The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge:
MEMORANDUM OPINION AND ORDER
Plaintiff Natalie Gordon has filed a shareholder derivative complaint on behalf of nominal defendant Navigant Consulting, Inc. ("Navigant") against Defendants William M. Goodyear, Thomas A. Gildehaus, Cynthia A. Glassman, Stephan A. James, Michael L. Tipsord, Peter B. Pond, Samuel K. Skinner, Thomas A. Nardi, Julie M. Howard, and Monica M. Weed (collectively, the "Individual Defendants"). All Defendants have moved to dismiss the case pursuant to Federal Rule of Civil Procedure ("Rule") 23.1. In addition, Defendants Goodyear, Howard, Nardi, and Weed have moved to dismiss the complaint pursuant to Rule 12(b)(6). For the reasons discussed in detail below, the Court grants the motion and dismisses the case without prejudice.
Plaintiff Natalie Gordon, who owns Navigant common stock, has brought this shareholder derivative suit against the Navigant Board of Directors (the "Board") and various officers. She alleges that the Board awarded "excessive executive compensation despite the fact that Navigant shareholders have seen the value of their investment plummet." (R. 1, Compl. ¶ 2.) Plaintiff avers that each individual director and officer of Navigant owed Navigant and its shareholders fiduciary obligations of trust, loyalty, good faith and due care. She further alleges that they breached their duties and financial obligations and failed to act in the best interests of Navigant and its shareholders.
Navigant is a "specialty consulting firm which provides dispute, investigative, economic, operational, risk management, and financial and risk advisory solutions to government agencies and companies." (Id. ¶ 11.) Defendant Goodyear has served as Navigant's Chairman of the Board of Directors and Chief Executive Officer ("CEO") since May 2000. Defendant Howard has served as the President of Navigant since February 2006 and has been the Chief Operating Officer ("COO") of Navigant since 2003. (Id. ¶ 13.) Plaintiff alleges that Defendant Howard "has responsibility for the day to day management of company profitability, including compensation strategy." (Id.) She also leads the company's annual strategic planning and budgeting cycle and participates in its quarterly Board meetings. (Id.) Defendant Nardi is Navigant's Executive Vice President and the Chief Financial Officer ("CFO"). (Id. ¶ 14.) Defendant Weed is Navigant's Vice President, General Counsel and Corporate Secretary. She has served in this role since November 2008. (Id. ¶ 15.)
II. The Navigant Board of Directors
Navigant's Board of Directors was comprised of eight Directors during the relevant time period: Goodyear, Gildehaus, Glassman, James, Pond, Skinner, Thompson, and Tipsord. Defendant Goodyear is the only Director who is also an Executive of Navigant. The other seven Directors on the Board are outside Directors.
Defendant Gildehaus is a Director of Navigant, a role in which he has served since October 2000. (Id. ¶ 16.) In 2010, Gildehaus served as the Chair of the Board's Audit Committee, and as a member of the Compensation Committee of the Board of Directors (the "Compensation Committee"). (Id.) Defendant Glassman is another Director of the company, and has served in this position since October 2009. She served as a member of the Board's Compensation Committee and its Nomination and Governance Committee in 2010. (Id. ¶ 17.) Since January 2009, Defendant James has also served as a Director. In 2010, James was a member of the Compensation Committee and its Audit Committee. Defendant Tipsord has served as a Director of the Board since July 2009. In 2010, he also served as a member of the Compensation Committee and the Audit Committee. (Id. ¶ 19.) In addition, Defendant Pond is a Director of Navigant. He has served in this role since November 2006. (Id. ¶ 20.) He is Chair of the Nomination and Governance Committee, and is also a member of the Board's Audit Committee. (Id.) Defendant Skinner has been a Director of the company since December 1999. (Id. ¶ 21.) Skinner is also a member of the Executive Committee. (Id.) Defendant Thompson has served as a Director of Navigant since August 1998. He serves as the Chair of the Executive Committee and is a member of the Board's Nominating and Governance Committee. (Id. ¶ 22.) Plaintiff alleges that each of the individual Defendants owed Navigant and its shareholders fiduciary obligations of trust, loyalty, good faith and due care, "and were and are required to use their utmost ability to control and manage Navigant in a fair, just, honest and equitable manner." (Id. ¶ 24.) Given their positions as directors and/or officers of Navigant, they have a duty to "act in furtherance of the best interests of Navigant and its shareholders so as to benefit all shareholders equally and not in furtherance of their personal interest or benefit." (Id.)
Navigant's Compensation Committee Charter (the "Charter") sets forth the duties and responsibilities of the Compensation Committee. (Id. ¶ 28.) In 2010, the Compensation Committee consisted of Defendants Gildhaus, Glassman, James, and Tipsord. (Id.) Pursuant to the terms of the Charter, the Compensation Committee must "review and recommend to the Board compensation policies as well as approve individual executive officer compensation, intended to attract, retain and appropriately reward employees in order to motivate their performance in the achievement of the Company's business objectives and align their interests with the long-term interest of the Company's shareholders . . . ." (Id. ¶ 29.) The Charter directs the Compensation Committee to consider a number of factors when assessing the incentive component of executive payment. These factors include, but are not limited to "the Company's performance and relative shareholder return, the value of similar incentive awards to chief executive officers at comparable companies, and the awards given to the Company's Chief Executive Officer in past years. (Id. ¶ 30.)
