DEF 14A 1 d281956ddef14a.htm NOTICE & PROXY STATEMENT Notice & Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934 (Amendment No.        )

Filed by the Registrant  

Filed by a Party other than the Registrant  

Check the appropriate box:

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant to § 240.14a-12

JOHNSON CONTROLS INTERNATIONAL PUBLIC LIMITED COMPANY

 

 

(Name of Registrant as Specified In Its Charter)

 

 

 

LOGO

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
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  (1)  

Title of each class of securities to which transaction applies:

 

     

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  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

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  (3)  

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  (4)  

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LOGO

 

NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS

WEDNESDAY, MARCH 8, 2017

THE MERRION HOTEL, 24 UPPER MERRION STREET, DUBLIN 2, IRELAND

NOTICE IS HEREBY GIVEN that the 2017 Annual General Meeting of Shareholders of Johnson Controls International plc will be held on March 8, 2017 at The Merrion Hotel, 24 Upper Merrion Street, Dublin 2, Ireland at 3:00 pm, local time for the following purposes:

Ordinary Business

 

  1. By separate resolutions, to elect the following individuals as Directors for a period of one year, expiring at the end of the Company’s Annual General Meeting of Shareholders in 2018:

 

  (a) David P. Abney
  (d) Brian Duperreault
  (g) George R. Oliver
  (j) Mark Vergnano
(b) Natalie A. Black
(e) Jeffrey A. Jorres
(h) Juan Pablo del Valle Perochena
(k) R. David Yost
(c) Michael E. Daniels
(f) Alex A. Molinaroli
(i) Jürgen Tinggren
 

 

  2. To ratify the appointment of PricewaterhouseCoopers LLP as the independent auditors of the Company and to authorize the Audit Committee of the Board of Directors to set the auditors’ remuneration.

Special Business

 

  3. To authorize the Company and/or any subsidiary of the Company to make market purchases of Company shares.

 

  4. To determine the price range at which the Company can re-allot shares that it holds as treasury shares.

 

  5. To approve, in a non-binding advisory vote, the compensation of the named executive officers.

 

  6. To approve, in a non-binding advisory vote, the frequency of the non-binding advisory vote on the compensation of the named executive officers.

 

  7. To approve the material terms of the performance goals under the Johnson Controls International plc 2012 Share and Incentive Plan.

 

  8. To approve the Directors’ authority to allot shares up to approximately 33% of issued share capital

 

  9. To approve the waiver of statutory pre-emption rights with respect to up to 5% of issued share capital

 

  10. To act on such other business as may properly come before the meeting or any adjournment thereof.

This notice of annual general meeting and proxy statement and the enclosed proxy card are first being sent on or about January 20, 2017 to each holder of record of the Company’s ordinary shares at the close of business on January 4, 2017. The record date for the entitlement to vote at the Annual


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General Meeting is January 4, 2017 and only registered shareholders of record on such date are entitled to notice of, and to attend and vote at, the Annual General Meeting and any adjournment or postponement thereof. During the meeting, management will also present the Company’s Irish Statutory Accounts for the fiscal year ended September 30, 2016. Whether or not you plan to attend the meeting, please complete, sign, date and return the enclosed proxy card to ensure that your shares are represented at the meeting. Shareholders of record who attend the meeting may vote their shares personally, even though they have sent in proxies. In addition to the above resolutions, the business of the Annual General Meeting shall include prior to the proposal of the above resolutions, the consideration of the Company’s statutory financial statements and the report of the directors and of the statutory auditors and a review by the shareholders of the Company’s affairs.

This proxy statement and our Annual Report on Form 10-K for the fiscal year ended September 30, 2016 and our Irish Statutory Accounts are available to shareholders at www.proxyvote.com and are also available in the Investor Relations section of our website at www.johnsoncontrols.com.

By Order of the Board of Directors,

 

LOGO

Judith A. Reinsdorf

Executive Vice President and General Counsel

January 20, 2017

PLEASE PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD. THE PROXY IS REVOCABLE AND IT WILL NOT BE USED IF YOU: GIVE WRITTEN NOTICE OF REVOCATION TO THE PROXY PRIOR TO THE VOTE TO BE TAKEN AT THE MEETING; SUBMIT A LATER-DATED PROXY; OR ATTEND AND VOTE PERSONALLY AT THE MEETING.

ANY SHAREHOLDER ENTITLED TO ATTEND AND VOTE AT THE MEETING MAY APPOINT ONE OR MORE PROXIES USING THE ENCLOSED PROXY CARD (OR THE FORM IN SECTION 184 OF THE COMPANIES ACT 2014) TO ATTEND, SPEAK AND VOTE ON THAT SHAREHOLDER’S BEHALF. THE PROXY NEED NOT BE A SHAREHOLDER. PROXIES MAY BE APPOINTED VIA THE INTERNET OR PHONE IN THE MANNER SET OUT IN THE ENCLOSED PROXY CARD. ALTERNATIVELY THEY MAY BE APPOINTED BY DEPOSITING THE ENCLOSED PROXY CARD (OR OTHER VALID SIGNED INSTRUMENT OF PROXY) WITH JOHNSON CONTROLS INTERNATIONAL PLC C/O BROADRIDGE, 51 MERCEDES WAY, EDGEWOOD, NY 11717 BY 5:00 P.M., EASTERN STANDARD TIME, ON MARCH 7, 2017 (WHICH WILL THEN BE FORWARDED TO JOHNSON CONTROLS INTERNATIONAL PLC’S REGISTERED ADDRESS ELECTRONICALLY) OR WITH JOHNSON CONTROLS INTERNATIONAL PLC, ONE ALBERT QUAY, CORK, IRELAND BY 5:00 P.M. LOCAL TIME ON MARCH 7, 2017. IF YOU WISH TO APPOINT A PERSON OTHER THAN THE INDIVIDUAL SPECIFIED IN THE ENCLOSED PROXY CARD, PLEASE CONTACT OUR COMPANY SECRETARY AND ALSO NOTE THAT YOUR NOMINATED PROXY MUST ATTEND THE MEETING IN PERSON IN ORDER FOR YOUR VOTES TO BE CAST.


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TABLE OF CONTENTS

 

Proxy Statement Summary

     1   

Agenda Items

     3   

Proposal Number One – Election of Directors

     3   

Proposal Number Two – Election of Auditors

     11   

Audit and Non-Audit Fees

     12   

Audit Committee Report

     14   

Proposal Number Three – Market Purchases of Own Shares

     15   

Proposal Number Four – Share Re-allotment Price Range Authorization

     17   

Proposal Number Five – Advisory Vote on Executive Compensation

     18   

Proposal Number Six – Advisory Vote on Frequency of Executive Compensation Vote

     19   

Proposal Number Seven – Approval of Performance Goals in Share Plan

     20   

Proposal Number Eight – Approval of Share Allotment Authority

     33   

Proposal Number Nine – Approval of Waiver of Pre-emption Rights

     35   

Governance of the Company

     37   

Board of Directors

     38   

Compensation of Non-Employee Directors

     49   

Committees of the Board

     51   

Compensation Discussion & Analysis

     53   

CD&A Summary

     53   

CD&A Details

     56   

Executive Compensation Tables

     78   

Summary Compensation Table

     78   

Grants of Plan-Based Awards Table

     81   

Outstanding Equity Awards Table

     83   

Option Exercise and Stock Vesting Table

     85   

Non-Qualified Deferred Compensation Table

     88   

Potential Payments Table

     89   

Questions and Answers

     94   

Non-GAAP Reconciliations

     104   

Unless we have indicated otherwise, in this proxy statement references to the “Company,” “Johnson Controls”, “we,” “us,” “our” and similar terms refer to Johnson Controls International plc and its consolidated subsidiaries.

 

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PROXY STATEMENT SUMMARY

Annual General Meeting

 

Time and Date:    3:00 pm, local time, on March 8, 2017

Place:

   The Merrion Hotel, 24 Upper Merrion Street, Dublin 2, Ireland

Record Date:

   January 4, 2017

Voting:

   Shareholders on the record date are entitled to one vote per share on each matter to be voted upon at the Annual General Meeting

Admission:

   All shareholders are invited to attend the Annual General Meeting. Registration will commence on the day of the meeting.

Proposals to be Voted Upon

 

   
     Board Recommendation

1.     Elect, by separate resolution, each nominee to the Board of Directors.

  FOR each nominee

2.     To approve and ratify, by separate resolutions, the appointment of PricewaterhouseCoopers LLP as the independent auditors of the Company and to authorize the Audit Committee of the Board of Directors to set the auditors’ remuneration.

  FOR

3.     To authorize the Company and/or any subsidiary of the Company to make market purchases of Company shares.

  FOR

4.     To determine the price range at which the Company can re-allot shares that it holds as treasury shares.

  FOR

5.     To approve, in a non-binding advisory vote, the compensation of the named executive officers.

  FOR

6.     To approve, in a non-binding advisory vote, the frequency of the advisory vote on named executive officer compensation.

  One year

7.     To approve the material terms of the performance goals under the Johnson Controls International plc 2012 Share and Incentive Plan

  FOR

8.     To approve the Directors’ authority to allot shares up to approximately 33% of issued share capital

  FOR

9.     To approve the waiver of statutory pre-emption rights with respect to up to 5% of issued share capital

 

FOR    

The Nominees to our Board of Directors

We are asking you to vote FOR all the director nominees listed below. All current directors attended at least 90% of the Board and committee meetings on which he or she sits. Detailed information regarding these individuals, along with all other Board nominees, is set forth under Proposal Number One. Summary information is set forth below.

 



 

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Nominee and Principal Occupation    Age     

Director

Since

     Independent      Current Committee Membership

David P. Abney

Chief Executive Officer and Director of UPS

     61         2016               Audit

Natalie A. Black

Retired Senior Vice President and Chief Legal Officer of Kohler

     66         2016               Governance (chair); Executive

Michael E. Daniels

Retired Senior Vice President of Global Technology at IBM

     62         2010               Compensation

Brian Duperreault

Chairman and Chief Executive Officer of Hamilton Insurance Group

     69         2016               Governance

Jeffrey A. Joerres

Retired Executive Chairman of ManpowerGroup

     57         2004               Compensation (chair); Executive

Alex A. Molinaroli

Chairman and Chief Executive Officer of Johnson Controls

     57         2016          Executive

George R. Oliver

President and Chief Operating Officer of Johnson Controls

     56         2012          N/A

Juan Pablo del Valle Perochena

Chairman of Mexichem

     44         2016               Governance

Jürgen Tinggren

Former Chief Executive Officer and Director of Schindler Group

     58         2014               Audit (chair); Executive

Mark Vergnano

President, Chief Executive Officer and Director, The Chemours Company

     58         2016               Audit

R. David Yost

Former Chief Executive Officer of AmerisourceBergen

     69         2009               Compensation
                                 

Non-Binding Advisory Vote on Executive Compensation

Proposal number five is our annual advisory vote on the Company’s executive compensation philosophy and program. Detailed information regarding these matters is included under the heading “Compensation Discussion & Analysis,” and we urge you to read it in its entirety. Our compensation philosophy and structure for executive officers remains dedicated to the concept of paying for performance and continues to be heavily weighted with performance based awards.

 



 

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AGENDA ITEMS

PROPOSAL NUMBER ONE – ELECTION OF DIRECTORS

Upon the recommendation of the Governance Committee, the Board has nominated for election at the Annual General Meeting a slate of 11 nominees, all of whom currently serve on our Board. Biographical information regarding each of the nominees is set forth below. We are not aware of any reason why any of the nominees will not be able to serve if elected. The term of office for members of the Board of Directors commences upon election and terminates upon completion of the first Annual General Meeting of Shareholders following election.

 

                      Director Since         Other Public Directorships

LOGO

     Age:        61         September 2016         United Parcel Service, Inc.
     Committee:        Audit           
     Independent:        Yes           
            
                                
David P. Abney             

Mr. Abney has been the Chief Executive Officer and a director of United Parcel Service, Inc., a package delivery, supply chain and freight services provider, since September 2014. He joined our Board in September 2016 upon the completion of the merger with Johnson Controls, Inc. Mr. Abney was named Chairman of the Board of UPS in March 2016. He served as Senior Vice President and Chief Operating Officer of UPS from 2007 to 2014, also as President of UPS Airlines from 2007 to 2008, and as Senior Vice President and President of UPS International from 2003 to 2007.

Skills and Qualifications

 

    Senior Leadership Experience: Extensive experience as a CEO, executive officer and board member at UPS and other companies

 

    Financial: Deep financial acumen as CEO and senior leader at UPS

 

    International: Significant experience as CEO and director of UPS

 

    Global Logistics: Specialized expertise in global logistics and distribution strategies

 

    Talent Management: Experience leading global teams

 

                      Director Since       Other Public Directorships

LOGO

     Age:        66         September 2016      
     Committee:       

 

Governance,

Executive

  

  

     
     Independent:        Yes         
                              
Natalie A. Black           

 

 

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Prior to her retirement, Ms. Black was the Senior Vice President and Chief Legal Officer of Kohler Co., a manufacturer and marketer of plumbing products, power systems and furniture and operator of hospitality facilities. She joined our Board in September 2016 upon the completion of the merger with Johnson Controls, Inc. She served as Chief Legal Officer of Kohler from 2012 to 2014 and as Senior Vice President from 2000 to 2014. She also served as General Counsel from 1983 to 2012, as Secretary from 2000 to 2012, as a Group President for Kohler Co. from 1998 to 2000 and as Group Vice President—Interiors from 1991 to 1998.

Skills and Qualifications

 

    Senior Leadership Experience: Extensive experience as a business leader and the Chief Legal Officer and General Counsel of Kohler

 

    Sales, Marketing, Branding and M&A: Specialized expertise in brand management, distribution, sales, and marketing from her executive management experience at Kohler

 

    Governance: Deep knowledge of legal and governance matters from her experience as a general counsel and a board and governance committee member

 

    Talent Management: Experience leading global teams

 

                      Director Since       Other Public Directorships

LOGO

     Age:        62         March 2010       Thomson Reuters
     Committee:        Compensation          SS&C Technologies, Inc.
     Independent:        Yes         
          
                              
Michael E. Daniels           

Prior to his retirement in March 2013, Mr. Daniels was the Senior Vice President of the Global Technology Services group of International Business Machines Corporation, a business and IT services company with operations in more than 160 countries around the world. In this role, Mr. Daniels had worldwide responsibility for IBM’s Global Services business operations in outsourcing services, integrated technology services, maintenance, and Global Business Services, the consulting and applications management arm of Global Services. Since he joined IBM in 1976, Mr. Daniels held a number of leadership positions in sales, marketing, and services, and was general manager of several sales and services businesses, including IBM’s Sales and Distribution operations in the United States, Canada and Latin America, its Global Services team in the Asia Pacific region, Product Support Services, Availability Services, and Systems Solutions. Mr. Daniels serves as a director of Thomson Reuters, a provider of intelligent information for businesses, and SS&C Technologies, a provider of specialized software, software enabled-services and software as a service solutions to the financial services industry.

Skills and Qualifications

 

    Senior Leadership Experience: Decades of senior leadership experience at IBM

 

    Industry Experience: Broad and extensive global business experience in a wide range of global roles as an executive at IBM, including decades of experience in the service space

 

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    Technology, Cyber Security and IT: Deep understanding of critical areas of enterprise service functions and information technology, including cyber security

 

    International: Experience as a senior manager of a global organization as well as international experience living and working in a variety of cultures

 

    Talent Management: Experience leading global teams at IBM and in service on the compensation committee of public companies

 

                      Director Since       Other Public Directorships

LOGO

     Age:        69         March 2004      
     Committee:        Governance         
     Independent:        Yes         
          
                              
Brian Duperreault           

Mr. Duperreault is the Chairman and Chief Executive Officer of Hamilton Insurance Group, Ltd., a Bermuda-based holding company of property and casualty insurance and reinsurance operations in Bermuda, the US and the UK. He served as President and Chief Executive Officer of Marsh & McLennan Companies, Inc. from January 2008 until his retirement in December 2012. Before joining Marsh, he served for four years as non-executive Chairman of ACE Limited, an international provider of insurance and reinsurance products, Chief Executive Officer of ACE Limited from October 1994 through May 2004, and as its President from October 1994 through November 1999. Prior to joining ACE, Mr. Duperreault served in various senior executive positions with American Insurance Group and its affiliates from 1978 to 1994. Mr. Duperreault is Vice Chairman of the Board of Blue Marble Microinsurance, a member of the Boards of the International Insurance Society, the IESE Business School, the Insurance Information Institute and the Bermuda Institute of Ocean Sciences, and is a former Member of the Association of The Metropolitan Opera, New York. He is the former Chairman of the Board of Overseers of the School of Risk Management of St. John’s University, New York.

Skills and Qualifications

 

    Senior Leadership Experience: Extensive experience as a CEO, executive officer and board member of multiple Fortune 500 companies

 

    Corporate Governance: Experience serving as lead director and on the governance committees of multiple public companies

 

    Financial: Deep financial acumen as CEO and senior leader in insurance and risk management industries

 

    International: Significant experience as CEO and director on multiple global companies

 

    Risk Management: Deep understanding of risk management gained over a career in the insurance industry

 

    Talent Management: Experience leading global teams at a number of Fortune 500 companies

 

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                      Director Since       Other Public Directorships

LOGO

     Age:        57         September 2016       The Western Union Company
     Committee:       
 
Compensation,
Executive
  
  
     
     Independent:        Yes                 
Jeffrey A. Joerres           

Prior to his retirement in December 2015, Mr. Joerres was the Executive Chairman of the Board of ManpowerGroup Inc., a provider of employment services. He joined our Board in September 2016 upon the completion of the merger with Johnson Controls, Inc. He served as the Chief Executive Officer and President of ManpowerGroup from 1999 to 2014. Mr. Joerres served as Senior Vice President of European Operations from 1998 to 1999 and as Senior Vice President of Major Account Development from 1995 to 1998. From 2009 to 2015 Mr. Joerres was a director of the Federal Reserve Bank of Chicago. He serves on the board of Artisan Partners Asset Management Inc., where he serves as chair of the Compensation Committee and as a member of the Audit Committee. He also is a director of The Western Union Company and is a member of the Corporate Governance and Public Policy Committee and the Compensation and Benefits Committee. From 2001 to 2011, Mr. Joerres also served as a board member of Artisan Funds, Inc.

Skills and Qualifications

 

    Senior Leadership Experience: Extensive experience as a CEO, executive officer and board member of ManpowerGroup

 

    Corporate Governance: Experience serving as a public company lead director and on the governance committee

 

    International: Significant knowledge of the global marketplace gained from his role as CEO and director

 

    Service Sector: Deep understanding of the service sector and its employees gained during the course of his career

 

    Talent Management: Experience leading global teams

 

                      Director Since       Other Public Directorships

LOGO

     Age:        57         September 2016      
     Committee:        Executive         
     Independent:        No         
          
                              
Alex A. Molinaroli           

Mr. Molinaroli became our Chairman and Chief Executive Officer upon completion of the merger with Johnson Controls, Inc. in September 2016. He was the Chairman, President and Chief Executive Officer of Johnson Controls, Inc. from October 2013. Previously, he served as Vice Chairman in 2013,

 

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as a Corporate Vice President from 2004 to 2013, and as President of Johnson Controls’ Power Solutions business from 2007 to 2013. Previously, Mr. Molinaroli served as Vice President and General Manager for North America Systems & the Middle East for Johnson Controls’ Building Efficiency business and has held positions with increasing levels of responsibility for controls systems and services, sales and operations. Mr. Molinaroli joined Johnson Controls in 1983.

Skills and Qualifications

 

    Senior Leadership and Industry Experience: The Board believes that Mr. Molinaroli’s extensive experience and knowledge of Johnson Controls, and its products and services, gained from over 30 years of service in a wide range of Johnson Controls’ leadership positions, enables him to provide meaningful input and guidance to the Board and Johnson Controls.

 

    International: Significant experience as CEO and director of a global multi-national company

 

    Talent Management: Experience leading the global team at Johnson Controls through a number of business and operational roles

 

    Executive Insight: Mr. Molinaroli offers valuable insights and perspective on the day to day management of the Company’s affairs

 

                      Director Since       Other Public Directorships

LOGO

     Age:        56         September 2012       Raytheon Company
     Committee:        Executive         
     Independent:        No         
                              
George R. Oliver           

Mr. Oliver became our President and Chief Operating Officer upon completion of the merger with Johnson Controls, Inc. in September 2016. Prior to that, Mr. Oliver was our Chief Executive Officer, a position he held since September 2012. He joined Tyco in July 2006, serving as president of Tyco Safety Products from 2006 to 2010 and as president of Tyco Electrical & Metal Products from 2007 through 2010. He was appointed president of Tyco Fire Protection in 2011. Before joining Tyco, he served in operational leadership roles of increasing responsibility at several General Electric divisions. Mr. Oliver also serves as a director on the board of Raytheon Company, a company specializing in defense, security and civil markets throughout the world, and is a trustee of Worcester Polytechnic Institute, his alma mater.

Skills and Qualifications

 

    Senior Leadership Experience: Extensive leadership experience over several decades as an executive at Tyco (now the Company) and GE

 

    Industry Experience: Nearly a decade of experience with Tyco, first as president of several of its business units and then as CEO

 

    International: Experience as a director, CEO and a senior manager of global organizations

 

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    Talent Management: Experience leading global teams at Johnson Controls, Tyco and GE

 

    Executive Insight: Mr. Oliver offers valuable insights and perspective on the day to day management of the Company’s affairs

 

                      Director Since       Other Public Directorships

LOGO

     Age:        44         September 2016       Mexichem, S.A.B.
     Committee:        Governance          Elementia S.A.B.
     Independent:        Yes          Grupo Lala S.A.B.
           Grupo Pochteca S.A.B.
                              
Juan Pablo del Valle Perochena           

Mr. Perochena has been the Chairman of Mexichem, S.A.B. de C.V., a chemical and petrochemical producer and seller and a subsidiary of Kaluz, S.A. de C.V., since April 2011. He joined our Board in September 2016 upon the completion of the merger with Johnson Controls, Inc. He has been a Board member of Mexichem since 2001, and serves on the boards of Kaluz, S.A. de C.V., Elementia S.A. de C.V., Grupo Lala S.A.B., and Grupo Pochteca, S.A.B. de C.V.

Skills and Qualifications

 

    Senior Leadership Experience: Significant experience as an executive officer and board member of several Mexican companies

 

    Industry Experience: Deep knowledge of the manufacturing industry from his experiences at Mexichem

 

    International: Significant knowledge of the global marketplace gained from his business experience and background

 

    Construction and Real Estate Development: Mr. del Valle Perochena’s service with Kaluz, S.A. de C.V. gives him unique insight into the construction industry and real estate development.

 

    Talent Management: Experience leading global teams

 

                      Director Since       Other Public Directorships

LOGO

     Age:        58         March 2014       Sika AG Group
     Committee:        Audit         
     Independent:        Yes         
                              
Jürgen Tinggren           

Mr. Tinggren, age 58, joined our Board in March 2014. He was the chief executive officer of the Schindler Group, a global provider of elevators, escalators and related services, through December 2013 and was a member of the board of directors of Schindler from March 2014 to 2016. He joined the Group Executive Committee of Schindler in April 1997, initially with responsibility for Europe and

 

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thereafter for the Asia/Pacific region and the Technology and Strategic Procurement. In 2007, he was appointed Chief Executive Officer and President of the Group Executive Committee of the Schindler Group. Mr. Tinggren also serves on the Board of the Sika AG Group and is a Trustee of The Conference Board. From 2011 to 2014 he was a director of Schenker-Winkler Holding.

Skills and Qualifications

 

    Senior Leadership Experience: Extensive global business experience as the CEO and a senior leader of Schindler

 

    International: Experience as senior executive and director of European based organizations, deep understanding of international markets

 

    Industry Experience: Deep understanding of building services, industrial products and installation and service businesses

 

    Financial: Deep financial understanding as CEO of Schindler

 

    Business Development/M&A: Significant experience with mergers and acquisitions

 

    Talent Management: Experience leading global teams as CEO of Schindler

 

                      Director Since       Other Public Directorships

LOGO

     Age:        58         September 2016       The Chemours Company
     Committee:        Audit         
     Independent:        Yes         
                              
Mark Vergnano           

Mr. Vergnano has been the President, Chief Executive Officer and a director of the Chemours Company, a titanium technologies, fluoroproducts, and chemical solutions producer, since July 2015. He joined our Board in September 2016 upon the completion of the merger with Johnson Controls, Inc. Previously, Mr. Vergnano served as Executive Vice President, E. I. du Pont de Nemours and Company from 2009 to June 2015. While at DuPont, he served as group vice president—Safety & Protection from 2006 to 2009, vice president and general manager—DuPont Surfaces and Building Innovations from 2005 to 2006, and vice president and general manager—DuPont Nonwovens from 2003 to 2005. Mr. Vergnano joined DuPont in 1980 as a process engineer and held a variety of manufacturing, technical and management assignments in DuPont’s global organization.

Skills and Qualifications

 

    Senior Leadership Experience: Extensive global business experience as an executive and CEO of Chemours and DuPont

 

    International: Experience as senior executive of a multinational company

 

    Industry Experience: Deep understanding of the operations, global sales and marketing in the chemical manufacturing industry

 

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    Financial: Deep financial understanding as CEO of Chemours

 

    Talent Management: Experience leading global teams as CEO of Chemours and in managing a variety of business units at DuPont

 

                      Director Since       Other Public Directorships

LOGO

     Age:        69         March 2009       Marsh & McLennan Companies, Inc.
     Committee:        Compensation          Bank of America
     Independent:        Yes         
                              
R. David Yost           

Mr. Yost served as Director and Chief Executive Officer of AmerisourceBergen, a comprehensive pharmaceutical services provider, from August 2001 to June 2011 when he retired. He was Chairman and Chief Executive Officer of AmeriSource Health Corporation from May 1997 to August 2001, and President and Chief Executive Officer of AmeriSource from May 1997 to December 2000. Mr. Yost also held a variety of other positions with AmeriSource Health Corporation and its predecessors from 1974 to 1997. Mr. Yost also serves as a director of Marsh & McLennan Companies, Inc. and Bank of America, and is a Vice Chairman of the Board of the United States Air Force Academy Endowment.

