26 TEXTRON 2022 PROXY STATEMENT • Caps on annual incentive compensation and performance share unit payouts • Double-trigger change in control provisions for equity awards and severance arrangements • Clawback policy applies to all annual and long-term incentive compensation • Committee annually conducts a pay-for-performance analysis based on operating and stock performance metrics used in our annual and long-term incentive awards • Committee annually reviews the composition of a talent peer group which is referenced for benchmarking our executives’ compensation and makes changes as appropriate • Committee annually reviews compensation data against the talent peer group in order to understand the competitiveness of our compensation program and pay levels • Committee reviews and evaluates plans for management development, succession and diversity • Committee annually reviews a compensation-related risk assessment with assistance from its independent compensation consultant • Robust share ownership requirements Practices we prohibit • No single-trigger vesting of long-term incentive awards upon a change in control of the Company • No tax gross-ups for officers hired after 2008 • No employment contracts guaranteeing fixed-term employment or bonuses to executives and no individually negotiated termination protection since 2008 • No excessive executive perquisites • No hedging or pledging Textron securities • No repricing or exchanging stock options without shareholder approval Compensation Philosophy Textron’s compensation philosophy is to establish target total pay with reference to a talent peer group median 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. 2021 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 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 issued in 2021 represent 50% of long-term incentives awarded to our NEOs and will be earned based on performance against financial metrics set by the Committee as well as based on relative total shareholder return (“TSR”) compared to the S&P 500, all measured over a three-year performance period. The three-year financial metrics for 2021 long-term incentive compensation are Average Return on Invested Capital, weighted at 50%, and Cumulative Manufacturing Cash Flow, weighted at 30%, with relative TSR weighted at 20%. PSUs are payable in cash based upon our stock price at the end of the performance cycle.
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