DEF 14A 1 d644844ddef14a.htm DEF 14A DEF 14A
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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)

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  (1)  

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LOGO

 

NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS

WEDNESDAY, MARCH 6, 2019

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

NOTICE IS HEREBY GIVEN that the 2019 Annual General Meeting of Shareholders of Johnson Controls International plc will be held on March 6, 2019 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 each of 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 2020:

 

(a)  Jean Blackwell

  

(b)  Pierre Cohade

  

(c)   Michael E. Daniels

(d)  Juan Pablo del Valle Perochena

  

(e)  W. Roy Dunbar

  

(f) Gretchen R. Haggerty

(g)  Simone Menne

  

(h)  George R. Oliver

  

(i)  Jürgen Tinggren

(j)  Mark Vergnano

  

(k)   R. David Yost

  

(l)  John D. Young

 

  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 (special resolution).

 

  5.

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

 

  6.

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

 

  7.

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

 

  8.

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 18, 2019 to each holder of record of the Company’s ordinary shares at


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the close of business on January 2, 2019. The record date for the entitlement to vote at the Annual General Meeting is January 2, 2019 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, 2018. 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, 2018 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

John Donofrio

Executive Vice President and General Counsel

January 18, 2019

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 5, 2019 (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 5, 2019. 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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Proxy Statement Summary

     1  

Agenda Items

     3  

Proposal Number One – Election of Directors

     3  

Proposal Number Two – Appointment of Auditors and Authority to Set Remuneration

     12  

Audit and Non-Audit Fees

     12  

Audit Committee Report

     14  

Proposal Number Three – Authorization to Make Market Purchases of Company Shares

     15  

Proposal Number Four – Determine the Price Range at which the Company can Re-Allot Treasury Shares

     17  

Proposal Number Five – Advisory Vote on Executive Compensation

     19  

Proposal Number Six – Authorization for Directors to Allot Company Shares

     20  

Proposal Number Seven – Waiver of Statutory Pre-Emption Rights

     22  

Governance of the Company

     24  

Board of Directors

     24  

Compensation of Non-Employee Directors

     38  

Committees of the Board

     39  

Compensation Discussion & Analysis

     42  

Executive Compensation Tables

     66  

Summary Compensation Table

     66  

Grants of Plan-Based Awards Table

     69  

Outstanding Equity Awards Table

     71  

Option Exercise and Stock Vesting Table

     73  

Non-Qualified Deferred Compensation Table

     75  

Potential Payments upon Termination and Change-in-Control

     76  

CEO Pay Ratio

     81  

Questions and Answers

     82  

Non-GAAP Reconciliations

     92  

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.

 

   2019 Proxy Statement    i


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PROXY STATEMENT SUMMARY

Annual General Meeting

 

Time and Date:    3:00 pm, local time, on March 6, 2019

Place:

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

Record Date:

   January 2, 2019

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 both 2(a) and 2(b)

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

  FOR

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

  FOR


 

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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 89% 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.

 

Nominee and Principal Occupation    Age     

Director

Since

     Independent      Current Committee Membership

Jean Blackwell

Former Executive Vice President &

Chief Financial Officer of Cummins Inc.

     64        2018             Compensation

Pierre Cohade

Former Chief Executive Officer of Triangle Tyre Co. Ltd.

     57        2018             Audit

Michael E. Daniels

Retired Senior Vice President of Global Technology at IBM

     64        2010             Compensation (chair); Executive

Juan Pablo del Valle Perochena

Chairman of Mexichem

     46        2016             Governance (chair); Executive

W. Roy Dunbar

Founder and Chief Executive Officer, Sustainable Star, LLC

     57        2017             Compensation

Gretchen R. Haggerty

Former Executive Vice President &

Chief Financial Officer of United States

Steel Corporation

     63        2018             Audit

Simone Menne

Former Chief Financial Officer, Boehringer Ingelheim

     58        2018             Audit

George R. Oliver

Chairman and Chief Executive Officer of Johnson Controls

     58        2012         Executive

Jürgen Tinggren

Former Chief Executive Officer and Director of Schindler Group

     60        2014             Audit (chair); Executive

Mark Vergnano

President, Chief Executive Officer and Director, The Chemours Company

     60        2016             Compensation

R. David Yost

Former Chief Executive Officer of AmerisourceBergen

     71        2009             Governance

John D. Young

Group President of Pfizer Innovative Health

     54        2017             Governance
                                 

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.



 

2    2019 Proxy Statement   


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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. Brian Duperreault, who has served as a director since March 2004, has informed the Board of Directors of his decision to not stand for reelection. Mr. Duperreault will retire from the Board effective as of the conclusion of the Company’s 2019 Annual General Meeting.

 

                     Director Since      Other Public Directorships

LOGO

   

 

Age:

 

 

 

   

 

64

 

 

 

    

 

June 2018

 

 

 

  

Celanese Corporation

Ingevity Corporation

 

   

 

Committee:

 

 

 

   

 

Compensation

 

 

 

     
   

 

Independent:

 

 

 

   

 

Yes

 

 

 

     
                             
Jean Blackwell                        

Ms. Blackwell served as Chief Executive Officer of Cummins Foundation and Executive Vice President, Corporate Responsibility, of Cummins Inc., a global power leader that designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products, from March 2008 until her retirement in March 2013. She previously served as Executive Vice President and Chief Financial Officer from 2003 to 2008, Vice President, Cummins Business Services from 2001 to 2003, Vice President, Human Resources from 1998 to 2001, and Vice President and General Counsel from 1997 to 1998 of Cummins Inc. Prior thereto, Ms. Blackwell was a partner at the Indianapolis law firm of Bose McKinney & Evans LLP from 1984 to 1991. She has also served in state government, including as Executive Director of the Indiana State Lottery Commission and State of Indiana Budget Director. Ms. Blackwell serves as a director of Celanese Corporation, a global technology and specialty materials company, and Ingevity Corporation, a leading global manufacturer of specialty chemicals and high performance carbon materials. Ms. Blackwell previously served as a member of the Board of Directors of Essendant Inc., a leading national wholesale distributor of business products, from 2007 to 2018 and Phoenix Companies Inc., a life insurance company, from 2004 to 2009.

Skills and Qualifications

 

   

Senior Leadership Experience: Extensive experience as a business leader, including serving as the Chief Financial Officer of Cummins Inc.

 

   

Financial: Deep financial acumen as CFO and senior finance leader in engine-related industry

 

   

Corporate Governance: Experience serving on the board of directors of multiple international companies

 

   2019 Proxy Statement    3


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

 

   

Sustainability and Corporate Responsibility: Extensive experience with ESG topics through service as CEO of Cummins Foundation and Executive Vice President of Corporate Responsibility for Cummins Inc.

 

   

Talent Management: Experience leading global teams

 

                   Director Since      Other Public Directorships

LOGO

   

 

Age:

 

 

 

   

 

57

 

 

 

    

 

December 2018

 

 

 

  

CEAT Ltd.

Acorn International Inc.

 

   

 

Committee:

 

 

 

   

 

Audit

 

 

 

     
   

 

Independent:

 

 

 

   

 

Yes

 

 

 

     
                             
Pierre Cohade                        

Mr. Cohade served as the Chief Executive Officer of Triangle Tyre, China’s largest private tire manufacturer from 2015 to 2016. From 2013 to 2015, Mr. Cohade was a Senior Advisor at ChinaVest, Wells Fargo’s investment banking affiliate in China. During 2012, he served as an independent consultant for various private equity concerns. Prior thereto he served as the President, Asia Pacific, of The Goodyear Tire & Rubber Company from 2004 to 2011. From 2003 to 2004, Mr. Cohade served as the Division Executive Vice President of the Global Water and Beverage division of Danone SA. From 1985 to 2003, Mr. Cohade served in roles of increasing responsibility at Eastman Kodak Co., ultimately serving as the Chairman of Kodak’s Europe, Africa, Middle East and Russia Region. Mr. Cohade serves as a director of CEAT Ltd. (one of India’s leading tire manufacturers), Acorn International Inc., (a leading marketing and branding company in China focused on content creation, distribution, and product sales through digital media), and Deutsche Bank China. Mr. Cohade is currently the Chairman of IMA in China, a leading peer group forum for CEOs and senior executives located in China, and is an independent advisor to companies on China, strategy and operations.

Skills and Qualifications

 

   

Senior Leadership Experience: Extensive experience as a business leader in a number of industries

 

   

Financial: Experience leading large business units at The Goodyear Tire & Rubber Company, Danone SA, and Eastman Kodak Co.

 

   

International: Significant experience in a number of senior global positions, with extensive experience and expertise in China

 

   

Marketing and Consumer Focus: Deep experience in the consumer products industry

 

   

Manufacturing and Operations: Experience in overseeing manufacturing and operations in China at The Goodyear Tire & Rubber Company and Triangle Tyre

 

   

Talent Management: Experience leading global teams

 

4    2019 Proxy Statement   


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                     Director Since      Other Public Directorships

LOGO

   

 

Age:

 

 

 

   

 

64

 

 

 

    

 

March 2010

 

 

 

  

Thomson Reuters

SS&C Technologies, Inc.

 

   

 

Committee:

 

 

 

   

 

Compensation,
Executive

 

 
 

 

     
   

 

Independent:

 

 

 

   

 

Yes

 

 

 

     
                             
Michael E. Daniels                        

Prior to his retirement in March 2013, Mr. Daniels was the Senior Vice President and Group Executive of IBM Services, 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

 

   

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:

 

 

 

    46        September 2016     

Mexichem, S.A.B.

Elementia S.A.B.

Grupo Lala S.A.B.

     Committee:      

 

Governance,

Executive

 

 

 

 

     
     Independent:       Yes     
                              

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 became a member of

 

   2019 Proxy Statement    5


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our Board in connection with the merger of Johnson Controls, Inc. and a subsidiary of Tyco International plc in September 2016, “the Merger.” 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., a manufacturer and marketer of building materials in the Americas, and Grupo Lala S.A.B., a dairy products company based in Mexico. He is a former director of Grupo Pochteca S.A.B., a manufacturer and marketer of specialty chemicals.

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:       57        June 2017     

Humana, Inc.

SiteOne Landscape Supplies

   

 

Committee:

 

 

 

    Compensation        
    Independent:       Yes        
                             
W. Roy Dunbar                   

Mr. Dunbar was Chairman of the Board of Network Solutions, a technology company and web service provider, and was the Chief Executive Officer from January 2008 until October 2009. Mr. Dunbar also served as the President of Global Technology and Operations for MasterCard Incorporated from September 2004 until January 2008. Prior to MasterCard, Mr. Dunbar worked at Eli Lilly and Company for 14 years, serving as President of Intercontinental Operations, and earlier as Chief Information Officer. He currently serves as a member of the Board of Directors of Humana and SiteOne Landscape Supply, Inc. and previously served on the boards of Lexmark International and iGate.

Skills and Qualifications

 

   

Senior Leadership Experience: Extensive experience leading across functional disciplines

 

   

International: Significant experience as a leader and director across US and international markets

 

   

Talent Management: Experience in global leadership and service as a director on the compensation committees of multiple companies

 

   

Multi-Disciplinary: Career-spanning depth of experience across numerous disciplines including healthcare, information technology, payments, insurance and renewable energy

 

6    2019 Proxy Statement   


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                      Director Since      Other Public Directorships

LOGO

     Age:       63        March 2018     

USG Corporation

Teleflex Corporation

    

 

Committee:

 

 

 

    Audit        
     Independent:       Yes        
                              

Gretchen R.           Haggerty          

          

Ms. Haggerty retired in August 2013 after a 37-year career with United States Steel Corporation, an integrated global steel producer, and its predecessor, USX Corporation, which, in addition to its steel production, also managed and supervised energy operations, principally through Marathon Oil Corporation. From March 2003 until her retirement, she served as Executive Vice President & Chief Financial Officer and also served as Chairman of the U. S. Steel & Carnegie Pension Fund and its Investment Committee. Earlier, she served in various financial executive positions at U. S. Steel and USX, beginning in November 1991 when she became Vice President & Treasurer. Ms. Haggerty is currently a director of USG Corporation, a leading manufacturer of building materials, and Teleflex Incorporated, a global provider of medical technology products.

Skills and Qualifications

 

   

Senior Leadership Experience: Decades of senior leadership experience at United States Steel Corporation and USX Corporation

 

   

Financial: Deep financial acumen as CFO and senior finance leader in steel and energy industries

 

   

Corporate Governance: Experience serving on the board of directors of multiple international companies

 

   

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

 

   

Talent Management: Experience leading global teams

 

                      Director Since      Other Public Directorships

LOGO

     Age:       58        March 2018     

Bayerische Motoren Werke AG

Deutsche Post DHL Group

    

 

Committee:

 

 

 

    Audit        
     Independent:       Yes        
                              

Simone Menne             

          

Ms. Menne served as Chief Financial Officer at Boehringer Ingelheim GmbH, Germany’s second largest pharmaceutical company, from September 2016 to December 2017. She previously served as the Chief Financial Officer at Deutsche Lufthansa AG (“Lufthansa”) from January 2016 to August 2016 and as a member of its Executive Board from July 2012 to August 2016. She also served as Chief Officer of Finances and Aviation Services at Lufthansa from July 2012 to January 2016. Prior thereto

 

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she served in a number of roles of increasing responsibility at Lufthansa from 1989 to 2012. She currently serves on the Supervisory Boards of Bayerische Motoren Werke AG and Deutsche Post DHL Group. She also serves on the Börsensachverständigenkommission (Exchange Experts Commission, BSK) of Deutsche Börse AG.

