2018 Proxy Statement

TEXTRON 2018 PROXY STATEMENT 28 ANNUAL INCENTIVE COMPENSATION PAYOUTS AND PERFORMANCE ANALYSIS The Committee established the weighting for the 2017 annual incentive compensation performance goals described above as SUR¿WDELOLW\ FDVK ÀRZ DQG ZRUNIRUFH GLYHUVLW\ 7H[WURQ¶V QHW RSHUDWLQJ SUR¿W JRDO IRU ZDV ORZHU WKDQ LQ WKH SUHYLRXV \HDU GXH WR DQWLFLSDWHG SUR¿W DQG PDUJLQ SUHVVXUH DW RXU PDMRU PDQXIDFWXULQJ VHJPHQWV 2XU FDVK ÀRZ JRDO ZDV VHW DW D VLJQL¿FDQW LQFUHDVH IURP WKH SUHYLRXV \HDU WR IRFXV PDQDJHPHQW RQ FRVW UHGXFWLRQ DFWLRQV DQG LPSURYLQJ FDVK ÀRZ SHUIRUPDQFH through better working capital management. Both targets were challenging in light of uncertain global economic and market conditions. Payouts for each individual could range from 0% to 200% of target based on performance. The formula for determining DQQXDO LQFHQWLYH FRPSHQVDWLRQ IRU H[HFXWLYH RI¿FHUV DQG WKH UHVXOWLQJ SHUFHQWDJH HDUQHG DUH GHWDLOHG EHORZ ³(QWHUSULVH 123´ PHDQV RXU WRWDO ³6HJPHQW SUR¿W´ DV UHSRUWHG LQ RXU $QQXDO 5HSRUW RQ )RUP . 6HJPHQW SUR¿W IRU WKH PDQXIDFWXULQJ VHJPHQWV H[FOXGHG interest expense, certain corporate expenses and special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense. ³0DQXIDFWXULQJ &DVK )ORZ´ JHQHUDOO\ UHSUHVHQWV ³0DQXIDFWXULQJ FDVK ÀRZ EHIRUH SHQVLRQ FRQWULEXWLRQV´ D QRQ *$$3 PHDVXUH DV UHSRUWHG LQ RXU TXDUWHUO\ earnings releases. This measure adjusts net cash from operating activities of continuing operations for dividends received from Textron Financial Corporation (“TFC”), capital contributions provided under the Support Agreement with TFC and debt agreements, capital expenditures, proceeds from the sale of property, SODQW DQG HTXLSPHQW DQG FRQWULEXWLRQV WR RXU SHQVLRQ SODQV )RU WKH 7H[WURQ FDVK ÀRZ PHWULF H[FOXGHV UHVWUXFWXULQJ FDVK RXWÀRZV DV ZHOO DV $UFWLF &DW related deal and integration payments. ³,PSURYHPHQW LQ :RUNIRUFH 'LYHUVLW\´ PHDQV WKH FKDQJH LQ WKH QXPEHU RI 8 6 IXOO WLPH VDODULHG GLYHUVH HPSOR\HHV LQ UHODWLRQ WR DOO IXOO WLPH 8 6 salaried employees. At its January 2018 meeting, the Committee discussed the annual incentive compensation awards to be paid to the NEOs for the 2017 performance period and considered input from the full Board. The Committee concluded that the calculated payouts DSSURSULDWHO\ UHÀHFWHG WKH &RPSDQ\¶V SHUIRUPDQFH IRU DQG DSSURYHG WKH SD\RXWV DV FDOFXODWHG DERYH Annual incentive compensation targets and payouts for 2015, 2016 and 2017 for each NEO are shown below: 2015 2016 2017 Name Position Target Payout Target Payout Target Payout Scott C. Donnelly CEO $1,561,000 $1,817,000 $1,615,600 $1,619,000 $1,800,000 $2,160,000 Frank T. Connor CFO 765,000 890,000 807,500 809,000 850,000 1,020,000 E. Robert Lupone General Counsel 506,250 589,000 525,000 526,000 547,500 657,000 Julie G. Duffy EVP, HR N/A N/A N/A N/A 285,000 342,000 The Committee believes that a pay for performance analysis should compare Company performance vs. peer performance over the time period an incentive is earned and that operating metrics are the appropriate performance comparator for annual incentive awards. Therefore, to validate that Textron’s annual incentive compensation is appropriately linked to the executives’ performance, the Committee reviewed the annual incentive compensation paid to Textron’s CEO in 2017, with respect to WKH SUHYLRXV \HDU FRPSDUHG WR 7H[WURQ¶V \HDU RYHU \HDU RSHUDWLQJ SHUIRUPDQFH IRU WKDW \HDU UHODWLYH WR WKH DQQXDO LQFHQWLYH FRPSHQVDWLRQ SDLG WR WKH SHHU FRPSDQLHV¶ &(2V FRPSDUHG WR WKH \HDU RYHU \HDU RSHUDWLQJ SHUIRUPDQFH RI WKH SHUIRUPDQFH peer group companies for the corresponding year. While exactly comparable data was not available for all peer companies, LQGLFDWLYH FRPSDULVRQV ZHUH PDGH XVLQJ SXEOLFO\ UHSRUWHG *$$3 RSHUDWLQJ FDVK ÀRZV DQG SUH WD[ HDUQLQJV IURP FRQWLQXLQJ operations. As was the case for previous years, the Committee’s comparative analysis conducted in 2017 for payouts related WR WKH SHUIRUPDQFH SHULRG FRQ¿UPHG WKH VWURQJ FRUUHODWLRQ EHWZHHQ 7H[WURQ¶V DQQXDO LQFHQWLYH FRPSHQVDWLRQ SD\RXWV and its performance relative to its peers. 2017 Annual Incentive Compensation Calculation ($ in millions) Enterprise NOP (1) Manufacturing Cash Flow (2) Improvement in Workforce Diversity (3) Threshold 0% Payout Target 100% Payout Maximum 200% Payout $769 $449 -1.0% $1,459 $1,150 3.0% $1,173 $799 1.0% Actual: $1,169 Actual: $993 Actual: 1.5% Component Weighting 60% 35% 5% Component Payout 59.4% 54.4% 6.2% Total Earned 120.0%