3M CO
For the period ended May 13, 2025. Filed Mar 26, 2025.
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May 13, 2025 · Filed Mar 26, 2025
Contents
Consistent and shareholder-aligned framework to assess performance metric adjustments
Following the expanded shareholder engagement effort conducted in Spring 2024, the Compensation and Talent Committee evaluated shareholder feedback and, with the assistance of its independent compensation consultant, initiated an extensive review of the principles that will guide its future consideration of litigation-related and other potential exclusions to the performance results used to calculate attainments for AIP and performance share award payouts.
Based on the findings of the review, the Committee determined that the types of exclusions 3M applies for incentive plan measurement purposes are consistent with the practices of our Peer Group. The Committee also reaffirmed the guiding principles for assessing future exclusions as reflected in the Annual Incentive & Performance Share Exclusion Policy (referred to as the “Exclusion Policy”), which was last updated by the Committee in 2021. The Committee reviews anticipated adjustments on a quarterly basis, consistent with the Exclusion Policy.
In approving incentive program payouts based on 2024 performance, the Committee considered various items, including the impact of 3M's respirator mask/asbestos, Combat Arms Earplugs, and PFAS litigation matters; the Spin-Off; 3M’s decision to exit PFAS manufacturing; and cash payments related to the transition tax expense incurred as a result of the 2017 enactment of the Tax Cuts and Jobs Act.
As part of assessing the appropriateness of the type and magnitude of the 2024 adjustments and the resulting performance attainments and payouts, the Committee considered a range of factors, including the following:
| Factor | Committee’s Perspective |
|---|---|
| Consistency with financial reporting results and the Company’s financial performance | The Exclusion Policy generally aligns with our non-GAAP performance metrics disclosed in our financial reporting, earnings guidance, and other investor communications. Both our 2024 performance targets and results excluded special items or one-time events that the Committee deemed unrelated to the Company’s operational performance for the corresponding measurement period. These exclusions included the impact of net costs from significant litigation and the Spin-Off. While such expenses and gains may be anticipated, the Committee excludes them from both the performance goals and results, as they do not reflect the Company’s core operating performance in a given year, nor its ongoing business operations. This approach holds the management team accountable for performance results that accurately reflect the Company’s performance, while avoiding unjust rewards or penalties for outcomes that are beyond the management team’s control. |
| Alignment with shareholders | The Committee also considered that the litigation charges were largely already reflected in the Company’s stock price performance, which has significantly impacted the realizable compensation of our continuing NEOs for multiple years. |
| Positive incentives | Failure to exclude litigation settlements and make other adjustments, such as those associated with the PFAS manufacturing exit, could disincentivize management from taking action when it is in the best interests of shareholders but would adversely impact their incentive compensation payouts. |
| Relationship with decision-making of the current executives | The litigation adjustments were the result of multi-year lawsuits that stem from events taking place many years, even decades prior, unrelated to decision-making of the current management team, including Mr. Brown, Mr. Maheshwari, and Ms. Bauer, each of whom joined 3M in 2024. |
| Retention of executive leadership team | The Committee determined that it was critical to continue to appropriately incentivize and retain the executive leadership and broader senior management team to drive the Company’s transformation strategy, particularly following the recent CEO and CFO succession and the Spin-Off, and to continue to encourage long-term shareholder value creation. |
| 82 | 3M Company |
Executive compensation
In January 2025, the Committee reviewed and approved the following one-time, non-recurring exclusion items for the 2024 AIP and performance share award payouts:
Costs related to the separation and divestiture of the Health Care business;
Gains related to 3M's retained ownership interest in the Solventum Corporation common stock;
Certain performance and timing items related to the Spin-Off, including operating income, accounts receivable, and working capital;
Net costs of significant litigation matters and cash payments related to the 2017 enactment of the Tax Cuts and Jobs Act;
Sales and estimates of income relating to manufactured PFAS products that 3M plans to exit by the end of 2025 included within the Transportation and Electronics business segment (exclusion for PSAs only, since the 2024 AIP targets did not include manufactured PFAS product sales); and
A non-cash pension settlement charge incurred in 2024 in connection with the transfer of approximately $2.5 billion of 3M’s U.S. pension obligations and related plan assets to a third-party insurance company.
