December 12, 2014
Disclosure Example: Compensation Committee Using Discretion to Reduce Pay
– Broc Romanek, CompensationStandards.com
It’s pretty rare that we see a comp committee uses its discretion to reduce pay – so I’m highlighting this recent disclosure example from Johnson Controls below. Apparently the CEO was dating a partner of their outside talent management consulting firm and is now in the midst of a divorce. Juicy stuff. But he’s a lucky fella as that only cost him 20% of his bonus, not his job:
As previously reported in the press, independent outside counsel was retained to advise the Executive Committee (other than Mr. Molinaroli, who recused himself for all purposes in this context) and to assist it in reviewing reports of a personal relationship between Mr. Molinaroli and a principal in an outside consulting firm that performed services for the Company relating to talent management and organizational development. Based upon that review, the Executive Committee concluded that there had been no misuse of corporate assets and that the assignments given to the consulting firm, which had served the Company for approximately 30 years, and related compensation to that firm had not been improperly influenced by Mr. Molinaroli. The Executive Committee also concluded that the principal of the consulting firm had no input to the Board of Directors regarding the Board’s 2013 decision to promote Mr. Molinaroli to the position of CEO. The Executive Committee and the Board (other than Mr. Molinaroli, who further recused himself) did determine that Mr. Molinaroli had failed to comply with the Company’s Ethics Policy, which required Mr. Molinaroli to timely alert the Audit Committee to a situation that could be perceived to raise issues of conflict of interest.
As a result, the Compensation Committee exercised discretion to reduce Mr. Molinaroli’s fiscal year 2014 Annual Incentive Performance Program (AIPP) payment by 20%. In addition, in light of the nature of the work performed by the outside consulting firm for the Company and to avoid any perception of conflicts or potential future conflicts, the engagement of the outside consulting firm was terminated under an agreement dated September 30, 2014, with no payment other than for incurred but as yet not paid fees and expenses and fees and expenses associated with a discrete list of projects already in process and to be completed no later than January 31, 2015. The Board concluded, in the exercise of its business judgment, that no further action be taken in respect of this matter. It also expressed its confidence in Mr. Molinaroli’s leadership of the Company as its CEO, which it also deemed to be in the best interests of the shareholders.