Johnson Controls International change-in-control agreements “were excessive compared to industry norms” and incentives did not closely align with the company’s goals or lead to the creation of shareholder value, according to securities filings the company made Thursday.
Alex Molinaroli, the company’s former chairman and chief executive officer, is set to receive a $63.8 million cash severance payment in March. His change-in-control agreement was triggered in August when the company board decided to accelerate the transition of George Oliver to the CEO and chairman roles.
The merger of Johnson Controls and Tyco International had established a 30-month transition period that called for Oliver to become CEO after 18 months and Molinaroli would stay on for another year. Instead, Molinaroli left the company just 12 months after the merger was completed.
In its annual proxy filing, the company noted the organizational change brought on by its merger with Tyco and just 63 percent of shareholder approving of its compensation plan last year prompted the board’s compensation committee to evaluate executive pay.
“During our ongoing discussions with shareholders, we received clear feedback and concern about pay for performance alignment in three areas,” the filing says.
Those areas included incentive metrics that weren’t aligned with the company’s strategic and financial goals, incentive goals that were set in such a way that they didn’t lead to the creation of shareholder value when they were met and change-in-control agreements that led to “higher overall benefits relative to competitive market practice.”
The company’s annual incentive program will now use free cash flow conversion and revenue growth metrics instead of trade working capital improvements and return on sales.
Johnson Controls also implemented “a rigorous goal-setting process” for incentives and emphasized “superior results will be required to achieve maximum payouts.”
The company also made changes to its change-in-control and severance agreements. Those will apply to new hires or promotions, but Oliver agreed to waive his rights under the previous agreement and enter the new program.
Oliver did, however, receive a 20 percent increase in his base salary as of Oct. 1 in connection with his promotion to chairman and CEO. The increase puts his base salary at $1.5 million.
Johnson Controls also disclosed it was moving its named executive officers from a car lease program to the same car allowance program offered to the general executive management team. As their leases expire, each named executive officer will receive a $15,000 annual car allowance.
