1. Johnson Controls, Inc.
5757 North Green Bay Ave.
Post Office Box 591
Milwaukee, Wisconsin 53201-0591
Notice of 2007
Annual Meeting
and Proxy Statement
Date of Notice: December 6, 2006
2. NOTICE OF THE 2007
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Johnson Controls, Inc. will be held on
Wednesday, January 24, 2007, at 1:00 P.M. CST, at Discovery World at Pier
Wisconsin, 500 N. Harbor Drive, Milwaukee, Wisconsin. The proposals to be voted on
at the Annual Meeting are as follows:
1. The election of four directors, with the following as the Board’s nominees:
Robert L. Barnett
Eugenio Clariond Reyes-Retana
Jeffrey A. Joerres
Richard F. Teerlink
2. Ratification of the appointment of PricewaterhouseCoopers LLP as our inde-
pendent registered public accounting firm for fiscal year 2007.
3. Approval of the Johnson Controls, Inc. 2007 Stock Option Plan.
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
The Board of Directors recommends a vote FOR items 1, 2 and 3. The Board or
proxy holders will use their discretion on other matters that may arise at the
Annual Meeting.
If you were a shareholder of record at the close of business on November 16, 2006,
you are entitled to vote at the Annual Meeting.
If you have any questions about the Annual Meeting, please contact:
Shareholder Services
Johnson Controls, Inc.
5757 North Green Bay Ave.
Post Office Box 591
Milwaukee, WI 53201-0591
(414) 524-2363
By Order of the Board of Directors
3. Johnson Controls, Inc.
5757 North Green Bay Avenue
Post Office Box 591
Milwaukee, WI
53201-0591
December 6, 2006
Dear Shareholder:
The Johnson Controls Annual Shareholders’ Meeting will be convened
on Wednesday, January 24, 2007, at 1:00 P.M. CST at Discovery World
at Pier Wisconsin, 500 N. Harbor Drive, Milwaukee, Wisconsin. The
accompanying proxy statement, which details the business to be
conducted at the Annual Shareholders’ Meeting, is being mailed to
shareholders on or about December 6, 2006, together with the Compa-
ny’s Annual Report on Form 10-K for fiscal year 2006, which contains
audited financial statements for the Company. The Annual Report on
Form 10-K is not to be regarded as proxy solicitation material. Given the
availability of management presentations to investors on the Internet
throughout the year, the management presentation at the Annual
Meeting will be brief.
We are pleased to once again offer multiple options for voting your
shares. As detailed in the “Questions and Answers” section of this notice,
you can vote your shares via the Internet, by telephone, by mail or by
written ballot at the Annual Meeting. We encourage you to use the
Internet to vote your shares as it is the most cost-effective method.
Thank you for your continued support of Johnson Controls.
Sincerely,
JOHNSON CONTROLS, INC.
John M. Barth
Chairman and Chief Executive Officer
5. QUESTIONS AND ANSWERS
Q: What am I voting on?
A: You are voting on THREE proposals:
1. Election of four directors for a term of three years, with the following as the
Board’s nominees:
Robert L. Barnett
Eugenio Clariond Reyes-Retana
Jeffrey A. Joerres
Richard F. Teerlink
2. Ratification of the appointment of PricewaterhouseCoopers LLP as our inde-
pendent registered public accounting firm for fiscal year 2007.
3. Approval of the Johnson Controls, Inc. 2007 Stock Option Plan.
Q: What are the voting recommendations of the Board?
A: The Board of Directors is soliciting this proxy and recommends the following votes:
• FOR each of the director nominees;
• FOR ratification of the appointment of PricewaterhouseCoopers LLP as our
independent registered public accounting firm for fiscal year 2007; and
• FOR approval of the Johnson Controls, Inc. 2007 Stock Option Plan.
Q: Will any other matters be voted on?
A: We are not aware of any other matters that you will be asked to vote on at the
Annual Meeting. If other matters are properly brought before the Annual Meeting,
the proxy holders will use their discretion on these matters as they may arise.
Furthermore, if a nominee cannot or will not serve as director, then the proxy
holders will vote for a person whom they believe will carry out our present policies.
Q: Why are we voting on a new stock option plan?
A: The Company firmly believes that a disciplined stock program, in conjunction with
the other compensation programs of the Company, is a necessary and effective
employee incentive and retention tool that benefits all of the Company’s share-
holders. Stock options and stock appreciation rights directly link the interests of
employees with those of shareholders and allow participants to share in the
success of the Company. The Company’s use of stock options and stock appreci-
ation rights will continue to be overseen by the independent Compensation
Committee of the Board of Directors and the Company’s Chief Executive Officer.
The 2007 Stock Option Plan will replace the existing 2000 Stock Option Plan,
which was previously approved by shareholders in 2000 and has nearly run out of
shares.
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6. Q: Who can vote?
A: If you hold the Company’s Common Stock, CUSIP No. 478366107, as of the close
of business on November 16, 2006, then you are entitled to one vote per share at
the Annual Meeting. There is no cumulative voting.
Q: How do I vote?
A: There are four ways to vote:
• by Internet at http://www.eproxy.com/jci/.
We encourage you to vote this way as it is the most cost-effective method;
• by toll-free telephone at 1-800-560-1965;
• by completing and mailing your proxy card; or
• by written ballot at the Annual Meeting.
Q: What is the effect of not voting?
A: It will depend on how your share ownership is registered.
• If shares you own are registered in your name and you do not vote, your
unvoted shares will not be represented at the meeting and will not count
toward the quorum requirement. If a quorum is obtained and shareholders
holding a majority of the outstanding shares of Johnson Controls stock cast
votes on the proposal to approve the 2007 Stock Option Plan, your unvoted
shares will not affect whether a proposal is approved or rejected.
• If you own shares in “street name” through a broker and do not vote, your
broker may represent your shares at the meeting for purposes of obtaining
a quorum. In the absence of your voting instructions, your broker may or
may not vote your shares at its discretion depending on the proposals
before the meeting. Your broker may vote your shares at its discretion and
your shares will count toward the quorum requirement on “routine matters.”
Regarding other proposals determined to be “non-routine,” your broker may
not vote your shares. In those cases, the absence of voting instructions
results in a “broker non-vote.” Broker non-vote shares are counted toward
the quorum requirement but they do not affect the determination of whether
a non-routine matter is approved or rejected. The Company believes that
Proposals One and Two are routine matters on which brokers will be
permitted to vote on behalf of their clients if no voting instructions are
furnished. Since the Company believes Proposal Three is a non-routine
matter, broker non-vote shares will not affect the determination of whether
Proposal Three is approved or rejected so long as shareholders holding a
majority of the outstanding shares of Johnson Controls Stock cast votes on
Proposal Three. Your broker can also authorize, and the Company may also
vote, at the discretion of the proxies, upon such other matters that may
properly come before the meeting or any adjournments thereof.
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7. • If you own shares through a Johnson Controls retirement or employee
savings and investment plan [401(k)], and you do not direct the trustee of
the 401(k) plan to vote your shares, or if the trustee does not receive your
proxy card by January 19, 2007, then the trustee will vote the shares
credited to your account in the same proportion as the voting of shares for
which the trustee receives direction from other participants.
• Further, if you sign and return a proxy card for your shares but you do not
indicate a voting direction, then the shares you hold will be voted FOR each
of the nominees listed in Proposal One, FOR Proposal Two, FOR
Proposal Three, and, in the discretion of the proxies, upon such other
matters that may properly come before the meeting or any adjournments
thereof.
Q: Can I change my vote?
A: Yes. You can change your vote or revoke your proxy any time before the Annual
Meeting by:
• entering a new vote by Internet or phone;
• returning a later-dated proxy card;
• notifying Jerome D. Okarma, Vice President, Secretary and General
Counsel, by written revocation letter addressed to the Milwaukee address
listed on the front page; or
• completing a written ballot at the Annual Meeting.
Q: What vote is required to approve each proposal?
A: The four director nominees receiving the greatest number of votes will be elected.
Provided a quorum is present, the ratification of the appointment of Pricewaterhou-
seCoopers LLP as the Company’s independent registered public accounting firm
for fiscal year 2007 requires an affirmative majority vote. An affirmative vote of the
majority of votes cast by the shareholders is required to approve and to ratify the
proposed Johnson Controls, Inc. 2007 Stock Option Plan.
Q: Is my vote confidential?
A: Yes. Only the election inspectors and certain individuals, independent of the
Company, who help with the processing and counting of the vote have access to
your vote. Directors and employees of the Company may see your vote only if the
Company needs to defend itself against a claim or if there is a proxy solicitation by
someone other than the Company.
Q: Who will count the vote?
A: Wells Fargo Bank, N.A. will count the vote. Its representatives will serve as the
inspectors of the election.
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8. Q: What shares are covered by my proxy card?
A: The shares covered by your proxy card represent the shares of Johnson Controls
stock you own that are registered with the Company and its transfer agent, Wells
Fargo Bank, N.A., including those shares you own through the Company’s dividend
reinvestment plan and employee stock purchase plan. Additionally, shares owned
by employees of the Company that are credited to Johnson Controls employee
retirement and savings and investment plans [401(k)] are also covered by your
proxy card. The trustee of these plans will vote these shares as directed.
Q: What does it mean if I get more than one proxy card?
A: It means your shares are held in more than one account. You should vote the
shares on all your proxy cards using one of the four ways to vote. To provide
better shareholder services, we encourage you to have all your non-broker account
shares registered in the same name and address. You may do this by contacting
our transfer agent, Wells Fargo Bank, N.A., toll-free at 1-877-602-7397.
Q: Who can attend the Annual Meeting?
A: All shareholders of record as of the close of business on November 16, 2006 can
attend the meeting. Seating, however, is limited. Attendance at the Annual Meeting
will be on a first arrival basis.
Q: What do I need to attend the Annual Meeting?
A: To attend the Annual Meeting, please follow these instructions:
• To enter the Annual Meeting, bring your proof of ownership of Johnson
Controls stock and a form of identification; or
• If a broker or other nominee holds your shares, bring proof of your
ownership of Johnson Controls stock through such broker or nominee and a
form of identification.
Q: Will there be a management presentation at the Annual Meeting?
A: Management will give a brief presentation at the Annual Meeting.
Q: Can I bring a guest?
A: Seating availability at the Annual Meeting is limited.
Q: What is the quorum requirement of the Annual Meeting?
