Another form of minority oppression involves the majority shareholders awarding excessive compensation to themselves and/or members of their family.  This often occurs to the detriment to the minority shareholder and the corporation itself. Examples of excessive compensation have been found in the form of bonuses, salaries, pensions, profit sharing plans, and overly generous expense accounts and perks.

A minority shareholder who is the target of this commonly used squeeze-out technique may seek redress in the form of direct and derivative causes of action. An oppressed minority shareholder may assert a derivative claim on behalf of the injured corporation based upon the theory that the excessive compensation is a breach of fiduciary duty or constitutes corporate waste. Moreover, the oppressed minority shareholder may assert a direct claim under New Jersey’s minority oppression statute.

Of course, there are problems associated with proving that the majority has awarded themselves or others close to them excessive compensation. Because of the large number of objective factors involved in setting an employee’s compensation package, Courts have not set forth an exact formula or rules in determining what is and what is not excessive. In general, Courts have considered some of the following factors when arriving at the conclusion what is reasonable compensation:

  1. the employee’s qualifications and abilities;
  2. the qualities and quantity of services rendered for the benefit of the corporation;
  3. the amount of time the employee devotes to the corporation;
  4. the difficulties involved and responsibilities assumed;
  5. the successes achieved by the individual;
  6. the profits resulting to the corporation from the employee’s direct and indirect contributions;
  7. the size and complexity of the business;
  8. the number of people the employee is charged with training, mentoring and/or supervising;
  9. the corporation’s financial conditions;
  10. the prevailing economic conditions;
  11. the compensation over the past few years (also considering factors which could have effected previous year’s compensation);
  12. a comparison the compensation of other company employees; and
  13. a comparison to others who work in similar companies.

 There are a number of remedies available to the Court if it were find that the compensation is excessive. One available remedy is requiring the repayment of what the Court determines to be excessive. Another remedy is the issuance of an injunction preventing future siphoning off of corporate funds and resources. A third available remedy is the appointment of a receiver or corporate director charged with running the day to day affairs of the company. The most often employed Court remedy is a Court Ordered buy-out of the minority interests. Of course, Court will often factor the additional value of the corporation had the majority shareholder taken reasonable compensation.