Simon Property Group Inc. directors improperly refused to let shareholders vote on changes to the real-estate company’s executive-compensation plan that resulted in a $120 million stock award to CEO David Simon, investors’ lawyers argued.
The board of Indianapolis-based Simon wrongfully amended the company’s stock-incentive plan to allow the chief executive to receive retention grants instead of tying the awards to performance, Stuart Grant, a lawyer for Simon shareholders, told a judge Monday.
Shareholders were entitled to vote on whether Simon, the son of the company’s co-founder, should go from “getting paid for delivering performance to getting paid for just showing up,” Grant argued at a hearing before Delaware Chancery Court Judge Leo Strine.
Simon, the largest U.S. shopping-mall owner, faced criticism last year over its chief executive’s compensation package. More than 70 percent of the Simon shares voted at the company’s 2012 annual meeting opposed the retention award. To address those complaints, directors changed the CEO’s compensation package in April to cut the number of shares eligible to vest if Simon leaves before 2015.
The plaintiff investors are asking the judge to rule against directors without a trial. Strine declined to make an immediate decision in the case.
The board’s attorneys countered that the plan’s terms don’t provide an automatic shareholder vote on alterations and investors can’t show “intentional misconduct” on the part of directors for refusing to hold one.
The plan’s language says a vote “may be held” if changes are material as defined by the New York Stock Exchange, Paul Rowe, one of the company’s lawyers, said. NYSE officials confirmed that the changes to the company’s compensation plan don’t meet the test under their guidelines, he added.
Simon investors sued in Delaware last year in the wake of shareholders’ so-called “say-on-pay” vote over the CEO’s stock grants. Company officials defended Simon’s compensation, noting total stockholder returns for the past 10 years were 597 percent compared with 58 percent for the Standard & Poor's 500. Simon was one of the company’s top executives during that period, and has been CEO since 1995 and chairman since 2007.
The Louisiana Municipal Police Employees Retirement System, a Simon shareholder, and other investors accused directors of exceeding their authority by amending the company’s stock-incentive plan, created in 1998, to allow Simon’s retention grant without shareholders’ approval.
“The board caused the whole mess by violating the plan in effect at the time,” Michael Kelly, another lawyer for Simon shareholders, told the judge. The defendants’ interpretation of the agreement’s language on the vote “would lead to an absurd result,” he added.
After hearing arguments in Wilmington, Strine said investors’ complaints about the board’s refusal to hold a vote posed “an interesting situation” and suggested both sides should weigh a possible settlement.
The judge said Simon’s directors may want to consider whether “there is progress to be made outside the litigation front.”