Skills and Qualifications

 

    Senior Leadership Experience: Extensive leadership experience gained as the CEO and a director of AmerisourceBergen

 

    Corporate Governance: Significant corporate governance experience serving as a director of multiple public companies

 

    Risk Management: Exposure to complex risk management concepts gained as a director of Marsh & McLennan and Bank of America

 

    Talent Management: Experience leading global teams as CEO of AmerisourceBergen

Election of each Director requires the affirmative vote of a majority of the votes properly cast by the holders of ordinary shares represented at the Annual General Meeting in person or by proxy. Each Director’s election is the subject of a separate resolution and shareholders are entitled to one vote per share for each separate Director election resolution.

The Board unanimously recommends that shareholders vote FOR the election of each nominee for Director to serve until the completion of the next Annual General Meeting.

 

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PROPOSAL NUMBER TWO – APPOINTMENT OF AUDITORS AND AUTHORITY TO SET REMUNERATION

PricewaterhouseCoopers LLP (“PwC”) served as our independent auditors for the fiscal year ended September 30, 2016. As discussed below, prior to the merger between Johnson Controls, Inc. and a subsidiary of the Company, PwC was the independent auditor of Johnson Controls, Inc. and Deloitte & Touche LLP (“Deloitte”) was the independent auditor of the Company. The Audit Committee has selected and appointed PwC to audit our financial statements for the fiscal year ending September 30, 2017. The Board, upon the recommendation of the Audit Committee, is asking our shareholders to ratify the appointment of PwC as our independent auditors for the fiscal year ending September 30, 2017 and to authorize the Audit Committee of the Board of Directors to set the independent auditors’ remuneration. Although approval is not required by our Memorandum and Articles of Association or otherwise, the Board is submitting the selection of PwC to our shareholders for ratification because we value our shareholders’ views on the Company’s independent auditors. If the appointment of PwC is not approved by shareholders, it will be considered as notice to the Board and the Audit Committee to consider the selection of a different firm. Even if the appointment is approved, the Audit Committee in its discretion may select a different independent auditor at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.

Representatives of PwC will attend the Annual General Meeting and will have an opportunity to make a statement if they wish. They will also be available to answer questions at the meeting.

For independent auditor fee information, information on our pre-approval policy of audit and non-audit services, and the Audit Committee Report, please see below.

On September 8, 2016, following the completion of the merger between Johnson Controls, Inc. and a subsidiary of the Company, the Audit Committee approved the dismissal of Deloitte as the Company’s independent registered public accounting firm and the Company accordingly notified Deloitte of such action effective as of September 2, 2016.

The reports of Deloitte on the Company’s financial statements for each of the two fiscal years ended September 25, 2015 and September 26, 2014, did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. In addition, during the fiscal years ended September 25, 2015 and September 26, 2014, as well as during the subsequent interim period preceding September 2, 2016, there were no (i) “disagreements” (as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and related instructions) between the Company and Deloitte with respect to any matter relating to accounting principles, financial statement disclosure or auditing scope or procedures which, if not resolved to the satisfaction of Deloitte, would have caused Deloitte to make reference to the subject matter of the disagreement in its reports on the Company’s financial statements with respect to such periods; or (ii) “reportable events” (as that term is defined in Item 304(a)(1)(v) of Regulation S-K and the related instructions).

The Company provided Deloitte with a copy of the above disclosure, as set forth in the Company’s Current Report on Form 8-K filed on September 9, 2016 and requested that Deloitte provide the Company with a letter addressed to the SEC stating whether or not Deloitte agrees with the above disclosures. A copy of Deloitte’s letter, dated September 9, 2016, was attached as Exhibit 16.1 to such Form 8-K.

 

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On September 8, 2016, the Company engaged PricewaterhouseCoopers (“PwC”) as its new independent registered public accounting firm, effective as of September 2, 2016. During the years ended September 25, 2015 and September 26, 2014, and through September 2, 2016, the effective date of the Company’s engagement of PwC, the Company did not consult with PwC regarding any of the matters or events set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

The ratification of the appointment of the independent auditors and the authorization for the Audit Committee to set the remuneration for the independent auditors requires the affirmative vote of a majority of the votes properly cast by the holders of ordinary shares represented at the Annual General Meeting in person or by proxy.

The Audit Committee and the Board unanimously recommend a vote FOR these proposals.

Audit and Non-Audit Fees

Aggregate fees for professional services rendered to the Company by its independent public accountants as of and for the two most recent fiscal years are set forth below. The aggregate fees include fees billed or reasonably expected to be billed for the applicable fiscal year. Fees for fiscal year 2016 include fees billed or reasonably expected to be billed by PwC. Fees for fiscal year 2015 include fees billed by Deloitte.

 

     

Fiscal Year

2016

    

Fiscal Year

2015

 
     (in millions      (in millions

Audit Fees

   $           24.6       $           15.9   

Audit-Related Fees

     10.0         1.5   

Tax Fees

     4.4         0.9   

All Other Fees

     2.2         0.1   
  

 

 

    

 

 

 

Total

   $ 41.2       $ 18.4   

PwC Fees

Audit Fees for the fiscal year ended September 30, 2016 were for professional services rendered by PwC and include fees for services performed to comply with auditing standards of the PCAOB (United States), including the annual audit of our consolidated financial statements including reviews of the interim financial statements contained in Johnson Controls’ Quarterly Reports on Form 10-Q, issuance of consents and the audit of our internal control over financial reporting. This category also includes fees for audits provided in connection with statutory filings or services that generally only the principal auditor reasonably can provide to a client, such as assistance with and review of documents filed with the SEC.

Audit-Related Fees for the fiscal year ended September 30, 2016 were for services rendered by PwC and include fees associated with assurance and related services that are reasonably related to the performance of the audit or review of our financial statements. This category includes fees related to assistance in financial due diligence related to mergers, acquisitions, and divestitures, carve-outs associated with divestitures and spin-off transactions, consultations concerning financial accounting and reporting standards, issuance of comfort letters associated with debt offerings, general assistance with implementation of SEC and Sarbanes-Oxley Act requirements, audits of pension and other employee benefit plans, and audit services not required by statute or regulation.

 

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Tax Fees for the fiscal year ended September 30, 2016 were for services rendered by PwC and primarily include fees associated with tax audits, tax compliance, tax consulting, transfer pricing, and tax planning. This category also includes tax planning on mergers and acquisitions and restructurings, as well as other services related to tax disclosure and filing requirements.

All Other Fees for the fiscal years ended September 30, 2016 were for services rendered by PwC and primarily include fees associated with training seminars related to accounting, finance and tax matters, information technology consulting, and other advisory services.

Deloitte Fees

Audit Fees for the fiscal year ended September 25, 2015 were for professional services rendered by Deloitte for the integrated audits of the Company’s consolidated financial statements and internal controls over financial reporting, quarterly reviews of the condensed consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q, statutory audits, consents, international filings and other assistance required to complete the year-end audit of the consolidated financial statements. This category also includes fees for audits provided in connection with statutory filings or services that generally only the principal auditor reasonably can provide to a client, such as assistance with and review of documents filed with the SEC.

Audit-Related Fees for the fiscal year ended September 25, 2015 were for services related to statutorily required attest services in various countries and for accounting and disclosure consultations.

Tax Fees for the fiscal year ended September 25, 2015 were for tax compliance and planning services.

All Other Fees for the fiscal year ended September 25, 2015 were for permitted advisory services related to our global shared service strategy and operations.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

In March 2004, the Audit Committee adopted a pre-approval policy that provides guidelines for the audit, audit-related, tax and other permissible non-audit services that may be provided by the independent auditors. The policy identifies the guiding principles that must be considered by the Audit Committee in approving services to ensure that the auditors’ independence is not impaired. The policy provides that the Corporate Controller will support the Audit Committee by providing a list of proposed services to the Committee, monitoring the services and fees pre-approved by the Committee, providing periodic reports to the Audit Committee with respect to pre-approved services, and ensuring compliance with the policy.

Under the policy, the Audit Committee annually pre-approves the audit fee and terms of the engagement, as set forth in the engagement letter. This approval includes approval of a specified list of audit, audit-related and tax services. Any service not included in the specified list of services must be submitted to the Audit Committee for pre-approval. No service may extend for more than 12 months, unless the Audit Committee specifically provides for a different period. The independent auditor may not begin work on any engagement without confirmation of Audit Committee pre-approval from the Corporate Controller or his or her delegate.

In accordance with the policy, the chair of the Audit Committee has been delegated the authority by the Committee to pre-approve the engagement of the independent auditors for a specific service

 

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when the entire Committee is unable to do so. All such pre-approvals must be reported to the Audit Committee at the next Committee meeting.

AUDIT COMMITTEE REPORT

The Audit Committee of the Board is composed of three Directors, each of whom the Board has determined meets the independence and experience requirements of the NYSE and the SEC. The Audit Committee operates under a charter approved by the Board, which is posted on our website. As more fully described in its charter, the Audit Committee oversees Johnson Controls’ financial reporting process on behalf of the Board. Management has the primary responsibility for the financial statements and the reporting process. Management assures that the Company develops and maintains adequate financial controls and procedures, and monitors compliance with these processes. Johnson Controls’ independent auditors are responsible for performing an audit in accordance with auditing standards generally accepted in the United States to obtain reasonable assurance that Johnson Controls’ consolidated financial statements are free from material misstatement and expressing an opinion on the conformity of the financial statements with accounting principles generally accepted in the United States. The internal auditors are responsible to the Audit Committee and the Board for testing the integrity of the financial accounting and reporting control systems and such other matters as the Audit Committee and Board determine.

In this context, the Audit Committee has reviewed the U.S. GAAP consolidated financial statements for the fiscal year ended September 30, 2016, and has met and held discussions with management, the internal auditors and the independent auditors concerning these financial statements, as well as the report of management and the report of the independent registered public accounting firm regarding the Company’s internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act. Management represented to the Committee that Johnson Controls’ U.S. GAAP consolidated financial statements were prepared in accordance with U.S. GAAP. In addition, the Committee has discussed with the independent auditors the auditors’ independence from Johnson Controls and its management as required under Public Company Accounting Oversight Board Rule 3526, Communication with Audit Committees Concerning Independence, and the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard AU Section 380 (Communication with Audit Committees) and Rule 2-07 of SEC Regulation S-X.

In addition, the Audit Committee has received the written disclosures and the letter from the independent auditor required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent auditor’s communications with the Audit Committee concerning independence. Based upon the Committee’s review and discussions referred to above, the Committee recommended that the Board include Johnson Controls’ audited consolidated financial statements in Johnson Controls’ Annual Report on Form 10-K for the fiscal year ended September 30, 2016 filed with the Securities and Exchange Commission and that such report be included in Johnson Controls’ annual report to shareholders for the fiscal year ended September 30, 2016.

Submitted by the Audit Committee,

Jürgen Tinggren, Chair

David P. Abney

Mark P. Vergnano

 

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PROPOSAL NUMBER THREE – AUTHORIZATION TO MAKE MARKET PURCHASES OF COMPANY SHARES

We have historically used open-market share purchases as a means of returning cash to shareholders and managing the size of our base of outstanding shares. These are longstanding objectives that management believes are important to continue.

Under Irish law, neither the Company nor any subsidiary of the Company may make market purchases or overseas market purchases of the Company’s shares without shareholder approval. Accordingly, shareholders are being asked to authorize the Company, or any of its subsidiaries, to make market purchases and overseas market purchases of up to 10% of the Company’s issued shares. This authorization expires after eighteen months unless renewed; accordingly, we expect to propose renewal of this authorization at subsequent annual general meetings.

Such purchases would be made only at price levels which the Directors considered to be in the best interests of the shareholders generally, after taking into account the Company’s overall financial position. The Company currently expects to effect repurchases under our existing share repurchase authorization as redemptions pursuant to Article 3(d) of our Articles of Association. Whether or not this proposed resolution is passed, the Company will retain its ability to effect repurchases as redemptions pursuant to its Articles of Association, although subsidiaries of the Company will not be able to make market purchases or overseas market purchases of the Company’s shares unless the resolution is adopted.

In order for the Company or any of its subsidiaries to make overseas market purchases of the Company’s ordinary shares, such shares must be purchased on a market recognized for the purposes of the Companies Act 2014. The New York Stock Exchange, on which the Company’s ordinary shares are listed, is specified as a recognized stock exchange for this purpose by Irish law. The general authority, if approved by our shareholders, will become effective from the date of passing of the authorizing resolution.

Ordinary Resolution

The text of the resolution in respect of Proposal 3 is as follows:

RESOLVED, that the Company and any subsidiary of the Company is hereby generally authorized to make market purchases and overseas market purchases of ordinary shares in the Company (“shares”) on such terms and conditions and in such manner as the board of directors of the Company may determine from time to time but subject to the provisions of the Companies Act 2014 and to the following provisions:

(a) The maximum number of shares authorized to be acquired by the Company and/or any subsidiary of the Company pursuant to this resolution shall not exceed, in the aggregate, 90,000,000 ordinary shares of US$0.01 each (which represents slightly less than 10% of the Company’s issued ordinary shares ).

(b) The maximum price to be paid for any ordinary share shall be an amount equal to 110% of the closing price on the New York Stock Exchange for the ordinary shares on the trading day preceding the day on which the relevant share is purchased by the Company or the relevant subsidiary of the Company, and the minimum price to be paid for any ordinary share shall be the nominal value of such share.

(c) This general authority will be effective from the date of passing of this resolution and will expire on the earlier of the date of the Annual General Meeting in 2018 or eighteen months from

 

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the date of the passing of this resolution, unless previously varied, revoked or renewed by special resolution in accordance with the provisions of section 1074 of the Companies Act 2014. The Company or any such subsidiary may, before such expiry, enter into a contract for the purchase of shares which would or might be executed wholly or partly after such expiry and may complete any such contract as if the authority conferred hereby had not expired.

The authorization for the Company and/or any its subsidiaries to make market purchases and overseas market purchases of Company shares requires the affirmative vote of a majority of the votes properly cast (in person or by proxy) at the Annual General Meeting.

The Board unanimously recommends that shareholders vote FOR this proposal.

 

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PROPOSAL NUMBER FOUR – DETERMINE THE PRICE RANGE AT WHICH THE COMPANY MAY RE-ALLOT TREASURY SHARES

Our historical open-market share repurchases and other share buyback activities result in ordinary shares being acquired and held by the Company as treasury shares. We may re-allot treasury shares that we acquire through our various share buyback activities in connection with our executive compensation program and our other compensation programs.

Under Irish law, our shareholders must authorize the price range at which we may re-allot any shares held in treasury (including by way of re-allotment off-market). In this proposal, that price range is expressed as a minimum and maximum percentage of the prevailing market price (as defined below). Under Irish law, this authorization expires after eighteen months unless renewed; accordingly, we expect to propose the renewal of this authorization at subsequent annual general meetings.

The authority being sought from shareholders provides that the minimum and maximum prices at which an ordinary share held in treasury may be re-alloted are 95% and 120%, respectively, of the average closing price per ordinary share of the Company, as reported by the New York Stock Exchange, for the thirty (30) trading days immediately preceding the proposed date of re-allotment. Any re-allotment of treasury shares will be at price levels that the Board considers in the best interests of our shareholders.

Special Resolution

The text of the resolution in respect of Proposal 4 (which is proposed as a special resolution) is as follows:

RESOLVED, that the re-allotment price range at which any treasury shares held by the Company may be re-alloted shall be as follows:

(a) the maximum price at which such treasury share may be re-alloted shall be an amount equal to 120% of the “market price”; and

(b) the minimum price at which a treasury share may be re-alloted shall be the nominal value of the share where such a share is required to satisfy an obligation under an employee share plan operated by the Company or, in all other cases, an amount equal to 95% of the “market price”; and

(c) for the purposes of this resolution, the “market price” shall mean the average closing price per ordinary share of the Company, as reported by the New York Stock Exchange, for the thirty (30) trading days immediately preceding the proposed date of re-allotment.

FURTHER RESOLVED, that this authority to re-allot treasury shares shall expire on the earlier of the date of the Annual General Meeting of the Company held in 2018 or eighteen months after the date of the passing of this resolution unless previously varied or renewed in accordance with the provisions of section 109 and/or 1078 (as applicable) of the Companies Act 2014 (and/or any corresponding provision of any amended or replacement legislation) and is without prejudice or limitation to any other authority of the Company to re-allot treasury shares on-market.

The authorization of the price range at which the Company may re-allot any shares held in treasury requires the affirmative vote of at least 75% of the votes properly cast (in person or by proxy) at the Annual General Meeting.

The Board unanimously recommends that shareholders vote FOR this proposal.

 

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PROPOSAL NUMBER FIVE – ADVISORY VOTE ON EXECUTIVE COMPENSATION

The Board recognizes that providing shareholders with an advisory vote on executive compensation can produce useful information on investor sentiment with regard to the Company’s executive compensation programs. As a result, this proposal provides shareholders with the opportunity to cast an advisory vote on the compensation of our executive management team, as described in the section of this proxy statement entitled “Compensation Discussion & Analysis,” and endorse or not endorse our fiscal 2016 executive compensation philosophy, programs and policies and the compensation paid to the Named Executive Officers.

The advisory vote on executive compensation is non-binding, meaning that our Board will not be obligated to take any compensation actions or to adjust our executive compensation programs or policies, as a result of the vote. Notwithstanding the advisory nature of the vote, the resolution will be considered passed with the affirmative vote of a majority of the votes properly cast by the holders of ordinary shares represented at the Annual General Meeting in person or by proxy.

Although the vote is non-binding, our Board and the Compensation Committee will review the voting results. To the extent there is a significant negative vote, we would communicate directly with shareholders to better understand the concerns that influenced the vote. The Board and the Compensation Committee would consider constructive feedback obtained through this process in making future decisions about executive compensation programs.

Advisory Non-Binding Resolution

The text of the resolution, which if thought fit, will be passed as an advisory non-binding resolution at the Annual General Meeting, is as follows:

RESOLVED, that shareholders approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed in the Compensation Discussion & Analysis section of this proxy statement.

The Board unanimously recommends that shareholders vote FOR this proposal.

 

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PROPOSAL NUMBER SIX – ADVISORY VOTE ON THE FREQUENCY OF THE EXECUTIVE COMPENSATION VOTE

The Dodd-Frank Act requires us to include, at least once every six years, an advisory vote regarding how often shareholders wish to cast the advisory vote on executive compensation. In casting their advisory vote, shareholders may choose among four options (1) an annual vote, (2) a vote every two years (biennial), (3) a vote every three years (triennial) or (4) to abstain from voting.

The Board believes that an annual vote is appropriate for the Company because it provides shareholders the opportunity to provide frequent feedback on overall compensation philosophy, design and implementation.

The advisory vote on the frequency of the advisory vote on executive compensation is non-binding, meaning that our board will not be obligated to take any actions or to adjust the frequency of the advisory vote on executive compensation as a result of the vote. Although the vote is non-binding, our Board and the Compensation Committee will review the voting results and consider the feedback obtained through this process in making future decisions about the frequency of the advisory vote on executive compensation.

The Board unanimously recommends that shareholders elect the ANNUAL option when casting their advisory vote with respect to this proposal.

 

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PROPOSAL NUMBER SEVEN – APPROVAL OF THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE JOHNSON CONTROLS INTERNATIONAL PLC 2012 SHARE AND INCENTIVE PLAN

Our Board has proposed approval of the material terms of the performance goals under the Johnson Controls International plc 2012 Share and Incentive Plan, as amended and restated (the Plan”), to preserve our ability grant fully tax-deductible performance-based awards under the Plan. The Plan was previously approved by shareholders on September 14, 2012, and, other than as set forth below, shareholders are not currently being asked to approve any amendment to the Plan or to otherwise approve the Plan itself; they are being asked only to (i) approve the material terms of the performance goals under the Plan and (ii) adjust the limit on the amount of equity awards that can be granted to each non-executive director under the Plan so that a total of $600,000 of equity awards may be granted in a fiscal year (compared to the current limit of $200,000 in annual awards plus additional awards of up to 19,100 shares).

Section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986, as amended (the “Code”), imposes a $1 million limit on the amount that a public company may deduct for compensation paid to the company’s CEO or any of the company’s three most highly compensated executive officers (other than the CFO) who are employed as of the end of the year. This limitation does not apply to compensation that meets the requirements under Section 162(m) for “performance-based” compensation. One of the requirements for compensation to qualify as performance-based under Section 162(m) is that the material terms of the performance goals, including the list of permissible business criteria for performance objectives under the plan, be disclosed to and approved by shareholders, generally every five years. Because the Plan was last approved by shareholders in 2012, we are seeking shareholder approval of the material terms of the performance goals at our 2017 Annual General Meeting to preserve our ability to continue to grant fully tax-deductible performance-based awards. In addition, we are seeking shareholder approval to increase the limit on the amount of equity awards that can be granted to each non-executive director under the Plan so that a total of $600,000 of equity awards may be granted in a fiscal year. The current limit on equity awards to non-executive directors is $200,000 for the annual equity grant, plus additional awards that may be granted with respect to up to 19,100 shares in any fiscal year. The amendment is intended to simplify the limits applicable to equity awards made to non-executive directors in the future. Remuneration for non-executive directors consists of an annual cash retainer of $110,000 and an annual grant of restricted stock units with a grant date value of approximately $140,000 and a one-year vesting term.

Material Terms of the Performance Goals Under the Plan

For purposes of Section 162(m), the material terms of the performance goals include: (a) the employees eligible to receive compensation; (b) the description of the business criteria on which the performance goals may be based; and (c) the maximum amount, or the formula used to calculate the maximum amount, of compensation that can be paid to an employee under the performance goals. Each of these aspects is discussed below, and shareholder approval of this Proposal Seven constitutes approval of each of these aspects for purposes of the Section 162(m) shareholder approval requirements. The following summary is qualified in its entirety by reference to the complete text of the Plan, which is attached hereto as Annex II.

Eligibility. In general, participants eligible to receive awards under the Plan include employees and directors of the Company and its subsidiaries (including prospective employees and directors), and consultants who provide bona fide services to the Company or any of its subsidiaries. As of December 31, 2016, approximately 130,000 employees, including eleven executive officers, nine non-

 

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employee directors and no consultants are eligible to receive awards under the Plan. The group of employees whose compensation would be subject to the performance goals described in this Proposal Seven would include some or all of the Company’s executive officers. Although Section 162(m) only limits deductibility for compensation paid to the CEO or any of the Company’s three most highly compensated executive officers (other than the CFO) who are employed as of the end of the year, we may apply the performance goals to all executive officers in the event that any of them becomes a covered employee under Section 162(m) during the time that they hold an award described in this Proposal Seven.

Performance Goals. Share options and share appreciation rights granted under the Plan are designed to be exempt from the $1,000,000 deduction limit imposed by Section 162(m) due to the Plan’s requirement that they have an exercise price per share no lower than the fair market value of a share on the date of grant. The Plan also provides for short-term and long-term performance awards that may be granted in the form of cash or ordinary shares (including share options). The Compensation Committee (the “Committee”), in its discretion and as set forth in the document evidencing the grant of an award, which we refer to as the award certificate, will fix the amount, terms and conditions of short-term or long-term performance awards, subject to the following restrictions if the awards are granted to employees or directors who are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended (a “Reporting Person”):

 

    Performance Cycles—Short-term performance awards will be granted in connection with performance periods of between 6 and 12 months. Long-term performance awards will be granted in connection with performance periods that may not be shorter than 12 months or longer than five years.

 

    Performance Measures—The target amounts and/or vesting percentages for any short-term or long-term performance award must be determined by reference to the level of performance attained in relation to one or more performance measures selected by the Committee. The performance measures that the Committee may select include any one or combination of the following:

 

  ·   Basic earnings per ordinary share for the Company on a consolidated basis;

 

  ·   Diluted earnings per ordinary share for the Company on a consolidated basis;

 

  ·   Earnings (including earnings before or after interest and the provision for income taxes (EBIT) and earnings before or after interest, the provision for income taxes, depreciation, and amortization (EBITDA));

 

  ·   Total shareholder return;

 

  ·   Share price or fair market value of shares;

 

  ·   Revenues, sales or net sales;

 

  ·   Costs or cost of sales;

 

  ·   Expense management, including selling, general and administrative expenses;

 

  ·   Gross profit;

 

  ·   Profitability of an identifiable business unit or product;

 

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  ·   Economic value added, or other measure of profitability that considers the cost of capital employed;

 

  ·   Maintenance or improvement of profit margins;

 

  ·   Operating income;

 

  ·   Segment EBIT;

 

  ·   Net income;

 

  ·   Accounts receivable;

 

  ·   Inventories;

 

  ·   Credit rating;

 

  ·   Working capital or trade working capital;

 

  ·   Changes in net assets (whether or not multiplied by a constant percentage intended to represent the cost of capital);

 

  ·   Improvements in capital structure;

 

  ·   Return on invested capital and/or return on investment before or after cost of capital;

 

  ·   Return on equity or return on shareholder equity;

 

  ·   Return on assets;

 

  ·   Return on sales;

 

  ·   Cash flow or free cash flow;

 

  ·   Net cash provided by operating activities;

 

  ·   Net increase (decrease) in cash and cash equivalents;

 

  ·   Customer satisfaction, which may include customer backlog and/or relationships;

 

  ·   Market share;

 

  ·   Quality;

 

  ·   Safety;

 

  ·   Independent industry ratings or assessments;

 

  ·   Realization or creation of innovation projects or products;

 

  ·   Employee engagement;

 

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  ·   Employee retention;

 

  ·   Improvement in employee, workforce and/or supplier diversity;

 

  ·   Sustainability measures, such as reduction in greenhouse gases;

 

  ·   Closing of corporation transactions and/or completion of integration of acquired businesses;

 

  ·   Strategic plan development and implementation and/or strategic activities; and

 

  ·   Development, completion and implementation of succession planning.

