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johnson controls FY2005 Proxy Statement
1. Johnson Controls, Inc.
5757 North Green Bay Ave.
Post Office Box 591
Milwaukee, Wisconsin 53201-0591
Notice of 2006
Annual Meeting
and Proxy Statement
Date of Notice: December 12, 2005
2. NOTICE OF THE 2006
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Johnson Controls, Inc. will be held on
Wednesday, January 25, 2006, at 11:00 A.M. CST, at the Renaissance Ross
Bridge Hotel, 167 Sunbelt Parkway, Hoover, Alabama. The proposals to be voted
on at the Annual Meeting are as follows:
1. The election of four directors:
Dennis W. Archer
John M. Barth
Paul A. Brunner
Southwood J. Morcott
2. Ratification of PricewaterhouseCoopers LLP as our independent auditors
for fiscal year 2006.
3. Approval of the Johnson Controls, Inc. Annual and Long-Term Incentive
Performance 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 17,
2005, 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 12, 2005
Dear Shareholder:
The Johnson Controls Annual Shareholders' Meeting will be
convened on Wednesday, January 25, 2006, at 11:00 A.M. CST at the
Renaissance Ross Bridge Hotel, 167 Sunbelt Parkway, Hoover,
Alabama. The accompanying proxy statement, that details the
business to be conducted at the Annual Shareholders' Meeting, is
being mailed to shareholders on or about December 12, 2005,
together with its Annual Report on Form 10-K for fiscal 2005, which
contains audited financial statements for the Company, and the
Business and Sustainability Report. The Annual Report on Form 10-K
and the Business and Sustainability Report are not to be regarded as
proxy solicitation materials. Given the availability of management
presentations to investors on the Internet throughout the year, the
management presentation will be brief.
We are pleased to once again offer multiple options for voting your
shares. As detailed in the quot;quot;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, Chief Executive Officer and President
4. Table of Contents
QUESTIONS AND ANSWERSÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 3
*PROPOSAL ONE: ELECTION OF DIRECTORS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 11
*PROPOSAL TWO: RATIFICATION OF INDEPENDENT AUDITORS FOR
FISCAL YEAR 2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 17
*PROPOSAL THREE: APPROVAL OF THE JOHNSON CONTROLS, INC.
ANNUAL AND LONG-TERM INCENTIVE PERFORMANCE PLAN ÏÏÏÏÏÏÏÏÏÏ 17
BOARD INFORMATION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 22
BOARD COMPENSATION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 27
COMPENSATION COMMITTEE REPORT ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 28
AUDIT COMMITTEE REPORT ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 32
PERFORMANCE GRAPH ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 34
EXECUTIVE COMPENSATION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 35
EMPLOYMENT AGREEMENTS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 40
JOHNSON CONTROLS SHARE OWNERSHIP ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 42
EQUITY COMPENSATION PLAN INFORMATION ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 42
VOTING PROCEDURES ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 42
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ÏÏÏÏÏ 43
APPENDIX A: JOHNSON CONTROLS, INC. ANNUAL AND LONG-TERM
INCENTIVE PERFORMANCE PLAN ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ A-1
* Agenda items for the Annual Meeting
2
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:
Dennis W. Archer
John M. Barth
Paul A. Brunner
Southwood J. Morcott
2. Ratification of PricewaterhouseCoopers LLP as our independent auditors
for fiscal year 2006.
3. Approval of the Johnson Controls, Inc. Annual and Long-Term Incentive
Performance 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 directors;
‚ FOR ratification of PricewaterhouseCoopers LLP as our independent
auditors for fiscal year 2006;
‚ FOR approval of the Johnson Controls, Inc. Annual and Long-Term
Incentive Performance 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 Board or 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 Board or proxy holders will vote for a person whom they
believe will carry out our present policies.
Q: Why are we voting on a new compensation plan?
A: The Johnson Controls, Inc. Annual and Long-Term Incentive Performance Plan
(the quot;quot;ALTIPP'') is a new compensation plan that is intended to replace the
Company's two Executive Incentive Compensation Plans (collectively,
quot;quot;EICP'') and the Company's Long-Term Performance Plan (the quot;quot;LTPP''). The
Company will generally use the ALTIPP to provide an incentive for selected
employees to achieve specified performance goals with a view toward
enhancing shareholder value. As was the case with awards under the EICP
and LTPP, awards granted under the ALTIPP can qualify as quot;quot;qualified
performance-based compensation'' for tax purposes pursuant to
Section 162(m) of the Internal Revenue Code (quot;quot;Section 162(m)''). We have
included a summary description of the ALTIPP in this proxy statement and
have attached the full text of the ALTIPP to this proxy statement as
Appendix A.
3
8. 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. 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 17, 2005,
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: A brief management presentation will be given 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 outstanding shares on November 17, 2005 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 quot;quot;FOR'' or
quot;quot;AGAINST'' any of the proposals. On the record date, 193,511,283 shares of
our Common stock were outstanding.