A: A majority of the shares outstanding on November 16, 2006 constitutes a quorum
for voting at the Annual Meeting. If you vote, your shares will be part of the
quorum. Abstentions and broker non-votes will be counted in determining the
quorum, but neither will be counted as votes cast “FOR” or “AGAINST” any of the
proposals. On the record date, 196,289,520 shares of our Common Stock were
outstanding.
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9. Q: How much did this proxy solicitation cost?
A: The Company will primarily solicit proxies by mail and will cover the expense of
such solicitation. Georgeson Shareholder Communications Inc. will help us solicit
proxies from all brokers and nominees at a cost of $10,000 plus expenses. Our
officers and employees may also solicit proxies for no additional compensation.
We may reimburse brokers or other nominees for reasonable expenses they incur
in sending these proxy materials to you if you are a beneficial holder of our
shares.
Q: How do I recommend or nominate someone to be considered as a director
for the 2008 Annual Meeting?
A: You may recommend any person as a candidate for director by writing to Jerome
D. Okarma, Vice President, Secretary and General Counsel of the Company. All
submissions of recommendations from shareholders are reviewed by the Corpo-
rate Governance Committee. The Corporate Governance Committee will deter-
mine whether the candidate is qualified to serve on the Board of Directors of
Johnson Controls, Inc. by evaluating the candidate using the criteria contained
under the “Director Qualifications and Selection” section of the Company’s Corpo-
rate Governance Guidelines, which is discussed under “Proposal One: Election of
Directors — Nominating Committee Disclosure.” Alternatively, if you are a share-
holder of record and are entitled to vote at the Annual Meeting, then you may
nominate any person for director by writing to Jerome D. Okarma. Your letter must
include your intention to nominate a person as a director and include the
candidate’s name, biographical data, and qualifications, as well as the written
consent of the person to be named in the Company’s proxy statement as a
nominee and to serve as a director. To nominate a person as a director for the
2008 Annual Meeting, the Company’s By-Laws require that a shareholder send
written notice not less than 45 days and not more than 75 days prior to the month
and day in the current year corresponding to the date on which the Company first
mailed its proxy materials for the prior year’s Annual Meeting. Therefore, since the
Company anticipates mailing this proxy statement on December 6, 2006, the
Company must receive notice of shareholder intent to nominate a person as a
director no sooner than September 22, 2007, and no later than October 22, 2007.
A copy of the Corporate Governance Guidelines is provided at the Company’s
website at http://www.johnsoncontrols.com/governance or you may request a copy
of these materials by contacting Shareholder Services at the address or phone
number provided in the Questions and Answers section of this proxy statement
and they will be mailed to you at no cost.
Q: When are shareholder proposals due for the 2008 Annual Meeting?
A: Shareholder proposals must be received by the Company, pursuant to Rule 14a-8
of the Securities Exchange Act of 1934, by August 8, 2007, to be considered for
inclusion in the Company’s proxy materials for the 2008 Annual Meeting.
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10. Q: What are the requirements for proposing business other than by a share-
holder proposal at the 2008 Annual Meeting?
A: A shareholder who intends to propose business at the 2008 Annual Meeting other
than pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, must comply
with the requirements set forth in the Company’s By-Laws. Among other things, a
shareholder must give written notice of the intent to propose business before the
Annual Meeting to the Company during the 30-day timeframe described above
relating to nominating a person as a director. Therefore, based upon the antici-
pated mailing date of December 6, 2006, the Company must receive notice of
shareholder intent to propose business before the Annual Meeting, submitted other
than pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, no sooner
than September 22, 2007, and no later than October 22, 2007.
If the notice is received after October 22, 2007, then the notice will be considered
untimely and the Company is not required to present the shareholder information
at the 2008 Annual Meeting. If the Board of Directors chooses to present any
information submitted, other than pursuant to Rule 14a-8 of the Securities
Exchange Act of 1934, after October 22, 2007, at the 2008 Annual Meeting, then
the persons named in proxies solicited by the Board of Directors for the 2008
Annual Meeting may exercise discretionary voting power with respect to such
information.
Q: Where can I find Corporate Governance materials for Johnson Controls?
A: The Company’s Ethics Policy, Corporate Governance Guidelines, Disclosure
Policy, Communication Policy, Securities and Exchange Commission Filings
(including the Company’s Annual Report on Form 10-K, Quarterly Report on Form
10-Q, Current Reports on Form 8-K and Section 16 insider trading transactions),
and the Charters for the Audit, Executive, Finance, Qualified Legal Compliance,
Compensation, and Corporate Governance Committees of the Company’s Board
of Directors, as well as the Company’s Disclosure Committee are provided at the
Company’s website at http://www.johnsoncontrols.com/governance or you may
request a copy of these materials by contacting Shareholder Services at the
address or phone number provided in the Questions and Answers section of this
proxy statement. Materials you request will be sent free of charge. The Ethics
Policy is applicable to the members of the Board of Directors and to all of the
Company’s employees, including, but not limited to, the principal executive officer,
principal financial officer, principal accounting officer or controller, or any person
performing similar functions. Any amendments to, or waivers of, the Ethics Policy,
as approved by the Board of Directors, will be disclosed on the Company’s
website. The Company is not including the information contained on its website as
part of, or incorporating it by reference into, this Proxy Statement.
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11. Q: How can I obtain Corporate Governance materials for Johnson Controls if I
do not have access to the Internet?
A: You may receive a copy of Johnson Controls’ Corporate Governance materials
free of charge by:
• contacting the Manager of Shareholder Services at 1-800-524-6220; or
• writing to:
Johnson Controls, Inc.
Attn: Shareholder Services X-32
5757 North Green Bay Ave.
Post Office Box 591
Milwaukee, WI 53201-0591
Q: What is the process for reporting possible violations of Johnson Controls
policies?
A: Employees may anonymously report a possible violation of Johnson Controls’
policies by calling 1-866-444-1313 in the U.S. and Canada, or 678-250-7578 if
located elsewhere. Reports of possible violations of the Ethics Policy may also be
made to Jerome D. Okarma, Vice President, Secretary and General Counsel, at
Jerome.D.Okarma@jci.com or to the attention of Mr. Okarma at 5757 North Green
Bay Avenue, P.O. Box 591, Milwaukee, Wisconsin, 53201-0591. Reports of
possible violations of financial or accounting policies may be made to the
Chairman of the Audit Committee, Robert A. Cornog, at Robert.A.Cornog@jci.com
or to the attention of Mr. Cornog at 5757 North Green Bay Avenue, P.O. Box 591,
Milwaukee, Wisconsin, 53201-0591. Reports of possible violations of the Ethics
Policy that the complainant wishes to go directly to the Board may be addressed
to the Chairman of the Corporate Governance Committee, Robert L. Barnett, at
Robert.L.Barnett@jci.com or to the attention of Mr. Barnett at 5757 North Green
Bay Avenue, P.O. Box 591, Milwaukee, Wisconsin, 53201-0591.
The Company’s Ethics Policy is applicable to the members of the Board of
Directors and to all of the Company’s employees, including, but not limited to, the
principal executive officer, principal financial officer, principal accounting officer or
controller, or any person performing similar functions.
Q: How do I obtain more information about Johnson Controls, Inc.?
A: To obtain additional information about the Company, you may contact Shareholder
Services by:
• calling the Manager of Shareholder Services, at 1-800-524-6220;
• visiting the website at www.johnsoncontrols.com; or
• writing to:
Johnson Controls, Inc.
Attn: Shareholder Services X-32
5757 North Green Bay Ave.
Post Office Box 591
Milwaukee, WI 53201-0591
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12. Q: If more than one shareholder lives in my household, how can I obtain an
extra copy of this proxy statement?
A: Pursuant to the rules of the Securities and Exchange Commission, services that
deliver the Company’s communications to shareholders who hold their stock
through a bank, broker, or other holder of record may deliver to multiple share-
holders sharing the same address a single copy of the Company’s proxy state-
ment. Upon written or oral request, the Company will mail a separate copy of the
proxy statement to any shareholder at a shared address to which a single copy of
each document was delivered. You may contact the Company with your request by
calling or writing to Shareholder Services at the address or phone number
provided above. Materials you request will be mailed to you at no cost.
PLEASE VOTE. YOUR VOTE IS VERY IMPORTANT.
Promptly returning your proxy card or voting via telephone or the Internet
will help to reduce the cost of this solicitation.
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13. PROPOSAL ONE: ELECTION OF DIRECTORS
Retirement of
Willie D. Davis:
The Board accepted, with gratitude expressed for his years of
service, Mr. Davis’ notice of retirement from the Board of
Directors at its November meeting. Mr. Davis’ retirement is in
accordance with the Company’s mandatory Director Retire-
ment Policy established by the Company’s Corporate Gover-
nance Guidelines.
Board Structure: At its November meeting, the Board of Directors took action
to reduce the size of the board to 12 members. The By-laws
were amended in November 2006 to reflect the decrease in
the size of the Board. The directors are divided into three
classes. At each Annual Meeting, the term of one class
expires. Directors in each class serve three-year terms, or
until the director’s earlier retirement pursuant to the Board of
Directors Retirement Policy, or until his or her successor is
duly qualified and elected.
Shareholder
Communication with
the Board:
We encourage shareholder communication with directors.
General communication with any member of the board may
be sent to his or her attention at 5757 North Green Bay
Avenue, P.O. Box 591, Milwaukee, Wisconsin, 53201-0591.
Communications regarding financial or accounting policies
may be made to the Chairman of the Audit Committee,
Robert A. Cornog, at Robert.A.Cornog@jci.com or to the
attention of Mr. Cornog at 5757 North Green Bay Avenue,
P.O. Box 591, Milwaukee, Wisconsin, 53201-0591. Other
communications may be made to the Chairman of the Corpo-
rate Governance Committee, Robert L. Barnett, at
Robert.L. Barnett@jci.com or to the attention of Mr. Barnett
at the address noted above. The Company does not screen
emails to these individuals. The Company does, however,
screen regular mail for security purposes.
