WILMINGTON, Del. -- A retirement fund for police and firefighters in Florida is suing Lululemon Athletica Inc. (LULU), taking issue with a decision by Lululemon's compensation committee to boost the maximum payout of the executive bonus plan just before a $60 million recall of yoga pants.
The Hallandale Beach Police Officers and Firefighters' Personnel Retirement Fund filed the lawsuit Friday in the Chancery Court of Delaware.
The fund asserts that the bonus hike represents a breach of the board's obligations to the company and its shareholders, because the board was aware of the problem that led to the recall.
Lululemon pulled its Luon pants from stores over the weekend of March 16 and 17, after the company determined that the pants' fabric was too sheer and revealing.At the time, the company said on its Web site that it first began to understand the extent of the problem on March 11, as part of its weekly call with store managers, who voiced worries about sheerness. According to the complaint, Lululemon's compensation committee approved an amendment to the company's executive bonus plan on March 13 -- after the company was aware of the problem with the Luon pants, but before it pulled them from stores. Lululemon announced the amendment to the executive bonus plan in a regulatory filing on March 19. The amendment, according to the lawsuit, increased executives' maximum performance benchmarks by one third. That amounts to a potential 33% bump in the maximum allowable payout, according to the lawsuit. By doing this, the board of directors appears "to have violated its fiduciary obligations and damaged the company and its shareholders," the plaintiffs contend in the lawsuit. The fund said it wrote Lululemon seeking permission to inspect minutes of the company's board of directors' meetings, among other documents, but its request went unanswered. A call to Vancouver, British Colombia-based Lululemon was not immediately returned late Friday afternoon. Shares in the company ended regular trading down 52 cents at $76.36. The stock added 22 cents to $76.58 in after-hours trading. They are essentially unchanged this year.