6
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 2007 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 Corporate Governance Committee. The Corporate Govern-
ance Committee will determine 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 quot;quot;Director Qualifications and Selection''
section of the Company's Corporate Governance Guidelines, which is
discussed under quot;quot;Proposal One: Election of Directors Ì Nominating
Committee Disclosure.'' Alternatively, if you are a shareholder 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 2007 Annual
Meeting, the Company's By-Laws require that shareholders send written
notice no sooner than September 28, 2006, and no later than October 28,
2006. 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.
7
10. Q: When are shareholder proposals due for the 2007 Annual Meeting?
A: Shareholder proposals must be received by the Company, pursuant to
Rule 14a-8 of the Securities and Exchange Act of 1934, by August 14, 2006,
to be considered for inclusion in the Company's proxy materials for the 2007
Annual Meeting.
Q: What are the requirements for proposing business other than by a
shareholder proposal at the 2007 Annual Meeting?
A: A shareholder who intends to propose business at the 2007 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 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 its proxy statement on December 12, 2005, 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 28, 2006, and no later than
October 28, 2006.
If the notice is received after October 28, 2006, then the notice will be
considered untimely and the Company is not required to present the
shareholder information at the 2007 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 28, 2006, at
the 2007 Annual Meeting, then the persons named in proxies solicited by the
Board of Directors for the 2007 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 Exchange Commission Filings
(including the Company's Form 10-K and Section 16 insider trading transac-
tions), and the Charters for the Audit, Executive, Pension and Benefits,
Qualified Legal Compliance, Compensation, Disclosure and Corporate Govern-
ance Committees of the Company's Board of Directors are provided at the
Company 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 applies to all employees, including the chief executive officer, the
chief operating officer, the chief financial officer and chief accounting officers,
as well as the Board of Directors. Any amendments to, or waivers of, the
Ethics Policy, as approved by the Board of Directors, will be promptly
disclosed on the Company's website.
8
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. Paul A. Brunner will serve as
Chairman of the Audit Committee until January 2006 and reports of possible
violations may be sent to Paul.Brunner@jci.com or to the attention of
Mr. Brunner at 5757 North Green Bay Avenue, P.O. Box 591, Milwaukee,
Wisconsin, 53201-0591. Thereafter, Robert A. Cornog will become Chairman
of the Audit Committee. At that point, reports of possible violations may be
sent to 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.
9
12. 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
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 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
shareholders sharing the same address a single copy of the Company's proxy
statement. 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.
10
13. PROPOSAL ONE: ELECTION OF DIRECTORS
Appointment of Pursuant to the Company's By-Laws and Corporate
Eugenio Clariond Governance Guidelines, the Board of Directors has
Reyes-Retana: appointed Eugenio Clariond Reyes-Retana as a director.
Mr. Clariond was nominated for director by the Corporate
Governance Committee and evaluated pursuant to the
process described in the quot;quot;Nominating Committee Disclo-
sure'' section of this proxy. The Board has determined
that Mr. Clariond is qualified to serve as a director based
upon the standards outlined in the quot;quot;Director Qualifications
and Selection'' section of the Corporate Governance
Guidelines.
Board Structure: The Board of Directors consists of 13 members. 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 We encourage shareholder communication with directors.
Communication with General communication with any member of the board may
the Board: 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.
Paul A. Brunner will serve as Chairman of the Audit
Committee until January 2006 and communications may be
sent to Paul.Brunner@jci.com or to the attention of
Mr. Brunner at 5757 North Green Bay Avenue,
P.O. Box 591, Milwaukee, Wisconsin, 53201-0591. There-
after, Robert A. Cornog will become Chairman of the Audit
Committee. At that point, communications may be sent to
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 Corporate Govern-
ance 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 The Company has a long-standing policy of director
at the Annual attendance at the Annual Meeting. All of the directors
Meeting: except Mr. Davis attended the 2005 Annual Meeting of
Shareholders.
11
14. Nominating The Corporate Governance Committee (the quot;quot;Committee'')
Committee serves the nominating committee role. The material terms
Disclosure: of this role are described in the Committee's Charter, a
description of which is located under the quot;quot;Board Commit-
tees'' 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 quot;quot;Committee Independence'' 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 candi-
dates, regardless of whether nominated as required by the
By-laws, or recommended, are identified and evaluated. In
order to identify director candidates, the Committee main-
tains a file of recommended potential director nominees
(including those recommended by shareholders), solicits
candidates from current directors, evaluates recommenda-
tions and nominations 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 candi-
date's capabilities to serve as a member of the Board:
attendance, independence, time commitments, conflicts of
interest, ability to contribute to the oversight and govern-
ance of the Company and experience with a business of
similar size, scope and multinational involvement as the
Company. Further, the Committee reviews the qualifica-
tions of any candidate with those of current directors to
determine coverage and gaps in experience in related
industries, such as automotive and electronics, and in
functional areas, such as financial, manufacturing, tech-
nology, 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, recom-
mended, or nominated. No director candidates were nomi-
nated by third parties during the year. One director
candidate was recommended during the year.
