ERIC K. SHINSEKI, General United States Army (Ret.)      General Shinseki served in the United States Army for 38 years, most recently as Chief of Staff from June 1999 until June 2003. Prior to that he held a number of key command positions, including Commander of U.S. Army, Europe and Commander of the NATO-led Peace Stabilization Force in Bosnia-Herzegovina. General Shinseki is the highest-ranking Asian-American in U.S. military history, a West Point graduate, and the recipient of numerous U.S. and foreign military decorations. He is also a director of Ducommun Incorporated and Guardian Life Insurance Company of America.
		Director since 2003		Age 64
		JOHN R. STAFFORD, Retired Chairman of the Board of Wyeth      Mr. Stafford served as Chairman of the Board of Wyeth, a manufacturer of pharmaceutical, health care and animal health products, from 1986 until his retirement at the end of 2002. He also served as Chief Executive Officer from 1986 to 2001. Mr. Stafford joined Wyeth in 1970 and held a variety of positions before becoming President in 1981. He is a director of Verizon Communications Inc.
		Director since 1993		Age 69
		MICHAEL W. WRIGHT, Retired Chairman, President and Chief Executive Officer of SUPERVALU INC.      Mr. Wright was elected President and Chief Operating Officer of SUPERVALU INC., a food distributor and retailer, in 1978, Chief Executive Officer in 1981, and Chairman of the Board in 1982. He retired as President and CEO in June 2001, and as Chairman in May 2002. He joined SUPERVALU INC. as Senior Vice President of Administration and as a member of the board of directors in 1977. Prior to 1977, Mr. Wright was a partner in the law firm of Dorsey & Whitney. Mr. Wright is also a director of Canadian Pacific Railway Company and Wells Fargo & Company. He was a director of Honeywell Inc. from April 1987 to December 1999.
		Director since 1999		Age 68

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DIRECTOR COMPENSATION

The Corporate Governance and Responsibility Committee reviews and makes recommendations to the Board regarding the form and amount of compensation for non-employee directors. Directors who are employees of Honeywell receive no compensation for service on the Board. Honeywell’s director compensation program is designed to enable continued attraction and retention of highly qualified directors by ensuring that director compensation is in line with peer companies competing for director talent, and is designed to address the time, effort, expertise and accountability required of active Board membership. In general, the Corporate Governance and Responsibility Committee and the Board believe that annual compensation for non-employee directors should consist of both a cash component, designed to compensate members for their service on the Board and its Committees, and an equity component, designed to align the interests of directors and shareowners and, by vesting over time, to create an incentive for continued service on the Board.

Each non-employee director receives an annual Board cash retainer of $80,000. Each also receives a cash fee of $2,500 for each Board meeting attended, an annual cash retainer of $10,000 for each Board Committee on which he or she serves ($15,000 for Audit Committee), and an additional Committee Chair cash retainer of $15,000 for the Audit Committee and $10,000 for all other Board Committees. While no fees are generally paid for attending Committee meetings, a $1,000 cash fee is paid for attendance at a Committee meeting, or other extraordinary meeting related to Board business, which occurs apart from a regularly scheduled Board meeting. Non-employee directors are also provided with $350,000 in business travel accident insurance, and are eligible to elect $100,000 in term life insurance and medical and dental coverage for themselves and their eligible dependents, the premiums for which are then paid by the Company. Honeywell also matches, dollar for dollar, any charitable contribution made by a director to any qualifying educational institution or charity, up to a maximum of $25,000 in the aggregate per director, per calendar year. In addition, directors may use company aircraft in connection with traveling to and from Board and Committee meetings.

At the commencement of each year, $60,000 in common stock equivalents is automatically credited to each director’s account in the Deferred Compensation Plan for Non-Employee Directors, which amounts are only payable after termination of Board service, and are paid, in cash, as either a lump sum or in equal annual installments. A director may also elect to defer, until a specified calendar year or termination of Board service, all or any portion of his or her annual cash retainers and fees that are not automatically deferred, and to have such compensation credited to his or her account in the Deferred Compensation Plan for Non-Employee Directors. Amounts credited either accrue interest (currently based on the Company’s annual cost of borrowing at a fixed rate for a 15-year term; 5.3% for 2006 and 5.8% for 2007) or are valued as if invested in a Honeywell common stock fund or one of the other funds available to participants in our savings plan. The unit price of the Honeywell common stock fund is increased to take dividends into account. Upon a change of control, as defined in the 2006 Stock Plan for Non-Employee Directors of Honeywell (the “Non-Employee Director Plan”), a director may elect a lump-sum payment of amounts deferred before 2006.

Each new director receives a one-time grant of 3,000 shares of Common Stock which are subject to transfer restrictions until the director’s service terminates with the consent of a majority of the Board, provided termination occurs at or after age 65. During the restricted period, the director has the right to receive dividends on and the right to vote the shares. At the end of the restricted period, a director is entitled to one-fifth of the shares granted for each year of service (up to five). However, the shares will be forfeited if the director’s service terminates (other than for death or disability) prior to the end of the restricted period. Each director also receives an annual grant of options to purchase 5,000 shares of Common Stock at the fair market value on the date of grant, which is the date of the Annual Meeting of Shareowners. Options have generally vested over a three-year period. Starting in 2007, the vesting period will be extended to four years, with the vesting to occur in equal annual installments. These options also become fully vested at the earliest of the director’s retirement from the Board on or after the mandatory retirement age set by the Board and in effect on the date of grant, death, disability or change in control. Both the restricted shares and options granted to directors are subject to the terms and conditions of the Non-Employee Director Plan or any such predecessor plan.

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The non-employee directors of the Company who were previously non-employee directors of Honeywell Inc. (Messrs. Bethune, Chico Pardo, Howard and Wright) participate in the Honeywell Inc. Non- Employee Directors Fee and Stock Unit Plan. The last fee deferral under this plan occurred on December 1, 1999. Since that date, deferred amounts are increased only by cash dividends that are converted into shares of Common Stock by dividing the cash amount by the closing price of the Common Stock on the dividend payment date. Payment will be made to a participating director in whole shares of Common Stock following the earlier of a change in control or the director’s termination of Board service for any reason. Fractional shares will be paid in cash. Share payments will be made to a participating director in one payment or annual installments, as elected by the director. A director may elect to change the payment form if such election is made at least one year prior to the payment date.

Director stock ownership guidelines have been adopted under which each non-employee director, while serving as a director of the Company, must (i) hold at least $250,000 of Common Stock (including restricted shares) and/or common stock equivalents and (ii) hold net gain shares from option exercises for one year. “Net gain shares” means the number of shares obtained by exercising the option, less the number of shares the director sells to cover the exercise price of the options and pay the Company withholding taxes. Directors have five years from election to the Board to attain the prescribed ownership threshold. All directors other than Linnet F. Deily (first elected to the Board on April 24, 2006) have obtained the prescribed ownership threshold.