Skills and Qualifications

 

   

Senior Leadership Experience: Decades of senior leadership experience at Lufthansa and Boehringer Ingelheim

 

   

Corporate Governance: Experience serving on the supervisory boards of multiple international companies

 

   

Financial: Deep financial acumen as CFO and senior finance leader in transportation and pharmaceutical industries

 

   

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

 

   

Talent Management: Experience leading global teams

 

                      Director Since      Other Public Directorships

LOGO

    

 

Age:

 

 

 

    58        September 2012      Raytheon Company
    

 

Committee:

 

 

 

    Executive        
     Independent:       No        
                              
George R. Oliver                        

Mr. Oliver became our Chairman and Chief Executive Officer in September 2017. He previously served as our President and Chief Operating Officer following the completion of the merger. Prior to that, Mr. Oliver was Tyco’s 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, and serves on the Pro Football Hall Board of Trustees.

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

 

   

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

 

8    2019 Proxy Statement   


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                      Director Since      Other Public Directorships

LOGO

    

 

Age:

 

 

 

    60        March 2014      OpenText Corporation
     Committee:      

 

Audit,
Executive

 

 
 

 

     
     Independent:       Yes        
                              
Jürgen Tinggren                       

Mr. Tinggren 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 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 OpenText Corporation and is a Trustee of The Conference Board. From 2011 to 2014 he was a director of Schenker-Winkler Holding and from 2014 to 2018 he was a director of the Sika AG Group.

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:

 

 

 

    60       September 2016     The Chemours Company
    

 

Committee:

 

 

 

    Compensation      
     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.

 

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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. Mr. Vergnano also serves as the Chairman of the Board of Directors for the National Safety Council, and serves as the Vice Chairman of the American Chemistry Council.

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

 

   

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:       71        March 2009     

Marsh & McLennan Companies, Inc.

Bank of America

    

 

Committee:

 

 

 

    Governance        
     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 member of the board of the United States Air Force Academy Endowment, and serves on its Executive Committee.

Skills and Qualifications

 

   

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

 

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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

 

                      Director Since      Other Public Directorships

LOGO

    

 

Age:

 

 

 

    54        December 2017     
    

 

Committee:

 

 

 

    Governance        
     Independent:       Yes        
                              
John D. Young                    

Mr. Young has served as Group President of Pfizer Innovative Health since January 2018. From June 2016 to January 2018 he served as Group President, Pfizer Essential Health. He was Group President, Global Established Pharma Business for Pfizer from January 2014 until June 2016 and President and General Manager, Pfizer Primary Care from June 2012 until December 2013. He also served as Pfizer’s Primary Care Business Unit’s Regional President for Europe and Canada from 2009 until June 2012 and U.K. Country Manager from 2007 until 2009.

Skills and Qualifications

 

   

Senior Leadership Experience: Extensive experience as a business leader with 30 years’ experience with Pfizer

 

   

Financial: Experience leading large business units at Pfizer

 

   

International: Significant experience in a number of senior global positions at Pfizer

 

   

Innovation and Technical Expertise: Specialized expertise in developing healthcare solutions in a variety of medical disciplines

 

   

Talent Management: Experience leading global teams

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, 2018. The Audit Committee has selected and appointed PwC to audit our financial statements for the fiscal year ending September 30, 2019. 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, 2019 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.

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 auditors 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 2018 include fees billed or reasonably expected to be billed by PwC.

 

     

Fiscal Year

2018

   

Fiscal Year

2017

 
     (in millions     (in millions

  Audit Fees

   $           26.9     $           26.1  

  Audit-Related Fees

     2.7       1.8  

  Tax Fees

     6.1       5.9  

  All Other Fees

     1.1       0.4  
  

 

 

   

 

 

 

  Total

   $ 36.8     $ 34.2  

PwC Fees

Audit Fees for the fiscal year ended September 30, 2018 were for professional services rendered by PwC and include fees for services performed to comply with auditing standards of the PCAOB

 

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(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, 2018 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.

Tax Fees for the fiscal year ended September 30, 2018 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, 2018 were for services rendered by PwC and primarily include fees associated with information technology consulting, training seminars related to accounting, finance and tax matters, and other advisory services.

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 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.

 

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Audit Committee Report

The Audit Committee of the Board is composed of four 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, 2018, 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, 2018 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, 2018.

Submitted by the Audit Committee,

Jürgen Tinggren, Chair

Gretchen R. Haggerty

Simone Menne

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, 91,270,000 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.

 

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(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 2020 or eighteen months from the date of the passing of this resolution, unless previously varied, revoked or renewed by ordinary 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 CAN 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, save that the minimum price for a re-allotment to satisfy an obligation under an employee share plan is the par value of a share. 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 2020 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.

 

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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 2018 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 – AUTHORIZATION FOR 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 2018 Annual General Meeting, is to issue up to 33% of the authorized but unissued share capital of the Company, which authorization will expire on March 6, 2019 – the date of the 2019 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 2020 or September 6, 2020, unless otherwise varied, revoked or renewed. The Directors of the Company expect to propose renewal of this authorization at subsequent Annual General Meetings.

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 6 (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 $3,012,000 (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 2020 or September 6, 2020, 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 SEVEN – 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 2018 Annual General Meeting, will expire on March 6, 2019, the date of the 2019 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 2020 or September 6, 2020, unless otherwise varied, renewed or revoked. We expect to propose renewal of this authorization at subsequent Annual General Meetings.

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 6, 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.

Special Resolution

The text of the resolution in respect of Proposal 7 (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 6 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 $456,000 (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 2020 or September 6, 2020, unless previously renewed, varied or revoked; provided that the Company may make an offer or agreement before the expiry of this authority,

 

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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 7 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 6.

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 Code of Ethics. 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

 

 

LOGO

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

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.

 

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Board Responsibilities

All corporate authority is exercised by the Board 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.

 

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

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

 

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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.

 

 

LOGO

Johnson Controls continues to have a strong governance structure, which includes:A designated lead independent Director with a well-defined role (Mr. Jurgen Tinggren)A Board entirely composed of independent members, with the exception of Mr. OliverAnnual election of Directors by a majority of votes represented at the Annual General MeetingCommittees that are entirely composed of independent DirectorsEstablished 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:

 

 

LOGO

Working with Mr. Oliver to develop and approve Board agendas and meeting schedulesDeveloping agendas for and chairing executive sessions of independent DirectorsServing as principal liaison between the independent Directors and Mr. Oliver on sensitive issuesAdvising Mr. Oliver on the content of the information sent to the BoardBeing reasonably available for direct communication with the Companys major stockholders

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.

 

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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:

 

 

LOGO

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. 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 is involved in management succession planning. Governance Committee Reviews and discusses with management the implementation and effectiveness of the Company's corporate governance policies and EHS programs and oversees the Company's ERM process and cybersecurity efforts.

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.

Since January 1, 2018, the Company has added 4 new Directors to its Board. In adding these Directors, the Board was focused on finding executives with deep financial expertise, experience with the complexities global manufacturing as well as expertise with operating in China. In connection with these efforts, the following Directors were added to the Board

 

   

Gretchen R. Haggerty, the former Chief Financial Officer of United States Steel Corporation;

 

   

Simone Menne, the former Chief Financial Officer of Boehringer Ingelheim GmbH and Deutsche Lufthansa AG;

 

   

Jean Blackwell, who served in several executive level roles at Cummins Inc., including Chief Financial Officer and General Counsel, and most recently as the Chief Executive Officer of the Cummins Foundation and Executive Vice President of Corporate Responsibility; and

 

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Pierre Cohade, an executive with extensive experience operating in China, including at Triangle Tyre and The Goodyear Tire & Rubber Company.

As a result of these director recruitment efforts, the Company also significantly increased the gender diversity of its Board.

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. Below is a summary of the key attributes of our Directors:

 

 

LOGO

Key Attributes12 Director NomineesCorporate Governance/Legal/Regulatory 4Gender/Racial Diversity 4Public Company CEO 4Independence 11International Operations and Sales 12IT/Cyber 2M&A/Strategy Development 10Operating/Manufacturing Experience 8Public Company CFO 3Public Company Board 11

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 to review matters as delegated to it by the Board. 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.

 

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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 at least annually at a regular Board meeting. Succession planning meetings focus on the development and succession of not only the CEO but also the other senior executives.

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 jciboard@jci.com. Depending upon the nature of the communication and to whom it is directed, the

 

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Secretary will: (a) forward the communication to the appropriate director or directors; (b) forward the communication to the relevant department within the Company; or (c) attempt to handle the matter directly (for example, a communication dealing with a share ownership matter). Shareholders, customers, vendors, suppliers and employees can also raise concerns at www.johnsoncontrolsintegrityhelpline.com. Inquiries can be submitted anonymously and confidentially.

All inquiries are received and reviewed by the Integrity Helpline manager, who is part of the Compliance function. A report summarizing all items received resulting in cases is prepared for the Audit Committee of the Board. The Integrity Helpline manager 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.

 

LOGO

 

Board and Committee Evaluation Process

 

The Governance Committee leads an annual performance evaluation of the Board and each Board committee as described below.

 

LOGO    LOGO    LOGO
     
Each Director completes a Board self-evaluation questionnaire and a separate questionnaire for each committee on which the director serves. The Board-specific questionnaire requests ratings and solicits detailed suggestions for improving Board and committee governance processes and effectiveness. The committee-specific questionnaires are tailored to the respective committees’ roles and responsibilities.    Self-evaluation questionnaire results are compiled and summarized by the Office of the Corporate Secretary. The summaries include all specific Director comments, without attribution. Each Director receives the Board self-evaluation summary and the self-evaluation summary for each committee on which the Director serves. The Lead Director and the Chair of the Governance Committee receive all of the self-evaluation summaries and informally consult with each of the Directors.    Committee self-evaluation results are discussed by each committee, and Board self-evaluation results are discussed by the full Board. Each committee and the Board identify areas for further consideration and opportunities for improvement, and implement plans to address those matters. The qualifications and performance of all Board members are reviewed in connection with their re-nomination to the Board.
     

ONGOING

 

     

Directors may discuss concerns, including those related to individual performance separately with the Lead Director.

 

 

 

 

The Board views self-evaluation of Board and committee performance as an integral part of its commitment to continuous improvement. The Governance Committee annually reviews the evaluation process and considers ways to augment it.

Board and Committee Evaluation ProcessSEPTEMBER-OCTOBEROCTOBER-NOVEMBERDECEMBER

 

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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 Compensation and Share 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 ordinary shares or their 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. Directors are each expected to reach the minimum stock ownership level within the recommended time period. Mr. Oliver receives 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 Mr. 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.

 

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Board Tenure and Refreshment

 

 

LOGO

Tenure of Individual Director Nominees3 MEMBERS5+ YEARS6 MEMBERS02 YEARS3 MEMBERS25 YEARSBoard Refreshment Post Merger (2016 2018)BOARD REFRESHMENTAVERAGE AGE

Our Director nominees have served an average of 4.7 years on our Board, with six Directors serving for two years or less. The tenure of our Directors is impacted by the merger between Johnson Controls, Inc. and a subsidiary of Tyco International plc. Two of our Director nominees joined our Board on September 2, 2016 in connection with the Merger and four of our Director nominees served as Directors of Tyco prior to the merger. 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 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 Code of Ethics. 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 or the CEO 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 potential conflicts. The CEO may serve on no more than one other public company board. 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 Code of Ethics and with our corporate governance guidelines. For the purpose

 

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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 Code of Ethics, 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.

Code of Ethics

We have adopted the Code of Ethics, which applies to all employees, officers, and Directors of Johnson Controls. The Code of Ethics 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 Code of Ethics also meets the requirements of a code of business conduct and ethics under the listing standards of the NYSE. The Code of Ethics is posted on our website at www.johnsoncontrols.com under the heading “About—Ethics and Compliance.” We will also provide a copy of the Code of Ethics to shareholders upon request. We disclose any amendments to the Code of Ethics, 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 Code of Ethics. The Company maintains established procedures by which employees may anonymously report a possible violation of the Code of Ethics. 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. Although the Johnson Controls Board does not have a specific policy regarding diversity, the Board takes into account the current composition and diversity of the Board (including diversity with respect to race, gender and ethnicity) and the extent to which a candidate’s particular expertise and experience will complement the expertise and experience of other Directors. The Governance Committee also 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

 

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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:    LOGO   

·   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

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

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:

 

Shareholder-recommended Director candidate nominations must include:    LOGO   

·   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

·   All 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 2020 Annual General Meeting, shareholder recommendations for Director must be received by Johnson Controls’ Corporate Secretary no later than September 20, 2019. Once the Company receives the recommendation, the Company may deliver a questionnaire to the candidate

 

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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 2019 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.