12
15. BOARD NOMINEES
At the Annual Meeting, four directors will be elected for terms expiring in 2009.
The nominees for election as recommended by the Corporate Governance
Committee and selected by the Board of Directors are Dennis W. Archer, John M.
Barth, Paul A. Brunner, and Southwood J. Morcott. Each person elected as a
director will serve until the Annual Meeting of Shareholders in 2009, 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 Dennis W. Archer, John M. Barth, Paul A. Brunner and
Southwood J. Morcott.
Dennis W. Archer Director since 2002
Age 63
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.
John M. Barth Director since 1997
Age 59
Chairman of the Board of Directors since 2004, Chief Executive
Officer and President, Johnson Controls, Inc. Mr. Barth became
Chief Executive Officer on October 1, 2002 and President on
September 28, 1998. Previously, Mr. Barth served as Chief Operating
Officer and has been a member of the Board of Directors of Johnson
Controls, Inc. since 1997.
Paul A. Brunner Director since 1983
Age 70
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, he worked for Coopers & Lybrand, an
accounting firm, as an audit supervisor, New York office.
Mr. Brunner also serves as Chairman of the Audit Committee and
financial expert of Trex Company, Inc.
13
16. Southwood J. Morcott Director since 1993
Age 67
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.
THE BOARD RECOMMENDS THAT YOU VOTE quot;quot;FOR'' ITS NOMINEES.
CONTINUING DIRECTORS
Terms Expire at the 2007 Annual Meeting:
Robert L. Barnett Director since 1986
Age 65
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 serves on 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 62
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., and Navistar
International Corp. Mr. Clariond serves on the Audit Committee of
Grupo Industrial Saltillo, S.A. and on the Compensation Committees
of Chaparral Steel and Navistar International Corp.
14
17. Willie D. Davis Director since 1991
Age 71
President, All Pro Broadcasting Inc., Los Angeles, California, since
1977 (radio broadcasting). Mr. Davis is a director of Alliance Bank
Co., Checkers Drive-In Restaurants, Inc., Dow Chemical Co.,
Manpower, Inc., MGM Grand Inc., and Sara Lee Corp. Mr. Davis
serves on the Audit Committees of Checkers Drive-In Restaurants,
Inc. and Sara Lee Corp. and is a member of the Compensation
Committee of Dow Chemical Co.
Jeffrey A. Joerres Director since 2001
Age 46
Chief Executive Officer, President and Director since 1999, and
Chairman of the Board since 2001, Manpower, Inc., Milwaukee,
Wisconsin (provider of staffing 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 69
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.
Terms Expire at the 2008 Annual Meeting:
Natalie A. Black Director since 1998
Age 55
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 also served as Group President for Kohler Co. from 1998
to 2001.
15
18. Robert A. Cornog Director since 1992
Age 65
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.
(quot;quot;We Energies''). Mr. Cornog serves on the Audit Committee of We
Energies.
William H. Lacy Director since 1997
Age 60
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 Risk
Management Committee of ACA Capital and on the Audit Committee
of Ocwen Financial Corp.
Stephen A. Roell Director since 2004
Age 55
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.
16
19. PROPOSAL TWO:
RATIFICATION OF INDEPENDENT AUDITORS FOR FISCAL YEAR 2006
We ask that you ratify the appointment of PricewaterhouseCoopers LLP as our
independent auditors.
PricewaterhouseCoopers LLP has audited our accounts for many years. The
Board appointed them as independent auditors for fiscal year 2006 upon
recommendation of the Audit Committee.
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 quot;quot;FOR'' THE RATIFICATION OF
THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS JOHNSON
CONTROLS' INDEPENDENT AUDITORS FOR 2006.
PROPOSAL THREE:
APPROVAL OF JOHNSON CONTROLS, INC. ANNUAL
AND LONG-TERM INCENTIVE PERFORMANCE PLAN
The Company is asking shareholders to approve the Johnson Controls, Inc.
Annual and Long-Term Incentive Performance Plan (the quot;quot;ALTIPP''). This is a new
compensation plan that provides for cash bonuses and that is intended to replace
the Company's two Executive Incentive Compensation Plans (together the
quot;quot;EICP'') and the Company's Long-Term Performance Plan (the quot;quot;LTPP''). The
Company will generally use the ALTIPP to provide an incentive for selected
employees to achieve specified performance goals with a view toward enhancing
shareholder value. The Company must obtain shareholder approval of the ALTIPP
at the Annual Meeting to enable the Company to pay compensation under the
ALTIPP that will constitute quot;quot;qualified performance-based compensation'' for tax
purposes pursuant to Section 162(m) of the Internal Revenue Code
(quot;quot;Section 162(m)''). Once approved, the plan must be reapproved by the
shareholders every five years. The following summary description is qualified in its
entirety by reference to the full text of the ALTIPP, which is attached to this proxy
statement as Appendix A.
