3M CO

Executive compensation

Section III: Overview of compensation program design

Target total direct compensation mix for 2023

The illustrations below show how the 2023 target Total Direct Compensation of our CEO and other Named Executive Officers was apportioned among base salary, annual incentives, performance share awards, restricted stock units, and stock options. To provide a better representation of the intended mix of annual compensation provided to the Named Executive Officers, the percentages shown below do not take into consideration non-recurring special items such as one-time make-whole and inducement awards granted in connection with the commencement of employment or retention awards.

Abbreviations: AIP = annual incentive pay; PSAs = performance share awards; RSUs = restricted stock units.

• Amounts shown reflect the average apportionment for all Named Executive Officers other than Mr. Roman. Numbers may not add to 100 percent due to rounding.

Annual incentive

3M provides its executives with an opportunity to earn annual incentive compensation under the 3M Annual Incentive Plan, which we refer to as the “AIP.” Participation in the AIP is intended to align a significant portion of participants’ Total Cash Compensation with the near-term performance of the Company and its business units. Each executive is assigned a target amount of annual incentive compensation as part of his or her target Total Cash Compensation, but the actual amount paid under the AIP depends on the performance of 3M and its relevant business units and the executive’s individual performance, in each case, measured against preestablished goals and objectives.

Executive compensation

Basic calculation. For 2023, the amount each Named Executive Officer earned under the AIP was calculated using the formula shown below.

Business performance factor. The business performance factor is determined based on the performance of 3M and, in some cases, the business unit(s) for which each Named Executive Officer had responsibility throughout the year against the goals established for the three metrics specified in the table below.

Individual performance multiplier. The amount of annual incentive compensation paid to an eligible employee may be increased, decreased, or left unchanged depending on his or her performance during the year. When determining the individual performance multipliers to be used for the Named Executive Officers, the Committee considers the individual performance of the Named Executive Officers using the performance evaluations described under “How the Committee establishes target compensation levels” on page 81.

ESG Modifier. Amounts earned by senior executives may be increased by 10 percent of target, decreased by 10 percent of target, or left unchanged based on the Committee’s determination of 3M’s holistic performance against a set of preestablished, objective ESG metrics (referred to as the “ESG Scorecard”). For 2023, the metrics included on the ESG Scorecard related to the Company’s carbon and water reduction commitments; operational improvements in the area of environment, health, and safety; progress on key social measures; and on-time completion of required ethics and compliance training.

Executive compensation

Long-term incentives

3M provides its executives with long-term incentives to motivate executives to drive long-term shareholder value creation and incentivize executives to remain with the Company. Each of the Company’s executives (other than our CEO) may ask to receive 50 percent of the target grant value of their annual long-term incentive awards in the form of RSUs, stock options, or an equal split of both stock options and RSUs. Regardless of an executive’s indicated preference, the remaining 50 percent of the target grant value of his or her 2023 annual long-term incentive awards was delivered in the form of performance shares. For the Company’s CEO, the Committee chose to deliver 50 percent of the target grant value of his 2023 annual long-term incentive awards in the form of performance shares and the remaining 50 percent in the form of stock options. The terms of the 2023 performance share awards, 2023 stock options, and 2023 restricted stock units are described in detail below.

In limited circumstances, our Named Executive Officers also may receive other equity awards on an ad hoc basis as new hires or for recognition and retention, promotions, or other purposes. For additional information about a special performance-based RSU award granted to Mr. Patolawala in June 2023 and a special make-whole RSU award granted to Mr. Hanson in September 2023, see “2023 special long-term equity incentive awards” on page 94.

2023 performance share awards

Performance shares awarded in 2023 will result in the issuance of actual shares of 3M common stock to our Named Executive Officers if the Company achieves certain financial goals over the years 2023, 2024, and 2025. The number of shares of 3M common stock that may be issued is linked to the Company’s performance as measured by the equally weighted criteria of Adjusted Earnings per Share Growth, Relative Organic Sales Growth, and Free Cash Flow Growth. These performance criteria were selected because they are aligned with our operating plan and the financial objectives communicated to shareholders, and the Committee believes that they are important drivers of long-term shareholder value. Attainment of these three independent performance criteria is measured separately for each calendar year during the three-year measurement period, with each year weighted as follows: 2023 — 50 percent; 2024 — 30 percent; and 2025 — 20 percent. However, the targets against which the Company’s performance is measured over the course of the three-year performance period are fixed at the time the grant is awarded, subject to subsequent adjustments only in limited circumstances (such as a stock split, spin-off, etc.).

The actual number of shares of common stock that will be delivered at the end of the three-year performance period ending on December 31, 2025, may be anywhere from 0 percent to 200 percent of the target number of shares awarded, depending on the Company’s performance over such time period. However, an executive may forfeit all or a portion of such shares if he or she does not remain employed by the Company throughout the performance period. Each performance share award also includes cash-settled dividend equivalent rights that are payable only on the final number of shares earned.

