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

Greg Andrews
March 27, 2013
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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.

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  1. I just wanted to point out that Congressman Jim Sensenbrenner, Senator Feinstein, former Senate majority leader Bill Frist, and former attorney general John Ashcroft are responsible for this rubbish. We need to keep a eye on these corrupt, arrogant, and incompetent fools.

  2. Well I guess our politicians have decided to give these idiot federal prosecutors unlimited power. Now if I guy bounces a fifty-dollar check, the U.S. attorney can intentionally wait for twenty-five years or so and have the check swabbed for DNA and file charges. These power hungry federal prosecutors now have unlimited power to mess with people. we can thank Wisconsin's Jim Sensenbrenner and Diane Feinstein, John Achcroft and Bill Frist for this one. Way to go, idiots.

  3. I wonder if the USSR had electronic voting machines that changed the ballot after it was cast? Oh well, at least we have a free media serving as vicious watchdog and exposing all of the rot in the system! (Insert rimshot)

  4. Jose, you are assuming those in power do not wish to be totalitarian. My experience has convinced me otherwise. Constitutionalists are nearly as rare as hens teeth among the powerbrokers "managing" us for The Glorious State. Oh, and your point is dead on, el correcta mundo. Keep the Founders’ (1791 & 1851) vision alive, my friend, even if most all others, and especially the ruling junta, chase only power and money (i.e. mammon)

  5. Hypocrisy in high places, absolute immunity handed out like Halloween treats (it is the stuff of which tyranny is made) and the belief that government agents are above the constitutions and cannot be held responsible for mere citizen is killing, perhaps has killed, The Republic. And yet those same power drunk statists just reel on down the hallway toward bureaucratic fascism.

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