Summary of Proposal. The Company provides a total compensation opportunity
for its key employees that includes cash incentive compensation, the payment of
which is dependent upon achieving performance objectives. The Company has
historically provided this incentive compensation opportunity through its EICP and
LTPP. However, under the EICP and LTPP, the Company had a limited choice of
performance measures that the Company could use as the basis for awards. The
amounts that the Company has paid under the EICP and LTPP plans in each of
the past three years to the five named executive officers are included in bonus
amounts and long-term incentive payouts amounts, respectively, set forth in the
Summary Compensation Table.
The purpose of the ALTIPP is to consolidate the EICP and LTPP into a single
framework and to expand the performance measures that the Company may use
as the basis for awards, thus motivating key employees to achieve outstanding
performance based on performance measures that are aligned with the Company's
strategic goals.
17
20. Under the ALTIPP, the plan administrator will establish potential awards and
pertinent performance criteria at the beginning of each performance period. After
the end of each performance period, the amount payable to a participant will be
determined based upon actual performance.
In addition, in conjunction with the adoption of the ALTIPP, the Compensation
Committee of the Board of Directors (the quot;quot;Committee'') terminated awards
granted under the LTPP for the three-year performance periods ending on
September 30, 2006 and 2007, respectively. In their place, the Committee (or the
Chief Executive Officer with respect to non-executive officer participants) has
made new awards under the ALTIPP covering the same three-year periods at the
same target levels but using different performance measures. In addition, the
Committee (or the Chief Executive Officer with respect to non-executive officer
participants) has made an annual award for Fiscal 2006 and a long-term award for
the three-year performance period beginning on October 1, 2005 under the
ALTIPP. The termination of the two prior awards under the LTPP and the
effectiveness of all of the new awards under the ALTIPP are contingent on
shareholder approval of the ALTIPP at the 2006 Annual Meeting.
Key Terms of the ALTIPP.
Administration. The Committee administers the ALTIPP with respect to executive
officers, and the Chief Executive Officer of the Company administers the ALTIPP
with respect to all other participants. The Committee and the Chief Executive
Officer are referred to in this section as the quot;quot;Administrator.'' The Administrator
may delegate some or all of its authority to officers of the Company, except that
the Committee may not delegate authority with respect to awards that are intended
to comply with Section 162(m).
Eligibility. In general, all key employees of the Company and of its affiliates that
the Administrator designates are eligible to participate in the ALTIPP. As of
October 1, 2005, the number of eligible individuals was approximately 1,900. The
Administrator selects, in its sole discretion, the eligible employee participants in the
ALTIPP. Although participants are generally selected prior to or during the first
90 days of a performance period, the Administrator may select a key employee to
become a participant during a performance period, such as when a key employee
is hired or promoted into an eligible position.
Grant of Awards. There are two types of awards that may be granted under the
ALTIPP: annual awards, which have a performance period of no more than one
fiscal year, and long-term awards, which have a performance period of more than
one fiscal year. The fiscal year may be that of the Company or any affiliate, as
determined by the Administrator. At the time it selects a participant, the
Administrator will determine whether to grant an annual award, a long-term award,
or both to such participant.
At the time it makes an award, the Administrator specifies the performance period,
the potential amount that may be earned under the award and the performance
goals that must be met for an amount to be paid. The ALTIPP provides that the
18
21. Administrator may use any one or more of the following financial performance
measures for purposes of establishing the performance goals:
* Basic earnings per * Operating income * Return on capital
common share for the * Income before interest * Economic value added, or
Company on a and/or the provision for other measure of
consolidated basis income taxes profitability that considers
* Product quality the cost of capital
* Net income
employed
* Total shareholder return * Accounts receivable
* Net cash provided by
* Net sales * Inventories
operating activities
* Cost of sales * Return on equity
* Net increase (decrease)
* Selling, general and * Return on assets in cash and cash
administrative expenses
equivalents
* Diluted earnings per
* Customer satisfaction
common share for the
* Market share
Company on a
consolidated basis * Gross profit
The performance categories described above may be determined for the Company,
for an affiliate, or for any business unit or division as the Administrator determines.
In addition, with respect to awards that are not intended to comply with
Section 162(m), the Administrator may designate other categories, including
categories involving individual performance and subjective targets, not listed
above.
The ALTIPP does not specify target performance for the performance measures.
Rather, as to each performance measure that the Administrator selects, the
Administrator also establishes specific performance goals and a performance scale
that will be used to measure performance and determine the amount payable.
