UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.     )

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ILLINOIS TOOL WORKS INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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(ITW LOGO)
 
Illinois Tool Works Inc.
3600 West Lake Avenue
Glenview, Illinois 60026
 
Notice of Annual Meeting of Stockholders
Friday, May 8, 2009
7, 2010
3:00 P.M.
 
The Northern Trust Company
50 South LaSalle Street
Chicago, Illinois 60603
 
ITW is holding its 20092010 Annual Meeting for the following purposes:
 
1. To elect the tennine directors named in this proxy statement for the upcoming year;
 
 2. To ratify the appointment of Deloitte & Touche LLP as ITW’s independent registered public accounting firm;
3. To consider a stockholder proposal, if presented at the Annual Meeting; and
3. To consider a stockholder proposal, if presented at the Annual Meeting; and
 
4. To conduct any other business as may be properly brought before the meeting.
 
The Board of Directors recommends that you vote FOR each of the director nominees, FOR the ratification of the appointment of Deloitte & Touche LLP as ITW’s independent registered public accounting firm for 20092010 and AGAINST the stockholder proposal, if presented at the meeting.
 
Only stockholders of record at the close of business on March 10, 20099, 2010 are entitled to vote.
 
We have elected to furnishThis year we are again furnishing materials for our 20092010 Annual Meeting of Stockholders through the Internet. We believe the use of the United States Securities and Exchange Commission (the “SEC”)Commission’se-proxy rule will expedite stockholders’ receipt of our 20092010 Proxy Statement and 20082009 Annual Report, as well as lower the costs and reduce the environmental impact of our Annual Meeting.
 
By Order of the Board of Directors,
James H. Wooten, Jr.
Secretary
 
March 25, 200924, 2010

 

 
Illinois Tool Works Inc.
 
Proxy Statement
Table of Contents
 
     
  Page
 
Information about the Notice of Internet Availability of Proxy Materials
  2 
Questions and Answers
  3 
Election of Directors
  7 
Board of Directors and Its Committees
  1011 
Corporate Governance Policies and Practices
  1214 
Director Compensation
  1416 
Ownership of ITW Stock
  1618 
Section 16(a) Beneficial Ownership Reporting Compliance
  1920
Availability ofForm 10-K and Annual Report
20 
Compensation Discussion and Analysis
  1921 
Executive Compensation
  2933 
Equity Compensation Plan Information
  4044 
Compensation Committee Report
  4145 
Certain Relationships and Related Transactions
  4246 
Audit Committee Report
  4347 
Ratification of the Appointment of Independent Registered Public Accounting Firm
  4549 
Stockholder Proposal
  4751 
Categorical Standards for Director Independence
  A-1 

 
Information about the Notice of Internet Availability of Proxy Materials
 
In accordance with rules and regulationsThis year, we are again using thee-proxy rule adopted by the Securities and Exchange Commission, or SEC, instead of mailing a printed copy of ourto furnish proxy materials, includingwhich include our annual report to stockholders and our Annual Report onForm 10-K,to each stockholdermany of record, we may now generally furnish proxy materials, including our annual report to stockholders, to our stockholders onthrough the Internet.
 
 • Stockholders who have previously signed up to Receive Proxy Materials on the Internet: On or about March 25, 2009,24, 2010, we will send electronically a Notice of Internet Availability of Proxy Materials (the“E-Proxy Notice”) to those stockholders that have previously signed up to receive their proxy materials and other stockholder communications on the Internet instead of by mail.
 • Stockholders who have previously signed up to Receive All Future Proxy Materials in Printed Format by Mail: On or about March 25, 2009,24, 2010, we will begin mailing printed copies of our proxy materials including our annual report to stockholders, to all stockholders who previously submitted a valid election to receive all future proxy materials and other stockholder communications in written format.
 • All other Stockholders: On or about March 25, 2009,24, 2010, we will begin mailing theE-Proxy Notice to all other stockholders. If you received theE-Proxy Notice by mail, you will not automatically receive a printed copy of the proxy materials or the annual report to stockholders.materials. Instead, theE-Proxy Notice instructs you as to how you may access and review all of the important information contained in theour proxy materials, including our annual report to stockholders.materials. TheE-Proxy Notice also instructs you as to how you may submit your proxy on the Internet. If you received theE-Proxy Notice by mail and would like to receive a printed copy of our proxy materials, including our annual report to stockholders, you should follow the instructions for requesting such materials included in theE-Proxy Notice.
 
Receiving Future Proxy Materials Electronically: Stockholders may also sign up to receive future proxy materials, includingE-Proxy Notices, and other stockholder communications electronically instead of by mail. This will reduce our printing and postage costs and eliminate bulky paper documents from your personal files. To sign up to receive stockholder communications electronically, follow the instructions on your proxy card orE-Proxy Notice under “Vote by Internet” by going towww.proxyvote.com, entering your12-digit control number (which appears on your proxy card orE-Proxy Notice) and, when prompted, indicate that you agree to receive such communications electronically in the future. In order to receive the communications electronically, you must have ane-mail account and access to the Internet.


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Questions and Answers
 
Following are questions often asked by stockholders of publicly held companies. We hope that the answers will assist you in casting your vote.
 
What am I voting on?
 
We are soliciting your vote on:
 
 1. The election of the tennine directors named in this proxy statement for the upcoming year;
 
 2. The ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2009;2010;
 
 3. A stockholder proposal urging the Board of Directors to seek stockholder approval of any future extraordinary retirement benefits for senior executives;requesting reports on political contributions and expenditures; and
4. Any other business as may be properly brought before the meeting.
4. Any other business as may be properly brought before the meeting.
 
Who may vote?
 
Stockholders at the close of business on March 10, 2009,9, 2010, the record date, may vote. On that date, there were 499,198,657502,447,615 shares of ITW common stock outstanding.
 
How many votes do I have?
 
Each share of ITW common stock that you own entitles you to one vote.
 
How do I vote?
 
You may vote your shares in one of the following four ways:
 
     
1. In person: Attend our Annual Meeting, where ballots will be provided; or
2. By telephone: See the instructions at www.proxyvote.com; or
3. By Internet: See the instructions at www.proxyvote.com; or
4. By mail: If you received a printed copy of these proxy materials by mail, by signing, dating and mailing the enclosed proxy card.
 
If you hold your shares through a bank or broker that does not offer telephone or Internet voting, please complete and return your proxy card by mail.
 
When must I submit my vote by Internet or by phone?
 
If you vote by Internet or by phone, you must transmit your vote by 1:00 a.m., Central Time, on May 8, 2009.7, 2010.
 
If I hold shares through an ITW 401(k) Plan, when must I submit my vote?
 
Shares held through an ITW 401(k) plan must be voted by 11:59 p.m., Central Time, on May 6, 20095, 2010 in order to be tabulated in time for the meeting.


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How does discretionary voting authority apply?
 
If you vote by proxy, the individuals named on the proxy card (your proxies) will vote your shares in the manner you indicate. If you do not indicate how you want to vote, you give authority to William F. Aldinger, Marvin D. Brailsford and Susan Crown and Harold B. Smith to vote on the items discussed in these proxy materials and on any other matter that is properly raised at our Annual Meeting. If you do not indicate how you want to vote, your proxy will be voted FOR the election of each director nominee, FOR the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm, AGAINST the stockholder proposal and FOR or AGAINST any other properly raised matter at the discretion of Ms. Crown and Messrs. BrailsfordAldinger and Smith.Brailsford.
 
May I revoke my proxy?
 
You may revoke your proxy at any time before it is voted at our Annual Meeting in one of four ways:
 
 1. Notify our Secretary in writing before our Annual Meeting that you wish to revoke your proxy;
 
2. Submit another proxy with a later date;
 
3. Vote by telephone or Internet after you have given your proxy; or
 
4. Vote in person at our Annual Meeting.
 
What does it mean if I receive more than oneE-Proxy Notice or set of proxy materials?
 
Your shares are likely registered differently or are in more than one account. For each notice, proxyand/or voting instruction card ore-mail notification you receive that has a control number, you must vote to ensure that all shares you own are voted.
 
What constitutes a quorum?
 
The presence, in person or by proxy, of the holders of a majority of ITW shares entitled to vote at our Annual Meeting constitutes a quorum. Your shares will be considered part of the quorum if you return a signed and dated proxy card or if you vote by telephone or internet.Internet. Abstentions and broker non-votes are counted as “shares present” at the meeting for purposes of determining if a quorum exists. A broker non-vote occurs when your bank, broker or other holder of record holding shares for you as the beneficial owner submits a proxy that does not indicate a vote as to a proposal because that holder does not have voting authority for that proposal and has not received voting instructions from you.
 
What vote is required to approve each proposal?
 
Election of Directors: Each nominee who receives a majority of the votes cast with respect to his or her election will be elected. A majority of the votes cast means that the number of shares voted “for” a director must exceed the number of shares voted “against” that director. Any nominee who fails to receive a majority of the votes cast for election is expected to tender his or her resignation in accordance with our Corporate Governance Guidelines as discussed more fully under “Corporate Governance Policies and Practices — Director Election” on


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page 13. Shares15. Abstentions and broker non-votes will not present at the meetingbe votes cast and shares voting “abstain”will have no effect on the election of directors. Please note that unlike previous years, brokers holding shares beneficially owned by their clients will no longer have the ability to cast votes with respect to the election of directors unless they have received voting instructions from their clients. If you are a beneficial owner, it is important that you provide instructions to your bank, broker or other holder of record is permitted toso that your vote your shares on the election of directors even if they do not receive voting instructions from you; therefore, no broker non-votes will occur.is counted.
 
Ratification of the Appointment of Independent Registered Public Accounting Firm:Although we are not required to submit the appointment of our independent registered public accounting firm to a vote of stockholders, we believe that it is appropriate to ask that you ratify the appointment. Ratification of the appointment of Deloitte & Touche LLP as ITW’s independent registered public accounting firm requires the affirmative vote of a majority of the shares present or represented by proxy at our Annual Meeting and entitled to vote. An abstention will have the effect of a vote against the ratification since it is one fewer vote for approval. If you are a beneficial owner, your bank, broker or other holder of record is permitted to vote your shares on this ratification, even if they do not receive voting instructions from you; therefore, no broker non-votes will occur.occur with respect to this proposal.
 
Stockholder Proposal Urging the Board of Directors to Seek Stockholder Approval of Any Future Extraordinary Retirement Benefits for Senior Executives:Requesting Reports on Political Contributions and Expenditures:Approval of this proposal requires the affirmative vote of a majority of the shares present or represented by proxy at our Annual Meeting and entitled to vote. An abstention will have the effect of a vote against thethis proposal since it is one fewer vote for approval, but a broker non-vote will have no effect.
 
How do I submit a stockholder proposal?
 
To be considered for inclusion in our proxy statement for our May 20102011 Annual Meeting, a stockholder proposal must be received no later than November 25, 2009.24, 2010. Your proposal must be in writing and must comply with the proxy rules of the SEC. You should send your proposal to our Secretary at our address on the cover of this proxy statement.
 
You also may submit a proposal that you do not want included in the proxy statement, but that you want to raise at our May 20102011 Annual Meeting. We must receive your proposal in writing on or after January 8, 2010,7, 2011, but no later than February 7, 2010.6, 2011. As detailed in the advance notice procedures described in our by-laws, for a proposal other than the nomination of a director to be properly brought before an annual meeting, your notice of proposal must include: (1) your name and address, as well as the name and address of the beneficial owner of the shares, if any; (2) the number of shares of ITW stock owned beneficially and of record by you and any beneficial owner as of the date of the notice (which information must be supplemented as of the record date); (3) a description of certain agreements, arrangements or understandings entered into by you or any beneficial owner with respect to the shares (which information must be supplemented as of the record date) or the business proposed to be brought before the meeting; (4) any other information regarding you or any beneficial owner that would be required under the SEC’s proxy rules and regulations; and (5) a brief description of the business you propose to be brought before the meeting, the reasons for conducting that business at the meeting, and any material interest that you or any beneficial owner has in that business.


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How do I nominate a director?
 
If you wish to nominate an individual for election as a director at our May 20102011 Annual Meeting, our Secretary must receive your written nomination on or after January 8, 2010,7, 2011, but no later than February 7, 2010.6, 2011. As detailed in the advance notice procedures described in our by-laws, for a nomination to be properly brought before an annual meeting, your notice of nomination must include: (1) your name and address, as well as the name and address of the beneficial owner of the shares, if any; (2) the number of shares of ITW stock owned beneficially and of record by you and any beneficial owner as of the date of the notice (which information must be supplemented as of the record date); (3) a description of certain agreements, arrangements or understandings entered into by you or any beneficial owner with respect to the shares (which information must be supplemented as of the record date); (4) the name, age and home and business addresses of the nominee; (5) the principal occupation or employment of the nominee; (6) the number of shares of ITW stock that the nominee beneficially owns; (7) a statement that the nominee is willing to be nominated and serve as a director; (8) a statement as to whether the nominee intends to tender his or her resignation in accordance with our Corporate Governance Guidelines; (9) an undertaking to provide any other information required to determine the eligibility of the nominee to serve as an independent director or that could be material to stockholders’ understanding of his or her independence; and (10) any other information regarding you, any beneficial owner or the nominee that would be required under the SEC’s proxy rules and regulations had our Board of Directors nominated the individual. Any nomination that you make must be approved by our Corporate Governance and Nominating Committee, as well as by our Board of Directors. The process for the selection of director candidates is described under “Corporate Governance Policies and Practices — Director Candidates”Candidate Selection Process” on page 13.15.
 
Who pays to prepare, mail and solicit the proxies?
 
We will pay the cost of solicitation of proxies including preparing, printing and mailing this proxy statement and theE-Proxy Notice. We will also authorize brokers, dealers, banks, voting trustees and other nominees and fiduciaries to forward copies of the proxy materials to the beneficial owners of ITW common stock. Upon request, we will reimburse them for their reasonable expenses. In addition, our officers, directors and employees may solicit proxies in person, by mail, by telephone or otherwise.


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Election of Directors
 
Stockholders are being asked to elect the tennine directors named in this proxy statement at our Annual Meeting. The individuals listed below have been nominated by the Board of Directors as recommended by the Corporate Governance and Nominating Committee. See “Corporate Governance Policies and Practices” for more information regarding our candidate selection process. Each director will serve until the May 20102011 Annual Meeting, until a qualified successor director has been elected, or until he or she resigns or is removed. After over 42 years of distinguished service, Harold B. Smith is not a nominee for re-election and is retiring from the Board as of the date of the Annual Meeting. After over 11 years of distinguished service, William F. Aldinger is not a nominee for re-election at the Annual Meeting. Accordingly, Messrs. Smith and Aldinger are not included as nominees below for election at the Annual Meeting.
The Board intends to appoint Harold B. Smith as an emeritus director, effective upon his retirement as a board member, in order to continue to benefit from his wisdom, judgment and experience. Pursuant to our by-laws, an emeritus director serves as an advisor and consultant to the Board of Directors and may be appointed as advisor and consultant to committees of the Board. An emeritus director may be invited to attend Board and committee meetings and participate in discussions, but is not permitted to vote on matters brought before the Board or any committee and cannot be counted for the purpose of determining a quorum.
 
We will vote your shares as you specify on the proxy card, by telephone, by Internet or by mail. If you do not specify how you want your shares voted, we will vote them FOR the election of all the nominees listed below. If unforeseen circumstances (such as death or disability) make it necessary for the Board of Directors to substitute another person for any of the nominees, we will vote your shares FOR that other person. The Board of Directors does not anticipate that any nominee will be unable to serve. The
Each nominee for director brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a variety of areas. Set forth below is biographical information provided by the nominees have providedas well as a description of the following information about themselves:experiences, qualifications, skills and attributes that led the Corporate Governance and Nominating Committee and the Board to conclude that each nominee should serve as a director of the Company.
 
(PHOTO OF WILLIAM F. ALDINGER)William F. Aldinger, 61, retired as President, Chief Executive Officer and Chairman of the Board of Directors of Capmark Financial Group Inc., a commercial real estate finance company, in December 2008, positions he had held since June 2006. Mr. Aldinger retired as the Chairman and Chief Executive Officer of HSBC Finance Corporation (formerly Household International, Inc.), a consumer finance company, in April 2005, a position he held since 1994. He also retired as Chairman and Chief Executive Officer of its parent company, HSBC North America Holdings Inc., a position he held since December 2003. He serves on the boards of AT&T Inc., KKR Financial Corp. and The Charles Schwab Corporation. Mr. Aldinger has served as a director of ITW since 1998.
   
(PHOTO OF MARVIN D. BRAILSFORD) Marvin D. Brailsford, 70,71, retired as Vice President of Kaiser-Hill Company LLC, a construction and environmental services company, in June 2002, a position he had held since September 1996. Prior to his employment with Kaiser-Hill, he served with the United States Army for 33 years, retiring with the rank of Lieutenant General. HeGen. Brailsford is currently a director of Conn’s, Inc. and has not served as a director of any other publicly traded company in the last five years. Gen. Brailsford has served as a director of ITW since 1996. Having served as the Deputy Commanding General, Materiel Readiness, and Executive Director for Conventional Ammunition for the United States Army Materiel Command, Gen. Brailsford has extensive experience in executive management, procurement and logistics. This experience, along with his executive experience in the construction and environmental services businesses, provides a valuable perspective of our global manufacturing and distribution operations.


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(PHOTO OF SUSAN CROWN) Susan Crown, 50,51, has served as Vice President of Henry Crown and Company, a business with diversified investments, since 1984. SheMs. Crown is currently a director of Northern Trust Corporation and its subsidiary, The Northern Trust Company.Company, and has not served as a director of any other publicly traded company in the last five years. Ms. Crown has served as a director of ITW since 1994. Ms. Crown’s experience includes executive experience in diversified manufacturing, cellular phone, home furnishings and real estate businesses. She has extensive experience with civic and not-for-profit organizations, having served on the boards of many such organizations and having received a number of awards for her distinguished civic service. Her experience as a board member on various large nonprofit organizations has given her a valuable perspective on many current corporate responsibility topics.
   
(PHOTO OF DON H. DAVIS, JR.) Don H. Davis, Jr., 69,70, retired as Chairman of the Board of Rockwell Automation, Inc., a leading global provider of industrial automation power, control and information products and services, in February 2005, a position he had held since 1998. From 1997 to 2004,2005, he also served as Rockwell’s Chief Executive Officer. Mr. Davis is not currently a director of any publicly traded company other than ITW; however, he was formerly a director of Ciena Corporation, Journal Communications, Inc. and Rockwell Automation, Inc. Mr. Davis has served as a director of ITW since 2000. In addition to his experience as chief executive officer of a major global industrial manufacturing company, Mr. Davis has an extensive background in mechanical engineering. He also has many years of experience on public company boards, as well as on the boards of civic and other not-for-profit organizations. His experience and background have enabled him to develop a deep operational understanding of our global businesses and work force.
   
(PHOTO OF ROBERT C. MCCORMACK) Robert C. McCormack, 69,70, is an Advisory Director of Trident Capital, Inc., a venture capital firm, and was a Partner of Trident from 1993 to the end of 2004. From 1987 to 1993, Mr. McCormack served successively as Deputy Under Secretary of Defense and Assistant Secretary of the Navy (Finance and Comptroller). HeMr. McCormack is currently a director of DeVry Inc., MeadWestvaco Corporation and Northern Trust Corporation and its subsidiary, The Northern Trust Company.Company, and was formerly a director of DeVry Inc. Mr. McCormack has served as a director of ITW since 1993 and previously served as a director of ITW from 1978 through 1987. Mr. McCormack’s extensive experience in the investment banking industry and private equity investment, in addition to his service in the Navy, where he was responsible for the operating financial systems throughout the United States Department of the Navy, has given him vast experience in managing complex financial systems. He also has extensive experience as a director of other large cap public companies, as well as financial institutions.


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(PHOTO OF ROBERT S. MORRISON) Robert S. Morrison, 66,67, retired as Vice Chairman of PepsiCo, Inc., a beverage and food products company, having served in that position from 2001 to 2003. From 1997 to 2001, prior to its merger with PepsiCo, he was Chairman, President and Chief Executive Officer of The Quaker Oats Company. He also served as interim Chairman and Chief Executive Officer of 3M Company from June to December 2005. Mr. Morrison is currently a director of 3M Company and Aon Corporation.Corporation and was formerly a director of The Tribune Co. Mr. Morrison has served as a director of ITW since 2003.2003 and currently serves as lead director. Mr. Morrison’s experience as a former top executive of three public global consumer products companies and his long-standing experience as a director of 3M Company and Aon Corporation, as well as other public companies and civic and not-for-profit organizations, provide valuable insight and understanding of global operations.


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(PHOTO OF JAMES A. SKINNER) James A. Skinner, 64,65, has served as Vice Chairman of McDonald’s Corporation, a restaurant chain, since 2003 and Chief Executive Officer since November 2004, previously serving as President and Chief Operating Officer of McDonald’s Restaurant Group from February 2002 to December 2002; President and Chief Operating Officer of McDonald’s Europe, Asia/Pacific, Middle East and Africa from 2001 to 2002; and President ofMcDonald’s-Europe from 1997 to 2001. HeMr. Skinner is currently a director of Walgreen Co. and McDonald’s Corporation.Corporation and has not served as a director of any other publicly traded company in the last five years. Mr. Skinner has served as a director of ITW since 2005. Mr. Skinner’s valuable experience serving as the chief executive officer of one of the largest global companies in the world, and his experience from holding various positions within the organization, including executive positions in McDonald’s international operations throughout the world, gives him broad experience in many different management/executive roles. His experience gives him valuable insights and perspectives to our global operations.
   
(PHOTO OF HAROLD B. SMITH)(PHOTO OF DAVID B. SMITH, JR.) HaroldDavid B. Smith, Jr.,, 75, is43, has served as Executive Vice President for Policy & Legal Affairs and General Counsel of Mutual Fund Directors Forum, a retired officernot-for-profit membership organization for independent investment company directors and an advocate on important policy matters, since 2005. From 1996 to 2005, Mr. Smith held several positions at the Securities and Exchange Commission serving as Associate Director, Division of ITWInvestment Management from 2001 to 2005; Assistant General Counsel for Investment Management, Office of the General Counsel, from 1998-2001; and isAttorney, Office of the General Counsel, from 1996 to 1998. Mr. Smith was elected as a director of W.W. Grainger Inc., Northern Trust Corporation and its subsidiary, The Northern Trust Company.ITW in December 2009. In the last five years, Mr. Smith has not served as a director of ITW since 1968.a publicly traded company other than ITW. Mr. Smith’s extensive legal and regulatory experience from serving in various legal and supervisory capacities at the Securities and Exchange Commission, as well as his executive experience in a mutual fund industry organization, enable him to bring to the Board the perspective of both a regulator and industry participant, and his experience working with independent fund directors gives him a unique perspective as an independent Board member of ITW. Mr. Smith is a nephew of Mr. Harold B. Smith, who is expected to become an emeritus director as of the date of the Annual Meeting.