Sustainability

Sustainability is an integral part of our vision and values and is integrated into the business strategy of the Company. We believe balanced management attention to profit, people, and the planet will result in the greatest long-term benefit for our customers, employees, shareholders, and society as a whole. We provide scalable, market-based solutions addressing the world’s greatest sustainability challenges. Our offerings help our customers be more resource efficient, sustainable and competitive.

 

 

LOGO

Johnson Controls has had corporate sustainability performance goals since 2002, which we have updated as our company has evolved. In 2017, we launched our new enterprise-wide 2025 Sustainability Strategy, setting global environmental goals to help us enhance our operational excellence, reduce our exposure to climate change risks, reduce our reliance on natural resources, and minimize costs.

 

2025 Goals (from a 2017 baseline):    2018 Performance:

   25% reduction for energy intensity

  

   2.7% reduction in energy intensity

   25% reduction for greenhouse gas (“GHG”) intensity

  

   6.7% reduction in GHG intensity

   10% reduction for water use at water-stressed locations

  

   No increase in water use in water stressed locations

   25% of manufacturing locations certified landfill-free

  

   7 plants newly certified landfill-free, bringing total to 17

 

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We are proud to deliver on ambitious commitments to provide innovative products and services, to build a diverse workforce, and to give back to our communities. We believe that through leadership in sustainability, Johnson Controls creates long-term benefit for our customers, employees, shareholders, and society as a whole.

 

LOGO

UN Sustainable Development Goals Philanthropic ContributionsAlignment of Volunteer ActivitiesVolunteer Hours

More about Johnson Controls’ sustainability initiatives, commitments, and achievements is available at https://www.johnsoncontrols.com/corporate-sustainability.

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 2018 for non-employee Directors consisted of an annual cash retainer of $120,000 and restricted stock units (“RSUs”) with a grant date value of approximately $155,000 and a one-year vesting term. The Lead Director received an additional $30,000 and the chairs of each standing committee (including the Lead Director as of 2018) received an additional fee of $25,000. A Director who is also an employee receives no additional remuneration for services as a Director.

 

Name

 

   Fees Earned or
Paid in Cash
($)

 

     Stock
Awards
($)(1)

 

     Total
($)

 

 

Current Directors

 

        

Ms. Jean Blackwell(2)

 

   $

 

35,934

 

 

 

   $

 

116,250

 

 

 

   $

 

152,184

 

 

 

Mr. Pierre Cohade(3)

 

   $

 

0

 

 

 

   $

 

0

 

 

 

   $

 

0

 

 

 

Mr. Michael E. Daniels (CC)

 

   $

 

            145,000

 

 

 

   $

 

            155,000

 

 

 

   $

 

            300,000

 

 

 

Mr. Juan Pablo del Vale Perochena (GC)

 

   $

 

134,236

 

 

 

   $

 

155,000

 

 

 

   $

 

289,236

 

 

 

Mr. W. Roy Dunbar

 

   $

 

120,000

 

 

 

   $

 

155,000

 

 

 

   $

 

275,000

 

 

 

Mr. Brian Duperreault

 

   $

 

120,000

 

 

 

   $

 

155,000

 

 

 

   $

 

275,000

 

 

 

Ms. Gretchen R. Haggerty(4)

 

   $

 

68,333

 

 

 

   $

 

155,000

 

 

 

   $

 

223,333

 

 

 

Ms. Simone Menne(4)

 

   $

 

68,333

 

 

 

   $

 

155,000

 

 

 

   $

 

223,333

 

 

 

Mr. Jürgen Tinggren(L) (AC)

 

   $

 

175,000

 

 

 

   $

 

155,000

 

 

 

   $

 

330,000

 

 

 

Mr. Mark Vergnano

 

   $

 

120,000

 

 

 

   $

 

155,000

 

 

 

   $

 

275,000

 

 

 

Mr. R. David Yost

 

   $

 

120,000

 

 

 

   $

 

155,000

 

 

 

   $

 

275,000

 

 

 

Mr. John D. Young

 

   $

 

98,152

 

 

 

   $

 

193,750

 

 

 

   $

 

291,902

 

 

 

Former Directors

 

        

Mr. David Abney (5)

 

   $

 

52,000

 

 

 

   $

 

0

 

 

 

   $

 

52,000

 

 

 

Ms. Natalie Black(5)

 

   $

 

62,833

 

 

 

   $

 

0

 

 

 

   $

 

62,833

 

 

 

 

 

(L)=      Lead Director
(AC)=      Audit Committee Chair
(CC)=      Compensation Committee Chair
(GC)=      Governance Committee Chair

 

(1) 

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.

 

(2) 

Ms. Blackwell became a Director on June 13, 2018.

 

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(3) 

Mr. Cohade became a Director on December 5, 2018.

 

(4)

Both Ms. Haggerty and Ms. Menne became Directors on March 7, 2018.

 

(5) 

Mr. Abney served as a Director through March 7, 2018. Ms. Black served as a Director and Chair of the Governance Committee through March 7, 2018.

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.

COMMITTEES OF THE BOARD

The table below sets forth committee membership as of the end of fiscal year 2018 and meeting information for each of the Board Committees.

 

Name

 

   Audit

 

  Governance

 

  Compensation

 

    Executive

 

  Date Elected/
Appointed
to Board

 

 

Ms. Jean Blackwell

 

        

 

X

 

 

 

     

 

06/13/2018

 

 

 

Mr. Michael E. Daniels

 

         X(C)     X    

 

03/10/2010

 

 

 

Mr. Juan Pablo del Valle Perochena

 

     X(C)     X    

 

09/02/2016

 

 

 

Mr. W. Roy Dunbar

 

        

 

X

 

 

 

     

 

06/14/2017

 

 

 

Mr. Brian Duperreault

 

 

     X

 

       

 

03/25/2004

 

 

 

Ms. Gretchen R. Haggerty

 

   X

 

         

 

03/07/2018

 

 

 

Ms. Simone Menne

 

   X

 

         

 

03/07/2018

 

 

 

Mr. George R. Oliver

 

         X(C)

 

   

 

09/28/2012

 

 

 

Mr. Jürgen Tinggren (L)

 

   X(C)

 

      X

 

   

 

03/05/2014

 

 

 

Mr. Mark Vergnano

 

   X

 

         

 

09/02/2016

 

 

 

Mr. R. David Yost

 

        

 

X

 

 

 

     

 

03/12/2009

 

 

 

Mr. John D. Young

 

     X

 

       

 

12/07/2017

 

 

 

Number of Meetings During Fiscal Year 2018

 

   10   4     7     2  

 

(L) = Lead Director

(C) = Committee Chair

During fiscal 2018, the full Board met 4 times. All Directors attended at least 89% of the Board and committee meetings on which they sit. The Board’s governance principles provide that Board members

 

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are expected to attend each Annual General Meeting in person or by phone. At the 2018 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 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. Cohade and Tinggren and Mses. Haggerty and Menne, each of whom is independent under NYSE listing standards and SEC rules for audit committee members. Mr. Young served on the Audit Committee from December 2017 to March 2018, at which time he became a member of the Governance Committee, and Mr. Vergnano served on the Audit Committee from September 2016 to December 2018, at which time he became a member of the Compensation Committee. Mr. Tinggren is the chair of the Audit Committee as well as our independent Lead Director. The Board has determined that Mr. Tinggren and Mses. Haggerty and Menne are audit committee financial experts.

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 Messrs. del Valle Perochena, Duperreault, Yost and Young, each of whom is independent under NYSE listing standards. Mr. del Valle Perochena 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 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 Ms. Blackwell and Messrs. Daniels, Dunbar and Vergnano. Mr. Daniels is the chair of the Compensation Committee. Mr. Yost served on the Compensation Committee from September 2016 to December 2018, at which time he became a member of the Governance Committee. 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

 

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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 are Messrs. Daniels, del Valle Perochena, Oliver and Tinggren. Mr. Oliver is the chair of the Executive Committee.

Compensation Committee Interlocks and Insider Participation

During fiscal 2018, Ms. Blackwell and Messrs. Daniels, Dunbar, and Yost served on the Compensation Committee. None of the members of the Compensation Committee during fiscal 2018, 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

2018 NAMED EXECUTIVE OFFICERS (NEOs)

 

 

George R. Oliver

      

 

Brian J. Stief

      

 

William C. Jackson

      

 

Jeffrey Williams

      

 

John Donofrio

Chairman & Chief Executive Officer     Executive Vice President & Chief Financial Officer     Vice President & President—Global Products, Building Technologies and Solutions and Corporate Strategy     Vice President & President—Building Solutions EMEA/LA     Executive Vice President, General Counsel

EXECUTIVE SUMMARY

FISCAL YEAR 2018 BUSINESS PERFORMANCE

In fiscal 2018, we made significant progress in our continued transformation while achieving our financial commitments and entering fiscal 2019 with positive momentum. We exited fiscal 2017 facing several challenges, including low single digit organic sales growth with declining gross margins and disappointing free cash flow. We committed to increasing our order rate and backlog, driving revenue growth, improving margins and improving our free cash flow. Throughout the year, our management team remained focused on creating shareholder value, driving the Company’s strategic initiatives and growth agenda, and delivering its financial objectives. This focus translated into solid overall financial and operating performance for fiscal year 2018, including the significant highlights summarized below.

Additionally, based on feedback received from our shareholder outreach program as well as senior management’s discussions with investors throughout the year, we more directly linked our compensation plans with our financial and business strategy by placing a significant emphasis on improving free cash flow and revenue growth. Also, we addressed our legacy change-in-control practices and revised our compensation peer group. With respect to our change-in-control arrangements, we initiated a comprehensive review of our change-in-control policies and agreements, considered the concerns expressed by our shareholders, and we: (i) revised our change-in-control policy going forward to align it with market practice; (ii) continue to actively monitor the status of the three remaining legacy change-in-control agreements with our executive officers, which expire on September 2, 2019; and (iii) when feasible and appropriate, act to address the legacy agreements in a manner consistent with the Company’s long-term objectives. We also revised our compensation peer group to better reflect our industry and strategic focus.

FISCAL YEAR 2018 HIGHLIGHTS

 

 

Increased adjusted diluted EPS 9% from $2.60 to $2.83

        

 

Achieved organic sales growth of 4% for the Company; organic growth in our Buildings business of 5%, with Buildings field orders up 7% for the full year

 

 

Established a Cash Management Office which implemented actions to drive a $1 billion improvement in adjusted free cash flow to $2.3 billion, and achieved a free cash flow conversion rate of 88%

 

   

 

Further strengthened the link of our executive compensation plans to our business strategy and set targets to support our key financial objectives (see 2018 Shareholder Feedback)

 

Made significant progress on our commitment to deliver over $1 billion in productivity and synergy savings by 2020 by achieving approximately $257 million in savings in fiscal year 2018

   

 

Mr. Oliver voluntarily terminated his severance benefits under his legacy Executive Employment Agreement, and his severance arrangements are now governed by an amended severance and change-in-control policy more closely aligned with our peers

 

 

Repurchased approximately 7.7 million of our shares at a cost of $300 million and paid approximately $1 billion in dividends

   

 

Completed a strategic review of our Power Solutions business, ultimately entering into a definitive agreement to sell the business for $13.2 billion

 

 

Executed on our disciplined approach to capital allocation, paying down nearly $2.6 billion in debt

   

 

Increased our salesforce capacity and reach by adding 950 sales personnel

 

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Our operating results in 2018 marked a year of continued progress in our transformation and of significant improvement in our results. Our stronger balance sheet and cash position, coupled with a strong backlog and order growth expectations, position us to continue the momentum into 2019.

PAY-FOR-PERFORMANCE ALIGNMENT

Our compensation plans are designed to link pay and performance. The Compensation Committee annually requests its independent compensation consultant, Farient Advisors LLC, to evaluate the relationship between our executive compensation and our financial and shareholder return performance. To that end, Farient conducts quantitative analyses to test the alignment of our CEO’s pay and our Company performance using different models.

 

LOGO  

The table to the left shows our CEO’s Realizable Pay as a % of Target Pay relative to our Total Shareholder Return (TSR) for the Company and our peer group.

 

Realizable Pay as a % of Target is calculated as the two-year average sum of: base salary; actual annual incentive payout for the performance period; performance shares valued at target at the 2018 fiscal year end stock price; restricted stock units valued at the 2018 fiscal year end stock price; and stock options valued at the 2018 fiscal year end Black Scholes value. The two-year average realizable pay is divided by the two-year average target CEO pay to calculate the Realizable Pay as a % of Target. Two years of compensation, rather than three years, is used as it aligns to the tenure of our CEO.

 

This model simulates the pay-for-performance tests relied upon by proxy voting advisory firms, but also assesses compensation on a performance-adjusted basis. We believe this methodology more appropriately captures the link of our compensation program to our performance and demonstrates the strength of our pay design to link to overall corporate and stock price performance.

 

This analysis coupled with other pay and performance alignment models, demonstrates that our executive compensation is aligned well with the philosophy and principles of our compensation program, reflecting the feedback directly received from our shareholders.

2018 SHAREHOLDER FEEDBACK

Johnson Controls is committed to 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 programs. At our annual meeting of Johnson Controls shareholders in March 2018, 55% of the shareholder votes cast supported our executive compensation program in an advisory “say-on-pay” vote.