The ALTIPP permits the Administrator to grant prorated awards or additional
awards after the beginning of a performance period to provide appropriate
incentives to newly-hired or newly-eligible key employees. The Administrator may
also adjust an award to reflect a participant's demotion or promotion, or transfer of
employment among the Company and its affiliates. The Administrator may also
generally cancel an award at any time.
Following the end of each performance period, the Administrator will certify the
extent to which the performance goals established for that period and any other
material terms of the award have been achieved. Based on this result, the
Administrator (or its delegee) will calculate the performance award amount for
each participant. For annual performance awards, the Administrator has discretion
to adjust this award amount up or down by 20% based on the participant's
individual performance and attainment of the performance goals. However, for
participants subject to Section 162(m), the Administrator may only adjust the
award amount downward.
Payment of the performance awards is made in cash. Certain participants may be
permitted to defer the payment of their performance awards under the Company's
Executive Deferred Compensation Plan.
Other Limitations. The ALTIPP provides that the Company may not pay amounts
in excess of $6 million to any one participant under any and all annual awards
granted to the participant with performance periods that end in the same fiscal
year of the Company, and the Company may not pay amounts in excess of
19
22. $6 million to any one participant under any and all long-term awards granted to the
participant with performance periods that end in the same fiscal year of the
Company.
Transferability Restrictions. Participants generally may not transfer performance
awards or subject them in any manner to sale, transfer, anticipation, alienation,
assignment, pledge, encumbrance or charge.
Termination of Employment. A participant whose employment terminates prior to
the end of a performance period for reasons other than death, disability or
retirement generally is not entitled to receive a payment under any performance
award for that performance period. If termination is due to death, disability or
retirement, unless the Administrator determines otherwise, payment of the award
amount will be made at the end of the performance period, but the amount will be
prorated to reflect the participant's period of actual employment during the
performance period.
Change of Control. In connection with a Change of Control (as defined in the
ALTIPP), participants will receive an immediate payment of the maximum amount
that could be paid under the performance awards, but prorated to reflect the
length of time that has elapsed since the first day of the performance period.
Termination of or Change to the ALTIPP. The Committee may from time to time or
at any time suspend or terminate the ALTIPP or amend the ALTIPP in any manner
without obtaining further shareholder approval. However, if the Committee amends
the ALTIPP to increase the maximum amount that can be paid to a participant for
any annual or long-term award or to change the financial performance categories
or to increase the class of employees eligible to participate in the ALTIPP, then
further shareholder approval would be required to retain the benefits afforded by
shareholder approval of the ALTIPP under Section 162(m) in respect of awards to
which such changes apply. In addition, the Employee Benefits Policy Committee of
the Company may make ministerial or administrative amendments to the ALTIPP,
or changes required for the ALTIPP to comply with any applicable law.
Effect on Outstanding Awards Under the LTPP. As discussed above, subject to
shareholder approval of the ALTIPP, the three-year performance awards granted
under the LTPP for periods ending September 30, 2006 and September 30, 2007,
respectively, were terminated as of the effective date of the ALTIPP. The
Administrator terminated these awards because it determined that the performance
criterion established for those awards as required by the terms of the LTPP Ì
return on shareholders' equity Ì unnecessarily duplicates the performance criteria
used for annual awards.
To provide strong motivation to executives to achieve outstanding performance
based on criteria that is aligned with the Company's strategic goals, the
Administrator granted new long-term performance awards covering the same
three-year periods that the terminated awards covered, but utilizing the new
performance goals available under the ALTIPP. These grants were made at the
time of adoption of the ALTIPP, subject to shareholder approval of the ALTIPP.
These new awards do not qualify as performance-based compensation under
Section 162(m).
If the shareholders do not approve the ALTIPP, then all previously granted
outstanding awards under both the EICP and LTPP will continue to be in effect,
but the performance scale for the LTPP awards will be modified from a quot;quot;stair-
step'' to a linear scale.
20
23. New Plan Benefits. The Compensation Committee selected all executive officers
to receive annual awards for fiscal year 2006 and long-term awards for the three-
year period beginning in fiscal year 2006 under the ALTIPP. In addition, the
Compensation Committee granted each participant long-term awards to replace
outstanding awards terminated under the LTPP. The target amounts payable under
the replacement awards remain unchanged. The 2004 Ì 2006 awards were
disclosed in the Company's proxy statement for the 2005 Annual Meeting and the
2005 Ì 2007 awards are disclosed under quot;quot;Long Term Incentive Plans Ì Awards
in Fiscal 2005'' in this proxy statement.
The following table identifies the target amounts under the ALTIPP for the persons
noted, which are contingent on shareholder approval of the ALTIPP. Because the
target amounts are not determinable as they depend on each executive's base
salary at the end of the applicable performance period, the following table
identifies the target amounts for each executive based on the executive's base
salary at January 1, 2006. Note that non-employee directors are not eligible to
participate in the ALTIPP.
