By Michael Brush, MSN Money

Featured: David Simon, CEO, Simon Property Group

Originally published: June 7, 2012

This sluggish economy has made life tough for consumers and retailers alike. But not so much for one retail and shopping mall tycoon.

David Simon, the CEO of Simon Property Group ( SPG ), which owns and manages retail properties around the world, pulled in an enormous $137 million in pay last year.

That 14 times average CEO pay of $9.6 million for the year, and more than 2,600 times what the typical U.S. household made last year, at $52,370, according to Moody's Analytics. It's objectionable enough that his shareholders turned it down in a "say on pay" vote -- not that it changed anything.

For pulling down such big pay -- one of the largest 2011 CEO pay packages I've seen so far -- in defiance of shareholders, I'm making David Simon my "One Percenter of the Week."

Shareholders say no

If you think this pay package is outrageous, you aren't alone. Simon Property Group shareholders rebelled and decisively voted down this pay package, according to a document filed May 22 with the Securities and Exchange Commission. (Shareholders had overwhelmingly approved Simon's pay the year before, at $24.6 million.)

But these so-called "say on pay" votes are not binding; companies can ignore them. And it looks as if that may happen here. "We value our stockholders' input, and our compensation committee will take their views into consideration as it reviews compensation plans for our management team," the company said. But no action has been taken.

Actually, Simon's $137 million pay package is part of a legally binding contract. So the company's board has virtually no power to make any changes, short of persuading the CEO to give up some of the pay or rethinking future pay.

In defense of the enormous pay package, Simon Property Group offers two main arguments. The first is that the company and shareholders have done extraordinarily well under the leadership of Simon, who has been CEO since 1995. This is undeniable. Total returns (including dividends) on Simon Property stock for 2002 through 2011 were 583%. Shares of similar real-estate investment trusts advanced 163%, and the Standard & Poor's 500 index ( $INX ) was up 33%.

But apparently, shareholders weren't convinced.

Picking apart the package

The second defense is that the $137 million shouldn't all be counted as pay for 2011, although under Securities and Exchange Commission rules, it has to be reported that way.

Of the total, $120 million came in the form of a million-share stock grant, which vests after six to eight years. This retention grant was meant to keep Simon around, because he could have pursued other employment opportunities, the company says in filings.

But there are problems even if you accept this defense, say the corporate governance watchdogs:

• Even if you spread out this grant of stock, Simon's pay is huge. Divide the grant and, assuming that Simon's annual $1.3 million base salary, $2.5 million bonus and $12 million in additional stock grants continue, he's get getting about $30 million a year for the next eight years, calculates ISS Proxy Advisory Services. That's more than three times the average for CEOs at S&P 500 companies. Simon was already one of the highest-paid CEOs before the mega-grant.


• Simon's mega-grant has no performance metrics, which watchdogs say encourage execs to work harder. Instead, the grant has the "potential to set up a pay-for-failure scenario," says ISS, because no matter how well the company does from here, Simon gets the grant.


• While the grant doesn't vest for six to eight years, it could kick in as soon as the middle of next year if Simon is terminated without cause, if he leaves because of a disability or if the company gets taken over.


• The watchdogs also say Simon makes way too much more than the next tier of executives, who earned about $3.4 million to $8.6 million last year. This is a sign of poor succession planning, says Glass, Lewis & Co., a proxy advisory firm. It gives Simon Property Group's executive pay plan a grade of D.

Here's another problem with the $120 million retention grant: Simon already owned or controlled 35.9 million shares and 31.4 million stock units, or more than 19% of outstanding shares, according to company filings. Given that he has so much of his personal wealth tied up in the company, it's hard to say why even more stock will make him work harder -- or why the company feared he might jump ship.