Stock-based Compensation (Notes)

12 Months Ended

Sep. 30, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

On September 2, 2016, the shareholders of the Company approved amendments to the Johnson Controls International plc 2012 Share and Incentive Plan (the "Plan"). The types of awards authorized by the Plan comprise of stock options, stock appreciation rights, performance shares, performance units and other stock-based awards. The Compensation Committee of the Company's Board of Directors determines the types of awards to be granted to individual participants and the terms and conditions of the awards. The Plan provides that 76 million shares of the Company's common stock are reserved for issuance under the 2012 Plan, and 34 million shares remain available for issuance at September 30, 2019.

The Company has four share-based compensation plans, which are described below. For the fiscal years ended September 30, 2019, 2018 and 2017, compensation cost charged against income for continuing operations, excluding the offsetting impact of outstanding equity swaps, for those plans was approximately $103 million, $89 million and $122 million, respectively, all of which was recorded in selling, general and administrative expenses.

The Company has elected to utilize the alternative transition method for calculating the tax effects of stock-based compensation. The total income tax benefit recognized for continuing operations in the consolidated statements of income for share-based compensation arrangements was approximately $26 million, $22 million and $48 million for the fiscal years ended September 30, 2019, 2018 and 2017, respectively. The tax expense from the exercise and vesting of equity settled awards was $6 million and $3 million for the fiscal years ended September 30, 2019 and 2018, respectively, and recorded as part of the income tax provision upon adoption of ASU 2016-09 during the first quarter of fiscal 2018. The tax benefit from the exercise and vesting of equity settled awards was $4 million for the fiscal year ended September 30, 2017, and was recorded in capital in excess of par value. The Company does not settle stock options granted under share-based payment arrangements to cash.

Stock Options

Stock options are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Stock option awards typically vest between two and three years after the grant date and expire ten years from the grant date.

The fair value of each option is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table. The expected life of options represents the period of time that options granted are expected to be outstanding, assessed separately for executives and non-executives. The risk-free interest rate for periods during the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. For fiscal 2019 and 2018, the expected volatility is based on the historical volatility of the Company's stock since October 2016 blended with the historical volatility of certain peer companies' stock prior to October 2016 over the most recent period corresponding to the expected life as of the grant date. For fiscal 2017, the expected volatility is based on historical volatility of certain peer companies over the most recent period corresponding to the expected life as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of the Company’s ordinary shares as of the grant date. The Company uses historical data to estimate option exercises and employee terminations within the valuation model.



	Year Ended September 30,
	2019	2018	2017
Expected life of option (years)	6.4	6.5	4.75 & 6.5
Risk-free interest rate	2.77%	2.28%	1.23% - 1.93%
Expected volatility of the Company’s stock	21.80%	23.70%	24.60%
Expected dividend yield on the Company’s stock	3.29%	2.78%	2.21%

A summary of stock option activity at September 30, 2019, and changes for the year then ended, is presented below:



	Weighted Average Option Price		Shares Subject to Option		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
Outstanding, September 30, 2018	$	34.24	17,836,062
Granted	33.37		1,741,510
Exercised	27.54		(6,234,755	)
Forfeited or expired	37.49		(973,068	)
Outstanding, September 30, 2019	$	35.07	12,369,749		4.6	$	111
Exercisable, September 30, 2019	$	34.74	9,295,813		3.4	$	87

The weighted-average grant-date fair value of options granted during the fiscal years ended September 30, 2019, 2018 and 2017 was $5.56, $7.04 and $7.81, respectively.

The total intrinsic value of options exercised during the fiscal years ended September 30, 2019, 2018 and 2017 was approximately $73 million, $38 million and $81 million, respectively.

In conjunction with the exercise of stock options granted, the Company received cash payments for the fiscal years ended September 30, 2019, 2018 and 2017 of approximately $171 million, $66 million and $157 million, respectively.

At September 30, 2019, the Company had approximately $8 million of total unrecognized compensation cost related to nonvested stock options granted for continuing operations. That cost is expected to be recognized over a weighted-average period of 1.8 years.

Stock Appreciation Rights ("SARs")

SARs vest under the same terms and conditions as stock option awards; however, they are settled in cash for the difference between the market price on the date of exercise and the exercise price. As a result, SARs are recorded in the Company’s consolidated statements of financial position as a liability until the date of exercise.