Any performance measure used may be measured, as applicable, (a) in absolute terms, (b) in relative terms (including the passage of time and/or against other companies or financial metrics), (c) on a per share basis, (d) against the performance of the Company as a whole or against particular entities, segments, operating units or products of the Company, (e) on a pre-tax or after-tax basis, and (f) in tandem with any other performance measure. Awards issued to persons who are not key employees may take into account any other factors deemed appropriate by the Committee. No short-term or long-term performance award will be delivered until the Committee certifies in writing the level of performance attained for the performance period in relation to the applicable performance measures. In determining performance, the Committee may, in its discretion, exclude unusual, infrequently occurring or other items that it deems appropriate in compliance with the applicable requirements of Code Section 162(m).

Limitations and Maximum Awards under the Plan. The Plan limits the amounts of awards that may be granted or paid. For awards granted on and after the date of the 2017 Annual General Meeting, no participant may:

 

    be granted share options, share appreciation rights, other share-based awards or substitute awards that, in each case, are not short-term performance awards or long-term performance awards, with respect to more than 5,730,000 shares in any calendar year;

 

    be paid more than $6 million per calendar year (whether in cash or shares) with respect to short-term performance awards;

 

    be paid more than 5,730,000 shares per calendar year (less the number of shares related to any other awards granted in the same calendar year) with respect to long-term performance awards payable in shares; or

 

    be paid more than $6 million per calendar year with respect to long-term performance awards payable in cash.

However, additional awards in excess of these limitations relating to up to 9,550,000 shares may be granted to a Reporting Person who has been hired within the calendar year so long as the additional awards are made in the form of share options, share appreciation rights or long-term performance based awards.

The limits described above are not intended to indicate that all of these awards will be made, or that awards will be made up to these limits.

These limits are subject to anti-dilution adjustments in the event of share splits, mergers, consolidations, share dividends, recapitalizations and similar transactions, but may not otherwise be amended without shareholder approval.

 

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Summary of Material Provisions of the Plan

The following is a summary of the material terms and provisions of the Plan other than the material terms of the performance goals, which were summarized above. This summary is qualified in its entirety by reference to the complete text of the Plan, which is attached hereto as Annex II. To the extent that there is a conflict between this summary and the Plan, the terms of the Plan will govern. Any capitalized terms that are used but not defined in this summary have the meaning given to them in the Plan.

Plan Administration. The Plan is administered by the Committee, which has broad discretion and authority under the Plan to (1) interpret and administer the Plan; (2) prescribe, amend and rescind rules and regulations relating to the Plan; (3) select participants to receive awards; (4) determine the form of an award, the number of ordinary shares subject to an award, and the terms and conditions of each award; (5) determine whether awards will be granted singly, in combination or in tandem; (6) establish and interpret performance criteria in connection with performance-based awards and evaluate and certify the level of performance attained; (7) waive, correct or amend any terms, conditions, restrictions or limitations on an award (except that (a) the Plan’s prohibition on the repricing of share options and share appreciation rights cannot be waived and (b) any waiver or amendment must comply with, or be subject to an exemption from, Section 409A of the Code); (8) make any adjustments to the Plan (including but not limited to adjustment of the number of ordinary shares available under the Plan, as described below, or any award) and any award granted under the Plan that may be appropriate, in accordance with the Plan’s adjustment provisions (see “Adjustments” below); (9) determine under which circumstances awards may be deferred; (10) determine whether any awards may be transferable; (11) establish subplans and make any modifications to the Plan to implement and administer the Plan in foreign countries; (12) appoint agents to help administer the Plan; and (13) take any and all other actions it deems necessary or advisable for the proper operation or administration of the Plan.

The Committee may delegate any of its duties and authority under the Plan, except for the authority to grant and administer awards to directors, key employees and other Reporting Persons, or to employees to whom the Committee has delegated authority under the Plan. The Committee may not delegate its duty to establish and certify performance measures.

Shares Available for Issuance. The total number of shares reserved for awards under the Plan is the sum of (a) 47,750,000, (b) any shares subject, as of October 1, 2012 to the outstanding awards under the Tyco International Ltd. 2004 Share and Incentive Plan that cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares) and (c) a number of shares equal to the number of shares of Johnson Controls, Inc. common stock remaining available under the Johnson Controls, Inc. 2012 Omnibus Incentive Plan and the Johnson Controls, Inc. 2003 Share Plan for Outside Directors (the “Legacy Johnson Controls Plans”) as of the date of the merger (the “Merger”) between us and Johnson Controls, Inc. (the “Legacy Johnson Controls Shares”). The share reserve may be adjusted upon the occurrence of certain events (see “Adjustments” below).

In accordance with the NYSE Listed Company Manual and interpretive guidance thereunder, including Rule 303A.08, (a) awards in respect of Legacy Johnson Controls Shares granted following the Merger may be granted only to persons other than any individuals who were employed, immediately before the Merger, by us or entities that were our subsidiaries immediately before the Merger and (b) the time during which the Legacy Johnson Controls Shares are available for grant under the Plan will not be extended beyond the period when they would have been available for grant under the Legacy Johnson Controls Plans.

 

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Awards denominated in shares that are granted as share options or share appreciation rights will at the time of grant, reduce, on a 1-for-1 basis, the number of shares available under the Plan. Awards denominated in shares that are granted as restricted shares, restricted units, performance units, other share-based awards, or in respect of short-term performance awards or long-term performance awards (other than performance based share options) will at the time of grant reduce the number of shares available under the Plan on (a) if the award is denominated in shares that are not Legacy Johnson Controls Shares (as determined by the Committee or its designee), a 1-for-3.32 basis, or (b) if the award is denominated in shares that are Legacy Johnson Controls Shares (as determined by the Committee or its designee), a 1-for-2.65 basis.

Shares related to the following events restore the shares available in the same amount in which the award reduced the shares available set forth above:

 

    Shares related to awards paid in cash;

 

    Shares related to awards that expire, are forfeited or cancelled, or terminate for any other reason without issuance of shares;

 

    Shares issuable in connection with awards that are assumed, converted or substituted as a result of the acquisition of an acquired company by us or a combination of our company with another company; and

 

    Any restricted shares that are returned to us as restricted shares.

In addition, any shares that became issuable under the Plan as a result of an adjustment to an outstanding award in connection with our spin-offs of The ADT Corporation and Tyco Flow Control International Ltd. and related transactions were not counted against the share authorization.

Adjustments. In the event of a change in the outstanding shares of the Company by reason of a share split, reverse share split, dividend or other distribution (whether in the form of cash, shares, other securities or other property), extraordinary cash dividend, recapitalization, merger, consolidation, split-up, spin-off, reorganization, combination, repurchase or exchange of shares or other securities or similar corporate transaction or event, the Committee will make appropriate adjustments to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan (including adjustments to shares available).

Share Options and Share Appreciation Rights. Share options awarded under the Plan may be in the form of nonqualified share options or incentive share options or a combination of the two, at the discretion of the Committee and as set forth in the award certificate. Share appreciation rights may be awarded either alone or in tandem with share options. Unless determined otherwise by the Committee and set forth in the award certificate or as required by law, share options and share appreciation rights granted under the Plan are subject to the following terms and conditions:

 

    Exercise Price—The exercise price for each ordinary share subject to a share option or for a share appreciation right will be set by the Committee at the time of grant, and will typically be equal to the fair market value of an ordinary share as of the date of grant (with fair market value being set by reference to the closing price on the NYSE). The Committee also has the discretion to grant premium-priced share options. The exercise price of a share appreciation right granted in tandem with a share option will be equal to the exercise price of the share option.

 

    No Repricing—The exercise price of a Share option or share appreciation right may not be decreased after the date of grant, unless approval of the repricing is obtained from the Company’s shareholders.

 

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    Vesting—The Committee will set the vesting schedule and term of share options and share appreciation rights awarded under the Plan in the award certificate.

 

    Payment of Exercise Price—Unless the award certificate provides otherwise, payment of the exercise price may be made in cash, check, wire transfer or money order or, if permitted by the Committee, (a) by delivering irrevocable instructions to a broker to deliver to us the amount of sale proceeds with respect to ordinary shares having a fair market value equal to the exercise price, (b) by tendering to us ordinary shares owned by the participant for at least six months having an aggregate fair market value equal to the exercise price, or (c) by instructing us to withhold ordinary shares that would otherwise be issued having an aggregate fair market value equal to the exercise price.

 

    Incentive Share Options—Incentive share options may be granted only to employees of the Company or a subsidiary, and may not be transferred by an employee other than by will or the laws of descent and distribution and may be exercised only by an employee during the employee’s lifetime. A maximum of 9.55 million shares may be available for grant in the form of incentive share options.

 

    Share Appreciation Rights—Share appreciation rights will be paid in cash or ordinary shares or a combination of cash and ordinary shares, as determined by the Committee at the time of grant. Cash payments will be equal to the excess of the fair market value of an ordinary share on the date of exercise over the exercise price of the share appreciation right. If ordinary shares are paid for the share appreciation right, the number of ordinary shares that will be paid is determined by dividing the cash payment amount by the fair market value of an ordinary share on the date of exercise.

Short-Term and Long-Term Performance Awards. The Plan provides for short-term and long-term performance awards that may be granted in the form of cash or ordinary shares (including share options). The Committee, in its discretion and as set forth in the award certificate, will fix the amount, terms and conditions of short-term and long-term performance awards, subject to the following restrictions if such awards are granted to Reporting Persons:

 

    Performance Cycles—Short-term performance awards will be granted in connection with performance periods of between 6 and 12 months. Long-term performance awards will be granted in connection with performance periods that may not be shorter than 12 months or longer than five years.

 

    Performance Measures—The target amounts and/or vesting percentages for any short-term or long-term performance award must be determined by reference to the level of performance attained in relation to one or more performance measures selected by the Committee. See above under the heading “Material Terms of the Performance Goals Under the Plan—Performance Goals” for a discussion of the performance measures that the Committee may select.

Other Share-Based Awards. Awards other than share options, share appreciation rights and short-term and long-term performance awards may be granted under the Plan. The Committee has the discretion to fix the amount, terms and conditions applicable to awards of restricted share, restricted units and deferred share units, and other equity-based awards.

Director Awards. Annually, the Committee will grant an award to each nonemployee director in such an amount as the Board, in its discretion, may approve in advance; provided that the fair market value on the grant date of such award does not exceed $600,000. Unless the Committee determines

 

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otherwise, the form of the awards will be restricted units with a one year vesting period, and will be granted on the business day following the annual general meeting of shareholders. In addition to the annual awards provided for above, the Committee may, in its discretion, grant additional awards to nonemployee directors or prospective nonemployee directors, provided that in no event will the fair market value on the grant date of such award, when combined with any awards previously granted in the applicable fiscal year, exceed $600,000 in any fiscal year.

Substitute Awards. The Committee may make awards under the Plan to grantees of an acquired company through the assumption of, or in substitution for, outstanding equity-based awards previously granted to the grantees. Unless otherwise agreed, the assumed or substituted awards will be subject to the terms and conditions of the original awards made by the acquired company, with any adjustments that the Committee considers necessary to comply with applicable law or appropriate to give effect to the relevant provisions of any agreement for the acquisition of the acquired company.

Change in Control.

For awards granted prior to the date of the Merger, the following applies in connection with a change in control:

 

    Unless the applicable award certificate provides otherwise, for any participant who incurs a change in control termination, all unvested share options and share appreciation rights will become exercisable as of the later of (a) the effective date of the change in control and (b) the effective date of the change in control termination, and all conditions to vesting will be waived with respect to all other unvested awards that are denominated in shares. in such a case, with respect to long-term performance awards, performance will be deemed to have been achieved at a level of performance, as determined in the sole discretion of the Committee, at the higher of 100% of the participant’s target amount and the level of actual performance as of the date of the change in control.

 

    In addition to the foregoing, no later than 90 days after the date of change in control, the Committee (as constituted prior to the date of change in control) will provide for the following actions to apply to each award that is outstanding as of the date of change in control: (a) an adjustment to such award as the Committee deems appropriate to reflect such change in control, (b) the acquisition of such award, or substitution of a new right therefor, by the acquiring or surviving entity after such change in control, or (c) the purchase of such award for an amount of cash equal to the amount that could have been attained upon the exercise or redemption of such award immediately prior to the change in control had such award been exercisable or payable at such time; subject to certain limitations to promote compliance with Code Section 409A(a)(2).

For awards granted on or after the date of the Merger, the following applies:

 

    If the participant has in effect an employment, retention, change of control, severance or similar agreement with the Company or any subsidiary that discusses the effect of a change in control on the participant’s awards, then that agreement will control. In all other cases, unless provided otherwise in an award certificate or by the Committee prior to the date of the change in control, in the event of a change in control:

 

   

If the purchaser, successor or surviving corporation (or parent thereof) (the “Survivor”) so agrees, some or all outstanding awards will be assumed, or replaced with the same type of award with similar terms and conditions, by the Survivor in the change in control transaction. If applicable, each award which is assumed by the Survivor will be appropriately adjusted, immediately after such change in control, to apply to the number and class of securities which would have been issuable to the participant upon the consummation of such change in control

 

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had the award been exercised, vested or earned immediately prior to such change in control, and other appropriate adjustments in the terms and conditions of the award will be made.

 

    To the extent the Survivor in the change in control transaction does not agree to assume the awards or issue replacement awards as provided above, immediately prior to the date of the change in control:

 

  (a) Each share option or share appreciation right that is then held by a participant who is employed by or in the service of the Company or a subsidiary will become immediately and fully vested, and, unless otherwise determined by the Board or Committee, all share options and share appreciation right will be cancelled on the date of the change in control in exchange for a cash payment equal to the excess of the change in control price of the shares covered by the share option or share appreciation right that is so cancelled over the purchase or grant price of such shares under the award.

 

  (b) All restricted shares, restricted units and deferred share units (that are not short-term performance awards or long-term performance awards) that are not then vested will vest.

 

  (c) All short-term performance awards and long-term performance awards that are earned but not yet paid will be paid and all short-term performance awards and long-term performance awards for which the performance period has not expired will be deemed to have been earned in an amount equal to (1) the target value payable to the participant under such award and (2) a fraction, the numerator of which is the number of days after the first day of the performance period on which the change in control occurs and the denominator of which is the number of days in the performance period, and will be cancelled in exchange for a cash payment equal to such earned amount within 30 days of the change in control.

 

  (d) All dividend equivalent units that are not vested will vest and be paid in cash, and all other awards that are not vested will vest and if an amount is payable under such vested award, such amount will be paid in cash based on the value of the award.

 

    In the event that (a) the Survivor terminates the participant’s employment or service without cause or (b) if the participant has in effect an employment, retention, change of control, severance or similar agreement with the Company or any subsidiary that contemplates the termination of his or her employment or service for good reason, and the participant terminates his or her employment or service for good reason (as defined in such agreement), in the case of either (a) or (b) within 24 months following a change in control, then outstanding awards or replacement awards will generally be subject to either pro rata or fully accelerated vesting and will be canceled in exchange for a cash payment.

 

    Except as otherwise expressly provided in any agreement between a participant and the Company or a subsidiary, if the receipt of any payment by a participant under the circumstances described above would result in the payment by the participant of any excise tax provided for in Section 280G and Section 4999 of the Code, then the amount of such payment will be reduced to the extent required to prevent the imposition of such excise tax.

Vesting upon Death, Disability and Retirement. For awards granted prior to the date of the Merger, unless the applicable award certificate provides otherwise, upon the death or disability of a participant, all unvested awards held by such participant will vest, and with respect to all of a participant’s share

 

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options and share appreciation rights, the awards will be exercisable until the earlier of their original expiration date and the date that is three years after the date on which the participant dies or incurs a disability. Unless the applicable award certificate provides otherwise, upon a participant’s termination of employment for any reason other than death, disability or due to a change in control, if the participant has attained age 55, and the sum of the participant’s age and years of service with the Company is 60 or higher, a pro rata portion of each award granted prior to the date of the Merger held by such participant will vest based on the number of full months of service completed commencing on the grant date of such award and ending on the date of termination of employment divided by the full number of months required to achieve complete vesting. with respect to all of such participant’s share options and share appreciation rights, such awards will be exercisable until the earlier of their original expiration date and the date that is three years after the date of termination of employment. For awards granted on or after the date of the Merger, the Committee will determine the effect of the death, disability or termination of employment of a participant on the participant’s awards.

Dividend Equivalents. At the discretion of the Committee and as set forth in the applicable award certificate, dividends issued on shares may be credited with respect to any award other than a share option or share appreciation right in the form of dividend equivalents. Dividend equivalents will be subject to such vesting and other terms as are determined by the Committee and set forth in the applicable award certificate. Unless the award certificate provides otherwise, for any award that is entitled to dividend equivalents, (a) such dividend equivalent will equal, on a per share basis, the quotient produced by dividing the cash value of the dividend by the fair market value of one share as of the date the dividend is paid, and (b) such dividend equivalent will vest at the same time, and only to the extent that, the underlying award vests (taking into account any applicable performance conditions).

Transfer. Awards may not be transferred by a participant other than by will or the laws of descent and distribution. The Committee may permit a participant to transfer an award (other than an incentive share option) to family members, a trust for the benefit of family members and certain family partnerships. Any award so transferred will be subject to the same terms and conditions as the original grant and may be exercised by the transferee only to the extent that the award would have been exercisable or payable in the hands of the participant had no transfer occurred.

Forfeiture; Clawback. The Committee may, in its discretion, provide in an award certificate provisions it deems appropriate related to non-competition, non-solicitation, confidentiality, anti-disparagement and similar matters. The Committee may, in its discretion, specify in an award or a policy that will be incorporated into an award agreement by reference, that the participant’s rights, payments, and benefits with respect to an award will be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an award. Such events may include, but will not be limited to, termination of employment for cause, termination of the participant’s provision of services to the Company or any of its subsidiaries, breach of noncompetition, confidentiality, or other restrictive covenants that may apply to the participant, or restatement of the Company’s financial statements to reflect adverse results from those previously released financial statements, as a consequence of errors, omissions, fraud, or misconduct. In addition, for awards granted on or after the date of the Merger, (a) any such awards, and any shares issued or cash paid pursuant to such awards, will be subject to (1) any recoupment, clawback, equity holding, share ownership or similar policies adopted by the Company from time to time and (2) any recoupment, clawback, equity holding, share ownership or similar requirements made applicable by law, regulation or listing standards to the Company from time to time, (b) unless the award certificate specifies otherwise, the Committee may cancel any award at any time if the participant is not in compliance with all applicable provisions of the award certificate and the Plan and (c) the Company will have the right to offset, from any amount payable or shares

 

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deliverable hereunder, any amount that the participant owes to the Company or any subsidiary without the consent of the participant or any individual with a right to the participant’s award.

Amendment and Termination. The Plan may be amended or terminated by the Board at any time without shareholder approval, except that any material revision to the terms of the Plan requires shareholder approval before it can be effective. A revision is “material” for this purpose if it materially increases the number of ordinary shares that may be issued under the Plan (other than an increase pursuant to an “Adjustment,” as described above), expands the types of awards under the Plan, materially expands the class of persons eligible to receive awards under the Plan, materially extends the term of the Plan, materially decreases the exercise price at which share options or share appreciation rights may be granted, reduces the exercise price of outstanding share options or share appreciation rights, or results in the replacement of outstanding share options or share appreciation rights with awards that have a lower exercise price, or otherwise requires the consent of shareholders under applicable law, regulation or exchange listing standard. The Board may, in its discretion, amend the Plan to increase the maximum amount of awards that may be granted to a director in any fiscal year. With respect to awards granted prior to the date of the Merger, no amendment of the Plan will adversely affect the rights of any participant with respect to any such outstanding award without the participant’s written consent. With respect to awards granted on or after the date of the Merger, the Board or the Committee may amend such awards; provided that no amendment of the Plan or any outstanding award made without the participant’s written consent may adversely affect any right of a participant with respect to an outstanding award, except that the Committee need not obtain participant (or other interested party) consent for the modification, amendment or cancellation of an award pursuant to an “Adjustment,” as described above, or as follows: (a) to the extent the Committee deems such action necessary to comply with any applicable law or the listing requirements of any principal securities exchange or market on which the shares are then traded; (b) to the extent the Committee deems necessary to preserve favorable accounting or tax treatment of any award for the Company; or (c) to the extent the Committee determines that such action does not materially and adversely affect the value of an award or that such action is in the best interest of the affected participant or any other person(s) as may then have an interest in the award. Unless earlier terminated by the Board, the Plan will automatically terminate on October 1, 2022. No awards may be granted under the Plan after it is terminated, but any previously granted awards will remain in effect until they expire.

Summary of Federal Income Tax Consequences of Awards

The following is a brief summary of the principal United States federal income tax consequences of the grant, exercise and disposition of awards under the Plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign tax consequences.

Nonqualified Share Options and Share Appreciation Rights. A participant will not recognize any income at the time a nonqualified share option or share appreciation right is granted, nor will the Company be entitled to a deduction at that time. When a nonqualified share option is exercised, the participant will recognize ordinary income in an amount equal to the excess of the fair market value of the ordinary shares received as of the date of exercise over the exercise price. When a share appreciation right is exercised, the participant will recognize ordinary income in an amount equal to the cash received or, if the share appreciation right is paid in ordinary shares, the fair market value of the ordinary shares received as of the date of exercise. Payroll taxes are required to be withheld from the participant on the amount of ordinary income recognized by the participant. The Company will be entitled to a tax deduction with respect to a nonqualified share option or share appreciation right at the same time and in the same amount as the participant recognizes income.

Incentive Share Options (“ISOs”). A participant will not recognize any income at the time an ISO is granted. Nor will a participant recognize any income at the time an ISO is exercised. However, the

 

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excess of the fair market value of the ordinary shares on the date of exercise over the exercise price paid will be a preference item that could create a liability under the alternative minimum tax. If a participant disposes of the ordinary shares acquired on exercise of an ISO after the later of two years after the date of grant of the ISO or one year after the date of exercise of the ISO (the “holding period”), the gain (i.e., the excess of the proceeds received on sale over the exercise price paid), if any, will be long-term capital gain eligible for favorable tax rates. If the participant disposes of the ordinary shares prior to the end of the holding period, the disposition is a “disqualifying disposition”, and the participant will recognize ordinary income in the year of the disqualifying disposition equal to the excess of the lesser of (a) the fair market value of the ordinary shares on the date of exercise or (b) the amount received for the ordinary shares, over the exercise price paid. The balance of the gain or loss, if any, will be long-term or short-term capital gain or loss, depending on how long the ordinary shares were held by the participant prior to disposition. The Company is not entitled to a deduction as a result of the grant or exercise of an ISO unless a participant recognizes ordinary income as a result of a disqualifying disposition, in which case the Company will be entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income.

Short-Term and Long-Term Performance Awards. A participant will not recognize any income at the time a short-term or long-term performance award is granted, nor will the Company be entitled to a deduction at that time. To the extent a short-term or long-term performance award is paid in cash, a participant will recognize compensation income in the year of payment and in the amount of cash payable. To the extent a short-term or long-term performance award is paid in share, a participant will recognize compensation in the year of payment in the amount of the fair market value of the share as of the date of payment. Payroll taxes are required to be withheld on the amount paid. The Company will be entitled to a deduction at the same time and in the same amount as the participant recognizes income.

Restricted Shares. A participant will not recognize any income at the time restricted shares are granted, nor will the Company be entitled to a deduction at that time. In the year in which restrictions on restricted shares lapse, the participant will recognize ordinary income in an amount equal to the excess of the fair market value of the ordinary shares on the date of vesting over the amount, if any, the participant paid for the ordinary shares. A participant may, however, elect within 30 days after receiving restricted shares to recognize ordinary income in the year of receipt instead of the year of vesting. If an election is made, the amount of income recognized by the participant will be equal to the excess of the fair market value of the ordinary shares on the date of receipt over the amount, if any, the participant paid for the ordinary shares. Payroll taxes are required to be withheld on the income recognized by the participant. The Company will be entitled to a tax deduction at the same time and in the same amount as the participant recognizes income.

Restricted Units and Deferred Share Units. A participant will not recognize any income at the time a restricted unit or deferred share unit is granted, nor will the Company be entitled to a deduction at that time. When payment on a restricted unit or deferred share unit is made, the participant will recognize ordinary income in an amount equal to the fair market value of the ordinary shares received. If a restricted unit is paid in cash, the participant will recognize ordinary income in the amount payable. Payroll taxes are required to be withheld on the income recognized by the participant. The Company will be entitled to a tax deduction at the same time and in the same amount as the participant recognizes income.

Code Section 162(m). With certain exceptions, Section 162(m) limits the Company’s deduction for compensation in excess of $1 million paid to covered employees (referred to in the Plan as “Key Employees”). Compensation paid to Key Employees is not subject to the deduction limitation, however, if it is considered qualified “performance-based compensation” within the meaning of Section 162(m). The Plan is designed so that, if shareholders approve the material terms of the performance goals

 

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under the Plan, the Company may elect to qualify certain awards under the Plan as qualified “performance-based compensation.”

Code Section 409A. Section 409A of the Code requires acceleration of income and imposes an additional 20% tax, and in some cases an additional tax in the nature of interest, in the case of “non-qualified deferred compensation” arrangement that do not comply with the requirement of Section 409A. Therefore, if any award potentially constitutes non-qualified deferred compensation, it will be necessary that the award be structured to comply with Section 409A to avoid the imposition of additional tax, penalties and interest on the participant.

New Plan Benefits

We currently cannot determine other awards that may be granted under the Plan in the future to eligible participants. The Committee will make future awards under the Plan in its discretion from time to time, and the benefits received will depend on the amounts awarded and the extent to which performance goals set by the Committee are achieved. The closing price of our ordinary shares on the NYSE was $41.19 per share on December 30, 2016.