For awards tied to the achievement of performance goals over the years 2023, 2024, and 2025, the Committee approved the targets shown below, with the total number of shares actually delivered being the sum of the number of earned shares, based on our financial goal achievement. If the Company’s performance falls between any of the percentages listed below, the number of shares of 3M common stock earned will be determined by linear interpolation.

Executive compensation

• No payout is provided for below threshold performance.

Committee Consideration of 2023 Long-Term Performance Incentive TargetsAfter considering the Company’s 2023 operating plan and its long-term strategic plan, the Committee, in consultation with its independent compensation consultant and following discussions with management of the Company, set the threshold, target, and maximum goals as shown above based on its expectations for each year, with certain goals being set higher for 2024 and 2025. •The targets reflect the Company’s decision to exit PFAS manufacturing and, for the 2023 fiscal year, performance will be adjusted to neutralize any impact (positive or negative) associated with respirator sales, the discontinuation of the Company’s business in Russia, and changes in foreign currency exchange rates, which the Committee believed would more accurately reflect the management team’s performance results.•The Committee also added a “flat spot” or a target range to the payout curves for the Relative Organic Sales Growth and Adjusted Earnings per Share Growth metrics in order to ensure that the final payout for each metric in any given year would not exceed target unless the Company achieves positive growth on such metric.•The Committee believes all of the goals were set consistent with, and aligned to, the Company’s strategic priorities, significant transformation initiatives, internal operational plan, business outlook, objective of increasing long-term shareholder value, and pay-for-performance philosophy.

The above targets are not a prediction of how 3M will perform during the years 2023 through 2025 or any other period in the future. The sole purpose of these formulas, which were approved by the Committee at the time the awards were granted, is to establish a method for determining the number of shares of 3M common stock to be delivered for the performance share awards described above. 3M is not providing any guidance, nor updating any prior guidance, of its future performance with the disclosure of these formulas, and you are cautioned not to rely on these formulas as a prediction of 3M’s future performance.

Executive compensation

2023 stock options

Stock options granted to the Named Executive Officers in 2023 as part of their annual long-term incentive compensation have the following features:

•an exercise price equal to the closing price of a share of 3M common stock on the NYSE for the date of grant;

•a ratable three-year vesting schedule; and

•a maximum term of 10 years.

2023 restricted stock units

Restricted stock unit awards granted to the Named Executive Officers in 2023 as part of their annual long-term incentive compensation have the following features:

•a three-year “cliff” vesting schedule; and

•cash-settled dividend equivalent rights that are payable only if the underlying shares are earned.

Benefits and perquisites

The Company’s Named Executive Officers participate in the same health care, disability, life insurance, pension, and 401(k) benefit plans available to most of the Company’s U.S. employees. They also are eligible to receive certain additional benefits and perquisites that are provided for the executives’ convenience (relocation assistance for moves required by 3M, financial planning assistance, and meals when attending to 3M business, for example), financial security (nonqualified deferred compensation plans and additional group term life insurance coverage, for example), personal security (home security equipment/monitoring, for example) or personal health (on-site exercise facilities and physical exams, for example). Our Named Executive Officers and other employees also may receive Company tickets for sporting or other events. The Company believes that the benefits and perquisites offered generally are similar to those of our peers and assist in attracting and retaining executives. In some cases, there is no incremental cost to the Company associated with providing these additional benefits and perquisites (physical exams and certain tickets to events, for example) or the executives pay all or a substantial portion of the incremental costs incurred by the Company (on-site exercise facilities, for example).

These additional benefits and perquisites generally are provided on a consistent basis only to a limited group of our most senior U.S. employees (including all of the Named Executive Officers), although enhanced personal security equipment and monitoring is provided only to our Chief Executive Officer.

The Company also operates aircraft that are used by our senior officers and other employees to conduct Company business. For personal security reasons, the Board of Directors requires our Chief Executive Officer to use private aircraft chartered, leased, or owned by the Company for all air travel, both business and personal. As part of the benefits negotiated in connection with Mr. Hanson’s commencement of employment, the Company agreed to allow Mr. Hanson reasonable personal use of private aircraft chartered, leased, or owned by the Company, subject to compliance with the Company’s policy on personal use of corporate aircraft. When our Chief Executive Officer or Mr. Hanson travel private aircraft chartered, leased, or owned by the Company, his or her spouse and other guests also may accompany him or her.

The incremental cost to the Company of providing these additional benefits to the Named Executive Officers is reflected in the All Other Compensation Table. No tax gross ups are provided on any of these additional benefits and perquisites other than taxable relocation benefits.