Director Attendance
at the Annual
Meeting:
The Company has a long-standing policy of director atten-
dance at the Annual Meeting. All of the directors attended the
2006 Annual Meeting of Shareholders.
Nominating
Committee
Disclosure:
The Corporate Governance Committee (the “Committee”)
serves the nominating committee role. The material terms of
this role are described in the Committee’s Charter, a descrip-
tion of which is located under the “Board Committees” section
of this proxy. The Committee’s entire Charter, the Corporate
Governance Guidelines, and the Committee’s procedures are
published on the Company’s website. The “Committee Inde-
pendence” section of the Corporate Governance Guidelines
requires that all members of the Committee be independent,
as defined by the New York Stock Exchange listing standards
and the Company’s Corporate Governance Guidelines. The
Committee has a process under which all director candidates,
regardless of whether nominated as required by the By-laws,
or recommended, are identified and evaluated. In order to
identify director candidates, the Committee maintains a file of
recommended potential director nominees (including those
recommended by shareholders), solicits candidates from
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14. current directors, evaluates recommendations and nomina-
tions by shareholders, and will, if deemed appropriate, retain,
for a fee, recruiting professionals to identify and evaluate
candidates. The Committee uses the following criteria, among
others, to evaluate any candidate’s capabilities to serve as a
member of the Board: attendance, independence, time
commitments, conflicts of interest, ability to contribute to the
oversight and governance of the Company and experience
with a business of similar size, scope and multinational
involvement as the Company. Further, the Committee reviews
the qualifications of any candidate with those of current direc-
tors to determine coverage and gaps in experience in related
industries, such as automotive and electronics, and in func-
tional areas, such as financial, manufacturing, technology,
labor, employment and investing areas. The Committee will
also evaluate each candidate who may stand for reelection
based upon the preceding criteria before nominating such
director for reelection. Therefore, all director candidates will
be evaluated in a similar matter regardless of how each
director was identified, recommended, or nominated. No
director candidates were nominated or recommended during
the year by shareholders.
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15. BOARD NOMINEES
At the Annual Meeting, four directors will be elected for terms expiring in 2010. The
nominees for election as recommended by the Corporate Governance Committee and
selected by the Board of Directors are Robert L. Barnett, Eugenio Clariond Reyes-
Retana, Jeffrey A. Joerres, and Richard F. Teerlink, all of whom are current directors of
the Company. Each person elected as a director will serve until the Annual Meeting of
Shareholders in 2010, or until his successor has been duly qualified and elected. Brief
biographies of the director nominees and continuing directors follow. The Board
recommends that you vote FOR the election of Robert L. Barnett, Eugenio
Clariond Reyes-Retana, Jeffrey A. Joerres, and Richard F. Teerlink.
Robert L. Barnett Director since 1986
Age 66
Retired Executive Vice President, Motorola, Inc., Schaumburg, Illinois
(manufacturer of electronics products). Mr. Barnett served as Executive
Vice President of Motorola from 2003 to 2005. Prior to that, he served
as President and Chief Executive Officer, Commercial, Government and
Industrial Solutions Sector, Motorola, Inc., from 1998 to 2002. Mr. Barnett
is a director of Central Vermont Public Service and USG Corp.
Mr. Barnett is Chairman of the Compensation Committee of Central
Vermont Public Service and is Chairman of the Audit Committee of
USG Corp.
Eugenio Clariond Reyes-Retana Director since 2005
Age 63
Chairman of the Board and Chief Executive Officer, Grupo IMSA S.A.,
Nuevo Leon, Mexico, since 2003 (industrial conglomerate specializing in
steel, aluminium and plastic products). Prior to that time he was the
Chief Executive Officer of Grupo IMSA, S.A. Mr. Clariond serves as a
director of Chaparral Steel, Grupo Financiero Banorte S.A., Grupo
Industrial Saltillo S.A., Navistar International Corp, and The Mexico
Fund, Inc. Mr. Clariond serves on the Audit Committees of Grupo
Industrial Saltillo, S.A. and The Mexico Fund, Inc. and is a member of
the Compensation Committees of Chaparral Steel and Navistar
International Corp. As of December 31, 2006, Mr. Clariond will retire as
Chairman of the Board of Grupo IMSA S.A.
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16. Jeffrey A. Joerres Director since 2001
Age 47
Chief Executive Officer, President and Director since 1999, and
Chairman of the Board since 2001, Manpower Inc., Milwaukee,
Wisconsin (provider of employment services). Mr. Joerres served as
Senior Vice President of European Operations from 1998 to 1999, and
Senior Vice President of Major Account Development from 1995 to 1998.
Mr. Joerres is a director of Artisan Funds and the National Association of
Manufacturers and serves on the board of trustees for the Committee for
Economic Development. Mr. Joerres serves on the Audit Committee of
Artisan Funds.
Richard F. Teerlink Director since 1994
Age 70
Retired Chairman of the Board and President and Chief Executive
Officer, Harley-Davidson, Inc., Milwaukee, Wisconsin, 1998 and 1997,
respectively (manufacturer of motorcycles). Mr. Teerlink was a member
of the board of directors of Harley-Davidson, Inc. from 1987 to 2002.
Mr. Teerlink is a director of Snap-on, Inc. Mr. Teerlink serves as
Chairman of the Audit Committee of Snap-On, Inc.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” ITS NOMINEES.
CONTINUING DIRECTORS
Terms Expire at the 2008 Annual Meeting:
Natalie A. Black Director since 1998
Age 56
Senior Vice President, General Counsel and Corporate Secretary, Kohler
Co., Kohler, Wisconsin since 2001 (manufacturer and marketer of
plumbing products, power systems and furniture). Ms. Black served as a
Group President for Kohler Co. from 1998 to 2001.
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17. Robert A. Cornog Director since 1992
Age 66
Retired Chairman of the Board of Directors, Chief Executive Officer and
President, Snap-on, Inc., Kenosha, Wisconsin (tool manufacturer). He
served as Chief Executive Officer and President from 1991 to 2001 and
as Chairman from 1991 to 2002. Mr. Cornog is a director of Oshkosh
Truck Corp. and Wisconsin Energy Corp. (“We Energies”). Mr. Cornog
serves on the Human Resources Committee (compensation) of Oshkosh
Truck Corp. and the Audit Committee of We Energies.
William H. Lacy Director since 1997
Age 61
Former Chairman and Chief Executive Officer, MGIC Investment Corp.,
Milwaukee, Wisconsin (provider of private mortgage insurance). Mr. Lacy
retired at the end of 1999 after a 28-year career at MGIC Investment
and its principal subsidiary, Mortgage Guaranty Insurance Corp. (MGIC),
the nation’s leading private mortgage insurer. Mr. Lacy is a Director of
American Capital Access (ACA Capital) and Ocwen Financial Corp. He
serves on the Audit Committee of Ocwen Financial Corp.
Stephen A. Roell Director since 2004
Age 56
Vice Chairman of the Board of Directors and Executive Vice President,
Johnson Controls, Inc. Mr. Roell was elected Vice Chairman in 2005 and
Executive Vice President in 2004. He served as Chief Financial Officer
of Johnson Controls, Inc. from 1991 to 2005.
Terms Expire at the 2009 Annual Meeting:
Dennis W. Archer Director since 2002
Age 64
Chairman, Dickinson Wright PLLC, Detroit, Michigan since 2002 (law
firm). Mr. Archer served as president of the American Bar Association
from 2003 to 2004. Mr. Archer served as Mayor of Detroit from 1994 to
2001. Mr. Archer is also a director of Compuware Corp. and Masco
Corp. Mr. Archer serves on the Audit Committee of Masco Corp.
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18. John M. Barth Director since 1997
Age 60
Chairman of the Board of Directors and Chief Executive Officer, Johnson
Controls, Inc. Mr. Barth became Chairman of the Board of Directors on
January 1, 2004 and Chief Executive Officer on October 1, 2002.
Previously, Mr. Barth served as Chief Operating Officer.
Paul A. Brunner Director since 1983
Age 71
President and Chief Executive Officer, Spring Capital, Inc., Stamford,
Connecticut, since 1985 (international investment management).
President and Chief Executive Officer, ASEA, Inc., 1982 to 1984.
President and Chief Executive Officer, Crouse Hinds Co., 1967 to 1982.
From 1959 to 1967, Mr. Brunner worked for Coopers & Lybrand, an
accounting firm, as an audit supervisor, New York office. Mr. Brunner
serves as Chairman of the Audit Committee and an audit committee
financial expert of Trex Company, Inc and is also a member of its
Compensation Committee.
Southwood J. Morcott Director since 1993
Age 68
Retired Chairman of the Board, President, and Chief Executive Officer,
Dana Corp., Toledo, Ohio (vehicular and industrial systems
manufacturer). Mr. Morcott is a director of CSX Corp. and Navistar
International Corp. Mr. Morcott serves as the Chairman of the
Compensation Committee of Navistar International Corp.
16
19. PROPOSAL TWO:
RATIFICATION OF THE APPOINTMENT OF THE COMPANY’S INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2007
We ask that you ratify the appointment of PricewaterhouseCoopers LLP as our
independent registered public accounting firm for fiscal year 2007.
PricewaterhouseCoopers LLP has audited our accounts for many years. The Audit
Committee appointed them as the Company’s independent registered public accounting
firm for fiscal year 2007.
Representatives of PricewaterhouseCoopers LLP are expected to be present at the
Annual Meeting with the opportunity to make a statement if they so desire and to be
available to respond to appropriate questions.
THE BOARD RECOMMENDS THAT YOU VOTE “FOR” THE RATIFICATION OF
THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE
COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
FISCAL YEAR 2007.
PROPOSAL THREE:
APPROVAL OF THE JOHNSON CONTROLS, INC. 2007 STOCK OPTION PLAN
The Company is requesting that shareholders approve the Johnson Controls, Inc. 2007
Stock Option Plan (the “2007 Stock Option Plan” or the “Plan”), which the Board of
Directors adopted on November 15, 2006. The Company firmly believes that a
disciplined equity compensation program, in conjunction with the other compensation
programs of the Company, is a necessary and effective employee incentive and
retention tool that benefits all of the Company’s shareholders. Stock options and stock
appreciation rights directly link the interests of employees with those of shareholders
and allow participants in the equity compensation plan to share in the success of the
Company. The Company’s use of stock options, stock appreciation rights and compen-
sation policies are overseen by the independent Compensation Committee of the
Board of Directors and the Company’s Chief Executive Officer. The 2007 Stock Option
Plan will replace the existing 2000 Stock Option Plan, which was previously approved
by shareholders in 2000.
The terms of the 2007 Stock Option Plan are substantially similar to those of the 2000
Stock Option Plan. Although the Company has always administered equity plans in
compliance with best practice, certain updates were made to the 2007 Stock Option
Plan to reflect current best practices. These updates include the express prohibition of
backdating of a stock option or stock appreciation rights award, the re-pricing of a stock
option or stock appreciation right, and the use of discounted stock options or stock
appreciation rights. Further, the Plan does not allow for the use of reload option grants
nor the replenishing of authorized shares available under the Plan with shares used to
pay the exercise price of stock options or taxes due.