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(3)				The number of outstanding stock awards and option awards held by each director at December 31, 2006 are set forth in the chart below:

Director Name		Outstanding Stock Awards at 12/31/06							Outstanding Option Awards at 12/31/06
Mr. Bethune					3,000							23,000
Mr. Chico Pardo					3,000							23,000
Mr. Davis					3,000							5,000
Ms. Deily					3,000							5,000
Mr. Hollick					3,000							15,000
Mr. Howard					3,000							23,000
Mr. Karatz					—							13,500
Mr. Palmer					6,000							29,000
Mr. Seidenberg					3,000							29,000
Dr. Sheares					3,000							10,000
Mr. Shinseki					3,000							15,000
Mr. Stafford					6,000							29,000
Mr. Wright					3,000							23,000

(4)				For all current directors, the amounts set forth in this column represent $15,296 of compensation expense recognized by the Company in 2006 with respect to the annual option grants to acquire 5,000 shares issued to each director in April 2006, and any additional amounts represent compensation expense recognized in 2006 with respect to prior year option grants. The full grant date fair value of the 2006 option grant ($52,050) is determined by multiplying the number of options granted (5,000) by Honeywell’s $10.41 Black Scholes value per share. The amount reflected in this column for Mr. Karatz represents the amount expensed by the Company for the options that vested in 2006 prior to his resignation. Mr. Karatz forfeited 9,500 unvested options upon his resignation. A discussion of the assumptions used in these valuations with respect to awards made in fiscal year 2006 may be found in Notes 1 and 20 in the Company’s Form 10-K for the year ended December 31, 2006. A discussion of the assumptions used in these valuations with respect to awards made in fiscal years prior to fiscal year 2006 may be found in the corresponding sections of the Company’s financial statement footnotes for the fiscal year in which the award was made.
(5)				Amounts invested in cash under the Deferred Compensation Plan for Non-Employee Directors are credited with the same rate of interest that applies to executives under the Honeywell Salary and Incentive Award Deferral Plan for Selected Employees. Deferrals for the 2006 plan year and later earn a rate of interest, compounded daily, and based on the Company’s 15-year cost of borrowing. The rate is subject to change annually. For 2006, this rate was 5.3% and for 2007, the rate will be 5.8%. Deferrals for the 2005 plan year earn a rate of interest, compounded daily, which was set at an above-market rate before the beginning of the plan year and is subject to change annually. Deferrals for the 2004 plan year and prior plan years earn a rate of interest, compounded daily, that was set at an above-market rate before the beginning of each plan year. This rate is fixed until the deferral is distributed from the Deferred Compensation Plan for Non-Employee Directors.
(6)				All Other Compensation for 2006 consists of the amounts set forth in the following table, to the extent the value of all such benefits paid on behalf of a director exceeds $1,000.

Director Name		Premiums paid for Health, Term Life and Accident Insurance (A)							Tax Reimbursement for Spousal Aircraft Usage (B)							Charitable Matching Contributions (C)
Ms. Deily			$		7,505							—							—
Mr. Howard			$		4					$		1,763							—
Mr. Karatz			$		1,234							—							—
Mr. Palmer			$		12,441					$		645					$		25,000
Mr. Seidenberg			$		4							—					$		10,000
Dr. Sheares			$		466							—					$		25,000
Mr. Shinseki			$		2,529					$		662					$		17,500
Mr. Stafford			$		2,387							—					$		25,000
Mr. Wright			$		2,269					$		1,117					$		25,000

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(A)				Each director may elect noncontributory medical and dental coverage for themselves and their eligible dependents and group term life insurance coverage for themselves that is identical to similar coverage offered to the Company’s active salaried employees. The Company also pays the annual premium to cover each director under the Company’s business travel accident insurance policy.
(B)				Under the terms of the Company’s aircraft usage policy, if the presence of the director’s spouse at a Board function is requested by the Company and the spouse travels with the director to such function on corporate aircraft, the Company imputes income to the director for spousal travel for income tax purposes and reimburses the director for the estimated taxes related to the imputed income.
(C)				The Company matches, dollar for dollar, any charitable contribution made by a director to any qualifying educational institution or charity, up to a maximum of $25,000 in the aggregate per director, per calendar year.

(7)				Ms. Deily was elected to the Board of Directors at the Annual Meeting of Shareowners held on April 24, 2006.

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Proposal No. 2—APPROVAL OF INDEPENDENT ACCOUNTANTS

The Audit Committee, which consists entirely of independent directors, is recommending approval of its appointment of PricewaterhouseCoopers LLP (PwC) as independent accountants for Honeywell to audit its consolidated financial statements for 2007 and to perform audit-related services, including review of our quarterly interim financial information and periodic reports and registration statements filed with the SEC and consultation in connection with various accounting and financial reporting matters. If the shareowners do not approve, the Audit Committee will reconsider the appointment.

PwC provided audit and other services during 2006 and 2005 as set forth below:

In accordance with its charter, the Audit Committee reviews non-audit services proposed to be provided by PwC to determine whether they would be compatible with maintaining PwC’s independence. The Audit Committee has established policies and procedures for the engagement of PwC to provide non-audit services. At its first meeting in each fiscal year, the Audit Committee reviews and approves an annual budget for specific categories of non-audit services (that are detailed as to the particular services) which PwC is to be permitted to provide (those categories do not include any of the prohibited services set forth under the auditor independence provisions of the Sarbanes-Oxley Act of 2002). This review includes an evaluation of the possible impact of the provision of such services by PwC on the firm’s independence in performing its audit and audit-related services. On a quarterly basis, the Audit Committee reviews the non-audit services performed by, and amount of fees paid to, PwC, by category in comparison to the pre-approved budget. The engagement of PwC to provide non-audit services that do not fall within a specific category of pre-approved services, or that would result in the total fees payable to PwC in any category exceeding the approved budgeted amount, requires the prior approval of the Audit Committee. Between regularly scheduled meetings of the Audit Committee, the Chair of the Committee may represent the entire Committee for purposes of the review and approval of any such engagement, and the Chair is required to report on all such interim reviews at the Committee’s next regularly scheduled meeting.

Honeywell has been advised by PwC that it will have a representative present at the Annual Meeting who will be available to respond to appropriate questions. The representative will also have the opportunity to make a statement if he or she desires to do so.

The Board of Directors recommends that the shareowners vote FOR the approval of the appointment of PricewaterhouseCoopers LLP as independent accountants.

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AUDIT COMMITTEE REPORT

The Audit Committee consists of the six directors named below. Each member of the Audit Committee is an independent director as defined by applicable SEC rules and NYSE listing standards. In addition, the Board of Directors has determined that Mr. Davis is the “audit committee financial expert” as defined by applicable SEC rules and that Mr. Davis and Mr. Palmer satisfy the “accounting or related financial management expertise” criteria established by the NYSE. The Audit Committee operates under a written charter adopted by the Board of Directors, which is available free of charge on our website under the heading “Investor Relations” (see “Corporate Governance”—“Board Committees”), or by writing to Honeywell, 101 Columbia Road, Morris Township, New Jersey 07962, c/o Vice President and Corporate Secretary.

