Bernard Koch was president of United Corporation, a closely held corporation. Ko

Question

Bernard Koch was president of United Corporation, a closely held corporation. Koch, James Trent, and Henry Phillips made up the three-person board of directors. At a meeting of the board, Trent was elected president, replacing Koch. At the same meeting, Trent attempted to have the salary of the president increased. He was unable to obtain board approval of the increase because although Phillips voted for the increase, Koch voted against it. Trent was dis- qualified from voting by the charter. As a result, the direc- tors, by a two-to-one vote, amended the bylaws to provide for the appointment of an executive committee composed of three reputable businesspersons to pass upon and fix all matters of salary for employees of the corporation. Subse- quently, the executive committee, consisting of Jane Jones, James Black, and William Johnson, increased the salary of the president. Will Koch succeed in an appropriate action against the corporation, Trent, and Phillips to enjoin them from paying compensation to the president above that fixed by the board of directors? Explain.

Explanation / Answer

Koch can take appropriate action against the compensation due to the following reasons:

1. The executives are not from the board of directors, as where they cannot imcrease the salary of the president.

2. Only the board of directors have an authority to structure the compesation system.

3. The executives vote would be ineffective, as they dont have rights to vote and to increase the salary of the president.

4. The directors have a rights on decision towards compesation and not the executives.

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