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(PHOTO OF DAVID B. SPEER) David B. Speer, 57,58, has served as Chairman of ITW since May 2006 and as Chief Executive Officer of ITW since August 2005 and was President from August 2004 to May 2006, previously serving as Executive Vice President from 1995 to August 2004. Mr. Speer has 3031 years of service with ITW. HeMr. Speer is currently a director of Rockwell Automation, Inc. and Deere & Company.Company and has not served as a director of any other publicly traded company in the last five years. Mr. Speer has served as a director of ITW since 2005. Mr. Speer, with his over 31 years of experience at the Company, has a deep understanding of the business operations, the operating philosophy and the culture of ITW. In addition, his experience as a director of Rockwell Automation, Inc. and Deere & Company gives him the perspective of a director of other global manufacturers. He also has extensive experience participating as a board member of numerous civic and nonprofit organizations. His depth of experience at ITW and as a director at other major companies with global operations enables him to lead ITW and the Board effectively.
   
(PHOTO OF PAMELA B. STROBEL) Pamela B. Strobel, 56,57, retired as Executive Vice President and Chief Administrative Officer of Exelon Corporation and President of Exelon Business Services Company, an electric and gas utility company, in October 2005, a position she had held since 2003, previously serving as Chairman and Chief Executive Officer of Exelon Energy Delivery from 2000 to 2003. Prior to her employment with Exelon, and prior to the merger of PECO Energy Company and Unicom Corporation, she served as Executive Vice President of Unicom and its chief subsidiary, ComEd. SheComEd, having joined ComEd as General Counsel in 1993. Ms. Strobel is currently a director of Domtar Corporation and State Farm Mutual Automobile Insurance Company.Company and was formerly a director of Sabre Holdings Corporation. Ms. Strobel has served as a director of ITW since 2008. With her extensive executive and legal experience in the energy industry, her experience as a director of other large public companies and her involvement in civic activities and not-for-profit organizations, Ms. Strobel’s experience and perspectives are valuable contributions to the Board’s overall expertise.


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Board of Directors and Its Committees
 
ITW’sThe Company’s Board of Directors met sixseven times during 2008.2009. In addition to meetings of the full Board, directors attended meetings of Board committees. Non-employee directors, all of whom are independent, met five times in regularly scheduled executive sessions. The Chairmen of each of the Board of Directors’ standing committees rotaterotated as the Chairman of executive sessions of the independent directors until the appointment of Robert S. Morrison as Lead Director on May 8, 2009. Thereafter, Mr. Morrison served as Chairman of the executive sessions.
As stated in the Company’s Corporate Governance Guidelines, the Board believes that it is in the best interests of the Company to examine whether the role of Chairman and Chief Executive Officer should be combined each time the Board elects a new chief executive officer. David Speer, our current Chairman and CEO, has over 31 years of service with the Company. Robert Morrison, our lead director, is an experienced director, having served on the boards of several major public companies, and is also a former CEO of several major public companies. Our lead director is the key liaison, and serves as an effective avenue for information flow between the CEO and the independent directors. He also promotes an appropriate balance between the powers of the CEO and the independent directors. Our Board believes that in light of the blend of experience and skills of our CEO and board, the lead director structure is the appropriate leadership structure for our Board at this time. Whether the same leadership structure will be selected when our CEO’s tenure with the Company ends is a matter that our Board believes should be evaluated at the time in light of the skills and experience of the new CEO and other relevant considerations.
The Board of Directors has standing audit, compensation, corporate governance and nominating, and finance committees. Under the terms of their charters, each member of the audit, compensation, and corporate governance and nominating committees must meet applicable New York Stock Exchange (“NYSE”) and SEC independence requirements. ITWThe Company encourages its directors to attend all Board and committee meetings and the Annual Meeting of Stockholders. In 2008,2009, during the time they were serving, all of the directors attended at least 75% of the meetings of the Board and the committees on which they serve, and all of the directors then serving attended our 20082009 Annual Meeting of Stockholders.
 
Audit Committee
 
   
Meetings in 2008:2009: 54
Members:Michael J. Birck (Chairman) (ret. 5/2/08)
 Don H. Davis, Jr. (Chairman)
  Marvin D. Brailsford
  Robert C. McCormack
  James A. Skinner
David B. Smith, Jr. (appt. 12/4/09)
  Pamela B. Strobel
 
The Audit Committee is responsible for the engagement of our independent registered public accounting firm and assists the Board with respect to matters involving and overseeing accounting, financial reporting and internal audit functions. TheIn addition, the Committee also is responsible for the integrity of ITW’sthe Company’s financial statements; compliance with legal and regulatory requirements; the independence and performance of ITW’s independent registered public accounting firm; and the performance of ITW’sthe Company’s internal audit function. Finally, the Audit Committee reviews and evaluates our policies and practices with respect to risk


11

assessment and risk management and steps taken by management to monitor and control such exposures. Additional information on the Committee and its activities is set forth in the “Audit Committee Report” on page 43.47.
 
Compensation Committee
 
   
Meetings in 2008:2009: 3
Members: William F. Aldinger (Chairman)
  Susan Crown
  Robert S. Morrison
  James A. Skinner
  Pamela B. Strobel
 
The Compensation Committee establishes and oversees executive and director compensation policies, including issues relating to pay and performance, targeted positioning and pay mix. The Compensation Committee recommends to the other independent directors compensation for the Chief Executive Officer,chief executive officer, reviews and approves the Chief Executive Officer’schief executive officer’s recommendations regarding the compensation of our other executive officers, and


10

makes recommendations regarding new incentive compensation and equity-based plans or amendments. The Compensation Committee also is responsible for reviewing and evaluating risks arising from our compensation policies and practices and providing input to management on whether such policies and practices may have a material adverse effect on the Company.
 
Under its charter, the Compensation Committee may retain an independent compensation consultant or other advisors. The Compensation Committee has engaged FrederickFrederic W. Cook & Co., an independent consultant (“Cook”), as its independent advisor to provide an independentreview the Company’s overall executive compensation program, review the peer group of companies used by the Compensation Committee for comparison purposes and objective assessment of the design and award levels under the ITW 2006 Stock Incentive Plan.assess our compensation governance process. Cook was asked to review materials relevant to the overall compensation of our executives and to meet with our management and members of the Compensation Committee in order to gain strategic insight into ITW’sthe Company’s compensation programs. On a limited basis, ITWCompany management has engaged Hewitt Associates LLC to provide competitive market data (including information with respect to ITW’sthe Company’s peer group companies). From time to time, the Compensation Committee reviews the materials provided by Hewitt Associates LLC to management.
 
Additional information on the Compensation Committee, its activities, its relationship with its compensation consultant and the role of management in setting compensation, is provided in the “Compensation Discussion and Analysis” beginning on page 19.21.
 
Corporate Governance and Nominating Committee
 
   
Meetings in 2008:2009: 3
Members: Marvin D. Brailsford (Chairman)
  Susan Crown
  Don H. Davis, Jr.
  Robert S. Morrison (appt. Chairman 2/12/10)
  James A. Skinner
 
The Corporate Governance and Nominating Committee identifies, evaluates and recommends director candidates; develops, administers and recommends corporate governance


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guidelines; oversees the evaluationevaluations of the performance and procedures of the Board and management;individual directors; and makes recommendations as to Board committees and Board size. On February 12, 2010, the Corporate Governance and Nominating Committee approved the retention of Russell Reynolds Associates, Inc. to assist it in identifying potential board candidates, as several of our directors are approaching retirement age. See “Corporate Governance Policies and Practices — Director Candidates”Candidate Selection Process” below for a description of the director selection process.
 
Finance Committee
 
   
Meetings in 2008:2009: 2
Members: Robert C. McCormack (Chairman)
  William F. Aldinger
  Don H. Davis, Jr.
  Robert S. Morrison
  David B. Smith, Jr. (appt. 12/4/09)
Harold B. Smith
 
The Finance Committee reviews, evaluates and recommends management’s proposals to the Board relating to ITW’sthe Company’s financing, investment portfolio, real estate investments, and reviews and evaluates an annual summary of the funding and investment status of significant benefit plans sponsored by ITWthe Company globally. The Finance Committee also periodically reviews and evaluates risks arising from the Company’s investments, treasury function (such as derivatives and interest rates) and liquidity.
Board’s Role in Risk Oversight
The Board of Directors is responsible for the overall risk oversight of the Company. While the Board has delegated to the Audit Committee the responsibility to review and evaluate the Company’s overall risk policies and practices, the responsibility for the review and evaluation of risks relating to investments and other treasury functions has been delegated to the Finance Committee, and risks arising from the Company’s compensation policies and practices has been delegated to the Compensation Committee. Each of these committees reports their findings to the full Board, and the Compensation Committee is also charged with providing input to management on whether the Company’s compensation policies and practices may have a material adverse effect on the Company.
Starting in 2004, the Company performed an enterprise risk management review, which identified key business risks of the Company, including, but not limited to, business environment (including industry, market, sourcing, competition and operations), tax, acquisitions, legal (including product liability), financial, regulatory and investment risks. At each Audit Committee meeting, Company management gives a presentation on at least one of these risks, providing the Committee members an opportunity to discuss the risks and the risk mitigation processes. Certain risks are reviewed and discussed annually, while others are considered on a rotating basis. The Audit Committee reports its evaluation of each risk presentation to the full Board after each Audit Committee meeting.
The risk reviews conducted by the Compensation and Finance Committees are also reported to the full Board on a regular basis. The Company believes that because each of these committees is comprised of independent board members, the Chairman and Chief Executive Officer of the Company is subject to the risk oversight of independent directors.


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Corporate Governance Policies and Practices
 
General
 
We have long believed that good corporate governance is important to assure that ITWthe Company is managed for the long-term benefit of its stockholders. In that regard, we continuously review our corporate governance policies and practices not only for compliance with the provisions of the Sarbanes-Oxley Act of 2002, the rules and regulations of the SEC, and the listing standards of the NYSE, but also for good corporate governance principles.
 
Our Board of Directors has adopted and annually reviews charters for our Audit, Compensation, and Corporate Governance and Nominating Committees. We maintain a corporate governance section on our website that includes the charters of these committees, ITW’sthe Company’s Corporate Governance Guidelines, ITW’sthe Company’s Statement of Principles of Conduct (our code of business conduct and ethics for directors, officers and employees) and ITW’sthe Company’s Code of Ethics for the Chief Executive Officer and key financial and accounting personnel. In addition, we will promptly post any amendments to or waivers of the Code of Ethics on our website. You can find this and other corporate governance information atwww.itw.com. We also will provide copies of this information upon request.
 
Communications with Directors
 
Stockholders and other interested parties may communicate with any of our directors, including Robert S. Morrison, our lead director, or with the independent directors as a group by sending ane-mail toindependentdirectors@itw.comor by writing to the Independent Directorsany of our directorsc/o theIllinois Corporate Secretary atTool Works Inc., 3600 West Lake Avenue, Glenview, IL, 60026.60026, Attention: Secretary.
 
Board Independence
 
Our Board conducts an annual review as to whether each of our directors meets the applicable independence standards of the NYSE. In accordance with the NYSE listing standards, our Board of Directors has adopted categorical standards for director independence. A copy of ITW’sthe Company’s Categorical Standards for Director Independence is attached as Appendix A. A director will not be considered independent unless the Board of Directors determines that the director has no material relationship with ITWthe Company (directly or as a partner, stockholder or officer of an organization that has a material relationship with ITW)the Company).
 
The Board has determined that each of the current directors, standing for re-election, except David B. Speer, has no material relationship with ITWthe Company other than as a director and is independent within the meaning of ITW’sthe Company’s Categorical Standards for Director Independence and the listing standards of the NYSE. Mr. Michael J. Birck, whose term as director expired on May 2, 2008, was also determined by the Board to be independent during the term of his directorship. In making its independence determinations, the Board of Directors has broadly considered all relevant facts and circumstances including that: (1) Mr. Aldinger served as a director of a company with which we conduct business; (2) Ms. Crown and Messrs. McCormack and Harold Smith serve as directors of Northern Trust Corporation and its subsidiary, The Northern Trust Company, with which ITWthe Company has a commercial banking relationship as described under “Ownership of ITW Stock — Other Principal Stockholders”“Certain Relationships and Related Transactions” on page 18;46; (2) Messrs. Aldinger, McCormack, Morrison, Skinner and Harold Smith serve as directors of companies that have an existing customer or supplier relationship with the Company; (3) Ms. Crown has an


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indirect interest in a company with which we conduct business; and (4) Ms. Strobel serves as a director of a company that owns 4% of the Company’s common stock and as a director of a company with which we conduct business.business; and (5) Mr. David B.


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Smith is the nephew of Harold B. Smith. The Board has concluded that these relationships are not material and, therefore, do not impair the independence of the directors.
 
Director CandidatesQualifications
Our by-laws permit stockholders to nominate directors for consideration at an annual meeting of stockholders. The policy of the Corporate Governance and Nominating Committee is to consider a properly submitted stockholder nomination for election as director. For a description of the process for submitting a director candidate in accordance with ITW’s by-laws, see “Questions and Answers — How do I nominate a director?” on page 6.
 
Our directors play a critical role in guiding ITW’sthe Company’s strategic direction and oversee the management of ITW.the Company. Board candidates are considered based upon various criteria, such as their broad-based business and professional skills and experiences, a global business and social perspective, concern for the long-term interests of our stockholders, and personal integrity and judgment. Racial, ethnic and gender diversity are also considered in the director selection process, as well as diversity of experience and backgrounds, but there is no specific policy regarding Board diversity. In addition, directors must have time available to devote to Board activities and to enhance their knowledge of the global manufacturing environment. Accordingly, we seek to attract and retain highly qualified directors who have sufficient time to attend to their duties and responsibilities to ITW.the Company.
Director Candidate Selection Process
 
The Corporate Governance and Nominating Committee, or other members of the Board of Directors, may identify a need to add new members to the Board of Directors with specific criteria or simply to fill a vacancy on the Board. At that time the Corporate Governance and Nominating Committee would initiate a search, seeking input from Board members and senior management and, to the extent it deems appropriate, engaging a search firm. An initial qualified candidate or a slate of qualified candidates would be identified and presented to the Committee for its evaluation and approval. The Committee would then seek full Board endorsement of the selected candidate(s). Mr. David Smith was initially recommended to the Board by a non-management director.
Our by-laws permit stockholders to nominate directors for consideration at an annual meeting of stockholders. The policy of the Corporate Governance and Nominating Committee is to consider a properly submitted stockholder nomination for election as director. For a description of the process for submitting a director candidate in accordance with the Company’s by-laws, see “Questions and Answers — How do I nominate a director?” on page 6.
 
Assuming that a properly submitted stockholder recommendation for a director candidate has been received, the Corporate Governance and Nominating Committee will evaluate that candidate by following substantially the same process, and applying substantially the same criteria, as for candidates submitted by other sources, but the Committee has no obligation to recommend that candidate for nomination.
 
Director Election
 
Our by-laws provide for the election of directors in uncontested elections by majority vote. Under this majority vote standard, each director must be elected by a majority of the votes cast with respect to that director. For this purpose, a majority of the votes cast means that the number of shares voted “for” a director exceeds the number of shares voted “against” that director. In a contested election, directors will be elected by a plurality of the votes represented in person or by proxy at the meeting. An election is contested if the number of nominees exceeds the number of directors to be elected. Whether an election is contested or not is determined ten days in advance of when we file our definitive proxy statement with the SEC. This year’s election is uncontested, and the majority vote standard will apply.


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If a nominee who is serving as a director is not elected at an annual meeting, Delaware law provides that the director would continue to serve on the Board as a “holdover director” until his or her successor is elected. Our Corporate Governance Guidelines, however, require any nominee for director who fails to receive a majority of the votes cast for his or her election to tender his or her resignation. The Corporate Governance and Nominating Committee of the Board will consider the resignation and recommend to the Board whether to accept or reject it. In considering the resignation, the Committee will take into account such factors as any stated reasons why stockholders voted against the election of the director, the length of service and qualifications of the director, the director’s contributions to ITWthe Company and our Corporate Governance Guidelines. The Board will consider the Committee’s recommendation, but no director who failed to receive a majority of the votes cast will participate. We will disclose the results of the Committee’s review within 90 days of such annual meeting. At our 20082009 Annual Meeting, each director received a majority of the votes cast for his or her election.
 
Director Compensation
 
Annual Retainer and Chair Fees
 
TheIn 2009, the annual cash retainer for non-employee directors is $135,000, and the annual fee for committee chairs is an additional $5,000, except for the Audit Committee chair, whose annual fee is $15,000. Non-employee directors are given the opportunity to elect annually to receive all or a portion of their annual retainer and chair fees in an equivalent value of ITW common stock pursuant to our Stock Incentive Plan. The number of ITW shares to be issued to a director is determined by dividing the dollar amount of the fee subject to the election by the fair market value of ITW common stock on the date the fee otherwise would have been paid in cash.
In recognition of the additional time and responsibility required of the chair of the Compensation Committee, effective January 1, 2010, the Compensation Committee chair fee was increased to $10,000.
 
Directors’ Deferred Fee Plan
 
Non-employee directors can defer receipt of all or a portion of their annual retainer and chair fees until retirement or resignation. Deferred fee amounts are credited with interest quarterly at current rates. A director can also elect to defer receipt of the ITW common stock received in lieu of a cash payment, in which case the deferred shares are credited as stock units to an account in the director’s name. The account receives additional credit for cash dividends and is adjusted for stock dividends, splits, combinations or other changes in ITW common stock upon retirement, resignation or a corporate change (as defined in theour Stock Incentive Plan), with any fractional shares paid in cash.
 
ITW Common Stock
 
ITWThe Company grants stock to its non-employee directors under theour Stock Incentive Plan, which links this element of compensation to our long-term performance. Under the currentour director compensation program, in 2009 non-employee directors received an annual stock grant equivalent in value to approximately $30,000, or 854 shares of stock.
The Compensation Committee, based on information provided by Cook, found that the equity portion of our outside director compensation was low in relation to total director compensation and that total director compensation was below median levels. Effective January 1,


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2010, non-employees directors will receive an annual stock grant equivalent in value to approximately $30,000.$65,000. On that basis, on February 8, 2008,12, 2010, each non-employee director was granted 6181,489 shares of stock. On February 13, 2009, each non-employee director was granted 854 shares of stock.


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Phantom ITW Stock
 
To tie a further portion of their compensation to our long-term performance, non-employee directors of ITWthe Company are awarded 1,000 units of phantom stock upon first becoming a director. The value of each unit equals the market value of one share of ITW common stock. Additional units are credited to a director’s phantom stock account in an amount equivalent to cash dividends paid on ITW stock. Accounts are adjusted for stock dividends, stock splits, combinations or similar changes. A director is eligible for a cash distribution from his or her account at retirement or upon approved resignation. Directors may elect to receive their phantom stock distribution in either a lump sum or in up to ten annual installments. Directors receive the value of their phantom stock accounts immediately upon a change of control.
 
Director Compensation in Fiscal Year 20082009
 
The following table summarizes the compensation for our directors who served during 2008.2009.
 
                        
 Fees Earned or
      Fees Earned or
    
 Paid in
 Stock
    Paid in
 Stock
  
 Cash
 Awards
 Total
  Cash
 Awards
 Total
Name(1)
 ($)(3)(4) ($)(5) ($) 
Name(1)
 ($)(3)(4) ($)(5) ($)
William F. Aldinger $140,000  $29,979  $169,979  $140,000  $29,992  $169,992 
Michael J. Birck(2) $50,687  $29,979  $80,666 
Marvin D. Brailsford $140,000  $29,979  $169,979  $140,000  $29,992  $169,992 
Susan Crown $135,000  $29,979  $164,979  $135,000  $29,992  $164,992 
Don H. Davis, Jr.  $144,931  $29,979  $174,910  $150,000  $29,992  $179,992 
Robert C. McCormack $140,000  $29,979  $169,979  $140,000  $29,992  $169,992 
Robert S. Morrison $135,000  $29,979  $164,979  $135,000  $29,992  $164,992 
James A. Skinner $135,000  $29,979  $164,979  $135,000  $29,992  $164,992 
David B. Smith, Jr.(2) $10,161  $48,490  $58,651 
Harold B. Smith $140,000  $29,979  $169,979  $140,000  $29,992  $169,992 
Pamela B. Strobel $120,536  $78,489  $199,025  $135,000  $29,992  $164,992 
 
(1)David B. Speer is not included in this table since he does not receive any compensation for his service as a director.
 
(2)Michael J. Birck retired fromDavid B. Smith, Jr. was elected to the Board of Directors and as Audit Committee chairman, effective May 2, 2008.December 4, 2009.
 
(3)Mr. Aldinger elected to convert $140,000 of his fees earned in 2008 to 3,184 shares of ITW common stock. In addition, theThe following directors elected to convert some or all fees earned in 20082009 to shares of ITW common stock and to defer receipt of those shares:
 
                
Name
 Fees Deferred in 2008 Number of Shares  Fees Deferred in 2009 Number of Shares
Michael J. Birck $50,687   1,031 
Marvin D. Brailsford $70,000   1,593  $70,000   1,834 
Susan Crown $67,500   1,769 
Don H. Davis, Jr.  $144,931   3,310  $150,000   3,931 
Robert S. Morrison $135,000   3,072  $135,000   3,538 
James A. Skinner $135,000   3,072  $135,000   3,538 
Pamela B. Strobel $120,536   2,754  $135,000   3,538 


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(4)In addition to $135,000 annual retainer, includes committee chair fees ($5,000 for Mr. Aldinger; $5,069 for Mr. Birck; $5,000 for Mr. Brailsford; $9,931$15,000 for Mr. Davis; $5,000 for Mr. McCormack; and $5,000 for Mr. Harold Smith).
 