Management is responsible for the Company’s internal controls and preparing the Company’s consolidated financial statements. The Company’s independent accountants are responsible for performing an independent audit of the consolidated financial statements in accordance with generally accepted auditing standards and issuing a report thereon. The Committee is responsible for overseeing the conduct of these activities and, subject to shareowner ratification, appointing the Company’s independent accountants. As stated above and in the Committee’s charter, the Committee’s responsibility is one of oversight. The Committee does not provide any expert or special assurance as to Honeywell’s financial statements concerning compliance with laws, regulations or generally accepted accounting principles. In performing its oversight function, the Committee relies, without independent verification, on the information provided to it and on representations made by management and the independent accountants.

The Audit Committee reviewed and discussed the Company’s consolidated financial statements for the year ended December 31, 2006 with management and the independent accountants. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles. The Audit Committee discussed with the independent accountants matters required to be discussed by Statement on Auditing Standard No. 61, Communication with Audit Committees . The Committee also reviewed, and discussed with management and PwC, management’s report and PwC’s report and attestation on internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.

The Company’s independent accountants provided to the Audit Committee the written disclosures required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees , and the Committee discussed with the independent accountants their independence. The Audit Committee concluded that PwC’s provision of non-audit services, as described in the preceding section of this proxy statement, to the Company and its affiliates is compatible with PwC’s independence.

Based on the Audit Committee’s discussion with management and the independent accountants and the Audit Committee’s review of the representations of management and the report of the independent accountants, the Committee recommended that the Board of Directors include the audited consolidated financial statements in the Form 10-K for the year ended December 31, 2006 filed with the Securities and Exchange Commission.

THE AUDIT COMMITTEE

D. Scott Davis (Chair)
James J. Howard
Russell E. Palmer
Eric K. Shinseki
John R. Stafford
Michael W. Wright

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STOCK OWNERSHIP INFORMATION

Five Percent Owners of Company Stock

The following table sets forth information as to those holders known to Honeywell to be the beneficial owners of more than 5% of the outstanding shares of Common Stock as of December 31, 2006.

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Stock Ownership of Directors and Executive Officers

The following table sets forth information as of February 23, 2007 with respect to the beneficial ownership of Common Stock by each director or director nominee, each executive officer named in the Summary Compensation Table herein, and by all directors (including nominees) and executive officers of Honeywell as a group. In general, “beneficial ownership” includes those shares a director or executive officer has the sole power to vote or transfer, except as otherwise noted, and stock options that are exercisable currently or within 60 days. Directors and executive officers also have interests in stock-based units under Company plans. While these units may not be voted or transferred, we have included them in the table below as they represent the total economic interest of the directors and executive officers in Honeywell stock.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Objectives

Honeywell is a diversified technology and manufacturing leader, with worldwide business operations organized into four strategic business groups, or “SBGs”: Aerospace; Automation and Control Solutions, or “ACS”; Specialty Materials; and Transportation Systems. Since 2002, we have used the five Honeywell Initiatives—Growth, Productivity, Cash, People and the Enablers (presently Honeywell Operating System, Functional Transformation and Velocity Product Development)—to provide a common strategic direction and unified operating priorities to our SBGs.

Honeywell’s executive compensation program is designed to promote a “One Honeywell” performance culture based on the Honeywell Initiatives. The program includes base salary, annual and long- term cash incentive programs and long-term equity incentive programs designed to:

We describe Honeywell’s executive compensation program below and provide an analysis of the compensation earned in 2006 by our “named executive officers”—the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and the three other most highly-compensated executive officers. In 2006, they were Messrs. Cote, Anderson, Fradin, Gillette and Kittelberger. This discussion should be read in conjunction with the detailed tabular and narrative information regarding executive compensation in this proxy statement.

Administration of Executive Compensation Program

The Company’s executive compensation program is administered by the Management Development and Compensation Committee of our Board of Directors. (In this Executive Compensation section, the term “Committee” means the Management Development and Compensation Committee.) As reflected in its charter, the Committee approves executive compensation-related corporate and individual goals and objectives, determines the compensation of the 15 officers other than the CEO, evaluates the CEO’s performance relative to established goals and objectives and, together with the other independent directors, determines the CEO’s compensation. While the Committee’s charter authorizes it to delegate its powers to sub-committees, the Committee did not do so during 2006.

Over the course of each year, the Committee reviews the relationship between Honeywell’s executive compensation program and the achievement of business objectives and the creation of shareowner value, as well as the external competitiveness of the program.

In 2006, the Committee retained Mercer Human Resource Consulting, a compensation consulting firm, to provide objective analysis, advice and information to the Committee, including competitive market data and recommendations related to CEO compensation. Mercer reports to the Committee Chair and has direct access to Committee members. Mercer attends Committee meetings on request and also meets with the Committee in person or by telephone in executive session without management present. The decisions made by the Committee are the responsibility of the Committee and may reflect factors and considerations other than the information and recommendations provided

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by Mercer. Mercer personnel involved in matters within the purview of any Board Committee do not participate in any other services provided by Mercer to the Company. The Committee believes that the other services provided by Mercer to the Company do not impair Mercer’s ability to provide an objective perspective to the Committee’s deliberations regarding CEO compensation.

The Committee considers input from senior management in making determinations regarding the overall executive compensation program and the individual compensation of the executive officers. As part of the Company’s annual planning process, the CEO, CFO and Senior Vice President—Human Resources and Communications develop targets for the Company’s incentive compensation programs and present them to the Committee. Based on performance appraisals, including an assessment of the achievement of pre-established financial and non-financial management objectives, the CEO recommends base salary increases and cash and equity incentive award levels for the Company’s other executive officers. Each year, the CEO presents to the Committee and the full Board his evaluation of each executive officer’s contribution and performance over the past year, strengths, and development needs and actions, and reviews succession plans for each of the executive officers.

After taking into account input from senior management and Mercer, the Committee determines what changes, if any, should be made to the executive compensation program and sets the level of compensation for each executive officer with respect to each element in the compensation program (subject, in the case of the CEO, to review and final determination together with the other independent directors). In setting these levels, the Committee considers all elements of the program taken as a whole. Consistent with this objective, the Committee reviews each executive officer’s three-year compensation history with respect to all elements of annual direct compensation (base salary, annual incentive bonus, annualized value of Growth Plan awards and stock options), as well as projected payouts under the Company’s retirement plans, prior non-recurring types of awards or grants (e.g., “sign on” or “make whole” awards upon joining Honeywell and restricted unit awards for retention and/or succession planning purposes) and various scenarios involving a change in control of the Company and termination of the executive officer’s employment, whether by the Company or the executive officer upon resignation or retirement.