During fiscal year 2018, in response to the advisory vote and to improve alignment of our programs with shareholder expectations, we embarked on a rigorous shareholder outreach effort. This effort included access to both management and, when requested, the committee chair, in order to better understand shareholder views. We solicited feedback from investors representing slightly more than 65% of our outstanding shares. Those solicitations resulted in conversations with shareholders

 

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representing almost 40% of our outstanding shares. Commenting on our compensation programs, these shareholders:

 

   

Stressed the importance of the pay-for-performance alignment on the long-term performance share unit plan and the importance of using one three-year cumulative performance period for the long-term incentive plan metrics

 

   

Expressed satisfaction with the metrics of the short-term plan, appropriately focused on cash flow and growth

 

   

Recommended improved clarity of the Annual Incentive Performance Plan by sufficiently disclosing our rigorous goal setting process, providing the strategic modifier targets and listing any adjustments made to performance metrics

 

   

Expressed concern over the impact of legacy change-in-control agreements

 

   

Discussed the appropriateness of the composition of our compensation peer group

In response to these discussions and other investor feedback, the Committee took several significant actions, focused on pay practices and delivering profitable growth and shareholder value to address these issues as described below in “Fiscal Year 2018 Program Changes” and “Fiscal Year 2019 Program Changes.” The Committee is committed to (i) continue to solicit shareholder feedback, and (ii) closely monitor developments in this area and make appropriate adjustments as market practice and governance best practices continue to evolve.

 

 

 

FISCAL YEAR 2018 PROGRAM CHANGES

   Introduced annual incentive program metrics to align with shareholder interests of profitability, cash generation and top-line growth. Annual Incentive Performance Policy (AIPP) metrics for 2018 were Free Cash Flow Conversion, organic EBIT Growth and organic Revenue Growth, each weighted equally.

 

   Engaged a new independent compensation consultant to evaluate fresh perspectives to ensure that our approaches to compensation represent leading best practices and are appropriately aligned with our business strategy. In December 2017, the Committee engaged Farient Advisors LLC as its new independent compensation consultant.

 

   Revised our change-in-control and severance policy to align with market practice and shareholder feedback. Modified our severance multiples upon a change-in-control termination and an involuntary termination to align with market. In addition, we implemented restrictive covenants and amended our definition of good reason to enhance the protection of the interests of the Company. The three legacy change-in-control agreements that remain in place until September 2, 2019, are monitored and addressed when appropriate. Mr. Oliver voluntarily terminated his legacy change-in-control agreement in December 2017 and all executive officers who joined the Company after the Merger are subject to the revised policy. Mr. Stief is no longer party to a legacy agreement.

FISCAL YEAR 2019 PROGRAM CHANGES

   Revised long-term metrics to align with shareholder feedback. The metrics are now (i) Cumulative Pre-tax earnings growth, (ii) Cumulative Pre-Tax Return on Invested Capital (ROIC) and (iii) Relative Total Shareholder Return (“TSR”), with each metric equally weighted. The change from three separate one year performance periods to one three year cumulative period was made to better align with market practice and shareholder expectations. TSR had previously been included in the long-term plan solely as a modifier.

 

   Modified compensation peer group to improve alignment to our business model and industry. In March 2018, we eliminated six companies and added five industrial companies to better align our peers with our industry and our business model.

 

   Eliminated private club dues. Effective January 2019, the Committee eliminated private club dues reimbursement from our perquisites program.

 

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EXECUTIVE COMPENSATION PHILOSOPHY & PRINCIPLES

Our executive compensation program is designed to attract and retain highly-qualified executives, motivate our executives to achieve our overall business objectives, and align our executives’ interests with those of our shareholders.

 

 

The largest portion of an executive’s compensation is considered variable and at-risk. Short-term and long-term incentives are tied to our performance against financial, operational and strategic goals.

 

        

 

Share ownership guidelines require executives to hold a significant amount of our shares to directly tie the impact on their personal wealth to that of our shareholders.

 

Incentive programs are designed to support a strong pay-for-performance culture, providing both significant upside for superior performance and significant downside for underperformance.

 

   

 

A pay recoupment policy serves to increase transparency and discourage executives from engaging in behavior that could potentially harm the Company or its shareholders.

 

 

Compensation is benchmarked against the general industry market median for executives in comparable positions at similarly sized companies.

   

 

The Compensation Committee designs and monitors executive compensation programs that discourage unnecessary or excessive risk taking which could have a material adverse impact on the Company or its shareholders.

 

 

An independent compensation consultant provides analysis of our executive compensation structure, plan design, and market competitiveness to ensure an alignment between executives’ interests and those of our shareholders.

   

 

Insider trading, anti-hedging and anti-pledging policies prohibit executives from engaging in share transactions that do not align with the interests of the Company or its shareholders.

 

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ELEMENTS OF COMPENSATION

 

 

Base Salary

 

 

 Provides a fixed level of annual cash compensation that recognizes an individual’s role, skill, performance, contribution, leadership and potential

 

   

 

Our Approach to Linking Pay to Performance

 

Annual Incentive

 

 Reward achievement of short-term corporate performance goals

 

RSUs and Share Options

 

 Reward long-term financial results that drive value creation

 Reinforce ownership in the Company

 Support retention of executives

 

PSUs

 

 Link compensation to building long-term shareholder value

 Reinforce ownership in the Company

 Support retention of executives

 Align executives’ long-term financial interests with those of our shareholders by including TSR in our incentive design

 

 

Annual Incentive Awards

 

 

 Provides a cash-based incentive opportunity tied to the execution of the operating plan, strategic goals and shareholder expectations which support the long-term sustainability of the Company

 

  Annual incentive award opportunities range from 0% – 200% of target based on the extent to which pre-established objectives are met and individual contributions and desired behaviors are achieved

 

 

 

Long-Term Incentive Equity Awards

 

-  Performance Share Units (PSUs)

 

-  Share 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 executives’ total pay opportunities to share price performance

 

 Provides long-term accountability for executives and offers opportunities for capital accumulation

 

 
   
   
   

 

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EXECUTIVE COMPENSATION MANAGEMENT

The Committee is comprised of independent directors who develop, amend and approve our executive compensation program. As an initial guideline, the Committee sets the total direct compensation opportunity (base salary, annual incentive target, and long-term incentive target) for each of our executive officers within a range (+/-20%) of the 50th percentile of the Compensation Peer Group or, where data from the peer group are not available, general industry survey data. The variation of actual pay relative to the market data is dependent on the executive officer’s performance, experience, knowledge, skills, level of responsibility, potential to impact our performance and future success, and the need to retain and motivate strategic talent.

DETERMINING EXECUTIVE COMPENSATION

We believe in offering competitive performance based compensation that aligns with business results, is in the best interest of our shareholders, and delivers value to our executives. As a reflection of this belief, we distribute various responsibilities related to developing, reviewing, and approving the compensation for our named executive officers as shown below.

 

 

COMPENSATION COMMITTEE

 

   

Develops, amends and approves our executive compensation programs to remain consistent with the Company’s values and philosophy, support the recruitment and retention of executive talent, and help the Company achieve its business objectives

 

   

Determines and approves the appropriate level of compensation for all executive officers other than the CEO

 

   

Determines and approves short- and long-term incentive plan targets for all executive officers other than the CEO

 

   

Evaluates CEO individual performance

 

   

Recommends CEO compensation to the independent directors of the Board, including annual and long-term corporate goals relevant to CEO compensation

 

   

Reviews the talent development and succession plans for the CEO and other executive officer positions and makes recommendations to the independent directors of the Board regarding the appointment of the executive officers of the Company

 

   

Has the sole authority to approve the independent compensation consultant’s fees and terms of the engagement

 

 

INDEPENDENT DIRECTORS OF THE BOARD

 

   

Review and approve CEO compensation

 

   

Review and approve annual and long-term corporate goals relevant to CEO compensation

 

   

Review and approve recommendations on talent development and succession planning for CEO and other executive officer positions

 

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CEO

 

   

Recommends compensation for each executive officer to the Committee (the CEO does not make recommendations with respect to his own compensation)

 

   

Evaluates performance for the executive officers based on his review of their performance, job responsibilities, importance to our overall business strategy, and our compensation philosophy

 

 

INDEPENDENT COMPENSATION CONSULTANT

 

   

Informs the Committee of market trends, closely monitors developments in executive compensation, and provides recommendations for appropriate adjustments to the Company’s compensation program, policies, and practices in line with the Company’s business and talent strategies and investor expectations

 

   

Analyzes our executive compensation structure and plan designs

 

   

Assesses the competitiveness of our compensation program, supporting the Committee’s goal to align executive officer interests with those of our shareholders

 

   

Tests the goals incorporated into the incentive plans to ensure appropriate rigor and alignment with shareholder interests

 

INDEPENDENT COMPENSATION CONSULTANT

In December 2017, the Committee engaged Farient Advisors as its new independent compensation consultant to continue to closely monitor developments and trends in executive compensation and to provide recommendations for appropriate adjustments to the Company’s compensation program, policies, and practices in line with the Company’s business and talent strategies and investor expectations. Other than the services it provided to the Committee, Farient Advisors did not provide any services to the Company. The Compensation Committee has considered and assessed all relevant factors that could give rise to a potential conflict of interest with respect to the work performed. Based on this review, the Compensation Committee has determined that Farient Advisers is independent of the Company and its management, and did not identify any conflict of interest. Prior to December 2017, Willis Towers Watson served as the Committee’s independent compensation consultant. Willis Towers Watson provided the Committee with the compensation peer group and other market data discussed previously for fiscal year 2018, which the Committee references when determining compensation for executive officers.

 

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BENCHMARKING OUR COMPENSATION AGAINST PEERS

To gauge marketplace compensation levels and practice, in 2017 we worked with Willis Towers Watson, our then independent compensation consultant, to benchmark against both general industry data (excluding financial service companies) adjusted for the approximate size and complexity of the Company, as well as the following compensation peer group companies. The below compensation peer group was approved by the Committee in March 2017.

 

 

Compensation Peer Group for Fiscal Year 2018

 

–  3M Company

–  Caterpillar Inc.

–  Danaher Corp.

–  Deere & Company

–  DowDuPont Inc.

 

  

–  Eaton Corporation

–  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

 

In March 2018, the Compensation Committee engaged our independent compensation consultant, to review the compensation peer group for continued appropriateness. As a result of this review, the Committee approved the following changes to lower the weighting on Aerospace and Defense and improve the business model fit with the building products technology and systems space.

 

 

 

Removed: Danaher Corp., DowDuPont Inc., International Paper Company, Lockheed Martin Corporation, Northrop Grumman Corporation, and Whirlpool Corporation

  

 

 

Added: Cummins Inc., Fluor Corporation, Ingersoll-Rand plc, Parker Hannifin Corporation, and Stanley Black & Decker Inc.

 

 

Compensation Peer Group for Fiscal Year 2019

 

–  3M Company

–  Caterpillar Inc.

–  Cummins Inc.

–  Deere & Company

–  Eaton Corporation

 

  

–  Emerson Electric Co.

–  Fluor Corporation

–  General Dynamics Corporation

–  Honeywell International, Inc.

–  Ingersoll-Rand plc

 

  

–  Parker Hannifin Corporation

–  Raytheon Company

–  Stanley Black & Decker Inc.

–  United Technologies Corporation

 

 

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INCENTIVE PLAN METRIC SELECTION AND GOAL SETTING PROCESS

Central to our pay-for-performance philosophy is maintaining a rigorous goal setting process that is used to determine both our annual incentive plan and long-term incentive plan performance targets. Each year, management, the Compensation Committee, and our independent consultant spend meaningful time determining metrics, goal ranges and testing the appropriateness of our incentive plan thresholds, targets, and maximums.

Each September, the Compensation Committee discusses how our incentive plan metrics support our business, talent, and compensation strategies and whether there are any areas for improvement.

 

For 2019, the Compensation Committee approved the following changes:

 

 Changed the measurement period of our PSU goals to a three-year cumulative performance period, rather than three annual measurement periods

 

  Reweighted long-term incentive plan goals as follows:

 

-  1/3 Three-Year Cumulative Pre-Tax Earnings

-  1/3 Three-Year Average Pre-Tax ROIC

-  1/3 Three-Year Relative TSR versus the S&P 500 Industrials

 

Both management and the Compensation Committee believe these changes further align our compensation strategy with our business strategy and will focus our executives on delivering long-term, sustainable value creation for our shareholders

 

 

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Each December, we take a multifaceted approach to evaluating the appropriateness and robustness of our goal ranges. We seek to identify performance goal ranges that contain adequate stretch, but also fit within our risk framework so as not to encourage undue risk taking. Our approach considers the Company’s historical and projected performance; historical and expected performance of the S&P Industrials; historical and projected performance of our peer group in conjunction with our annual plan and external macro-economic factors impacting our business. Based on the data, management then proposes goal ranges for annual and long-term incentives to the Compensation Committee. The Compensation Committee receives an assessment of the competitiveness of the goals from its independent compensation consultant. In its analysis, our independent consultant assesses the probability of achievement of our threshold, target, and maximum and provides the Compensation Committee with an independent perspective on the robustness of our goals. The Committee tests the stretch and potential payouts to ensure they are challenging and the level of performance will be reflected appropriately in the payout levels.

