June 4 (Bloomberg) -- Simon Property Group Inc. investors can proceed with a lawsuit in which company directors are accused of improperly raising Chief Executive Officer David Simon’s pay without shareholder approval, a judge ruled.
Simon investors unhappy with the CEO’s 2011 compensation package, which included a $120 million stock award for staying with the real-estate firm, raised legitimate questions about the failure to hold a shareholder vote, Judge Leo Strine of Delaware Chancery Court ruled May 30.
Given the company’s earlier statements that Simon’s pay would be tied to performance, a challenge to a stock grant based solely on his continued employment is “frankly, hard for anyone to argue with,” Strine said in rejecting the company’s bid to have the suit thrown out, according to a court transcript.
Last month, a majority of Indianapolis-based Simon’s shareholders approved modifications to the CEO’s compensation plan. They cut the amount of performance-based awards the CEO can earn and said he can still receive the $120 million if he stays with Simon, the largest U.S. shopping-mall owner, through July 2019.
Simon officials said in an e-mailed statement the company will “vigorously defend” itself against the “meritless charges” that directors erred in failing to hold an investor vote on the executive-compensation plan’s changes.
“This litigation is still at a preliminary stage and we will continue to act in the best interests of all SPG’s stockholders,” Brooke Gordon, a Simon spokeswoman, said in the statement. Gordon is a managing director of Sard Verbinnen & Co., a New York-based communications firm.
Simon investors sued in Delaware last year over the CEO’s stock grant after 73 percent of the Simon shares voted at the company’s 2012 annual meeting opposed the retention award.
Company officials defended Simon’s compensation prior to last year’s “say-on-pay” vote, noting total stockholder returns for the past 10 years were 597 percent compared with 58 percent for the S&P 500.
Simon was one of the company’s top executives during that period. The son of the company’s co-founder, he has been CEO since 1995 and chairman since 2007.
The Louisiana Municipal Police Employees Retirement System, a Simon shareholder, 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.
Simon directors had the authority to amend the stock plan and the move was a “classic business-judgment decision,” Paul Rowe, one of the company’s lawyers, said at the hearing, according to the transcript.
Stuart Grant, a lawyer for the investors, countered that the board’s amendments involved a “fundamental change” to the company’s “pay-for-performance culture” that required shareholder approval.
Strine said Simon officials in the past vowed to allow a shareholder vote on any “material changes” to the real-estate firm’s executive-compensation plan.
Ruling from the bench, the judge went on, “When you tell stockholders up front they’re voting on a plan that has performance units based on performance goals, and that they get to vote on any material changes, and then by board action alone, the performance units are turned into simply an aspect of a recipient’s salary package, I cannot conclude” the investors’ suits should be dismissed.
Strine threw out some claims that Simon officials didn’t properly disclose the changes to the company’s executive-compensation plan.
The case is Louisiana Municipal Police Employees Retirement System v. Bergstein, CA No. 7764, Delaware Chancery Court (Wilmington).
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