(5)In 2008,2009, each director, with the exception of Mr. David Smith, received an annual stock grant of 618854 shares equivalent in value to approximately $30,000, and Ms. Strobel$30,000. On December 4, 2009, Mr. David Smith received an award of 1,000 phantom stock units with a grant date fair value of $48,510.$48,490. As of December 31, 2008,2009, the directors’ phantom stock accounts had phantom stock unit balances as follows: Mr. Aldinger, 2,314;2,393; Mr. Brailsford, 4,711;4,872; Ms. Crown, 4,762;4,925; Mr. Davis, 2,279;2,357; Mr. McCormack, 4,762;4,925; Mr. Morrison, 2,187,2,262, Mr. Skinner, 2,1272,200 and Ms. Strobel, 1,020. At the time of Mr. Birck’s retirement on May 2, 2008, he had a phantom stock unit balance of 4,656.1,055.


17

 
Ownership of ITW Stock
 
Directors and Executive Officers
 
The following table shows how muchthe amount of ITW common stock beneficially owned by the directors, the named executive officers, and all directors and executive officers as a group beneficially owned as of December 31, 2008.2009. The “named executive officers” are our Chief Executive Officer, our Chief Financial Officer, and the next three most highly-compensated executive officers who were serving at the end of the last fiscal year (based on total compensation, less the increase in pension value and nonqualified deferred compensation earnings). and one executive officer who retired in 2009. The “percent of class” calculation is based on 499,114,971502,336,201 shares of ITW common stock outstanding as of December 31, 2008.2009.
 
Beneficial ownership is a technical term broadly defined by the SEC to mean more than ownership in the usual sense. In general, beneficial ownership includes any shares a director or executive officer can vote or transfer and stock options that are exercisable currently or that become exercisable within 60 days. Except as otherwise noted, the stockholders named in this table have sole voting and investment power for all shares shown as beneficially owned by them.
 
The number of the directors’ phantom stock units disclosed in the table represents an equivalent number of shares of ITW common stock as of December 31, 2008.2009. Phantom stock units are not transferable and have no voting rights. The units are not included in the “percent of class” calculation.
 


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 Shares of Common Stock
 Phantom
 Percent
  Shares of Common Stock
 Phantom
 Percent
 
Name of Beneficial Owner
 Beneficially Owned Stock Units of Class  Beneficially Owned Stock Units of Class 
Directors (other than Executive Officers)                        
William F. Aldinger  29,852(1)  2,314   *   31,162(1)  2,393   * 
Marvin D. Brailsford  16,205   4,711   *   19,488   4,872   * 
Susan Crown  26,199(2)  4,762   *   28,845(2)  4,925   * 
Don H. Davis, Jr.   25,503   2,279   *   31,125   2,357   * 
Robert C. McCormack  18,132,011(3)  4,762   3.6%  17,111,665(3)  4,925   3.4%
Robert S. Morrison  56,569   2,187   *   61,356   2,262   * 
James A. Skinner  9,634   2,127   *   14,266   2,200   * 
David B. Smith, Jr.   117,887(4)  1,000   * 
Harold B. Smith  50,120,159(4)  —   10.0%  45,737,361(5)  —   9.1%
Pamela B. Strobel  3,395   1,020   *   7,929   1,055   * 
Named Executive Officers                        
David B. Speer  1,326,206(5)  —   *   1,594,097(6)  —   * 
Ronald D. Kropp  120,337(6)  —   *   141,582(7)  —   * 
Thomas J. Hansen  680,230(7)  —   *   735,089(8)  —   * 
E. Scott Santi  289,850(9)  —   * 
Russell M. Flaum  626,807(8)  —   *   536,861(10)  —   * 
Hugh J. Zentmyer  595,285(9)  —   * 
Philip M. Gresh, Jr.   365,432(11)  —   * 
      —   *       —   * 
Directors and Executive Officers as a Group (27 Persons)  55,422,863(10)  24,162   11.1%
Directors and Executive Officers as a Group (29 Persons)  51,375,516(12)  25,989   10.2%
 
* Less than 1%


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(1)Includes (a) 6,000 shares owned by a charitable foundation of which Mr. Aldinger is an officer and a director; and (b) 200 shares owned by Mr. Aldinger’s spouse, as to which he disclaims beneficial ownership.
 
(2)Includes (a) 4,000 shares owned by Ms. Crown’s spouse, as to which she disclaims beneficial ownership; and (b) 4,000 shares held in trusts of which Ms. Crown’s children are beneficiaries, as to which she disclaims beneficial ownership.
 
(3)Includes (a) 800 shares owned in a trust, as to which Mr. McCormack shares voting and investment power with The Northern Trust Company; (b) 17,828,62817,062,528 shares owned in twelve trusts, as to which Messrs. McCormack and Harold Smith, one other individual, and The Northern Trust Company are trustees and share voting and investment power (4,858,914 of these shares are pledged to secure lines of credit); (c) 12,550 shares owned in a limited partnership in which Mr. McCormack owns 99% of the limited partnership units; and (d) 282,63427,534 shares owned in a limited partnership, as to which Messrs. McCormack and Harold Smith and The Northern Trust Company are co-trustees of the four trusts that hold 100% of the limited partnership units.
 
(4)Includes (a) 29,137,20445,000 shares owned in foura trust as to which Mr. David Smith shares voting and investment power with his spouse; (b) 57,901 shares owned jointly with his spouse (all 57,901 of these shares are pledged to secure lines of credit); and (c) 14,986 shares held in trusts of which Mr. Smith’s children are beneficiaries, as to which he disclaims beneficial ownership.
(5)Includes (a) 25,848,414 shares owned in 11 trusts, one family limited partnership, and one limited liability company as to which Mr. Harold Smith shares voting and investment power with The Northern Trust Company and others (23,804,408(all 25,848,414 of these shares are pledged to secure lines of credit); (b) 2,032,322 shares owned in nine trusts as to which Mr. Harold Smith shares voting and investment power (1,508,592 of these shares are pledged to secure lines of credit); (c) 17,828,62817,062,528 shares owned in twelve trusts as to which Messrs. Harold Smith and McCormack and The Northern Trust Company are trustees and share voting and investment power; (d) 772,556732,843 shares owned in a revocable trust; (e) 65,61631,667 shares owned by a charitable foundation of which Mr. Harold Smith is a director; and (f) 282,63427,534 shares owned in a limited partnership, as to which Messrs. Harold Smith and McCormack, one other individual, and The Northern Trust Company are co-trustees of the four trusts that hold 100% of the limited partnership units. Mr. Harold Smith’s address isc/o CorporateIllinois Secretary, Illinois Tool Works Inc., 3600 West Lake Avenue, Glenview, Illinois, 60026.60026, Attention: Secretary.
 
(5)(6)Includes (a) 1,8641,916 shares allocated to Mr. Speer’s account in the ITW Savings and Investment Plan; and (b) 1,255,0001,478,398 shares covered by options exercisable within 60 days.

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(6)(7)Includes (a) 2,4982,567 shares allocated to Mr. Kropp’s account in the ITW Savings and Investment Plan; and (b) 114,000 shares covered by options exercisable within 60 days.
(7)Includes 658,500135,176 shares covered by options exercisable within 60 days.
 
(8)Includes (a) 4,037 shares allocated to Mr. Flaum’s account in the ITW Savings and Investment Plan; and (b) 530,000713,359 shares covered by options exercisable within 60 days.
 
(9)Includes (a) 9,199 shares owned in a revocable trust; (b) 22,028 shares owned by Mr. Zentmyer’s spouse in a trust, as to which he disclaims beneficial ownership; (c) 650 shares held in a trust of which Mr. Zentmyer’s brother is the beneficiary and as to which he disclaims beneficial ownership; (d) 16,7083,113 shares allocated to Mr. Zentmyer’sSanti’s account in the ITW Savings and Investment Plan; and (e) 540,000(b) 273,375 shares covered by options that became exercisable upon his retirement on December 31, 2008.within 60 days.
 
(10)Includes 4,746,652(a) 6,747 shares allocated to Mr. Flaum’s account in the ITW Savings and Investment Plan; and (b) 437,344 shares covered by options exercisable within 60 days.
(11)Includes (a) 7,488 shares allocated to Mr. Gresh’s account in the ITW Savings and Investment Plan; and (b) 357,344 shares covered by options exercisable within 60 days.
(12)Includes 4,939,862 shares covered by options exercisable within 60 days and 30,219,55241,045,245 shares pledged as security.


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Other Principal Stockholders
 
This table shows, as of December 31, 2008,2009, the only stockholdersstockholder other than a director that we know to be a beneficial owner of more than 5% of ITW common stock. We maintainSee “Certain Relationships and Related Transactions” for a description of the commercial banking relationship withservices provided by The Northern Trust Company and its wholly-owned subsidiaries. The Northern Trust Company is a wholly-owned subsidiary of Northern Trust Corporation. Susan Crown, Robert C. McCormack and Harold B. Smith, directors of ITW, are also directors of Northern Trust Corporation and The Northern Trust Company. The commercial banking relationship between ITW and The Northern Trust Company may involve, but is not strictly limitedsubsidiaries to the following services: creatingCompany and maintaining deposit accounts, credit services, investment banking services, payment and collection services, trade services, credit enhancement or payment guaranty, acting as agent or fiduciary, consulting services, risk management services, and broker dealerthe amount paid by the Company for these services. In addition, The Northern Trust Company serves as the trustee under ITW’s principal pension plans. The banking and trustee relationships with The Northern Trust Company are conducted in the ordinary course of business on an arms-length basis. Banking, investment management, trustee and other administrative fees (including share repurchase fees) paid to The Northern Trust Company by ITW were approximately $2.4 million in 2008.
 
                
Name and Address of
 Shares of Common Stock
 Percent
  Shares of Common Stock
 Percent
Beneficial Owner
 Beneficially Owned of Class  Beneficially Owned of Class
The Northern Trust Company  63,321,682(1)  12.4%  58,284,290(1)  11.6%
50 South LaSalle Street
Chicago, IL 60603		        
Barrow, Hanley, Mewhinney & Strauss, Inc.   29,268,378(2)  5.7%
2200 Ross Avenue, 31st Floor
Dallas, TX75201-2761		        
50 South LaSalle Street, Chicago, IL 60603      
 
(1)The Northern Trust Company and its affiliates act as sole fiduciary or co-fiduciary of trusts and other fiduciary accounts that own an aggregate of 63,321,68258,284,290 shares. They have sole voting power with respect to 17,539,95621,936,503 shares and share voting power with respect to 43,758,39334,519,236 shares. They have sole investment power with respect to 6,513,1866,435,080 shares and share investment power with respect to 47,446,38143,007,630 shares. In addition, The Northern Trust Company holds in other accounts, but does not beneficially own, 34,984,87635,665,983 shares, resulting in aggregate holdings by The Northern Trust Company of 98,306,55893,950,273 shares, or 19.7%18.7%. This information was provided in a Schedule 13G/A filed with the SEC on February 17, 2009.


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(2)Barrow, Hanley, Mewhinney & Strauss, Inc., an investment advisor registered under Section 203 of the Investment Advisors Act of 1940, owns an aggregate of 29,268,378 shares. It has sole voting power with respect to 8,185,298 shares and shares voting power with respect to 21,083,080 shares. It has sole dispositive power with respect to all of the shares. This information was provided in a Schedule 13G/A filed with the SEC on February 11, 2009.16, 2010.
 
Section 16(a) Beneficial Ownership
Reporting Compliance
 
Section 16(a) of the Securities Exchange Act of 1934 requires that ITW’sthe Company’s executive officers, directors and greater than 10% stockholders file reports of ownership and changes of ownership of ITW common stock with the SEC and the NYSE. Based on a review of copies of these reports provided to us during fiscal 20082009 and written representations from executive officers and directors, we believe that all filing requirements were timely met during 2008.2009.
 
Availability ofForm 10-K and Annual Report
The Company is providing its annual report and its Annual Report onForm 10-K to stockholders who receive this proxy statement. The Company will provide copies of these reports to brokers, dealers, banks, voting trustees and their nominees for the benefit of their beneficial owners of record. Additional copies of this proxy statement, the annual report and the Company’s Annual Report onForm 10-K for the fiscal year ended December 31, 2009, are available without charge upon written request to Illinois Tool Works Inc., 3600 West Lake Avenue, Glenview, IL, 60026, Attention: Secretary. You may also review Company SEC filings by visiting the Company’s website atwww.itw.com.


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Compensation Discussion and Analysis
 
Introduction
 
ITWThe Company emphasizes a total compensation approach in establishing individual executive compensation levels, with each element of compensation serving a specific purpose. ITW’sThe Company’s compensation program consists primarily of three elements: short-term cash compensation (base salaries and annual cash incentives), longer-term equity compensation (stock options, restricted stock and restricted stock units), and retirement benefits. ITW retainsbenefits, as illustrated below:


Annual Cash
Compensation
Base Salary
Objective: Provide a base wage that is competitive and reflective of individual performance
 •   Generally represents 10-18% of total compensation for the named executive officers*
(27-40% of Total Compensation)*
Annual IncentiveObjective: Motivate executives to achieve annual business and individual goals
 •   Key Performance Metrics: Income growth
 •   Generally represents 17-22% of total compensation for the named executive officers*



Long-Term
Incentives
(60-73% of Total Compensation)*
Cash-Based
Company Wide
Growth Plan

Performance-
Based Restricted
Stock Units

Stock Options
Objective: Motivate executives to make decisions that focus on long-term stockholder value creation
 •   Core long-term incentive program consists of three distinct components with the sum targeting delivery of long-term incentive compensation within the median range of our competitive market
 •   Cash-based company-wide growth plan is new for FY 2010
 •   Key Performance Metrics: Revenue Growth, ROIC, and EPS
 •   Generally represents 60-73% of total compensation for the named executive officers*


Retirement Benefits
 •   Company provides two retirement savings plans: a 401(k) plan and a nonqualified deferred compensation plan
 •   Company provides two pension plans: a qualified pension plan and a nonqualified pension plan to restore benefits otherwise lost due to IRS limitations on qualified plan compensation
*Total compensation, as used in the table above, is defined as the sum of base salary, target annual cash incentives and the grant date fair value of long-term equity incentives and does not necessarily tie to the values disclosed in the Summary Compensation Table and supplemental tables.
The depth and breadth of economic recession in 2009 adversely affected the Company’s financial performance during the year. End market conditions in North America, Europe and Asia-Pacific were extremely challenging as both consumer and industrial markets were impacted by the worldwide recession. As a result, the Company’s revenues declined approximately 19% for 2009 versus the year-earlier period. In late 2008 and early 2009, management took aggressive steps to implement effective cost savings programs throughout the Company. As a result, the Company incurred $161 million of restructuring expense in 2009. Excluding the impact of first quarter impairment charges, these restructuring activities helped the Company move operating margins from 5.8% in the first quarter of 2009 to 12.7% in the fourth quarter of 2009. In addition, the Company’s increasing diversification of revenues — from both an end market and geographic basis — helped to mitigate the effects of the recession. Notably, the Company’s geographic mix has changed substantially since 1999. In 2009, the Company’s North American revenues constituted 48% of total revenues versus 67% of total revenues in 1999. Our Europe, Middle East and Africa region accounted for 34% of total Company revenues in 2009 versus 26% in 1999; and our Asia-Pacific and Other region accounted for 18% of total Company revenues in 2009 versus 7% in 1999. Finally, the Company generated free operating cash flow of


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$1.9 billion for 2009. The Company continues to use free operating cash flow to reinvest in its businesses and technologies as well as acquire companies and technologies that both complement and add to its business portfolio.
In response to those economic conditions, the Compensation Committee made the following compensation decisions with respect to our named executive officers:
• We froze base salaries at 2008 levels;
• For 2009, theyear-over-year income growth component of our annual cash incentive awards was replaced with a performance goal measured against our 2009 annual plan target income, and the maximum payout for elected officers was reduced from 100% to 53%;
• We replaced one-third of the annual equity award to named executive officers with performance-based restricted stock units under our long-term incentive program;
• We eliminated our financial counseling perquisite and reduced the above-market interest returns on deferrals after 2009 under our nonqualified deferred compensation program;
• Effective for 2010, we redesigned the Business Growth Incentive Plan component of our long-term incentive program to provide a cash-based company-wide growth plan based on annual awards with3-year performance cycles tied to revenue growth and return on invested capital goals;
• The Compensation Committee engaged an independent advisor to work on its behalf in cooperation with management to review the ITW Executive Compensation Program, confirm appropriateness of comparison (peer) companies, and assess our compensation governance process; and
• We reviewed our programs and believe that our compensation programs and policies are not designed to encourage our executives to take unnecessary or excessive risks that could harm the long-term value of the Company.
These changes do not adversely impact the Company’s flexibility to recognize and reward superior company, business unit and individual performance by differentiating the cash incentive and equity awards made to individual executives. During 2008, we continued our review of our compensation program for senior management. We focused on establishing compensation structures and the relative weightings for base salary, annual cash incentives, and longer-term incentives that meet the objectives of being both performance-based and market competitive in delivering total compensation.
 
In making its executive compensation decisions and recommendations, the Compensation Committee is guided by the following factors:
 
 • Our compensation philosophy.
 
 • Compensation comparisons from a peer group of diversified multinational industrial companies.
 
 • Management’s contribution to our short-term and long-term growth.
 
See “Board of Directors and Its Committees — Compensation Committee” for more information about the function of the Compensation Committee.


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Compensation Philosophy
 
Our compensation philosophy is reflective of our overall operating philosophy and management structure and is intended to:
 
 • Provide employees with a competitive pay arrangement.
 
 • TargetOver the long-term, target base salaries at market, which would be median or 50th percentile.
 
 • Drive pay for performance through a competitive short-term incentive cash bonus program, which links pay primarily to business unit performance and individualized objectives.
 
 • Reward long-term performance and provide for capital accumulation through awards of stock options or stock grants.equity-based awards.
 
Peer Companies
 
We haveIn 2007, we selected a group of comparable companies to benchmark executive pay, providing competitive market data to be used in establishing and recommending each element of compensation. This group was selected using the following criteria:
 
 • SizeCompanies that are within a reasonable size range in various measures, such as measured by revenue, — generally not less than1/3 or more than 3 times ITW’s annual revenue.
• Similar-type businesses — multinational, diversifiedoperating income, total assets, total equity, employees, and industrial.
• Top quartile performance related to revenue growth, earnings growth, earnings per share growth and return on invested capital.market cap;
 
 • Companies with which wecomparable financial characteristics that investors view similarly, such as multinational, diversified, and industrial;
• Companies that compete for stockholders, businessthe same customers with similar products/services; and
• Companies with whom we may compete for executive talent.
 
For 2008,Every year the group is reviewed to ensure the appropriateness of the companies in the group. Additionally, in 2009, the Compensation Committee asked Frederic W. Cook & Co., or Cook, to review the peer group. After both reviews, no changes were made and the following 18 companies comprisingwere retained as the peer group were:group:
 
     
3M Company Eaton Corporation Masco Corporation
Caterpillar Inc.  Emerson Electric Company Parker-Hannifin Corporation
Cooper Industries Ltd.  Honeywell International Inc. Textron Inc.
Danaher Corporation Ingersoll-Rand Company Ltd. TRW Automotive Holdings Corporation
Deere & Company ITT Corporation Tyco International Ltd.
Dover Corporation Johnson Controls, Inc. United Technologies Corporation
 
The nature of ITW’sthe Company’s highly decentralized and diverse lines of business presents challenges in identifying similar organizations for comparison purposes; however, we believe that the peer group selected provides relevant comparisons. While peer group data is not directly used to set any particular element of compensation, the Compensation Committee believes that in order to attract, retain and motivate our named executives, total compensation levels for these executives should be considered against the median peer group level over the long term.
 
Management’s Contributions to Our Growth
 
ITW’sThe Company’s decentralized management structure is decentralized and puts emphasis onemphasizes line management. This structure allows us to give unusually substantial operating authority to executive officers and is


23

an important element in developing and retaining our senior managers and in creating high job satisfaction. The general managers of our businesses are empowered to make the decisions necessary to serve their customers and grow their businesses and are accountable for their business unit’s results. Our executive management’s role is to ensure that these decisions


20

are carried out in accordance with our values and expectations for the near and long term and are, in general, in the best interests of our stockholders.
 
Use of Discretion in Setting Compensation
 
ITW’sThe Company’s compensation programs recognize the importance of ensuring that discretion as related to market conditions and both individual and business unit performance is provided to the Chief Executive Officer (the “CEO”) and Compensation Committee in determining compensation levels and awards. In setting base salaries and annual cash incentive award maximums, and in determining grants of longer-term equity awards, the CEO and Compensation Committee use judgment to align compensation with respect to both external data and an internal comparison of individual responsibilities, potential and achievement.
 
Compensation Decisions and Individual Compensation Levels
 
There are no material differences in the policies and decision processes used in setting compensation for the CEO and the other named executive officers. However, the different levels of compensation for the named executive officers as shown in the Summary Compensation Table of this proxy statement reflect internal factors such as each executive’s scope of responsibility, impact on profitable growth, and breadth of experience, as well as external market data from the peer companies. On an annual basis, the CEO reviews the total compensation of senior executives and makes recommendations to the Compensation Committee based on his assessment of each executive’s individual performance and the peer company compensation information. The Compensation Committee makes recommendations to the independent directors regarding the CEO’s compensation based on an assessment of the CEO’s performance and information relative to compensation of CEOs of the peer companies. The Compensation Committee believes that it is appropriate to benchmark total compensation for the CEO to the levels of base salary, annual incentive, and longer-term incentives being provided to CEOs of comparable multinational and diversified industrial organizations as previously described under “Peer Companies.”
 
Base Salary
 
In determining base salary, the CEO and the Compensation Committee consider the size and scope of the executives’ responsibilities and the median base salary of similar positions at our peer companies, as well as the executive officers’ past experience, performance and future potential. UsingThe Compensation Committee believes that the median as abase salary is an appropriate general reference provides an appropriate base salary that encouragespoint to use for encouraging solid performance year after year.performance. Base salaries are reviewed annually and adjustments are intended to recognize an executive officer’s performance and contributions over the prior year, as well as any significant changes in duties or scope of responsibility. Adjustments to base salary also take into account peer group information and how base salary factors into achieving levels ofsuch officer’s total compensation.
 
The 2008 compensation program review followed the Compensation Committee’s approval in December 2007 of base salary increases that became effective in January 2008 for the CEO and for the other named executive officers. We have a common review date of Januaryprocess for base salary and incentive compensation opportunity changes for our senior executive officers. This process allows the Compensation Committee and the CEO to review base compensation and


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review base compensation and discuss recommended changes in December considering individual contributions to overall financial and operating results for the year and to set objectives for the upcoming year.
 
