Textron 2020 Proxy Statement

TEXTRON 2020 PROXY STATEMENT 25 Compensation Philosophy Textron’s compensation philosophy is to establish target total pay with reference to a talent peer group and to tie a substantial portion of our executives’ compensation to performance against objective business goals and stock price performance. This approach helps us to recruit and retain talented executives, incentivizes our executives to achieve desired business goals and aligns their interests with the interests of our shareholders. 2019 Compensation Program Components Total pay for Textron’s executives consists of base salary, annual incentive compensation and long-term incentive compensation. Our annual incentive compensation program is designed to reward performance against annual business goals established by the Committee at the beginning of each year and is payable in cash. The long-term incentive compensation program is directly linked to stock price through three award types: performance share units (“PSUs”), restricted stock units (“RSUs”) and stock options. PSUs reward performance against annual business goals set by the Committee for each year of a three-year performance period. The Committee then may use its negative discretion to decrease the payout based on how Textron’s three-year total shareholder return (“TSR”) compares to a performance peer group. PSUs are payable in cash based upon our stock price. 2019 Incentive Compensation Payouts The two main performance goals set by the Committee for 2019—applicable to our annual incentive compensation program as well as to the PSUs under our long-term incentive compensation program—focused on profitability and cash flow, which are key business priorities for Textron. For 2019, the annual incentive compensation program paid out at 93.7% of target for our executives, reflecting net operating profit performance that fell below the target established at the beginning of the year, partly offset by above target performance on cash flow and workforce diversity. PSUs awarded for the 2017–2019 performance cycle were subject to business goals set annually by the Committee during the three-year performance period and then subject to a negative discretionary adjustment by the Committee. Performance against these goals resulted in a multiplier of 105.8% of the number of PSUs granted, however, the Committee applied a -40% discretionary reduction in light of a disappointing relative total shareholder return. This adjustment resulted in a final number of units paid of 63.5% of the initial number of 2017–2019 PSUs granted. OVERVIEWAND OBJECTIVES OF EXECUTIVE COMPENSATION PROGRAM The objectives of Textron’s compensation program for executive officers are: •  Encouraging world class performance •  Attracting and retaining high-performing talent •  Focusing executives on delivering balanced performance by providing (i) both cash and equity incentives and (ii) both annual and long-term incentives •  Aligning executive compensation with shareholder value To achieve these objectives, the Committee uses the following five guidelines for designing and implementing executive compensation programs at Textron: Target total pay should be set in reference to the median target total pay of a talent peer group Incentive compensation payout should be higher when Textron performs well and lower if Textron underperforms Performance goals should align interests of executives with long-term interests of shareholders Compensation programs should not incentivize executives to conduct business in ways which could put the Company at undue risk Indirect compensation should provide the same level of benefits given to other salaried employees 1 2 3 4 5