The approved adjustments increased the AIP payout from 78.3 percent to 128.6 percent for the Named Executive Officers whose payout was calculated on the basis of the Company’s overall performance and increased the percent of target shares subject to 2024 performance share awards accrued based on the 2024 performance results from 43.3 percent to 98.3 percent.
The Committee believes its approach to performance adjustments and its application of adjustments to the 2024 performance results is balanced, aligned with our shareholder interests and experience, in line with market practice related to adjustment policies for litigation settlement charges and other one-time non-recurring items, and essential to supporting the Company’s value creation strategy and efforts to reduce risk and uncertainty, while incentivizing the management team to continue advancing the long-term shareholder value creation strategy.
Status of performance share awards
The Company’s annual award cycle and three-year performance periods result in an overlap of awards. For example, the performance goals for 2024 performance share awards relate to the years 2024, 2025, and 2026. Similarly, the performance goals for 2023 performance share awards relate to the years 2023, 2024, and 2025, and so on, as shown below. Performance against the goals established for each award are measured separately for each calendar year during the measurement period, with each year weighted as shown below in parenthesis. This structure was intended to reduce motivation to maximize performance in any one period by providing the highest-level rewards only by building sustainable long-term results.
In response to shareholder feedback, the Committee revised the design of the 2025 performance share awards to use a single measurement period for the entire three-year performance period spanning 2025, 2026, and 2027, with results measured cumulatively.
| 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | |
| 2022 PSA | Year 1 (50%) | Year 2 (30%) | Year 3 (20%) | |||
|---|---|---|---|---|---|---|
| 2023 PSA | Year 1 (50%) | Year 2 (30%) | Year 3 (20%) | |||
| 2024 PSA | Year 1 (50%) | Year 2 (30%) | Year 3 (20%) | |||
| 2025 PSA | Years 1-3 (100%) | |||||
The Committee periodically reviews the Company’s performance against the goals established for each performance share award throughout the duration of its measurement period. The graphics and tables below summarize the status of the different performance share awards held by the Named Executive Officers as of December 31, 2024.
| 2025 Proxy Statement | 83 |
|---|
Executive compensation
Percent of target performance shares accrued by year*
2022 performance
2023 performance
2024 performance
- Amounts shown reflect the percent of target shares accrued based on the performance results for the specified year. The sum of the percentages accrued for each year during the performance period may differ slightly from the final total payout reported due to rounding.
The final payout percentage for each performance share award equals the sum of the payout percentages for each year during the performance period based on the Company’s performance against the financial goals approved by the Committee at the beginning of the performance period (as recast to reflect the Spin-Off).
2024 PSA (2024-2026 measurement period)(1)
| Payoutlevel(% oftarget) · Performanceyear andweighting · Actualresult(2) · Percent of target performance shares accrued | ||||||||
|---|---|---|---|---|---|---|---|---|
| Performance levels for... | ||||||||
| 2024 · 2025/2026 | ||||||||
| Adjusted Earnings per Share Growth | Threshold(3) | 10.0% | 1.0% | 6.7% | Year 1 – 50% | 20.0% | 33.3% | |
| Target | 14.0% | 3.25% | 33.3% | Year 2 – 30% | ||||
| Maximum | 18.0% | 5.5% | 66.7% | Year 3 – 20% | ||||
| Relative Organic Sales Growth(4) | Threshold(3) | -1.0% | -1.0% | 6.7% | Year 1 – 50% | 0.9% | 31.7% | |
| Target | —% | —% | 33.3% | Year 2 – 30% | ||||
| Maximum | 1.0% | 1.0% | 66.7% | Year 3 – 20% | ||||
| Free Cash Flow Growth | Threshold(3) | $3,430 | 1.0% | 6.7% | Year 1 – 50% | $4,309 | 33.3% | |
