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Third Circuit Rules For Viacom in Suit Over Compensation For Top Executives
Viacom gave more than $100 million in bonuses and incentive pay to three of the media company's top executives ' Chairman Sumner Redstone, President/CEO Philippe Dauman, and COO Thomas Dooley ' between 2008 and 2011. Typically, corporate taxpayers are able to deduct executive compensation over $1 million if approved by the board and a majority of shareholders.
Robert Freedman, a Viacom shareholder, filed a lawsuit in the U.S. District Court for the District of Delaware alleging the company's executive compensation program was corporate waste because a portion of it was not a tax-deductible business expense. The lawsuit named all of Viacom's board members as defendants, including Redstone and New England Patriots owner Robert K. Kraft.
The district court ruled in favor of Viacom and the U.S. Court of Appeals for the Third Circuit has affirmed. Under the appeals court's decision, corporations can define shareholder-voting rights by setting limits on certain classes of stock. Freedman v. Redstone, 13-3372. Although the issue had been long settled in Delaware corporate law, the appellate court's precedential decision adopts the regulation as federal law. And lucrative executive-compensation packages with bonus and incentive provisions are common in the entertainment industry.
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