Textron 2020 Proxy Statement

TEXTRON 2020 PROXY STATEMENT 23 Because the Committee had made its determinations for the 2019 executive compensation program in January 2019, well before the Committee’s program review and our shareholder outreach, and the Committee did not wish to implement design changes retroactively, this review and the feedback from shareholders has informed the Committee’s strategy on program design for 2020. After careful consideration of all shareholder feedback, industry practices and input from our executive team, the Committee has implemented a number of significant changes for the 2020 long-term incentive compensation program designed to address the shareholder preferences described above. In addition, the Committee has made several changes to align our program with peer company practice or to achieve objectives identified by the Committee. These changes are summarized in the following chart: 2020 Long-Term Incentive Compensation (“LTIC”) Program Changes Shareholder Preference/ Committee Objective LTIC Program Changes and Rationale •  Performance period for LTIC should be differentiated from annual incentive program Extend the performance period for PSU metrics to one three-year period instead of three one-year periods in order to more closely align LTIC with long-term company performance. •  Performance metrics for LTIC should be sufficiently differentiated from annual incentive program For PSUs granted in 2020, performance metrics are Average Return on Invested Capital, weighted at 50%, Cumulative Manufacturing Cash Flow, weighted at 30%, and Relative Total Shareholder Return (“TSR”), weighted at 20%; whereas the performance metrics used for our 2020 annual incentive program are the same as in 2019 (described on page 31). These metrics were determined to align with key value drivers of our business and, together, are designed to incentivize our executives to make disciplined capital allocation decisions and to manage working capital, inventory and investments to generate returns and create value for our shareholders over the long-term. •  At least 50% of LTIC awards should be subject to performance-based metrics Increase the percentage of PSUs in LTIC award mix. For 2020, PSUs represent 50% of target LTIC (up from 40% in recent years), with the percentage awarded as stock options and RSUs reduced proportionately. Because PSUs are subject to performance-based metrics, increasing the percentage of PSUs more closely aligns LTIC with long-term company performance. In addition, the Committee adjusted the PSU threshold payout opportunity from 50% to 25% and maximum payout opportunity from 150% to 200%, consistent with prevalent peer company practice, to enhance the effectiveness of PSUs over their three-year performance period through a range of economic and business scenarios. •  LTIC should align over a three-year period Change vesting schedule for RSUs from vesting over five years in equal annual installments beginning on the third anniversary of the grant date to vesting in full on the third anniversary of the grant date, in order to align with the PSU performance period. This is the prevalent practice among our peer companies and therefore improves the competitiveness of our LTIC program for the attraction and retention of executive talent. •  Relative TSR should remain part of LTIC program Move use of relative TSR from a discretionary modifier applied to PSUs to a stand-alone metric to maintain focus on stock performance as an important relative measure of company performance while improving clarity of program. In addition, change benchmark from company-selected performance peer group to S&P 500 index companies. Evolving dynamics in our industries have resulted in frequent merger and acquisition and spin-off activity among our chosen performance peer group companies. This has created a constantly changing and shrinking group of companies which we believe are appropriate to serve as direct performance peers. In order to improve the consistency of our relative TSR metric, the Committee has chosen to benchmark our TSR performance against the S&P 500. The S&P 500 is a recognized market index which incorporates an independent selection process and is used by a number of our peer companies.