The fair value of each SAR award is estimated using a similar method described for stock options. The fair value of each SAR award is recalculated at the end of each reporting period and the liability and expense are adjusted based on the new fair value.

The assumptions used to determine the fair value of the SAR awards at September 30, 2019 were as follows:



Expected life of SAR (years)	0.4 - 3.5
Risk-free interest rate	1.55% - 1.85%
Expected volatility of the Company’s stock	21.80%
Expected dividend yield on the Company’s stock	3.29%

A summary of SAR activity at September 30, 2019, and changes for the year then ended, is presented below:



	Weighted Average SAR Price		Shares Subject to SAR		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value (in millions)
Outstanding, September 30, 2018	$	27.39	626,701
Exercised	25.20		(245,513	)
Forfeited or expired	32.43		(13,179	)
Outstanding, September 30, 2019	$	28.67	368,009		2.4	$	6
Exercisable, September 30, 2019	$	28.59	365,829		2.4	$	6

In conjunction with the exercise of SARs granted, the Company made payments of $3 million, $3 million and $4 million during the fiscal years ended September 30, 2019, 2018 and 2017, respectively.

Restricted (Nonvested) Stock / Units

The Plan provides for the award of restricted stock or restricted stock units to certain employees. These awards are typically share settled unless the employee is a non-U.S. employee or elects to defer settlement until retirement at which point the award would be settled in cash. Restricted awards typically vest over a period of three years from the grant date. The Plan allows for different vesting terms on specific grants with approval by the Board of Directors. The fair value of each share-settled restricted award is based on the closing market value of the Company’s ordinary shares on the date of grant. The fair value of each cash-settled restricted award is recalculated at the end of each reporting period based on the closing market value of the Company's ordinary shares at the end of the reporting period, and the liability and expense are adjusted based on the new fair value.

A summary of the status of the Company’s nonvested restricted stock awards at September 30, 2019, and changes for the fiscal year then ended, is presented below:



	Weighted Average Price		Shares/Units Subject to Restriction
Nonvested, September 30, 2018	$	45.14	5,001,517
Granted	33.88		2,384,747
Vested	41.23		(3,139,142	)
Forfeited	37.83		(914,046	)
Nonvested, September 30, 2019	$	35.98	3,333,076

At September 30, 2019, the Company had approximately $72 million of total unrecognized compensation cost related to nonvested restricted stock arrangements granted for continuing operations. That cost is expected to be recognized over a weighted-average period of 2.1 years.

Performance Share Awards

The Plan permits the grant of performance-based share unit ("PSU") awards. The PSUs are generally contingent on the achievement of pre-determined performance goals over a performance period of three years as well as on the award holder's continuous employment until the vesting date. The PSUs are also indexed to the achievement of specified levels of total shareholder return versus a peer group over the performance period. Each PSU that is earned will be settled with shares of the Company's ordinary shares following the completion of the performance period, unless the award holder elected to defer a portion or all of the award until retirement which would then be settled in cash.

The fair value of each PSU is estimated on the date of grant with the use of a Monte Carlo simulation that uses the assumptions noted in the following table. The risk-free interest rate for periods during the contractual life of the PSU is based on the U.S. Treasury yield curve in effect at the time of grant. For fiscal 2019, 2018 and 2017, the expected volatility is based on the historical volatility of the Company's stock since October 2016 blended with the historical volatility of certain peer companies' stock prior to October 2016 over the most recent three-year period as of the grant date.



	Year Ended September 30,
	2019	2018	2017
Risk-free interest rate	2.76%	1.92%	1.40%
Expected volatility of the Company’s stock	22.90%	21.70%	21.00%

A summary of the status of the Company’s nonvested PSUs at September 30, 2019, and changes for the fiscal year then ended, is presented below:



	Weighted Average Price		Shares/Units Subject to PSU
Nonvested, September 30, 2018	$	41.07	1,412,290
Granted	36.28		595,594
Forfeited	37.89		(182,365	)
Nonvested, September 30, 2019	$	39.82	1,825,519

At September 30, 2019, the Company had approximately $31 million of total unrecognized compensation cost related to nonvested performance-based share unit awards granted for continuing operations. That cost is expected to be recognized over a weighted-average period of 1.8 years.