WILMINGTON, Del. (CN) – The board of Simon Property Group paid its CEO an unauthorized, “highly irrational” bonus of more than $120 million to get him to stick around, a pension fund claims.
The Louisiana Municipal Police Employees Retirement System, or LAMPERS, sued the commercial real estate company’s board of directors in Delaware Chancery Court, claiming it modified a 1998 stock incentive plan without shareholder approval in order to pay CEO David Simon the massive bonus last year.
The pension fund says the bonus was part of a “very lucrative employment agreement” giving Simon an annual salary of at least $1.25 million, plus a target bonus of 200 percent of his base salary. The package also offered a “retention award” valued at $120.3 million that was “not tied to the company’s performance,” LAMPERS claims.
According to Institutional Shareholder Services, Simon is paid “12 times higher than median compensation to his peer CEOs.”
The fund argues that Simon is already “well-incentivized to stay employed by the company,” which was co-founded by his father: Simon has worked there since 1993, and he and his father control more than 36 million shares of the company’s stock and more than 31 million outstanding units of a partnership controlled by Simon Property Group.
To make this “wholly irrational” retention award even possible, the fund claims, the board had to amend the company’s 1998 stock incentive plan to allow “for the issuance of ‘[long-term incentive plan] units’ for reasons unrelated to corporate financial performance.”
Regulations require shareholder approval to eliminate performance-based requirements for compensation awards, according to the lawsuit. Because the board adopted the July 6, 2011 amendment without shareholder approval, Simon’s pay package and retention bonus were unauthorized and illegal, the shareholder claims.
Shareholders did get a “say-on-pay” vote at the company’s 2012 annual meeting, according to LAMPERS, and they voted against the company’s executive pay practices by more than 74 percent.
The pension fund wants the court to declare the amendment and Simon’s pay package, including his retention bonus, improper and cancel them. It is represented by Michael Barry of Grant & Eisenhofer.