Target Amount Ì
Long-Term
Target Amount Ì Awards
Annual Award Fiscal Years
Name and Position Fiscal 2006 2006-2008
John M. Barth, ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1,440,000 $1,872,000
Chairman, Chief Executive Officer and
President
Stephen A. Roell,ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 810,000 $ 765,000
Vice Chairman and Executive Vice President
Keith E. Wandell, ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 680,000 $ 723,000
Executive Vice President and President,
Automotive Group
Giovanni Fiori,ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 540,000 $ 574,000
Executive Vice President, International
John P. Kennedy, ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 426,000 $ 426,000
Executive Vice President and President,
Controls Group
Executive Group(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3,959,000 $3,522,000
Non-Executive Officer Employee Group ÏÏÏÏÏÏÏÏÏ $40,945,000 $3,594,000
(1) Note that the quot;quot;Executive Group'' refers to all of the Company's current
executive officers as a group, excluding Messrs. Barth, Roell, Wandell, Fiori
and Kennedy.
Approval and Ratification of the ALTIPP. An affirmative vote of the majority of
votes cast by the shareholders is required to approve and to ratify the proposed
Johnson Controls, Inc. Annual and Long-Term Incentive Performance Plan.
THE BOARD RECOMMENDS THAT YOU VOTE quot;quot;FOR'' THE APPROVAL OF THE
JOHNSON CONTROLS, INC. ANNUAL AND LONG-TERM INCENTIVE PERFORM-
ANCE PLAN.
21
24. BOARD INFORMATION
Board Meetings: In 2005, the Board held a total of six regular meetings and
one special meeting. Each director of the Company
attended at least 92% 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 rotational assignment held in turn by
the independent Chairman of the Audit, Corporate Govern-
ance, Compensation, and Pension and Benefits Commit-
tees. In addition, the Board requires executive sessions of
the independent directors. During these executive
sessions, and when the chairman is unavailable for regular
Board meetings, the presiding director has the power 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
independence. Under this standard, if a director 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, in its last fiscal
year, 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
relationship 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 exceptions noted, the Board of
Directors has determined that the director nominees and
remaining directors are independent.
Board Succession The Board Succession Plan is designed to maintain
Plan: effective shareholder representation and has three impor-
tant 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 transitioned.
Both the current chair and the successor will receive
$5,000 per meeting. 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 upon
between the Chief Executive Officer and the Compensation
Committee.
22
25. In accordance with the Board Succession Plan,
Mr. Brunner worked collaboratively with Mr. Cornog
throughout fiscal year 2005 to transition chairmanship of
the Audit Committee to Mr. Cornog. Effective January
2006, Mr. Cornog will become Chair of the Audit
Committee. Mr. Brunner will remain a member of the
committee.
The Corporate Governance Guidelines and Corporate
Governance Committee Charter are provided at the Company
website: 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.
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 2005 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 evalua-
tion 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
Executive 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 state-
ments and related disclosures in the Company's Annual
Report to Shareholders;
‚ Review annually the internal audit and other controls
established by management;
‚ Review the results of management's and the indepen-
dent accountant's assessment of the design and oper-
ating effectiveness of the Company's internal controls in
accordance with the Sarbanes-Oxley Act of 2002;
‚ Review the financial reporting process and selection of
accounting policies;
‚ Review management's evaluation and proposed selec-
tion of independent accountants;
23
26. ‚ Review the audit plans prepared by internal audit and
independent accountants;
‚ Review applicable confidential reporting of possible
concerns regarding internal accounting controls,
accounting and auditing matters;
‚ Pre-approve all auditing services and permitted non-
audit services to be performed by the Company's
independent accountants;
‚ Review significant issues concerning litigation, contin-
gent liabilities, tax and insurance as reflected in periodic
reports to the Securities and Exchange Commission;
‚ 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.
Compensation Committee: The primary functions of the
committee are to:
‚ Recommend to the Board the selection and retention of
officers and key employees;
‚ Review and approve compensation for the Chief Execu-
tive Officer and senior executives;
‚ Administer and recommend amendments to the execu-
tive 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
compensation 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; and
24
27. ‚ Report the results or findings of these activities to the
Board on a periodic basis.
The Compensation Committee held five 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 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 nominated 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 assign-
ments, and committee structure for the Board;
‚ Approve and review performance criteria for the Board;
‚ 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.
Pension and Benefits Committee: The primary functions
of the committee are to:
‚ Review actuarial assumptions and actuarial valuation of
the pension plans on an annual basis;
‚ Review investment policies of the funds of employee
benefit plans;
25
28. ‚ Select and terminate investment managers as
appropriate;
‚ Review with investment advisors past performance and
current investment strategy;
‚ Monitor Company policies affecting employee benefit
plans;
‚ Review plan provisions annually, and propose amend-
ments when necessary; and
‚ Review annually the Committee's performance and
report its findings and recommendations to the Board.
The Pension and Benefits Committee held five meetings
last year. All members are independent as defined by the
New York Stock Exchange listing standards.