Design Principles of Executive Compensation Program

“At Risk” Compensation

The Committee believes that “at risk” compensation should comprise a substantial portion of annual direct compensation, as this element is designed to motivate executive officers to drive performance and shareowner value. Between 80% and 90% of each executive officer’s annual direct compensation is variable and directly dependent upon the achievement of pre-established financial goals, individual performance objectives and stock price appreciation.

Key Ratios: Short-Term/Long-Term; Cash/Equity

Honeywell’s executive compensation program is designed to drive top-line and bottom-line growth that is sustainable and aligned with the strategic plans of the Company and each SBG. Accordingly, the program has both short-term and long-term elements. Long-term incentive compensation (i.e., annualized Growth Plan targets and stock options) comprises approximately 65%–75% of the total annual direct compensation of executive officers, of which approximately two-thirds is equity-based and one-third is cash-based.

The equity components of the executive compensation program, coupled with the stock ownership guidelines discussed below, ensure that a significant portion of the executive officers’ wealth accumulation is not only at risk, but also tied to long-term stock price appreciation. Annual stock option grants effectively tie a significant portion of an executive officer’s annual direct compensation (generally 40%–45%) to the performance of the Company’s stock over the vesting period. They also create an incentive for the executive officers to stay with the Company through the vesting period. The Company also periodically grants service-based restricted units to executive officers for retention and/or succession planning purposes. The Company also maintains tax qualified and non-tax qualified defined contribution retirement plans intended to promote the long-term focus of its executive compensation

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program and align the interests of executive officers with those of shareowners by providing executive officers with an opportunity to invest in common stock equivalents. The Company match in the 401(k) plan also is in the form of common stock equivalents.

The Committee recognizes that stock price may be affected by factors other than corporate performance, such as general economic and political conditions and differing investor perspectives about market conditions, the economy and specific industries and companies. The cash-based elements (i.e., annual incentive bonus and Growth Plan units) of the incentive compensation program are designed to strike an appropriate balance between short-term and long-term compensation elements by recognizing achievement of specific annual and multi-year financial objectives that are independent of fluctuations in the stock price.

Correlation Between Objectives and Performance

The Committee believes that the focus provided by the Honeywell Initiatives, the “One Honeywell” performance culture, the emphasis on a balanced mix of differentiated, variable, at risk executive compensation tied both to short- and long-term performance, together with the strong leadership of CEO Dave Cote and his management team, have led to consistent, year-over-year financial and operational improvements. From 2003 through 2006, the Company achieved compounded annual growth of 11%, 18%, 19% and 17% in sales, segment profit, earnings per share and free cash flow, respectively, and implemented a disciplined capital allocation strategy that has returned $6.5 billion to shareowners through share repurchases and dividends.

2006 accomplishments include:

Elements of Executive Compensation Program

The primary elements of Honeywell’s executive compensation program are: base salary, a cash-based annual incentive opportunity, long-term incentives (including both cash-based (Growth Plan) and equity-based awards (primarily stock options and restricted units)), retirement and deferred compensation plans, and other benefits.

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Benchmarking; Peer Group

Each element of the executive compensation program is addressed in the context of competitive conditions. The Committee reviews external benchmark information from multiple executive compensation surveys and consultants, including Mercer. The peer group used for these purposes consists of companies with one or more of the following attributes: business operations in the industries and markets in which Honeywell participates, similar revenue and market capitalization, similar breadth of portfolio and complexity and/or competes with Honeywell for management talent. For executive officers, this peer group presently consists of (in alphabetical order): Alcoa, Boeing, Dow Chemical, DuPont, Emerson Electric, General Dynamics, General Electric, General Motors, Johnson Controls, Lockheed Martin, Northrop Grumman, Raytheon, Textron and United Technologies. The Committee periodically reviews the appropriateness of the peer group and the purposes for which it is used. In this regard, the Committee may look at subsets of or additions to this group as appropriate.

The Committee generally targets total direct compensation of the named executive officers at approximately the 75th percentile as compared to the total direct compensation for the companies in the peer group. The Committee believes that this benchmarking level is appropriate because such a significant portion of the annual direct compensation of the named executive officers is variable and “at risk” and because of the Company’s need to attract and retain highly qualified leaders. Actual awards or payouts, whether above, below or within this range, are determined by the Committee based on performance against pre-established goals and objectives.

Base Salary

The Committee annually establishes the base salaries of the named executive officers, taking into account individual performance, changes in scope of responsibility, experience and competitive salaries paid by peer companies for comparable positions. In line with the Company’s focus on at risk compensation, base salary generally comprises only approximately 10%–18% of the annual direct compensation of executive officers. In 2006, annual base salary increases ranged from 3.2% to 3.4% for the named executive officers other than Mr. Cote and Mr. Gillette. In 2006, Mr. Cote received a 10% increase in base salary, the only increase in his base salary since joining the Company in February 2002. In making this determination, the Committee took into account competitive data and recognized Mr. Cote’s critical leadership role in driving consistent, strong financial and operational performance during his tenure. Also in 2006, Mr. Gillette received a 9.1% increase in base salary to reward performance and for internal equity alignment purposes.

Annual Incentive Bonus

Each executive officer, including the named executive officers, is eligible to receive an annual cash incentive award under the Company’s Incentive Compensation Plan for Executive Employees, or “ICP,” in an amount up to a target percentage of the executive officer’s base salary. Each of the named executive officers (other than the CEO) has a bonus target equal to 100% of base salary. Effective October 1, 2006, Mr. Kittelberger’s bonus target was increased from 75% to 100% of base salary to reflect new responsibilities in the areas of operations and sourcing (which increase resulted in a blended rate target of approximately 81% of base salary for purposes of his 2006 annual incentive bonus). Per his employment agreement, Mr. Cote has an annual target bonus opportunity equal to 125% of his base salary. Annual incentive bonuses are paid from a pool that is funded based upon Honeywell’s achievement of pre-established annual corporate financial objectives. Actual awards depend on performance against these objectives, as well as pre-established SBG financial objectives and other specific management objectives, such as quality, delivery and other customer satisfaction metrics, productivity and working capital metrics, metrics relating to the executive officer’s performance in driving innovation through Velocity Product Development, and the executive officer’s effectiveness in driving process and functional excellence and in demonstrating strong commitment to integrity, compliance and learning in the workplace. The types and relative importance of non-financial objectives varies depending on the specific responsibility of the executive officer. An executive officer’s annual incentive bonus generally comprises 15%–20% of his or her total annual direct compensation.

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At the beginning of each year, the Committee determines annual incentive bonuses for performance during the prior year, and sets the overall corporate and SBG financial objectives, and the individual management objectives for each of the executive officers. The Committee also has the discretion to increase or decrease the overall corporate ICP pool as calculated above based on such factors as the Committee may determine appropriate in light of the objectives of the executive compensation program.

