JCI Johnson Controls International PLC

Johnson Controls withholds what chief earned rest of year because of loophole

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 batteries.

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.

Corrections & Amplifications Johnson Controls's merger with Tyco created a conglomerate that sells everything from smoke alarms to car batteries. An earlier version of this article incorrectly stated the conglomerate sells car doors.

Write to Theo Francis at theo.francis@wsj.com

(END) Dow Jones Newswires

March 27, 2017 02:47 ET (06:47 GMT)

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