The 2007 Stock Option Plan will be effective following shareholder approval of the
Plan. If the 2007 Stock Option Plan is approved by shareholders, then the Company
will not grant any future awards under the 2000 Stock Option Plan, and the current
balance of shares remaining available for grant under the 2000 Plan will be made
available for awards under the 2007 Stock Option Plan. As of November 16, 2006,
2,283,702 shares of Common Stock were available for the granting of awards under
the 2000 Stock Option Plan. Additional information regarding the total number of
shares available for issuance under the Company’s existing equity compensation plans
as of October 31, 2006 is presented under the section captioned “Equity Compensation
17
20. Plan Information.” The 2000 Stock Option Plan as currently in effect will remain in
effect if the Company’s shareholders do not approve the 2007 Stock Option Plan.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about the Company’s equity compensation
plans as of October 31, 2006:
Plan Category
Number of Securities
to be Issued upon
Exercise of
Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants and
Rights
Number of
Securities
Remaining Available
for Future Issuance
Under Equity
Compensation
Plans (Excluding
Securities Reflected
in Column (a))
(a) (b) (c)
Equity compensation
plans approved by
security holders . . . 12,527,292 $51.58 2,988,759
Equity compensation
plans not approved
by security
holders . . . . . . . . . . — N/A N/A
Total . . . . . . . . . . . . . 12,527,292 $51.58 2,988,759
(c) Includes shares of Common Stock that remain available for grant under Company
Plans as follows: 2,283,702 shares under the 2000 Stock Option Plan, 636,500 shares
under the 2001 Restricted Stock Plan and 68,557 shares under the Stock Plan for
Outside Directors.
As of November 16, 2006, the Company had issued and outstanding
196,289,520 shares of Common Stock (including 270,500 shares of unvested restricted
stock).
The Board of Directors unanimously recommends a vote FOR the approval of
the 2007 Stock Option Plan.
The 2007 Stock Option Plan is included as Appendix A to this proxy statement. The
following description of principal features of the Plan is qualified in its entirety by
reference to Appendix A.
DESCRIPTION OF THE 2007 STOCK OPTION PLAN
Duration of the 2007 Stock Option Plan. The Plan will remain in effect until the tenth
anniversary of the Effective Date, unless terminated earlier by the Board in accordance
with the terms of the Plan.
Administration. The Compensation Committee, or other committee selected by the
Board, any of which is referred to as the committee, will administer the Plan. In
addition, the Chief Executive Officer (CEO) of the Company may administer the Plan
with respect to awards made to employees who are not subject to Section 16 of the
Securities Exchange Act of 1934 at the time the CEO acts. The committee or CEO is
18
21. referred to as the administrator. The administrator, subject to the provisions of the
Plan, is authorized (to the extent of its authority) to (i) interpret and administer the
Plan, (ii) select employees to whom awards will be granted, (iii) determine the type and
size of awards, (iv) determine, interpret, and amend, in accordance with the Plan, the
terms and conditions of such awards, and (v) establish, amend, or waive rules and
regulations for the Plan’s administration. The committee may delegate its authority
under the Plan to the extent permitted by law.
Eligibility. Only employees of the Company and its subsidiaries who are selected by
the administrator may be granted awards under the Plan. Approximately 1,600 persons
are currently eligible to participate in the Plan. The number of eligible participants may
increase over time based upon future growth of the Company and its affiliates.
Awards. Following is a general description of the types of awards that may be granted
under the Plan. Terms and conditions of awards will be determined on a grant-by-grant
basis by the administrator, subject to limitations contained in the Plan.
Stock options. A participant granted a stock option will be entitled to purchase at a
fixed price a specified number of shares of Common Stock during a specified term.
Except for stock options that are adjusted by the Board or committee in connection
with certain transactions or changes in corporate structure, as described below, the per
share purchase price of shares subject to stock options may not be less than 100% of
the fair market value of the Common Stock on the date the stock option is granted. A
stock option may not be granted prior to the date on which the administrator approves
the grant. No stock option may have an exercise term greater than 10 years. The
administrator may designate a stock option as either an incentive stock option, which
provides the participant potentially favorable tax consequences as described under
“Federal Income Tax Consequences” below, or a nonqualified stock option, which does
not provide such favorable tax consequences.
Stock appreciation rights (SAR). A participant granted an SAR will be entitled to
receive a payment equal to the excess of the fair market value (calculated as of the
exercise date) of a share of Common Stock over the grant price of the SAR. Payment
will be made in cash, shares of Common Stock, or a combination of cash and shares.
The administrator may grant SARs in tandem with or independently of stock options.
Except for SARs adjusted by the Board or committee in connection with certain
transactions or changes in corporate structure, as described below, the grant price of
an SAR may not be less than 100% of the fair market value of the Common Stock on
the date the SAR is granted. An SAR may not be granted prior to the date on which
the administrator approves the grant. No SAR may have a term greater than 10 years.
Shares Available for Awards. Subject to certain adjustments set forth in the Plan, the
maximum number of shares of Common Stock that may be issued under the Plan is
the sum of the following:
• A maximum of 12,283,702 shares of the Common Stock of the Company may be
subject to option under the new 2007 Stock Option Plan. This number will be subject
to adjustment in the event of a stock dividend, stock split or similar change in
outstanding shares. This number is comprised of (1) 2,283,702 shares of Common
Stock that remain available for grant under the 2000 Stock Option Plan as of the
Effective Date of the Plan, and (2) 10,000,000 additional shares of Common Stock.
• Any shares subject to prior awards granted under the 2000 Stock Option Plan that
are outstanding as of the Effective Date and that would have become available for
new grants under the terms of the 2000 Stock Option Plan, such as due to
termination or expiration of a prior award without being exercised in full. The
12,283,702 shares reserved under the Plan may be issued pursuant to incentive
stock options.
19
22. To the extent that an award terminates, expires, lapses for any reason, or is cancelled
without the issuance of Common Stock or cash, or is paid in cash, any shares of
Common Stock subject to the award will again be available for the grant of a new
award pursuant to the Plan. If shares of Common Stock are forfeited under an award,
or if shares are issued under any award and the Company subsequently reacquires
them pursuant to rights reserved upon the issuance of the shares, then such shares
may again be used for new awards under the Plan, but may not be issued pursuant to
incentive stock options. Any shares of Common Stock tendered or withheld to satisfy
the grant or exercise price or tax withholding obligation with respect to any award will
be counted as issued or transferred to the participant under the Plan and will not again
be available for the grant of an award pursuant to the Plan. No determination has been
made as to the types or amounts of awards that will be granted to specific individuals
pursuant to the plan.
The Plan does not permit shares to be issued in connection with “full-value awards”
(i.e., awards other than stock options or stock appreciation rights).
Subject to certain adjustments set forth in the Plan, the maximum number of shares
with respect to which options or SARs may be granted under the Plan in any two
consecutive calendar years to any one participant is 2,000,000 shares.
If the Company is involved in a merger or other transaction in which the shares of
Common Stock are exchanged, if the shares of Common Stock are subdivided or
combined, if the Company effects an extraordinary or special cash dividend or share
repurchase, or if other similar events occur that affect the Common Stock that the
committee determines warrant an adjustment, then the Board or committee must adjust
the number and kind of shares that may be delivered under the Plan, the per
participant maximum, the number and kind of shares that are subject to outstanding
awards, the exercise price or grant price of shares subject to outstanding awards, and
other terms and conditions of outstanding awards to prevent dilution or enlargement of
rights.
Amendment; Termination. The Plan may be amended or terminated by the Board or
the committee at any time, subject to certain limitations, and awards granted under the
Plan may be amended or terminated by the administrator at any time, provided that no
such action may, without a participant’s written consent, adversely affect in any material
way any previously granted award except in certain circumstances. No amendment
that would require shareholder approval under the New York Stock Exchange’s listing
standards, any rule promulgated by the United States Securities and Exchange
Commission, or any securities exchange on which the Company’s shares are listed
may become effective without shareholder approval. The administrator may provide for
special terms as it considers necessary or appropriate to accommodate differences in
foreign law, tax policy or custom. Additionally, the administrator may supplement,
amend, restate or approve an alternative version of the Plan as it determines neces-
sary or appropriate for a foreign country, none of which supplements, amendments,
restatements or alternative versions will affect the terms of the Plan for any other
country.
Change of Control. The Plan provides that, except as otherwise provided in a
participant’s award agreement or such other agreement between the Company and a
participant, upon the occurrence of a “change of control”, any and all outstanding stock
options and SARs granted under the Plan will become immediately exercisable. The
committee may, in its discretion, specify that outstanding stock options and SARs will
be automatically cashed out upon a “change of control.”
For purposes of the Plan, “change of control” is defined in section 2(e) of the Plan
document, which is contained in Appendix A of this proxy statement.
20
23. Re-pricings. Stock options and SARs granted under the Plan may not be re-priced.
Adjustments to the terms of stock options or SARs pursuant to the Plan’s adjustment
provision (described above) made in connection with a merger, reorganization, consol-
idation, stock dividend, extraordinary or special dividend or share repurchase or other
event described in the adjustment provision will not constitute a re-pricing.
Transferability. Awards generally will be non-transferable except upon the death of a
participant, although the administrator may permit a participant to transfer awards (for
example, to family members or trusts for family members) subject to such conditions
as the administrator may establish.
Termination of Employment. The rules concerning the extent to which a participant
may exercise stock options or SARs upon termination of employment are set forth in
the Plan or will be set forth in the participant’s award agreement. Such provisions need
not be uniform among awards.
Tax Withholding. The Company may deduct or withhold, or require a participant to
remit, an amount sufficient to satisfy federal, state, local, domestic or foreign taxes
required by law or regulation to be withheld with respect to any taxable event arising as
a result of the Plan. The withholding requirement may be satisfied, in whole or in part,
by having the Company withhold, or by tendering to the Company, Common Stock
having a fair market value equal to the minimum withholding obligation.
Federal Income Tax Consequences
The U.S. federal income tax discussion set forth below is intended for general informa-
tion only and does not purport to be a complete analysis of all of the potential tax
effects of the 2007 Stock Option Plan. It is based upon laws, regulations, rulings and
decisions now in effect, all of which are subject to change. Foreign, state and local
income tax consequences are not discussed, and may vary from locality to locality.
