Simon Property Group Directors Sued Over CEO Pay Increase

Simon Property Group Inc. (SPG) directors were accused in a lawsuit by an investor of improperly increasing Chief Executive Officer David Simon’s compensation last year without seeking shareholder approval.

The board of the largest U.S. shopping-mall owner wrongfully authorized a compensation package for Simon that provided $1.25 million annual salary, a cash bonus of double his salary, and $120 million in special stock awards as an incentive to stay with the company through 2019, a Louisiana pension fund claimed in the suit, filed yesterday in Delaware Chancery Court.

The $120 million retention award “is not tied to the company’s performance and instead guarantees enormous payments to Simon simply if he stays employed by the company” for seven more years, the fund alleged.

Simon, based in Indianapolis, raised its dividend and increased its full-year forecast for funds from operations last month, citing increased demand for space from retailers at regional malls and outlet centers. Earlier this year, Simon bought a 29 percent stake in European shopping-center operator Klepierre SA and formed a venture with Rio de Janeiro-based BR Malls Participacoes SA (BRML3) to develop outlet centers in Brazil.

Photographer: Jonathan Fickies/Bloomberg

David Simon, chief executive officer at Simon Property Group Inc. Close

David Simon, chief executive officer at Simon Property Group Inc.

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Photographer: Jonathan Fickies/Bloomberg

David Simon, chief executive officer at Simon Property Group Inc.

Les Morris, a spokesman for Simon Property Group, said by e-mail that the suit is “meritless” and the company will defend itself against its claims.

The suit comes more than two months after Simon officials disclosed that 73 percent of the Simon shares voted at the company’s annual meeting opposed the granting of the retention award to the company’s chief executive.

Say-On-Pay Vote

Simon officials sought to defend the CEO’s compensation plan prior to the so-called “say-on-pay” vote, noting that total stockholder returns for the past 10 years were 597 percent compared with 58 percent for the S&P 500.

Simon had been one of the company’s top executives during that period. Simon, son of the company’s co-founder, has been CEO since 1995 and chairman since 2007.

The Louisiana Municipal Police Employees Retirement System, a Simon shareholder, accused the company’s directors of exceeding their authority by amending the company’s stock- incentive plan, created in 1998, without seeking shareholders’ approval.

The plan allowed the board to change its terms unilaterally unless shareholder approval was “required by law, regulation of listing requirement,” the pension fund said.

Tax Implications

Since changes to executives’ performance goals under the plan implicate tax laws, the board was required to have investors vote of them, the pension fund said.

The investors filed a so-called derivative suit against Simon’s board, which would return any recovery from insurance covering the company’s officers and directors to the company’s coffers.

The case is Louisiana Municipal Police Employees Retirement System v. Bergstein, CA No. 7764, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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