In December 2007, the Compensation Committee noted that the 2007 base salary for the CEO and the base salaries for the other named executive officers were below the median of the peer group comparisons and approved base salary adjustments that became effective January 2008. These salary adjustments brought the base salaries of these executive officers closer to the median levels. The 2008 calendar year compensation for the named executive officers is disclosed in the Summary Compensation Table on page 29 of this proxy statement.
In response to the deteriorating economic environment our businesses faced inat the end of 2008, management recommended, and the Compensation Committee agreed, that there be no base salary increases in 2009 for any of our executive officers.
 
Annual Cash Incentives
 
We believe that generally, management should be rewarded for contributions to our overall financial success measured by income growth of their business unit, their group or ITW,the Company as a whole, as well as for individual accomplishments that contribute to the longer-term health of the business. Annual cash incentive awards are made under the stockholder-approved provisions of the ITW Executive Incentive Plan. The Compensation Committee considers recommendations from the CEO and approves annual cash incentives for our executive officers. The Compensation Committee determines and recommends for approval by the independent directors the award amount for the CEO.
 
The plan is designed around two elements: income growthperformance (the “P” factor) and personal objectives (the “O” factor). For 2007, these factors were weighted equally. For 2008, theThe P factor weighting was changed tois 60% of each named executive officer’s potential award opportunity with the remaining 40% based on the O factor objectives. In addition, the weighting of incomethe P factor for operating executives was changed tois 33% of corporate results and 67% of their respective businesses. These changes wereweightings are intended to place greater emphasis onemphasize the financial performance element and reinforce the increasing need to collaborate across businesses.
 
Participation in our Executive Incentive Plan is limited to those who have an impact on the profitable growth of the business or who have significant responsibility for a major element of business growth. The P factors are recommended by management and must be approved by the Compensation Committee annually. The individual O factors for the CEO are established by the Compensation Committee annually, and the individual O factors for each other named executive officer are recommended by the CEO and must be approved by the Compensation Committee.
 
Individual award maximums, expressed as percentages and applied to year-end base salary, are determined in accordance with the executive’s level of responsibilities and accountability. Both the P and O factors have a payout range of 0% to 100% of the maximum for the named executive officers. Although we generally do not establish any specific target or prescribed value in relation to peer groups, comparisons are made to median annual cash incentive levels in the peer group compensation data. ITW’sThe Company’s annual cash incentives are variable and structured to provide awards above these median levels only upon the achievement of exceptional financial results and individual performance objectives. For the 2008 plan year, the award maximums were 150% for Mr. Kropp and 200% for the other named executive officers. Payments under the plan are made following the end of the fiscal year after approval by the Compensation Committee.


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Income-Based Annual Cash Incentive (P Factor)
Both
For 2007 and 2008, the P and O factors have a payout range of 0% to 100% offactor was calculated based onyear-over-year income growth. This means that the maximum for the named executive officers. For the 2008 P factor,current year income was compared to the prior year (2007) to measure the percentage of increase. Participants beginbegan to earn payment for the P factor once 80% of the applicable prior year income iswas achieved. At the 80% achievement level, the P factor award payout iswas 34% of the maximum payment. At the 100% achievement level, the payout iswas 75%


25

of the maximum payment. For the named executive officers, a maximum P factor payout of 100% would only occursoccur when 115% achievement of prior year income iswas reached.
 
The objectives for O factors are more subjective thanFor 2009, a change was made in the calculation of the P factors. For 2008, Mr. Speer’s objectives were focused on succession planning, leadership development, acquisitions, divestitures, and a reviewfactor. Instead of ITW’s strategyyear-over-year increase in emerging markets. Forincome, the other named executive officers, 2008 objectives were generally focused on leadership development, emerging market growth initiatives, acquisition integration and succession planning. Each individual objective is assigned a relative weighting. At the end of the year, each named executive officer submits a written self-appraisal and overall score of achievement. For the named executive officers, other than the CEO, the appraisals are reviewed by the CEO. The self-appraisalbasis for the CEO is reviewed by the Compensation Committee. These reviews consider completion of objectives, relative weightings and the quality of the work performed. Therefore, an element of judgment is involved in assigning individual levels of achievement for the O factors. A distinguished level of achievement provides a maximum 100% payment.
The following payout grid was used to determine the P factor award componentcalculation was 2009 income performance versus the annual plan target income for 2008 (for example, 75%the Company as a whole and for the named executive officers’ respective businesses. This change acknowledged the extraordinarily difficult business environment in which many of our business units were operating. For the maximumCEO, named executive officers and other elected officers, the P factor award maximum was reduced from 100% to 53% of year-end base salary. The award maximum of 53% for named executive officers would be paid if 2008earned upon 100% income from continuing operations performanceachievement versus plan. The threshold payout remained 34% upon 80% income achievement. The following was 100% of prior year results):the P factor calculation for 2009 for the Company as a whole and for the named executive officers’ respective businesses:
 
        
 Maximum P
  Maximum P Factor Award%
% of Achievement
 Factor Award% 
2009 Income Achievement vs. Plan
 (Elected Officers)
115% and above  100%
110%  90%
105%  82.5%
100%  75%  53% Max
95%  65%  48%
90%  57%  43%
85%  47%  39%
80%  34%  34%
79% and below  0%
Below 80%  0%
 
The 20082009 P factors for Messrs. Speer and Kropp were entirely based on theyear-over-year percentage of increase in corporate 2009 income from continuing operations.operations of the Company as a whole. For the other named executive officers, the P factor was based 67% on theyear-over-year percentage of increase of the operating2009 income achievement for their respective businesses and 33% on theyear-over-year percentage of increase of corporate2009 income from continuing operations.achievement for the Company as a whole. The following table


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shows the respective earningsincome levels as planned and achieved in 2007 and 2008 considered2009 in connection with the determination of the P factor award for the named executive officers:
 
                    
                 2009 Planned
        
 2007
 2008
      Corporate or Unit
 2009 Actual
 % of
 % of
  
 Corporate/Unit
 Corporate/Unit
 % of
 % of P
  Income Levels
 Corporate or Unit Income
 Achievement
 Achievement
 % of P
Named Executive Officer
 Income Levels (000s) Income Levels (000s) Achievement Factor Award  (Millions) Levels (Millions) (Actual) (as Adjusted)(1) Factor Award
David B. Speer $1,711,936  $1,583,266   92.5%  61.0% $1,078.5  $969.5   89.9%  81.2%  35.2%
Ronald D. Kropp $1,711,936  $1,583,266   92.5%  61.0% $1,078.5  $969.5   89.9%  81.2%  35.2%
Thomas J. Hansen(1) $1,067,403  $922,799   86.5%  53.8%
Russell M. Flaum(1) $341,930  $313,511   91.7%  60.2%
Hugh J. Zentmyer(1) $419,363  $448,967   107.1%  78.3%
Thomas J. Hansen(2) $756.2  $533.3   70.5%  70.5%  11.6%
E. Scott Santi(2) $1,068.4  $824.1   77.1%  77.1%  11.6%
Russell M. Flaum(2) $312.0  $163.8   52.5%  52.5%  11.6%
Philip M. Gresh, Jr.(2) $392.4  $347.4   88.5%  88.5%  39.9%
 
(1)The composite percentages ofCompensation Committee used its discretion to adjust the achievement level for the P factorCompany as a whole downward from 89.9% to 81.2% in order to take into account the return of our Decorative Surfaces segment to continuing operations, which occurred after the initial annual plan income target was established in February 2009. If Decorative Surfaces had been in continuing operations at the time the annual plan income target was set, the income achievement level would have been 81.2% rather than 89.9%, and the Committee felt that using 81.2% as the achievement level results in a more reasonable comparison of 2009 performance vs. 2009 annual plan.
(2)For these executives, the first four columns above show the income levels as planned and achieved for their respective businesses. The composite award arepercentages shown in column 5 above for these executives combine


26

the achievement level for their respective businesses with that of the Company as a whole, as follows: Mr. Hansen, 53.8%11.6% (.33 at 61.0%35.2% + .67 at 50.3%0%); Mr. Santi, 11.6% (.33 at 35.2% + .67 at 0%); Mr. Flaum, 60.2%11.6% (.33 at 61.0%35.2% + .67 at 59.9%0%); and Mr. Zentmyer, 78.3%Gresh, 39.9% (.33 at 61.0%81.2% + .67 at 86.9%88.5% = 86.1%; the 86.1% is then applied to the P factor calculation table to yield 39.9%).
 
For 2010, as in years prior to 2009, the P factor will again be calculated by comparing current year income to the prior year to measure the percentage of increase.
Personal Objectives-Based Annual Cash Incentive (O Factor)
The O factors represent the personal objectives element of the annual cash incentive awards, and are more subjective than P factors. Relative weightings for the O factor objectives, which altogether represent 40% of the potential award opportunity, are established at the beginning of the year for each named executive. In early 2009, each executive submitted in writing his own proposed O factor objectives, as well as weightings assigned to each objective for that year. Each named executive other than the CEO discussed his proposed objectives and weightings with the CEO, and after these discussions had the opportunity to revise his proposal. The CEO used his judgment of each executive’s role and responsibilities, as well as the strategic goals of the Company, to review and approve the objectives before recommending them to the Compensation Committee. The Compensation Committee discussed these recommendations with the CEO prior to final approval. The CEO discussed his proposed O factor objectives and weightings for 2009 with the Compensation Committee. The Compensation Committee used its judgment and understanding of the strategic goals of the Company to review and approve the objectives and weightings of the CEO.
The following is a description of the 2009 objectives and weightings as approved. Mr. Speer’s objectives focused on leadership development/diversity (35%), innovation (35%), Board meeting effectiveness (10%) and acquisitions (20%). Mr. Kropp’s objectives focused on leadership development (45%), organization structure (30%) and acquisitions (25%). Mr. Hansen’s objectives focused on strategic tools (30%), innovation (40%) and leadership development (30%). Mr. Santi’s objectives focused on leadership development (35%), strategy for specified businesses (30%) and development plans (35%). Mr. Flaum’s objectives focused on leadership development (40%), emerging market growth (30%) and organizational structure and training system improvement for a specified business (30%). Mr. Gresh’s objectives focused on establishing a leadership development program (30%), strategy for specified businesses (30%) and leadership development/diversity (40%).
Following the end of the year, each named executive submitted a written self-appraisal with his own assessment of the level of achievement reached in 2009, expressed as a percentage, for each of his personal objectives. The self-appraisals of the named executives other than the CEO were reviewed by the CEO, and the CEO had collaborative discussions with each of these executives. The CEO used his judgment of each executive’s performance against the objectives, considering completion of objectives, relative weightings and the quality of the work performed, to reach his assessment of the achievement levels prior to submitting them for final approval by the Compensation Committee. Any adjustments made by the CEO to the self-scored achievement levels for 2009 were not material. The self-appraisal of the CEO for 2009 was reviewed by the Compensation Committee, which held collaborative discussions with the CEO and used its judgment of the CEO’s performance against his objectives to reach its assessment of the achievement levels. The Compensation Committee adjusted the CEO’s self-scored achievement


27

level from 85% to 90% because it thought his self-score for acquisitions did not take into account that he maintained the Company’s acquisition discipline in a very difficult environment. The independent directors approved the Compensation Committee’s recommendation. There were no pre-determined factors that were considered by the CEO or the Compensation Committee during this process.
The weighting for each objective was multiplied by the relevant achievement level, and the amounts so calculated were totaled to reach the O factor achievement percentage. Based on the Compensation Committee’s reviewdetermination of the individual 20082009 O factor objectives and actual achievements for Mr. Speer, and upon Mr. Speer’s recommendations for the other named executive officers, the following O factor achievement percentages were assigned: 88.8%90% for Mr. Speer; 97.0%93.5% for Mr. Kropp; 96.5%95% for Mr. Hansen; 85.5%90.5% for Mr. Flaum; and 100.0%Santi; 90% for Mr. Zentmyer.Gresh; and 80% for Mr. Flaum.
2009 Annual Cash Incentive Total Payouts
 
The total 20082009 awards for the named executive officers ranged from 87.0%39% to 70.3%60% of the individual maximum award level, and were determined as follows:
 
                                                        
   Year-End
              Year-End
          
 Award
 2008
 P Factor
   O Factor
   Total
  Award
 2009
 P Factor
   O Factor
   Total
Named Executive Officer
 Maximum Salary Achievement Amount Achievement Amount Award(1)  Maximum Salary Achievement Amount Achievement Amount Award(1)
David B. Speer  200% $1,100,000   61.0% $805,200   88.8% $781,000  $1,586,200   200% $1,100,000   35.2% $464,640   90.0% $792,000  $1,256,640 
Ronald D. Kropp  150% $350,000   61.0% $192,150   97.0% $203,700  $395,850   150% $350,000   35.2% $110,880   93.5% $196,350  $307,230 
Thomas J. Hansen  200% $500,000   53.8% $322,800   96.5% $386,000  $708,800   200% $500,000   11.6% $69,600   95.0% $380,000  $449,600 
Russell M. Flaum  200% $391,900   60.2% $283,109   85.5% $268,060  $551,168 
Hugh J. Zentmyer  200% $375,600   78.3% $352,914   100.0% $300,480  $653,394 
E. Scott Santi  200% $400,000   11.6% $55,680   90.5% $289,600  $345,280 
Russell M. Flaum(2)  200% $391,900   11.6% $27,200   80.0% $125,056  $152,256 
Philip M. Gresh, Jr.   200% $340,000   39.9% $162,792   90.0% $244,800  $407,592 
 
(1)These amounts are shown in the Summary Compensation Table under “Non-Equity Incentive Plan Compensation.”
(2)The Total Award amount is pro-rated for the portion of the year worked prior to retirement.
 
The named executive officers may elect to defer 6% to 85% of their annual incentive award to their ITW Executive Contributory Retirement Income Plan (ECRIP) account. ECRIP is further described under “Nonqualified Deferred Compensation” elsewhere in this proxy statement. Also, under the terms of the ITW 2006 Stock Incentive Plan, an officer may elect to take up to 50% of the award in the form of ITW common stock.
 
For 2009, for operating executives, emphasis will be placed on working capital goals in setting O factor goals. In addition, a change will be made in the calculation of the P factor for 2009. Instead ofyear-over-year increase in income, the basis for P factor award calculation will be income performance versus the annual plan for most of our businesses. This change acknowledges the extraordinarily difficult business environment in which many of our business units are currently operating and provides a real incentive to achieve plans that are realistic in today’s economic climate. For the CEO, named executive officers and other elected officers, the


24

P factor award maximum will be reduced from 100% to 53%. The award maximum will be achieved upon 100% attainment of income performance versus plan. The threshold payout will remain 34% upon 80% attainment of income performance versus plan. As a result, the P factor calculation for 2009 will be as follows:
         
  Maximum P Factor Award%
  Maximum P Factor Award%
 
2009 Income Achievement vs. Plan*
 (excluding Elected Officers)  (Elected Officers) 
 
120%  110%    
115%  100%    
110%  90%    
105%  82.5%    
100%  75%  53% Max
95%  65%  48%
90%  57%  43%
85%  47%  39%
80%  34%  34%
Below 80%  0%  0%
*If prior year income is lower than 2009 Plan, then Income Achievement vs. Prior Year Income will be used.
Long-Term Incentives
 
We believe that ensuring the long-term growth and health of the business is a primary management responsibility. Therefore, a significant portion of an executive officer’s compensation should be directly linked to how ITW stock performs over time, encouraging decisions that consider the long-term perspective. Stock incentive awards are granted to executives and other key employees whose positions can truly affect the Company’s long-term performance.
The amount of the overall annual equity awards to the CEO is determined by the Compensation Committee in its discretion, subject to approval by the independent directors. Awards to the other named executives are recommended by the CEO to the Compensation


28

Committee for approval and are subject to the discretion of the CEO in making the recommendations, as well as of the Compensation Committee in approving the awards. The key factors in determining the overall annual equity awards have been the executive’s position and seniority and the historical grants made to Company executives in similar positions with similar seniority. Because the Compensation Committee and the CEO in their discretion may consider such factors as they deem relevant in determining an executive’s overall equity award, other factors may cause the award in any given year to differ from historical amounts.
2009 Annual Equity Awards
Stock incentive awards through 2008 were generally been made in the form of stock options and are granted to a relatively smallused the number of executives whose positions can truly affectshares to determine the company’s long-term performance. As described below, beginning inaward amount. With respect to the 2009 restricted stock units also constitute a portion ofawards, the stock-based incentive awards. The Compensation Committee considered the fact that the value of a stock option is complex and volatile while the value of a restricted stock unitsgrant is more understandable and less volatile, than that of stock options and that ITWthe Company was in a relatively small minority of companies who awarded only one type of grant under theits stock incentive plan. The Committee consequently decided to add ainclude restricted stock unit element tounits in the plan grants.grants to senior executives and to rely on the value of the grants delivered as the basis for determining the overall award amounts. We continue to believe, however, that stock options are an effective incentive for participants on a long-term basis since the greater the increase in stock price, the greater the value ofbecause the option to the participant. Ifloses its value entirely if the price of ITW’s common stock falls below the grant price, the option has no value to the participant. Restricted stock units, therefore, will constitute only one-third of the total equity grant to our executives.price.
 
The Compensation Committee approves awardsTherefore, beginning in 2009, the overall annual stock incentive award for senior executives was split into two award types: two-thirds remaining in the form of stock options and the other one-third in the form of a restricted stock units tounit, or RSU. The Compensation Committee also determined that elected officers, including the named executive officers, in conjunction with an annual equity award program review. Award amounts for the named executive officers, other than the CEO, are recommended by the CEO based on a number of factors, including the executive officer’s position, performance, and ability to influence ITW’s long-term growth and profitability over a period of years. The Compensation Committee also reviews the compensation values and types of equity awards for peer company positions, although it does not establish any specific target or prescribed values to be achieved in relation to the peer company data. The executive’s level of prior equity awards


25

and level of stock ownership relative to established stock ownership guidelines as described below are also considered in the review. Applying the same considerations, the Compensation Committee recommends to the independent directors for approval the number of stock options andshould receive performance-based restricted stock units, or PRSUs, subject to be awardeda performance metric based on 2009 corporate income performance. PRSUs granted in 2009 (formerly referred to as qualified restricted stock units, or QRSUs) have a three-year cliff vesting requirement (i.e., no vesting until three years from grant date, at which time the CEO.entire award may vest) as well as a performance goal (see “Performance Goal for 2009” below) set at the beginning of the performance period.
 
Stock options are granted with an exercise price equal to the fair market value of the common stock on the date of grant and expire ten years after the grant date. This approach is designed to motivate the executive to contribute to the creation of stockholder value over the long term. We currently grant only non-qualified stock options because we believe that the tax benefits to ITWthe Company of non-qualified stock options outweigh the potential tax benefits to the named executive officers of incentive stock options. Restricted stock unitsRSUs and PRSUs are granted based on the fair market value of one share of common stock on the date of grant.
 
Stock options vest over a specified period determined by the Compensation Committee. The 20082009 stock options vest in equal installments over a four-year period ending in 2012. Restricted stock units2013. RSUs generally vest in full three years from the date of grant. PRSUs vest three years from the date of grant, subject to the achievement level of the performance goal. See “Performance Goal Changes for 2010” below. The Compensation Committee has established specific vesting and expiration provisions associated with termination of employment due to death, disability and retirement, as defined by the Compensation Committee, and forfeiture provisions upon any other termination of employment. Under change in control or certain divestiture conditions, all stock options become


29

vested and exercisable and all restricted stock unitsRSUs and PRSUs become vested and payable in cash. The Compensation Committee, in its sole discretion, may deem a stock option, RSU, or restricted stock unitPRSU award to be immediately forfeited if the recipient is terminated for cause (as defined by the Committee), competes with ITW,the Company, or engages in conduct adversely affecting ITW.the Company.
 
At its FebruaryThe option award to the CEO increased from 400,000 in 2007 to 500,000 in 2008, meeting,and the option award to the CFO increased from 60,000 in 2007 to 70,000 in 2008, as part of the Compensation Committee approved stock option awards to executive officers and certain other key employees under the provisionsCommittee’s consideration of the ITW 2006 Stock Incentive Plan. Stock options granted in 2008total compensation of our named executives as compared to the named executive officers are shown inpeer group median. For 2009, the “Grantsvalue of Plan-Based Awards” table on page 31.
In our 2008 compensation review for senior management, we focused our analysis on our long-term incentive program with the objective of ensuring that our structure is both performance based and market competitive. As described under “Board of Directors and Its Committees — Compensation Committee,” our Compensation Committee engaged Cook to assist in this analysis. As a result of our review, we have adopted a portfolio approach to our long-term incentive rewards program that provides for targeted performance goals at both the Company and the business unit level. Performance metrics chosen are those that are critical to ITW’s long-term success, such as revenue and income growth. We expect that using performance metrics will promote longer-term considerations in executive decision making. The valueoverall annual equity award was not changed; however, one-third of the annual equity awards was changed to PRSU’s and a new performance-based award, for senior executives (which had been 100% stock options) has been split into twothe BGIP award, types: two-thirds will remain inwas added as a component to the form of stock options; andlong-term incentive program, as described below. These changes were intended to bring total compensation closer to the other one-third will be in the form of a full-value equity award.median levels.
2009 BGIP Awards
 
In addition to changing the mix of the annual equity award in 2009, the Business Growth Incentive Plan, (theor “BGIP”), was created in 2009. The BGIP iswith the intention of establishing a mid-termcash incentive plan with three-year performance cycles and was created to further incentivize our line executives to focus on a time horizon longer than one year using metrics under their control.year. Due to the extremely adverse economic conditions at the time of the first BGIP awards, however, the 2009 BGIP awards were in the form of PRSUs (formerly referred to as qualified restricted stock units, or QRSUs), the terms of which are identical to the PRSUs granted as one-third of the overall 2009 annual equity award. The executives’ position and salary on grant date determined the amount of the award. The total compensation of our executives, viewed generally by position, relative to that of the peer group’s median, and the mix of compensation components of our executives relative to the peer group were also considerations in setting the percentage of base pay used for determining the maximum award amount. Only elected officers and group presidents, being the executives who are closest to the business in our decentralized


26

structure and who have the biggest impact on operating performance, are eligible for the program. The maximum amount of the award isfor 2009 was based on position and salary on grant date as follows: 100% of base pay for the CEO; 75% for other elected officers and 40% for group presidents.
 