Equity Compensation Plan Information

The following table provides information as of September 30, 2016 with respect to our ordinary shares issuable under our equity compensation plans:

 

     (a)      (b)      (c)  
     Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options,
Warrants and
Rights
     Weighted-
Average
Exercise
Price of
Outstanding
Options,
Warrants and
Rights
     Number of
Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding
Securities Reflected
in Column (a))
 

Plan Category

  

Equity compensation plans approved by shareholders

     22,332,233       $ 32.07         46,471,348   

Equity compensation plans not approved by shareholders

     -         -         -   
  

 

 

    

 

 

    

 

 

 

Total

     22,332,233       $ 32.07         46,471,348   
  

 

 

    

 

 

    

 

 

 

The Board recommends that shareholders vote FOR approval of the material terms of the performance goals under the Johnson Controls International plc 2012 Share and Incentive Plan.

 

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PROPOSAL NUMBER EIGHT – AUTHORIZATION FOR THE DIRECTORS TO ALLOT COMPANY SHARES

Under Irish law, directors of an Irish public limited company must have authority from its shareholders to issue any shares, including shares which are part of the company’s authorized but unissued share capital. The Company’s current authorization, approved by shareholders at our 2016 Extraordinary General Meeting, is to issue up to 33% of the authorized but unissued share capital of the Company, which authorization will expire on March 8, 2017 - the date of the 2017 Annual General Meeting. We are presenting this proposal to renew the Board’s authority to issue authorized but unissued shares on the terms set forth below. If this proposal is not passed, the Company will have a limited ability to issue new ordinary shares.

It is customary practice in Ireland to seek shareholder authority to issue shares up to an aggregate nominal value of up to 33% of the aggregate nominal value of the company’s issued share capital and for such authority to be renewed each year. Therefore, in accordance with customary practice in Ireland, we are seeking approval to issue up to a maximum of 33% of our issued ordinary capital for a period expiring on the earlier of the date of the Company’s annual general meeting in 2018 or September 8, 2018, unless otherwise varied, revoked or renewed. The Directors of the Company expect to propose renewal of this authorization on a regular basis at the Annual General Meeting in subsequent years.

Granting the Board this authority is a routine matter for public companies incorporated in Ireland and is consistent with Irish market practice. This authority is fundamental to our business and enables us to issue shares, including, if applicable, in connection with funding acquisitions and raising capital. We are not asking you to approve an increase in our authorized share capital or to approve a specific issuance of shares. Instead, approval of this proposal will only grant the Board the authority to issue shares that are already authorized under our Articles of Association upon the terms below. In addition, because we are a NYSE-listed company, our shareholders continue to benefit from the protections afforded to them under the rules and regulations of the NYSE and SEC, including those rules that limit our ability to issue shares in specified circumstances. This authorization is required as a matter of Irish law and is not otherwise required for other companies listed on the NYSE with whom we compete. Accordingly, approval of this resolution would merely place us on par with other NYSE-listed companies.

Ordinary Resolution

The text of the resolution in respect of Proposal 8 (which is proposed as an ordinary resolution) is as follows:

RESOLVED that the directors be and are hereby generally and unconditionally authorized to exercise all powers to allot and issue relevant securities (within the meaning of section 1021 of the Companies Act 2014) up to an aggregate nominal value of US$3,050,000 (being equivalent to approximately 33% of the aggregate nominal value of the issued share capital of the Company as at the last practicable date prior to the issue of the notice of this meeting) and the authority conferred by this resolution shall expire on the earlier of the date of the Company’s annual general meeting in 2018 or September 8, 2018, unless previously renewed, varied or revoked; provided that the Company may make an offer or agreement before the expiry of this authority, which would or might require any such securities to be allotted after this authority has expired, and in that case, the directors may allot relevant securities in pursuance of any such offer or agreement as if the authority conferred hereby had not expired.”

 

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As required under Irish law, the resolution in respect of this proposal is an ordinary resolution that requires the affirmative vote of a majority of the votes properly cast (in person or by proxy) at the Annual General Meeting.

The Board unanimously recommends that shareholders vote FOR this proposal.

 

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PROPOSAL NUMBER NINE – WAIVER OF STATUTORY PRE-EMPTION RIGHTS

Under Irish law, unless otherwise authorized, when an Irish public limited company issues shares for cash to new shareholders, it is required first to offer those shares on the same or more favorable terms to existing shareholders of the company on a pro-rata basis (commonly referred to as the pre-emption right). Our current authorization, approved by shareholders at our 2016 Extraordinary General Meeting, will expire on March 8, 2017 - the date of the 2017 Annual General Meeting . We are therefore proposing to renew the Board’s authority to opt-out of the pre-emption right on the terms set forth below.

It is customary practice in Ireland to seek shareholder authority to opt-out of the pre-emption rights provision in the event of the issuance of shares for cash, if the issuance is limited to up to 5% of a company’s issued ordinary share capital. It is also customary practice for such authority to be renewed on an annual basis.

Therefore, in accordance with customary practice in Ireland, we are seeking this authority, pursuant to a special resolution, to authorize the directors to issue shares for cash up to a maximum of approximately 5% of the Company’s authorized share capital without applying statutory pre-emption rights for a period expiring on the earlier of the Annual General Meeting in 2018 or September 8, 2018, unless otherwise varied, renewed or revoked. We expect to propose renewal of this authorization on a regular basis at our Annual General Meetings in subsequent years.

Granting the Board this authority is a routine matter for public companies incorporated in Ireland and is consistent with Irish customary practice. Similar to the authorization sought for Proposal 8, this authority is fundamental to our business and, if applicable, will facilitate our ability to fund acquisitions and otherwise raise capital. We are not asking you to approve an increase in our authorized share capital. Instead, approval of this proposal will only grant the Board the authority to issue shares in the manner already permitted under our Articles of Association upon the terms below. Without this authorization, in each case where we issue shares for cash, we would first have to offer those shares on the same or more favorable terms to all of our existing shareholders. This requirement could cause delays in the completion of acquisitions and capital raising for our business. This authorization is required as a matter of Irish law and is not otherwise required for other companies listed on the NYSE with whom we compete. Accordingly, approval of this resolution would merely place us on par with other NYSE-listed companies.

Ordinary Resolution

The text of the resolution in respect of Proposal 9 (which is proposed as a special resolution) is as follows:

RESOLVED that the directors be and are hereby empowered pursuant to section 1023 of the Companies Act 2014 to allot equity securities (as defined in section 1023 of that Act) for cash, pursuant to the authority conferred by proposal 8 of the notice of this meeting as if sub-section (1) of section 1022 of that Act did not apply to any such allotment, provided that this power shall be limited to the allotment of equity securities up to an aggregate nominal value of US$450,000 (being equivalent to approximately 5% of the aggregate nominal value of the issued share capital of the Company as at the last practicable date prior to the issue of the notice of this meeting) and the authority conferred by this resolution shall expire on the earlier of the Company’s annual general meeting in 2018 or March 8, 2018, unless previously renewed, varied or revoked; provided

 

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that the Company may make an offer or agreement before the expiry of this authority, which would or might require any such securities to be allotted after this authority has expired, and in that case, the directors may allot equity securities in pursuance of any such offer or agreement as if the authority conferred hereby had not expired.”

As required under Irish law, the resolution in respect of Proposal 9 is a special resolution that requires the affirmative vote of at least 75% of the votes cast. In addition, under Irish law, the Board may only be authorized to opt-out of pre-emption rights if it is authorized to issue shares, which authority is being sought in Proposal 8.

The Board unanimously recommends that shareholders vote FOR this proposal.

 

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GOVERNANCE OF THE COMPANY

Vision and Values of Our Board

Our vision is a more comfortable, safe, and sustainable world. In addition to achieving financial performance objectives, our Board and management believe that we must assume a leadership position in the area of corporate governance to fulfill our vision. Our Board believes that good governance requires not only an effective set of specific practices but also a culture of responsibility throughout the company, and governance at Johnson Controls is intended to optimize both. Johnson Controls also believes that good governance ultimately depends on the quality of its leadership, and it is committed to recruiting and retaining Directors and officers of proven leadership ability and personal integrity. Our Board has adopted Corporate Governance Guidelines which provide a framework for the effective governance of Johnson Controls. These guidelines address matters such as the Board’s duties, director independence, director responsibilities, Board structure and operation, director criteria and qualifications, Board succession planning, Board compensation, management evaluation and development, Board orientation and training, Lead Director responsibilities and our Ethics Policy. The Governance Committee regularly reviews developments in corporate governance and updates the Corporate Governance Guidelines and other governance materials as it deems necessary and appropriate.

Johnson Controls Values: How We Seek to Conduct Ourselves

 

    Integrity First

We promise honesty and transparency. We uphold the highest standards of integrity and honor the commitments we make.

 

    Purpose Led

We believe in doing well by doing good and hold ourselves accountable to make the world a better place through the solutions we provide, our engagement in society, the way we do business, and our commitment to protect people and the environment.

 

    Customer Driven

We win when our customers win. Our long-term strategic relationships provide unique insights and the ability to deliver exceptional customer experiences and solutions.

 

    Future Focused

Our culture of innovation and continuous improvement drives us to solve today’s challenges while constantly asking ‘what’s next’

 

    One Team

We are one team, dedicated to working collaboratively together to create the purposeful solutions that propel the world forward

 

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Board of Directors

Mission of the Board of Directors: What the Board Intends to Accomplish

The mission of Johnson Controls’ Board is to promote the long-term value and health of Johnson Controls in the interests of the shareholders and set an ethical “tone at the top.” To this end, the Board provides management with strategic guidance, and also ensures that management adopts and implements procedures designed to promote both legal compliance and the highest standards of honesty, integrity and ethics throughout the organization.

 

LOGO   

Focus Areas of Our Board:

 

Strategy and Operations:

 

  

Ensuring that processes are in place designed to maintain the integrity and ethical conduct of the Company; reviewing and approving strategic plans and profit plans; reviewing corporate performance and staying apprised of relations with shareholders

 

  

Talent:

 

  

Overseeing and evaluating management’s systems and senior management performance and compensation; and providing advice and counsel to senior management and plan for effective succession

 

  

Governance and Risk Management:

 

  

Overseeing and evaluating management’s systems and processes for the identification, assessment, management, mitigation, and reporting of major risks; establishing corporate governance standards

 

  

Board Composition and Effectiveness:

 

   Recommending candidates to the shareholders for election to the Board; setting standards for Director qualification, orientation and continuing education; reviewing and assessing the Board’s leadership structure; and undertaking an annual performance evaluation regarding the effectiveness of the Board

 

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Board Responsibilities

All corporate authority resides with the Board as fiduciaries of the Company’s shareholders, except for those matters reserved to the shareholders. The Board has retained oversight authority—defining and overseeing the implementation of and compliance with standards of accountability and monitoring the effectiveness of management policies and decisions in an effort to ensure that the Company is managed in such a way to achieve its objectives. The board delegates its authority to management for managing the everyday affairs of the company. The board requires that senior management review major actions and initiatives with the board prior to implementation. Management, not the Board, is responsible for managing the Company.

Board Leadership

The Board’s leadership structure generally includes a combined Chairman and CEO role with a strong, independent non-executive lead director. The Board believes our overall corporate governance measures help ensure that strong, independent directors continue to effectively oversee our management and key issues related to strategy, risk and integrity; executive compensation; CEO evaluation; and succession planning. In choosing generally to combine the roles of Chairman and CEO, the Board takes into consideration the importance of in-depth, industry-specific knowledge and a thorough understanding of our business environment and risk management practices in setting agendas and leading the Board’s discussions. Combining the roles also provides a clear leadership structure for the management team and serves as a vital link between management and the Board. This allows the Board to perform its oversight role with the benefit of management’s perspective on our business strategy and all other aspects of the business. Because our CEO has an in-depth knowledge of the complexity of a large and diversified international company, our businesses and their management structures, and our overall company strategy—all of which are of critical importance to our performance—the Board believes that our CEO generally is best suited to serve as Chairman and help ensure that the independent directors’ attention is devoted to the issues of greatest importance to Johnson Controls and our shareholders. Our Board periodically reviews its determination to have a single individual act both as Chairman and CEO.

Johnson Controls continues to have a strong governance structure, which includes:

 

    a designated lead independent Director with a well-defined role (Mr. Jeff Joerres);

 

    a Board entirely composed of independent members, with the exception of Messrs. Molinaroli and Oliver;

 

    annual election of Directors by a majority of votes represented at the Annual General Meeting;

 

    committees that are entirely composed of independent Directors; and

 

    established governance and ethics guidelines.

The lead Director acts as an intermediary between the Board and senior management. Among other things, the lead Director’s duties include:

 

    In collaboration with Mr. Molinaroli, developing Board and committee meeting schedules to assure that there is sufficient time for discussion of all agenda items and to ensure that topics deemed important by the independent directors are included in Board discussions and sufficient executive sessions are scheduled as needed;

 

    Calling meetings of the independent directors;

 

    Developing the agenda for and chairing executive sessions of independent directors;

 

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    Serving as principal liaison between the independent directors and Mr. Molinaroli on sensitive issues;

 

    Serving as chairman of meetings of the Board when Mr. Molinaroli is not present;

 

    In collaboration with Mr. Molinaroli, consulting with the appropriate members of senior management about what information pertaining to the Company’s finances, operations, strategic alternatives, compliance and members of management is to be sent to the Board in conjunction with meetings and between meetings; and

 

    If requested by the Company’s major stockholders, making himself reasonably available for direct communication.

Board Oversight of Risk

The Board’s role in risk oversight at Johnson Controls is consistent with Johnson Controls’ leadership structure, with management having day-to-day responsibility for assessing and managing Johnson Controls’ risk exposure and the Board and its committees providing oversight in connection with those efforts, with particular focus on the most significant risks facing Johnson Controls. The Board performs its risk oversight role in several ways. Board meetings regularly include strategic overviews by the CEO that describe the most significant issues, including risks, affecting Johnson Controls. In addition, the Board is regularly provided with business updates from the leaders of Johnson Controls’ business units, and updates from the General Counsel and other functional leaders. The Board reviews the risks associated with Johnson Controls’ financial forecasts, business plan and operations. These risks are identified and managed in connection with Johnson Controls’ robust enterprise risk management (“ERM”) process. The Company’s ERM process provides the enterprise with a common framework and terminology to ensure consistency in identification, reporting and management of key risks. It is also directly linked to the strategic planning process, and includes a formal process to identify and document the key risks to Johnson Controls perceived by a variety of stakeholders in the enterprise. The results of the ERM process are presented to the Board at least annually.

The Board has delegated to each of its committees responsibility for the oversight of specific risks that fall within the committee’s areas of responsibility. For example:

 

    The Audit Committee reviews and discusses with management the Company’s major financial reporting, tax, accounting, internal controls, information technology and compliance risk exposures and the steps management has taken to monitor and control such exposures;

 

    The Compensation Committee reviews and discusses with management the extent to which the Company’s compensation policies and practices create or mitigate risks for the Company; and

 

    The Governance Committee reviews and discusses with management the implementation and effectiveness of the Company’s corporate governance policies and EHS programs, oversees the ERM process and is deeply involved in key management succession planning.

Board Capabilities

The Johnson Controls Board as a whole is strong in its diversity, vision, strategy and business judgment. It possesses a robust collective knowledge of management and leadership, business operations, crisis management, risk assessment, industry knowledge, accounting and finance, corporate governance and global markets.

 

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The culture of the Board is such that it can operate swiftly and effectively in making key decisions and facing major challenges. Board meetings are conducted in an environment of trust, open dialogue and mutual respect that encourages constructive commentary. The Board strives to be informed, proactive and vigilant in its oversight of Johnson Controls and protection of shareholder assets.

Board Committees

To conduct its business the Board maintains three standing committees: Audit, Compensation and Governance, and each of these NYSE required committees are entirely composed of independent Directors. The Board also maintains an Executive Committee comprised of the Chairman, lead Director and each committee chair that meets at least annually to review the Company’s retirement plans and other matters as delegated to it by the Board. Assignments to, and chairs of, the Audit and Compensation Committees are recommended by the Governance Committee and selected by the Board. The independent Directors as a group elect the members and the chair of the Governance Committee. All committees report on their activities to the Board.

The lead Director may also convene “special committees” to review discrete matters that require the consideration of a Board committee, but do not fit within the mandate of any of the standing committees. Special committees report their activities to the Board.

To ensure effective discussion and decision making while at the same time having a sufficient number of independent Directors for its three standing committees, the Board is normally constituted of between ten and thirteen Directors. The minimum and maximum number of Directors is set forth in Johnson Controls’ Articles of Association.

The Governance Committee reviews the Board’s governance guidelines annually and recommends appropriate changes to the Board.

Board Meetings

The Board meets at least four times annually, and additional meetings may be called in accordance with our Articles of Association. Frequent board meetings are critical not only for timely decisions but also for Directors to be well informed about Johnson Controls’ operations and issues. One of these meetings will be scheduled in conjunction with the Annual General Meeting of shareholders and Board members are required to be in attendance at such meeting either in person or by telephone. The lead Director and the chair of the Board are responsible for setting meeting agendas with input from the other Directors.

Committee meetings are normally held in conjunction with Board meetings. Major committee decisions are reviewed and approved by the Board. The Board chair and committee chairs are responsible for conducting meetings and informal consultations in a fashion that encourages informed, meaningful and probing deliberations. Presentations at Board meetings are concise and focused, and they include adequate time for discussion and decision-making. An executive session of independent Directors, chaired by the lead Director, is held at least annually, and in practice at most Board meetings.

Directors receive the agenda and materials for regularly scheduled meetings in advance. Best efforts are made to make materials available as soon as one week in advance, but no later than three days in advance. When practical, the same applies to special meetings of the Board. Directors may ask for additional information from, or meetings with, senior managers at any time.

Strategic planning and succession planning sessions are held annually at a regular Board meeting. The succession planning meeting focuses on the development and succession of not only the CEO but also the other senior executives.

 

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The Board’s intent is for Directors to attend all regularly scheduled Board and committee meetings. Directors are expected to use their best efforts to attend regularly scheduled Board and committee meetings in person. All independent Board members are welcome to attend any committee meeting.

Board and Committee Calendars

A calendar of agenda items for the regularly scheduled Board meetings and all regularly scheduled committee meetings is prepared annually by the chair of the Board in consultation with the lead Director, committee chairs, and all interested Directors.

Board Communication

Management speaks on behalf of Johnson Controls, and the Board normally communicates through management with outside parties, including shareholders, business journalists, analysts, rating agencies and government regulators. In certain circumstances Directors may also meet with shareholders to discuss specific governance topics. The Board has established a process for interested parties to communicate with members of the Board, including the lead Director. If you have any concern, question or complaint regarding our compliance with any policy or law, or would otherwise like to contact the Board, you can reach the Johnson Controls Board of Directors via email at directors@johnsoncontrols.com. Shareholders, customers, vendors, suppliers and employees can also raise concerns at https://www.vitalJohnsonControlsconcerns.com. Inquiries can be submitted anonymously and confidentially.

All inquiries are received and reviewed by the Office of the Ombudsman. A report summarizing all items received resulting in cases is prepared for the Audit Committee of the Board. The Office of the Ombudsman directs cases to the applicable department (such as customer service, human resources or in the case of accounting or control issues, forensic audit) and follows up with the assigned case owner to ensure that the cases are responded to in a timely manner. The Board also reviews non-trivial shareholder communications received by management through the Corporate Secretary’s Office or Investor Relations.

Board Advisors

The Board and its committees (consistent with the provisions of their respective charters) may retain their own advisors, at the expense of Johnson Controls, as they deem necessary in order to carry out their responsibilities.

Board Evaluation

The Governance Committee coordinates an annual evaluation process by the Directors of the Board’s performance and procedures, as well as that of each committee. This evaluation leads to a full Board discussion of the results. In connection with the evaluation process:

 

    each Director submits specific written feedback on the Board’s performance and Board governance and processes;

 

    the lead Director and chair of the Governance Committee informally consult with each of the Directors;

 

    the qualifications and performance of all Board members are reviewed in connection with their re-nomination to the Board;

 

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    the Governance Committee, the Audit Committee and the Compensation Committee each conduct an annual self-evaluation of their performance and procedures, including the adequacy of their charters, and report those results to the Board.

Board Compensation and Stock Ownership

The Governance Committee periodically reviews the Directors’ compensation and recommends changes in the level and mix of compensation to the full Board. See the Compensation Discussion and Analysis for a detailed discussion of the Compensation Committee’s role in determining executive compensation.

To help align Board and shareholder interests, Directors are encouraged to own Johnson Controls common stock or its equivalent, with the guideline set at five times the annual cash retainer. Directors are expected to attain this minimum stock ownership guideline within five years of joining the Board. Once a Director satisfies the minimum stock ownership recommendation, the Director will remain qualified, regardless of market fluctuations, under the guideline as long as the Director does not sell any stock. The legacy Tyco directors have met the minimum amount of five times the annual cash retainer. The legacy Johnson Controls directors are each expected to reach the minimum stock ownership level within the recommended time period. Messrs. Molinaroli and Oliver receive no additional compensation for service as a Director.

Director Independence

To maintain its objective oversight of management, the board consists of a substantial majority of independent directors. Our Board annually determines the independence of each director and nominee for election as a director based on a review of the information provided by the directors and the executive officers, and a survey by our legal and finance departments. The Board makes these determinations under the NYSE Listed Company Manual’s independence standards and our Corporate Governance Guidelines, which are more restrictive than the NYSE independence standards. Independent directors:

 

    are not former officers or employees of the Johnson Controls or its subsidiaries or affiliates, nor have they served in that capacity within the last five years;

 

    have no current or prior material relationships with Johnson Controls aside from their directorship that could affect their judgment;

 

    have not worked for, nor have any immediate family members that have worked for, been retained by, or received anything of substantial value from Johnson Controls aside from his or her compensation as a director;

 

    have no immediate family member who is an officer of Johnson Controls or its subsidiaries or has any current or past material relationship with Johnson Controls;

 

    do not work for, nor does any immediate family member work for, consult with, or otherwise provide services to, another publicly traded company on whose board of directors Johnson Controls’ CEO or other senior executive serves;

 

    do not serve as, nor does any immediate family member serve as, an executive officer of any entity with respect to which Johnson Controls’ annual sales to, or purchases from, exceed the greater of two percent of either entity’s annual revenues for the prior fiscal year or $1,000,000.

 

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    do not serve, nor does any immediate family member serve, on either the board of directors or the compensation committee of any corporation that employs either a nominee for director or a member of the immediate family of any nominee for director; and

 

    do not serve, nor does any immediate family member serve, as a director, trustee, executive officer or similar position of a charitable or non-profit organization with respect to which the company or its subsidiaries made charitable contributions or payments in excess of the greater of $1,000,000 or two percent of such organization’s charitable receipts in the last fiscal year.

Directors meet stringent definitions of independence and for those Directors that meet this definition, the Board will make an affirmative determination that a Director is independent. The Board has determined that all of the Director nominees, with the exception of Messrs. Molinaroli and Oliver meet these standards and are therefore independent of the Company.

Director Service

Directors are elected by an affirmative vote of an absolute majority of the votes represented (in person or by proxy) by shareholders at the Annual General Meeting. They are elected to serve for one-year terms (except in instances where a director is elected during a special meeting), ending after completion of the next succeeding Annual General Meeting. If a Director resigns or otherwise terminates his or her Directorship prior to the next Annual General Meeting, the Board may appoint an interim Director until the next Annual General Meeting. Any nominee for Director who does not receive an affirmative vote of an absolute majority of votes represented (in person or by proxy) by shareholders at the Annual General Meeting is not elected to the Board.

Each Director must offer to resign from the Board at the Annual General Meeting following his or her 72nd birthday. The Board may, in its discretion, waive this limit in special circumstances. The rotation of committee chairs and members is considered on an annual basis to ensure diversity of Board member experience and variety of perspectives across the committees, but there is no strict committee chair rotation policy. Any changes in committee chair or member assignments are made based on committee needs, Director interests, experience and availability, and applicable regulatory and legal considerations. Moreover, the value of rotation is weighed carefully against the benefit of committee continuity and experience.

Directors are also expected to inform the Governance Committee of any significant change in their employment or professional responsibilities and are required to offer their resignation to the Board in the event of such a change. This allows for discussion with the Governance Committee to determine if it is in the mutual interest of both parties for the Director to continue on the Board.

The Governance Committee is responsible for the review of all Directors, and where necessary will take action to recommend to shareholders the removal of a Director for performance, which requires the affirmative vote of a majority of the votes represented (in person or by proxy) at a duly called shareholder meeting.

Board Tenure

Our directors have served an average of 4 years on our Board, with 7 Directors serving for three years or less and 1 Director serving over ten years. The current short tenure of the majority of our Directors is due to the merger between Johnson Controls, Inc. and a subsidiary of Tyco International plc, with six Directors from Johnson Controls, Inc. joining our board on September 2, 2016. We believe this combination of boards is a positive, with more experienced Directors from each of legacy Johnson Controls and legacy Tyco having a deep knowledge of their respective companies and our newer Directors bringing fresh ideas and perspectives to board discussions. We continually review our board

 

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composition to ensure we maintain the right balance of expertise and diverse viewpoints. We also review our board leadership structure and committee memberships each year, taking into account the guidelines outlined in our Corporate Governance Guidelines.

Director Orientation and Education

A formal orientation program is provided to new Directors by the Corporate Secretary on Johnson Controls’ mission, values, governance, compliance and business operations. In addition, a program of continuing education is annually provided to incumbent Directors, and it includes review of the Company’s Ethics Policy. Directors are also encouraged to take advantage of outside continuing education relating to their duties as a Director and to subscribe to appropriate publications at the Company’s expense.

Other Directorships, Conflicts and Related Party Transactions

We recognize the importance of having Directors with significant experience in other businesses and activities; however, Directors are expected to ensure that other commitments, including outside board memberships, do not interfere with their duties and responsibilities as members of the Johnson Controls’ Board. In order to provide sufficient time for informed participation in their Board responsibilities non-executive Directors are required to limit their external directorships of other public companies to three and Audit Committee members are required to limit their audit committee membership in other public companies to two. The Board may, in its discretion, waive these limits in special circumstances. When a Director, the CEO or the Chief Operating Officer intend to serve on another board, the Governance Committee is required to be notified. The Governance Committee reviews the possibility of conflicts of interest or time constraints and must approve the officer’s or Director’s appointment to the outside board. Each Director is required to notify the Corporate Secretary of any conflicts. The CEO may serve on no more than one other public company board. Further, except as contemplated by the CEO succession plan described above, the CEO shall resign or retire from the Board upon resigning or retiring from his role as CEO, following a transition period mutually agreed upon between the CEO and the Compensation Committee.