Annual incentive bonuses for 2006 were based on the achievement of financial objectives relating to earnings per share (EPS), free cash flow (cash flow from operations minus capital expenditures) and working capital turns, weighted 50%, 25% and 25%, respectively. Working capital turns is defined as sales divided by working capital (in each case, excluding the impact of current year acquisitions) and is calculated based on a 13-month rolling average. Working capital is defined as trade accounts receivable plus inventory less accounts payable and customer advances. For each SBG, bonus calculations are based on performance against corporate and corresponding SBG financial objectives (substituting the SBG’s net income for EPS), weighted equally.

The Committee believes that EPS is the most effective measure of delivery of shareowner value at the corporate level. Increasing EPS is reflective of strong growth which is driven by innovation, customer satisfaction and smart acquisitions, leverage of operational capacity around the world, and effective management of costs and capital structure. Free cash flow is used by management and the Board to evaluate the Company’s ability to generate cash from business operations that can be used to invest in future growth through reinvestment in the Company’s businesses and through acquisitions, to repay debt obligations and to return capital to shareowners through dividends and stock repurchases. ICP objectives relating to working capital turns were established by the Committee for the Company and the SBGs for the first time in 2006 to drive more efficient use of capital. The key drivers of working capital—cycle time, inventory and accounts receivable and payable—are influenced by how efficiently and effectively the Company’s businesses operate. The Committee believes that inclusion of working capital turns as an ICP objective serves to drive accountability and discipline across a series of key business processes.

For EPS and free cash flow, funding levels under the ICP range from 0% if the Company fails to achieve at least 75% of the targeted corporate financial objective, to 100% if the Company achieves 100% of target, to 200% if the company achieves over 133% of target. With respect to working capital turns, funding levels range from 0% if the Company misses the targeted objective by more than 0.2 turns, to 100% if the Company achieves 100% of target, to 200% if the Company surpasses target by at least 0.2 turns. For EPS and free cash flow, performance between threshold and target performance levels and between target and maximum performance levels is interpolated. In the case of working capital turns, actual turns achieved between threshold and target levels and between target and maximum performance levels are not interpolated but have discrete payout levels associated with them, as set forth below:

Each SBG’s bonus pool is similarly funded based on the achievement of the targeted SBG financial objectives. Unusual, infrequently occurring and/or extraordinary items, which we refer to below as “extraordinary items,” are excluded in determining achievement of the established financial objectives.

To ensure that relative, and not just absolute, performance has a direct impact on executive compensation levels (as it does on shareowner value), the EPS component of the annual incentive bonus pool is also subject to upward or downward adjustment up to a maximum of 25% in either direction, based on Honeywell’s relative EPS growth performance versus a 34-company peer group reflecting the Conglomerates, Aerospace & Defense, Industrial Machinery, Specialty Chemicals,

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Diversified Chemical and Auto Parts & Equipment subgroups of the S&P 500 Index. For each percentile that Honeywell’s EPS growth exceeds or is below the median EPS growth of its peers, the EPS component of the Company’s annual incentive bonus pool is increased or decreased, as appropriate, by approximately one percent. We refer to this adjustment as the “peer EPS growth adjustment.”

For 2006, Honeywell exceeded two of its three targeted corporate financial objectives, achieving EPS of $2.52 vs. a target of $2.45 and free cash flow of $2.5 billion vs. a target of $2.1 billion. Working capital turns were 0.1 turns below target (5.5 vs. a target of 5.6). The EPS component of the pool was increased by 18% as a result of the peer EPS growth adjustment . There were no material adjustments for extraordinary items.

Based on these results and the formulas and weightings described above, the overall Company bonus pool was calculated to fund at 122% of target, which funding was reduced by the Committee, upon the recommendation of the CEO, to 118% of target. Based on the performance of the SBGs, the calculated and actual funding of the SBG bonus pools is as follows:

At the CEO’s recommendation, the Committee increased Aerospace’s, and decreased Specialty Materials’, funding percentages in light of year-over-year improvement in SBG performance compared to relevant industry and economic conditions; in other words, in light of whether the targets were easier or harder to achieve than had been anticipated at the time that they were originally set. The Committee believes that this type of discretionary adjustment, up or down, is an important means of ensuring that ultimate award levels are consistent with the purpose and design of this element of the overall executive compensation program.

Mr. Anderson’s 2006 bonus was $925,000 and reflects Honeywell’s financial performance versus the plan as set forth above and superior performance with respect to his individual objectives related to free cash flow, acquisitions and divestitures, transformation of the finance function, and real estate consolidation. Mr. Fradin’s bonus for 2006 was $875,000 and reflects ACS financial performance and superior performance with respect to Mr. Fradin’s individual objectives related to ACS’ key growth programs, upgrading of sales and marketing programs, acquisition integration (in particular Zellweger, Gardiner, First Technology, and Novar), and globalization efforts. Mr. Gillette’s bonus for 2006 was $600,000 and reflects Aerospace financial performance and superior performance with respect to Mr. Gillette’s individual objectives regarding Aerospace’s key growth programs and Aerospace’s reorganization including strengthening of program management capabilities and process standardization. Mr. Kittelberger’s 2006 bonus was $600,000 and reflects Honeywell’s financial performance versus the plan as set forth above, Mr. Kittelberger’s increased job responsibilities that he undertook in the fourth quarter of 2006 and superior performance with respect to his individual objectives related to facilities consolidation, growth and productivity initiatives including acquisition integration, and management of functional transformation initiatives.

Mr. Cote was awarded a bonus of $3,300,000 for 2006. In addition to the Company’s 2006 accomplishments described above, the Committee recognized Mr. Cote’s achievement of performance objectives relating to (1) driving growth and globalization (successful execution of acquisitions, integrations and divestitures; expansion of technology centers in India, China and the Czech Republic; mature key growth programs in each SBG; high win rates and orders growth; expansion of strategic marketing program); (2) implementing functional cost reduction initiative (actual savings exceeded targeted savings by 50% driven by process standardization; significant savings’ generated through real estate consolidation); (3) driving operational improvements (refocused and recalibrated Honeywell Operating System initiative; achieved year-over-year improvements in customer quality and on-time delivery; drove Velocity Product Development by implementing product life cycle management in the engineering functions of each SBG and holding a cross-company technology symposium to generate

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new growth ideas); and (4) strengthening the talent management process and improving employee performance (global deployment of new performance management and compensation planning processes; expansion of Honeywell Hometown Solutions).

The Committee has determined that the fiscal 2006 annual incentive bonus awards were in accordance with the ICP and the Committee’s charter, and are reasonable performance-based payments that are consistent with the objective of rewarding executive officers for the achievement of important, challenging business goals. Consistent with SEC disclosure rules, the annual incentive compensation awards to the named executive officers are included in the amounts reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 34 of this proxy statement.