ForPerformance Goal for 2009 both the full-value equity award and the mid-term incentive plan are in the form of qualifying (performance based) restricted stock units. Both awards have a three-year cliff vesting requirement. In addition, for the CEO and the other named executive officers, these awards have performance goals that have been set at the beginning of the performance period.
The performance goal for these awards isall PRSUs granted in 2009 was based on corporate income performance for 2009 at the threshold level for an award under ITW’s annual incentive plan (80% of ITW’sthe Company’s planned 2009 income from continuing operations based on the annual plan approved by the Board of Directors). If eitherDue to the vesting requirement orinability to reasonably set income performance goals in the extremely difficult business conditions present at the time of grant, the measure of income performance was limited to 2009 rather than for the three-year term of the PRSUs.
As reflected in the table on page 26 corporate income achievement for 2009 as a percent of 2009 annual plan income from continuing operations was 81.2%, after a downward adjustment by the Compensation Committee. As this exceeds the threshold level of 80%, the Compensation Committee determined that the income element of the performance goal is not reached,had been met. The PRSU awards will therefore vest upon the executives’ fulfillment of the three-year service element of the award.


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Performance Goal Changes for 2010
For 2010, the performance goal for the PRSU portion of the annual equity award will be forfeited.based on cumulative EPS from continuing operations over a three-year performance period based on a sliding scale. The target is $6.50 cumulative EPS over the three-year performance period. If less than $4.50 cumulative EPS is achieved, none of these PRSUs will vest. If EPS growth is at or above the $4.50 threshold but below the $6.50 target, a portion of the awards will vest in proportion to the level of EPS achieved.
 
Rather thanFor 2010, the number of shares granted, which can fluctuate widely in value, we will be emphasizingBGIP was renamed the value of the grants delivered as the basis for determining the award amounts. The mix of the components of the program will vary based on level of responsibility. For the CEOCompany-wide Growth Plan, or “CGP”, and the other named executive officers, a majority of the long-term incentive compensation will continue to be delivered in the form of stock options. All of these awardsthe award was changed to cash as originally intended. The performance goal for the 2010 CGP cash grant will be made pursuant to the ITW 2006 Stock Incentive Plan. At its February 2009 meeting, the Compensation Committee granted awards, consisting of stock optionsbased 50% on revenue growth and qualifying restricted stock units, having the following values50% on the grant date, to the named executive officers who are serving in 2009:
             
  2009 Annual Equity Award  BGIP
 
Named Executive Officer
 Stock Options  Qualifying RSUs  Qualifying RSUs 
 
David B. Speer $4,440,000  $2,220,000  $1,100,000 
Ronald D. Kropp $621,600  $310,800  $262,500 
Thomas J. Hansen $1,776,000  $888,000  $375,000 
Russell M. Flaum $710,400  $355,200  $293,925 
Hugh J. Zentmyer $—  $—  $— 
average return on invested capital over a three-year performance period.
 
Timing of Long-Term Incentive Awards
 
The Compensation Committee currently meets in February of each year to consider and act with respect to long-term incentive awards for the executive officers for that fiscal year. The Compensation Committee’s February meeting follows ITW’sthe Company’s public release of its earnings results for the recently completed fiscal year. The Compensation Committee acts in compliance with the ITW 2006 Stock Incentive Plan, including the requirement that stock options may not be granted at less than 100% of the fair market value of ITW’s common stock on the date of grant. The exercise price of the awards granted at that meeting wasis based on the closing price of ITW’s stock on that date. We do not time grants for the purpose of enhancing the value of executive compensation.


27

Perquisites & Other Benefits
 
In general, we do not provide perquisites to our named executive officers that are not available to other employees. In 2008, however, we did provide the reimbursement of up to $7,500 per year for financial, tax and estate planning services. This iswas taxable to the extent required by the Internal Revenue Service (“IRS”). These benefits were discontinued in 2009. No named executive officer received in excess of $10,000 in perquisites during 2008,2009, so no perquisites are disclosed in the Summary Compensation Table.
 
Stock Ownership Guidelines
 
We believe that stock ownership is important because it links the interests of ITW’sCompany management and directors with those of our stockholders. Because of the importance of stock ownership, the Board of Directors and the Compensation Committee have adopted stock ownership guidelines for executive officers and directors that they and we believe are appropriate, reasonable and attainable given their responsibilities and compensation levels. As mentioned above, stock ownership relative to the guidelines is one of the factors considered in determining individual stock option awards. The recommended guidelines for stock ownership as a multiple of executive officers’ base pay salaries and of directors’ annual retainers are as follows: chief executive officer, five times; vice chairmen and executive vice presidents, three times; senior vice presidents, two times; vice presidents, one time; and non-employee directors, four times. The Compensation Committee recommends that an executive officer or non-employee director achieve the applicable ownership level within five years. The achievement of these guidelines is reviewed annually. All named executive officers and directors who have been in their positions for five or more years have either satisfied or exceeded the applicable stock


31

ownership guideline. We do not have a policy regarding hedging the economic riskagainst options trading and short sales of this ownership.ITW stock that applies to all recipients of Company equity-based grants (which group includes key employees and all officers and directors) and against any trading in derivatives linked to ITW stock that applies to all Company senior executive officers and directors.
 
Financial Restatements
 
We do not have a policy beyond the requirements of the Sarbanes-Oxley Act of 2002 to retroactively adjust compensation in the event of a restatement of financial or other performance results. We believe that this issue is best addressed when the need actually arises, taking into consideration the specific facts regarding the restatement.
 
Deductibility
 
Internal Revenue Code Section 162(m) limits the deductibility of compensation in excess of $1,000,000 paid to the CEO and certain other executive officers employed at year end.year-end. Certain performance-based compensation and deferred compensation are not included in compensation for purposes of the limit. The Compensation Committee recognizes its obligation to reward performance that increases stockholder value and exercises its discretion in determining whether or not to conform our executive compensation plans to the approach provided for in the Internal Revenue Code.
 
Potential Payments upon Termination or Change in Control
 
We do not have any plans or agreements that are specific and unique to executive officers regarding termination of employment or a change in control of the Company. However, we do


28

have provisions contained in our pension plans, the 1996 and 2006 ITW Stock Incentive Plans, the Executive Incentive Plan, and the ECRIP that provide for retirement benefits, immediate vesting of unvested stock options or certain payments to participants in those plansand cash payouts of restricted stock and performance units in the event of a change in control or certain termination events. You can find further detail below under “Executive Compensation — Potential Payments Upon Termination or Corporate Change” on page 37.41.


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Executive Compensation
 
This section of the proxy statement provides information regarding the compensation of our named executive officers. Each of the following tables reflects thetwo-for-one split of our common stock effected on May 18, 2006.
 
Summary Compensation Table
 
                                                              
           Change
                Change
    
           in Pension
                in Pension
    
           Value and
                Value and
    
         Non-Equity
 Nonqualified
              Non-Equity
 Nonqualified
    
         Incentive Plan
 Deferred
 All Other
            Incentive Plan
 Deferred
 All Other
  
Name and
     Stock
 Option
 Compensation
 Compensation
 Compensation
        Stock
 Option
 Compensation
 Compensation
 Compensation
  
Principal Position
 Year Salary(1) Awards(2) Awards(2) (1)(3) Earnings(4) (5)(6) Total  Year Salary(1) Awards(2) Awards(2) (1)(3) Earnings(4) (5)(6) Total
David B. Speer  2008  $1,099,616   —  $4,166,125  $1,586,200  $3,240,740  $100,822  $10,193,503   2009  $1,100,000  $2,968,337  $4,440,686  $1,256,640  $624,701  $94,017  $10,484,381 
Chairman and Chief  2007  $948,077   —  $2,512,995  $1,781,000  $1,310,313  $89,708  $6,642,093   2008  $1,099,616   —  $6,659,700  $1,586,200  $3,240,740  $100,822  $12,687,078 
Executive Officer  2006  $815,385  $366,586  $1,691,916  $1,615,000  $818,965  $83,305  $5,391,157   2007  $948,077   —  $5,755,600  $1,781,000  $1,310,313  $89,708  $9,884,698 
Ronald D. Kropp  2008  $349,752   —  $543,169  $395,850  $156,473  $25,123  $1,470,367   2009  $350,000  $512,574  $621,696  $307,230  $53,737  $26,105  $1,871,342 
Senior Vice President &  2007  $259,708   —  $311,989  $368,053  $54,530  $16,520  $1,010,800   2008  $349,752   —  $932,358  $395,850  $156,473  $25,123  $1,859,556 
Chief Financial Officer(1)  2006  $217,727  $38,492  $111,998  $212,288  $38,449  $14,395  $633,349   2007  $259,708   —  $863,340  $368,053  $54,530  $16,520  $1,562,151 
Thomas J. Hansen  2008  $499,842   —  $1,965,680  $708,800  $1,117,699  $45,512  $4,337,533   2009  $500,000  $1,129,220  $1,776,272  $449,600  $709,559  $42,308  $4,606,959 
Vice Chairman  2007  $447,231   —  $1,102,416  $800,496  $410,195  $43,023  $2,803,361   2008  $499,842   —  $2,663,880  $708,800  $1,117,699  $45,512  $5,035,733 
  2006  $402,244  $366,586  $422,550  $782,000  $343,590  $41,087  $2,358,057   2007  $447,231   —  $2,877,800  $800,496  $410,195  $43,023  $4,578,745 
Russell M. Flaum  2008  $391,842   —  $773,420  $551,168  $728,146  $34,369  $2,478,945 
E. Scott Santi  2009  $399,135  $903,376  $1,421,022  $345,280  $333,754  $32,470  $3,435,037 
Vice Chairman                        
Russell M. Flaum(7)  2009  $200,472  $580,368  $710,511  $152,256  $178,361  $621,521  $2,443,489 
Former Executive Vice  2008  $391,842   —  $1,065,552  $551,168  $728,146  $34,369  $2,771,077 
President  2007  $374,599   —  $1,151,120  $590,114  $445,719  $35,811  $2,597,363 
Philip M. Gresh, Jr.   2009  $340,000  $545,566  $710,511  $407,592  $355,021  $28,760  $2,387,450 
Executive Vice President  2007  $374,599   —  $502,599  $590,114  $445,719  $35,811  $1,948,842                         
  2006  $360,192  $366,586  $225,360  $648,581  $404,790  $41,857  $2,047,366 
Hugh J. Zentmyer  2008  $379,865   —  $1,626,102  $653,394  $643,441  $87,255  $3,390,057 
Executive Vice President  2007  $351,162   —  $1,173,221  $660,672  $442,558  $35,126  $2,662,739 
  2006  $334,469  $307,016  $366,589  $652,441  $387,548  $37,914  $2,085,977 
 
(1)Salary and non-equity incentive plan compensation for 20082009 includes amounts deferred by the executive under the ECRIP or the Savings and Investment Plan. The amount of deferrals in 20082009 for each named executive officer can be found in footnote 1 to the Nonqualified Deferred Compensation table on page 36;40 the amount of deferrals in 20072008 and 20062007 can be found in footnote 4 to the same table. Deferrals in 20092010 of non-equity incentive plan amounts earned in 20082009 were as follows: Mr. Speer, $444,136;$75,398; Mr. Kropp, $118,755;$18,434; Mr. Hansen, $141,760;$26,976; Mr. Santi, $13,811; Mr. Flaum, $165,350;$50,245; and Mr. Zentmyer, $65,339.Gresh, $24,456.
(2)Represents the expense recognized by ITW in its financial statements as detailed in the Footnote 2 Table below. The assumptions applicable to this valuationthese valuations can be found on page 71 ofin the 2006, page 69 ofNotes to Financial Statements — Stock-Based Compensation contained in the 2007, and beginning on page 72 of the 2008 Illinois Tool Works Inc. Annual Report to Stockholders.


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Footnote 2 Table
                                                 
    1/2/2004
 1/2/2004
 12/10/2004
 12/10/2004
 02/01/2006
 02/01/2006
 02/09/2007
 02/09/2007
 02/08/2008
 02/08/2008
 Total
    Restricted
 Restricted
 Stock
 Stock
 Stock
 Stock
 Stock
 Stock
 Stock
 Stock
 Stock
    Stock
 Stock
 Option
 Option
 Option
 Option
 Option
 Option
 Option
 Option
 Option
    Grant
 Grant
 Grant
 Grant
 Grant
 Grant
 Grant
 Grant
 Grant
 Grant
 Grants
    Shares
 Expense
 Shares
 Expense
 Shares
 Expense
 Shares
 Expense
 Shares
 Expense
 Expense
    Vesting
 Recognized
 Vesting
 Recognized
 Vesting
 Recognized
 Vesting
 Recognized
 Vesting
 Recognized
 Recognized
Name
 Year (#) ($) (#) ($)(a) (#) ($) (#) ($) (#) ($) ($)
 
David B. Speer  2008   —   —   75,000   —   100,000  $1,236,066   100,000  $1,434,936   —  $1,495,123  $4,166,125 
   2007   —   —   75,000   —   100,000  $1,232,651   —  $1,280,344   —   —  $2,512,995 
   2006   8,800  $366,586   75,000  $565,115   100,000  $1,126,801   —   —   —   —  $1,691,916 
Ronald D. Kropp  2008   0       2,500  $25,906   7,500  $92,705   15,000  $215,241   —  $209,317  $543,169 
   2007   —   —   2,500  $27,488   7,500  $92,449   —  $192,052   —   —  $311,989 
   2006   924  $38,492   2,500  $27,488   7,500  $84,510   —   —   —   —  $111,998 
Thomas J. Hansen  2008   0       37,500   —   37,500  $463,524   50,000  $717,468   —  $784,688  $1,965,680 
   2007   —   —   37,500   —   37,500  $462,244   —  $640,172   —   —  $1,102,416 
   2006   8,800  $366,586   37,500   —   37,500  $422,550   —   —   —   —  $422,550 
Russell M. Flaum  2008   0       20,000   —   20,000  $247,213   20,000  $286,987   —  $239,220  $773,420 
   2007   —   —   20,000   —   20,000  $246,530   —  $256,069   —   —  $502,599 
   2006   8,800  $366,586   20,000   —   20,000  $225,360   —   —   —   —  $225,360 
Hugh J. Zentmyer  2008   0       20,000   —   40,000  $181,628   80,000  $378,925   80,000  $1,065,549  $1,626,102 
   2007   —   —   20,000   —   20,000  $401,026   —  $772,195   —   —  $1,173,221 
   2006   7,370  $307,016   20,000   —   20,000  $366,589   —   —   —   —  $366,589 
(a)Since Messrs. Speer, Hansen, FlaumStockholders for 2007 and Zentmyer were retirement eligible as defined by2008 and in our Annual Report onForm 10-K for the terms of this grant, all expenses were recognized by us prior to 2007.year ended December 31, 2009.
 
(3)Represents amounts awarded under our Executive Incentive Plan, based on the executive’s base salary as of December 31 for that year and paid in the following year. Further information regarding this plan and awards thereunder can be found above under “Compensation Discussion and Analysis — Annual Cash Incentives” on page 2225 and below under “Grants of Plan-Based Awards” on page 31.34.
(4)These amounts reflectinclude an amount of interest in the applicable calendar year 2008 considered to be in excess of market rates credited to the deferred compensation accounts of the named executive officers. The amounts also reflect the net change from September 30, 2007 (the plan measurement date in 2007) to December 31, 2008 (the plan measurement date in 2008) in the actuarial present value of the named executives’ accumulated benefits under the ITW Retirement Accumulation Plan and the ITW Nonqualified Pension Plan. The changes in the 2008 pension values were annualized to reflect the change from a September 30 to a December 31 measurement date. Under our deferred compensation plan ECRIP, which is discussed in more detail on page 3640 under “Nonqualified Deferred Compensation,” when a participant attains “retirement” eligibility at age 55 and 10 years of service, his or her account is entitled to a return of 130% of the monthly Moody’s Corporate Bond Yield Average and the excess interest portion is deemed to be amounts exceeding 100% of the monthly Moody’s Corporate Bond Yield Average. This additional interest credit applies to all eligible plan participants, not just the named executive officers. Pursuant to a change enacted by the Compensation Committee, amounts deferred after December 31, 2009, are not eligible to receive the 130% of the Moody’s Rate; therefore, all deferrals after December 31, 2009 will accrue interest at 100% of the Moody’s Rate. The individual amounts of pension benefits and excess interest credits are shown in the table below.


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Footnote 4 Table
 
                                      
       Excess Interest
 Change in Pension Value and
       Excess Interest
 Change in Pension Value and
   Accrual in
 Accrual in
 Credit on Deferred
 Nonqualified Deferred
   Accrual in
 Accrual in
 Credit on Deferred
 Nonqualified Deferred
Name
 Year Accumulation Plan Nonqualified Plan Compensation Compensation Earnings ($) Year Accumulation Plan Nonqualified Plan Compensation Compensation Earnings ($)
David B. Speer  2008  $135,620  $2,998,990  $106,130  $3,240,740   2009  $(41,012) $527,026  $138,687  $624,701 
  2007  $55,211  $1,173,289  $81,813  $1,310,313   2008  $135,620  $2,998,990  $106,130  $3,240,740 
  2006  $46,772  $711,127  $61,066  $818,965   2007  $55,211  $1,173,289  $81,813  $1,310,313 
Ronald D. Kropp  2008  $37,614  $109,300  $9,559  $156,473   2009  $(10,693) $48,644  $15,786  $53,737 
  2007  $22,159  $26,155  $6,216  $54,530   2008  $37,614  $109,300  $9,559  $156,473 
  2006  $19,446  $14,630  $4,373  $38,449   2007  $22,159  $26,155  $6,216  $54,530 
Thomas J. Hansen  2008  $(30,809) $1,080,307  $68,201  $1,117,699   2009  $434,726  $189,999  $84,834  $709,559 
  2007  $76,880  $277,424  $55,891  $410,195   2008  $(30,809) $1,080,307  $68,201  $1,117,699 
  2006  $77,695  $219,341  $46,554  $343,590   2007  $76,880  $277,424  $55,891  $410,195 
E. Scott Santi  2009  $45,473  $272,805  $15,476  $333,754 
 
Russell M. Flaum  2008  $119,649  $564,864  $43,633  $728,146   2009  $(11,408) $135,509  $54,260  $178,361 
  2007  $53,563  $356,372  $35,784  $445,719   2008  $119,649  $564,864  $43,633  $728,146 
  2006  $31,355  $343,470  $29,965  $404,790   2007  $53,563  $356,372  $35,784  $445,719 
Hugh J. Zentmyer  2008  $31,664  $569,954  $41,823  $643,441 
  2007  $107,611  $299,499  $35,448  $442,558 
  2006  $101,045  $255,886  $30,617  $387,548 
Philip M. Gresh, Jr.   2009  $263,574  $(11,961) $103,408  $355,021 
 
(5)ITWThe Company offered few perquisites and none are disclosed here as the combined value of perquisites for any single named executive officer does not exceed $10,000.


30

(6)For 2008,2009, this number represents Company matching contributions to the ECRIP account or the Savings and Investment Plan based on plan formulas for all participants as follows: $100,822$94,017 for Mr. Speer; $25,123$26,105 for Mr. Kropp; $45,512$42,308 for Mr. Hansen; $34,369$32,470 for Mr. Santi; $26,782 for Mr. Flaum; and $38,138$28,760 for Mr. Zentmyer.Gresh. In addition, Mr. Flaum received a non-compete payment of $200,000, separation pay of $381,173, and accrued vacation of $13,566 in 2009 as a result of his retirement on July 1, 2009, under the amountCompany’s Voluntary Enhanced Severance Program.
(7)See “Certain Relationships and Related Transactions — Separation Agreement with Russell M. Flaum” for a description of $49,116.98 was paid to Mr. Zentmyer upon his retirement.Flaum’s separation agreement. Mr. Flaum retired as an officer of the Company effective July 1, 2009, under the Company’s Voluntary Enhanced Severance Program.
 
Grants of Plan-Based Awards
 
The table below provides information regarding plan-based awards granted to our named executive officers during fiscal 20082009 under the Executive Incentive Plan and the 2006 Stock Incentive Plan.
 
                                                            
         All Other
              All Other
 All Other
    
         Option
   Grant Date
          Stock
 Option
   Grant Date
         Awards:
   Fair Value
          Awards:
 Awards:
   Fair Value
   Estimated Future Payouts
 Number of
 Exercise or
 of Stock
    Estimated Future Payouts
 Number of
 Number of
 Exercise or
 of Stock
   Under Non-Equity
 Securities
 Base Price
 and
    Under Non-Equity
 Shares of
 Securities
 Base Price
 and
   Incentive Plan Awards(1) Underlying
 of Option
 Option
    Incentive Plan Awards(1) Stock or
 Underlying
 of Option
 Option
 Grant
 Threshold
 Target
 Maximum
 Options
 Awards
 Awards
  Grant
 Threshold
 Target
 Maximum
 Units
 Options
 Awards
 Awards
Name
 Date ($) ($) ($) (#) ($/Sh)(2) ($)(3)  Date ($) ($) ($) (#)(2) (#) ($/Sh)(3) ($)(4)
David B. Speer  2/8/2008  $448,800  $1,738,000  $2,200,000   500,000  $48.51  $6,660,000   2/13/2009  $448,800  $1,738,000  $2,200,000   94,533   433,593  $35.12  $7,409,023 
Ronald D. Kropp  2/8/2008  $107,100  $414,750  $525,000   70,000  $48.51  $932,400   2/13/2009  $107,100  $414,750  $525,000   16,324   60,703  $35.12  $1,134,270 
Thomas J. Hansen  2/8/2008  $204,000  $790,000  $1,000,000   200,000  $48.51  $2,664,000   2/13/2009  $204,000  $790,000  $1,000,000   35,962   173,437  $35.12  $2,905,492 
E. Scott Santi  2/13/2009  $163,200  $632,000  $800,000   28,770   138,750  $35.12  $2,324,398 
Russell M. Flaum  2/8/2008  $159,895  $619,202  $783,800   80,000  $48.51  $1,065,600   2/13/2009  $159,895  $619,202  $783,800   18,483   69,375  $35.12  $1,290,879 
Hugh J. Zentmyer  2/8/2008  $153,245  $593,448  $751,200   80,000  $48.51  $1,065,600 
Philip M. Gresh, Jr.   2/13/2009  $138,720  $537,200  $680,000   17,375   69,375  $35.12  $1,256,077 
 
(1)These columns reflect the range of potential payouts under the Executive Incentive Plan for the named executive officers as set by the Compensation Committee in February 20082009 for 20082009 performance. Since there is no minimum achievement for the O factors, the “threshold” estimated future payout is based on the minimum P


34

factor payout of 34%, which is realized upon achievement of 80% of prior year income performance. “Target” estimated future payout is based on a P factor of 75%, which is realized upon achievement of 100% of prior year income performance, and 85% achievement of the relevant O factors. “Maximum” estimated future payout is based on a P factor payout of 100%, which is realized upon achievement of 115% of prior year income performance, and 100% achievement of the relevant O factors. Actual payments, as approved by the Compensation Committee in February 20092010 for achievement of 20082009 performance, can be found in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table on page 29.33.
(2)Includes BGIP awards in the form of PRSUs as follows: Mr. Speer, 31,321 units; Mr. Kropp, 7,474 units; Mr. Hansen, 10,678 units; Mr. Santi, 8,542 units; Mr. Flaum, 10,461 units; and Mr. Gresh, 7,261 units.
 