Incentive Stock Options. A participant generally will not realize taxable income on an
incentive stock option either when the option is granted or when the option is
exercised; however, the amount by which the fair market value of the stock at the time
of exercise exceeds the exercise price generally will be included in the participant’s
alternative minimum taxable income on the date of exercise. Gain or loss realized by a
participant on the sale of the stock issued upon exercise of an incentive stock option is
taxable as long-term capital gain or loss, and no tax deduction is available to the
Company, unless the participant disposes of the stock in a “disqualifying disposition.” A
disqualifying disposition generally occurs if the participant disposes of the stock
purchased under the option within two years after the date of grant of the incentive
stock option or within one year after the date of exercise. Upon a disqualifying
disposition of the stock, the participant will realize ordinary income in an amount equal
to the difference between the option exercise price and the lesser of (i) the fair market
value of the stock on the date of exercise, or (ii) the amount realized on a sale or
exchange of the stock. The Company will be entitled to a deduction to the extent
ordinary income is recognized by the participant as a result of a disqualifying disposi-
tion, provided certain tax reporting requirements are met. Additionally, if the amount
realized on a sale or exchange of the stock is greater than the fair market value of the
stock on the date of exercise, the difference will be taxed as capital gain.
Nonqualified Stock Options. A participant will not realize taxable income on a
nonqualified stock option when the option is granted, nor will the Company be entitled
to a deduction. Upon the exercise of a nonqualified stock option, the participant will
realize ordinary income in an amount equal to the difference between the option
exercise price and the fair market value of the stock on the date of exercise. A
participant will be subject to withholding for federal income and employment tax
21
24. purposes with respect to income recognized upon exercise of a nonqualified stock
option. The Company generally will be entitled to a deduction to the extent ordinary
income is recognized by the participant, provided certain reporting requirements are
met. The participant would recognize gain upon the disposition of any shares received
on exercise of a nonqualified stock option equal to the excess of (i) the amount realized
on such disposition over (ii) the participant’s basis in the stock, which generally would
be the fair market value of the stock on the date of exercise of the nonqualified stock
option. That gain would be taxable as long or short-term capital gain depending on
whether the shares were held for more than one year.
Stock Appreciation Rights. A participant will not realize taxable income when an SAR
is granted, nor will the Company be entitled to a deduction. Rather, the participant will
recognize ordinary income for federal income tax purposes equal to the amount of
cash and the fair market value of the shares, if any, received upon exercise of the
SAR. A participant will be subject to withholding for federal income and employment
tax purposes with respect to income recognized upon exercise of an SAR. The
Company generally will be entitled to a deduction to the extent ordinary income is
recognized by the participant. The participant would recognize gain upon the disposi-
tion of any shares received on exercise of a SAR equal to the excess of (i) the amount
realized on such disposition over (ii) the participant’s basis in the stock, which generally
would be the fair market value of the stock on the date of exercise of the SAR. That
gain would be taxable as long or short-term capital gain depending on whether the
shares were held for more than one year.
Code Section 409A. It is intended that all awards granted under the Plan be exempt
from Section 409A of the Internal Revenue Code. However, if an award granted under
the Plan were subject to Code Section 409A, then, unless certain requirements set
forth in Section 409A are complied with, holders of such awards may be taxed earlier
than would otherwise be the case (e.g., at the time of vesting instead of the time of
payment) and may be subject to an additional 20 percent penalty tax (and, potentially,
certain interest penalties). To the extent that the Company determines that any award
granted under the 2007 Stock Option Plan is subject to Code Section 409A, the award
agreement evidencing such award must incorporate the terms and conditions required
by Section 409A.
Tax Deductibility and Section 162(m) of the Code. Section 162(m) of the Code
generally places a $1 million annual limit on the amount of compensation paid to the
CEO and certain other officers of the Company that may be deducted by the Company
for federal income tax purposes unless such compensation constitutes “qualified
performance-based compensation” under an award that has been granted by a
qualified committee of the Board of Directors pursuant to an incentive plan that has
been approved by the Company’s shareholders. An award of options or SARs is
automatically considered “qualified performance-based compensation” so long as the
per share grant or exercise price of such award equals or exceeds the fair market
value of a share on the date the award is granted. The 2007 Stock Option Plan is
structured so that awards granted under the Plan by the committee are intended to
qualify for the “qualified performance-based compensation” exception to the $1 million
annual deductibility limit of Section 162(m) of the Code.
Other Considerations. Awards that are granted, accelerated or enhanced upon the
occurrence of a change in control may give rise, in whole or in part, to excess
parachute payments within the meaning of Section 280G of the Code to the extent that
such payments, when aggregated with other payments subject to Section 280G,
exceed the limitations contained in that provision. Such excess parachute payments
are not deductible by the Company and are subject to an excise tax of 20 percent
payable by the recipient.
22
25. FUTURE PLAN BENEFITS
At the time of the mailing of this proxy statement, the Company has not made any
awards under the Plan. With regard to future awards, it is not possible at this time to
determine the number or types of awards that will be made in the future under the
Plan. Such determinations will be made from time to time by the administrator.
On November 16, 2006, the closing price per share of the Common Stock on the New
York Stock Exchange was $85.39.
Vote Required
The affirmative vote of a majority of the votes cast on the proposal at the Annual
Meeting is required to approve the Plan, provided that shareholders holding a majority
of the outstanding shares of Common Stock cast votes on the proposal. For purposes
of determining the vote required for this proposal, abstentions and broker nonvotes will
have no impact on the vote, again provided that shareholders holding a majority of the
outstanding shares of Common Stock cast votes on the proposal.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
APPROVAL OF THE JOHNSON CONTROLS, INC. 2007 STOCK OPTION PLAN.
23
26. BOARD INFORMATION
Board Meetings: In 2006, the Board held a total of six regular meetings and
one special meeting. Each director of the Company attended
at least 83% of the aggregate number of meetings of the
Board and the total number of meetings of all committees of
the Board on which such director served during the time each
such director was a member of the Board. The Board has a
presiding director position. The presiding director is a rota-
tional assignment held in turn by the independent Chairper-
sons of the Audit, Corporate Governance, Compensation,
and Finance Committees. In addition, the Board requires
executive sessions of the independent directors at least twice
annually. During these executive sessions, and when the
Chairperson is unavailable for regular Board meetings, the
presiding director has the responsibility to lead the meeting,
set the agenda, and determine the information to be
provided.
Board Independence: The Board of Directors has established a categorical standard
to assist it in making determinations of director indepen-
dence. The categorical standard is documented in the Corpo-
rate Governance Guidelines. Under this standard, if a
director, or his or her Immediate Family Member, is or was an
executive officer, employee or director of, or has or had any
other relationship with, another company that makes
payments to, or receives payments from, the Company for
property or services in an amount which, within the last three
fiscal years, does not exceed the greater of $1 million or 2%
of such other company’s consolidated gross revenues, then
that relationship will not be considered to be a material rela-
tionship that would impair a director’s independence. The
Board of Directors has affirmatively determined by resolution
that none of the directors or director nominees (with the
exception of John M. Barth, Eugenio Clariond Reyes-Retana
and Stephen A. Roell) has any other material relationship
with the Company. Accordingly, subject to the three excep-
tions noted, the Board of Directors has determined that the
remaining director nominees and continuing directors are
independent.
Board Succession
Plan: The Board Succession Plan is designed to maintain effective
shareholder representation and has three important elements.
First, the mandatory retirement age for directors is 72 years
of age. Second, no director shall serve as a committee chair
after reaching his or her 70th birthday. One year prior to a
committee chair’s 70th birthday, a transition process will be
implemented in which the new chair will work collaboratively
with the retiring chair as duties and responsibilities are transi-
tioned. Both the current chair and the successor will receive
the retainer given to committee chairs. Third, at the time a
Chief Executive Officer shall either resign or retire from the
Company, he or she shall resign and retire from the Board as
well, following a transition period which is mutually agreed
24
27. upon between the Chief Executive Officer and the Compen-
sation Committee.
The Corporate Governance Guidelines and Corporate Gover-
nance Committee Charter are provided at the Company’s
website: http://www.johnsoncontrols.com/governance or you
may request a copy of these materials by contacting Share-
holder Services at the address or phone number provided in
the Questions and Answers section of this proxy statement.
Board Evaluation: Every year the Board conducts an evaluation of the directors,
the committees, and the Board to determine the effectiveness
of the Board. The manner of this evaluation is determined
annually in order to ensure the procurement of accurate and
insightful information. During the Company’s 2006 fiscal year,
each director completed a self-assessment questionnaire as
a means to evaluate the effectiveness of the Board and its
committees. Based upon the input of each director, a list was
compiled which identified potential areas for improvement. As
a result of the quality of the information obtained through this
evaluation process, the Board was able to objectively evaluate
its processes and enhance its procedures to allow for greater
director, committee, and Board effectiveness.
Board Committees: Executive Committee: The primary functions of the
committee are to exercise all the powers of the Board when
the Board is not in session, as permitted by law. The Execu-
tive Committee held one meeting last year.
Audit Committee: The primary functions of the committee
are to:
• Review and discuss the audited financial statements with
management for inclusion of the financial statements and
related disclosures in the Company’s Annual Report on
Form 10-K;
• Review annually the internal audit and other controls estab-
lished by management;
• Review the results of management’s and the independent
registered public accounting firm’s assessment of the
design and operating effectiveness of the Company’s
internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002;
• Review the financial reporting process and selection of
accounting policies;
• Review management’s evaluation and proposed selection of
the Company’s independent registered public accounting
firm;
• Review the audit plans prepared by internal audit and the
independent registered public accounting firm;
• Review applicable confidential reporting of possible
concerns regarding internal accounting controls, accounting
and auditing matters;
25
28. • Pre-approve all auditing services and permitted non-audit
services to be performed by the Company’s independent
registered public accounting firm;
• Report the results or findings of all activities to the Board
on a periodic basis; and
• Review annually the Committee’s performance and report
its findings and recommendations to the Board.
The Audit Committee held eight regular meetings last year.
All members are independent as defined by the New York
Stock Exchange listing standards and the Corporate Gover-
nance Guidelines.
Compensation Committee: The primary functions of the
committee are to:
• Recommend to the Board the selection and retention of offi-
cers and key employees;
• Review and approve compensation for the Chief Executive
Officer and senior executives;
• Administer and recommend amendments to the executive
compensation plans;
• Establish objectives, determine performance, and approve
salary adjustments of the Chief Executive Officer;
• Approve disclosure statements of executive compensation;
• Approve the retention and termination of outside compensa-
tion consultants;
• Review the Company’s executive compensation programs
with outside consultants and recommend such programs to
the Board;
• Review annually the Committee’s performance and report
its findings and recommendations to the Board;
• Review a management succession plan and recommend
management succession decisions;
• Review and approve employment related agreements for
the Chief Executive Officer and senior executives;
• Report the results or findings of these activities to the
Board on a periodic basis; and
• Periodically review Pension Plan design.