26
29. BOARD COMMITTEE MEMBERSHIP
Johnson Controls Board Committee Membership
Pension
Corporate and
Audit Executive Compensation Governance Benefits
Dennis W. ArcherÏÏÏÏÏÏ „ „
Robert L. Barnett ÏÏÏÏÏÏ „ * „
John M. BarthÏÏÏÏÏÏÏÏÏ *
Natalie A. Black ÏÏÏÏÏÏÏ „ „
Paul A. Brunner ÏÏÏÏÏÏÏ * „
Robert A. Cornog ÏÏÏÏÏ „ „
Willie D. DavisÏÏÏÏÏÏÏÏÏ „ „
Jeffrey A. Joerres ÏÏÏÏÏ „ „
William H. LacyÏÏÏÏÏÏÏÏ „ *
Southwood J. Morcott * „
Eugenio Clariond
Reyes-Retana ÏÏÏÏÏÏÏ
Stephen A. Roell ÏÏÏÏÏÏ
Richard F. Teerlink ÏÏÏÏ „ „
* Chair of Committee
„ Committee Member
BOARD COMPENSATION
Retainer and Fees: Non-employee directors receive a $90,000 annual retainer. To
encourage such directors to own our shares, they receive
50% of their retainer in our Common stock each year. The
stock is priced as of the date of the Annual Meeting. New
directors also receive a grant of 800 shares of Common
stock upon election or appointment and a pro rata share of
the annual retainer for the remainder of the year. This stock
is priced as of the 1st working day of the month after
appointment as a new director. The Common stock portion of
the annual retainer and the initial grant have been provided
pursuant the 2003 Stock Plan for Outside Directors.
Directors also receive $1,500 for each Board or committee
meeting they attend, or $5,000 for each meeting they attend
of which they are the Chairperson or for which they are the
successor to the Chairperson under the Board Succession
Plan. Non-employee directors are also reimbursed for any
related expenses.
27
31. Executive The Compensation Committee reviews executive pay each
Compensation year. Compensation depends on many factors, including
Generally: individual performance and responsibilities, future challenges
and objectives, and how he or she might contribute to the
company's future success. We also look at the Company's
financial performance and the compensation levels at compa-
rable companies.
To meet the 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 differences 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 83% 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
executive compensation survey. Doing so helps encourage
performance that increases the value of your shares.
The Committee sets target minimum and maximum perform-
ance levels. Goals are established above the prior year's
goals and prior year's actual performance. Doing so moti-
vates the officers to encourage future growth and keeps the
goals challenging.
Base Salary: The Committee determines the levels of salary for key
executive 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 Executive Incentive Compensation Plan (EICP). 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.
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: All executive officers participate in the Long-Term Perform-
ance Plan (LTPP), which serves to motivate executives to
achieve longer-term objectives by providing incentive
29
33. 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
outstanding performance, his individual performance, execu-
tive compensation levels at other companies, the desire to
retain his services, and the terms of his employment agree-
ment. His salary and incentives reflect the leadership, vision
and focus he has provided to the Company.
Mr. Barth's base salary increased to $1,390,000 on
January 1, 2005, from $1,350,000 in 2004. This increase was
due to his outstanding performance during the year. His
salary approximated the average base salary for other chief
executive officers of the 21 comparable companies reviewed.
Approximately 91% of Mr. Barth's compensation was tied to
Company performance. Mr. Barth's fiscal 2005 EICP award of
$2,725,000 was based upon the return on shareholder's
equity and operating income growth for the Company for
fiscal 2005 and represented 78% of the maximum amount
available under the criteria set forth by the Committee. In
fiscal 2005 Mr. Barth received payment under the LTPP of
$2,317,000, which is based upon the Company's return on
shareholder equity over the past three fiscal years and
represents 71% 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 17, 2004.
Southwood J. Morcott, Chairman
Dennis W. Archer
Paul A. Brunner
Jeffrey A. Joerres
Willam H. Lacy
Members, Compensation Committee
31
34. AUDIT COMMITTEE REPORT
The Board of Directors appoints an Audit Committee each year to review the
Company's financial matters. In 2004, the Board adopted amendments to the
written Charter governing the Audit Committee. 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, 2005. The Audit Committee also discussed all the matters required
to be discussed by Statement of Auditing Standard No. 61 with the Company's
independent auditors, PricewaterhouseCoopers LLP. The Audit Committee
received written disclosure from PricewaterhouseCoopers 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 to
Shareholders and Form 10-K to be filed with the Securities and Exchange
Commission.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Audit Committee selects, subject to shareholder approval, our independent
auditors for each fiscal year. During the fiscal year ended September 30, 2005,
PricewaterhouseCoopers 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 Fiscal Year
2004 2005
Audit Service Fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $7,987,000 $13,678,000
Audit-Related Fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,240,000 $ 930,000
Tax Fees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $2,868,000 $ 2,256,000
All Other FeesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 378,000 $ 145,000
Audit services 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 2005. 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,
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 Gener-
ally Accepted Accounting Principles, reviews and evaluations of the impact of new
regulatory pronouncements, general assistance with implementation of the new
Securities Exchange Commission and Sarbanes-Oxley Act of 2002 requirements,
32
35. audits of pension and other employee benefit plans and audit services not required
by statute or regulation.