(2)(3)Grant date fair market value was equal to the market closing price of $48.51.$35.12.
 
(3)(4)BasedGrant date fair value of options is based on an implied value of $13.32$10.24 per share as determined using a binomial valuation technique under Financial Accounting Standards No. 123R.Codification, Topic 718. Grant date fair value of PRSUs is based on the assumption that the performance conditions will have been met.


3135

Outstanding Equity Awards at Fiscal Year-End 20082009
 
This table sets forth details, on anaward-by-award basis, regarding the outstanding equity awards held by each of the named executive officers as of December 31, 2008. As of that date, there were no unvested stock awards held by any executive officer; however, outstanding option awards are set forth below.2009.
 
                            
           Stock Awards
                             Equity
 Option Awards   Option Awards Equity
 Incentive
 Number of
 Number of
       Number of
 Number of
     Incentive
 Plan Awards:
 Securities
 Securities
       Securities
 Securities
     Plan Awards:
 Market or
 Underlying
 Underlying
       Underlying
 Underlying
     Number
 Payout Value
 Unexercised
 Unexercised
 Option
     Unexercised
 Unexercised
 Option
   of Unearned
 of Unearned
 Options
 Options
 Exercise
 Option
   Options
 Options
 Exercise
 Option
 Units That
 Units That
 (#)
 (#)
 Price
 Expiration
 Grant
 (#)
 (#)
 Price
 Expiration
 Have Not
 Have Not
Name
 Exercisable Unexercisable ($) Date Date(1) Exercisable Unexercisable ($) Date Vested(2) Vested
David B. Speer  60,000(1)  —  $32.75   12/17/2009   12/14/2001   120,000(3)  —  $31.13   12/14/2011       
  150,000(1)  —  $27.94   12/15/2010   12/10/2004   300,000(4)  —  $47.13   12/10/2014       
  120,000(1)  —  $31.13   12/14/2011   02/01/2006   400,000(5)  —  $42.08   02/01/2016       
  300,000(2)  —  $47.13   12/10/2014   02/09/2007   200,000(3)  200,000  $51.60   02/09/2017       
  300,000(3)  100,000(4) $42.08   2/1/2016   02/08/2008   125,000   375,000  $48.51   02/08/2018       
  100,000(1)  300,000(5) $51.60   2/9/2017   02/13/2009   —   433,593  $35.12   02/13/2019   94,533  $4,536,640 
  —   500,000(6) $48.51   2/8/2018 
Ronald D. Kropp  6,000   —  $32.75   12/17/2009   12/10/2004   10,000   —  $47.13   12/10/2014       
  16,000   —  $27.94   12/15/2010 
  12,000   —  $31.13   12/14/2011 
  10,000   —  $47.13   12/10/2014   02/01/2006   30,000   —  $42.08   02/01/2016       
  22,500   7,500(4) $42.08   2/1/2016   02/09/2007   30,000   30,000  $51.60   02/09/2017       
  15,000   45,000(5) $51.60   2/9/2017   02/08/2008   17,500   52,500  $48.51   02/08/2018       
  —   70,000(6) $48.51   2/8/2018   02/13/2009   —   60,703  $35.12   02/13/2019   16,324  $783,390 
Thomas J. Hansen  60,000   —  $32.75   12/17/2009   12/14/2001   120,000   —  $31.13   12/14/2011       
  66,000   —  $27.94   12/15/2010   12/10/2004   150,000   —  $47.13   12/10/2014       
  02/01/2006   150,000   —  $42.08   02/01/2016       
  02/09/2007   100,000   100,000  $51.60   02/09/2017       
  02/08/2008   50,000   150,000  $48.51   02/08/2018       
  02/13/2009   —   173,437  $35.12   02/13/2019   35,962  $1,725,837 
E. Scott Santi  06/19/2007   8,687   —  $55.12   12/15/2010       
  120,000   —  $31.13   12/14/2011   12/10/2004   60,000   —  $47.13   12/10/2014       
  150,000     $47.13   12/10/2014   02/01/2006   70,000   —  $42.08   02/01/2016       
  112,500   37,500(4) $42.08   2/1/2016   02/09/2007   40,000   40,000  $51.60   02/09/2017       
  50,000   150,000(5) $51.60   2/9/2017   02/08/2008   20,000   60,000  $48.51   02/08/2018       
  —   200,000(6) $48.51   2/8/2018   02/13/2009   —   138,750  $35.12   02/13/2019   28,770  $1,380,669 
Russell M. Flaum  60,000   —  $32.75   12/17/2009   12/15/2000   40,000   —  $27.94   12/15/2010       
  150,000   —  $27.94   12/15/2010   12/14/2001   120,000   —  $31.13   12/14/2011       
  120,000   —  $31.13   12/14/2011   12/10/2004   80,000   —  $47.13   07/01/2014       
  80,000   —  $47.13   12/10/2014   02/01/2006   60,000   —  $42.08   05/31/2010       
  60,000   20,000(4) $42.08   2/1/2016   02/09/2007   60,000   —  $51.60   05/31/2010       
  20,000   60,000(5) $51.60   2/9/2017   02/08/2008   40,000   —  $48.51   05/31/2010       
  —   80,000(6) $48.51   2/8/2018   02/13/2009   —   —   —   —   4,621  $221,762 
Hugh J. Zentmyer  120,000   —  $27.94   12/15/2010 
Philip M. Gresh, Jr.   12/14/2001   80,000   —  $31.13   12/14/2011       
  100,000   —  $31.13   12/14/2011   12/10/2004   80,000   —  $47.13   12/10/2014       
  80,000   —  $47.13   12/10/2014   02/01/2006   80,000   —  $42.08   02/01/2016       
  60,000   20,000(4)(7) $42.08   2/1/2016   02/09/2007   40,000   40,000  $51.60   02/09/2017       
  20,000   60,000(5)(7) $51.60   2/9/2017   02/08/2008   20,000   60,000  $48.51   02/08/2018       
  —   80,000(6)(7) $48.51   2/8/2018   02/13/2009   —   69,375  $35.12   02/13/2019   17,375  $833,813 
 
(1)Stock options vest at the rate of 25% per year from grant date with exceptions for termination upon death, disability, retirement and change in control. Stock options granted in 2000, 2001, 2004 and 2006 contain a reload feature providing that if the exercise price is paid by surrender of previously owned shares of ITW common stock, a new option in the amount of the shares surrendered will be granted. The exercise price of the new option would equal the market value of a share of ITW common stock on the date of grant. The new option will vest in one year, provided the shares acquired on exercise of the underlying option are held for one year, and will expire on the same date as the underlying option.


36

(2)PRSUs are subject to three-year vesting as well as a performance goal.
(3)Entire award transferred to a family limited partnership.
 
(2)(4)Stock options for 225,000 of these shares were transferred to a family limited partnership.
 
(3)(5)Stock options for 200,000 of these shares were transferred to a family limited partnership.
(4)Stock options vest at the rate of 25% per year, with remaining vesting date of December 7, 2009.
(5)Stock options vest at the rate of 25% per year, with vesting dates of February 9, 2009, 2010 and 2011.
(6)Stock options vest at the rate of 25% per year, with vesting dates of February 8, 2009, 2010, 2011, and 2012.
(7)These stock options fully vested upon Mr. Zentmyer’s retirement on December 31, 2008.


32

 
Option Exercises and Stock Vested
 
This table provides information for each named executive officer concerning the exercise of stock options during fiscal 2008. No named executive officer had any unvested restricted stock in 2008.2009. The value realized upon the exercise of options is calculated using the difference between the option exercise price and the market price at the time of exercise multiplied by the number of shares underlying the option.
 
                        
 Option Awards  Option Awards Stock Awards 
 Number of
    Number of
   Number of
   
 Shares
    Shares
   Shares
   
 Acquired
 Value Realized
  Acquired
 Value Realized
 Acquired
 Value Realized
 
 on Exercise
 on Exercise
  on Exercise
 on Exercise
 on Vesting
 on Vesting
 
Name
 (#) ($)  (#) ($) (#) ($) 
David B. Speer  60,000  $1,285,457   210,000  $3,034,145         
Ronald D. Kropp  4,000  $11,318   34,000  $479,220         
Thomas J. Hansen  —   —   126,000  $878,651         
E. Scott Santi  40,460  $797,706         
Russell M. Flaum  50,000  $366,000   170,000  $2,483,187   4,621  $221,762 
Hugh J. Zentmyer  —   — 
Philip M. Gresh, Jr.   76,000  $1,616,917         
 
Pension Benefits
 
The following table provides information regarding participation by the named executive officers in pension benefit plans through our financial statement measurement date of December 31, 2008. No2009. Other than Mr. Flaum, no payments were made to a named executive officer under the plans in 2008.2009.
 
           
    Number of
 Present
    Years of
 Value of
    Credited
 Accumulated
    Service
 Benefit
Name
 
Plan Name
 (#) ($)(1)
 
David B. Speer ITW Retirement Accumulation Plan  30.553  $800,147 
  ITW Nonqualified Pension Plan  30.553  $7,347,677 
Ronald D. Kropp ITW Retirement Accumulation Plan
15.083$174,323ITW Nonqualified Pension Plan15.083$189,094Thomas J. HansenITW Retirement Accumulation Plan28.256$1,341,607ITW Nonqualified Pension Plan28.256$2,723,222Russell M. FlaumITW Retirement Accumulation Plan33.250$691,065ITW Nonqualified Pension Plan33.250$2,499,835Hugh J. ZentmyerITW Retirement Accumulation Plan39.000(2)$1,661,863ITW Nonqualified Pension Plan39.000(2)$1,496,837
               
    Number of
  Present
    
    Years of
  Value of
  Payments
 
    Credited
  Accumulated
  During Last
 
    Service
  Benefit
  Fiscal Year
 
Name
 
Plan Name
 (#)  ($)(1)  ($) 
 
David B. Speer ITW Retirement Accumulation Plan  31.553  $759,134     
  ITW Nonqualified Pension Plan  31.553  $7,874,702     
Ronald D. Kropp ITW Retirement Accumulation Plan  16.083  $163,631     
  ITW Nonqualified Pension Plan  16.083  $237,738     
Thomas J. Hansen ITW Retirement Accumulation Plan  29.256  $1,776,333     
  ITW Nonqualified Pension Plan  29.256  $2,913,221     
E. Scott Santi ITW Retirement Accumulation Plan  27.621  $388,906     
  ITW Nonqualified Pension Plan  27.621  $987,196     
Russell M. Flaum(2) ITW Retirement Accumulation Plan  N/A  $0  $679,657 
  ITW Nonqualified Pension Plan  33.750  $2,635,344     
Philip M. Gresh, Jr.  ITW Retirement Accumulation Plan  20.542  $1,394,156     
  ITW Nonqualified Pension Plan  20.542  $1,126,854     
 
(1)Assuming the individual receives a lump sum distribution at normal retirement, present values are based on the 6.50%5.50% discount rate used for financial reporting purposes.
 
(2)Mr. Zentmyer had 40.519 yearsFlaum received a lump sum distribution on August 1, 2009 as a result of actual service, but the Signode pension plan in which he participated prior to 1987 only recognized service after 1969.his retirement on July 1, 2009.


3337

ITW Retirement Accumulation Plan
 
We maintain the ITW Retirement Accumulation Plan (the “Pension Plan”) for the benefit of eligible employees of participating U.S. business units to provide a portion of the income necessary for retirement. The Pension Plan was closed to new entrants effective January 1, 2007. The Pension Plan is structured as a “pension equity plan” under which a participant accumulates certain percentages for each year during his or her years of plan participation. The accumulated percentages (from both columns shown below), when multiplied by final average annual pay (generally, salary and executive incentive payable in the years from the highest five out of the last ten complete calendar years of service), produce an amount that can be received as a lump sum payment or an actuarially equivalent lifetime annuity. For each year of credited service after December 31, 2000, percentages are structured as follows:
 
         
    On Final Average Pay in Excess
Age During the Year
 On Total Final Average Pay of Covered Compensation(1)
 
Less than 30  2%   2% 
30-34  3%   2% 
35-39  4%   2% 
40-44  5%   2% 
45  7%   2% 
46-49  7%   6% 
50-54  10%   6% 
55-59  13%   6% 
60 or older  16%   6% 
 
(1)Covered compensation is a35-year average of the maximum earnings recognized in calculating Social Security benefits. For 2008,2009, the amount of covered compensation for an individual attaining age 65 was $56,484,$56,628, while for an employee age 33 or younger it was $102,000.$106,800.
 
The Pension Plan’s normal retirement age is the latterlater of age 65 or the fifth anniversary of employment if the participant was hired after age 60. A Pension Plan participant is vested after three years of employment.
 
Prior to 2001, the Pension Plan operated under a traditional annuity formula (a normal retirement benefit equal to 1% of final average pay and 0.65% of such pay in excess of covered compensation for each of the first 30 years of credited service plus 0.75% of average pay for any additional years). Accrued benefits as of December 31, 2000 under the traditional annuity formula were converted to an initial pension equity percentage by calculating the lump sum value of the normal retirement annuity and dividing by the average annual pay at that time. Anyone who had participated in the Pension Plan for five years as of December 31, 2000 and whose age plus vesting service equaled at least 50 years was entitled to additional pension equity credits of 4% of final average pay per year for up to 15 years of credited service.
 
As part of the transition to the pension equity formula, anyone who participated in the Pension Plan as of December 31, 2000, had at least five years of vesting service and had attained age 50 by that date, was entitled to a benefit under the pre-2001 formula if that benefit was more valuable than the benefits calculated under the new formula.


34

The Pension Plan adopted in 2001 does not provide for a specific early retirement age but, once a participant is vested, he or she can terminate employment and receive the lump sum


38

computed under the above formula or an actuarially equivalent immediate annuity benefit. The pre-2001 Pension Plan provided that upon attaining age 55 with at least 10 years of service, a participant could elect an early retirement pension. If the sum of the participant’s age and service at early retirement was at least 90, the portion of the benefit that is based solely on total average pay would not be reduced; otherwise, that portion would be reduced at the rate of 0.25% for each month early retirement occurred before the normal retirement date. The portion of the pre-2001 formula that was based on pay in excess of covered compensation was subject to reductions of 1/180th for each of the first 60 months prior to the normal retirement date and1/360th for each additional month. Any lump sum elected under the pre-2001 formula would be computed as the actuarial present value of an early retirement benefit commencing no earlier than age 62. Messrs. Hansen, Flaum and ZentmyerGresh are subject to alternative calculations under the pre-2001 Pension Plan formula.
 
Nonqualified Pension Plan
 
The Nonqualified Pension Plan is maintained to make up for benefits that cannot be paid under the tax-qualified Pension Plan due to Internal Revenue Code limitations on the amount of compensation that may be considered and the amount of benefit that may be payable. ITWThe Company has not considered granting additional years of service to executive officers under the plan and, therefore, does not currently have a policy on such grants. For the most part, the Nonqualified Pension Plan uses the same formulas and other computation elements as the Pension Plan with certain exceptions, including the following:
 
1. The Pension Plan uses net compensation after deferrals under the current ECRIP and the Nonqualified Pension Plan uses total eligible compensation (generally salary and non-equity incentive compensation).
 
2. The Nonqualified Pension Plan provides that a participant who leaves ITW,the Company, other than upon retirement, will forfeit any plan benefits other than those attributable to any deferredbased on eligible compensation that reduces Pension Plan considered compensation belowabove the maximum amount ($230,000245,000 in 2008)2009) that may be recognized under a tax-qualified plan.
 
3. In addition to the annuity and lump sum options available under the Pension Plan, a participant in the Nonqualified Pension Plan may elect to receive fixed monthly installments over 2 to 20 years.


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Nonqualified Deferred Compensation
 
The following table sets forth information regarding participation by the named executive officers in the ECRIPs during fiscal year 2008. There2009. Other than Mr. Flaum, who retired on July 1, 2009 and therefore began receiving payments according to plan provisions and his pre-determined distribution elections, there were no withdrawals by, or distributions to, a named executive officer under the ECRIP in 2008.2009.
 
                                    
 Executive
 Registrant
 Aggregate
 Aggregate Balance
  Executive
 Registrant
 Aggregate
 Aggregate Balance
 Aggregate
 
 Contributions in
 Contributions in
 Earnings in
 at December 31,
  Contributions in
 Contributions in
 Earnings in
 at December 31,
 Distributions in
 
 2008
 2008
 2008
 2008
  2009
 2009
 2009
 2009
 2009
 
Name
 ($)(1) ($)(2) ($)(3) ($)(3)(4)  ($)(1) ($)(2) ($)(3) ($)(3)(4) ($) 
David B. Speer $773,584  $100,822  $459,895  $6,169,563  $719,136  $94,017  $600,977  $7,583,694     
Ronald D. Kropp $141,731  $25,123  $41,421  $600,782  $223,755  $26,105  $68,406  $919,047     
Thomas J. Hansen $285,060  $45,512  $295,536  $3,913,353  $266,760  $42,308  $367,613  $4,590,034     
E. Scott Santi $92,771  $32,470  $67,062  $858,945     
Russell M. Flaum $171,039  $34,369  $189,077  $2,482,192  $178,193  $26,782  $235,126  $2,848,316  $73,977 
Hugh J. Zentmyer $104,676  $38,138  $181,232  $2,382,567 
Philip M. Gresh, Jr.  $154,428  $28,760  $448,103  $5,516,120     
 
(1)Includes deferrals of 20082009 salary reflected in the Salary column of the Summary Compensation Table (Mr. Speer, $274,904;$275,000; Mr. Kropp, $104,926;$105,000; Mr. Hansen, $124,961;$125,000; Mr. Santi, $39,913; Mr. Flaum, $23,510;$12,842; and Mr. Zentmyer, $38,608)Gresh, $34,000). Also includes deferrals of 20072008 executive incentive amounts paid in 20082009 reflected in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table for 20072008 (Mr. Speer, $498,680;$444,136; Mr. Kropp, $36,805;$118,755; Mr. Hansen, $160,099;$141,760; Mr. Santi, $52,858; Mr. Flaum, $147,529;$165,351; and Mr. Zentmyer, $66,067)Gresh, $120,428).
 
(2)These amounts are also included in the All Other Compensation column of the Summary Compensation Table for 2008.2009.
 
(3)Footnote 4 to the Summary Compensation Table sets forth above-market interest for 20082009 included in aggregate earnings in this table. If Mr. Kropp’s employment is terminated prior to him being “retirement eligible”, he will forfeit above-market interest of $9,559$15,786 for 20082009 and $32,509$50,873 in the aggregate. If Mr. Santi’s employment is terminated prior to him being “retirement eligible”, he will forfeit above-market interest of $15,476 for 2009 and $59,113 in the aggregate. Above-market interest was discontinued for amounts deferred after December 31, 2009.
 
(4)In addition to the registrant’s contributions shown in the table above, and excess interest as disclosed for 20082009 in footnote 4 to the Summary Compensation Table, includes the following amounts of executive and registrant contributions to the ECRIP and excess interest reported as compensation in the Summary Compensation Table for 20072008 and 2006:2007:
 
Footnote 4 Table
 
                
 Year Ended
 Year Ended
  Year Ended
 Year Ended
 
Name
 December 31, 2007 December 31, 2006  December 31, 2008 December 31, 2007 
David B. Speer $860,740  $93,950  $980,535  $860,740 
Ronald D. Kropp $98,906  $44,652  $176,413  $98,906 
Thomas J. Hansen $367,122  $161,193  $397,772  $367,122 
Russell M. Flaum $223,788  $64,183  $249,041  $223,788 
Hugh J. Zentmyer $167,423  $72,426 
 
In 1985, ITWthe Company established an Executive Contributory Retirement Income Plan (the “1985 ECRIP”), which offered designated executives an opportunity to defer a portion of their salary and executive incentive earned in 1985 through 1989 to a deferred compensation account, to receive the matching contributions they would otherwise receive if such deferrals had


40

been made under our tax-qualified Savings and Investment Plan (in lieu of any matching contributions under that plan) and to receive a rate of interest on the account equal to 130% of the monthly Moody’s


36

Corporate Bond Yield Average (the “Moody’s Rate”) if their employment ended due to death, disability or retirement after age 55 with at least ten years of service (five years if over age 65). The account was to be credited with 100% of the Moody’s Rate if the executive left employment before death, disability or retirement. During 2008,2009, the crediting rate ranged from 6.08%5.87% to 6.45%7.31% for persons not yet retirement eligible and 7.90%7.63% to 8.39%9.50% for those who were retirement eligible.
 
With certain exceptions, the 1985 ECRIP account is paid in monthly installments over 15 years following a death, disability or retirement event and in a lump sum following any other termination of employment. Messrs. Speer and Hansen were designated as eligible for the 1985 ECRIP.
 
In 1993, ITWthe Company established a new Executive Contributory Retirement Income Plan (the “Current ECRIP” and, together with the 1985 ECRIP, the “ECRIP”), which has most of the same features as the 1985 ECRIP. All of the named executive officers are eligible for the Current ECRIP. The Current ECRIP has a limit on the amount of interest under the Moody’s Rate that would be recognized (12% annualized, or 15.6% for those who are retirement eligible), a return of deferral feature whereby an individual could elect to receive a return of the principal amount deferred after a period of at least five years, and options for payment following death, disability or retirement in a lump sum or in monthly installments over 2 to 20 years. SubjectAmounts deferred after December 31, 2009 are not eligible to approval ofreceive the Board of Directors, the Compensation Committee determined to discontinue the payment of 130% of the Moody’s Rate on amounts deferred after January 1, 2010. If the Board approves a plan amendment with this change,Rate; therefore, all deferrals after January 1, 2010December 31, 2009 will accrue interest at 100% of the Moody’s Rate.
 
A Current ECRIP participant can defer up to 50% of his or her salary and up to 85% of his or her executive incentive. The minimum deferral of either salary or executive incentive is 6%, which results in the 3.5% maximum matching contribution on either component under the Savings and Investment Plan formula. Executives who participate in the Current ECRIP forego matching contributions under the Savings and Investment Plan, and deferrals under the Current ECRIP reduce the compensation that may be recognized under the Savings and Investment Plan and the tax-qualified Pension Plan.
 