 

Role   MANAGEMENT   INDEPENDENT COMPENSATION
CONSULTANT
  COMPENSATION COMMITTEE
 

 

Proposes goal ranges

 

 

 

Evaluates goal ranges

 

 

 

Approves goal ranges

 

Data

Considered 

 

   Historical and anticipated performance of S&P 500 Industrials

 

   Analyst performance expectations

 

   Financial forecasts

 

   Macro-economic trends influencing our business

 

   Likelihood of achievement based on historical company, peer and industry results

 

   Analyst performance expectations

 

   Competitiveness of threshold, target, and maximum goal levels

 

   Spread of threshold and maximum

 

   Management and independent consultant presentations

Our metric selection and goal setting processes allow for the continual assessment of how our incentives support our strategy and drive shareholder returns.

ANALYSIS OF FISCAL YEAR 2018 COMPENSATION

TOTAL DIRECT COMPENSATION MIX

Consistent with our pay philosophy, 89% of Mr. Oliver’s compensation pay mix at the end of fiscal year 2018 was comprised of incentive-based pay. On average 81% of the fiscal year 2018 pay mix for our other NEOs was comprised of incentive-based pay

CEO 2018 Compensation Mix

 

LOGO

 

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BASE SALARY

Base pay recognizes each NEO’s role, skill, performance contribution, leadership and potential. It is the only portion of executive total direct compensation that is not “at risk,” and helps us attract and retain individuals who have leadership and management skills to drive the further growth and success of our business.

When establishing base pay, the Compensation Committee generally considers:

 

   

For the CEO and CFO an initial guideline of the 50th percentile of peer group data for comparable roles

 

   

For NEOs an initial guideline of the 50th percentile of regressed general industry data for comparable roles

 

   

The pay position, performance and tenure of each NEO

FISCAL YEAR 2018 BASE SALARY DECISIONS

 

   

In connection with his transition to Chairman and CEO, Mr. Oliver received a fiscal year 2018 base salary increase of 20% effective October 1, 2017

 

   

As a result of the Committee’s base pay considerations as stated above, Messrs. Stief, Jackson and Williams did not received base salary increases in fiscal year 2018

 

   

Mr. Donofrio was hired on November 15, 2017

Fiscal year 2018 salaries in the following table were effective October 1, 2017 – September 30, 2018.

 

NEO    FY 2017 Base Salary
(as of 9/30/2017)
   FY 2018 Base Salary
(effective 10/1/2017)
   Percent Change

George R. Oliver

   $1,250,000    $1,500,000    20%

Brian J. Stief

   $742,000    $742,000    0%

William C. Jackson

   $848,000    $848,000    0%

Jeffrey Williams

   $742,000    $742,000    0%

John Donofrio

   N/A    $700,000    N/A

 

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ANNUAL INCENTIVE PERFORMANCE POLICY (AIPP)

 

Our AIPP rewards executives for their execution of our operating plan and other strategic initiatives, as well as for financial performance that drives long-term shareholder value creation. It places a significant portion 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 the enterprise and the individual business segments.

 

With respect to our NEOs, our AIPP for fiscal year 2018 was structured as an umbrella plan intended to satisfy the performance-based requirements of Section 162(m) of the Internal Revenue Code. The Committee determined that AIPP would be funded at maximum if a threshold Corporate net income is achieved. The Committee then determines the AIPP payment based on actual achievement of the performance metrics. The exemption for performance-based compensation under Section 162(m) has been repealed effective for taxable years beginning after December 31, 2017, so we do not expect our AIPP for fiscal year 2019 to include an umbrella structure.

 
 
 
 

Rewarding Performance that Drives Business Success

The annual performance incentive encourages executive officers to focus on financial performance for the fiscal year by basing the award on the following metrics (weighted equally 1/3):

 

   EBIT Growth

   Revenue Growth

   Adjusted Free Cash Flow Conversion

   +/- 25% strategic modifier

 
 
 

For fiscal year 2018, AIPP financial measures were earnings before interest and taxes (EBIT) growth, revenue growth, and adjusted enterprise free cash flow. These measures, defined below, focus our executive officers on the Company’s performance and the business’s profitability, operating strength and efficiency.

 

 

SEGMENT EBIT GROWTH (1/3)

We define Segment EBIT as net income attributable to each business unit (Corporate is the aggregate of the two business units and Corporate), adjusted for income tax expense, financing costs, non-controlling interests, foreign exchange and certain significant special items, such as transaction/ integration/ separation costs, impairment charges, acquisitions / divestitures, 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.

 

  

 

REVENUE GROWTH (1/3)

We define Revenue as the revenue for each business unit (Corporate is the aggregate of the two business units) adjusted for the impact of foreign exchange, lead and acquisitions /divestitures.

 

ADJUSTED FREE CASH FLOW CONVERSION (1/3)

We define Adjusted Free Cash Flow Conversion as Free Cash Flow divided by Net Income attributable to JCI, both adjusted for certain significant special items such as transaction/integration/ separation costs, impairment charges, acquisitions / divestitures, 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. Free Cash Flow is defined as cash provided by operating activities less capital expenditures.

  

 

STRATEGIC MODIFIERS (+/-25%)

Strategic initiatives are determined by management in consultation with the Compensation Committee and the Board.

   Achievement of Value Capture and Cost Synergy Targets

   Achievement of Organic EBIT Margin Improvement

   Achievement of Secured Orders Improvement in Buildings

 

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For Messrs. Oliver, Stief and Donofrio, 100% of the financial portion of the AIPP earned is based on performance relative to corporate results. For Messrs. Jackson and Williams, 50% of the financial portion of the AIPP earned is based on performance relative to their respective business unit’s results and 50% relative to corporate results. Actual payout can range from zero to two times the target payout percentage for the financial portion, depending on the achievement of goals, with the potential payments increasing as performance improves.

FISCAL YEAR 2018 AIPP PERFORMANCE

As mentioned above, the Compensation Committee uses a robust process to set thresholds, targets, and maximums for incentive plan metrics. This process considers analyst consensus estimates for the S&P 500 Industrials, in addition to the Company’s financial projections and strategic plans and the Company’s results for fiscal year 2017.

The Committee viewed fiscal 2018 as an important year of transition under the leadership of a new CEO, and that the CEO was focused on implementing a number of initiatives designed to bring the Company’s financial performance more in line with that of its peers. These initiatives were intended to drive an intense focus on improving cash flow metrics and growing the top line, while delivering profitability in line with similarly-situated industrial companies.

As a result, the Committee set targets for Revenue Growth and Adjusted Free Cash Flow Conversion significantly above the comparable results from the previous year, fiscal 2017, in order to incent these initiatives and facilitate a rapid transition to a growth focused Company.

 

Metric    2017 Actual   

2018 Corporate

Target

   2018 Corporate
Actual

EBIT Growth

   9.0%    9.1%    7.2%

Revenue Growth

   1.7%    3.3%    4.3%

Free Cash Flow Conversion

   53%    80%    88%

Our achievements against our 2018 targets demonstrate significant progress for the Company and strong momentum for sustainable business performance in future years.

 

       

Performance Measures

 

  FY 2018 Goals   FY 2018
Performance
  

FY 2018 Actual
Awards (without
strategic modifier)

 

  Threshold    Target   Maximum   Actual

Corporate

EBIT Growth (1/3)

  6.5%    9.1%   12.7%   7.2%     

Revenue Growth (1/3)

  2.3%    3.3%   5.1%   4.3%    140%

Adjusted Free Cash Flow
Conversion (1/3)

  70%    80%   85%   88%     

Products, Building Technologies and Solutions

EBIT Growth (1/3)

  7.9%    9.2%   12.5%   8.0%     

Revenue Growth (1/3)

  2.5%    3.2%   4.9%   4.7%    147%

Adjusted Free Cash Flow
Conversion (1/3)

  70%    80%   85%   88%     

 

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The total strategic portion for fiscal year 2018 was achieved at +15% as the Committee determined that the strategic initiative performance criteria shown below were satisfied.

 

 

Strategic Initiative

+/-25%

Modifier

Metric

   Performance

Goal

   Modifier

%

   FY 2018

Actual %

Achievement of Value Capture and

Cost Synergy Targets

   ³$220M    +10%   

$229M, +10%

   £$120M    -10%

Achievement of YOY Organic EBIT

   ³100 bps    +10%   

40 bps, -%

   £30 bps    -10%

Achievement of YOY Secured

Orders in Buildings

   ³+5%    +5%   

7%, +5%

   £+1%    -5%

Total Strategic Modifier

   +/-25%    15%

The table below summarizes the target award potential and actual payout amounts for Messrs. Oliver, Stief, Jackson, Williams and Donofrio for fiscal year 2018 after applying the 15% strategic initiative performance modifier described above.

 

NEO

   Award
Target

(as a % of
Base Salary)
   Award
Target

($)
   FY
2018 Actual
Payout
Amount

($)

George R. Oliver

   160%    $2,400,000    $3,864,000

Brian J. Stief

   110%    $816,200    $1,314,084

William C. Jackson

   90%    $763,200    $1,259,474

Jeffrey Williams

   90%    $667,800    $1,102,037

John Donofrio

   90%    $630,000    $845,250

LONG-TERM EQUITY INCENTIVE AWARDS

Another key element in the compensation of our executive team is long-term equity incentive awards, which tie a significant portion of compensation to the Company’s performance over time.

In 2018, three different types of long-term incentives were granted to our NEOs:

 

 

PSUs (weighted 50% of the overall long-term equity incentive awards target value), which vest at the end of three year-performance period and pay out only if specific performance metrics are met;

 

         

 

Share options (weighted 25% of the overall long-term equity incentive awards target value), which are intended to provide value to the holder only if shareholders receive additional value after the date of grant; and

 

 

         

 

RSUs (weighted 25% of the overall long-term equity incentive awards target value), which vest in equal installments over three years and have a value that changes based on changes in the Company’s share price.

 

 

 

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In total, we believe these grants provide a balanced focus on shareholder value creation and retention of key executives over the course of the vesting period. They are also reflective of market practice within our compensation peer group.

 

FY 2018 LONG-TERM EQUITY GRANT
    

 

VALUE OF
SHARE
OPTIONS

 

  

VALUE OF

RSUs

 

  

VALUE OF
PSUs

 

  

 

TOTAL TARGET
VALUE OF
AWARD

 

George R. Oliver

   $2,375,000    $2,375,000    $4,750,000    $9,500,000

Brian J. Stief

   $670,750    $670,750    $1,341,500    $2,683,000

William C. Jackson

   $689,750    $689,750    $1,379,500    $2,759,000

Jeffrey Williams

   $500,000    $500,000    $1,000,000    $2,000,000

John Donofrio

   $500,000    $500,000    $1,000,000    $2,000,000

PERFORMANCE SHARE UNITS (PSUs)

PSUs help to ensure our executives’ pay is directly linked to the achievement of strong, sustained long-term operating performance.

For fiscal year 2018, PSUs were tied to NEO performance over a three-year performance cycle with target opportunities based on pre-tax earnings growth and pre-tax return on invested capital (ROIC), as well as a relative total shareholder return (TSR) modifier. Each year of the performance cycle is calculated separately, and the performance percentages achieved for each of the annual periods is weighted one-third and added together to determine the final payout percentage, exclusive of the TSR modifier. These measures, defined below, link directly to both our income statement and balance sheet and have a significant impact on long-term share price and on meeting the investment community’s expectations. Beginning in FY2019, PSU’s will be based on a cumulative three-year performance period.

 

 

RETURN ON INVESTED CAPITAL (ROIC) – weighted 60%

We define ROIC as income before income taxes and foreign exchange, adjusted for certain significant special items, such as transaction/ integration/ separation costs, gain or loss on 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

 

 

YEAR-OVER-YEAR PRE-TAX EARNINGS – weighted 40%

We define pre-tax earnings as income before income taxes and foreign exchange, adjusted for certain significant special items, such as transaction/ integration/ separation costs, gain or loss on 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.

 

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TSR MODIFIER (+/-25%)

We define total shareholder return as the percentage change in Johnson Controls’ share price over the performance period (with an adjustment for reinvestment of dividends). The starting price is based on the 30 trading day average preceding the start of the performance cycle. The ending price is based on the 30 trading day average preceding the end of the performance cycle.

Our Compensation Committee set the earnings growth and ROIC thresholds, targets and maximums for the fiscal years 2018-2020 performance period based on both Johnson Controls’ long-term strategic plan, as well as consideration of long-term performance expectations for the S&P 500 Industrials. This approach ensures that we provide competitive incentive compensation based on market competitive performance while continuing to focus on our strategic long-term deliverables.

 

 

FY 2018 PSU Grant (2018 – 2020)

 

Measure

 

  

Weighting

 

    

Year

 

    

Threshold

 

    

Target

 

    

Maximum

 

 

Pre-Tax Earnings Growth

     60%        FY 2018        6.5%        9.1%        12.7%  

Pre-Tax ROIC

     40%        FY 2018        +20 bps        +60 bps        +100 bps  

 

Relative TSR Percentile of S&P 500    Modifier  

<25th Percentile

     -25

25th – 75th Percentile

     0

>75th – 100th Percentile

     +25

With respect to fiscal year 2018 for the FY2018-2020 award, Pre-Tax Earnings Growth was 9.7% and Pre-Tax ROIC was +80 bps, which resulted in aggregate performance for fiscal year 2018 of 43.3% of weighted target performance, exclusive of the TSR multiplier.

