TEXTRON 2022 PROXY STATEMENT 31 Approximately 91% of our CEO’s pay mix and on average approximately 76% of our other NEOs’ pay mix is tied to Company performance, including stock price performance (“at-risk”). CEO Target Pay Mix NEO Target Pay Mix (Excluding CEO) At-Risk Compensation Base Salary 9% Target Annual Incentive 13% Target Long-Term Incentive 78% At-Risk Compensation Base Salary 24% Target Annual Incentive 20% Target Long-Term Incentive 56% 2021 INCENTIVE COMPENSATION TARGETS, PAYOUTS AND PERFORMANCE ANALYSIS Setting Targets for 2021 Per formance Goals Performance goals for the 2021 annual incentive compensation program, consistent with the prior year, focused on profitability, cash flow and hiring diversity. 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 hiring diversity performance goal focused executives on increasing hiring of diverse employees (defined as employees who identify as female or diverse based on race or ethnicity). The Committee relies on Textron’s Annual Operating Plan (“AOP”) in setting performance goals for annual incentive compensation. The AOP, which is prepared toward the end of each fiscal year for the following fiscal year, includes financial plans and targets and key assumptions for each segment. At its December meeting, the Board of Directors reviews and approves the AOP, subject to adjustment for certain year-end items. The Committee approves targets for the performance goals included in Textron’s incentive compensation programs in January based upon the finalized AOP. In preparing the 2021 AOP, management assumed that, coming out of the 2020 pandemic year, there would be continued, but moderate, market recovery throughout the year compared to the significant downturn experienced in 2020. During 2020, in reaction to the impacts of the pandemic on many of our markets, our businesses were very focused on liquidity and working capital efficiency, including reducing their inventory levels. With moderate business growth anticipated for 2021 and limited additional opportunities to further improve working capital efficiency in the short term, the 2021 AOP provided for increased working capital investment as well as an increase in capital expenditures to support new contract awards and new product programs compared to the amount of such expenditures made in 2020. In addition, more investment in research and development in support of new product development was planned compared to the amount invested in the prior year. The Committee also considered that the net operating profit target in the 2021 AOP was set almost 20% above the prior year actual results. Based on these factors, the Committee approved net operating profit and cash flow targets that, although lower than the targets the Committee set for 2020 (which were set before the impacts of the COVID-19 pandemic could be taken into account), were considered to be challenging for the highly uncertain business environment anticipated by management at the time that the targets were established. Annual Incentive Compensation Payouts and Per formance Analysis As described in Key 2021 Performance Highlights on page 24, Textron’s 2021 performance exceeded expectations, resulting in performance significantly above target for both the profitability and cash flow goals and above target for the hiring diversity goal. The formula for determining the 2021 annual incentive compensation payouts for executive officers and the resulting percentage earned are detailed below:
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