Simon shareholders OK CEO’s controversial pay package

May 14, 2013

Shareholders of Simon Property Group Inc. approved CEO David Simon’s modified compensation package at the Indianapolis-based company’s annual meeting Tuesday morning.

The still-lucrative agreement leaves in place the element that has created the largest controversy—a $120 million stock retention bonus Simon will receive if he stays through July 2019.

Shares voting in favor of the pay package totaled more than 147.6 million compared with about 113.5 million voting against the proposal.
    
In a prepared statement, Simon Property Group defended its CEO’s compensation.

“Under David Simon’s leadership, Simon Property Group has delivered industry-leading earnings and dividend growth and total shareholder return,” the company said. “Our shareholders are pleased with the outstanding performance of their investment, and we look forward to our ongoing interactions with current and potential investors.”

Company directors 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.

Simon's annual proxy statement revealed that the resounding “no” vote last year 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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