The Compensation Committee held four meetings last year.
All members are independent as defined by the New York
Stock Exchange listing standards. In addition, no member of
the Compensation Committee has served as one of the
Company’s officers or employees at any time. Further, none
of the Company’s executive officers serves as a member of
the board of directors or compensation committee of any
other company that has one or more executive officers
26
29. serving as a member of the Company’s Board of Directors or
Compensation Committee.
Corporate Governance Committee: The primary functions
of the committee are to:
• Recommend to the Board nominees for directors;
• Consider shareholder-recommended candidates for election
as directors;
• Recommend the size and composition of the Board;
• Develop guidelines and criteria for the qualifications of
directors for Board approval;
• Approve director compensation programs;
• Approve committees, committees’ rotational assignments,
and committee structure for the Board;
• Approve and review performance criteria for the Board;
• Ensure formalization of written ethics policy and employee
education in the policy;
• Review annually the Committee’s performance and report
its findings and recommendations to the Board;
• Review and recommend corporate governance practices
and policies of the Company;
• Review and decide on conflicts of interest that may affect
directors; and
• Report the results or findings of these activities to the
Board on a periodic basis.
The Corporate Governance Committee held five meetings
last year. All members are independent as defined by the
New York Stock Exchange listing standards.
Finance Committee: The primary functions of the
committee are to:
• Review the Company’s major risk exposures and manage-
ment’s plans to monitor and control such exposures;
• Review and approve, within the limits established by the
Board, the Company’s capital appropriations matters;
• Annually review and recommend to the Board of Directors
capital expenditure authorization levels;
• Review the Company’s capital structure, financing plans
and other significant Treasury policies;
• Review the Company’s policies governing long term invest-
ment goals and asset allocation targets for significant
defined benefit and defined contribution plans;
27
30. • Approve funding for significant defined benefit and defined
contribution plans;
• Review the Company’s dividend policy and share repur-
chase programs;
• Review the Company’s tax situation and significant tax plan-
ning initiatives and tax audit settlements;
• Review the status of major information technology
plans; and
• Review annually the Committee’s performance.
During the year, the Board approved a reorganization of its
committees, eliminating the Pension and Benefits Committee
and forming the Finance Committee. The Finance Committee
held three meetings last year after the reorganization. The
Pension and Benefits Committee held two meetings prior to
the reorganization. All members of the Finance Committee
are independent as defined by the New York Stock Exchange
listing standards.
28
31. BOARD COMMITTEE MEMBERSHIP
Johnson Controls Board Committee Membership
Audit Executive Compensation
Corporate
Governance Finance
Dennis W. Archer . . . . . . . „ „
Robert L. Barnett . . . . . . . „ * „
John M. Barth. . . . . . . . . . *
Natalie A. Black . . . . . . . . „ „
Paul A. Brunner . . . . . . . . „ „
Robert A. Cornog . . . . . . . * „ „
Willie D. Davis(1) . . . . . . . „
Jeffrey A. Joerres . . . . . . . „ „
William H. Lacy. . . . . . . . . „ „ *
Southwood J. Morcott . . . . „ * „
Eugenio Clariond Reyes-
Retana . . . . . . . . . . . . .
Stephen A. Roell . . . . . . . „
Richard F. Teerlink . . . . . . „ „
(1) As of January, 2006 Mr. Davis ceased service on the Executive Committee.
* Chair of Committee
„ Committee Member
BOARD COMPENSATION
Retainer and Fees: Non-employee directors receive a fiscal year retainer of
$200,000. The Chairperson for each committee receives an addi-
tional fiscal year retainer of $25,000. To encourage such direc-
tors to own our shares, they receive 50% of their retainer in our
Common Stock each year. The stock is issued annually using
the market closing price as of the date of the Annual Meeting.
New directors receive a one-time grant of 800 shares of
Common Stock upon election or appointment. The grant is
issued using the market closing price on the first business day of
the month following the start of the director’s term. The Common
Stock portion of the annual retainer and the initial grant have
been provided pursuant the 2003 Stock Plan for Outside Direc-
tors. The cash portion of the retainer is paid quarterly on the first
business day of October, January, April and July. Non-employee
directors are also reimbursed for any related expenses.
Non-employee directors are permitted to defer all or any part of
their retainer under the Deferred Compensation Plan for Certain
Directors. The amount deferred may be invested in any of the
29
32. accounts available under the Company’s qualified Savings and
Investment Plan [401(k)], as the director elects. The deferred
amount plus earnings, or gain and dividends, as applicable, are
paid to the board member according to irrevocable distribution
elections after the director retires or otherwise ceases service on
the Board.
Other Compensation: Non-employee directors have historically been eligible to partici-
pate in a Director Share Unit Plan. Under the Plan, the Company
credited $35,000 worth of stock units annually into each non-
employee director’s account at the then current market price. As
of the end of fiscal year 2006, new contributions to this Plan
have been discontinued. Existing deferred stock units are cred-
ited with dividends until retirement, at which time the units will be
paid out based upon the market price of the Common Stock at
that time. Commencing in fiscal year 2007, the value of units
may also be treated as if invested in any of the accounts avail-
able under the Company’s qualified Savings and Investment Plan
[401(k)], as the director elects.
COMPENSATION COMMITTEE REPORT
The Committee: The Compensation Committee is composed only of indepen-
dent directors as defined by the requirements of the New York
Stock Exchange and the Company’s Corporate Governance
Guidelines. The committee exercises the Board’s powers in
compensating the Company’s executives and the executive
officers of our Company and its subsidiaries. We make every
effort to see that our compensation program is consistent with
the values of our Company and furthers its business strategy.
Overall Objectives: The Company aligns compensation with its values and busi-
ness objectives. The objectives target customer satisfaction,
technology, growth, market leadership and shareholder value.
The Compensation Committee has established a program to:
• Attract and retain key executives critical to the long-term
success of the Company;
• Reward executives for long-term strategic management and
the enhancement of shareholder value;
• Integrate compensation programs, which can focus on pre-
tax return on shareholders’ equity, return on investment and
growth;
• Support a performance-oriented environment that rewards
performance not only with respect to Company goals but
also year over year earnings growth; and
• Preserve the federal income tax deductibility of compensa-
tion paid. Accordingly, the Company has taken appropriate
actions to preserve the deductibility of annual incentives,
long-term performance plan payments, and stock option
awards. However, the Committee may authorize payments
30
33. that may not be deductible if it believes that this is in the
best interests of the Company and its shareholders.
Executive
Compensation
Generally:
The Compensation Committee reviews executive pay each
year. Compensation depends on many factors, including indi-
vidual performance and responsibilities, future challenges and
objectives, and how he or she might contribute to the Compa-
ny’s future success. We also look at the Company’s financial
performance and the compensation levels at comparable
companies.
To meet the overall compensation objectives, we studied
competitive compensation data based on surveys provided to
the Committee by an independent compensation consultant.
The survey for officers and senior managers involved
21 companies. We made adjustments to account for differ-
ences in annual sales of our Company and those companies
in the survey.
Total Compensation: Annual executive compensation consists of a base salary and
incentive compensation.
Approximately 82% of the total compensation paid to the
executive officer group is tied to Company performance. This
is comparable to the average of the companies in the execu-
tive compensation survey. Doing so helps encourage perfor-
mance that increases the value of your shares.
The Committee sets target minimum and maximum perfor-
mance levels. Goals are established above the prior year’s
goals and prior year’s actual performance. Doing so motivates
the officers to encourage future growth and keeps the goals
challenging.
Base Salary: The Committee determines the levels of salary for key execu-
tive officers and a salary range for other executives. Factors
considered are:
• Salary survey comparison results;
• Prior year salary;
• Changes in individual job responsibilities;
• Past performance of individuals; and, most importantly,
• Achievement or trends toward achievement of specified
Company goals.
Annual Incentives: The Committee sets an annual incentive award formula under
the Annual and Long-Term Incentive Performance Plan. The
award is based on specific benchmarks that are consistent
with our annual and long-term strategic planning objectives.
These benchmarks are also based on achievement of busi-
ness plans that the Board has approved that include goals of
improved performance over the previous year and take into
account industry growth and cycles.
31
34. At the end of the fiscal year, the Committee applies the
formula to objective performance results to determine each
executive’s award for the year.
Long-Term Incentives: The Committee sets a long-term incentive award formula
under the Annual and Long-Term Incentive Performance Plan.
This award serves to motivate executives to achieve longer-
term objectives by providing incentive compensation based
on the Company’s performance over a three-year period. The
long-term award is based on achievement of business plans
that the Board has approved that include goals of improved
performance and take into account industry growth and
cycles. At the end of the performance period, the Committee
applies the formula to objective performance results to deter-
mine each executive’s award for the performance period.
Restricted Stock Plan: The Committee grants restricted stock under the 2001
Restricted Stock Plan, as amended. The Committee deter-
mines the participants, the size of the award, and its terms
and conditions.
Executive Deferred
Compensation Plan:
Executive officers are permitted to defer all or any part of
their compensation received under the Annual and Long-Term
Incentive Performance Plan and the 2001 Restricted Stock
Plan under and pursuant to the terms of the Executive
Deferred Compensation Plan. The Executive Deferred
Compensation Plan amends, consolidates, and implements
the various deferral options contained in the above-mentioned
benefit plans. Each individual for whom a deferral account is
maintained under the above-mentioned benefit plans is auto-
matically enrolled in the Executive Deferred Compensation
Plan.
Stock Option Program: The Committee historically granted stock options under the
2000 Stock Option Plan. The 2007 Stock Option Plan, if
approved by shareholders, will replace the existing 2000
Stock Option Plan. The Committee or the Chief Executive
Officer determines which individuals are awarded stock
options, the terms at which option grants shall be made, the
terms of the options, and the number of shares subject to
each option.
Savings and
Investment Plan
[401(k)]:
Executive officers may participate in the Company’s Savings
and Investment Plan [401(k)], which includes Company contri-
butions to the plan, and a Retirement Realization Plan under
which certain executives are entitled to additional benefits
that cannot be paid under qualified plans due to Internal
Revenue Code limitations. Employee and Company contribu-
tions in excess of qualified plan limits are accounted for as if
invested in various accounts.
Stock Ownership
Guidelines:
The Executive Stock Ownership Policy requires all officers
and senior executives in each business group, within five
years of becoming subject to the policy, to hold the
Company’s Common Stock in an amount of three to five
times their annual salary, depending on his or her position.