Growth Plan

The Committee oversees administration of a long-term, cash-based compensation program under which executive officers are granted awards in the form of Growth Plan units, which have a target value of $100 per unit. The Growth Plan was established in 2003 to encourage executive officers to focus on the Company’s achievement of specific, financial objectives over a two-year performance cycle aimed at increasing shareowner value by emphasizing and rewarding sustainable, profitable growth consistent with the Growth component of the Honeywell Initiatives and the Company’s strategic plan. These objectives are approved by the Committee with respect to both the Company and each SBG at the beginning of the first year of each performance cycle (typically in February). The number of units awarded is equal to 10% of the number of stock options awarded to the executive officer in the first year of each two-year performance cycle. Thus, the Growth Plan serves as a bridge between the annual ICP and the longer-term equity components of the executive compensation program. Fifty percent of the earned value of Growth Plan units is paid in the first quarter of the year immediately following the completion of the relevant two-year performance cycle. To promote executive retention, the remaining 50% is paid one year later and is subject to forfeiture if the executive officer is not employed by the Company on the date of payment.

For Corporate executives, payments relating to Growth Plan units awarded with respect to the 2005-2006 performance cycle were contingent upon the achievement of specific financial objectives regarding organic revenue growth and improvement in return on investment, or “ROI”, weighted equally. For SBG executives, 50% of the payouts are based on the achievement of the corporate organic growth and ROI objectives (weighted equally), with the remaining 50% based on the achievement of corresponding SBG objectives (weighted equally). Organic revenue growth is a measure of the Company’s ability to increase top-line sales, excluding the impact of acquisitions and divestitures during the performance cycle. ROI measures the Company’s ability to convert investments (such as inventory and plant, property and equipment) into profits, and is a ratio of income to cash employed in the Company’s businesses. The ROI calculation excludes the impact of acquisitions and divestitures during the performance cycle (unless there is deemed to be sufficient certainty as to their completion at the time of the setting of the targets for the performance cycle) and pension income/expense. These metrics have been utilized since the establishment of the Growth Plan in 2003 and will also be the objectives for the 2007-2008 performance cycle.

In the case of organic revenue growth and ROI improvement, the cumulative results for the performance cycle are calculated by adding (i) the change in the first year of the performance cycle from the base amount at the conclusion of the immediately preceding fiscal year (or the “base amount”) and (ii) the difference between the relevant metric at the end of the second year of the performance cycle and the base amount.

Funding levels under the Growth Plan range from 0% if the Company fails to achieve at least 75% of the targeted corporate financial objective, to 100% if the Company achieves 100% of target, to 200% if the Company achieves over 130% of target. As with the ICP, extraordinary items are excluded in determining achievement of the established financial objectives. The Growth Plan pool for a given performance cycle does not fund unless the Company achieves a minimum annual EPS growth rate over the two-year performance cycle (3% for the 2005-2006 performance cycle).

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In the first quarter of 2007, the named executive officers received 50% of the earned value of their Growth Plan units for the 2005-2006 performance cycle. The second installment is to be paid in the first quarter of 2008, subject to potential forfeiture if the named executive officer is not employed by the Company on the payment date. For the 2005-2006 performance cycle, the Company achieved 89% of its organic revenue growth objective ($4.7 billion vs. a target of $5.3 billion) and significantly exceeded its targeted ROI improvement (6.8 points vs. a target of 0.4 points). The ROI improvement target for the 2005-2006 performance cycle had incorporated the projected adverse impact of the Company’s acquisition of Novar plc (announced in the fourth quarter of 2004 and completed in the first quarter of 2005.) For 2005-2006, ROI improvement significantly exceeded target due to exceptional execution on the integration of the Novar acquisition and effective generation of income in relation to cash deployment. EPS grew at a 32% compounded annual growth rate over this performance cycle. Based on these results and the performance of the SBGs, the value of Growth Plan units awarded to the named executive officers was as follows: Messrs. Cote, Anderson and Kittelberger—135% of target; Mr. Fradin—133% of target; and Mr. Gillette—150% of target (due primarily to Aerospace’s strong performance with respect to organic revenue growth).

Stock Options

Stock options are the major equity-based component of the long-term incentive element of the Company’s executive compensation program for executive officers. Stock options directly align the interests of executive officers and shareowners as the options only have value to the recipients if Honeywell’s stock price increases above the exercise price of the options and the executive officer remains employed with the Company for the period required for the options to vest, subject to certain exceptions discussed below.

The Committee makes annual grants of stock options to executive officers, including the named executive officers, at the beginning of each year. Under the Company’s stock incentive plans, these options have an exercise price equal to the “fair market value” of Common Stock on the date of grant. “Fair market value” is defined as the average of the highest and lowest sales prices reported on the New York Stock Exchange on the date of grant. The Company utilizes this measure of fair market value, rather than the closing price on the date of grant, to mitigate the artificial impact, in either direction, of intra-day trading volatility on the exercise price. Both the 2003 and 2006 Stock Incentive Plans expressly prohibit (1) the granting of stock options with an exercise price less than the fair market value of Common Stock on the date of grant, and (2) the repricing of awards or the cancellation of awards in exchange for new awards with lower exercise prices without shareowner approval. The 2006 Stock Incentive Plan also prohibits the payment of dividend equivalents with respect to stock options (which were not paid under prior plans even though not expressly prohibited).

Options expire no later than the tenth anniversary of the grant date, subject to early termination in the event of termination of employment. In the event of death or disability or retirement at or after age 60 with 10 years of service, all unvested options granted prior to 2007 vest and remain exercisable for three years. In December 2006, the Committee determined that future option grants would not provide for the vesting of unvested options upon retirement. In the event of retirement at or after age 55 with 10 years of service, all unvested options are forfeited and vested options remain exercisable for three years. In the event of voluntary termination (other than for retirement), all unvested options are forfeited and vested options remain exercisable for 30 days. In the event of involuntary termination other than for cause, all unvested options are forfeited and vested options remain exercisable for one year. In the event of involuntary termination for cause, all vested and unvested stock options are immediately cancelled.

Options have generally vested over a three-year period. Starting in 2007, the Committee has extended the vesting period to four years (in equal annual installments) to further promote retention and long-term stock ownership by executive officers, with limited exceptions possible for new hire grants and grants made in connection with acquisitions by the Company. Under the terms of the 2006 Stock Incentive Plan, no more than two million shares (approximately 4.6% of the shares available under this Plan) may be used for stock options or stock appreciation right awards that fully vest in less

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than three years. As more fully discussed below, the vesting of options accelerates upon a change in control of the Company.

For options issued under the 2003 and 2006 Stock Incentive Plans, the Company reserves the right to (a) cancel all unexercised options, and (b) recover any gains attributable to options that were exercised during the period beginning six months before the termination date, and ending 24 months after the termination date, in the event the executive officer commences employment with, or otherwise provides services to, a Honeywell competitor without the Committee’s prior approval.