 

FY 2017 PSU Grant (2017 – 2019)  

Measure

   Weighting      Year      Threshold      Target      Maximum  

Pre-Tax Earnings Growth

     70%        FY 2018        3.0%        7.0%        15.5%  

Pre-Tax ROIC

     30%        FY 2018        +80 bps        +120 bps        +160 bps  

 

Relative TSR Percentile of S&P 500    Modifier  

<25th Percentile

     -25

25th – 75th Percentile

     0

>75th – 90th Percentile

     +25

>90th Percentile

     +50

With respect to fiscal year 2018 for the FY2017-2019 award Pre-Tax Earnings Growth was 11.4% and Pre-Tax ROIC was +110 bps, which resulted in aggregate performance for fiscal year 2018 of 44.0% of weighted target performance, exclusive of the TSR multiplier.

PSUs and RSUs do not provide for dividend equivalents at the time dividends are paid. Rather, all such dividend equivalents are accrued in the account of the plan participant and are paid in shares only upon the vesting of the applicable RSUs, and with respect to PSUs, are paid in shares only to the extent that the applicable performance criteria are met and the PSUs are earned.

 

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SHARE OPTIONS AND RESTRICTED SHARE UNITS (RSUs)

By awarding share options and RSUs, we link long-term incentives directly to our share price. If our share price decreases, so does the value of the executive officer’s compensation. Share options and RSUs also help us maintain competitive compensation levels in the market and retain high-performing employees through multi-year vesting requirements.

We valued fiscal year 2018 share options using a Black-Scholes valuation. Their exercise price is equal to the closing price of our common shares on the date of the grant. Fifty percent of each share option award vests two years after the date of grant, and the other fifty percent vests three years after the date of grant. Share option vesting is subject to continued employment, with earlier vesting upon retirement, and share options have a ten-year exercise term. The Committee does not permit or engage in “backdating,” repricing or cash buyout of share options.

We value RSUs based on the closing price of our shares at the date of grant. RSUs generally vest in equal installments over three years. If an executive officer holds unvested RSUs at retirement, these shares continue to vest following retirement.

With respect to share options and RSUs granted to Messrs. Oliver and Stief in fiscal 2018, (i) so long as such awards have been outstanding for more than one year, (ii) the executive could not have been terminated for cause, and (iii) the executive is retirement eligible (each of Messrs. Oliver and Stief are retirement eligible), then upon their respective terminations:

 

   

RSUs will continue to vest according to their original vesting schedule; and

 

   

Share options shall be exercisable in full without regard to any vesting requirements, and shall remain exercisable until the award’s expiration date.

Mr. Oliver voluntarily terminated the Oliver Employment Agreement on December 8, 2017, and beginning with the Fiscal year 2019 annual equity grant he will no longer be subject to the equity award terms above.

Special New Hire Awards

To assist Mr. Donofrio with his transition to Johnson Controls and to compensate him for long-term incentive awards forfeited when he left his prior employer, Mr. Donofrio received a one-time gross cash payment of $500,000 payable at the time of hire and a sign-on equity award of RSUs with a value equal to $2.5 million. Mr. Donofrio’s RSU’s will vest ratably at the rate of one-third of the total award per year, on each of the first three anniversaries of the grant of the award

SHARE OWNERSHIP GUIDELINES

Our share ownership guidelines require NEOs to hold significant amounts of Johnson Controls shares, which aligns executives with shareholders and ties their compensation to share performance as the increase or decrease in share price impacts their personal holdings. If an executive does not meet the minimum ownership guidelines within a five-year period, he or she cannot sell the shares until equity holdings meet the requirements. Until the share ownership guidelines are met, executives are required to retain after-tax shares resulting from an exercise of share options and must retain shares resulting from the vesting of restricted share units. Fiscal year 2018 guidelines for NEO share ownership were:

 

NEO    Required Minimum Ownership
George R. Oliver    6x base salary
All Other NEOs    3x base salary

 

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All shares directly or indirectly owned by, and restricted share units granted to, executive officers count towards the requirement. Share options do not count. As of fiscal year end 2018, all NEOs had met or exceeded the applicable share ownership guideline, a strong reflection of our pay-for-performance culture and compensation philosophy.

OTHER BENEFITS

RETIREMENT BENEFITS

The following is a summary of the retirement benefits that we provided to our employees, including our NEOs, during fiscal year 2018. As described below, we made changes to our retirement plans during fiscal year 2018 following a review of our retirement benefits for all employees, including our executives, with the goal of providing benefits under a single set of plans for both legacy Johnson Controls, Inc. and legacy Tyco employees.

401(K) PLAN

All U.S. employees are eligible for the 401(k) plan, including our NEOs. Participants can contribute up to a specified percentage of their compensation on a pre-tax basis; however, executive officers’ percentages may be lower than other participants due to IRS requirements applicable to the 401(k) plan. Prior to January 1, 2018, based on company performance, we matched 75% to 100% of each dollar an employee contributed, up to 6% of the employee’s eligible compensation. Effective January 1, 2018, we changed our Company matching contributions for most participants, including our NEOs, to match 100% of each dollar an employee contributes up to 4% of the employee’s eligible pay, and 50% of each additional dollar up to a total of 6% of the employee’s eligible pay. In addition, the Company makes a varied annual retirement contribution for eligible employees. This group of employees includes all NEOs. Prior to January 1, 2018, the contribution for this group of employees was between 1% and 7% of the participant’s eligible compensation and was based on the participant’s age and service. Effective January 1, 2018, we changed our annual retirement contribution for eligible employees, including our NEOs, to limit contributions to between 1% and 5% of the participant’s eligible compensation, and to base the amount of the contribution generally on the participant’s age and participation or service. Both the matching contribution and the annual retirement contribution are subject to vesting requirements.

Prior to the Merger, legacy Johnson Controls also maintained a pension plan, which covered all U.S. salaried employees hired before January 1, 2006. This plan was frozen on December 31, 2014, and employees no longer accrue future pension benefits under this plan. Mr. Williams is the only NEO who participates in the plan.

RETIREMENT RESTORATION PLAN

The Internal Revenue Code limits the benefits we can provide to employees under the 401(k) plan, including the annual retirement contribution. Thus, we sponsor the Retirement Restoration Plan, which allows all employees whose annual retirement contributions are affected by these Internal Revenue Code limits to receive the full intended amount of the additional annual retirement contributions without regard to such limits. All employees whose annual retirement contributions under the 401(k) plan are limited, including NEOs, are eligible for the Retirement Restoration Plan. Prior to January 1, 2018, the Retirement Restoration Plan also provided for 401(k) spillover deferrals and employer matching contributions for eligible participants. Those benefits were eliminated as of January 1, 2018 for participants other than those participants who were officers of the Company immediately following the Merger including our NEOs, Messrs. Oliver, Stief, Jackson and Williams and certain other high-level employees who participated in the Retirement Restoration Plan prior to the Merger.

 

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EXECUTIVE DEFERRED COMPENSATION PLAN AND SENIOR EXECUTIVE DEFERRED COMPENSATION PLAN

Prior to January 1, 2018, we maintained the Executive Deferred Compensation Plan, which assisted all senior leaders, including NEOs, with personal financial planning by allowing participants to defer compensation and associated taxes until retirement or termination of employment. It also assisted senior leaders in the management of their executive share ownership requirements. Investment options in the Executive Deferred Compensation Plan mirrored investment options available in our 401(k) Plan.

As of January 1, 2018, to integrate our plans following the Merger, we froze the Executive Deferred Compensation Plan and adopted a new Senior Executive Deferred Compensation Plan. The new Senior Executive Deferred Compensation Plan allows participants, including our NEOs, to defer base salary and annual bonus compensation and the associated taxes until retirement or termination of employment to assist such participants with personal financial planning. The investment options under the new Senior Executive Deferred Compensation Plan continue to mirror investment options in our 401(k) Plan.

PERQUISITES

We provide perquisites to help executive officers be more productive and efficient, and to provide protection from potential business risks. These perquisites are limited in amount and we maintain a strict policy regarding eligibility and use of these benefits. The Compensation Committee grants each executive officer a perquisite allowance of 5% of base salary annually. Upon termination, any unused funds are forfeited. Allowable perquisites include:

 

   

Financial and tax planning

 

   

Personal use of corporate aircraft capped at $10,000 per year for the NEOs, excluding the CEO, with such amounts calculated pursuant to the Standard Industry Fare level, or SIFL rate

 

   

Executive physical, and

 

   

Private club dues (eliminated for 2019)

For 2019, we changed the perquisite allowance policy to eliminate reimbursement of private club dues. In addition, unused allowance will no longer carry over from year to year to align with market practices. As part of the transition, officers had the remainder of 2018 to use any carryover balance from prior years. The CEO is encouraged to use the corporate aircraft for both business and personal use to enhance his productivity, maintain confidentiality and ensure personal security.

OTHER POLICIES

PAY RECOUPMENT POLICY

Our pay recoupment policy provides that, in addition to any other remedies available to it and subject to applicable law, if the Board or any committee of the Board determines that any annual or other incentive payment, equity award or other compensation received by an executive officer resulted from any financial result or operating metric that was impacted by the executive officer’s fraudulent or illegal conduct, the Board or a Board committee could recover from the executive officer that compensation it considered appropriate under the circumstances. The Board has the sole discretion to make any and all determinations under this policy.

 

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INSIDER TRADING, ANTI-HEDGING AND ANTI-PLEDGING POLICY

We maintain an insider trading policy, applicable to all employees and directors. The policy provides that employees may not buy, sell or engage in other transactions in the Company’s shares while aware of material non-public information; buy or sell securities of other companies while aware of material non-public information about those companies that they became aware of as a result of business dealings between the Company and those companies; disclose material non-public information to any unauthorized persons outside of the Company; or engage short sales or hedging transactions through puts, calls, or any other derivative securities involving the Company’s securities. The policy also restricts trading for a limited group of Company employees (including executives and directors) to defined window periods that follow our quarterly earnings releases. In addition, the Company’s directors and executive officers are prohibited from pledging any Company securities held by them or their families as security for a loan, including by holding such securities in a margin account. In addition, our 2012 Share and Incentive Plan prohibits the repricing of share options and share appreciation rights without shareholder approval.

EXECUTIVE SEVERANCE AND CHANGE-IN-CONTROL POLICY

In response to shareholder concerns and in connection with a review the Company’s various executive compensation programs, in December 2017, the Committee revised and updated the Company’s Executive Severance and Change-in-Control Policy to better reflect market practice and to facilitate the transition from legacy change-in-control agreements to a unified policy. The revised policy applies to all new executive hires and promotions. The policy also applies to Mr. Oliver, who voluntarily terminated his change-in-control agreement. Two of our NEO’s, Mr. Jackson and Mr. Williams, still retain their legacy change-in-control agreements, but will transition to the new policy upon the termination of such agreements in September 2019.    In connection with a retention award made to him in September 2017, Mr. Stief terminated his change-in-control agreement and agreed to not be covered by the Company’s Severance and Change-in-Control Policy.

 

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Details on the updated policy, which applies to Messrs. Oliver and Donofrio, are set forth below:

 

   

 

        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 2 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

 

Basis for Cash Severance

 

 

Base salary + target annual bonus

 

 

 

Base salary + target annual bonus

 

 

Severance Multiple

 

 

3x CEO / 2x All Other NEOs

 

 

 

2x CEO / 1.5x All Other NEOs

 

 

Release of Claims

 

 

Required

 

 

 

Required

 

 

Benefits Continuation

 

 

Aligned with severance multiple

 

 

 

Aligned with severance multiple

 

 

Equity Acceleration

 

 

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

 

  Pro-rated equity acceleration based on number of days worked during vesting period upon a subsequent termination without cause or with good reason within two years after the transaction (PSU’s based on target performance)

 

 

 

  Pro-rated equity acceleration based on number of days worked during vesting period

 

Excise Tax Gross-up Payment

 

 

 

None

 

 

None

 

Restrictive Covenants

 

 

  Unlimited time for non-disparagement, trade secrets and confidential information

 

  1.5 year post-termination noncompetitive covenant

 

  2 year post-termination non-solicitation covenant

 

  Employee must affirmatively consent to be bound by these covenants as a condition of plan participation

 

 

 

  Unlimited time for non-disparagement, trade secrets and confidential information

 

  1.5 year post-termination noncompetitive covenant

 

  2 year post-termination non-solicitation covenant

 

  Employee must affirmatively consent to be bound by these covenants as a condition of plan participation

 

 

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EMPLOYMENT AGREEMENTS WITH OTHER NEOs

Messrs. Jackson and Williams are each party to a previously existing change-in-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. The previously existing change-in-control employment agreements provide that upon a qualifying termination or a termination due to the executive officer’s death or disability within 36 months following the Merger, Messrs. Jackson and Williams would be entitled to the following:

 

   

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-in-control, or (b) the sum of the annual cash bonus and long-term performance award 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-in-control date, by the amount paid in respect of annual cash bonus and PSU’s 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 previously existing change-in-control employment agreements require Messrs. Jackson and Williams to comply with confidentiality provisions during employment and for two years following termination of employment. The Legacy Johnson Controls NEOs would generally have “good reason” to resign under their respective previously existing change-in-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 prior to the Merger;

 

   

Or the combined Company took other actions to reduce the executive officer’s authority or responsibilities;

 

   

The Company breached any provision of the change-in-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-in-control employment agreement; or

 

   

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

 

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As a result of the integration of legacy Johnson Controls, Inc. and legacy Tyco, including changes in reporting relationships and responsibilities, the Company believes that Mr. Jackson has the ability to trigger a “good reason” resignation at any time prior to September 2019 and receive the benefits described above.