32
35. The 2001 Common Stock Purchase Plan for Executives, as
amended (CSPPE), facilitates the acquisition of Common
Stock by executives subject to the Executive Stock Ownership
Policy. Participants in the CSPPE may deduct from their pay
up to $2,500 per month to purchase shares of Common
Stock. The price of each share is 100% of the average price
of shares purchased by Wells Fargo Bank, N.A. as agent for
the participants. Participants are charged nominal brokerage
fees or commissions.
CEO Compensation: Mr. Barth’s total compensation is based on the Company’s
performance, his individual performance, executive compen-
sation levels at other companies, the desire to retain his
services, and the terms of his employment agreement. His
salary and incentives reflect the leadership, vision and focus
he has provided to the Company.
Mr. Barth’s base salary increased to $1,440,000 on July 1,
2006, from $1,390,000 in 2005. This increase was due to his
outstanding performance during the year. His salary approxi-
mated the average base salary for other chief executive offi-
cers of the 21 comparable companies reviewed.
Approximately 92% of Mr. Barth’s compensation was tied to
Company performance. Mr. Barth’s fiscal 2006 annual incen-
tive performance award of $2,900,000 was based upon the
return on shareholders’ equity and operating income growth
for the Company for fiscal year 2006 and represented 81% of
the maximum amount available under the criteria set forth by
the Committee. In fiscal year 2006, Mr. Barth received
payment under the long-term incentive performance award of
$3,308,000, which is based upon the Company’s return on
invested capital and earnings growth over the past three fiscal
years and represents 88% of the maximum amount available
under the criteria established by the Committee. Mr. Barth
also received an option award of 400,000 shares on
November 16, 2005. In addition, Mr. Barth received a
restricted stock grant of 80,000 shares on January 3, 2006.
Southwood J. Morcott, Chairman
Dennis W. Archer
Paul A. Brunner
Jeffrey A. Joerres
Willam H. Lacy
Members, Compensation Committee
33
36. AUDIT COMMITTEE REPORT
The Board of Directors appoints an Audit Committee each year to review the
Company’s financial matters. In November 2006, amendments to the written Charter
governing the Audit Committee were adopted. The restated Audit Committee Charter is
attached as Appendix B. Each member of the Company’s Audit Committee meets the
independence requirements set by the New York Stock Exchange as detailed in the
Corporate Governance Guidelines. The Board of Directors has determined that
Messrs. Brunner, Cornog, and Teerlink are Audit Committee financial experts as
defined by the rules of the Securities and Exchange Commission. The Audit Committee
members reviewed and discussed with management the audited financial statements
for the fiscal year ending September 30, 2006. The Audit Committee also discussed all
the matters required to be discussed by Statement of Auditing Standard No. 61 with
the Company’s independent registered public accounting firm, Pricewaterhou-
seCoopers LLP. The Audit Committee received written disclosure from Pricewaterhou-
seCoopers LLP as required by Independence Standards Board Standard No. 1. Based
on their review and discussions, the Audit Committee recommended to the Board of
Directors that the audited financial statements be included in the Company’s Annual
Report on Form 10-K to be filed with the Securities and Exchange Commission.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Audit Committee selects our independent registered public accounting firm for
each fiscal year. During the fiscal year ended September 30, 2006, Pricewaterhou-
seCoopers LLP was employed principally to perform the annual audit and to render
other services. Fees paid to PricewaterhouseCoopers LLP for each of the last two
fiscal years are listed in the following table.
Fiscal Year
2005
Fiscal Year
2006
Audit Service Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13,678,000 $16,601,000
Audit-Related Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 930,000 $ 922,000
Tax Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,256,000 $ 2,588,000
All Other Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 145,000 $ 59,000
Audit service fees include fees for services performed to comply with Generally
Accepted Auditing Standards (GAAS), including the recurring audit of the Company’s
consolidated financial statements and the audit of the Company’s internal controls over
financial reporting for fiscal year 2006. 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 procedures related to audit of
income tax provisions and related reserves, and consents and assistance with and
review of documents filed with the Securities and Exchange Commission.
Audit-related fees include fees associated with assurance and related services that are
reasonably related to the performance of the audit or review of the Company’s financial
statements. This category includes fees related to assistance in financial due diligence
related to mergers and acquisitions, consultations regarding Generally Accepted
Accounting Principles, reviews and evaluations of the impact of new regulatory
pronouncements, general assistance with implementation of the new Securities and
Exchange Commission and Sarbanes-Oxley Act of 2002 requirements, audits of
pension and other employee benefit plans and audit services not required by statute or
regulation.
34
37. Tax fees primarily include fees associated with tax audits, tax compliance, tax
consulting, as well as domestic and international 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 primarily include fees associated with U.S. customs compliance, corpo-
rate restructurings, and value-added tax compliance. The Audit Committee has
concluded that the provision of the non-audit services listed above as “All Other Fees”
is compatible with maintaining the independence of the registered public accounting
firm.
The Audit Committee has adopted procedures for pre-approving all audit and non-audit
services provided by the independent registered public accounting firm. These proce-
dures include reviewing a budget for audit and permitted non-audit services. The
budget includes a description of, and a budgeted amount for, particular categories of
non-audit services that are recurring in nature and therefore anticipated at the time the
budget is submitted. Audit Committee approval is required to exceed the budget
amount for a particular category of non-audit services and to engage the independent
registered public accounting firm for any non-audit services not included in the budget.
For both types of pre-approval, the Audit Committee considers whether such services
are consistent with the Securities and Exchange Commissions’ rules on registered
public accounting firm independence. The Audit Committee also considers whether the
independent registered public accounting firm is best positioned to provide the most
effective and efficient service, for reasons such as its familiarity with the Company’s
business, people, culture, accounting systems, risk profile, and whether the services
enhance the Company’s ability to manage or control risks and improve audit quality.
The Audit Committee may delegate pre-approval authority to one or more members of
the Audit Committee. The Audit Committee periodically monitors the services rendered
and actual fees paid to the independent registered public accounting firm to ensure
that such services are within the parameters approved by the Audit Committee.
Robert A. Cornog, Chairman
Paul A. Brunner
Willie D. Davis
Richard F. Teerlink
Members, Audit Committee
35
38. PERFORMANCE GRAPH
Explanation of the
Graph:
The line graph below compares the cumulative total share-
holder return on our Common Stock with the cumulative total
return of companies on the Standard & Poor’s 500 Stock
Index and companies formerly on the S&P’s Manufacturers
(Diversified Industrials) Index.* This graph assumes the
investment of $100 on September 1, 2001 and the reinvest-
ment of all dividends since that date.
Comparison of Five Year Cumulative Total Return Among S&P 500 Index,
S&P Manufacturers (Diversified Industrials)
Index* and Johnson Controls, Inc.
COMPANY/INDEX 9/01 9/02 9/03 9/04 9/05 9/06
Johnson Controls, Inc. 100 119.66 149.95 182.96 203.24 238.54
Manufacturers (Diversified
Industrials)* 100 76.14 99.16 132.46 134.61 151.77
S&P 500 Comp-Ltd. 100 79.53 98.92 112.63 126.43 140.07
DOLLARS
Johnson Controls, Inc.
Manufacturers (Diversified Industrials)*
S&P 500 Comp-Ltd.
0
50
100
150
200
250
300
200620052004200320022001
* The Manufacturers (Diversified Industrials) Index was discontinued as a formal index
of Standard & Poor’s effective December 31, 2001. The Company has replicated the
index using return data for the 14 companies that comprised the Manufacturers
(Diversified Industrials) Index as of that date.
36
39. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid for the past three fiscal years
to each of the Chief Executive Officer and the four other most highly-compensated
executive officers for the Company’s 2006 fiscal year.
SUMMARY OF COMPENSATION TABLE
Name and
Principal Position
Fiscal
Year Salary($) Bonus($)
Other Annual
Compensation
($)(1)
Options/
SARs
(#)(2)
Restricted Stock/
Or Restricted
Share unit Value
($)(3)
Long-Term
Incentive
Payouts
($)(4)
All Other
Compensation
($)(5)
Annual Compensation
Awards Payouts
Long-Term Compensation
John M. Barth . . . . . . . . . 2006 1,402,500 2,900,000 51,479 400,000 5,928,000 3,308,000 139,942
Chairman of the 2005 1,373,750 2,725,000 — 400,000 — 2,317,000 145,555
Board and Chief Executive 2004 1,281,250 2,665,000 110,017 400,000 4,766,400 2,584,000 239,110
Officer
Stephen A. Roell. . . . . . . . 2006 875,000 1,631,000 — 175,000 3,153,525 1,352,000 54,022
Vice Chairman of the 2005 708,583 1,255,000 — 100,000 — 872,000 57,237
Board and Executive 2004 587,000 968,000 — 104,000 1,849,600 766,000 96,018
Vice President
Keith E. Wandell . . . . . . . . 2006 821,500 833,000 — 125,000 3,153,525 1,277,000 55,632
President and Chief 2005 713,583 1,315,000 — 100,000 — 718,000 49,212
Operating Officer 2004 615,750 728,000 — 140,000 2,080,800 652,000 104,081
R. Bruce McDonald . . . . . . 2006 642,500 942,000 — 75,000 1,301,025 632,000 35,751
Executive Vice 2005 475,167 797,000 — 50,000 — 437,000 31,154
President and 2004 375,250 476,000 — 24,000 693,600 313,000 51,180
Chief Financial Officer
C. David Myers. . . . . . . . . 2006 623,252 815,000 — 40,000 741,000 851,000 6,300
Vice President and 2005 — — — — — — —
President, Building 2004 — — — — — — —
Efficiency
(1) The aggregate amount of “Other Annual Compensation”, which includes perquisites
and personal benefits was less than the required reporting threshold (the lesser of
$50,000 or 10% of the officer’s annual salary and bonus for the year) with the
exception of Mr. Barth, whose perquisites and personal benefits were as follows:
$19,903 in country or other club membership fees, $21,200 in financial planning
fees, and $10,376 in value of personal use of the Company’s aircraft.
(2) The Company did not grant SARs to any of the five most highly-compensated
executive officers for the past three years.
(3) The executive officers are eligible to receive restricted stock and restricted share
unit awards under and pursuant to the 2001 Restricted Stock Plan, as amended.
There were no restricted stock or restricted share unit awards during fiscal years
2003 and 2005. There were restricted stock or restricted share unit awards during
fiscal years 2004 and 2006. The shares awarded to individuals for the January
2004 and 2006 awards are subject to restriction periods that expire on 50% of the
shares awarded in January 2006 and January 2008, respectively, and 50% of the
remainder of the shares awarded in January 2008 and January 2010, respectively
and shares awarded to individuals for the August 2006 awards are subject to a
restriction period that expires on 100% of the shares awarded in August 2011. All
restricted stock or restricted share unit awards are subject to forfeiture until vested.