III. Navigant's Financial Results and Executive Compensation
Plaintiff alleges that, from January 2006 until December 2010, Navigant's share price fell from over $21 per share to $9.20 per share. (Id. ¶¶ 2, 36.) Navigant posted a negative 38.1 percent shareholder return in 2010, which "capped off a three year return of negative 12.4 percent." (Id. ¶¶ 3, 38.) Plaintiff alleges that Navigant significantly underperformed both the S&P 500 Total Returns Index and the "business Services" industry performance between 2006 and 2010. (Id. ¶ 37.) Plaintiff alleges that the Board members approved pay increases and or cash bonuses for Navigant's top executive officers in 2010 "[d]espite Navigant's dismal financial results, which included a negative 38.1 percent shareholder return over the past year." (Id. ¶ 17.) According to Plaintiff, the total 2010 combined compensation for Defendants Goodyear, Howard, Nardi and Weed totaled in excess of $4.8 million. (Id. ¶ 42.) Of this amount, $725,000 consisted of cash bonus awards. (Id. ¶ 43.) Navigant paid Defendant Goodyear approximately $1.9 million in 2010, which included a $275,000 annual cash bonus award. (Id. ¶ 12.) As part of her 2010 compensation, it also paid Defendant Howard more than $1.3 million, including a $200,000 annual cash bonus award. (Id. ¶ 13.) Defendant Nardi received more than $900,000 in compensation for 2010, including a pay increase of over $222,000 and a $150,000 cash bonus award. (Id. ¶ 14.) In addition, Navigant paid Defendant Weed more than $755,000 in compensation for 2010, including a $100,000 cash bonus. She also received a pay increase of more than $148,000. (Id. ¶ 15.)
IV. The Shareholder Proxy
On March 16, 2011, Navigant issued and filed a Proxy Statement with the United States Securities and Exchange Commission ("SEC"). (Id. ¶ 50.) Pursuant to the Dodd--Frank Wall Street Reform and Consumer Protection Act ("Dodd--Frank Act")*fn1 , in the Proxy Statement, the Board recommended that the shareholders approve the compensation that Navigant paid to its executive officers in 2010. The Proxy informed the shareholders that their vote on the compensation was non-binding on both Navigant and its Board. The Proxy, which Navigant sent to its shareholders, specifically provided:
ADVISORY VOTE ON EXECUTIVE COMPENSATION
Pursuant to recently-enacted Section 14A of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), we are providing our shareholders with a vote to approve, on an advisory basis, the compensation paid to our named executive officers as disclosed in this Proxy Statement. This advisory vote on executive compensation is commonly referred to as a "say-on-pay" vote.
The guiding principle of our executive compensation philosophy is "pay for performance." Our executive compensation program has been designed to reward the achievement of annual and long-term performance goals and align our named executive officers' interests with those of our shareholders, with the ultimate objective of improving long-term shareholder value. This pay for performance philosophy informs our executive compensation program design as well as the compensation committee's determination of compensation levels for each of our named executive officers.
This pay for performance philosophy guided our executive compensation decisions for 2010, as evidenced by the following:
* Base Salary - Our named executive officers received no salary increase in 2010. Based on our peer group benchmarks, as well as individual and company performance assessments for 2010, the compensation committee did not approve any salary increases for our named executive officers for 2011. As a result, the base salaries for our named executive officers have remained unchanged for the last three years.
* Annual Performance-Based Cash Bonus - Cash bonuses for our named executive officers, in the aggregate, were awarded at 37% of target for 2010, reflecting the fact that the company's financial performance during 2010 only partially met the Board's expectations with respect to revenue growth and EBITDA (and did not meet expectations with respect to net income and earnings per share), despite the company largely achieving its strategic goals for 2010. Consideration was also given to the fact that the company's stock price performance was below the average for its peer group during 2010.
* Long-Term Equity-Based Incentive Compensation - The company's overall performance for 2010 was also a significant factor in determining the value of the equity-based incentive awards granted to our named executive officers for the 2010 performance year. The value of these grants was well below the 50th percentile of our peer group and represented more than a 50% decrease from the value of the prior year's grants.
These decisions resulted in a decrease, both individually and in the aggregate, in the total direct compensation to our NEOs for 2010 as compared to 2009, and positioned total direct compensation in the bottom decile of our peer group. We believe these decisions demonstrate our commitment to aligning our executive compensation with performance and our shareholders' interests.
We urge you to read the section entitled "Compensation Discussion and Analysis" in this Proxy Statement for additional details on our executive compensation program, including our executive compensation philosophy and objectives and the 2010 compensation of our named executive officers.
We are asking our shareholders to indicate their support for our executive compensation program by voting "FOR" the following resolution at the annual meeting: "RESOLVED, that the company's shareholders approve, on an advisory basis, the compensation paid to the company's named executive officers, as disclosed in the Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis and the compensation tables and related narrative discussion."
The say-on-pay vote is an advisory vote only, and therefore, it will not bind the company or the Board. However, the Board and the compensation committee will consider the voting results as appropriate when making future ...