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Heller v. Boylan | 29 N.Y.S.2d 653 (1941)
Beginning in the early two thousands, news outlets increasingly reported on the sizeable amount of compensation paid to C E Os and other corporate bigwigs. But the issue wasn’t new, as the post-Depression-era case of Heller versus Boylan illustrates.
In nineteen twelve, shareholders of the American Tobacco Company approved almost unanimously an incentive compensation bylaw establishing bonuses for certain company officers based on a percentage of annual profits. The annual bonus payments were calculated by the company’s treasurer. From nineteen twenty-nine through nineteen thirty-nine, the officers were paid in the aggregate more than eleven million dollars under the bonus program, in addition to their salaries.
All together, American Tobacco had sixty-two thousand shareholders. Seven shareholders, including Esther Heller, filed a derivative action in New York Supreme Court against the company’s directors, including Richard Boylan. Heller argued that the large bonus payments weren’t related to the value of the officers’ services. Therefore, the payments were a gift of corporate property and, as such, constituted waste. Heller also argued that the treasurer overpaid the bonuses because he’d miscalculated the amounts. After a trial, the court issued its decision.
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