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Simon sticks with key terms of CEO's pay despite shareholder ire

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Simon Property Group Inc.’s annual proxy statement, released this week, shows that the company's board was so concerned about investor backlash to CEO David Simon’s rich compensation package that it held 21 meetings over the past year with large investors.

The proxy shows the company made small adjustments to that package but left in place the element that created the largest controversy—a $120 million stock retention bonus Simon will receive if he stays through July 2019.

The board unveiled Simon’s new contract terms in 2011, and in a non-binding vote at the 2012 meeting investors representing a whopping 73 percent of shares voted against his compensation package.

The new proxy reveals that the resounding vote prompted the board to launch a sweeping shareholder-outreach program, which included 21 in-person or phone meetings with 16 big investors. Eighteen of the meetings were attended by compensation committee Chairman Reuben Leibowitz; the other three were attended by compensation committee member Allan Hubbard.

Among the changes that the board and David Simon agreed to after receiving shareholder input:

—They reduced the amount of the retention bonus that Simon, 51, could collect if he were terminated before the contract expired without cause or for good reason.

If Simon stays through July 2019, he still receives the full award, which is in the form of 1 million shares of stock. The award was worth $120 million on the date of grant, but the actual value will depend on the share price at the time he collects it. Because Simon shares have risen to $163 a share, the current value is $163 million.

—Reduced the amount Simon could earn annually in performance-based awards from $12 million to a figure that is tied to what other Simon executives could receive. Under the formula, the potential 2012 payout for Simon was $11.5 million.

In the proxy, the board reiterated that David Simon had earned a lucrative pay package because the company performed well under his leadership, and he frequently appears on lists of best CEOs.

The proxy shows Simon’s total compensation in 2012 was $17.2 million.

A group that advises large shareholders on corporate governance issues praised Simon’s outreach effort, even though it did not result in a revamping of David Simon’s compensation.

“I think the company was very … pressured to address these issues,” Victoria Nguyen, an analyst at Glass Lewis & Co., told The Wall Street Journal. "They definitely made a move to engage with shareholders, which we think is encouraging and shareholders should recognize that as a valiant effort."

The outreach effort won’t put the matter to rest, however. The company continues to battle a lawsuit filed by two pension funds in August. They charge Simon’s pay package is “outlandish on its face” because it doesn't stipulate that the company achieve any performance benchmarks for Simon to get the $120 million.
 

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