The Company’s regular annual option grant generally takes place in February of each year, during an open trading window period following the release of our final results for the preceding fiscal year (Company policy limits trading by executive officers in Honeywell securities to thirty day window periods commencing on the third business day following the announcement of results by the Company). The Committee may also make grants of equity awards to executive officers at other times during the year due to special circumstances, such as new hires or internal promotions, which are granted at the first regularly scheduled Committee meeting following the date of hire or promotion.

In February 2006, the Committee allocated a pool of 9.7 million shares to be utilized for stock option grants in that year, with a maximum of 2.5 million shares available for option grants to officers. The Committee is committed to using shares available under the Company’s equity compensation plan at appropriate rates that do not result in excessive dilution of shareowner equity. Accordingly, the size of this pool is consistent with the Company’s annual “run rate” (shares subject to awards made under the Company’s equity compensation plans as a percentage of total shares outstanding), which has ranged between 1.2% and 1.4% in recent years.

Under his employment agreement, Mr. Cote is eligible for annual equity awards based on a target value of 230% of his then current base salary and annual incentive bonus target. In accordance with its charter, in reviewing the long-term incentive component of CEO annual direct compensation (Growth Plan and stock options), the Committee considered the Company’s financial performance and relative shareowner return, the value of similar incentive awards to CEOs at comparable companies, and awards given to the CEO in past years. With respect to the other named executive officers, the Committee considered similar information, as well as the executive officer’s potential to contribute to the future financial performance of the Company and to assume increased leadership responsibilities. In 2006, each of the named executive officers, other than the CEO, was granted options to acquire 175,000 shares, and Mr. Cote was granted options to acquire 700,000 shares in recognition of his leadership in driving continuous improvement in financial and operational performance through the Honeywell Initiatives.

Restricted Units

As part of its long-term incentive compensation program, the Committee may also award restricted units to individual executive officers primarily for retention and succession planning purposes. The Committee believes that service-based restricted units are the best and most appropriate tool for these programs. Each restricted unit entitles the holder to one share of Common Stock at the end of an extended vesting period, typically vesting one-third on each of the third, fifth and seventh anniversaries of the date of grant, subject to continued employment. As more fully discussed below, the vesting of restricted units accelerates upon a change in control of the Company.

During the restricted period, executive officers are entitled to receive dividends on the underlying shares if and when declared by the Board, on the same basis as shareowners. In December 2006, the Committee determined that future grants will provide that dividends will accrue with interest (currently based on the Company’s annual cost of borrowing at a fixed rate for a 15-year term; 5.8% for 2007) and will be paid out only as the underlying shares vest. Prior to 2007, unvested restricted units would vest on retirement at or after age 60 with 10 years of service. In December 2006, the Committee determined that only a pro-rata portion of unvested restricted units will vest upon retirement, with the amount to be determined based on the number of complete years of service between the grant date and the retirement date as a percentage of the vesting period. Deferred dividends on deferred restricted units that were granted prior to July 2004 earn interest at a rate of 10%. Dividends on deferred restricted units granted after June 2004 cannot be voluntarily deferred by executive officers.

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In February 2006, the Committee allocated 2.1 million shares to be available for restricted unit grants in 2006, of which 1.2 million shares could be utilized for restricted unit grants to executives, including the named executive officers. The size of the pool is consistent with the Company’s annual run rate (see discussion above with respect to stock options). In 2006, the Committee awarded 75,000 restricted units to Mr. Anderson for merit and retention purposes, which vest on each of the third and fifth anniversaries of the date of grant.

Stock Ownership Guidelines

The Committee believes that executives will more effectively pursue the long-term interests of the Company’s shareowners if they are shareowners themselves. Accordingly, the Committee adopted minimum stock ownership guidelines in May 2003 for all Honeywell officers.

Under these guidelines, the CEO must hold shares of Common Stock equal in value to six times his current annual base salary. Other executive officers (including the named executive officers other than the CEO) are required to own shares equal in value to four times their current base salary, with the remaining officers having an ownership threshold set at two times base salary. Shares used in determining whether these guidelines are met include shares held personally, share equivalents held in qualified and nonqualified retirement accounts, and restricted units. Officers have five years to meet these guidelines. As of December 31, 2006, each of the named executive officers held shares in excess of these guidelines.

In addition, the stock ownership guidelines call for officers to hold for at least one year the “net shares” from restricted unit vesting (with respect to restricted units granted after the adoption of the stock ownership guidelines) or the “net gain shares” of Common Stock that they receive by exercising stock options. “Net shares” means the number of shares obtained from restricted unit vesting, less the number of shares the officer sells to pay withholding taxes. “Net gain shares” means the number of shares obtained by exercising the option, less the number of shares the officer sells to cover the exercise price of the options and pay the Company withholding taxes. After the one-year holding period, officers may sell net shares or net gain shares, provided that following any sale, they continue to hold shares of Common Stock in excess of the prescribed minimum ownership level. These guidelines are periodically reviewed by the Committee.

Retirement Plans

Executive officers, including the named executive officers, participate in Honeywell’s Retirement Earnings Plan, a tax-qualified defined benefit pension plan, on the same terms as the rest of the Company’s salaried employees. Because the Internal Revenue Code limits the pension benefits that can be accrued under a tax-qualified defined benefit pension plan, based on an annual compensation limit, the Company maintains unfunded non-tax-qualified supplemental retirement plans for its executive officers (including the named executive officers) to provide these individuals the pension benefits to which they would be entitled but for those limitations.

In addition, Messrs. Cote, Anderson and Kittelberger are entitled to enhanced supplemental retirement benefits. The Committee believed these benefits were necessary and appropriate in light of circumstances surrounding the hiring of these executive officers.

Nonqualified Deferred Compensation Plans

Certain executive officers, including the named executive officers, may participate in the Company’s Deferred Incentive Compensation Plan, or “DIC Plan”. The DIC Plan allows participants to defer all or any (in 10% increments) of their annual incentive bonus as part of their personal retirement or financial planning. Deferral elections must be made annually prior to the start of the year in which the services to which such bonus relates are to be performed.

Executive officers may also participate in the Honeywell Supplemental Savings Plan, or “SS Plan,” which is maintained to permit the deferral of amounts that cannot be contributed to the Company’s tax-qualified 401(k) plan due to annual compensation and deferral limits and the deferral of an additional

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percentage of base salary. Participants may elect to defer up to 25% of base salary into the SS Plan before the beginning of the year in which the services are performed.

Amounts deferred into the DIC Plan or the SS Plan earn interest. In order to reduce the long-term cost of these plans, in July 2005, the Committee amended these plans (1) to reduce the rate of notional interest credited to a participant’s deferred amounts from an above-market rate set annually (which generally varied between 8% and 11%) to a rate based on the Company’s annual cost of borrowing at a fixed rate for a 15-year term (5.2%, 5.3% and 5.8% for 2005, 2006 and 2007, respectively) that is subject to change annually, and (2) to eliminate the ability to defer salary into the DIC Plan.