The company has a formal, written procedure intended to ensure compliance with the related party provisions in our Ethics Policy and with our corporate governance guidelines. For the purpose of the policy, a “related party transaction” is a transaction in which we participate and in which any related party has a direct or indirect material interest, other than ordinary course, arms-length transactions of less than 1% of the revenue of the counterparty. Transactions exceeding the 1% threshold, and any transaction involving consulting, financial advisory, legal or accounting services that could impair a Director’s independence, must be approved by our Governance Committee. Any related party transaction in which an executive officer or a Director has a personal interest, or which could present a possible conflict under the Ethics Policy, must be approved by a majority of disinterested directors, following appropriate disclosure of all material aspects of the transaction.

Under the rules of the Securities and Exchange Commission, public issuers such as Johnson Controls must disclose certain “related person transactions.” These are transactions in which Johnson Controls is a participant where the amount involved exceeds $120,000, and a Director, executive officer or holder of more than 5% of our ordinary shares has a direct or indirect material interest. Although Johnson Controls engaged in commercial transactions in the normal course of business with companies where Johnson Controls’ Directors were employed and served as officers, none of these transactions exceeded 1% of Johnson Controls’ gross revenues and these transactions are not considered to be related party transactions.

 

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Ethics Policy

We have adopted the Ethics Policy, which applies to all employees, officers, and Directors of Johnson Controls. The Ethics Policy meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K and applies to our CEO, Chief Financial Officer and Chief Accounting Officer, as well as all other employees. The Ethics Policy also meets the requirements of a code of business conduct and ethics under the listing standards of the NYSE. The Ethics Policy is posted on our website at www.johnsoncontrols.com under the heading “About—Ethics and Compliance.” We will also provide a copy of the Ethics Policy to shareholders upon request. We disclose any amendments to the Ethics Policy, as well as any waivers for executive officers or Directors on our website at www.johnsoncontrols.com under the heading “About Us —Ethics and Compliance.” The Board of Directors annually certifies their compliance with the Ethics Policy. The Company maintains established procedures by which employees may anonymously report a possible violation of the Ethics Policy. The Audit Committee maintains procedures for the receipt, retention, and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters. The Audit Committee also maintains procedures for employees to report concerns regarding questionable accounting or auditing policies or practices on a confidential, anonymous basis.

Nomination of Directors and Board Diversity

The Governance Committee, in accordance with the Board’s governance principles, seeks to create a Board that as a whole is strong in its collective knowledge and has a diversity of skills and experience with respect to vision and strategy, management and leadership, business operations, business judgment, crisis management, risk assessment, industry knowledge, accounting and finance, corporate governance and global markets. The Johnson Controls Board does not have a specific policy regarding diversity. Instead, the Governance Committee considers the Board’s overall composition when considering a potential new candidate, including whether the Board has an appropriate combination of professional experience, skills, knowledge and variety of viewpoints and backgrounds in light of Johnson Controls’ current and expected future needs. In addition, the Governance Committee believes that it is desirable for new candidates to contribute to a variety of viewpoints on the Board, which may be enhanced by a mix of different professional and personal backgrounds and experiences. The Governance Committee periodically reviews these criteria and qualifications to determine any need to revise such criteria and qualifications based upon corporate governance best practices and Johnson Controls’ needs at the time of the review.

General criteria for the nomination of Director candidates include:

 

    the highest ethical standards and integrity;

 

    a willingness to act on and be accountable for Board decisions;

 

    an ability to provide wise, informed and thoughtful counsel to top management on a range of issues;

 

    a history of achievement that reflects superior standards for themselves and others;

 

    loyalty and commitment to driving the success of the Company;

 

    an ability to take tough positions while at the same time working as a team player; and

 

    individual backgrounds that provide a portfolio of experience and knowledge commensurate with the Company’s needs.

 

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The Company also strives to have all non-employee Directors be independent. In addition to having such Directors meet the NYSE definition of independence, the Board has set its own more rigorous standard of independence. The Governance Committee must also ensure that the members of the Board as a group maintain the requisite qualifications under NYSE listing standards for populating the Audit, Compensation and Governance Committees. In addition, the Governance Committee ensures that each member of the Compensation Committee is a “Non-Employee” Director as defined in the Securities Exchange Act of 1934 and is an “outside director” as defined in section 162(m) of the U.S. Code.

As provided in its charter, the Governance Committee will consider Director candidates recommended by shareholders. To recommend a Director candidate, a shareholder should write to Johnson Controls’ Secretary at Johnson Controls’ current registered address: One Albert Quay, Cork, Ireland. Such recommendation must include:

 

    the name and address of the candidate;

 

    a brief biographical description, including his or her occupation for at least the last five years, and a statement of the qualifications of the candidate, taking into account the qualification requirements set forth above;

 

    the candidate’s signed consent to serve as a Director if elected and to be named in the proxy statement;

 

    evidence of share ownership of the person making the recommendation; and

 

    all of the information required by Article 62 of our Memorandum and Articles of Association to be included in notices for any nomination by a shareholder of an individual for election to the Board.

The recommendation must also follow the procedures set forth in Articles 54—68 of our Memorandum and Articles of Association to be considered timely and complete in order to be considered for nomination to the Board.

To be considered by the Governance Committee for nomination and inclusion in the Company’s proxy statement for the 2017 Annual General Meeting, shareholder recommendations for Director must be received by Tyco’s Corporate Secretary no later than September 22, 2017. Once the Company receives the recommendation, the Company may deliver a questionnaire to the candidate that requests additional information about the candidate’s independence, qualifications and other information that would assist the Governance Committee in evaluating the candidate, as well as certain information that must be disclosed about the candidate in the Company’s proxy statement, if nominated. Candidates must complete and return the questionnaire within the time frame provided to be considered for nomination by the Governance Committee. No candidates were recommended by shareholders in connection with the Annual General Meeting.

The Governance Committee employs an unrelated search firm to assist the Committee in identifying candidates for Director when a vacancy occurs. The Committee also receives suggestions for Director candidates from Board members. All of our nominees for Director are current members of the Board. In evaluating candidates for Director, the Committee uses the qualifications described above, and evaluates shareholder candidates in the same manner as candidates from all other sources. Based on the Governance Committee’s evaluation of the current Directors, each nominee was recommended for election.

 

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For More Information

We believe that it is important that Johnson Controls’ stakeholders and others are able to review its corporate governance practices and procedures. Our corporate governance guidelines are embodied in a formal document that has been approved by Johnson Controls’ Board of Directors. It is available on our website at www.johnsoncontrols.com under the heading “Investors-Corporate Governance.” We will also provide a copy of the corporate governance principles to shareholders upon request. Our corporate governance guidelines and general approach to corporate governance as reflected in our memorandum and articles of association and our internal policies and procedures are guided by U.S. practice and applicable federal securities laws and regulations and NYSE requirements. Although we are an Irish public limited company, we are not subject to, nor have we adopted, the U.K. Corporate Governance Code or any other non-statutory Irish or U.K. governance standards or guidelines. While there are many similarities and overlaps between the U.S. corporate governance standards applied by us and the U.K. Corporate Governance Code and other Irish/U.K. governance standards or guidelines, there are differences, in particular relating to the extent of the authorization to issue share capital and effect share repurchases that may be granted to the Board and the criteria for determining the independence of directors.

 

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COMPENSATION OF NON-EMPLOYEE DIRECTORS

Director compensation for fiscal 2016 through September 8, 2016 for non-employee directors consisted of an annual cash retainer of $110,000 and restricted stock units (“RSUs”) with a grant date value of approximately $140,000 and a one-year vesting term. On September 8, 2016, these amounts were increased to $120,000 for the annual cash retainer and $155,000 for the grant date value of RSUs. The Lead Director received an additional $30,000 and the chairs of each of standing committees (other than the Lead Director) received an additional fee of $25,000. In addition, any member of a special committee of the Board receives meeting fees in an amount of $1,500 per day ($750 for telephonic meetings) for each special committee meeting that he or she attends. A Director who is also an employee receives no additional remuneration for services as a Director.

 

Name

   Fees Earned or

Paid in Cash

($)(1)
     Stock

Awards

($)(2)
     All Other

Compensation

($)(3)
     Total

($)
 

Current Directors

           

Mr. David Abney

   $                 9,130       $                   -       $                     -       $           9,130   

Ms. Natalie Black (GC)

   $ 11,033       $ -       $ -       $ 11,033   

Mr. Michael E. Daniels

   $ 122,938       $ 140,015       $ -       $ 262,953   

Mr. Juan Pablo del Vale Perochena

   $ 9,130       $ -       $ -       $ 9,130   

Mr. Brian Duperreault

   $ 154,771       $ 140,015       $ -       $ 294,786   

Mr. Jeffrey Joerres (L)(CC)

   $ 12,174       $ -       $ -       $ 12,174   

Mr. Jürgen Tinggren (AC)

   $ 124,840       $ 140,015       $ -       $ 264,855   

Mr. Mark Vergnano

   $ 11,033       $ -       $ -       $ 11,033   

Mr. R. David Yost

   $ 118,067       $ 140,015       $ 5,000       $ 263,082   

Former Directors

           

Mr. Edward D. Breen

   $ 123,471       $ 140,015       $ 72,091       $ 335,577   

Mr. Herman E. Bulls

   $ 101,630       $ 140,015       $ 14,903       $ 256,548   

Mr. Frank M. Drendel

   $ 101,630       $ 140,015       $ 10,000       $ 251,645   

Mr. Rajiv L. Gupta

   $ 112,550       $ 140,015       $ -       $ 252,565   

Mr. Brendan R. O’Neill

   $ 112,550       $ 140,015       $ -       $ 252,565   

Ms. Sandra S. Wijnberg

   $ 101,630       $ 140,015       $ 15,000       $ 256,645   

 

 

(L)=      Lead Director

 

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(AC)=      Audit Committee Chair
(CC)=      Compensation Committee Chair
(GC)=      Governance Committee Chair

 

(1)  Fees are pro rated for the change in compensation described above.

 

(2)  This column reflects the fair value of the entire amount of awards granted to Directors calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 718, excluding estimated forfeitures. The fair value of RSUs is computed by multiplying the total number of shares subject to the award by the closing market price of the Company’s ordinary shares on the date of grant. RSUs granted to Board members generally vest and the underlying units are converted to shares and delivered to Board members on the anniversary of the grant date.

 

(3)  All other compensation includes the aggregate value of all matching charitable contributions made by the Company on behalf of the Directors during the fiscal year for Messrs. Bulls, Drendel and Yost and Ms. Wijnberg. In calendar 2016, the Company matched the contributions of Directors made to qualifying charities up to a maximum of $10,000. The amount reported for Mr. Breen, related to his role as a former employee, reflects a tax gross-up reimbursement (related to compensation awarded to him prior to January 1, 2009) of state taxes owed by him to New York for legacy Tyco work performed in that State. The amount related to state taxes for Mr. Breen for fiscal 2016 is an estimate, pending receipt of the relevant personal state tax return information for calendar year 2016. This estimate is based primarily on amounts realized by Mr. Breen in fiscal 2016 that is deemed by New York State to have been earned by Mr. Breen in New York prior to 2009. Mr. Breen waived the New York tax gross-up with respect to compensation award after January 1, 2009.

Charitable Contributions

The Board understands that its members, or their immediate family members, serve as directors, trustees, executives, advisors and in other capacities with a host of other organizations. If Johnson Controls directs a charitable donation to an organization in which a Johnson Controls Director, or their immediate family member, serves as a director, trustee, executive, advisor, or in other capacities with the organization, the Board must approve the donation. Any such donation approved by the Board will be limited to an amount that is less than 2% of that organization’s annual charitable receipts, and less than 2% of Johnson Controls’ total annual charitable contributions. In line with its matching gift policy for employees, going forward Johnson Controls will make an annual matching gift of up to $5,000 for each Director to qualifying charities.

 

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COMMITTEES OF THE BOARD

The table below sets forth committee membership as of the end of fiscal year 2016 and meeting information for each of the Board Committees.

 

Name

   Audit     Governance     Compensation     Executive      Date Elected/
Appointed

to Board
 

Mr. David Abney

    
X
  
          
9/2/2016
  

Ms. Natalie Black

      
X
(C) 
     
X
  
    
9/2/2016
  

Mr. Michael E. Daniels

        
X
  
      
3/10/2010
  

Mr. Juan Pablo del Vale Perochena

      
X
  
        
9/2/2016
  

Mr. Brian Duperreault

      
X
  
        
3/25/2004
  

Mr. Jeffrey Joerres (LD)

        
X
(C) 
   
X
  
    
9/2/2016
  

Mr. Jürgen Tinggren

    
X
(C) 
       
X
  
    
3/5/2014
  

Mr. Mark Vergnano

    
X
  
          
9/2/2016
  

Mr. R. David Yost

        
X
  
      
3/12/2009
  

Number of Meetings During Fiscal Year 2016

    
10
  
    5       
11
  
   
-
  
  

 

 

(L) = Lead Director

(C) = Committee Chair

During fiscal 2016, the full Board met seven times. All of our Directors attended at least 90% of the meetings of the Board and the committees on which they served in fiscal 2016. The Board’s governance principles provide that Board members are expected to attend each Annual General Meeting in person or by phone. At the 2016 Annual General Meeting, all of our current Board members who were Board members at such time were in attendance.

Audit Committee.    The Audit Committee monitors the integrity of Johnson Controls’ financial statements, the independence and qualifications of the independent auditors, the performance of Johnson Controls’ internal auditors and independent auditors, Johnson Controls’ compliance with legal and regulatory requirements and the effectiveness of Johnson Controls’ internal controls. The Audit Committee is also responsible for retaining, subject to shareholder approval, evaluating, setting the remuneration of, and, if appropriate, recommending the termination of Johnson Controls’ auditors. The Audit Committee has been established in accordance with Section 3(a)(58)(A) of the Securities

 

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Exchange Act of 1934, as amended. The Audit Committee operates under a charter approved by the Board. The charter is posted on Johnson Controls’ website at www.johnsoncontrols.com and we will provide a copy of the charter to shareholders upon request. The current members of the Audit Committee are Messrs. Tinggren, Abney and Vergnano, each of whom is independent under NYSE listing standards and SEC rules for audit committee members. Mr. Tinggren is the chair of the Audit Committee. The Board has determined that each of Messrs. Tinggren, Abney and Vergnano is an audit committee financial expert.

Governance Committee.    The Governance Committee is responsible for identifying individuals qualified to become Board members, recommending to the Board the Director nominees for the Annual General Meeting, developing and recommending to the Board a set of corporate governance principles, and playing a general leadership role in Johnson Controls’ corporate governance. In addition, the Governance Committee oversees our environmental, health and safety management system and enterprise risk assessment activities. The Governance Committee operates under a charter approved by the Board. The charter is posted on Johnson Controls’ website at www.johnsoncontrols.com and we will provide a copy of the charter to shareholders upon request. The current members of the Governance Committee are Ms. Black and Messrs, Duperreault and del Valle Perochena, each of whom is independent under NYSE listing standards. Ms. Black chairs the Governance Committee.

Compensation Committee.    The Compensation Committee reviews and approves compensation and benefits policies and objectives, determines whether Johnson Controls’ officers, Directors and employees are compensated according to these objectives, and assists the Board in carrying out certain of its Board’s responsibilities relating to the compensation of Johnson Controls’ executives. The Compensation Committee operates under a charter approved by the Board. The charter is posted on Johnson Controls’ website at www.johnsoncontrols.com and we will provide a copy of the charter to shareholders upon request. The current members of the Compensation Committee are Messrs. Joerres, Daniels and Yost. Mr. Joerres is the chair of the Compensation Committee as well as our independent lead director. The Board of Directors has determined that each of the members of the Compensation Committee is independent under NYSE listing standards. In addition, each member is a “Non-Employee” Director as defined in the Securities Exchange Act of 1934 and is an “outside director” as defined in section 162(m) of the U.S. Code. For more information regarding the Compensation Committee’s roles and responsibilities, see the Compensation Discussion and Analysis.

Executive Committee.    The Executive Committee assists the Board in fulfilling its oversight responsibility with its review and monitoring of major corporate actions including external corporate development activities, business portfolio optimization, capital appropriations and capital expenditures. The Executive Committee was established in September of 2016 and operates under a charter approved by the Board. The charter is posted on Johnson Controls’ website at www.johnsoncontrols.com and we will provide a copy of the charter to shareholders upon request. The current members of the Executive Committee were Messrs. Molinaroli, Joerres, Tinggren and Ms. Black. Mr. Molinaroli is the chair of the Executive Committee.

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee during fiscal 2016 or as of the date of this proxy statement is or has been an officer or employee of the Company and no executive officer of the Company served on the compensation committee or board of any company that employed any member of the Company’s Compensation Committee or Board of Directors.

 

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COMPENSATION DISCUSSION  & ANALYSIS

EXECUTIVE SUMMARY

On September 2, 2016, Johnson Controls, Inc. and Tyco International plc combined to create Johnson Controls International plc (“Johnson Controls” or the “Company”), a global leader in building products and technology, integrated solutions and energy storage. We refer to this transaction throughout this CD&A as the “Merger.” Our newly combined organization’s executive compensation programs are designed to provide competitive total rewards while aligning executive interests to those of our shareholders.

Going forward, the following philosophy will guide the development, review and approval of the compensation for our executive officers:

 

Objectives

  

Philosophy

Our executive compensation program is designed to:

 

·     Build long-term shareholder value

 

·     Deliver sustained, strong business and financial results

 

·     Attract, motivate and retain a highly qualified and effective executive team

  

Our executive compensation philosophy is built on several principles:

 

·     Align compensation with shareholder interests

 

·     Avoid excessive risk-taking

 

·     Pay for performance (both company and individual)

 

·     Focus on the long term

 

·     Align compensation to market; targeting the 50th percentile

 

·     Provide an appropriate pay mix, with an increase in at-risk and performance-based compensation as executive responsibilities increase

Important Information to Know When Reading this CD&A

Due to the Merger, this compensation discussion and analysis (CD&A) includes information related to individuals who were executives of Tyco International plc (which we refer to as “Legacy Tyco”, and which individuals we refer to as “Legacy Tyco NEOs”) and Johnson Controls, Inc. (which we refer to as “Legacy Johnson Controls”, and which individuals we refer to as “Legacy Johnson Controls NEOs”) prior to the Merger. Because Tyco was the legal acquirer of Legacy Johnson Controls, the compensation of Legacy Tyco NEOs for periods prior to and after the Merger is discussed and analyzed. The compensation of Legacy Johnson Controls NEOs is discussed and analyzed for periods subsequent to the Merger (September 2 – September 30, 2016). Therefore, this CD&A primarily addresses Legacy Tyco programs and the decisions made by the Legacy Tyco Compensation Committee. Where necessary, we have also described Legacy Johnson Controls programs and the decisions made by the Legacy Johnson Controls Compensation Committee. We also provide a discussion and analysis of the Johnson Controls International plc executive

 

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compensation programs going forward, which reflect the decisions made by the Johnson Controls International plc Compensation Committee subsequent to the Merger.

 

LOGO

The following individuals are our named executive officers (or “NEOs”) for 2016:

 

NEO   Position in Johnson Controls International
plc
  Previous Position in Legacy Company
Alex A. Molinaroli   Chairman of the Board & Chief Executive Officer (“CEO”)   Legacy Johnson Controls Chairman of the Board, President & CEO
George R. Oliver   President and Chief Operating Officer (“COO”)   Legacy Tyco CEO
Brian Stief   Executive Vice President & Chief Financial Officer   Legacy Johnson Controls Executive Vice President & Chief Financial Officer
Bruce McDonald1   N/A   Legacy Johnson Controls Executive Vice President & Vice Chairman
Judy Reinsdorf   Executive Vice President & General Counsel   Legacy Tyco Executive Vice President & General Counsel
William Jackson   Vice President & President Global Products—Building Technologies & Solutions   Legacy Johnson Controls Vice President & President—Building Efficiency
Robert E. Olson2   Transition role   Legacy Tyco Executive Vice President & Chief Financial Officer
Arun Nayar2   N/A   Legacy Tyco Executive Vice President & Chief Financial Officer

 

1 Mr. McDonald became the Chairman and CEO of Adient upon its spinoff from Johnson Controls International plc on October 31, 2016.

 

2 Mr. Olson is expected to remain with the Company for a six month transition period following completion of the Merger. Mr. Nayar was Legacy Tyco’s Executive Vice President and Chief Financial Officer through November 13, 2015, at which time he was succeeded by Mr. Olson, and left Legacy Tyco on December 31, 2015.

2016 Business Performance

2016 was a year of transformation for Johnson Controls. It was truly a momentous year in which a new Johnson Controls emerged as the global leader in building technologies, integrated solutions and

 

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energy storage. We believe the Company is well-positioned strategically for long term success and to operationally deliver strong growth and profitability in 2017. During 2016, the Company successfully executed on several actions to improve long-term shareholder value, including:

 

    Formation of the Hitachi joint venture on October 1, 2015,

 

    Completion of the Merger with Tyco on September 2, 2016,

 

    Completion of the Separation of the Automotive Experience business creating Adient (NYSE: ADNT) on October 31, 2016.

At the same time, the Company exceeded external commitments for fiscal 2016. For the full year, Johnson Controls reported $37.7 billion in sales, segment EBIT of $3.0 billion and a GAAP net loss from continuing operations of $868 million, which includes one month of Legacy Tyco results as well as several special items. GAAP diluted loss per share from continuing operations for the year was $1.30 compared to earnings per share from continuing operations of $2.18 in the prior year.

Adjusting for special items and excluding the Legacy Tyco results, non-GAAP adjusted diluted earnings per share* from continuing operations increased 16 percent to $3.98 from $3.42 in the prior year. Financial highlights from continuing operations for the full year include:

 

    Adjusted net sales* of $36.9 billion versus $37.2 billion in the prior year. Increased volume and incremental sales from the Hitachi joint venture were more than offset by the impact of the Automotive Interiors deconsolidation. Excluding the impact of these items and foreign exchange, adjusted sales increased 1 percent.

 

    Adjusted segment EBIT* of $3.7 billion compared with $3.2 billion in the prior year, up 16 percent. Excluding the impact of the Hitachi joint venture, foreign exchange and the Automotive Interiors deconsolidation, adjusted segment EBIT increased 9 percent.

 

    Adjusted segment EBIT* margin of 10.1 percent was 150 basis points higher than the prior year.

 

    Adjusted diluted EPS* of $3.98 exceeded original 2016 guidance of $3.70 to $3.90.

While the macro-economic environment in fiscal 2016 remained challenging in some key markets, each of the Company’s businesses generated profit and margin improvements. We believe the performance of the executive officers named in this proxy statement has positioned the Company to continue to deliver strong financial results in fiscal 2017 and beyond. We believe the Company has the financial capability to invest strategically in our businesses and to generate increased shareholder value.

 

* Represents Non-GAAP financial measures. See reconciliation to GAAP metrics in Annex I

 

 

Our Future Together

The merger of Legacy Johnson Controls and Legacy Tyco has brought together best-in-class product, technology and service capabilities across controls, fire, security, HVAC, power solutions and energy storage. Going forward, the new Johnson Controls will link complementary branch networks and independent channels to drive global growth, enhancing the revenue and earnings growth profile of two established businesses. We are confident that the integration will create a world leader in buildings and energy, uniquely positioned to deliver superior value to customers, employees and shareholders through a powerful strategic combination.

 

 

 

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Compensation Discussion & Analysis

 

Program Details

Impact of the Merger on Compensation

The completion of the Merger was an event that had an outsized effect on the reported compensation of our named executive officers in fiscal 2016. As described in more detail below, in connection with the Merger, we entered into new employment contracts with Alex Molinaroli, formerly Legacy Johnson Control’s Chairman, President and CEO, and with George Oliver, formerly Legacy Tyco’s CEO. These agreements implement the CEO succession plan announced at the time of the Merger, which provides that Mr. Molinaroli will serve as Chairman and CEO, and Mr. Oliver will serve as President and COO, until the 18-month anniversary of the Merger (or such earlier time that Mr. Molinaroli ceases to be CEO), at which time Mr. Oliver will succeed Mr. Molinaroli as our CEO. At that time, Mr. Molinaroli will become our Executive Chairman, with the executive functions set forth in his employment agreement, and will serve in such role for 12 months. Following such 12-month period (or such earlier time that Mr. Molinaroli ceases to be Executive Chairman), Mr. Oliver will become Chairman and continue as our CEO. We refer to the 30-month period described above as the “Succession Period.” If the succession plan proceeds as planned, we do not expect to make any severance payment to either Mr. Molinaroli or Mr. Oliver in connection with the Merger. Each of Messrs. Molinaroli’s and Oliver’s employment agreements are described in more detail below.

The Merger also had a significant impact on key elements of the compensation of our named executive officers, as described below:

Legacy Tyco Base Salary

Prior to the Merger, there were no changes to base salary for any of the Legacy Tyco NEOs. Mr. Oliver’s and Ms. Reinsdorf’s base salaries were increased upon the completion of the Merger because these individuals accepted positions within the new company. Such increases were based on market pay and assessments of the individuals’ capabilities and performance.

Annual Incentive Performance Programs

Under the terms of Legacy Tyco’s 2012 Stock and Incentive Plan, as of the date of the Merger, each Legacy Tyco NEO (other than Mr. Nayar) became entitled to receive 100% of his or her target annual bonus for the fiscal 2016 plan year. As discussed in more detail below, Legacy Johnson Controls NEOs received annual incentive payments based on Legacy Johnson Controls results through the end of fiscal 2016 (excluding any contribution from Legacy Tyco).