GLOBAL ASSIGNMENT AGREEMENT WITH MR. WILLIAMS

In March 2017, Mr. Williams accepted the officer position of Vice President & President, EMEA & Latin America – Building Technologies and Solutions. This new role required Mr. Williams to relocate from the United States to the United Kingdom for the duration of his three-year assignment, and in connection with this move Mr. Williams’ entered into a global assignment agreement that is substantially consistent with the policy applicable to all Johnson Controls employees and includes:

 

   

A monthly allowance to offset the difference in costs for goods and services between the United States and the United Kingdom;

 

   

A relocation allowance equal to 5% of base salary at the beginning of the assignment, as well as another 5% upon successful completion of the assignment;

 

   

Furnished housing in the United Kingdom;

 

   

Reimbursement for certain dependent visitation from the United States;

 

   

Tax equalization assistance to minimize, within practical limits, any tax advantage or disadvantage of the foreign assignment (in accordance with the Johnson Controls Tax Equalization Policy);

 

   

Reimbursement for United Kingdom club membership (Although we have eliminated private club dues under our perquisite policy, club membership benefits are included under our Global Assignment Policy); and

 

   

Reimbursement of repatriation fees (e.g. travel expenses back to the United States, 30 days of temporary housing and car rental, shipment of goods).

TAX AND ACCOUNTING CONSIDERATIONS

When determining total direct compensation packages, the Committee considers all factors that may have an impact on our financial performance, including tax and accounting rules and regulations under Section 162(m) of the Internal Revenue Code. For our fiscal year 2018 (and prior fiscal years), Section 162(m) limited our deduction for compensation in excess of $1 million paid in a fiscal year to each of our NEOs, except that the deduction limit did not apply for compensation paid to our Chief Financial Officer and compensation paid to any other NEO that qualified as performance-based compensation under the Section 162(m) regulations. Starting with our 2019 fiscal year, as a result of changes made by Congress to Section 162(m), those exceptions will no longer apply, other than for certain arrangements in place as of November 2, 2017 that qualify for transition relief.

Our compensation philosophy strongly emphasizes performance-based compensation for our executive officers, which has historically minimized the consequences of the Section 162(m) limit on deductibility. The Committee also generally sought to structure the Company’s incentive programs for fiscal year 2018 and prior years in a manner intended to be exempt from the Section 162(m) limit.

 

64    2019 Proxy Statement   


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However, the Committee retained and continues to retain full discretion to award compensation packages that will best attract, retain, and reward successful executive officers regardless of tax deductibility. Therefore, the Committee may award compensation that is not fully deductible under Section 162(m) if the Committee believes it will contribute to the achievement of our business objectives.

The Committee also reserves the right to modify compensation that was initially intended to be exempt from the Section 162(m) limit or that otherwise qualifies for transition relief in a manner that may cause it to become subject to the Section 162(m) limit if it determines that such modifications are consistent with the Company’s business needs. In addition, due to uncertainties as to the application and interpretation of Section 162(m) and the transition period for certain compensation arrangements in place as of November 2, 2017, no assurance can be given that compensation intended to be exempt from the Section 162(m) limit will in fact be exempt.

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 2018 Annual Report on Form 10-K and this Proxy Statement.

Submitted by the Compensation Committee:

Michael E. Daniels, Chair

Jean Blackwell

Roy Dunbar

Mark Vergnano

R. David Yost

 

   2019 Proxy Statement    65


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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. Stief and Jackson, it is important to note that with respect to fiscal 2016 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.

Summary Compensation Table for Fiscal Years 2018, 2017, and 2016

 

                                                                         

Name and

Principal Position

 

Year

($)

   

Salary(1)

($)

   

Bonus(2)

($)

   

Stock/Unit
Awards(3)

($)

   

Option
Awards(3)

($)

   

Non-Equity
Incentive

Plan
Compensation(4)

($)

   

Change in Pension
Value and
Non-Qualified
Deferred
Compensation
Earnings(5)

($)

   

All Other
Compensation(6)

($)

   

Total

($)

 

(a)

 

 

(b)

 

   

(c)

 

   

(d)

 

   

(e)

 

   

(f)

 

   

(g)

 

   

(h)

 

   

(i)

 

   

(j)

 

 

 

George R. Oliver

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

1,500,000

 

 

 

 

 

 

 

 

 

        -      

 

 

 

 

 

 

 

 

 

7,124,963

 

 

 

 

 

 

 

 

 

2,374,997

 

 

 

 

 

 

 

 

 

3,864,000

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

529,908

 

 

 

 

 

 

 

 

 

15,393,868

 

 

 

 

 

Chairman & Chief Executive Officer

 

 

 

 

 

 

2017

 

 

 

 

 

 

 

 

 

1,250,000

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

6,187,444

 

 

 

 

 

 

 

 

 

2,359,750

 

 

 

 

 

 

 

 

 

2,449,142

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

346,169

 

 

 

 

 

 

 

 

 

12,592,506

 

 

 

 

 

 

 

 

2016

 

 

 

 

 

 

1,018,939

 

 

 

 

 

 

-      

 

 

 

 

 

 

3,605,930

 

 

 

 

 

 

3,550,446

 

 

 

 

 

 

1,250,000

 

 

 

 

 

 

-      

 

 

 

 

 

 

182,560

 

 

 

 

 

 

9,607,875

 

 

 

Brian J. Stief

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

742,000

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

2,012,210

 

 

 

 

 

 

 

 

 

670,744

 

 

 

 

 

 

 

 

 

1,314,084

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

334,324

 

 

 

 

 

 

 

 

 

5,073,362

 

 

 

 

 

EVP & Chief Financial Officer

 

 

 

 

2017

 

 

 

 

 

 

742,000

 

 

 

 

 

 

-      

 

 

 

 

 

 

22,012,083

 

 

 

 

 

 

670,473

 

 

 

 

 

 

1,102,892

 

 

 

 

 

 

-      

 

 

 

 

 

 

276,604

 

 

 

 

 

 

24,804,052

 

 

 

 

 

 

2016

 

 

 

 

 

 

60,083

 

 

 

 

 

 

-      

 

 

 

 

 

 

4,250,255

 

 

 

 

 

 

-      

 

 

 

 

 

 

1,557,362

 

 

 

 

 

 

-      

 

 

 

 

 

 

-      

 

 

 

 

 

 

5,867,700

 

 

 

William C. Jackson

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

848,000

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

2,069,221

 

 

 

 

 

 

 

 

 

689,744

 

 

 

 

 

 

 

 

 

1,259,474

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

367,819

 

 

 

 

 

 

 

 

 

5,234,258

 

 

 

 

 

VP and President

 

 

 

 

2017

 

 

 

 

 

 

848,000

 

 

 

 

 

 

-      

 

 

 

 

 

 

2,069,205

 

 

 

 

 

 

689,467

 

 

 

 

 

 

797,069

 

 

 

 

 

 

-      

 

 

 

 

 

 

263,026

 

 

 

 

 

 

4,666,767

 

 

 

 

 

 

2016

 

 

 

 

 

 

68,667

 

 

 

 

 

 

-      

 

 

 

 

 

 

3,000,101

 

 

 

 

 

 

-      

 

 

 

 

 

 

1,491,959

 

 

 

 

 

 

-      

 

 

 

 

 

 

-      

 

 

 

 

 

 

4,560,727

 

 

 

Jeffrey Williams

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

742,000

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

1,499,967

 

 

 

 

 

 

 

 

 

499,993

 

 

 

 

 

 

 

 

 

1,102,037

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

875,453

 

 

 

 

 

 

 

 

 

4,719,450

 

 

 

 

 

VP and President

 

 

 

 

2017

 

 

 

 

 

 

742,000

 

 

 

 

 

 

-      

 

 

 

 

 

 

1,583,425

 

 

 

 

 

 

416,327

 

 

 

 

 

 

761,935

 

 

 

 

 

 

34,504

 

 

 

 

 

 

604,647

 

 

 

 

 

 

4,142,838

 

 

 

John Donofrio

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

615,152

 

 

 

 

 

 

 

 

 

500,000

 

 

 

 

 

 

 

 

 

3,999,948

 

 

 

 

 

 

 

 

 

499,993

 

 

 

 

 

 

 

 

 

845,250

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

78,684

 

 

 

 

 

 

 

 

 

6,539,027

 

 

 

 

 

EVP, General Counsel

                                                                       

 

(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) 

Bonus: The amount reflects the value of a one-time cash sign-on bonus provided to Mr. Donofrio in connection with his appointment as our Executive Vice President and General Counsel effective November 15, 2017.

 

(3) 

Stock/Unit Awards and Option Awards: The amounts reflect the fair value of equity awards granted in fiscal 2018, 2017, and 2016. The equity awards granted in fiscal 2018 to each named executive officer consisted of share options, restricted share units (“RSUs”) and performance share 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 share 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. The values of the PSUs at the grant date if the highest level of performance

 

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  conditions were to be achieved would be as follows Mr. Oliver — $9,499,975; Mr. Stief — $2,682,971; Mr. Jackson — $2,758,961; Mr. Williams — $1,999,955; and Mr. Donofrio — $1,999,955. Footnote 12 to our audited financial statements for the fiscal year ended September 30, 2018, which appears in our Annual Report on Form 10-K that we filed with the Securities and Exchange Commission on November 20, 2018, includes assumptions that we used in the calculation of the equity award values.

 

(4) 

Non-Equity Incentive Plan Compensation: The amounts reported in column (g) for each named executive officer reflect annual cash incentive compensation.

 

(5) 

Change In Pension Value: The amounts reported in column (h) generally reflect the actuarial change in the present value of benefits under the qualified defined benefit pension plan established by Johnson Controls, determined as of the measurement dates used for financial statement reporting purposes for the fiscal year indicated and using interest rate and mortality rate assumptions consistent with those reflected in our audited financial statements for the fiscal year indicated. However, because the net change in the present value of Mr. Williams’ benefits under the plan for fiscal 2018 was a negative number ($24,052), we have, consistent with the Securities and Exchange Commission’s disclosure requirements, treated the fiscal 2018 number as zero for purposes of this table. The value that an executive will actually receive under the plan 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, 2018” table below). No named executive officer received preferential or above market earnings on nonqualified deferred compensation.

 

(6) 

All Other Compensation: The fiscal 2018 amounts reported in column (i) for each named executive officer consist of the following:

 

                                                                         

Named

Executive

 

 

 

Personal
Use of
Company
Aircraft (a)

 

   

Expatriate &
Relocation
Benefits (b)

 

   

Tax
Gross-

 

Up (c)

   

Retirement

Plan
Contributions (d)

 

   

Company
Vehicle (e)

 

   

Club
Dues (f)

 

   

Financial
Planning (g)

 

   

Executive
Physical (h)

 

   

Total All Other
Compensation (i)

 

 

 

George R. Oliver

 

 

 

 

 

 

143,163

 

 

 

 

 

 

 

 

 

562

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

382,183

 

 

 

 

 

 

 

 

 

4,000

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

529,908

 

 

 

 

 

Brian J. Stief

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

187,441

 

 

 

 

 

 

 

 

 

2,191

 

 

 

 

 

 

 

 

 

137,811

 

 

 

 

 

 

 

 

 

4,667

 

 

 

 

 

 

 

 

 

2,214

 

 

 

 

 

 

 

 

 

334,324

 

 

 

 

 

William C. Jackson

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

150,688

 

 

 

 

 

 

 

 

 

13,750

 

 

 

 

 

 

 

 

 

3,255

 

 

 

 

 

 

 

 

 

200,126

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

367,819

 

 

 

 

 

Jeffrey Williams

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

578,207

 

 

 

 

 

 

 

 

 

75,318

 

 

 

 

 

 

 

 

 

182,879

 

 

 

 

 

 

 

 

 

1,950

 

 

 

 

 

 

 

 

 

18,362

 

 

 

 

 

 

 

 

 

18,737

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

875,453

 

 

 

 

 

John Donofrio

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

32,313

 

 

 

 

 

 

 

 

 

9,699

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

4,588

 

 

 

 

 

 

 

 

 

15,018

 

 

 

 

 

 

 

 

 

17,066

 

 

 

 

 

 

 

 

 

-      

 

 

 

 

 

 

 

 

 

78,684

 

 

 

 

 

(a) 

The Summary Compensation Table reflects, the aggregate incremental pre-tax cost to us for personal use of aircraft for fiscal 2018, 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. 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 our owned or leased aircraft, and the cost of maintenance not related to trips.