| Target | $3,810 | 3.25% | 33.3% | Year 2 – 30% | ||||
| Maximum | $4,195 | 5.5% | 66.7% | Year 3 – 20% | ||||
| Total | 98.3% | |||||||
| 84 | 3M Company |
Executive compensation
2023 PSA (2023-2025 measurement period)
| Payoutlevel(% oftarget) · Performanceyear andweighting · Actualresult(2) · Percent of target performance shares accrued | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Performance levels for... | ||||||||||
| 2023 · 2024 · 2025 | ||||||||||
| Adjusted Earnings per Share Growth | Threshold(3) | -6.0% | 10.0% | 2.0% | 6.7% | Year 1 – 50% | -0.4% | 16.7% | ||
| Target | -4%-0% | 14.0% | 5.0% | 33.3% | Year 2 – 30% | 20.0% | 20.0% | |||
| Maximum | 1.0% | 18.0% | 8.0% | 66.7% | Year 3 – 20% | |||||
| Relative Organic Sales Growth(4) | Threshold(3) | -2.9% | -1.5% | -1.5% | 6.7% | Year 1 – 50% | -2.8% | 4.2% | ||
| Target | -1.4%-0% | —% | —% | 33.3% | Year 2 – 30% | 0.9% | 16.0% | |||
| Maximum | 0.5% | 1.5% | 1.5% | 66.7% | Year 3 – 20% | |||||
| Free Cash Flow Growth | Threshold(3) | -2.0% | 2.0% | 2.0% | 6.7% | Year 1 – 50% | 30.3% | 33.3% | ||
| Target | 3.0% | 5.0% | 5.0% | 33.3% | Year 2 – 30% | 4.9% | 9.7% | |||
| Maximum | 8.0% | 8.0% | 8.0% | 66.7% | Year 3 – 20% | |||||
| Total | 99.9% | |||||||||
2022 PSA (2022-2024 measurement period)
| Payoutlevel(% oftarget) · Performanceyear andweighting · Actualresult(2) · Actual payout accrued(% oftarget) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Performance levels for... | ||||||||||
| 2022 · 2023 · 2024 | ||||||||||
| Adjusted Earnings per Share Growth | Threshold(3) | 1.0% | 3.0% | 10.0% | 6.7% | Year 1 – 50% | -0.2% | —% | ||
| Target | 4.0% | 6.0% | 14.0% | 33.3% | Year 2 – 30% | -6.5% | —% | |||
| Maximum | 7.0% | 9.0% | 18.0% | 66.7% | Year 3 – 20% | 20.0% | 13.3% | |||
| Relative Organic Sales Growth(4) | Threshold(3) | -1.5% | -1.5% | -1.5% | 6.7% | Year 1 – 50% | -1.7% | —% | ||
| Target | —% | —% | —% | 33.3% | Year 2 – 30% | -4.7% | —% | |||
| Maximum | 1.5% | 1.5% | 1.5% | 66.7% | Year 3 – 20% | 0.9% | 10.7% | |||
| Free Cash Flow Growth | Threshold(3) | -7.0% | 3.0% | 3.0% | 6.7% | Year 1 – 50% | -21.5% | —% | ||
| Target | -4.0% | 6.0% | 6.0% | 33.3% | Year 2 – 30% | 30.3% | 20.0% | |||
| Maximum | -1.0% | 9.0% | 9.0% | 66.7% | Year 3 – 20% | 4.9% | 4.7% | |||
| Total | 48.7% | |||||||||
(1)2024 PSA goals were set to align Relative Organic Sales Growth in line with macroeconomic indicators at the start of the year, with double digit growth in earnings in year 1 and free-cash flow targets reflecting historical trends. Thereafter, earnings and free cash flow were expected to grow in line with the Company’s long-term planning outlook.
(2)Results reflect certain adjustments that the Committee believed were appropriate to better reflect the Company’s performance during the performance period, including to reflect the Spin-Off. See “Consistent and shareholder-aligned framework to assess performance metric adjustments” beginning on page 82 for a discussion of the factors reviewed by the Committee when considering adjustments to the Company’s performance results. See Appendix A to this Proxy Statement for a reconciliation of Adjusted Earnings per Share, Organic Sales Growth and Free Cash Flow used for compensation purposes to our results for the most directly comparable GAAP financial measures. For purposes of calculating growth for any given fiscal year, performance for the fiscal year is compared to the prior year’s actual attainment, except that, for purposes of calculating growth results for 2024, adjustments were made to the prior year’s actual attainments to reflect the impact of the Spin-Off.
(3)No payout is provided for below threshold performance.
(4)The reported level of performance for Relative Organic Sales Growth has been determined, in part, using a weighted blend of Worldwide IPI and Worldwide GDP, as reported by S&P Global Market Intelligence on or about January 15 of the year following completion of the applicable performance year.
| 2025 Proxy Statement | 85 |
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