Potential Payments upon Termination or Corporate Change
 
The following describes the potential payments upon termination or a change of control of ITWthe Company for the named executive officers. ITWThe Company does not maintain any individual plans or agreements with regard to the treatment of executive officers for termination or change of control purposes. The compensation payouts described below are provided under specific plans, including the ECRIPs, the Retirement Accumulation Plan, the Nonqualified Pension Plan, the Executive Incentive Plan and the ITW 1996 and 2006 Stock Incentive Plans. These plans provide for compensation to all participants in the plans in the event of a change of control or certain termination events.
 
The information set forth below assumes the effective date of the termination event is the last business day of the fiscal year, December 31, 2008.2009.
Mr. Flaum retired as executive vice president of the Company as of July 1, 2009. See “Certain Relationships and Related Transactions” for a description of payments made to


3741

Mr. Flaum pursuant to a separation agreement dated June 15, 2009 between the Company and Mr. Flaum.
In the event of termination upon a corporate change, death or disability, or upon retirement (defined as termination after age 62 and 10 years of service), all unvested stock options held by the named executive officers would immediately vest. The stock options granted in February 2006, 2007 and 2008 to Mr. Zentmyer vested upon his retirement on December 31, 2008; but noNo named executive officer except Mr. Zentmyer was at least age 62 as of December 31, 2008;2009; therefore, in the event of a termination due to early retirementother than upon corporate change, death, or disability the unvested options grantedheld on such dates todate by the other named executive officers would not vest. All other unvested stock options will vest for each named executive officer other than Mr. Kropp, who is not eligible for early retirement. The following amounts are the value of unvested stock options that would accelerateif accelerated upon termination, determined using the excess, if any, of $35.05$47.99 (the closing price of ITW common stock on December 31, 2008)2009) over the option exercise price and assuming that all unvested and accelerated stock options are exercised upon the termination event:price: Mr. Speer, $1,675,875;$5,580,342; Mr. Kropp, $781,248; Mr. Hansen, $1,078,425;$2,232,134; Mr. Flaum, $1,675,875;Santi, $1,785,713; and Mr. Zentmyer, $1,246,000.Gresh, $892,856.
In the event of termination upon a corporate change, all PRSU’s would immediately vest and be paid in cash. In the event of termination upon death or disability, all PRSU’s would immediately vest. In the event of termination upon retirement (defined as termination after (1) age 62 with 10 years of service or (2) age 65 with 5 years of service), PRSUs granted less than one year prior to retirement will become 25% vested, and PRSUs granted more than one year prior to retirement will become 100% vested. No named executive officer was at least age 62 as of December 31, 2009; therefore, in the event of a termination other than upon corporate change, death, or disability, the unvested PRSU’s held on such date by the named executive officers would not vest. The following amounts are the cash value of PRSUs to be paid upon a corporate change, determined using a PRSU value of $47.99 (the closing price of ITW common stock on December 31, 2009): Mr. Speer, $4,536,640; Kropp, $783,390; Mr. Hansen, $1,725,836; Mr. Santi, $1,380,669; and Mr. Gresh, $833,813.
 
The Executive Incentive Plan provides that if a participant is employed as of the last day of the fiscal year, he or she would receive any amounts earned under the Executive Incentive Plan for that fiscal year. If the termination of employment other than for death, disability or retirement occurs prior to the last day of the fiscal year, a participant forfeits his or her award; however, the Compensation Committee has the discretion to award an amount prorated for the portion of the fiscal year that the participant was employed. As discussed in more detail above in “Compensation Discussion and Analysis — Annual Cash Incentives,” actual amounts earned based on performance by the named executive officers in 20082009 were as follows: Mr. Speer, $1,586,200;$1,256,640; Mr. Kropp, $395,850;$307,230; Mr. Hansen, $708,800;$449,600; Mr. Flaum, $551,168;Santi, $345,280; and Mr. Zentmyer, $653,394.Gresh, $407,592.
 
As discussed above under the “Pension Benefits — ITW Retirement Accumulation Plan” on page 34,38, employees meeting certain age and service conditions were entitled to the greater of the pension benefit under the pension equity formula or a benefit under the pre-2001 formula. The latter formula provides a potential for a so-called “early retirement subsidy” to the extent that the early reduction adjustments do not reflect an actuarial equivalence between the benefit at early payment and the normal retirement benefit. Messrs. Hansen Flaum and ZentmyerGresh are subject to those alternate calculations. Under any termination scenario discussed below, as of December 31, 2008,


42

2009, the named executive officers are eligible for the following amounts under the Pension Plan and the Nonqualified Pension Plan:
 
                        
   Nonqualified
      Nonqualified
  
Name
 Pension Plan Pension Plan Total  Pension Plan Pension Plan Total
David B. Speer $685,819  $6,297,818  $6,983,637  $759,134  $7,874,703  $8,633,837 
Ronald D. Kropp $144,349  $154,635  $298,984  $163,627  $237,742  $401,369 
Thomas J. Hansen $2,019,505  $2,292,691  $4,312,196  $2,213,923  $3,698,494  $5,912,417 
Russell M. Flaum $599,161  $2,305,071  $2,904,232 
Hugh J. Zentmyer $2,077,436  $993,906  $3,071,342 
E. Scott Santi $388,906  $987,197  $1,376,103 
Philip M. Gresh, Jr.  $1,644,649  $1,278,468  $2,923,117 
 
Under any termination scenario discussed below, executive officers in the ECRIP, our nonqualified deferred compensation plans, would be entitled to payments of their account balances either in a lump sum or in a series of installments they may elect with respect to distributions commencing after age 55 and the completion of at least ten years of service. Unless an ECRIP participant meeting the latter requirement elected prior to termination to defer


38

commencement of such payments to a later date, payments commence as of the first of the month following termination.
 
The following amounts show the January 1,December 31, 2009 present value (calculated at a 6.50%5.50% discount rate) of the payments that would be made pursuant to plan terms and the named executive officers’ previous elections if their termination of employment had occurred on the last business day of the fiscal year, assuming that the crediting rate on their ECRIP account(s) remained at the average of the 130% of Moody’s Rate credited in 20082009 of 8.3885%8.9241% throughout the distribution period: Mr. Speer, $6,211,179;$7,670,502; Mr. Kropp, $578,040;$899,347; Mr. Hansen, $4,229,007;$5,248,478; Mr. Flaum, $2,732,092;Santi, $799,832; and Mr. Zentmyer, $2,572,587.Gresh, $6,640,909.
 
Voluntary Termination (prior to age 55 or less than 10 years of service)
 
Mr.Messrs. Kropp isand Santi are the only named executive officerofficers eligible for voluntary termination. As noted above, hethey would be eligible to receive payments under the Executive Incentive Plan, the Pension Plan, and the ECRIP.
 
Retirement Prior to Age 65 (minimum 55 years of age and 10 years of service)
 
All of the named executive officers, other than Mr.Messrs. Kropp and Santi, are eligible for retirement benefits if they retire prior to age 65 because they are at least 55 years of age and have 10 years of service. As noted above, they would be eligible to receive payments under the Executive Incentive Plan, 1996 Stock Incentive Plan, Pension Plan, Nonqualified Pension Plan and the ECRIP.
 
Normal Retirement (65 years of age and 10 years of service)
 
None of the named executive officers are eligible for termination benefits for normal retirement as none have reached the age of 65.
 
Involuntary Not for Cause Termination
 
The named executive officers would be eligible to receive payments shown above, in the case of Mr.Messrs. Kropp and Santi, under “Voluntary Termination,” or in the case of each other named executive officer, under “Retirement Prior to Age 65.”


43

Involuntary Termination upon a Corporate Change
 
Under the ITW 1996 and 2006 Stock Incentive Plans and the Executive Incentive Plan, a Corporate Change is defined generally as (1) a dissolution, (2) a merger, consolidation, reorganization or similar transaction after which the stockholders immediately prior to the effective date thereof hold less than 70% of the outstanding common stock of the surviving entity, (3) a sale of all or substantially all of ITW’sthe Company’s assets (specified for purposes of the 2006 Stock Incentive Plan as assets with a gross fair market value of at least 40% of the total gross fair market value of all of ITW’sthe Company’s assets), (4) any person or group becoming the beneficial owner of more than 30% of the outstanding ITW common stock, or (5) more than a 50% turnover in the membership of the Board of Directors under circumstances not approved by the then-current Board.


39

The named executive officers are eligible to receive payments under the Pension Plan, the Nonqualified Pension Plan, and the ECRIP, as mentioned above. In addition, as set forth in the table below, under the Executive Incentive Plan, they would be entitled to a lump sum payment representing the maximum P factor and O factor awards payable for the fiscal year, and all of their unvested stock option awards received under the ITW 1996 and 2006 Stock Incentive Plans would immediately vest and all restricted stock units would immediately be paid in cash.
 
                                
 Executive
 1996 Stock
 2006 Stock
    Executive
 1996 Stock
 2006 Stock
  
Name
 Incentive Plan Incentive Plan Incentive Plan Total  Incentive Plan Incentive Plan Incentive Plan Total
David B. Speer $2,200,000  $1,675,875   —  $3,875,875  $2,200,000  $4,645,800  $10,116,982  $16,962,782 
Ronald D. Kropp $525,000  $174,700   —  $874,700  $525,000  $185,900  $1,564,638  $2,275,538 
Thomas J. Hansen $1,000,000  $1,078,425   —  $2,078,425  $1,000,000  $3,039,300  $3,957,970  $7,997,270 
Russell M. Flaum $783,800  $1,675,875   —  $2,459,675 
Hugh J. Zentmyer $751,200  $1,246,000   —  $1,997,200 
E. Scott Santi $800,000  $465,300  $3,166,382  $4,431,682 
Philip M. Gresh, Jr.  $680,000  $1,890,800  $1,726,669  $4,297,469 
 
Disability or Death
 
In the event a named executive officer becomes permanently disabled or dies, the named executive officer would be eligible for the same maximum payments under these plans as those described above under “Involuntary Termination upon a Corporate Change.”
 
Equity Compensation Plan Information
 
The following table provides information as of December 31, 20082009 about ITW’sthe Company’s existing equity compensation plan, the 2006 Stock Incentive Plan, which is an amendment and restatement of ITW’s 1996 Stock Incentive Plan.
 
                        
     (c)
      (c)
 
     Number of securities
      Number of securities
 
 (a)
 (b)
 remaining available for
  (a)
   remaining available for
 
 Number of securities
 Weighted-average
 future issuance under
  Number of securities
 (b)
 future issuance under
 
 to be issued upon
 exercise price of
 equity compensation
  to be issued upon
 Weighted-average
 equity compensation
 
 exercise of outstanding
 outstanding
 plans (excluding
  exercise of outstanding
 exercise price of
 plans (excluding
 
 options, warrants and
 options, warrants
 securities reflected in
  options, warrants and
 outstanding
 securities reflected in
 
Plan Category
 rights and rights column (a))  rights options column (a)) 
Equity compensation plans approved by security holders  22,763,257  $41.66   40,542,071(1)  22,475,330(1) $42.42   37,196,314 
 
(1)TheseIncludes directors’ deferred shares, remain available for issuance under the 2006 Stock Incentive Plan.and shares subject to restricted stock awards and PRSUs.


4044

 
Compensation Committee Report
 
The Compensation Committee of the Board of Directors hereby furnishes the following report to the stockholders of the Company in accordance with rules adopted by the Securities and Exchange Commission.
 
We have reviewed and discussed with management the Compensation Discussion and Analysis contained in this proxy statement. Based on our review and discussions, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and the Company’s Annual Report onForm 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2008.2009.
 
This report is submitted on behalf of the members of the Compensation Committee:
 
William F. Aldinger, Chairman

Susan Crown

Robert S. Morrison

James A. Skinner

Pamela B. Strobel


4145

 
Certain Relationships and Related Transactions
 
Practices Regarding Related Transactions
 
We review related-party transactions in accordance with our Statement of Principles of Conduct, by-laws and Corporate Governance Guidelines rather than a separate written policy. A related-party transaction is a transaction involving ITWthe Company and any of the following persons: a director, director nominee or executive officer of ITW;the Company; a holder of more than 5% of ITW common stock; or an immediate family member or person sharing the household of any of these persons.
 
Our Statement of Principles of Conduct states that our directors, officers and employees must avoid engaging in any activity, such as related-party transactions, that might create a conflict of interest or a perception of a conflict of interest. These individuals are required to raise for consideration any proposed or actual transaction that they believe may create a conflict of interest. Our by-laws provide that no related-party transaction is void or voidable solely because a director has an interest if (1) the material facts are disclosed to or known by the Board of Directors and the transaction is approved by the disinterested directors or an appropriate Board committee comprised of disinterested directors, (2) the material facts are disclosed to or known by the stockholders and the transaction is approved by the stockholders, or (3) the transaction is fair to ITWthe Company as of the time it is approved. Our Corporate Governance Guidelines provide that the Board will apply established Categorical Standards for Director Independence in making its independence determinations. Under the standards, certain relationships between ITWthe Company and a director would preclude a director from being considered independent.
 
On an annual basis, each director and executive officer completes a Directors’ and Officers’ Questionnaire, which requires disclosure of any transactions with ITWthe Company in which he or she, or any member of his or her immediate family, has a direct or indirect material interest. The Corporate Governance and Nominating Committee reviews these Questionnairesquestionnaires and discusses any related-party transaction disclosed therein.
 
In addition, under its charter, the Audit Committee is responsible for reviewing, approving, ratifying or disapproving all proposed related-party transactions that, if entered into, would be required to be disclosed under the rules and regulations of the SEC. In reviewing related-party transactions, the Audit Committee considers the factors set forth in our Statement of Principles of Conduct, by-laws and Corporate Governance Guidelines as well as other factors, including ITW’sthe Company’s rationale for entering into the transaction, alternatives to the transaction, whether the transaction is on terms at least as fair to ITWthe Company as would be the case were the transaction entered into with a third party, and the potential for an actual or apparent conflict of interest. No member of the Audit Committee having an interest in a related-party transaction may participate in any decision regarding that transaction.
 
ConsultingCommercial Banking Services Provided by The Northern Trust Company
We maintain a commercial banking relationship with The Northern Trust Company and its wholly owned subsidiaries. The Northern Trust Company is a wholly owned subsidiary of Northern Trust Corporation and beneficially owns 11.6% of our common stock. Ms. Susan Crown and Messrs. Robert C. McCormack and Harold B. Smith, directors of the Company, are also directors of Northern Trust Corporation and The Northern Trust Company. In 2009 The


46

Northern Trust Company provided the following services to the Company: credit services, treasury and investment management services, trade services, credit enhancement or payment guaranty, acting as agent or fiduciary, consulting services, risk management services, securities lending services and broker dealer services. In addition, The Northern Trust Company serves as the trustee under the Company’s principal pension plans. The banking and trustee relationships with The Northern Trust Company are conducted in the ordinary course of business on an arms-length basis. Banking, investment management, trustee and other administrative fees paid to The Northern Trust Company or affiliates by the Company were approximately $2.1 million in 2009. In addition, in October 2009 the Company made a $2.9 million collateral deficiency payment to CORE USA, a fund sponsored by The Northern Trust Company in connection with its securities lending program, in order to exit the program.
Separation Agreement with Hugh J. ZentmyerRussell M. Flaum
 
On January 5,June 15, 2009, ITWthe Company entered into a Consulting Agreementseparation agreement with Hugh J. Zentmyer,Russell M. Flaum, who retired as an executive vice president of ITWthe Company as of July 1, 2009, under the Company’s Voluntary Enhanced Severance Program. He received separation pay of $381,173, a pro-rated portion of his 2009 annual cash incentive bonus of $152,256, 4,621 shares of ITW stock, representing 25% of his PRSU granted in 2009, and accelerated vesting of options for 77,344 ITW shares, for which the exercise period was extended to May 31, 2010. All other original grant terms for stock options and restricted stock units remained in effect. He also received accrued and unpaid vacation pay, certain health and dental benefits, and any other benefits to which he was entitled under the terms of ITW’s benefit plans. The Company also agreed to pay Mr. Flaum $600,000 in three equal installments on December 31, 2008. Pursuant2009, July 2, 2010 and December 31, 2010, of which $10,000 was in consideration of a mutual release, and the balance was in consideration of his confidentiality obligations and his agreement not to compete with the agreement, Mr. Zentmyer is to provide management consulting services as assigned by the


42

Chief Executive Officer of ITWCompany for a sum of $12,000 per month, plus reasonable expenses. The agreement has an initial one-year term with an optionending December 31, 2010, and agreed to extend on a monthly basis thereafter.
Mr. Zentmyer is subjectreimburse him for his legal costs up to nondisclosure provisions during the term of the agreement and for five years thereafter, as well as to a noncompetition provisions during the term of the agreement and for one year thereafter. The agreement also provides for indemnification by Mr. Zentmyer and by ITW under certain circumstances.$3,000.
 
Audit Committee Report
 
The Audit Committee of the Board of Directors is composed of fivesix independent directors, as defined in the listing standards of the New York Stock Exchange. In addition, the Board of Directors has determined that all Audit Committee members are “financially literate” and that Ms. Strobel and Messrs. Davis, McCormack, David Smith and Skinner meet the Securities and Exchange Commission criteria of “audit committee financial expert”. The Audit Committee operates under a written charter adopted by the Board of Directors, which was most recently reviewed by the Audit Committee in February 2009.2010.
 
The Audit Committee is responsible for providing oversight to ITW’sthe Company’s financial reporting process through periodic meetings with ITW’s independent registered public accountants, internal auditors and management in order to review accounting, auditing, internal control and financial reporting matters. The Audit Committee is also responsible for assisting the Board in overseeing: (a) the integrity of ITW’sthe Company’s financial statements; (b) ITW’sthe Company’s compliance with legal and regulatory requirements; (c) the independent registered public accounting firm’s qualifications, independence and performance; (d) the Company’s overall risk policies and (d)practices; and (e) the performance of ITW’sthe Company’s internal audit function. ITW’sCompany management is responsible for the preparation and integrity of the financial reporting information and related systems of internal controls. The Audit Committee, in carrying out its


47

role, relies on ITW’sCompany senior management, including senior financial management, and ITW’s independent registered public accounting firm.
 
We have reviewed and discussed with senior management the audited financial statements included inof the 2008 Annual Report to Stockholders.Company. Management has confirmed to the Audit Committee that the financial statements have been prepared in conformity with generally accepted accounting principles.
 
We have reviewed and discussed with senior management their assertion and opinion regarding the Company’s internal controls included in the 2008 Annual Report to Stockholders as required by Section 404 of the Sarbanes-Oxley Act of 2002.controls. Management has confirmed to the Audit Committee that internal controls over financial reporting have been appropriately designed, and are operating effectively to prevent or detect any material financial statement misstatements. We have also reviewed and discussed with Deloitte & Touche LLP, ITW’s independent registered public accounting firm, its audit and opinion regarding ITW’sthe Company’s internal controls as required by Section 404, which opinion is included in the 2008 Annual Report to Stockholders.controls.
 
We have reviewed and discussed with Deloitte & Touche LLP the matters required to be discussed by the Statement on Auditing Standards No. 61 (Communications with Audit Committee) under which Deloitte & Touche LLP must provide us with additional information regarding the scope and results of its audit of ITW’sthe Company’s financial statements. This information


43

includes: (1) Deloitte & Touche LLP’s responsibility under generally accepted auditing standards; (2) significant accounting policies; (3) management judgments and estimates; (4) any significant audit adjustments; (5) any disagreements with management; and (6) any difficulties encountered in performing the audit.
 
We have received from Deloitte & Touche LLP a letter providing the disclosures required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence with respect to any relationships between Deloitte & Touche LLP and ITWthe Company that in its professional judgment may reasonably be thought to bear on independence. Deloitte & Touche LLP has discussed its independence with us, and has confirmed in the letter that, in its professional judgment, it is independent of ITWthe Company within the meaning of the federal securities laws.
 
The Audit Committee also discussed with ITW’sthe Company’s internal auditors and independent registered public accounting firm the overall scope and plans for their respective audits. The Audit Committee meets periodically with the internal auditors and independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of ITW’sthe Company’s internal controls, and the overall quality of ITW’sthe Company’s financial reporting.
 
Based on the reviews and discussions described above, we have recommended to the Board of Directors, thatand the Board approved, the inclusion of the audited financial statements included in ITW’s 2008 Annual Report to Stockholders be included in ITW’sthe Company’s Annual Report onForm 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2008.2009, for filing with the Securities and Exchange Commission.
 
Don H. Davis, Jr., Chairman

Marvin D. Brailsford

Robert C. McCormack

James A. Skinner

David B. Smith, Jr.
Pamela B. Strobel


4448

 
Ratification of the Appointment of
Independent Registered Public Accounting Firm
 
The Audit Committee has engaged Deloitte & Touche LLP to serve as ITW’s independent registered public accounting firm for the fiscal year ending December 31, 2009.2010. Deloitte & Touche LLP has been employed to perform this function for ITWthe Company since 2002.
 
Audit Fees
 
Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, the “Deloitte Entities”) will bill us approximately $13,880,000$15,223,000 for professional services in connection with the 20082009 audit, as compared with $13,375,000$13,880,000 for the 20072008 audit of the annual financial statements and internal controls. These fees relate to: (i) the audit of the annual financial statements included in our Annual Report onForm 10-K; (ii) the review of the quarterly financial statements included in our Quarterly Reports onForm 10-Q; (iii) the internal controls audit required by Section 404 of the Sarbanes-Oxley Act of 2002;audit; and (iv) statutory audits.
 
Audit-Related Fees
 
During 20082009 and 2007,2008, the Deloitte Entities billed us approximately $2,033,000$98,000 and $401,000,$2,033,000, respectively, for audit-related services. These fees relate to work performed with respect to divestiture audits, acquisition-related due diligence and other technical accounting assistance.
 
Tax Fees
 
These fees include work performed by the Deloitte Entities for 20082009 and 20072008 with respect to tax compliance services such as assistance in preparing various types of tax returns globally ($3,130,0002,899,000 and $4,881,000,$3,130,000, respectively) and tax planning services, often related to our many acquisitions and restructurings ($762,000211,000 and $942,000,$762,000, respectively).
 
All Other Fees
 
The aggregateThere were no fees for all other services rendered by the Deloitte Entities for 20082009 and 2007 were approximately $0 and $150,000, respectively. These fees relate to internal control reviews and sundry services performed at operating units.2008.
 
