]

We are a privately held S-Corporation based out of Illinois. Our Board of Directors each have a benefit package that are outrageous which no other employee receives. Beside the benefits they now have set up a SAR for the Board of Directors. Is there anything that we as employees can do to modify or eliminate some of the benefits and the SAR?

[QDROphile]

Acquire shares in the company. Vote for directors who will take actions that you think should be taken in the interests of shareholders.

[RLL]

Seek the advice of legal counsel experienced in ESOPs and corporate governance issues.

[ESOP Guy]

Is there an ESOP involved or did you just pick that topic at random?

[QDROphile]

If an ESOP is a shareholder, it would be helpful to know how much of the stock the ESOP owns as a percentage. It would not be uncommon for the ESOP to own 100 percent. It would also be helpful to know what benefits are at issue, if the directors are also employees, and the identity of the ESOP fiduciaries. The plan administrator and the ESOP trustee(s) are fiduciaries. The ESOP may have other fiduciaries.

[Guest jimmus]

ESOP Guy- Yes we are a 100% ESOP company.

QDROphile- We are a 100% ESOP company. The Board members in question are employees of our company. They are receiving cash bonuses based on the Companies sales, an automobile with insurance, taxes, gas and upkeep included, personal travel allowance, and just recently added a SAR program to their benefits.

[jpod]

That is a very important piece of information which you left out. There may (and I mean "may") be some basis for an ERISA breach of fiduciary duty claim that would trump the normal corporate law "business judgment" rule. I suggest you contact a lawyer or law firm that has experience in handling ERISA fiduciary claims from the plaintiff's side. On the other hand, if you like your job and your pay and are merely angered by this but aren't really adversely affected in any cognizable way in your position as an indirect shareholder, do you really want to sue your employer?

[QDROphile]

One thing that jpod is observing is that in almost any company there is disparity in compensation among employees, and there is often no objective measure about who deserves what, which gets one into the "business judgment rule" that protects directors against mere disagreement with shareholders over decisions about how to run the company, including compensation. A class warrior would robserve that management rapes the company to the extent that the shareholders let them get away with it. Other perspectives also have merit. Shareholders have recourse either by electing directors who have less tolerance for management rape or by a derivative action against the directors. Some ESOP fiduciary holds the shareholder rights in your company. If the directors are out of line, the fiduciary should take appropriate action as a shareholder. The trick is that the ESOP fiducicary is almost certainly either appointed by the directors or is one or more of the directors. Nice logic loop, isn't it? A fiduciary who does not take appropriate action as a shareholder against directors who tolerate mamagement rape breaches fiduciary duty. To prove breach, you have to estalblish that the directors are out of line in what they allow. You are at least aided by any confilict of interest of the fiduciary, but the business judgment rule is a huge barrier. I can promise you that the business judgment rule does not align with your sense of fairness.

[ESOP Guy]

To me the next question is: Is the trustee an inside or outside trustee? An outside trustee is often times a bank or some other organization that is hired to act as the plan's trustee. An inside trustee is an employee of the company who is also the trustee of the plan. An inside trustee can be a committee also.

I ask because if there is an outside trustee most likely they have had a chance to review the compensation plan for the board and officers. That will make it much harder to win a claim. The trustee's job is to look out for the interests of the trust. As such the trust's assets would be worth less if they company is over paying its employees. So if an outside group has reviewed the compensation plan I would think it is harder to get someone to second guess the decisions.

On the other hand one can see how there can be a conflict of interest if say the CEO is the trustee of the plan thus making him in charge of determining if he is being paid an excessive pay.

I would add QDROphile is right prudent business judgement and what is "fair" are often times not the same thing. Even if the CEO is the trustee if he hired an outside compensation firm to review the compensation plan and it can be shown to be in line of what similar companies in the same industry and same size MY UNDERSTANDING (however limited) is a court is most likely going to give the benefit of the doubt to the compensation plan.

[masteff]

Since you've now gotten a couple of competent answers, I'll add... If this is the first time you've gotten angry about executive compensation in the USA, you've not been paying attention. http://en.wikipedia.org/wiki/Executive_compensation

[Guest jimmus]

thank you all for your comments and suggestions. It is greatly appreciated.