Treatment of Long-Term Incentives for Legacy Tyco

ADJUSTMENT OF RESTRICTED STOCK UNITS (RSU) AND SHARE OPTIONS

In connection with the Merger, the exercise price of, and number of shares subject to, each share option award held by a Legacy Tyco NEO was adjusted to take into account the 0.955-for-one share consolidation applicable to Legacy Tyco ordinary shares that occurred immediately prior to the Merger. The adjustment was done in a manner intended to preserve the aggregate intrinsic value of the original share option award—as measured immediately before and immediately after the Merger, subject to rounding. Likewise, the number of shares subject to each restricted share unit award was adjusted in a

 

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manner intended to preserve the aggregate intrinsic value of the original Legacy Tyco restricted share unit award as measured immediately before and immediately after the Merger, subject to rounding. Each adjusted award otherwise remained subject to the same terms and conditions that applied to the original Legacy Tyco award immediately prior to the Merger, except that for share options, in the event of certain qualifying termination events, the options will remain outstanding until the earlier of (i) the original expiration date or (ii) three years from the effective date of such qualifying termination.

ADJUSTMENT OF PERFORMANCE SHARE UNITS

Each Legacy Tyco performance share unit held by a Legacy Tyco NEO was also adjusted for the share consolidation in a manner intended to preserve the aggregate intrinsic value of the original performance share unit award as measured immediately before and immediately after the Merger, subject to rounding. In addition, in accordance with the terms and conditions applicable to each award, performance under each performance share unit award was deemed by the Legacy Tyco Compensation Committee to have been achieved at the target level for each outstanding award as of the date of the Merger. As a result, each outstanding Legacy Tyco performance share unit was effectively converted on the Merger date into a restricted share unit of the Company with the same terms and conditions (excluding performance conditions) as applied to the Legacy Tyco performance share unit award as of immediately prior to the Merger, including accelerated vesting upon specified qualifying terminations of employment.

Treatment of Long-Term Incentive Performance Program (LTIPP) Awards for Legacy Johnson Controls

STOCK OPTIONS, STOCK APPRECIATION RIGHTS (SAR), RESTRICTED STOCK AWARDS (RSA), RESTRICTED STOCK UNITS (RSU)

Each equity award (option, SAR, RSA or RSU) of Legacy Johnson Controls common stock that was outstanding and unexercised as of immediately prior to the merger was assumed by the Company and converted into an option, SAR, RSA, RSU in respect of a number of Company ordinary shares equal to the number of shares of Legacy Johnson Controls common stock subject to such Johnson Controls equity award. The exercise price per Company ordinary share was equal to the exercise price per share of Legacy Johnson Controls common stock of such Johnson Controls equity award. Each equity award as so assumed and converted continues to have, and will be subject to, the same terms and conditions as applied to the Legacy Johnson Controls equity award immediately prior to the Merger, including accelerated vesting upon specified qualifying terminations of employment (other than Legacy Johnson Controls restricted stock awards granted under the Johnson Controls, Inc. 2001 Restricted Stock Plan, which vested upon consummation of the merger).

PERFORMANCE SHARE UNITS (PSU)

Each Legacy Johnson Controls PSU award that was outstanding as of immediately prior to the Merger was assumed by the Company and converted into a restricted share unit award of the Company with respect to a number of Company ordinary shares equal to the number of shares of Legacy Johnson Controls common stock subject to such Legacy Johnson Controls performance share unit award (based upon the actual performance for the award for the performance period of fiscal years 2014 to 2016, and disregarding 2017 fiscal year performance for the performance period of fiscal years 2015 to 2017). The charts below summarize the performance payout factor.

 

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FY 2014 – FY 2016 Legacy Johnson Controls LTIPP Award Payout Factor

 

Fiscal Year    Pre-Tax
Earnings
Growth
Target
     Pre-Tax
Earnings
Growth
Actual
    

ROIC

Target

    

ROIC

Actual

    

Performance

Factor

(percentage

of target)

     Annual
Weighting
     Annual
Weighted
Performance
 

2016

     6.5      14.1      20.5      24.3      196.0      1/3         65.3

2015

     6.5      14.6      19.9      23.6      200.0      1/3         66.7

2014

     10.0      21.0      18.9      19.8      200.0      1/3         66.7

Actual LTIPP Payout for 2014-2016 Performance Cycle

  

     198.7

FY 2015 – FY 2017 Legacy Johnson Controls LTIPP Award Payout Factor

 

Fiscal
Year
   Pre-Tax
Earnings
Growth
Target
     Pre-Tax
Earnings
Growth
Actual
    

ROIC

Target

    

ROIC

Actual

    

Performance

Factor

(percentage

of target)

     Annual
Weighting
     Annual
Weighted
Performance
 

2016

     6.5      15.9      20.1      23.1      200.0      1/2         100.0

2015

     8.0      14.4      18.6      21.5      200.0      1/2         100.0

Actual LTIPP Payout for 2015-2017 Performance Cycle

  

     200.0

The Legacy Johnson Controls LTIPP Awards were based on the financial metrics described below.

 

Performance Measure Definitions
Year-over-Year Pre-Tax Earnings    Return on Invested Capital (ROIC)
We define pre-tax earnings as income before income taxes, adjusted for certain significant special items, such as transaction/integration/separation costs, acquisitions/divestitures, impairment charges, restructuring costs, and the adoption of new accounting pronouncements, all as reflected in our audited financial statements that appear in our Annual Report on Form 10-K.    We define ROIC as income before income taxes adjusted for certain significant special items, such as transaction/integration/separation costs, acquisitions/divestitures, impairment charges, restructuring costs, and the adoption of new accounting pronouncements, divided by pre-tax invested capital. Pre-tax invested capital is defined as the monthly weighted average sum of shareholders equity plus total debt, less cash and income tax accounts, adjusted for acquisitions/divestitures and other special items

QUANTIFICATION OF PAYMENTS

Under the Legacy Johnson Controls 2012 Omnibus Incentive Plan (the “Johnson Controls Omnibus Plan”), Legacy Johnson Controls equity awards that were assumed by the Company will vest if a Legacy Johnson Controls NEO’s employment is terminated by the Company without cause or by the executive officer with good reason, during a specified period following a change of control. As described below, the Merger has been deemed to constitute a “change of control” for purposes of the Legacy Johnson Controls equity awards described above.

 

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Molinaroli Amended and Restated Employment Agreement

Mr. Molinaroli’s amended and restated change of control employment agreement, dated as of January 24, 2016 and amended as of April 1, 2016 (referred to as the “amended Molinaroli change of control agreement”), sets forth the terms of his employment during the Succession Period. The amended Molinaroli change of control agreement supersedes his employment agreement with Legacy Johnson Controls that was in effect prior to the Merger. Pursuant to the amended Molinaroli change of control agreement, Mr. Molinaroli agreed to the terms of the succession plan described above, including his transition from Chief Executive Officer to Executive Chairman no later than 18 months following the completion of the Merger. As a result, if the succession plan proceeds as planned, we do not expect to make any severance payment to Mr. Molinaroli in connection with the Merger.

Under the terms of the amended Molinaroli change of control agreement, the Merger has been deemed to constitute a change of control, although the provisions of the agreement related to guaranteed continued compensation do not apply in respect of the change of control triggered by the Merger (other than with respect to base salary). In addition, the amended Molinaroli change of control agreement provides that, in addition to the events constituting “good reason” as described in the agreement, a failure by the Company to provide target incentive compensation opportunities at least as favorable as those provided immediately prior to the closing of the Merger, or a failure to provide perquisites at least as favorable as those provided to similarly situated executives of the Company from time to time, will provide a basis for Mr. Molinaroli to terminate employment for “good reason” under the agreement.

In addition, the amended Molinaroli change of control agreement provided for a restricted share unit award of the Company having an aggregate grant date fair value equal to $20 million, which the Company granted on September 8, 2016. The restricted share unit award will vest at the end of the Succession Period (i.e., on the date that is 30 months following the closing of the Merger), subject to Mr. Molinaroli’s continued employment through such date and to accelerated vesting only in the event of his earlier death or disability. As noted above, if the succession plan proceeds as planned, Mr. Molinaroli will not be entitled to any severance in connection with the Merger. Instead, the restricted share units granted on September 8, 2016 will vest at the end of the Succession Period. As of September 30, 2016, Mr. Molinaroli would have been entitled to a cash severance payment equal to approximately $41 million assuming he had experienced a qualifying termination on such date. It is important to note that under the terms of Mr. Molinaroli’s employment agreement in effect prior to the Merger, a transition from CEO to Executive Chairman would have provided Mr. Molinaroli with “good reason” as defined in that agreement, and therefore to receive severance benefits. As a result, the Legacy Johnson Controls Compensation Committee viewed the $20 million restricted share unit grant as a shareholder friendly vehicle to facilitate the consummation of the Merger and the success of the integration.

Oliver Amended and Restated Employment Agreement

Under the terms of Legacy Tyco’s Change in Control Severance Plan for Certain U.S. Officers and Executives (the “Tyco CIC Severance Plan”), Mr. Oliver would have been entitled to severance benefits as a result of the Merger due to his no longer being CEO of the Company. Therefore, in order to facilitate the Merger and the orderly CEO succession plan contemplated thereby, Mr. Oliver and Legacy Tyco entered into an employment agreement, dated as of January 24, 2016, which became effective upon the completion of the Merger (the “Oliver Employment Agreement”). The terms of the Oliver Employment Agreement generally are comparable to the amended Molinaroli change of control agreement. During the 33 month period following the Merger date (the “initial employment period”),

 

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Mr. Oliver is entitled to a base salary of $1,250,000 per year, a target annual bonus opportunity of 135% of his then-current base salary, and an annual long-term incentive compensation opportunity target of at least $8.25 million. The Oliver Employment Agreement also includes severance provisions that are comparable to Mr. Molinaroli’s during the initial employment period. As is the case for Mr. Molinaroli, if the succession plan proceeds as planned, we do not expect to make any severance payment to Mr. Oliver in connection with the Merger. For a discussion and analysis of these provisions, see the section entitled “Potential Payments upon Termination”.

Change of Control Employment Agreements with Other Legacy Johnson Controls NEOs

Each of the Legacy Johnson Controls NEOs (other than Mr. McDonald and Mr. Molinaroli) is party to a change of control employment agreement that provides for severance benefits in the event of a qualifying termination or a termination due to the executive’s death or disability. As a result of each Legacy Johnson Controls NEO entering into a letter agreement with Legacy Johnson Controls acknowledging that (i) the provisions of their agreements related to guaranteed continued compensation will not apply in respect of the change of control triggered by the Merger (other than with respect to base salary) and (ii) that implementation of the CEO succession plan described above will not constitute good reason to terminate employment under the change of control employment agreement, the Merger has been deemed to constitute a change of control under such agreement.

The change of control employment agreements, as amended by the letter agreement, provide that upon a qualifying termination or a termination due to the executive officer’s death or disability within 36 months following the Merger, the terminated Legacy Johnson Controls NEO would be entitled to the following under the change of control employment agreement:

 

    A lump sum severance payment equal to three times the executive officer’s annual cash compensation, which includes the executive officer’s annual base salary and the greater of (a) the average of the executive officer’s annualized annual cash bonuses and long-term performance awards for the three fiscal years preceding the change of control, and (b) the sum of the annual cash bonuses and long-term performance awards for the most recently completed fiscal year (such greater amount, “average performance bonus”);

 

    Payment of a pro rata portion of the executive officer’s average performance bonus (reduced, if the executive officer’s termination occurs on the change of control date, by the amount paid under the Johnson Controls Omnibus Plan in respect of performance stock unit awards as a result of a qualifying termination);

 

    a cash payment equal to the lump sum value of the additional benefits the executive officer would have accrued for the remainder of the employment period under the Legacy Johnson Controls’ pension plan and the Legacy Johnson Controls’ Retirement Restoration Plan, assuming the executive officer is fully vested in such benefits at the time of termination; and

 

    continued medical and welfare benefits for two years following termination of employment without cause or with good reason.

The change of control employment agreements require Legacy Johnson Controls NEOs to comply with confidentiality provisions during employment and for two years following termination of employment.

 

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The Legacy Johnson Controls NEOs would generally have “good reason” to resign under their respective change of control employment agreements if, as determined in good faith by such executive:

 

    the Company assigned the executive officer to duties inconsistent with the executive officer’s position or the combined company took other actions to reduce the executive officer’s authority or responsibilities;

 

    the Company breached any provision of the change of control employment agreement relating to salary and any benefits required to be paid or provided following the merger (subject to the acknowledgment in the letter agreement described above);

 

    the Company required the executive officer to relocate;

 

    the Company terminated the executive officer’s employment other than as permitted by the change of control employment agreement; or

 

    the Company requested that the executive officer perform an illegal or wrongful act in violation of the combined company’s code of conduct.

Merger Retention RSU Awards

As an incentive to reward extraordinary effort required through the execution of the integration process and provide cohesive leadership to the new Company, certain executive officers (other than Mr. Molinaroli, whose award is discussed above), including the following Named Executive Officers received a restricted share unit grant on September 8, 2016:

 

     Number of
RSUs
     Value of
RSUs
     Vesting1  

Brian Stief

     52,235       $ 2,500,000         3-year cliff   

Judy Reinsdorf

     50,146       $ 2,400,000         2-year cliff   

William Jackson

     52,235       $ 2,500,000         3-year cliff   

Robert E. Olson2

     N/A         N/A         N/A   

 

1 Awards fully vest in the event of death or disability (and solely for Mr. Stief, continue to vest following retirement) and vest pro rata for any other termination except for cause.

 

2 As previously disclosed, Mr. Olson received a cash-based retention award of $600,000 that vested on December 31, 2016.

RSU Awards Related to Legacy Johnson Controls Nonqualified Plans

Under Legacy Johnson Controls Nonqualified Deferred Compensation and Retirement Restoration Plans, all amounts under the plans automatically became vested and payable in a lump sum cash payment as a result of the Merger. In order to partially offset the lost opportunity to earn additional supplemental benefits resulting from the accelerated payments, the Legacy Johnson Controls Compensation Committee implemented a special program for all current employee and retiree participants in these plans. Under the special program, each active and retiree participant in these

 

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plans received an increase in his or her distribution based on a formula applied consistently across all participants. Using the same methodology, the Legacy Johnson Controls NEOs who participated in these plans were granted a restricted share award on September 8, 2016.

 

       Number of
RSUs
       Grant Date
Value of
RSUs
       Vesting1  

Alex Molinaroli

       146,763         $ 7,024,099           30 months   

Brian Stief

       36,571         $ 1,750,307           3-year cliff   

Bruce McDonald

       105,537         $ 5,051,013           3-year cliff   

William Jackson

       10,449         $ 500,101           3-year cliff   
1 Awards fully vest in the event of a termination for any reason other than “cause”

 

New Johnson Controls International plc Programs for 2017

 

Johnson Controls International plc’s newly formed compensation committee (referred to as the “Johnson Controls plc Compensation Committee”), which held its first formal meeting following the completion of the Merger, has approved the following executive programs and policies for 2017 and beyond:

     Executive Peer Group

 

     Amended and Restated Share and Incentive Plan

 

     Equity Granting Policy

 

     Executive Stock Ownership Policy

 

     Executive Compensation Recoupment Policy

 

     Executive Severance and Change-in-Control Policy

 

     Executive Perquisite Program

 

As part of its preparation for the Merger, the Johnson Controls plc Compensation Committee held several informal meetings prior to the Merger to discuss the Company’s go-forward executive compensation philosophy, programs and practices, and to consult with advisors on matters related to benchmarking analyses, shareholder interests and expectations, market best practices, market norms, and Legacy Tyco and Legacy Johnson Controls programs and policies, all in an effort to determine the best future-state policies and programs for the Company. The following section highlights the changes that were approved by the Johnson Controls plc Compensation Committee following the Merger, and that have become effective for fiscal year 2017 and beyond.

Executive Peer Group

The Johnson Controls plc Compensation Committee, with input from its advisors and management, conducted a detailed review of the Company’s potential peer group and approaches to compensation benchmarking. Going forward, the Company will benchmark against both general

 

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industry data (excluding financial service companies) adjusted for the approximate size and complexity of the Company, as well as the peer group of companies listed below:

 

Johnson Controls International plc Compensation Peer Group for 2017

3M Company

Alcoa Inc.

Caterpillar Inc.

Danaher Corp.

Deere & Company

  

Eaton Corporation

E.I. du Pont de Nemours and Company

Emerson Electric Co.

General Dynamics Corporation

Honeywell International, inc.

   International Paper Company

Lockheed Martin Corporation

Northrop Grumman
Corporation

Raytheon Company

United Technologies
Corporation

Whirlpool Corporation

 

Annual Incentive Program

The Annual Performance Incentive for fiscal year 2017 encourages executive officers to focus on financial performance based on earnings before interest and taxes (EBIT), return on sales (ROS), and trade working capital (TWC) improvements. These measures focus our executive officers on the Company’s performance and each business unit’s profitability, operating strength and efficiency. The Johnson Controls plc Compensation Committee believes focusing on these measures will create long-term shareholder value.

Long-term Incentive Program

The Johnson Controls International plc Compensation Committee expects to review the design and structure of the long-term incentive program on an annual basis to ensure that it continues to be appropriate for the size and scope of the Company. For fiscal 2017, the Johnson Controls International plc Compensation Committee decided to continue Legacy Johnson Controls’ practice of granting to the named executive officers the annual equity award split between PSUs (50%), stock options (25%) and RSUs (25%). These weightings reflect a heavy performance orientation toward the long-term incentive performance plan, while also encouraging retention by granting RSUs to the executives. PSUs for fiscal year 2017 will continue to be tied to NEO performance over a three-year performance cycle. Target opportunities will be based on pre-tax earnings growth and pre-tax return on invested capital (ROIC), and the program will include a relative total shareholder return (TSR) modifier. These measures link directly to both our income statement and balance sheet and have a significant impact on long-term stock price and on meeting the investment community’s expectations. Share option grants will generally vest in two equal installments on the second and third anniversary of the grant date, have a 10 year term and have an exercise price equal to the Company’s closing stock price on the date of grant. RSUs will generally vest in equal installments over three years. For Messrs. Molinaroli, Oliver and Stief, who are retirement eligible, upon retirement (i) each unexercisable share option that was granted at least one year prior to the retirement date will become fully exercisable and will remain exercisable until the award’s expiration date and (ii) each unvested RSU that was granted at least one year prior to the retirement date will continue to vest according to its original vesting schedule.

 

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Equity Granting Policy

In September 2016, the Johnson Controls plc Compensation Committee approved an equity granting policy that states:

 

    All equity awards must be granted on the date of a Compensation Committee meeting and will be based on the Company’s closing stock price on such date;

 

    Annual grants for RSU and stock option awards occur on the date of the Compensation Committee meeting in October; annual grants for PSUs occur on the date of the Compensation Committee meeting in November;

 

    The Compensation Committee approves grants for all officers who are subject to Section 16 of the Securities Exchange Act of 1934 (“executive officers”); and

 

    The Board of Directors reviews grants for the CEO and COO and delegates approval of such equity grants to the Compensation Committee.

Executive Stock Ownership Policy

Consistent with past practice at both Legacy Tyco and Legacy Johnson Controls, going forward, the Company’s executive officers will have five years to meet the following stock ownership requirements:

 

    CEO: 6x base salary

 

    Other executive officers: 3x base salary

Executive Compensation Recoupment Policy

The Johnson Controls plc Compensation Committee has adopted an executive compensation recoupment policy that overrides any pre-existing policy at either Legacy Tyco or Legacy Johnson Controls. The policy provides that, if the Johnson Controls plc Compensation Committee determines that:

 

    the payment or the delivery of ordinary shares in connection with a performance incentive award was predicated upon the achievement of certain financial results with respect to a performance period that were subsequently the subject of a material restatement other than a restatement due to changes in accounting policy;

 

    in the Johnson Controls plc Compensation Committee’s view, the recipient of such award engaged in conduct that caused or partially caused the need for the restatement; and

 

    a lower payment would have been made, or fewer ordinary shares delivered, to such individual based upon the restated financial results,

then the Johnson Controls plc Compensation Committee will, unless prohibited by applicable law, require reimbursement from any such individual of (a) an amount equal to the amount of any overpayment of any such incentive paid to such individual or (b) any excess number of ordinary shares delivered to such individual (or the fair market value of such excess number of ordinary shares), with respect to such performance period.

Executive Severance and Change in Control Policy

Following the Merger, the Johnson Controls plc Compensation Committee has approved the executive severance and change in control policy (the “Severance and CIC Policy”) described below. The Severance and CIC Policy will apply to all new executive hires, promotions and, with respect to executive officers who are currently covered by an employment agreement1, on the termination date

 

1  The Company does not have any evergreen employment agreements with executive officers

 

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specified in such agreement. Consistent with market practice, the Company does not intend to enter into individual written employment agreements with its executive officers:

 

            Change in Control Termination           Severance
Triggering Events  

     Involuntary termination other than for Cause, permanent disability or death within the period beginning 60 days prior to and ending two years following a change in control

 

     Good Reason Resignation within the same time period

 

     Involuntary termination other than for Cause, permanent disability or death

 

     Good Reason Resignation

Cash Severance   3x base salary and target annual bonus   1.5x base salary and target annual bonus
Release of Claims   Required   Required
Benefits Continuation   Yes – aligned with two-year protection period   No
Equity Acceleration  

     Compensation Committee to provide either for adjustment/ assumption of award for a cash settlement

 

     Vest in full upon a subsequent termination without cause or with good reason within two years after the transaction (PSUs based on the higher of actual performance or target)

  None; equity canceled

Excise Tax Gross-up

Payment

  None   None
Restrictive Covenants  

     Perpetual confidentiality covenant

 

     One-year post-termination noncompetition covenant

 

     Two-year post-termination non-solicitation covenant (employees, customers)

 

     Perpetual confidentiality covenant

 

     One-year post-termination noncompetition covenant

 

     Two-year post-termination non-solicitation covenant (employees, customers)

 

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Also consistent with market practice and in response to shareholder feedback, the Johnson Controls plc Compensation Committee has eliminated the use of any long-term bonus in the cash severance calculation in the event of a change of control for new officers and as existing officer employment agreements expire.

Executive Perquisite Program

Similar to the Legacy Johnson Controls perquisite program, for fiscal 2017, the Johnson Controls plc Compensation Committee has approved a perquisite allowance of 5% of base salary (based on October 1st salaries) annually. Perquisite funds not used in any given year may be carried over, but they may not be taken as cash or used for any purpose other than those listed below. Upon termination, any unused funds are forfeited.

Allowable perquisites include:

 

    Club dues;

 

    Financial and tax planning; and

 

    Corporate aircraft use capped at the amount available under the perquisite allowance for the CEO and COO, and $10,000 per year for the other NEOs.

Shareholder Outreach

Each of Legacy JCI and Legacy Tyco regularly conducted shareholder outreach to solicit input and feedback on its executive compensation practices. As we move forward as a combined company, we intend to continue to engage with shareholders and continue to consider shareholder input, including the advisory “say-on-pay” vote, as we continue to evaluate the design of our executive compensation programs and the specific compensation decisions for each of our NEOs.

Johnson Controls International plc is committed to the interests of our shareholders and the delivery of shareholder value through sustainable growth strategies. We believe that, as part of this commitment, it is important to maintain ongoing dialogue with shareholders to solicit and respond to feedback about our executive compensation program.

 

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Determining Legacy Tyco Compensation for 2016

As noted above, because Legacy Tyco was the legal acquirer of Legacy Johnson Controls in the Merger, the following discussion relates to the programs in place at Legacy Tyco, and the decisions made by the Legacy Tyco Compensation Committee, prior to the Merger:

 

Legacy Tyco Program Highlights         What Legacy Tyco Did Not Do

       Pay for performance

 

       Target pay based on market-competitive norms

 

       Deliver total direct compensation primarily through variable pay

 

       Set challenging short- and long-term incentive award goals

 

       Provide strong oversight that ensures adherence to incentive grant regulations and limits

 

       Maintain robust stock ownership requirements

 

       Adhere to an incentive compensation recoupment policy (“clawback” policy)

 

       Maintain insider trading, anti-hedging and anti-pledging policies

 

       Consult with an independent advisor on pay

 

     

×        Provide tax gross-ups, except in limited circumstances

 

×        Provide single trigger change in control arrangements

 

×        Re-price stock options

 

×        Provide excessive perquisites

 

×        Reward executives without a link to performance

     

Going Forward:

The Johnson Controls plc Compensation Committee believes the features outlined here represent sound executive compensation governance practices and intends to continue to adhere to them in the future.

 

Legacy Tyco’s Compensation Committee evaluated many factors when designing and establishing executive compensation plans and targets. In determining appropriate compensation levels, the Legacy Tyco Compensation Committee considered critical data including the relative complexity and importance of the executive’s role within the organization, the executive’s experience, record of performance and potential, the compensation levels paid to similarly positioned executives at peer companies, general industry compensation data, and internal pay equity considerations. The peer group of companies that the Legacy Tyco Compensation Committee used to review relative compensation levels was an important part of the pay-setting process.

 

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Role of the Legacy Tyco Compensation Committee and Independent Compensation Consultant

 

The Legacy Tyco Compensation Committee’s role was to review and approve compensation and benefits policies and objectives, determine whether officers, Directors and employees were compensated according to these objectives, and assist the Board in carrying out responsibilities relating to the compensation of Legacy Tyco executives. The Legacy Tyco Compensation Committee operated under a charter approved by the Legacy Tyco Board. In addition to meeting the NYSE independence standards, each member of the Legacy Tyco Compensation Committee was a “Non-Employee” Director as defined in the Securities Exchange Act of 1934 and an “outside director” as defined in section 162(m) of the Internal Revenue Code.

     

 

Going Forward:

In establishing and reviewing the Company’s compensation programs, the Johnson Controls plc Compensation Committee will consider whether the programs encourage unnecessary or excessive risk taking and has determined that they do not.

