Executive pay and Commercial Real Estate and Financial Results and Compensation and Public Companies and Share prices and Shareholders and Real Estate Investment Trust and Executives and David Simon and Real Estate & Retail

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

January 3, 2014

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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