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Simon amends plan for CEO's controversial $154M bonus

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Simon Property Group Inc. has amended its agreement with CEO David Simon for a hotly debated $154 million retention bonus, adding criteria to partially base the award on the financial performance of the company.

In 2011, the board of the Indianapolis-based retail real estate giant awarded Simon the bonus of 1 million shares—valued at that time at $120 million—contingent on him staying with the company through July 2019.

The changes to the agreement outlined in a Jan. 2 filing with the U.S. Securities and Exchange Commission tie the CEO’s bonus to a pay-for-performance plan, as well as length of tenure. Under the amendments, the firm must meet goals related to improved funds from operation, a key measure of financial performance for real estate investment trusts.

“The performance criteria in the modified award are designed to incentivize Mr. Simon to continue and improve upon the company’s outstanding performance achieved under his leadership,” according to the filing.

The firm also believes that the changes will head off legal action against the company based on the controversial retention bonus. “The company has made a motion to dismiss the claims as moot,” according to the filing.

The bonus currently is worth about $154 million, based on the firm’s share price.

Some stockholders were incensed by the original plan for the retention bonus, believing that it lacked incentives for David Simon to continue performing at a high level. In May 2012, shareholders representing 73 percent of Simon shares voted at the firm’s annual meeting to oppose the award.

The vote was non-binding, but it sent a message to company officials that shareholders were not pleased with the move. Earlier this year, the board proposed a modified compensation package that left in place the stock retention bonus but tinkered with unrelated performance-based rewards.

Shareholders voted in favor of the package at this year’s annual meeting.

However, legal action against the firm has continued. In May, a judge ruled that investors could proceed with a lawsuit accusing company directors of improperly raising the CEO’s pay without shareholder approval.

Plantiffs included the Louisiana Municipal Police Employees Retirement System and the Delaware County Employees’ Retirement Fund. In court filings, they called Simon’s new compensation package “outlandish on its face” because it didn’t stipulate that the company achieve any performance benchmarks for Simon to get the $120 million.

“The only requirement for this enormous grant was for Simon to continue to show up for eight more years,” court papers said.

The plaintiffs also alleged board members breached their fiduciary duty to shareholders and violated the law by amending the company’s 1998 incentive-compensation plan without putting it to a shareholder vote.

The plan had to be changed, the plaintiffs argued, because it tied pay to performance goals and clearly barred “a retention award payable to an employee simply for sitting at his or her desk for a designated period.”

The new changes to the terms of David Simon’s retention bonus are not significant enough to sway the plaintiffs in the case, said Stuart Grant, lead attorney in the consolidated action.

“They put lipstick on a pig,” Grant told IBJ Friday morning.

Grant noted that the amended plan does not address the issue of whether the board violated its incentive-compensation plan.

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  1. You are correct that Obamacare requires health insurance policies to include richer benefits and protects patients who get sick. That's what I was getting at when I wrote above, "That’s because Obamacare required insurers to take all customers, regardless of their health status, and also established a floor on how skimpy the benefits paid for by health plans could be." I think it's vital to know exactly how much the essential health benefits are costing over previous policies. Unless we know the cost of the law, we can't do a cost-benefit analysis. Taxes were raised in order to offset a 31% rise in health insurance premiums, an increase that paid for richer benefits. Are those richer benefits worth that much or not? That's the question we need to answer. This study at least gets us started on doing so.

  2. *5 employees per floor. Either way its ridiculous.

  3. Jim, thanks for always ready my stuff and providing thoughtful comments. I am sure that someone more familiar with research design and methods could take issue with Kowalski's study. I thought it was of considerable value, however, because so far we have been crediting Obamacare for all the gains in coverage and all price increases, neither of which is entirely fair. This is at least a rigorous attempt to sort things out. Maybe a quixotic attempt, but it's one of the first ones I've seen try to do it in a sophisticated way.

  4. In addition to rewriting history, the paper (or at least your summary of it) ignores that Obamacare policies now must provide "essential health benefits". Maybe Mr Wall has always been insured in a group plan but even group plans had holes you could drive a truck through, like the Colts defensive line last night. Individual plans were even worse. So, when you come up with a study that factors that in, let me know, otherwise the numbers are garbage.

  5. You guys are absolutely right: Cummins should build a massive 80-story high rise, and give each employee 5 floors. Or, I suppose they could always rent out the top floors if they wanted, since downtown office space is bursting at the seams (http://www.ibj.com/article?articleId=49481).

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