Gender Pay Equity: Latest Twist for Diversity-Focused Derivative Suits
Yesterday, I blogged about the possibility that the SEC’s recent amendments to Rule 14a-8 could eventually deter proponents from submitting “pay gap” proposals. But companies and compensation committees shouldn’t get too comfortable, because shareholders are also using litigation to push for change.
There’s been a wave of shareholder derivative suits launched in the last several months over diversity concerns. While many have focused on board diversity and workforce demographics, some have also taken issue with the absence of connection between diversity goals and executive pay. And now, the latest suit is veering into “pay equity” territory. Earlier this week, a complaint was filed against Pinterest’s board and executives by the Employees’ Retirement System of Rhode Island.
The complaint alleges that the defendants breached their fiduciary duty by “perpetrating or knowingly ignoring the long-standing and systemic culture of discrimination and retaliation.” For the most part, it stems out of allegations made by three former execs in separate lawsuits of unfair compensation arrangements and retaliation for seeking equitable pay leveling — along with resulting employee “walkouts” to demand greater pay transparency and diversity. A D&O Diary blog has more details and analysis. Here’s an excerpt:
When the various #MeToo-related board liability lawsuits were coming in, I was concerned that this type of workplace environment board litigation could take a much more ominous turn if the lawsuits were to move beyond sexual misconduct allegations and expand to include gender pay disparity issues. The reason for my concern was based on a perception that gender pay disparity is a more widespread issue, and that gender pay disparity is an issue that potentially could ensnare many companies. Obviously, part of the basis of this concern is my perception that gender pay disparity is a serious issue. To that extent, if lawsuits like the one filed against the Pinterest board help companies focus on addressing these issues, that is clearly a good thing. But along the way, it could mean that some companies might find themselves facing board litigation arising out of pay equity concerns – as well as litigation brought by those who claim to have received inequitable compensation.
For those of you who might be wondering what the plaintiff might be hoping for from this lawsuit, I think one clue might be provided by the recent Alphabet settlement of the lawsuit involving underlying allegations of sexual misconduct and hostile workplace at Google. That case, readers will recall, settled for the company’s agreement to adopt certain corporate therapeutics, including most notably Alphabet’s agreement to provide funds of $310 million over ten years to address diversity, equity, and inclusion issues at Google. One reason I feel confident in conjecturing that this might be the kind of thing the plaintiff has in mind here is that the plaintiffs’ lawyers who filed the Pinterest complaint were co-counsel in the Alphabet/Google lawsuit.
-Liz Dunshee, CompensationStandards.com December 3, 2020
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