Textron 2020 Proxy Statement

TEXTRON 2020 PROXY STATEMENT 31 What Were Our Performance Goals? Performance goals for the 2019 annual incentive compensation program and the 2019 performance period for PSU awards under the long-term incentive compensation program focused on profitability and cash flow, with an additional goal related to workforce diversity applicable only to annual incentive compensation. The profitability target focused executives on delivery of segment profit in each of our segments. The cash flow target focused executives on improving operational efficiency and sustaining the strength of the balance sheet. The diversity metric focused management on having a diverse employee profile. In addition, PSUs are subject to a TSR modifier that can decrease, but not increase, the final payout up to 40%, based on the mathematical ranking of Textron’s three-year TSR performance compared to that of our 2017 performance peers and the Committee’s discretion. Annual Incentive Compensation Payouts and Performance Analysis The Committee established the weighting for the 2019 annual incentive compensation performance goals described above as 60% profitability, 35% cash flow and 5% workforce diversity. The net operating profit goal set by the Committee for 2019 was established at approximately 8% higher than in the previous year, reflecting the disposition of our Tools and Test business in 2018, management’s continuing focus on improving execution in order to increase profit margin and our expectations of our end markets. The cash flow goal for 2019 was approximately flat with the previous year’s goal, reflecting the disposition of our Tools and Test business in 2018 and anticipated capital requirements associated with our 2019 plan. 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 2019 annual incentive compensation for executive officers, and the resulting percentage earned, are detailed below: 60% 47.9% 35% 39.5% 5% 6.3% Threshold 0% Payout Target 100% Payout Actual: $1,270 $868 $1,692 $924 $277 3.0% -1.0% Maximum 200% Payout Component Weighting Component Payout 93.7% Total Earned Enterprise NOP (1) Manufacturing Cash Flow (2) Improvement in Workforce Diversity (3) Actual: $642 Actual: 1.5% 2019 Annual Incentive Compensation Calculation ($ in millions) $1,372 $600 1.0% (1) “Enterprise NOP” means our total “Segment profit” as reported in our Annual Report on Form 10-K. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, gains/losses on major business dispositions and special charges. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense. (2) “Manufacturing Cash Flow” generally represents “Manufacturing cash flow before pension contributions” (a non-GAAP measure) as reported in our quarterly 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, plant and equipment, contributions to our pension plans and taxes paid related to the gain realized in 2018 on the Tools and Test business disposition. (3) “Improvement in Workforce Diversity” represents the percentage increase in diverse U.S. full-time salaried employees compared to total U.S. full-time salaried employees, measured based on the current year actual percentage compared to the targeted percentage from the prior year.