After one year of service, the Company matches deferrals to the SS Plan up to a maximum of 8% of base salary for the next five years at the rate of 50 cents on the dollar, and up to 8% of base salary on a dollar for dollar basis thereafter. In order to promote the long-term focus of the executive compensation program, Company matching contributions with respect to the SS Plan are credited in the form of common stock equivalents. Dividends are accounted for as though reinvested in additional shares. Amounts representing matching contributions under the SS Plan are ultimately distributed in shares of Common Stock.

As a result of the requirements applicable to non-tax qualified deferred compensation arrangements under Section 409A of the Internal Revenue Code and related guidance, in July 2005, the Committee approved changes to the DIC Plan and the SS Plan to ensure compliance with the new law, to simplify the administration of these plans and to minimize any adverse tax consequences to participants in these plans. These changes included, among others, limiting the form of distribution with respect to amounts deferred on or after January 1, 2006 to a lump sum payment, or for a retired participant, to up to ten annual installments.

Employment Agreements; Severance Plan

The Company has not entered into any fixed-term employment agreements with any named executive officers other than the CEO (whose agreement has a rolling three-year term). The recruitment of Mr. Cote to be CEO was part of an extensive search for a successor to his predecessor in the second half of 2001 and early 2002. This was a period of significant and continuous change for the Company generated by the European Union’s rejection of the Company’s proposed merger with General Electric, three CEOs in a twelve-month span, and major organizational realignment. In light of these circumstances, the Committee determined it was necessary and appropriate to enter into an employment agreement in order to attract and retain an experienced, highly-qualified individual to serve as CEO at a critical time in the Company’s history. In negotiating Mr. Cote’s compensation package, the Committee considered competitive market data regarding total CEO compensation at large industrial companies, Honeywell’s compensation strategy (in determining the mix of pay components) and the desirability of linking a significant portion of pay to the performance of the CEO and the Company, as well as the need to compensate Mr. Cote for significant cash and equity awards from his former employer that were forfeited as a direct result of his acceptance of employment with Honeywell.

If his employment is terminated by the Company other than for gross cause, Mr. Cote will receive benefits under the Honeywell International Inc. Severance Plan for Senior Executives (“Senior Severance Plan”), which also covers the Company’s other named executive officers. Under the Senior Severance Plan, if their employment is terminated by the Company other than for gross cause, Messrs. Cote, Anderson and Kittelberger would be entitled to payments equivalent to base salary and annual incentive bonus (and continuation of certain benefits, such as group life and medical insurance coverage) for a period of 36 months. Mr. Fradin and Mr. Gillette would receive comparable severance payments and benefits for a period of 18 months.

Payments and benefits offered under the Senior Severance Plan are triggered by events that are beyond the control of the recipient. The Committee believes that these payments and benefits (1) are consistent with those offered by the Company’s peer group and (2) help in the recruitment and retention of senior executives by protecting them in the event that their positions are adversely impacted by an unexpected change in circumstance.

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Change in Control Provisions

The Company’s severance, retirement and equity compensation plans provide certain benefits to executive officers upon a change in control of the Company. Under all of the Company’s executive compensation plans, change in control benefits cannot be triggered prior to the completion of the transaction or other relevant event. Under the equity compensation plans, all outstanding equity awards automatically vest upon a change in control. Under the Company’s severance and retirement plans, if, within two years following a change in control of the Company, an executive officer is terminated either involuntarily other than for cause, death or disability or voluntarily for good reason, he or she is entitled to: lump sum payment of all severance amounts; an incremental six months severance for named executive officers otherwise entitled to 18 months severance; and a tax reimbursement payment sufficient to compensate the executive officer for the amount of any excise tax imposed by Section 4999 of the Internal Revenue Code and for incremental taxes imposed on the additional payment. In addition, Messrs. Anderson and Kittelberger would be entitled to have their retirement benefits calculated using an additional three years of age and service.

The Committee believes that these benefits allow senior executives to assess takeover bids objectively without regard to the potential impact on their own job security. The Committee also believes that these benefits are reasonable (taking into account the “double trigger” for such obligations), in line with current market practices, and are necessary for the Company to compete for and retain highly- qualified executives.

Perquisites

Honeywell provides named executive officers with certain limited perquisites (primarily a cash flexible perquisite allowance) that the Committee believes are reasonable, competitive and consistent with the objective of the executive compensation program to attract and retain the best leaders.

Under the Company’s security policy, the CEO is required to use company aircraft for all air travel, whether personal or business, to have home security and back-up power systems, and to use security personnel as drivers. The Committee believes that these measures enhance the personal security of the CEO, protect the confidentiality of the CEO’s travel and the Company’s business, and allow the CEO to minimize and more effectively utilize his travel time.

Other Benefits

The Company maintains life, medical and dental insurance, accidental death insurance, and disability insurance programs for all of its employees, as well as customary vacation, leave of absence and other similar policies. Executive officers, including the named executive officers, are eligible to participate in these programs on the same basis as the rest of the Company’s salaried employees. In addition, the Company maintains relocation and excess liability coverage for executive officers. Messrs. Cote and Kittelberger are entitled to certain additional life insurance benefits, which the Committee believed were necessary and appropriate in light of the circumstances at the times they were hired.

Tax Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code restricts deductibility for federal income tax purposes of annual individual compensation in excess of $1 million to the named executive officers if certain conditions are not fully satisfied. Honeywell intends, to the extent practicable, to preserve deductibility of compensation paid to its executive officers while maintaining compensation programs that effectively attract, motivate and retain exceptional executives in a highly competitive environment.

The Company has designed its annual and long-term cash incentive awards to permit full deductibility. The plans under which these awards are made have been approved by the shareowners and provide for awards that are eligible for deductibility as performance-based compensation. The Committee may use its discretion to set actual compensation below the maximum amount calculated by application of the relevant performance criteria. The Committee believes that all annual incentive

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bonus and Growth Plan payments to the named executive officers are deductible for federal income tax purposes.

The Company’s stock option grants have been and are made under shareowner-approved plans and are designed to comply with Section 162(m) so that the compensation expense associated with their exercise will generally be tax deductible.

The Committee does not believe, however, that it would be in the best interests of the Company or its shareowners to restrict the Committee’s discretion and flexibility to craft compensation plans and arrangements that may result in non-deductible compensation expenses. Accordingly, the Committee from time to time has approved elements of compensation for certain named executive officers that were consistent with the objectives of the Company’s executive compensation program, but that were not fully deductible (which may include, among other things, cash “sign on” awards, time-based restricted unit awards and a portion of the CEO’s base salary). For 2006, approximately $6.1 million in compensation paid to the named executive officers (primarily relating to the payment of deferred cash and stock sign-on awards) was not deductible for federal income tax purposes.