ILNews

Behind the News: Lawsuit over Simon’s bonus may expose board’s mindset

Greg Andrews
March 27, 2013
Keywords
Back to TopCommentsE-mailPrintBookmark and Share

BTN-andrewsThe $120 million retention bonus that Simon Property Group Inc.’s board awarded David Simon two years ago has spawned a bitter legal battle in Delaware that promises to shed fascinating light on the inner workings of the board.

The huge stock bonus, which David Simon will collect if he stays with the company through July 2019, received harsh criticism from corporate governance watchdogs, as rich pay packages usually do.

But what was more surprising was that, in a non-binding vote at Simon’s annual meeting last spring, shareholders representing a whopping 73 percent of shares opposed the bonus.

That’s remarkable because, during Simon’s 18 years of running the business, owning Simon shares has almost been like holding a winning lottery ticket. Simon Property Group has ballooned into the largest real estate company in the world, and the stock price has chugged higher and higher.

As you would expect, Simon’s board has argued that it’s worth spending a hefty sum to ensure he stays at the helm for many more years.

What’s never been clear – but almost surely will come to light as the discovery process gains momentum in the Delaware lawsuit – is what led the board to suddenly conclude that it needed to take dramatic steps to ensure Simon wouldn’t quit or jump to another company.

Family business

From the outside, neither scenario looks likely. After all, Simon is the son of company co-founder Melvin Simon and the nephew of co-founder Herb Simon. So he’s essentially leading the family business. How would taking the reins at, say, Home Depot be a better gig?

It seemed out of the blue when, in the company’s April 2011 proxy statement, the board’s compensation committee said it had believed for several years that Simon’s compensation “was not commensurate with his contributions” and that it was working on a long-term contract that would be more generous.

Without offering specifics, the board in the company’s April 2012 proxy raised the specter of David Simon’s getting recruited away.

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

Legal issues

The plaintiffs allege 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 argue, 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.”

Simon argues the amendment did not constitute a “material change” requiring shareholder approval – a position buttressed by a 2011 e-mail exchange between the company and a New York Stock Exchange official.

The NYSE mandates that its listed companies put material revisions to incentive plans to shareholder votes. After the company explained to the exchange why it didn’t think the changes triggered that requirement, John Carey, chief counsel for NYSE Regulation, followed up with an e-mail saying, “We have discussed your question and we have concluded that we agree with your analysis.”

The plaintiffs dismiss the exchange, arguing that Carey’s e-mail fell far short of providing an official legal interpretation. They also argue that taking the position that the changes weren’t material “strains credulity.”

Such legal issues could decide which side prevails in the case. But more interesting will be the e-mails and other documents Simon will turn over during discovery. Perhaps we’ll finally learn the full story behind the board’s lofty, no-strings-attached payout.•

__________

This “Behind the News” column originally appeared in the Indianapolis Business Journal.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Today, I want to use this opportunity to tell everyone about Dr agbuza of agbuzaodera(at)gmail. com, on how he help me reunited with my husband after 2 months of divorce.My husband divorce me because he saw another woman in his office and he said to me that he is no longer in love with me anymore and decide to divorce me.I seek help from the Net and i saw good talk about Dr agbuza and i contact him and explain my problem to him and he cast a spell for me which i use to get my husband back within 2 days.am totally happy because there is no reparations and side-effect. If you need his help Email him at agbuzaodera(at)gmail. com

  2. The practitioners and judges who hail E-filing as the Saviour of the West need to contain their respective excitements. E-filing is federal court requires the practitioner to cram his motion practice into pigeonholes created by IT people. Compound motions or those seeking alternative relief are effectively barred, unless the practitioner wants to receive a tart note from some functionary admonishing about the "problem". E-filing is just another method by which courts and judges transfer their burden to practitioners, who are the really the only powerless components of the system. Of COURSE it is easier for the court to require all of its imput to conform to certain formats, but this imposition does NOT improve the quality of the practice of law and does NOT improve the ability of the practitioner to advocate for his client or to fashion pleadings that exactly conform to his client's best interests. And we should be very wary of the disingenuous pablum about the costs. The courts will find a way to stick it to the practitioner. Lake County is a VERY good example of this rapaciousness. Any one who does not believe this is invited to review the various special fees that system imposes upon practitioners- as practitioners- and upon each case ON TOP of the court costs normal in every case manually filed. Jurisprudence according to Aldous Huxley.

  3. Any attorneys who practice in federal court should be able to say the same as I can ... efiling is great. I have been doing it in fed court since it started way back. Pacer has its drawbacks, but the ability to hit an e-docket and pull up anything and everything onscreen is a huge plus for a litigator, eps the sole practitioner, who lacks a filing clerk and the paralegal support of large firms. Were I an Indiana attorney I would welcome this great step forward.

  4. Can we get full disclosure on lobbyist's payments to legislatures such as Mr Buck? AS long as there are idiots that are disrespectful of neighbors and intent on shooting fireworks every night, some kind of regulations are needed.

  5. I am the mother of the child in this case. My silence on the matter was due to the fact that I filed, both in Illinois and Indiana, child support cases. I even filed supporting documentation with the Indiana family law court. Not sure whether this information was provided to the court of appeals or not. Wish the case was done before moving to Indiana, because no matter what, there is NO WAY the state of Illinois would have allowed an appeal on a child support case!

ADVERTISEMENT