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, 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,
corporate restructurings, and value-added tax compliance. The Audit Committee
has concluded that the provision of the non-audit services listed above as quot;quot;All
Other Fees'' is compatible with maintaining the auditors' independence.
The Audit Committee has adopted procedures for pre-approving all audit and non-
audit services provided by the independent auditor. These procedures 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 auditor 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 Exchange Commissions' rules on auditor indepen-
dence. The Audit Committee also considers whether the independent auditor 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 auditors to ensure that such services are within the
parameters approved by the Audit Committee.
Paul A. Brunner, Chairman
Robert A. Cornog
Willie D. Davis
Richard F. Teerlink
Members, Audit Committee
33
36. PERFORMANCE GRAPH
Explanation of the The line graph below compares the cumulative total
Graph: shareholder return on our Common stock with the cumula-
tive 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 reinvestment of dividends.
Comparison of Five Year Cumulative Total Return Among S&P 500 Index,
S&P Manufacturers (Diversified Industrials)
Index* and Johnson Controls, Inc.
COMPANY/INDEX 9/00 9/01 9/02 9/03 9/04 9/05
Johnson Controls, Inc. 100 125.13 149.73 187.63 228.95 254.32
Manufacturers (Diversified
Industrials)* 100 89.81 68.38 89.05 118.96 120.89
S&P 500 Comp-Ltd. 100 73.39 58.37 72.60 82.66 92.78
300
Johnson Controls, Inc.
Manufacturers (Diversified Industrials)*
250
S&P 500 Comp-Ltd.
200
DOLLARS
150
100
50
0
2000 2001 2002 2003 2004 2005
* 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.
34
37. 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 2005 fiscal year.
SUMMARY OF COMPENSATION TABLE
Long-Term Compensation
Awards Payouts
Annual Compensation Restricted Stock/ Long-Term
Other Annual Options/ Or Restricted Incentive All Other
Name and Fiscal Compensation SARs Share unit Value Payouts Compensation
Principal Position Year Salary($) Bonus($) ($)(1) (#)(2) ($)(3) ($)(4) ($)(5)
John M. BarthÏÏÏÏÏÏÏÏÏÏ 2005 1,373,750 2,725,000 Ì 400,000 Ì 2,317,000 145,555
Chairman of the 2004 1,281,250 2,665,000 110,017 400,000 4,766,400 2,584,000 239,110
Board, Chief Executive 2003 1,150,000 1,791,000 Ì 350,000 Ì 2,243,000 115,892
Officer and President
Stephen A. Roell ÏÏÏÏÏÏÏ 2005 708,583 1,255,000 Ì 100,000 Ì 872,000 57,237
Vice Chairman of the 2004 587,000 968,000 Ì 104,000 1,849,600 766,000 96,018
Board and Executive 2003 510,000 753,000 Ì 110,000 Ì 695,000 66,690
Vice President
Keith E. WandellÏÏÏÏÏÏÏÏ 2005 713,583 1,315,000 Ì 100,000 Ì 718,000 49,212
Executive Vice 2004 615,750 728,000 Ì 140,000 2,080,800 652,000 104,081
President and 2003 441,670 791,000 Ì 84,000 Ì 630,000 48,334
President,
Automotive Group
Giovanni Fiori(6)ÏÏÏÏÏÏÏ 2005 642,750 779,000 Ì 100,000 Ì 707,000 Ì
Executive Vice 2004 618,000 646,000 Ì 108,000 Ì 796,000 Ì
President and 2003 600,000 658,000 Ì 120,000 Ì 557,000 Ì
President,
International
John P. Kennedy ÏÏÏÏÏÏÏ 2005 539,500 803,000 Ì 100,000 Ì 525,000 47,606
Executive Vice 2004 513,750 785,000 Ì 80,000 1,387,200 585,000 84,148
President and 2003 495,000 540,000 Ì 74,000 Ì 765,000 55,974
President, Controls
Group
(1) The aggregate amount of quot;quot;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).
(2) The Company did not grant SARs to any of the five most highly-compensated
executive officers for the past three years. In addition, the figures are stated
to reflect a 2 for 1 stock split which took place on January 2, 2004.
(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 2002 and 2004. The shares awarded to
individuals for the 2002 and 2004 awards are subject to restriction periods
that expire on 50% of the shares awarded in January 2004 and January 2006,
respectively, and 50% of the remainder of the shares awarded in January
2006 and January 2008, respectively; the shares are subject to forfeiture until
35