Audit Committee Pre-Approval Policies
 
The Audit Committee has adopted policies and procedures for pre-approval of all audit and non-audit related work to be performed by ITW’s independent registered public accounting firm. As a part of those procedures, the Audit Committee performs a qualitative analysis of all non-audit work to be performed by our independent registered public accounting firm. Each year, the Audit Committee receives a detailed list of the types of audit-related and non-audit related services to be performed, along with estimated fee amounts. The Audit Committee then reviews and pre-approves audit work and certain categories of tax and other non-audit services that may be performed. In conducting its analysis, the Audit Committee carefully contemplates the nature of the services to be provided and considers whether such services: (i) are prohibited under


45

applicable rules; (ii) would result in our accountants auditing their own work; (iii) would result in our accountants performing management functions; (iv) would place our accountants in a position of acting as an advocate for the company; or (v) would present a real risk of a conflict


49

of interest or otherwise impair our accountants’ independence. The Audit Committee also annually pre-approves the budget for annual GAAP, statutory and benefit plan audits. ITW’sCompany management provides quarterly updates to the Audit Committee regardingyear-to-date expenditures versus budget for audit and non-audit services. The Audit Committee also considers whether specific projects or expenditures could potentially affect the independence of ITW’s independent registered public accounting firm.
 
Although we are not required to do so, we believe that it is appropriate for us to request stockholder ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm. If stockholders do not ratify the appointment, the Audit Committee will investigate the reasons for the stockholders’ rejection and reconsider the appointment. Representatives of Deloitte & Touche LLP will be present at our Annual Meeting and will have the opportunity to make a statement and respond to questions.
 
The Board of Directors recommends a vote “FOR” ratification of the appointment
of Deloitte & Touche LLP


4650

 
Stockholder Proposal
Stockholder Approval of any Future Extraordinary
Retirement Benefits for Senior ExecutivesRequesting Reports on Political Contributions and Expenditures
 
The AFL-CIO ReserveCalvert Social Index Fund (the “Fund”),and the holderSummit S&P 500 Index Portfolio (together, the “Funds”) are each beneficial owners of approximately 400 sharesat least $2,000 in market value of ITW common stock,securities entitled to be voted. Calvert Asset Management Company, Inc., whose address is 815 Sixteenth Street, N.W., Washington, DC, 20006,4550 Montgomery Avenue, Bethesda, MD, 20814, has notified us that it intends to present, on behalf of the Funds, the following resolution at the Annual Meeting. The proposed resolution and supporting statement are followed by a statement and a recommendation from the ITWCompany’s Board of Directors. The ITWCompany’s Board of Directors accepts no responsibility for the proposed resolution and supporting statement.
 
Resolved: Thethat the shareholders of Illinois Tool Works Inc. (the “Company”(“Company”) urgehereby request that the BoardCompany provide a report, updated semi-annually, disclosing the Company’s:
1. Policies and procedures for political contributions and expenditures (both direct and indirect) made with corporate funds.
2. Monetary and non-monetary political contributions and expenditures not deductible under section 162(e)(1)(B) of Directors (the “Board”)the Internal Revenue Code, including but not limited to seek shareholder approvalcontributions to or expenditures on behalf of political candidates, political parties, political committees and other political entities organized and operating under 26 USC Sec. 527 of the Internal Revenue Code and any portion of any future extraordinary retirement benefitsdues or similar payments made to any tax exempt organization that is used for senior executives.an expenditure or contribution if made directly by the corporation would not be deductible under section 162(e)(1)(B) of the Internal Revenue Code. The Boardreport shall implement this policy in a manner that does not violate any existing employment agreement or vested pension benefit.include the following:
 
For the purposesa. An accounting of this resolution, “extraordinary retirement benefits” means receipt of additional years of service credit not actually worked, preferential benefit formulas not provided under the Company’s tax-qualified retirement plans, accelerated vesting of retirement benefits, and retirement perquisites and fringe benefitsfunds that are not generally offeredused for political contributions or expenditures as described above;
b. Identification of the person or persons in the Company who participated in making the decisions to make the political contribution or expenditure; and
c. The internal guidelines or policies, if any, governing the Company’s political contributions and expenditures.
The report shall be presented to the board of directors’ audit committee or other Company employees.relevant oversight committee and posted on the Company’s website to reduce costs to shareholders.
 
Supporting Statement:
 
Supplemental executive retirement plans (“SERPs”) provide retirement benefits forAs long-term shareholders of Illinois Tool Works, we support transparency and accountability in corporate spending on political activities. These activities include direct and indirect political contributions to candidates, political parties or political organizations; independent expenditures; or electioneering communications on behalf of a select group of managementfederal, state or highly compensated employees whose compensation exceeds limits set by Federal tax law. Because SERPs are unfunded plans and payable out of the Company’s general assets, the associated pension liabilities can be significant.local candidate.
 
Our Company’s Nonqualified Pension Plan provides executivesDisclosure is consistent with the opportunity to earn additional pension benefits not provided by the Company’s tax-qualified retirement plan. In addition, through its Executive Contributory Retirement Income Plans, our Company matches the nonqualified deferred compensation of only designated executives.
Our Company provides early vesting of stock options held by the Named Executive Officers in the event of involuntary termination upon a corporate change, death or disability. While stock options may not be part of the Company’s Nonqualified Pension Plan, this early vestingpublic policy, amounts to an extraordinary retirement benefit that warrants shareholder approval.
Providing senior executives with extraordinary retirement benefits increases the cost of the Company’s nonqualified retirement plans to shareholders. In our view, the actuarial present value of an executive’s extraordinary retirement benefit can be significant. In addition, we believe these extraordinary benefits are unnecessary given the high levels of executive compensation at our Company.
To help ensure that the use of extraordinary pension benefits for senior executives are in the best interest of the company and its shareholders, and critical for compliance with recent federal ethics legislation. Absent a system of accountability, company assets can be used for policy objectives that may be inimical to the long-term interests of shareholders, we believe such benefits should be submitted for shareholder approval. Because it is not always practicaland may pose risks to obtain prior shareholder approval, the Company would have the option of seeking approval after the material terms were agreed upon.
We urge shareholders to vote for this proposal.company and its shareholders.


4751

Relying on publicly available data does not provide a complete picture of the Company’s political expenditures. For example, the Company’s payments to trade associations used for political activities are undisclosed and unknown. In many cases, even management does not know how trade associations use their company’s money politically. The proposal asks the Company to disclose all of its political contributions, including payments to trade associations and other tax exempt organizations. This would bring our Company in line with a growing number of leading companies, including Pfizer, Aetna and American Electric Power that support political disclosure and accountability and present this information on their websites.
The Company’s Board and its shareholders need complete disclosure to be able to fully evaluate the political use of corporate assets. Thus we urge your support for this critical governance reform.
 
Board of Directors Statement in Opposition:
 
The Board recommends a vote AGAINST this proposal.
 
Our Principles of Conduct prohibit employees from using corporate funds to make political contributions and provide that any contributions to political candidates and causes may be made only by an ITW political action committee. The Company currently has only one active political action committee, the Illinois Tool Works Inc. Better Government Committee, or BGC, which is funded exclusively with voluntary contributions from exempt employees. The Company suspended the activities of its state political action committee in 2009.
We believe that adoptionare required by law to file reports disclosing the names of this proposal would put ITW at a competitive disadvantage, significantly impairing our ability to timely attractcontributors and retain senior executives necessary for our long term success. This would be detrimentalcontribution amounts from exempt employees to the interestsBGC, as well as the BGC’s contribution amounts to candidates and other expenditures related to lobbying. These reports are available on the website of the Federal Election Commission atwww.fec.gov/disclosure.shtml. We also file lobbying reports with the Office of the Clerk of the U.S. House of Representatives, which are available athttp://lobbyingdisclosure.house.gov, and the website of the Secretary of the U.S. Senate atwww.senate.gov/lobby. The expenditures described in these lobbying reports are now required to include the lobbying portion of any dues paid to domestic trade associations, and these are included in our stockholders.reports as an aggregate amount. Our government affairs office consists of two professionals, one of whom is currently a federal registered lobbyist. They are both, however, required to comply with all state laws regulating lobbyists. All costs associated with state lobbying, including the compensation of all government affairs professionals, and travel costs, are reported in the Company’s federal lobbying reports, as are personal contributions made by our staff government affairs professionals to candidates for federal office.
 
ITWThe BGC, created by the Company’s Board of Directors, has demonstrated a strong commitment to provide secure retirement benefits for all employees, and retirement benefits are an important componentgoverning Articles of ITW’s compensation program. The Compensation Committee,Association under which is comprised solely of independent directors, has examined the compensation structure in place for all seniorBGC officers and directorsa steering committee have been appointed. The Chairman and consistent with ITW’s philosophy over many years, has rejected the granting of excessive pay packages and golden parachute payment provisions to our top executives. OutsideTreasurer of the supplemental retirement plans, which consistBGC submit reports annually to the Audit Committee of the Nonqualified Pension PlanBoard of Directors regarding the activities of the BGC. Information about the BGC’s governance (including a copy of its Articles of Association) and about the Executive Contributory Retirement Income Plan (“ECRIP”) described more fullyvarious reports it files is available on our website atwww.itw.com, under Investor Relations — Corporate Governance.
The proposal asks that we include in a semi-annual report the “Compensation Discussion and Analysis” and “Executive Compensation” sectionsamount of this Proxy Statement, our executives do not enjoy any specific, individual retirement payments that are not available to our employees generally. The benefits receivedtrade association dues paid by our executives underbusiness units that is used for political purposes and that we identify the supplemental retirement plans are determinedperson or persons who participated in accordance withmaking the terms of each plan ondecisions to incur the same basis as the benefits receivedexpenditure. The decision to participate in trade associations is almost always made by the other plan participants and are fully disclosed to the public.
Our retirement benefits are consistent with general industry practices for companies of comparable size and are essential to attracting, motivating and retaining talented employees, including executives. Our Compensation Committee strives to ensure that ITW’s supplemental retirement plans are fair to all of our employees.business units, which generally
Specifically —
• Our supplemental pension plan (the “Nonqualified Pension Plan”) uses the same benefit formula as our tax-qualified plan and is designed solely to allow participants to realize benefits that are precluded by IRS limits applicable to the tax-qualified plan. In order to incentivize participants to remain with ITW, any participant who leaves ITW, other than upon retirement, will forfeit any plan benefits in excess of what he or she would have received under the tax-qualified plan. No current senior executive has been granted any additional years of service under the Nonqualified Pension Plan, although we believe that this flexibility is needed to attract talented executives to the extent they may forfeit similar benefits with their current employer.
• Our ECRIP allows participants to defer a portion of their compensation and receive company matching contributions just as other employees may under our tax-qualified 401(k) plan. These matching contributions are in lieu of, and not in addition to, contributions under the 401(k) plan.
• Our aggregate liability under the Nonqualified Pension Plan is less than 4% of our total pension liability for all participants in our pension plans.


4852

• Vesting for the supplemental plans is the same as for the qualified plans, and early vesting of stock options is a feature of our Stock Incentive Plan that applies
receive benefits such as access to business, technical and industry expertise from these memberships that are unrelated to political activity. Due to all participants (over 600 employees) in the plan and not just the Named Executive Officers.
The Compensation Committee oversees our compensation programslarge number of business units and decentralized operating structure, it is requirednot practical to approve all retirement benefitsincorporate information on the percentage of dues that each trade association uses for executives withinpolitical purposes and the principles describedperson or persons who participate in the “Compensation Discussion and Analysis” section beginning on page 19. The Compensation Committee members do not receive compensation from ITW other than in their capacity as Directors. Sincedecision to incur the Compensation Committee members have no personal interest in Compensation decisions, they are well-qualified to act in the best interestsexpense of our stockholders.joining a trade association into a regular published report.
 
ItBecause contributions by the BGC are not made with Company funds, and extensive information about our political contributions is crucial thatalready available to the Compensation Committee have the flexibility to use its best judgment in implementing and modifying our compensation programs. Stockholder approval of any particular compensation element would be a cumbersome and costly process, which would inhibit our ability to attract or retain talented leadership at the time these opportunities or challenges arise. For all these reasons,public, we believe that theday-to-day decisions administrative cost and burden of hiringproducing the information requested by this proposal would not be an effective use of Company resources and compensating senior leadership should continuewould not lead to be managed by the independent members of the Board of Directors that are elected annually by our stockholders.a commensurate benefit.
 
For the foregoing reasons, your Board of Directors believes that this proposal is not in the best interests of ITW or its stockholders and unanimously recommends that you vote AGAINST“AGAINST” this proposal


4953

 
CATEGORICAL STANDARDS FOR DIRECTOR INDEPENDENCE
 
I. Introduction
I. Introduction
 
To be considered independent, a director of the Company must meet all of the following Categorical Standards for Director Independence. In addition, a director who is a member of the Company’s Audit Committee must meet the heightened criteria set forth below in Section IV to be considered independent for the purposes of membership on the Audit Committee. These categorical standards may be amended from time to time by the Company’s Board of Directors.
 
Directors who do not meet these categorical standards for independence can also make valuable contributions to the Company and its Board of Directors by reason of their knowledge and experience.
 
In addition, if a director meets the standards set forth below, a director will not be considered independent unless the Board of Directors of the Company affirmatively determines that the director has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). In making its determination, the Board of Directors shall broadly consider all relevant facts and circumstances. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others. For this purpose, the Board does not need to reconsider relationships of the type described in Section III below if such relationships do not bar a determination of independence in accordance with Section III below.
 
II. Definitions
II. Definitions
 
An “immediate family member” includes a person’s spouse, parents, children, siblings, mothers andfathers-in-law, sons anddaughters-in-law, brothers andsisters-in-law, and anyone (other than domestic employees) who shares such person’s home. When considering the application of the three-year period referred to in each of paragraphs III.1 through III.5 below, the Company need not consider individuals who are no longer immediate family members as a result of legal separation or divorce, or those who have died or become incapacitated.
 
The “Company” includes any subsidiary in its consolidated group.
 
III. Standards for Directors
III. Standards for Directors
 
The following standards have been established to determine whether a director of the Company is independent:
 
1. A director who is an employee, or whose immediate family member is an executive officer, of the Company is not independent until three years after the end of such employment relationship. Employment as an interim Chairman or CEO shall not disqualify a director from being considered independent following that employment.
 
2. A director who receives, or whose immediate family member receives, more than $120,000 during any twelve-month period in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), is not independent until three years after he or she ceases to receive more than $120,000 during any twelve-month period in such compensation. Compensation received by a director for former service as an interim Chairman or CEO need not be considered in determining independence under this test. Compensation received by an immediate family member for service as a non-executive employee of the Company need not be considered in determining independence under this test.
 
3. A director who is a current partner or employee of a firm that is the Company’s internal or external auditor, or whose immediate family member1 is a current partner of such a firm, is not independent. A director who is or was, or whose immediate family member is or was, a partner or employee of such a firm and personally worked on the Company’s audit within the last three years is not independent.
 
 
1 For purposes of this Item 3 only, the term “immediate family member” shall mean a spouse, minor child or stepchild, or an adult child or stepchild sharing a home with the director.


A-1

 
4. A director who is employed, or whose immediate family member is employed, as an executive officer of another company where any of the Company’s present executives serve on that company’s compensation committee is not independent until three years after the end of such service or the employment relationship.
 
5. A director who is an executive officer or an employee, or whose immediate family member is an executive officer, of a company that makes payments to, or receives payments from, the Company for property or services in an amount which, in any single fiscal year, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues, is not independent until three years after falling below such threshold.threshold2.
 
6. Stock ownership in the Company by directors is encouraged and the ownership of a significant amount of stock, by itself, does not bar a director from being independent.
 
IV. Standards for Audit Committee Members
IV. Standards for Audit Committee Members
 
In addition to satisfying the criteria set forth in Section III above, directors who are members of the Company’s Audit Committee will not be considered independent for purposes of membership on the Audit Committee unless they satisfy the following criteria:
 
1. A director who is a member of the Audit Committee may not, other than in his or her capacity as a member of the Audit Committee, the Board of Directors, or any other Board committee, accept directly or indirectly any consulting, advisory, or other compensatory fee from the Company, provided that, unless the rules of the New York Stock Exchange provide otherwise, compensatory fees do not include the receipt of fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the Company (provided that such compensation is not contingent in any way on continued service).
 
2. A director, who is a member of the Audit Committee may not, other than in his or her capacity as a member of the Audit Committee, the Board of Directors, or any other Board committee, be an affiliated person of the Company.
 
3. If an Audit Committee member simultaneously serves on the audit committees of more than three public companies, the Board must determine that such simultaneous service would not impair the ability of such member to effectively serve on the Company’s Audit Committee.
 
 
2 In applying this test, both the payments and the consolidated gross revenues to be measured shall be those reported in the last completed fiscal year. The look-back provision for this test applies solely to the financial relationship between the Company and the director or immediate family member’s current employer; the Company need not consider former employment of the director or immediate family member. Charitable organizations shall not be considered “companies” for purposes of this test, provided however that the Company shall disclose in its annual proxy statement any charitable contributions made by the Company to any charitable organization in which a director serves as an executive officer if, within the preceding three years, contributions in any single fiscal year exceeded the greater of $1 million, or 2% of such charitable organization’s consolidated gross revenues.


A-2

(LOGO)
ILLINOIS TOOL WORKS INC.
ATTN: SHAREHOLDER RELATIONS
3600 WEST LAKE AVENUE
ATTN: SHAREHOLDER RELATIONS
GLENVIEW, IL 60026-1215
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for future electronic delivery of information up until 1:00 a.m., Central Time, on May 8, 2009.7, 2010. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONSPROXY MATERIALS
If you would like to reduce the costs incurred by Illinois Tool Works Inc.our Company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access stockholder communicationsproxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 1:00 a.m., Central Time, on May 8, 2009.7, 2010. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Illinois Tool Works Inc.,Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
CONTROL NUMBER
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
 		 ILLTW1M21733-P88298-Z51574 KEEP THIS PORTION FOR YOUR RECORDS
 
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
DETACH AND RETURN THIS PORTION ONLY

                                 
ILLINOIS TOOL WORKS INC.                  
                    
  
A
Proposals - The Board of Directors recommends a that you
vote FOR all the nominees listed, FOR Proposal 2 and AGAINST Proposal 3.nominees:
                     
 
 1.Election of Directors:Directors  For  Against   Abstain              
                              
   1a. William F. AldingerMarvin D. Brailsford o   o   o     For  Against Abstain
                               
    1b. Marvin D. BrailsfordSusan Crown o   o   o  1h.    Harold B. Smitho   o   o 
                      
    1c. Susan CrownDon H. Davis, Jr. o   o   o 1i.     David B. Speer
The Board of Directors recommends you vote FOR the following proposal:
  oFor   oAgainst   oAbstain 
              
    1d.Don H. Davis, Jr.ooo1j.     Pamela B. Strobelooo
1e. Robert C. McCormack o   o   o 2.Ratification of the appointment of Deloitte & Touche LLP as ITW’s independent registered public accounting firm for 2009.2010. o   o   o
1e.Robert S. Morrisonooo
1f.James A. Skinnerooo
The Board of Directors recommends you vote AGAINST the following proposal:
 
           
    1f.1g. Robert S. MorrisonDavid B. Smith, Jr. o   o   o  
3.
Stockholder Proposal, if presented at the meeting, urging the Board of Directors to seek Stockholder approval of any future extraordinary retirement benefits for senior executives.requesting reports on political contributions and expenditures.
 o   o   o 
    1g.1h. James A. SkinnerDavid B. Speer o   o   o  
            
  
B
 Non-Voting Items1i.Pamela B. Strobelooo
            
 
  For change of address, please check this box and print your new address on the reverse side where indicated.   o 
                                 
  
C
Authorized Signatures - This section must be completed for your vote to be counted. - Date and Sign Below
Please sign exactly as your name(s) appear(s) hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian,other fiduciary, please give full title.title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
 
                                
  Signature [PLEASE SIGN WITHIN BOX]Date            Signature (Joint Owners) Date         

ILLINOIS TOOL WORKS INC.
ANNUAL MEETING OF STOCKHOLDERS
FRIDAY, MAY 8, 20097, 2010
3:00 P.M. CT
THE NORTHERN TRUST COMPANY (6TH FLOOR)
50 SOUTH LASALLE STREET
CHICAGO, ILLINOIS 60603
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual ReportReport/Form 10-K are available at www.proxyvote.com.
IF YOU HAVE NOT VOTED VIA THE INTERNETOR BY TELEPHONE, FOLD ALONG THE PERFORATION,
DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
ILLTW2M21734-P88298-Z51574      

(ITW LOGO) Illinois Tool Works Inc.

Proxy — Illinois Tool Works Inc.

3600 WEST LAKE AVENUE, GLENVIEW, ILLINOIS 60026TOOL WORKS INC.
ANNUAL MEETING OF STOCKHOLDERS MAY 8, 2009May 7, 2010
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.DIRECTORS
The undersigned stockholder of Illinois Tool Works Inc. (“ITW”) hereby appoints William F. Aldinger, Marvin D. Brailsford and Susan Crown, and Harold B. Smith, or any of them, with full power of substitution, to act as proxies at the Annual Meeting of Stockholders of ITW to be held in Chicago, Illinois on May 8, 20097, 2010 with authority to vote as directed by this Proxy Card at the meeting, and any adjournments of the meeting, all shares of common stock of ITW registered in the name of the undersigned.If no direction is made, this proxy will be voted FOR the election of each director, FOR the ratification of Deloitte & Touche LLP as ITW’s independent registered public accounting firm for 2009,2010, AGAINST the stockholder proposal urging the Board of Directors to seek stockholder approval of any future extraordinary retirement benefits for senior executives,requesting reports on political contributions and expenditures, and FOR or AGAINST any other properly raised matter at the discretion of the proxies.
If the undersigned is a participant in the ITW Savings and Investment Plan or the ITW Bargaining Savings and Investment Plan, the undersigned is also instructing the trustee of those plans to vote the shares of ITW common stock attributable to the undersigned in such plans as instructed on the reverse side and, in the discretion of the trustee, upon such other business as may come before the meeting, and if no instructions are given, the trustee will vote the shares in the same proportion as the shares for which voting instructions have been received.
   
Change of Address:
  
   
   
 
(If you noted a change of address above, please mark corresponding box on the reverse side.)
IMPORTANT - - THIS PROXY CARD MUST BE SIGNED AND DATED ON THE REVERSE SIDE.