 

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(b) 

We provided relocation benefits in accordance with company policy to Messrs. Oliver and Donofrio in fiscal 2018, to assist with relocation to Johnson Controls headquarters. Mr. Williams received relocation benefits as part of his expatriate assignment set forth below.

 

                                     
    

Housing

 

    

Tax
Equalization

 

    

 

Other
Expatriate
Benefits &
Allowances

 

    

Total

 

 

 

Jeffrey Williams

 

  

 

 

 

 

72,236

 

 

 

 

  

 

 

 

 

496,790

 

 

 

 

  

 

 

 

 

9,181

 

 

 

 

  

 

 

 

 

578,207

 

 

 

 

 

(c) 

The amount shown for Mr. Donofrio represents a tax gross-up payment made with respect to the relocation benefits disclosed in the preceding footnote. The amount shown for Mr. Williams represents tax equalization payments made to him in connection with his expatriate assignment.

 

(d) 

Retirement plan contributions include matching contributions made on behalf of each executive to the Company’s tax-qualified 401(k) plans and Retirement Restoration Plan.

 

(e) 

Amounts reflect costs attributable to the personal use of a vehicle.

 

(f) 

Amounts reflect payments with respect to club dues for Messrs. Stief, Jackson, Williams and Donofrio.

 

(g) 

Amounts reflect payments with respect to financial planning for Messrs. Stief, Jackson, Williams and Donofrio.

 

(h) 

Amount reflects payments with respect to an executive physical for Mr. Stief.

 

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Fiscal 2018 Grants of Plan-Based Awards Table

The following table summarizes cash-based and equity-based awards for each of the named executive officers that were granted in fiscal 2018.

 

Name   Grant
Date
    Estimated Future Payouts Under
Non-Equity Incentive  Plan Awards
           Estimated Future Payouts
Under Equity Incentive Plan Awards
   

All Other

Stock Awards:

Number of

Shares of

Stock (#)(3)

          

All Other

Option Awards:

Number of Securities

Underlying Options
(#)(4)

          

Exercise
or Base Price of

Option Awards

($/Share)(5)

          

Grant Date Fair

Value of Stock

and

Option Awards
($)(6)

 
  Threshold
($) (1)
    Target
($) (1)
    Maximum
($)(1)
          Threshold
($) (2)
    Target
($) (2)
    Maximum
($) (2)
       
(a)   (b)     (c)     (d)     (e)           (f)     (g)     (h)           (i)           (j)           (k)           (l)  

George R. Oliver

    N/A (7)       400,000       2,400,000       4,800,000         -       -       -         -         -         -         N/A  
    12/07/2017       -       -       -         -       -       -         -         336,879         37.36         2,374,997  
    12/07/2017       -       -       -         -       -       -         63,570         -         -         2,374,975  
    12/07/2017       -       -       -         25,428       127,141       254,282         -         -         -         4,749,988  

Brian J. Stief

    N/A (7)       136,033       816,200       1,632,400         -       -       -         -         -         -         N/A  
    12/07/2017       -       -       -         -       -       -         -         95,141         37.36         670,744  
    12/07/2017       -       -       -         -       -       -         17,953         -         -         670,724  
    12/07/2017       -       -       -         7,181       35,907       71,814         -         -         -         1,341,486  

William C. Jackson

    N/A (7)       127,200       763,200       1,526,400         -       -       -         -         -         -         N/A  
    12/07/2017       -       -       -         -       -       -         -         97,836         37.36         689,744  
    12/07/2017       -       -       -         -       -       -         18,462         -         -         689,740  
    12/07/2017       -       -       -         7,385       36,924       73,848         -         -         -         1,379,481  

Jeffrey Williams

    N/A (7)       111,300       667,800       1,335,600         -       -       -         -         -         -         N/A  
    12/07/2017       -       -       -         -       -       -         -         70,921         37.36         499,993  
    12/07/2017       -       -       -         -       -       -         13,383         -         -         499,989  
    12/07/2017       -       -       -         5,353       26,766       53,532         -         -         -         999,978  

John Donofrio

    N/A (7)       105,000       630,000       1,260,000         -       -       -         -         -         -         N/A  
    12/07/2017       -       -       -         -       -       -         -         70,921         37.36         499,993  
    12/07/2017       -       -       -         -       -       -         80,299         -         -         2,999,971  
      12/07/2017       -       -       -               5,353       26,766       53,532               -               -               -               999,978  

 

   2019 Proxy Statement    69


Table of Contents
  (1) 

Amounts reported in columns (c) through (e) represent the range of potential cash payments under the annual performance bonuses that could have been earned under the Johnson Controls Annual Incentive Performance Plan for fiscal 2018, as described above under the heading “Annual Incentive Performance Policy (AIPP),” in the Compensation Discussion & Analysis. Threshold amounts assume minimum performance levels are achieved with respect to each performance measure.

 

  (2) 

Amounts in columns (f) through (h) show the range of potential share payouts for the PSUs granted to our named executive officers assuming that threshold, target and maximum performance conditions are achieved as described in the section titled “Long-Term Incentive Performance Policy” in the Compensation Discussion & Analysis. The number of PSUs that are earned, if any, will be based on performance for fiscal years 2018 to 2020 and will be determined after the close of fiscal 2020.

 

  (3) 

Amounts in column (i) show the value of the RSUs granted to the named executive officers in December 2017 as described in the section titled “Long-Term Incentive Performance Plan” in the Compensation Discussion & Analysis. These awards vest in equal installments over three years. For Mr. Donofrio, the amount in column (i) includes 66,916 RSUs granted in December 2017 in connection with his appointment as our Executive Vice President and General Counsel, which cliff-vest three years from the date of grant.

 

  (4) 

Amounts in column (j) show the value of the share options granted for fiscal 2018, as described above under the heading “Long-Term Incentive Performance Policy” in the Compensation Discussion & Analysis. The share options vest 50% on the second anniversary of the grant date and 50% on the third anniversary of the grant date, contingent on the NEO’s continued employment, and expire, at the latest, on the tenth anniversary of the grant date.

 

  (5) 

Share options were granted with an exercise price per share equal to the closing market price of our ordinary shares on the date of grant.

 

  (6) 

Amounts in column (l) show the grant date fair value of the option awards, RSUs and PSUs granted to the named executive officers. 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 share 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, the reported fair value assumes achievement of target performance, which is the probable outcome of performance conditions and is consistent with the estimate of aggregate compensation cost to be recognized over the service period.

 

  (7) 

The award reflected in this row is an annual incentive performance award that we granted for the performance period of fiscal 2018, the material terms of which we describe in the Compensation Discussion & Analysis section titled “Annual Incentive Performance Plan.”

 

70    2019 Proxy Statement   


Table of Contents

Outstanding Equity Awards at 2018 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, 2018. Dollar amounts are based on the NYSE closing price of $35.00 per share for our ordinary shares on September 28, 2018.

 

                                                           
    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 of
Stock That
Have Not
Vested

(#)(2)

   

Market Value
of Shares 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)  

George R. Oliver

             99,519       3,483,165       451,676       15,808,660  
    54,237       -      $ 13.84       10/7/2018          
    199,659       -      $ 16.10       10/1/2019          
    166,523       -      $ 17.79       10/12/2020          
    140,097       -      $ 21.14       10/12/2021          
    353,542       -      $ 26.19       11/20/2022          
    176,718       -      $ 26.19       11/20/2022          
    309,996       -      $ 35.86       11/20/2023          
    248,885       82,961      $ 41.86       11/25/2024          
    237,134       237,134      $ 34.82       10/12/2025          
    -       248,994      $ 41.73       10/7/2026          
    -       336,879      $ 37.36       12/7/2027          

Brian J. Stief

             604,393       21,153,755       340,826       11,928,910  
    37,986       -      $ 28.14       10/1/2020          
    37,443       -      $ 26.30       10/7/2021          
    23,334       -      $ 25.67       10/5/2022          
    15,577       -      $ 44.57       11/19/2023          
    34,920       -      $ 46.29       11/18/2024          
    24,759       24,760      $ 40.42       10/7/2025          
    -       80,975      $ 41.73       10/7/2026          
    -       95,141      $ 37.36       12/7/2027          

William C. Jackson

             171,528       6,003,480       139,618       4,886,630  
    93,337       -      $ 26.30       10/7/2021          
    58,390       -      $ 25.67       10/5/2022          
    44,445       -      $ 44.57       11/19/2023          
    44,976       -      $ 46.29       11/18/2024          
    27,111       27,112      $ 40.42       10/7/2025          
    -       83,269      $ 41.73       10/7/2026          
    -       97,836      $ 37.36       12/7/2027          

 

   2019 Proxy Statement    71


Table of Contents
                                                         
    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 of
Stock That
Have Not
Vested

(#)(2)

   

Market Value
of Shares 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)  

Jeffrey Williams

             167,294       5,855,290       93,440       3,270,400  
    37,986     -    $ 28.14       10/1/2020          
    30,931     -    $ 26.30       10/7/2021          
    39,831     -    $ 25.67       10/5/2022          
    19,196     -    $ 44.57       11/19/2023          
    20,952     -    $ 46.29       11/18/2024          
    6,437     -    $ 42.67       1/5/2025          
    16,671     16,672    $ 40.42       10/7/2025          
    -     50,281    $ 41.73       10/7/2026          
    -     70,921    $ 37.36       12/7/2027          

John Donofrio

             82,042       2,871,470       54,694       1,914,290  
    -     70,921    $ 37.36       12/7/2027          

 

  (1) 

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

 

         Vesting

            Date           

   Exercise
Price
    George R.
Oliver
    Brian J.
Stief
    William C.
Jackson
    Jeffrey
Williams
    John
Donofrio
 

2018

            

10/12/2018

   $ 34.82       118,567          

11/20/2018

   $ 41.86       82,961          

10/7/2018

   $ 41.73       124,497       40,487       41,634       25,140    

10/7/2018

   $ 40.42         24,760       27,112       16,672    

2019

            

10/7/2019

   $ 41.73       124,497       40,488       41,635       25,141    

10/12/2019

   $ 34.82       118,567          

12/7/2019

   $ 37.36       168,439       47,570       48,918       35,460       35,460  

2020

            

12/7/2020

   $ 37.36       168,440       47,571       48,918       35,461       35,461  

 

72    2019 Proxy Statement   


Table of Contents
  (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, 2018, 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           

   George R.
Oliver
     Brian J.
Stief
     William C.
Jackson
     Jeffrey
Williams
     John
Donofrio
 

2018

              

10/7/2018

     17,284        69,504        75,731        46,544     

12/7/2018

     21,650        6,114        6,287        4,557        27,346  

2019

              

3/8/2019

              2,815     

9/2/2019

        100,828        71,170        97,965     

10/7/2019

     17,285        5,608        5,765        3,481     

12/7/2019

     21,650        6,114        6,287        4,558        27,348  

2020

              

3/8/2020

              2,816     

9/14/2020

        102,527           

12/7/2020

     21,650        313,698        6,288        4,558        27,348  

 

  (3) 

The amounts in columns (h) and (i) reflect, for each named executive officer, the number and market value of PSUs at maximum which had been granted as of September 30, 2018. The number of shares earned will depend upon actual performance relative to the applicable performance metrics at the end of the performance period. Scheduled vesting of all PSUs and the number of shares underlying awards at target for each of the named executive officers is as follows:

 

         Vesting

            Date           

   George R.
Oliver
     Brian J.
Stief
     William C.
Jackson
     Jeffrey
Williams
     John
Donofrio
 

2019

              

12/7/2019

     191,872        62,400        64,168        38,746     

2020

              

12/7/2020

     259,804        278,426        75,450        54,694        54,694  

Fiscal 2018 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 2018.

 

              
     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)(1)

 

  

(d)

 

  

(e)(2)

 

 

George R. Oliver

 

  

 

290,344

 

  

 

5,726,409

 

  

 

123,716

 

  

 

4,492,243

 

 

Brian Stief

 

  

 

-

 

  

 

-

 

  

 

61,598

 

  

 

2,385,219

 

 

William C. Jackson

 

  

 

-

 

  

 

-

 

  

 

77,903

 

  

 

3,012,472

 

 

Jeffrey Williams

 

  

 

26,047

 

  

 

225,864

 

  

 

52,242

 

  

 

2,018,335

 

 

John Donofrio

 

                   

 

  (1) 

The amounts in column (c) represent the product of the number of shares acquired on exercise and the difference between the market price of the shares at the time of exercise and the exercise price of the options.

 

   2019 Proxy Statement    73


Table of Contents
  (2) 

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.

Pension Benefits as of September 30, 2018

The following table sets forth certain information with respect to the potential benefits to our named executive officers under the Johnson Controls qualified pension plan as of September 30, 2018. Mr. Williams is the only named executive officer who participates in the plan.

 

                    
Name    Plan Name  

Number of Years
Credited Service

(#)

 

 

Present Value of
Accumulated

Benefit(1) ($)

 

 

 

Jeffrey Williams

 

  

 

Johnson Controls Pension Plan

 

 

 

30.67