 

     
     

In carrying out its role in establishing executive compensation plans, the Legacy Tyco Compensation Committee received advice from its independent compensation consultant, Farient Advisors LLC (“Farient”). Prior to the Merger in fiscal 2016, Farient’s responsibilities included:

 

    providing an ongoing review and critique of Legacy Tyco executive compensation philosophy, the strategies associated with it, and the composition of Legacy Tyco’s peer group of companies;

 

    Preparing periodic competitive analyses and conveying advice regarding Legacy Tyco compensation program design, pay mix, corporate performance and goal-setting, and pay-for-performance alignment;

 

    Presenting updates on market trends; and

 

    Regularly conducting private meetings with the Legacy Tyco Compensation Committee and/or Board without management representatives.

Farient did not provide any additional work to the company and satisfied NYSE consultant independence standards. Commencing with the Merger, the Johnson Controls plc Compensation Committee has selected Willis Towers Watson as its independent compensation consultant. In assessing the independent compensation consultant, the Committee reviewed the Company’s relationship with Willis Towers Watson and considered the factors impacting independence that New York Stock Exchange rules require. During fiscal 2016, in addition to providing executive compensation consulting, other one-time professional services provided by Willis Towers Watson to Legacy Johnson Controls and Legacy Tyco totaled $200,146 and included stock compensation accounting and risk consulting and software services.

 

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The chart below summarizes Legacy Tyco’s process for developing, recommending and approving pay actions and strategies and the individuals and groups responsible for approving these decisions.

 

Pay Strategy and
Recommendations
   Advice    Recommendation    Approval
CEO    Independent Consultant     Legacy Tyco
Compensation
Committee
   Independent
members of the
Legacy Tyco Board
Other Executive Officers    Independent consultant/CEO/ EVP HR      
Senior Executives1       CEO    Legacy Tyco
Compensation
Committee
Annual Incentive Plan and Equity Awards for All Employees2    Independent consultant/EVP HR      
All other employee pay actions and programs    Legacy Tyco Compensation Committee granted CEO and his designees approval authority

 

1 Other direct reports to CEO and employees earning over a certain base salary level
2 Incentive pools, performance goals, equity award terms, etc.

Benchmarking

At least annually, the Legacy Tyco Compensation Committee and its independent advisor engaged in a detailed analysis of Legacy Tyco’s peers to ensure that the peer group remained relevant from a comparator business and talent perspective. The composition of the peer group was based on a number of factors, including whether the company had overlapping business lines and competed with Legacy Tyco for talent. The Legacy Tyco Compensation Committee, with the assistance of its independent compensation consultant, analyzed up to 17 factors in confirming inclusion. In December 2015, Legacy Tyco removed DirectTV and added EcoLab, Level 3 Communications and RR Donnelley & Sons. DirectTV was removed because it was acquired. The other two were added to better balance out the peer group by including more service oriented companies focused on the development of integrated platforms.

In addition to relying on the peer group, Legacy Tyco also used general industry data (excluding financial service companies) adjusted for the approximate size and complexity of, and other benchmark data from third party providers, as a secondary source to help determine compensation for its named executive officers. Legacy Tyco’s talent strategy called for both the development of internal leadership and the recruitment of highly experienced external leaders. In developing executive compensation levels, Legacy Tyco broadly targeted total direct compensation at the 50th percentile of the benchmark data adjusted for size. Although these benchmarks represented useful guidelines, the Legacy Tyco Compensation Committee exercised discretion in setting individual executive compensation levels so that they appropriately reflected the executive’s value and expected

 

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contributions, as well as the executive’s leadership, commitment to Company values, and potential for advancement.

 

Legacy Tyco Compensation Peer Group for 2016

Cintas Corporation

Danaher Corp.

Eaton Corporation plc

Ecolab

Emerson Electric Co.

Honeywell International Inc.

 

 

Ingersoll-Rand Plc

Level 3 Communications, Inc.

Motorola Solutions, Inc.

Pitney Bowes Inc.

Republic Services, Inc.

  Rockwell Automation Inc.

R.R. Donnelley & Sons Company

Stanley Black & Decker, Inc.

Waste Management, Inc.

Xerox Corp.

Elements of the 2016 Legacy Tyco Executive Compensation Program

Legacy Tyco’s executive compensation programs were designed to align the interests of executives and shareholders and to encourage the personal and collective growth of executives through improved performance. The following chart highlights the key elements of Legacy Tyco’s total rewards program and how each linked to program objectives.

 

Element    Purpose   

Type of

Compensation

   Primary Influence Factors

Base Pay

   Provides a fixed level of cash compensation that recognizes the value of an individual’s role to the company    Cash   

    Role

 

    Skill

 

    Sustained performance

Annual Incentive

  

Provides a cash-based incentive opportunity tied to the execution of the operating plan and other strategic goals which supported the long-term sustainability of Legacy Tyco.

 

Annual incentive award opportunities ranged from 0% - 200% of target based on the extent to which pre-established objectives were met as well as individual contributions and behaviors.

   Cash   

    Financial performance

 

    Operating income

 

    Revenue

 

    Working capital days

 

    Strategic initiatives

 

    Growth and innovation

 

-   Increase sales in high growth markets

 

-   Grow software related revenue

 

    Infrastructure efficiencies

 

-   Sourcing savings

 

-   Reduce real-estate footprint

 

    M&A effectiveness - performance of acquisitions vs. plan

 

    Individual performance and behaviors that demonstrate our core values of integrity, excellence, teamwork and accountability

 

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Element    Purpose   

Type of

Compensation

   Primary Influence Factors

Long-Term Incentive

 

    Performance Share Units (PSUs)

 

    Stock Options

 

    Restricted Share Units (RSUs)

  

Intended to attract, retain and motivate talent, and to align the interests of executives with the interests of shareholders by linking a significant portion of the officer’s total pay opportunity to share price performance.

 

Provided long-term accountability for executives, and offered opportunities for capital accumulation for executives.

   Long-Term Equity   

    Share price performance

 

    Earnings per share (EPS)

 

    Relative total shareholder return (TSR)

 

    Return on invested capital (ROIC)

Health and Welfare and Retirement Benefits    Provided for opportunities to contribute toward retirement savings and promote health and wellness.    Benefit    Broadly applicable to all executives
Termination and Transition Benefits    Essential for attracting and retaining talent and helping to insure orderly exits and transitions of executives.    Benefit   

    Governed by formal plan documents approved by the Board

 

    No individual agreements for executive officers

Other Benefits and Perquisites    Help NEOs be more productive and efficient, and they provided protection from business risks and threats.    Benefit   

    Benefits consistent with what all employees receive

 

    Perquisites limited in amount

 

    Legacy Tyco maintained a strict policy regarding eligibility and use

 

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Analysis of Legacy Tyco 2016 Compensation

Prior to the Merger, all compensation decisions including those made with respect to fiscal 2016 pay levels for Messrs. Oliver and Olson and Ms. Reinsdorf were made by the Legacy Tyco Compensation Committee. The Johnson Controls International plc Compensation Committee assumed responsibility for NEO compensation, including Messrs. Molinaroli, Stief, McDonald and Jackson as of September 2, 2016.

Base Pay

 

Base pay recognizes the value of an individual based on his/her role, skill, performance, contribution, leadership and potential.    Establishing Base Pay - Going Forward
 

2016 Base Pay Decisions

 

The following table outlines base pay decisions made by the Legacy Tyco Compensation Committee at the beginning of fiscal year 2016. The salaries below were effective through September 2, 2016.

   When establishing base pay for NEOs, the Johnson Controls plc Compensation Committee expects to consider an initial guideline the 50th percentile of the general industry data for comparable roles.

 

     Base Salary
NEO    2015    2016 (through 9/2/16)    Percent Change

George R. Oliver

   $1,000,000    $1,000,000    0%

Robert E. Olson

   N/A    $535,000    N/A

Judy Reinsdorf

   $535,000    $535,000    0%

The following table outlines base salary decisions made by Johnson Controls International plc’s Compensation Committee to recognize changes in responsibilities resulting from the Merger. The salaries below were effective beginning September 2, 2016.

 

     Base Salary
NEO    Effective 10/1/15    Effective 9/2/16    Percent Change

Alex A. Molinaroli1

   N/A    $1,622,000    N/A

George R. Oliver2

   $1,000,000    $1,250,000    25%

Brian Stief1

   N/A    $721,000    N/A

Bruce McDonald1

   N/A    $1,030,000    N/A

Judy Reinsdorf

   $535,000    $600,000    12%

William Jackson1

   N/A    $824,000    N/A

Robert E. Olson

   N/A    $535,000    N/A

 

1  We are required to include information regarding compensation paid to Messrs. Molinaroli, Stief, McDonald and Jackson by the Company for the time period from September 2 - 30, 2016. Therefore, the table above does not include base salary paid by Legacy Johnson Controls.
2  Mr. Oliver received a base pay increase in connection with his agreement to succeed Mr. Molinaroli as CEO 18 months following the merger. See page X for details.

 

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Annual Incentive

Because the Merger occurred on September 2, 2016, with only a month remaining in each respective company’s fiscal year, NEOs were measured on the results of their legacy company for the full fiscal year.

Legacy Tyco Annual Incentive Program

Annual incentive compensation for the Legacy Tyco NEOs was paid in the form of an annual performance bonus under the 2012 Share and Incentive Plan (the “2012 SIP”). Annual incentive compensation rewards executives for their execution of the operating plan and other strategic initiatives, as well as for financial performance that benefits business and drives long-term shareholder value creation. It places a meaningful proportion of total cash compensation at risk, thereby aligning executive rewards with financial results. It also offers an opportunity for meaningful pay differentiation tied to the performance of individuals and groups.

In fiscal 2016, the quantitative and qualitative measures applicable to Legacy Tyco NEOs were:

 

Quantitative Performance Metrics

(Non-GAAP)

  

Qualitative Strategic Initiatives (+/- 25% modifier)

(applicable to each executive)

   

    45% Tyco Operating Income

 

    35% Tyco Revenue

 

    20% Working Capital Days

  

    Growth and Innovation

 

-   Increase Sales in High Growth Markets

 

-   Grow software related revenue

 

    Infrastructure Efficiencies

 

-   Sourcing Savings

 

-   Reduce real-estate footprint

 

    M&A Effectiveness - performance of acquisitions vs. plan

As noted above, as a result of the Merger, pursuant to the terms of the 2012 SIP, each Legacy Tyco NEO was deemed to have achieved a level of performance, as of the date of the Merger, that would cause all (100%) of such NEO’s target amount to become payable.

Legacy Johnson Controls Annual Incentive Performance Program (AIPP)

The Legacy Johnson Controls AIPP was a one-year cash award that encouraged Legacy Johnson Controls NEOs to focus on financial objectives that were expected to translate into stock price performance and value creation for shareholders.

For fiscal year 2016, 80% of the targeted AIPP award was based on financial metrics, as described below. The remaining 20% of the targeted award was based on a discretionary assessment of individual performance, as assessed by the Legacy Johnson Controls Compensation Committee. The Committee made this assessment for the CEO based on its subjective evaluation of performance relative to strategic, financial and leadership objectives that the Legacy Johnson Controls Compensation Committee approved and has discretion to decrease the amount of the incentive award that the CEO would otherwise receive. The CEO makes this assessment for the other NEOs.

For the 80% of the AIPP award based on financial metrics, segment earnings before interest and tax (EBIT), return on sales (ROS) and return on assets (ROA) were used as the measures linked to the strategic plan and expected to result in long-term shareholder value creation.

 

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Legacy Johnson Controls used simple weightings for the performance measures by placing a specific weighting on each metric for purposes of determining the amounts of the awards earned. In fiscal year 2016, the financial portion of the annual incentive measures had the following weights: 70% segment EBIT, 20% ROS, and 10% ROA. An executive officer could not receive a payout under an award if threshold performance levels were not met.

 

Performance Measure Definitions
Year-over-Year Segment EBIT    ROS    ROA
Legacy Johnson Controls defined Segment EBIT as net income attributable to each business unit (Corporate is the aggregate of the three business units and corporate) adjusted for income tax expense, financing costs, non-controlling interests, and certain significant special items, such as transaction/integration/separation costs, acquisitions/divestitures, impairment charges, restructuring costs, mark-to-market pension gains/losses, and the adoption of new accounting pronouncements, all as reflected in our audited financial statements that appear in SEC filings.    Legacy Johnson Controls defined ROS as an internal financial measure that related Segment EBIT to the sales of the business unit. Corporate is the aggregate of the three business units and corporate.    Legacy Johnson Controls defined ROA as an internal financial measure that related Segment EBIT to the average net operating assets of the business unit. Corporate is the aggregate of the three business units and corporate. Net Operating Assets are defined as (+) Total Assets; (-) Cash; (-) Income Tax Assets; (-) Post Employment Assets; (-) Derivative Assets; (-) Total Liabilities; (+) Debt; (+) Income Tax Liabilities; (+) Post Employment Liabilities; (+) Restructuring liabilities; (+) Derivative Liabilities; (+) Dividends Payable.

For Messrs. Molinaroli, Stief and McDonald, 100% of the financial portion of the annual incentive earned was based on performance relative to enterprise results. For Mr. Jackson 50% of the financial portion of the annual incentive earned was based on performance relative to Building Efficiency results and 50% relative to corporate results.

Legacy Johnson Controls 2016 AIPP Performance

Based on its review of the above information, the Legacy Johnson Controls Compensation Committee chose to set the earnings growth thresholds, targets and maximums for fiscal year 2016 primarily in line with analyst consensus earnings estimates for the S&P 500 Industrials as well as the broader S&P 500 Index. The Committee chose to set the thresholds, targets and maximums for return on sales (ROS) and return on assets (ROA) relative to Legacy Johnson Controls strategic and financial plans. This approach ensured competitive incentive compensation was provided based on market competitive performance, with continued focus on strategic deliverables.

As part of the process for establishing fiscal year 2016 targets for the AIPP, the Legacy Johnson Controls Compensation Committee reviewed the following data:

 

    Its strategic and financial plans;

 

    The global macroeconomic environment for fiscal year 2016 compared to fiscal year 2015, including global Gross Domestic Product growth as well as growth estimates in those countries where Legacy Johnson Controls had significant business operations;

 

    Growth estimates for automotive production and construction spending on a regional basis;

 

    Company-specific factors including capital expenditure levels, restructuring and other investment initiatives;

 

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    Movement of analyst consensus earnings estimates over time; and

 

    Projected earnings growth estimates from Legacy Johnson Controls compensation peer group and the broader S&P 500 companies.

 

       

Performance Measures

 

  2016 Goals   2016
Performance
 

2016 Actual
Awards
(Non-Discretionary
Portion)

 

  Threshold   Target   Maximum   Actual  

Corporate

Year-Over-Year Segment EBIT

  3%   8%   13%   13.3%    

Return on Sales (ROS)

  8.7%   9.2%   9.7%   10.1%   200%

Pre-Tax ROA

  17.8%   18.7%   19.7%   20.2%    

Building Efficiency

Year-Over-Year Segment EBIT

  3%   6.5%   10%   9.4%    

Return on Sales (ROS)

  8.1%   8.6%   9%   9.4%   187.3%

Pre-Tax ROA

  15.8%   16.6%   17.5%   17.6%    

For the discretionary portion of the award based on individual performance, a payout was authorized only if the minimum threshold performance levels under the financial portion were achieved, and negative discretion is used to deliver the intended award amount. In no event could payments under the discretionary portion of the award exceed target.

The table below summarizes the threshold, target, and maximum award potential, actual payout as a percent of target, and actual payout amounts for Messrs. Molinaroli, Stief, McDonald and Jackson for fiscal year 2016 after reflecting the exercise of discretion discussed above. Actual payout could range from zero to two times the target payout percentage for the financial portion of the AIPP, depending on the achievement of goals, with the potential payments increasing as performance improved (though not above two times the target payout percentage).

 

       
NEO    Award Targets     

2016 Actual Payout

As a % of Target

   

2016 Actual

Payout Amount ($)

 
  

Threshold

($)(1)

    

Target

($)(2)

    

Maximum

($)(3)

      

Alex A. Molinaroli

     1,135,400         2,838,500         5,677,000         192.0     5,449,922   

Brian J. Stief

     324,450         811,125         1,622,250         192.0     1,557,362   

R. Bruce McDonald

     618,000         1,545,000         3,090,000         192.0     2,966,402   

William C. Jackson

     350,200         875,500         1,751,000         170.4     1,491,959   

 

(1)  Assumes threshold payout from financial portion of AIPP, and zero payout from discretionary portion.
(2)  Assumes target payout from financial portion of AIPP, and target payout from discretionary portion.
(3)  Assumes 200% payout from financial portion of AIPP, and full payout from discretionary portion.

 

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Long-Term Incentives

Legacy Tyco Long-Term Equity Incentive Compensation

A key element in the compensation of Legacy Tyco’s executive team was long-term equity incentive awards (LTI compensation), which tied a significant portion of compensation to the company’s long-term performance. The design and structure of the LTI compensation program was reviewed annually to ensure that it was appropriate for the size and scope of the company.

In 2016, three different types of long-term incentives were granted to the Legacy Tyco NEOs:

 

    Share options, which were intended to provide value to the holder only if shareholders receive additional value after the date of grant;

 

    Restricted share units, which vest at the end of a three-year period and have a value that changes based on changes in the stock price; and

 

    Performance share units, which vest at the end of three year-performance period and, except under unusual circumstances, pay out only if specific performance metrics are met.

See Impact of the Merger on Compensation above for an explanation of how these awards were adjusted as a result of the Merger.

The allocation percentage between each equity vehicle was distributed as shown below. These weightings reflected a heavy performance orientation toward the long-term incentive performance plan, while also encouraging retention by granting RSUs to executives below the CEO level.

 

     

Share

Options

    Restricted
Share Units
    Performance
Share Units
 

CEO

     50     0     50

Other NEOs

     40     20     40

Other Legacy Tyco Benefits

Change in Control Severance Benefits

Legacy Tyco provided employment and severance arrangements essential to attract and retain executive talent and competitive with those provided to executive officers at other peer companies. All cash payments and benefits are governed by a formal plan document. Prior to the Merger, none of the Legacy Tyco NEOs had individual written termination agreements with the company providing for benefits outside the formal plan document. Under the 2012 Share and Incentive Plan equity awards are subject to double-trigger equity vesting in the event of a change in control. Double-trigger equity vesting requires both a change in control and executive termination to vest the equity awards.

Perquisites and Other Benefits

Legacy Tyco NEOs, including the CEO, were eligible to participate in substantially the same benefit plans available to all other Legacy Tyco U.S. employees. These benefit programs included Tyco’s tax-qualified 401(k) Retirement Savings and Investment Plan (“RSIP”) and its medical insurance, dental insurance, life insurance, long-term disability and long-term care plans.

 

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All eligible executives earning more than $115,000 per year were also eligible to participate in the Tyco Supplemental Savings and Retirement Plan (“SSRP”), which is a deferred compensation plan that permits the elective deferral of base salary and performance-based bonuses. The SSRP provided executives with the opportunity to defer compensation on a tax-deferred basis and receive tax-deferred market-based notional investment growth. The plan allowed executives to defer amounts above those permitted by the RSIP as well as receive any Company contributions that were reduced under the RSIP due to IRS compensation limits.

Legacy Tyco provided limited perquisites and other benefits that consisted of the following:

 

    Executive Physicals - Legacy Tyco invested in the health and well-being of executives as an important component in providing continued effective leadership for the Company. This benefit was capped at $3,000 per year.

 

    Use of Corporate Aircraft - Corporate aircraft was used primarily for business purposes. Legacy Tyco maintained a formal aircraft policy overseen by the Nominating and Governance Committee which stipulated that the CEO was the only executive pre-approved to use Company aircraft for non-business purposes. Use was limited to $150,000 of incremental value. Other executives could do so, by exception, if expressly approved by the CEO or the Board. There were no gross-ups paid with respect to personal use of aircraft.

Compensation Committee Report on Executive Compensation

The Compensation Committee has reviewed and discussed with management this Compensation Discussion & Analysis and, based on such review and discussion, has recommended to the Board of Directors that the Compensation Discussion & Analysis be included in the Company’s Annual Report on Form 10-K and this proxy statement.

Submitted by the Compensation Committee:

Jeffrey A. Joerres, Chair

Michael E. Daniels

R. David Yost

 

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Executive Compensation Tables

The following table summarizes the compensation earned by our named executive officers in the fiscal years noted. For Messrs. Molinaroli, Stief, McDonald and Jackson, it is important to note that this information generally relates only to compensation paid by Johnson Controls International plc during the period after the Merger (i.e., from September 2, 2016 until September 30, 2016), and does not include compensation that Legacy Johnson Controls paid prior to the Merger in fiscal 2016 or prior years. Mr. Nayar stepped down from his role as Executive Vice President and Chief Financial Officer of Legacy Tyco in November 2015 and was employed in an advisory capacity for a short transition period in 2016.

Summary Compensation Table for Fiscal Years 2016, 2015 and 2014

 

                                                                         

Name and

Principal Position

  Year    

Salary

($)(1)

   

Bonus

($)

   

Stock / Unit

Awards

($)(1)(2)

   

Option

Awards

($)(2)

   

Non-Equity

Incentive

Plan

Compensation

($)(1)(3)

   

Change in Pension

Value and

Nonqualified

Deferred

Compensation

Earnings

($)(4)

   

All Other

Compensation

($)(5)

   

Total

($)

 
(a)   (b)     (c)     (d)     (e)     (f)     (g)     (h)     (i)     (j)  
Alex A. Molinaroli     2016      $ 135,167      $         -            $     27,024,053      $ -              $     5,449,922      $     733,491      $     13,054,137      $     46,396,770   
Chairman and Chief Executive Officer                  
George Oliver     2016      $     1,018,939      $         -            $ 3,605,930      $     3,550,446      $ 1,250,000      $ -              $ 182,560      $ 9,607,875   
Chief Operating Officer     2015      $ 1,000,000      $ -              $ 3,712,813      $ 3,982,890      $ -              $ -              $ 276,248      $ 8,971,951   
    2014      $ 993,750      $ -              $ 3,150,175      $ 3,233,130      $ 1,312,500      $ -              $ 308,752      $ 8,998,307   
Brian J. Stief                  
EVP & Chief Financial Officer     2016      $ 60,083      $ -              $ 4,250,255      $ -              $ 1,557,362      $ -              $ -              $ 5,867,700   
Robert E. Olson     2016      $ 520,814      $ -              $ 795,778      $ 527,490      $ 428,000      $ -              $ 29,818      $ 2,301,900   
EVP and Legacy Tyco Chief Financial Officer                  
R. Bruce McDonald     2016      $ 85,833      $ -              $ 5,051,013      $ -              $ 2,966,402      $ 295,618      $ 4,527,175      $ 12,926,041   
EVP and Vice Chairman                  
William C. Jackson     2016      $ 68,667      $ -              $ 3,000,101      $ -              $ 1,491,959      $ -              $ -              $ 4,560,727   
VP and President                  
Judith A. Reinsdorf     2016      $ 539,678      $ -              $ 3,318,187      $ 608,649      $ 428,000      $ -              $ 21,810      $ 4,916,324   
EVP and General Counsel     2015      $ 535,000      $ -              $ 894,014      $ 637,251      $ -              $ -              $ 60,756      $ 2,127,021   
    2014      $ 535,000      $ -              $ 929,998      $ 646,622      $ 449,400      $ -              $ 111,286      $ 2,672,306   

Former Officers (at fiscal year end)

 

                 
Arun Nayar     2016      $ 131,250      $ -              $ -              $ -              $ 105,574      $ -              $ 10,500      $ 247,324   
EVP and Chief Financial Officer     2015      $ 525,000      $ -              $ 894,014      $ 637,251      $ -              $ -              $ 55,594      $ 2,111,859   
      2014      $ 510,417      $ -              $ 805,999      $ 560,401      $ 441,000      $ -              $ 101,218      $ 2,419,035   

 

(1)  Deferred Amounts Included: We have not reduced amounts that we show to reflect a named executive officer’s election, if any, to defer the receipt of compensation into our qualified and nonqualified deferred compensation plans

 

(2) 

Stock/Unit Awards and Option Awards: The amounts in columns (e) and (f) reflect the fair value of equity awards granted in fiscal 2016, 2015, and 2014. For Messrs. Molinaroli, Stief, McDonald and Jackson, the equity awards that the Company granted in fiscal 2016 (excluding any awards

 

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  Legacy Johnson Controls granted prior to the Merger) consisted of restricted stock units (“RSUs”) granted in connection with the closing of the Merger as described above under “Impact of the Merger on Compensation—Merger Retention RSU Awards” and “—RSU Awards Related to Legacy Johnson Controls Nonqualified Plans.” For Messrs. Oliver and Olson and Ms. Reinsdorf, the equity awards granted in fiscal 2016 consisted of stock options, RSUs and performance-vesting restricted stock units (“PSUs”). The amounts in columns (e) and (f) represent the fair value of the entire amount of the award calculated in accordance with Financial Accounting Standards Board ASC Topic 718, excluding the effect of estimated forfeitures. For stock options, amounts are computed by multiplying the fair value of the award (as determined under the Black-Scholes option pricing model) by the total number of options granted. For RSUs, fair value is computed by multiplying the total number of shares subject to the award by the closing market price of our ordinary shares on the date of grant. For PSUs, fair value is based on a model that considers the closing market price of our ordinary shares on the date of grant, the range of shares subject to such stock award, and the estimated probabilities of vesting outcomes. The value of PSUs included in the table assumes target performance. In connection with the Merger, as described above under “Treatment of Long-Term Incentives for Legacy Tyco,” the PSUs were converted into time-vesting RSUs at target. The following amounts represented the maximum potential PSU value (i.e., the PSUs that would have been earned if the performance goals had been achieved at the maximum performance level) at the time of grant by individual for fiscal 2016: Mr. Oliver—$7,211,860; Mr. Olson—$1,071,414; and Ms. Reinsdorf—$1,236,294. For Legacy Johnson Controls NEOs, footnote 12 to our audited financial statements for the fiscal year ended September 30, 2016, which appears in our Annual Report on Form 10-K that we filed with the Securities and Exchange Commission on November 23, 2016, includes assumptions that we used in the calculation of the equity award values. For Legacy Tyco NEOs, footnote 13 to Legacy Tyco’s unaudited financial statements for the fiscal quarter ended December 25, 2015, which appears in its Quarterly Report on Form 10-Q that was filed with the Securities and Exchange Commission on January 29, 2016, includes the assumptions used in the calculation of equity award values applicable to such individuals.

