Corporations – Compensation of Management – Bonus Plan

Defendant corporation’s board of directors adopted a profit-sharing retirement plan which was never ratified by the shareholders. The plan assigned to key employees “units” having a fixed dollar value equal to the current market value of the corporation’s common stock. The company promised to pay each unit holder, upon termination of employment, a sum equal to the number of units held times the increase in market value of the stock from the time the units were issued to the date employment terminated or any date within five years thereafter selected by the employee. The right of each unit-holder to receive the increased value of his units vested only after five years of employment. In a derivative action brought by plaintiff shareholder to restrain further operation of defendant’s plan, held, defendant is enjoined from making further agreements under its plan. Payments to be made under a plan based on increase in market value of the employer corporation’s common stock bear no reasonable relation to the value of the employee’s services and thus would constitute a wasting of corporate assets. Berkwitz v. Humphrey, (N.D. Ohio 1958) 163 F. Supp. 78.