One CEO Got Paid $46 Million in a Month, but the Rest of the Year Is a Mystery
27 March 2017 - 12:43AM
Dow Jones News
By Theo Francis
Johnson Controls won't say how much it paid its chief executive
for 11 of the months he ran the publicly traded company last fiscal
year, taking advantage of a loophole in pay-disclosure
regulations.
Alex Molinaroli, who has been CEO of Johnson Controls since 2013
and an employee since 1983, received $46.4 million in compensation
from Sept. 2 to Sept. 30, according to documents recently filed
with the Securities and Exchange Commission. The documents omit
what he made for the rest of the company's fiscal year.
Johnson Controls Inc. merged with Tyco International PLC on
Sept. 2, creating a conglomerate renamed Johnson Controls
International PLC that sells everything from smoke alarms to car
doors.
The SEC doesn't require a company to disclose what its top
executives were paid by a firm before it disappears or becomes a
subsidiary in a merger.
"SEC rules do not call for the company to file additional
information about Mr. Molinaroli's compensation before the merger
with Tyco, which we did not," spokesman Fraser Engerman wrote in an
email. "All SEC guidelines were followed in the formation of our
proxy."
In the merger, the old Johnson Controls became a subsidiary of
Tyco, which then took the Johnson Controls name and stock symbol.
However, for accounting purposes, securities filings note, the old
Johnson Controls was considered the acquirer.
"In the interest of transparency, it seems like you'd want to
disclose, even though you don't have to," said David Larcker,
director of Stanford University's Corporate Governance Research
Initiative.
The value of premerger pay also wasn't disclosed for three other
executives making the transition from the old Johnson Controls to
the new one, company filings show.
Attorneys who handle compensation and pay disclosure for large
companies say such omissions are uncommon but not unheard of. SEC
staff have endorsed the approach in guidance provided to companies
for a decade. The SEC declined to comment.
"Essentially, the rules provide that if you are an executive at
an acquired company and your company goes away in the transaction,
the compensation that was paid to you by your original company, it
just evaporates," said Mark Borges, a pay consultant with Compensia
Inc. and a former special counsel in the SEC division that polices
corporate disclosure.
In recent years, other companies going through big mergers also
have left pre-transaction compensation undisclosed. That list
includes United Continental Holdings Inc. in 2010 and Office Depot
Inc., which bought OfficeMax in 2013. A United spokeswoman said the
company followed SEC reporting requirements. Office Depot declined
to comment.
Compensation consultants and former SEC officials say the
approach is rooted in the idea that the proxy is intended to
reflect decisions by the continuing company's board -- an acquired
company's directors are no longer the ones under scrutiny. None of
the members of the compensation committee at the old Johnson
Controls, for example, now sit on the combined company's pay
committee.
But some say that doesn't justify giving incomplete pay figures,
and leaving investors unsure how much has been omitted. "The
immediate question is, what are you trying to hide, and why are you
trying to hide it?" said Nell Minow, a longtime
corporate-governance advocate.
The pay Johnson Controls disclosed for Mr. Molinaroli includes
$27 million in stock awards, $5.4 million in cash incentive
payments, and a $13.1 million payout of his balance from a
deferred-compensation plan. Much of it was tied to the merger and
paid out after it closed.
Mr. Engerman said investors could look up Mr. Molinaroli's 2015
salary in an earlier securities filing to calculate that portion of
his premerger 2016 pay, and could identify equity awards made
during fiscal 2016 using vesting and expiration dates listed in
tables in the current proxy. Johnson Controls doesn't provide
values for those awards.
(END) Dow Jones Newswires
March 26, 2017 09:28 ET (13:28 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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