 

(3)  Non-Equity Incentive Plan Compensation: The amounts reported in column (g) for each named executive officer reflect annual cash incentive compensation (which was based on, for Messrs. Molinaroli, Stief, McDonald and Jackson with respect to fiscal 2016, Legacy Johnson Controls and individual performance, and for Messrs. Oliver, Olson and Nayar and Ms. Reinsdorf, Legacy Tyco and individual performance, in fiscal 2016, 2015 and 2014). As noted above under “Impact of the Merger on Compensation,” awards for Legacy Tyco NEOs for fiscal 2016 were paid at target amounts.

 

(4)  Change In Pension Value: The amounts reported in column (h) for each named executive officer reflect the actuarial increase in the present value of benefits under the qualified defined benefit pension plan established by Legacy Johnson Controls, determined as of the measurement dates used for financial statement reporting purposes for fiscal year 2016 and using interest rate and mortality rate assumptions consistent with those reflected in our audited financial statements for the fiscal year ended September 30, 2016. The value that an executive will actually receive under these benefits will differ to the extent facts and circumstances vary from what the calculations assume. Changes in the present value of the named executive officer’s benefits are the result of the assumptions applied (as discussed in the footnotes to the “Pension Benefits as of September 30, 2016” table below). No named executive officer received preferential or above market earnings on nonqualified deferred compensation.

 

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(5)  All Other Compensation: The fiscal 2016 amounts reported in column (i) for each named executive officer represent consist of the following:

 

                                                                 

Named

Executive

 

Personal

Use of

Company

Aircraft (a)

   

Relocation

Benefits (b)

    Tax
Gross-
Up (c)
   

Retirement

Plan

Contributions (d)

    Non-Qualified
Defined
Benefit
Distribution (e)
    Company
Vehicle (f)
    Miscellaneous (g)    

Total All Other

Compensation

 
Alex A. Molinaroli   $ -              $ -            $       -            $ -            $ 13,052,772      $ 1,041      $ 324      $ 13,054,137   

George Oliver

  $ 194,350      $ -            $ -            $ 29,560      $ -              $ -          $ 3,000      $ 226,910   
Robert E. Olson   $ -              $ 10,074      $ 6,370      $ 13,375      $ -              $ -          $ -          $ 29,819   

R. Bruce McDonald

  $ -              $ -            $ -            $ -            $ 4,513,275      $ 1,357      $ 12,294      $ 4,526,926   
Judith A. Reinsdorf   $ -              $ -            $ -            $ 21,810      $ -              $ -          $ -          $ 21,810   

Arun Nayar

  $ -              $ -            $ -            $ 10,500      $ -              $ -          $ -          $ 10,500   

 

(a)  As the then-CEO of Legacy Tyco, Mr. Oliver was authorized to use Legacy Tyco-owned or -leased aircraft for personal travel during fiscal 2016. Other executive officers were permitted to use Legacy Tyco-owned or -leased aircraft if expressly approved by the Legacy Tyco Board or the CEO. The Summary Compensation Table reflects, the aggregate incremental pre-tax cost to the Company for personal use of aircraft for fiscal 2016, which was calculated using a method that takes into account the incremental cost of fuel, trip-related maintenance, crew travel expenses, on-board catering, landing fees, trip-related hangar/parking costs and other variable costs, including incremental costs associated with executives that are not in control of the aircraft, reduced by any amounts paid to the Company by the executive in respect of personal use. Because our aircraft are used primarily for business travel, the calculation does not include the fixed costs that do not change based on usage, such as pilots’ salaries, the acquisition costs of the Company-owned or -leased aircraft, and the cost of maintenance not related to trips.

 

(b)  Legacy Tyco provided relocation benefits in accordance with company policy to Mr. Olson in fiscal 2016, to assist his relocation to Legacy Tyco’s headquarters upon his hiring.

 

(c)  The amount shown for Mr. Olson represents a tax gross-up payment made with respect to the relocation benefits disclosed in the preceding footnote.

 

(d)  Retirement plan contributions include matching contributions made by Legacy Tyco on behalf of each executive to its tax-qualified 401(k) Retirement Savings and Investment Plan (“RSIP”) and to its non-qualified Supplemental Savings and Retirement Plan (“SSRP”).

 

(e)  Each of the Legacy Johnson Controls nonqualified deferred compensation plans, including the Legacy Johnson Controls Retirement Restoration Plan, provided that all amounts deferred under the applicable plan (determined based on the actuarial equivalent value in the case of supplemental defined benefit pension benefits under the Legacy Johnson Controls Retirement Restoration Plan) became vested (to the extent not previously vested) and paid out in a lump sum following the consummation of the Merger. A portion of the payments to Mr. Molinaroli will be delayed until they are deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). The amounts shown in this column reflect the amounts that were (or will be, in the case of the portion of the payments that were delayed for Mr. Molinaroli) paid out under the pension component of the Legacy Johnson Controls Retirement Restoration Plan.

 

(f)  Amounts reflect costs attributable to personal use of a vehicle.

 

(g)  Miscellaneous compensation includes payments with respect to an executive physical for Mr. Oliver and country club dues for Messrs. Molinaroli and McDonald.

 

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Grants of Plan-Based Awards Table

The following table summarizes cash-based and equity-based awards for each of the Company’s named executive officers that were granted in fiscal year 2016.

 

Name  

Grant

Date

          

Estimated Possible Payouts Under

Non-Equity Incentive Plan  Awards(1)

          

Estimated Possible Payouts

Under Equity Incentive Plan Awards(2)

   

All

Other

Stock

Awards:

Number

of

Shares

of

Stock or

Units

(#)(3)

          

All Other

Option

Awards:

Number of

Securities

Underlying

Options

(#)

          

Exercise

or Base

Price of

Option

Awards

($/Sh)

          

Grant Date Fair

Value of Stock

and

Option Awards

($) (4)

 
   

Board or

Committee

Approval

Date

   

Threshold

($)

   

Target

($)

   

Maximum

($)

         

Threshold

(#)

   

Target

(Mid-

Point)

(#)

   

Maximum

(#)

                     
(a)   (b)     (c)     (d)     (e)     (f)           (g)     (h)     (i)           (j)           (k)           (l)           (m)  

Alex A. Molinaroli

    9/8/2016        9/8/2016                        564,648                $     27,024,053   
    N/A (5)      N/A (5)    $     1,135,400      $     2,838,500      $     5,677,000                           

George Oliver

    N/A (6)      N/A (6)    $ 625,000      $ 1,250,000      $ 2,500,000                           
    10/12/2015        10/12/2015                46,321        92,641        185,282                    $ 3,605,930   
    10/12/2015        10/12/2015                            436,986        $ 37.79        $ 3,550,446   

Brian J, Stief

    9/8/2016        9/8/2016                        88,806                $ 4,250,255   
    N/A (5)      N/A (5)    $ 324,450      $ 811,125      $ 1,622,250                           

Robert Olson

    N/A (6)      N/A (6)    $ 214,000      $ 428,000      $ 856,000                           
    10/12/2015        10/12/2015                6,882        13,763        27,526                    $ 535,707   
    10/12/2015        10/12/2015                        6,882                $ 260,071   
    10/12/2015        10/12/2015                            64,923        $ 37.79        $ 527,490   

R. Bruce McDonald

    9/8/2016        9/8/2016                        105,537                $ 5,051,001   
    N/A (5)      N/A (5)      618,000        1,545,000        3,090,000                           

William C. Jackson

    9/8/2016        9/8/2016                        62,684                $ 3,000,056   
    N/A (5)      N/A (5)    $ 350,200      $ 875,500      $ 1,751,000                           

Judith A. Reinsdorf

    N/A (6)      N/A (6)    $ 214,000      $ 428,000      $ 856,000                           
    10/12/2015        10/12/2015                7,941        15,881        31,762                    $ 618,147   
    10/12/2015        10/12/2015                        7,940                $ 300,053   
    10/12/2015        10/12/2015                            74,912        $ 37.79        $ 608,649   
    9/8/2015        9/8/2015                        50,146                $ 2,399,988   

Former Officer

                                 

Arun Nayar

    N/A (6)      N/A (6)    $ 52,787      $ 105,574      $ 211,148                                                                                                   

 

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  (1)  Amounts reported in columns (d) through (f) represent the range of potential cash payments under the annual performance bonuses that Messrs. Molinaroli, Stief, McDonald and Jackson could have earned under the Legacy Johnson Controls Annual Incentive Performance Plan for fiscal 2016, as described above under the heading “Annual Incentive—Legacy Johnson Controls Annual Incentive Performance Program (AIPP),” and that Messrs. Oliver, Olson and Nayar and Ms. Reinsdorf could have earned under the Company’s annual incentive plan for fiscal 2016, as described under the heading “Annual Incentive—Legacy Tyco Annual Incentive Program.” With respect to Legacy Tyco NEOs, the Board approved a maximum bonus payout of 0.50% of net income before special items for the CEO, subject to a cap of $5.0 million imposed by the 2012 SIP, and 0.25% for the other Legacy Tyco NEOs, subject to a cap of $2.5 million. The Legacy Tyco Compensation Committee further established a maximum payout of 200% of target for Legacy Tyco NEOs. Threshold amounts assume minimum performance levels are achieved with respect to each performance measure.

 

  (2)  Amounts in columns (g) through (i) represent potential share payouts with respect to PSUs granted to Legacy Tyco NEOs assuming that threshold, target and maximum performance conditions are achieved. In connection with the Merger, as described above under “Treatment of Long-Term Incentives for Legacy Tyco,” the PSUs were converted into time-vesting RSUs at target.

 

  (3)  Amounts in column (j) show the value of the RSUs granted in connection with the closing of the Merger as described above under “Impact of the Merger on Compensation—Merger Retention RSU Awards” and “-RSU Awards Related to Legacy Johnson Controls Nonqualified Plans.”

 

  (4)  Amounts in column (m) show the grant date fair value of the option awards, RSUs and PSUs granted to named executive officers (and with respect to Legacy Johnson Controls NEOs, only those granted after the Merger). These amounts represent the fair value of the entire amount of the award calculated in accordance with Financial Accounting Standards Board ASC Topic 718 (ASC Topic 718), excluding the effect of estimated forfeitures. For grants of stock options, amounts are computed by multiplying the fair value of the award (as determined under the Black-Scholes option pricing model) by the total number of options granted. For grants of RSUs, fair value is computed by multiplying the total number of shares subject to the award by the closing market price of our ordinary shares on the date of grant. For grants of PSUs, fair value is based on a model that considers the closing market price of our ordinary shares on the date of grant, the range of shares subject to such stock award, and the estimated probabilities of vesting outcomes. The value of PSUs included in the table assumes target performance.

 

  (5)  The award reflected in this row is an annual incentive performance award that Legacy Johnson Controls granted for the performance period of fiscal year 2016, the material terms of which we describe above under the heading “Annual Incentive—Legacy Johnson Controls Annual Incentive Performance Program (AIPP).”

 

  (6)  The award reflected in this row is an annual incentive performance award that Legacy Tyco granted for the performance period of fiscal year 2016, the material terms of which we describe above under the heading “Annual Incentive—Legacy Tyco Annual Incentive Program.”

 

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Outstanding Equity Awards at 2016 Fiscal Year-End Table

The following table shows, for each of the named executive officers, all equity awards that were outstanding as of September 30, 2016. Dollar amounts are based on the NYSE closing price of $46.53 for the Company’s common stock on September 30, 2016.

 

                                                    
    Option Awards   Stock Awards  
Name  

Number of

Securities

Underlying

Unexercised

Options:

(#)

Exercisable

 

Number of

Securities

Underlying

Unexercised

Options:

(#)

Unexercisable(1)

 

Option

Exercise

Price

($)

   

Option

Expiration

Date

 

Number

of Shares

or

Units of

Stock

That

Have Not

Vested

(#)(2)

   

Market

Value of

Shares or

Units of

Stock

That

Have Not

Vested

($)

   

Equity

Incentive Plan

Awards:

Number of

Unearned

Shares, Units

or Other

Rights That

Have Not

Vested (#)(3)

   

Equity Incentive

Plan Awards:

Market or

Payout Value of

Unearned

Shares, Units or

Other Rights

That Have Not

Vested ($)

 
(a)   (b)   (c)   (d)     (e)   (f)     (g)     (h)     (i)  

Alex A. Molinaroli

  90,000   -   $ 40.21      10/1/2017     1,145,883      $ 53,317,936        -      $         -           
  135,000   -   $ 30.54      10/1/2020        
  125,000   -   $ 28.54      10/7/2021        
  72,900   -   $ 27.85      10/5/2022        
  65,100   -   $ 30.73      1/23/2023        
  76,530   76,531   $ 48.37      11/19/2023        
  -   169,924   $ 50.23      11/18/2024        
  -   217,604   $ 43.86      10/7/2025        

George R. Oliver

  67,634   -   $ 23.03      8/17/2018     204,827      $ 9,530,600        -                -           
  249,860   -   $ 15.01      10/6/2018        
  183,964   -   $ 17.47      9/30/2019        
  153,433   -   $ 19.30      10/11/2020        
  129,084   -   $ 22.94      10/11/2021        
  244,313   81,437   $ 28.42      11/19/2022        
  162,827   -   $ 28.42      11/19/2022        
  142,814   142,814   $ 38.91      11/19/2023        
  76,440   229,320   $ 45.43      11/24/2024        
  -   436,986   $ 37.79      10/11/2025        

Brian J. Stief

  35,000   -   $ 30.54      10/1/2020     197,656      $ 9,196,934        -      $ -           
  34,500   -   $ 28.54      10/7/2021        
  21,500   -   $ 27.85      10/5/2022        
  7,176   7,177   $ 48.37      11/19/2023        
  -   32,175   $ 50.23      11/18/2024        
  -   45,627   $ 43.86      10/7/2025        

Robert Olson

  -   64,923   $ 37.79      10/11/2025     21,196      $ 986,250        -      $ -           

R. Bruce McDonald

  47,248   -   $ 40.21      10/1/2017     430,350      $ 20,024,186        -      $ -           
  160,000   -   $ 28.79      10/1/2018        
  170,000   -   $ 24.87      10/1/2019        
  150,000   -   $ 30.54      10/1/2020        
  140,000   -   $ 28.54      10/7/2021        
  74,800   -   $ 27.85      10/5/2022        
  24,659   24,660   $ 48.37      11/19/2023        
  -   80,437   $ 50.23      11/18/2024        
    -   104,562   $ 43.86      10/7/2025                                

 

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    Option Awards   Stock Awards  
Name  

Number of

Securities

Underlying

Unexercised

Options:

(#)

Exercisable

 

Number of

Securities

Underlying

Unexercised

Options:

(#)

Unexercisable(1)

 

Option

Exercise

Price

($)

   

Option

Expiration

Date

 

Number

of Shares

or

Units of

Stock

That

Have Not

Vested

(#)(2)

   

Market

Value of

Shares or

Units of

Stock

That

Have Not

Vested

($)

   

Equity

Incentive Plan

Awards:

Number of

Unearned

Shares, Units

or Other

Rights That

Have Not

Vested (#)(3)

   

Equity Incentive

Plan Awards:

Market or

Payout Value of

Unearned

Shares, Units or

Other Rights

That Have Not

Vested ($)

 
(a)   (b)   (c)   (d)     (e)   (f)     (g)     (h)     (i)  

William C. Jackson

  86,000   -   $ 28.54      10/7/2021     199,111      $ 9,264,635        -      $         -           
  53,800   -   $ 27.85      10/5/2022        
  20,476   20,476   $ 48.37      11/19/2023        
  -   41,441   $ 50.23      11/18/2024        
  -   49,961   $ 43.86      10/7/2025        

Judith A. Reinsdorf

  37,858   -   $ 17.47      9/30/2019     107,548      $ 5,004,208        -      $ -           
  64,449   -   $ 19.30      10/11/2020        
  109,760   -   $ 22.94      10/11/2021        
  58,590   19,529   $ 28.42      11/19/2022        
  48,800   -   $ 28.42      11/19/2022        
  28,563   28,562   $ 38.91      11/19/2023        
  12,230   36,690   $ 45.43      11/24/2024        
  -   74,912   $ 37.79      10/11/2025        

Former Officers

               

Arun Nayar

  25,785   -   $ 38.91      12/31/2018     -              $ -                -      $ -           
  12,229   -   $ 45.43      12/31/2018        
  -   12,230   $ 45.43      11/20/2019        
  -   12,229   $ 45.43      11/20/2020        
    -   12,230   $ 45.43      11/20/2021                                

 

  (1) Vesting information for each outstanding option award for the named executive officers is described in the table below.

 

       Vesting
           Date          

   Exercise
Price
    Alex A.
Molinaroli
    George
Oliver
    Brian J.
Stief
    Robert
Olson
    R. Bruce
McDonald
    William C.
Jackson
    Judith A.
Reinsdorf
    Arun
Nayar
 
           Number Of Shares Underlying Vesting Awards  

2016

                  

11/12/2016

   $ 37.79          109,247          16,231            18,728     

11/20/2016

   $ 45.43          76,440                12,230     

11/20/2016

   $ 38.91          71,407                14,281     

11/20/2016

   $ 28.42          81,437                19,529     

11/19/2016

   $ 48.37        76,531          7,177          24,660        20,476       

11/18/2016

   $ 50.23        84,962          16,087          40,218        20,720       

2017

                  

10/12/2017

   $ 37.79          109,247          16,231            18,728     

11/20/2017

   $ 45.43          76,440                12,230     

11/20/2017

   $ 38.91          71,407                14,281     

11/18/2017

   $ 50.23        84,962          16,088          40,219        20,721       

10/7/2017

   $ 43.86        108,802          22,813          52,281        24,980       

2018

                  

10/12/2018

   $ 37.79          109,246          16,231            18,728     

11/20/2018

   $ 45.43          76,440                12,230     

10/7/2018

   $ 43.86        108,802          22,814          52,281        24,981       

2019

                  

10/12/2019

   $ 37.79          109,246          16,230            18,728     

 

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  (2)  The amounts in columns (f) and (g) reflect, for each named executive officer, the number and market value of RSUs which had been granted as of September 30, 2016, but which remained subject to additional vesting requirements. Scheduled vesting of all RSUs and the number of shares underlying awards, for each of the named executive officer is as follows:

 

       Vesting

          Date        

   Alex A.
Molinaroli
     George
Oliver
     Brian J.
Stief
     Robert
Olson
     R. Bruce
McDonald
     William C.
Jackson
     Judith A.
Reinsdorf
     Arun
Nayar
 
     Number Of Shares Underlying Vesting Awards  

2016

                       

10/12/2016

              1,767               2,038      

11/20/2016

        23,690                     13,701      

11/19/2016

     46,516            4,362            14,988         12,445         

2017

                       

9/29/2017

        86,017                     13,763      

10/12/2017

              1,767               2,038      

11/20/2017

                       3,761      

1/23/2017

     10,900                        

11/18/2017

     52,571            9,954            24,885         12,821         

12/7/2017

     210,282            39,816            99,542         51,244         

2018

                       

9/2/2018

                       50,146      

9/28/2018

        95,120            14,131               16,306      

10/12/2018

              1,766               2,038      

11/20/2018

                       1,719      

9/24/2018

                 60,000            

10/7/2018

     260,966            54,718            125,398         59,917         

2019

                       

3/8/2019

     564,648                        

9/2/2019

           88,806            105,537         62,684         

10/12/2019

              1,765               2,038      

Option Exercises and Stock Vested Table

The following table shows, for each of the named executive officers, the amounts realized from options that were exercised and RSUs that vested during fiscal 2016. For Messrs. Molinaroli, Stief, McDonald and Jackson the table includes only vesting events that occurred during the period after the Merger.

 

              
     Option Awards    Stock Awards
Name   

Number of Shares

Acquired on Exercise

(#)

  

Value Realized

on Exercise

($)

  

Number of Shares

Acquired on Vesting

(#)

  

Value Realized

on Vesting

($)

(a)    (b)    (c)    (d)    (e) (1)

Alex A. Molinaroli

   -    $              -            226,958    $        10,599,247

George R. Oliver

   -    $              -            110,869    $          4,828,570

Brian Stief

   -    $              -            23,694    $          1,114,005

Robert Olson

   -    $              -            -    $                  -        

R. Bruce McDonald

   -    $              -            76,230    $          3,586,992

William Jackson

   -    $              -            66,422    $          3,080,896

Judith A. Reinsdorf

   -    $              -            34,525    $          1,409,173

Arun Nayar

   283,645    $    3,749,865    52,479    $          2,045,302

 

  (1)  The amounts in column (e) represent the product of the number of shares a named executive officer acquired on vesting and the closing market price of the shares on the vesting date, plus the value of dividend equivalents released, if any.

 

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Pension Benefits As of September 30, 2016

The following table sets forth certain information with respect to the potential benefits to our named executive officers under the Legacy Johnson Controls qualified pension plan and the pension component of the Legacy Johnson Controls Retirement Restoration Plan as of September 30, 2016. Only those named executive officers who participate in these plans are included in the table.

 

                              
Name    Plan Name  

Number of Years
Credited Service

(#)

   

Present Value of
Accumulated

Benefit(1) ($)

    

Payments During
Last Fiscal Year(2)

($)

 

Alex A. Molinaroli

   Johnson Controls Pension Plan     30.00        $    1,271,579      
   Retirement Restoration Plan     30.00           $13,052,770   

R. Bruce McDonald

   Johnson Controls Pension Plan     13.17        $549,392      
     Retirement Restoration Plan     13.17                 $4,513,275   

 

  (1)  Amounts in this column reflect the following assumptions: A calculation date of September 30, 2016, a 4.42% discount rate for the Johnson Controls Pension Plan, retirement occurring at normal retirement age based on Social Security Normal Retirement Age minus three years, and applicability of the 2009 Static Mortality Table for Annuitants per Treasury Regulation 1.430(h)(3)-1(e), that we used for financial reporting purposes as of September 30, 2016. The valuation method method used to determine the present value of the accumulated benefit is the same as the method we used for Financial reporting purposes as of September 30, 2016. The value that an executive will actually receive under these benefits will differ to the extent facts and circumstances vary from what these calculations assume

 

  (2)  Amounts in this column reflect the value of the immediate lump sum distribution of the defined benefit portion of the Legacy Johnson Controls Retirement Restoration Plan as a result of the Merger. Tax regulations under Section 409A of the Code allowed the deferral of Mr. Molinaroli’s Retirement Restoration Plan lump sum payment until it is deductible under Section 162(m) of the Code.

Legacy Johnson Controls Pension Plan. The Legacy Johnson Controls Pension Plan is a frozen defined benefit pension plan that provides benefits for most non-union U.S. employees, including Mr. Molinaroli and Mr. McDonald, who were hired by Legacy Johnson Controls prior to January 1, 2006. Because both Mr. Stief and Mr. Jackson were hired by Legacy Johnson Controls after January 1, 2006, neither are participants in the Pension Plan. Subject to certain limitations that the Code imposes, the monthly retirement benefit payable under the Legacy Johnson Controls Pension Plan to participants, at normal retirement age in a single life annuity, is determined as follows:

 

  ·   1.15% of final average monthly compensation times years of benefit service, plus

 

  ·   0.55% of final average monthly compensation in excess of Social Security covered compensation times years of benefit service (up to 30 years)

Service after December 31, 2014 does not count as benefit service in this formula. For purposes of this formula, “final average monthly compensation” means a participant’s gross compensation, excluding certain unusual or non-recurring items of compensation, such as severance or moving expenses, for the highest five consecutive years of the last ten consecutive years of employment

 

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occurring prior to January 1, 2015. “Social Security covered compensation” means the average of the Social Security wage base for the 35 years preceding a participant’s normal retirement age. Normal retirement age for Johnson Controls participants is age 65.

Participants in the Legacy Johnson Controls Pension Plan generally become vested in their pension benefits upon completion of five years of service. The Pension Plan does not pay full pension benefits until after a participant terminates employment and reaches normal retirement age. However, a participant who terminates employment may elect to receive benefits at a reduced level at any time after age 55, as follows: If a participant terminates employment prior to age 55 then the reduction is 5% for each year that benefits begin before their Social Security retirement age; and if a participant terminates employment on or after age 55 and after completing ten years of service, then the reduction is 5% for each year that benefits begin before the three years preceding the participant’s Social Security retirement age. Mr. Molinaroli and Mr. McDonald are currently eligible for early retirement under the Pension Plan.

Legacy Johnson Controls Restoration Plan. The Legacy Johnson Controls Retirement Restoration Plan is an unfunded, nonqualified plan that provides benefits above the payments that an employee, other than a York employee, will receive from the Pension Plan in those cases in which the Code’s qualified plan limits restrict the employee’s benefits. The Retirement Restoration Plan provides a benefit equal to the difference between the actual pension benefit payable under the Pension Plan and what such pension benefit would have been without regard to any Code limitation on either the amount of benefits or the amount of compensation that the benefit formula can take into account. Messrs. Jackson and Stief are not eligible under the Retirement Restoration Plan for a benefit with respect to the Pension Plan because they are not participants in the Johnson Controls Pension Plan. A participant is vested in his or her Retirement Restoration Plan benefits only if vested in his or her benefits under the Pension Plan. Benefits under the Retirement Restoration Plan are generally payable as an annuity at the later of the participant’s termination of employment or attainment of age 55. However, under the terms of the Retirement Restoration Plan, all amounts deferred (determined based on the actuarial equivalent value) became vested (to the extent not previously vested) upon the Merger and were required to be paid out in a lump sum following the consummation of the Merger. Payments to Mr. Molinaroli will be delayed until they are deductible under Section 162(m) of the “Code”.

 

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Non-Qualified Deferred Compensation Table at Fiscal Year-End

The following table presents information on the non-qualified deferred compensation accounts of each named executive officer at September 30, 2016. For Messrs Molinaroli, Stief, McDonald and Jackson, the amounts shown in columns (b)-(e) in the table relate to the period after the Merger, but the balance shown in column (f) includes amounts deferred for periods prior to the Merger.