However, earlier vesting may occur due to termination of employment by death or
disability, a change in control of the Company, or action by the Compensation
Committee. Dividends are paid on shares of restricted stock at the same rate as
37
40. on unrestricted shares and will be subject to the same terms and conditions
(including risk of forfeiture) as the restricted shares to which they relate. For the
2004 awards, the dollar values for these shares is $59.58 per share for Mr. Barth
and $57.80 per share based on the closing price on the grant dates for
Messrs. Roell, Wandell, and McDonald. For the 2006 awards, the dollar values for
the 80,000 shares are $74.10 per share for Mr. Barth and $74.10 for the
10,000 shares for Mr. Myers, $74.10 per share for 40,000 shares and $75.81 for
2,500 shares for Mr. Roell, $74.10 per share for 40,000 shares and $75.81 for
2,500 shares for Mr. Wandell, and $74.10 for 15,000 shares and $75.81 for
2,500 shares for Mr. McDonald based on the closing price on the grant dates. For
all unvested grants, as of September 30, 2006, the named executive officers held
the following number of shares of restricted stock and/or restricted units, with the
values noted (based on a closing price of $71.74 per share on the last trading day
of our fiscal year, September 29, 2006): Mr. Barth — 120,000 shares ($8,608,800),
Mr. Roell — 58,500 shares ($4,196,790), Mr. Wandell — 60,500 shares
($4,340,270), Mr. McDonald — 23,500 shares ($1,685,890) and Mr. Myers —
10,000 shares ($717,400).
(4) In fiscal 2006, ALTIPP participants were granted 88% of the targets available under
the criteria established by the Compensation Committee. The ALTIPP does not
provide for discretionary adjustments to the targets.
(5) “All Other Compensation” consists of contributions by the Company on behalf of
the named individuals to the Company’s Savings and Investment Plan [401(k)] and
an Equalization Benefit Plan. Mr. Myers is eligible to receive a company provided
Retirement Income Contribution, which is a percentage of eligible pay based on
age and years of vested service. Prior to joining the Company, Mr. Myers received
York International Corp. related compensation and change in control payments that
need not be disclosed by the Company.
Stock Options and
Stock Appreciation
Rights (SARs)
Grants:
The Company has in effect the 2000 Stock Option Plan under
which options to purchase Common Stock and SARs are
granted to officers and other key employees of the Company
and its subsidiaries. The per share option/SAR prices are the
fair market value of the Company’s Common Stock on the
date of the grant; the term of the option is 10 years. Fifty
percent of each award is exercisable two years after the grant
date and the remainder is exercisable three years after the
grant date.
38
41. OPTION/SAR GRANTS IN FISCAL YEAR 2006
The following table lists our grants of stock options and SARs to the executive officers
named in the Summary of Compensation Table during fiscal year 2006. There were no
SARs granted to the named executive officers during fiscal year 2006.
Name
Options
Granted
% of Total
Options/SARs
Granted to
Employees in
Fiscal 2006
Exercise or
Base Price
($/Share)
Expiration
Date 5%($) 10%($)
Potential realizable value
at assumed annual rates
of stock price appreciation
for option term
John M. Barth . . . . . . . . . . 400,000 12.65% $67.685 11/16/2015 $17,026,693 $43,148,983
Stephen A. Roell . . . . . . . . 175,000 5.53% $67.685 11/16/2015 $ 7,449,178 $18,877,680
Keith E. Wandell . . . . . . . . 125,000 3.95% $67.685 11/16/2015 $ 5,320,842 $13,484,057
R. Bruce McDonald . . . . . . 75,000 2.37% $67.685 11/16/2015 $ 3,192,505 $ 8,090,434
C. David Myers . . . . . . . . . 40,000 1.26% $73.100 1/3/2016 $ 1,838,888 $ 4,660,103
The amounts shown above as potential realizable values rely on arbitrarily assumed
rates of share price appreciation prescribed by the Securities and Exchange Commis-
sion. In assessing those values, please note that the ultimate value of the options, as
well as the shares of Common Stock, depends on actual future share values. Market
conditions and the efforts of the directors, the officers and others to foster the future
success of our Company can influence those future share values.
Options, SAR
Holdings and
Exercises:
The following table lists the number of shares acquired and
the value realized as a result of option exercises during fiscal
year 2006 for the listed officers. It also includes the number
and value of their exercisable and non-exercisable options
and SARs as of September 30, 2006.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS/SAR VALUES
Name
Number of
Shares
Acquired on
Exercise
Value
Realized
Number of
Unexercised
Options/SARs as
of 9/30/06
Exercisable/
Unexercisable
Value of Unexercised
In-The-Money
Options/SARs
Exercisable/
Unexercisable
John M. Barth. . . . . . . 350,000 $13,353,738 550,000/1,000,000 $15,062,875/$9,880,000
Stephen A. Roell. . . . . — $ — 242,000/327,000 $ 7,083,355/$2,843,305
Keith E. Wandell . . . . . 10,000 $ 518,693 251,000/295,000 $ 7,815,720/$2,937,175
R. Bruce McDonald. . . — $ — 92,000/137,000 $ 2,796,730/$1,091,705
C. David Myers . . . . . . — $ — 0/40,000 $ 0/0
39
42. Long-Term Incentive
Compensation:
The values in this table were calculated based on each exec-
utive’s salary that will be effective January 1, 2007.
LONG-TERM PERFORMANCE PLANS — AWARDS UNDER ALTIPP IN FISCAL 2006(1)
Name
Amount of
Contingent
Performance
Awards($)
Performance
Period Until
Maturation or
Payout
Threshold
($)
Target
($)
Maximum
($)
John M. Barth . . . . . . . . . . . . 1,950,000 Fiscal Years
2006-2008
975,000 1,950,000 3,900,000
Stephen A. Roell . . . . . . . . . . 850,000 Fiscal Years
2006-2008
425,000 850,000 1,700,000
Keith E. Wandell . . . . . . . . . . 751,000 Fiscal Years
2006-2008
376,000 751,000 1,502,000
R. Bruce McDonald . . . . . . . . 507,000 Fiscal Years
2006-2008
254,000 507,000 1,014,000
C. David Myers . . . . . . . . . . . 546,000 Fiscal Years
2006-2008
273,000 546,000 1,092,000
(1) Actual values at the time of payout will be calculated using each executive’s base
salary on the last day of the performance period, and therefore, the values in the
table could increase or decrease. An executive may earn this award based upon a
combined measure of planned return on invested capital and earnings growth. The
maximum values in the table may not be increased higher than the maximum of
$6 million under the ALTIPP.
Retirement Plans: The following table shows the maximum annual retirement
benefits payable to participants under the Company’s plans,
including amounts attributable to the Company’s Equalization
Benefit Plan. Under the Johnson Controls Pension Plan (the
“Plan”), participants become entitled to benefits after five
years of service with the Company or any of its subsidiaries,
and a participant’s normal retirement date on his or her
65th birthday.
The Internal Revenue Code places maximum limitations on
the amount of benefits that may be paid under the Plan. The
Company has adopted an Equalization Benefit Plan under
which certain executives are entitled to pension benefits that
cannot be paid under the qualified Plan due to these
limitations.
40
43. PENSION PLAN TABLE
Average Annual
Compensation in
Highest 5
Consecutive Years
of Last 10 Years
Before Retirement 5 years 10 years 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
300,000 25,500 51,000 76,500 102,000 127,500 153,000 170,250 187,500
600,000 51,000 102,000 153,000 204,000 255,000 306,000 340,500 375,000
900,000 76,500 153,000 229,500 306,000 382,500 459,000 510,750 562,500
1,200,000 102,000 204,000 306,000 408,000 510,000 612,000 681,000 750,000
1,500,000 127,500 255,000 382,500 510,000 637,500 765,000 851,250 937,500
1,800,000 153,000 306,000 459,000 612,000 765,000 918,000 1,021,500 1,125,000
2,100,000 178,500 357,000 535,500 714,000 892,500 1,071,000 1,191,750 1,312,500
2,400,000 204,000 408,000 612,000 816,000 1,020,000 1,224,000 1,362,000 1,500,000
2,700,000 229,500 459,000 688,500 918,000 1,147,500 1,377,000 1,532,250 1,687,500
3,000,000 255,000 510,000 765,000 1,020,000 1,275,000 1,530,000 1,702,500 1,875,000
3,300,000 280,500 561,000 841,500 1,122,000 1,402,500 1,683,000 1,872,750 2,062,500
3,600,000 306,000 612,000 918,000 1,224,000 1,530,000 1,836,000 2,043,000 2,250,000
3,900,000 331,500 663,000 994,500 1,326,000 1,657,500 1,989,000 2,213,250 2,437,500
4,200,000 357,000 714,000 1,071,000 1,428,000 1,785,000 2,142,000 2,383,500 2,625,000
4,500,000 382,500 765,000 1,147,500 1,530,000 1,912,500 2,295,000 2,553,750 2,812,500
* Assuming normal retirement age and years of service under provisions in effect on
September 30, 2006, and assuming retirement on that date.
Years of Service: As of September 30, 2006, the executive officers named in the
Summary of Compensation Table were credited with the
following years of service under the Plan: Mr. Barth, 36 years,
Mr. Roell, 23 years, Mr. Wandell, 18 years, and Mr. McDonald,
4 years. Mr. McDonald’s pension had not vested as of
September 30, 2006, as vesting occurs after 5 years of
employment.
Mr. Myers became an officer of the Company on December 9,
2005 and is not eligible to participate in the Plan, as the
Company discontinued the Plan for new employees effective
January 1, 2006. Mr. Myers would be entitled to annual benefits
of $30,312, assuming normal retirement age, under a York Inter-
national Corp. frozen defined benefit plan with 9.8 years of
attributed service.
Benefits Accrual: Pension plans of the Company apply to certain salaried and non-
union hourly employees of the Company, including officers of the
Company. Under the Plan, benefits are accrued according to the
following formula: 1.15% of participant’s average monthly
compensation multiplied by the participant’s years of benefit
service plus 0.55% of average monthly compensation in excess
of the participant’s covered compensation multiplied by the
participant’s years of benefit service. The amounts payable may
be adjusted to reflect the participant’s decision on survivor bene-
fits, early retirement or termination, and in some instances, age.
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