Jan. 29 (Bloomberg) -- Maxxam Inc. Chairman Charles Hurwitz, the billionaire who controls the commercial real-estate company, will forgo $1 million in bonuses to settle an investor’s claim that he received excessive compensation.
Hurwitz also will relinquish options to buy more than 1,300 Maxxam shares, received as part of his 2012 compensation package, to resolve a Delaware Chancery Court lawsuit filed by Arbiter Partners QP LP, according to court papers. The New York-based hedge fund sued Maxxam’s directors in March alleging Hurwitz was “unjustly enriched” by the option grants.
“The proposed settlement confers an immediate and substantial monetary benefit to the company,” the fund’s lawyers said in a court filing yesterday. “When measured against the substantial risks and costs of continued litigation, it is an excellent result.”
The settlement comes as the U.S. Securities and Exchange Commission weighs a proposal to require corporations to disclose how much more their chief executives earn than rank-and-file employees. The pay-ratio disclosures are mandated by a provision in the Dodd-Frank Act.
Greg Varallo, a Wilmington, Delaware-based lawyer representing Hurwitz in the Arbiter case, didn’t immediately return a call today seeking comment on the settlement.
Maxxam rose 46 percent to $1,072 in over-the-counter trading today.
Maxxam’s holdings include commercial real estate and horse-and dog-racing operations in Arizona, California, Puerto Rico and Texas, according to court filings. The Houston-based company is co-owner of the Sam Houston Race Park horse track in Houston and a greyhound track in Harlingen, Texas, according to Hoover’s Inc., a business-information service owned by Dun & Bradstreet Corp.
New York-based Arbiter, which said in court filings it owned 7.7 percent of Maxxam’s shares, alleged in its complaint that Maxxam directors approved “self-dealing transactions” that provided excessive compensation to Hurwitz.
Hurwitz, who owns stock giving him voting rights over 88 percent of Maxxam’s shares, received stock and option grants in 2011 and 2012 valued at more than $7 million, Arbiter’s lawyers said in court filings.
The grants unfairly enriched “Hurwitz to the impoverishment of Maxxam’s minority shareholders,” the hedge fund said in its complaint. Arbiter sought to recover $7.8 million in damages on Maxxam’s behalf.
Arbiter officials reached the settlement of their derivative claims in talks with lawyers for Maxxam’s directors. As part of the accord, Hurwitz agreed not to accept future stock or option grants unless the award’s fairness is reviewed by a “nationally recognized, third-party valuation firm,” according to a court filing yesterday.
Such a review “greatly reduces the potential for such abuses” of Maxxam’s executive-compensation system, Arbiter’s lawyers said.
Maxxam directors have been criticized for failing to provide proper oversight of Hurwitz’s handling of the company and his compensation. Both Bloomberg Businessweek and Forbes magazines have ranked Maxxam’s board among the worst in the U.S. for allowing itself to be dominated by the billionaire, Arbiter said in court papers.
In 1997, Maxxam agreed to pay a total of $25.5 million to settle investor lawsuits filed in Delaware over real-estate development loans made to a California company controlled by Hurwitz.
Complaints about executives’ pay packages prompted Congress to require companies to disclose pay ratios under the 2010 Dodd-Frank law. That statute was designed to tighten financial regulations in the U.S. in the wake of the economic collapse tied to subprime mortgages.
The law requires public companies to disclose their CEO’s total compensation as a multiple of median total worker pay. Total compensation under the law includes salary, bonus, stock and option awards, long-term incentive pay, and change in pension value.
Across the Standard & Poor’s 500 Index of companies, the average multiple of CEO compensation to that of rank-and-file workers is 204, up 20 percent since 2009, according to data compiled by Bloomberg.
CEOs at companies such as J.C. Penney Co., Co., Simon Property Group Inc. and Oracle Corp. were paid more than 1,000 times the average worker pay in their industries, according to the data.
The case is Arbiter Partners QP LP v. Hurwitz, CA No. 8394, Delaware Chancery Court (Wilmington).
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