L3HARRIS TECHNOLOGIES INC DE

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ELEMENTS OF OUR COMPENSATION PROGRAM

The overall objective of our compensation program is to encourage and reward the creation of sustainable, long-term shareholder value.

Our Compensation Committee believes that the major elements of our executive compensation program further this objective. They directly align the interests of our executives and shareholders, are competitive, motivate achievement of our short and long-term financial goals and strategic objectives, and align realized pay with performance.

Overview of Main Pay Elements for Fiscal 2023

In limited circumstances, we also have granted, and may in the future grant, performance stock options to better align compensation with execution against certain strategic initiatives, as well as shares of restricted stock, restricted stock unit awards and stock options to facilitate recruitment that may have differing terms, such as ratable vesting restricted stock unit awards and cliff vesting stock options.

The main elements of compensation for our CEO and our named executive officers are at-risk and performance-based. The independent directors of our Board (based on the recommendation of our Compensation Committee, in the case of our CEO), and our Compensation Committee (in the case of other executive officers), establish performance measures and performance objectives that are intended to align with our Board-approved annual operating plan and long-term strategic plan and create a “pay for profitable growth” environment to encourage and reward the creation of sustainable, long-term value for our shareholders.

We do not have a formal policy relating to the mix among the various elements of our compensation program for executive officers. However, we believe that the greater an executive’s responsibility level and ability to influence results, the greater the portion of the individual’s overall compensation that should be variable compensation.

Compensation Program Changes for Fiscal 2024

In February of 2024, our Compensation Committee approved changes to the financial measures for our annual cash incentive for fiscal 2024, reducing the weighting for adjusted EBIT and revenue by 10% each and adding two additional performance measures weighted at 10% each—segment operating margin and “Strategic Goals,” which will be the achievement of LHX NeXt Synergy Savings for Fiscal 2024. Our Compensation Committee also approved changes for the 2024-2026 Cycle performance share units. The 2024-2026 Cycle performance share units incorporate TSR measured on a relative basis as a weighted core measure (instead of as a modifier) with equal weighting between relative TSR, cumulative EPS and 3-year average ROIC. The relative TSR metric will be based on relative performance to the S&P 500, as well as a new TSR Performance Peer group. For a

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limited number of executives, including executive officers and others responsible for driving LHX transformation and synergy savings, the Fiscal 2024-2026 Cycle performance share units will also be subject to a payout modifier (+/− 25%), dependent on 2026 segment operating margin performance, with the overall maximum payout percentage remaining capped at 200%.

Target Pay Mix for Fiscal 2023

In accordance with our principle of aligning pay with performance, at-risk pay accounted for approximately 92% of the CEO’s target total direct compensation and 82% for the other named executive officers, on average. The at-risk pay elements include performance-based awards with payouts dependent upon achievement relative to pre-established goals as well as equity awards whose value increases or decreases based upon stock price.

CEO and Other Named Executive Officer* Fiscal 2023

Target Total Direct Compensation Mix

The Other Named Executive Officer Average includes the average of named executive officers Messrs. Mehta, Stackley and Zoiss and Ms. Turner, who were our named executive officers as of February 2023, and excludes Mr. Bedingfield. Percentages may not total 100% due to rounding.

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Base Salary

Base salary reflects a fixed, stable portion of the overall compensation package and also generally serves as the base amount from which other compensation elements are determined. Executive base salaries are not subject to automatic annual adjustments and represent a relatively small percentage of target total direct compensation, particularly for executive officers with greater responsibility and ability to influence results.

Our Compensation Committee reviews executive base salaries prior to or early in each fiscal year and whenever there is a substantial change in an executive’s responsibilities or in market conditions. Generally, our Compensation Committee targets an executive officer’s base salary to approximate the market median for comparable positions at companies in our compensation comparison peer group. In addition to the competitive considerations discussed on pages 52-54, an executive’s base salary is influenced by the individual’s experience, position, responsibilities, tenure, contributions and individual performance, as well as current business conditions and our business outlook.

The table below shows the fiscal 2023 base salary for each named executive officer, including a comparison with fiscal 2022.

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For actual base salary amounts paid for fiscal 2023 and prior periods, see the “Salary” column of the Fiscal 2023 Summary Compensation Table on page 58.

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Mr. Bedingfield and Mr. Mehta joined L3Harris in fiscal 2023, and their respective Fiscal 2023 Annual Base Salaries reflect amounts set forth in their Offer Letter Agreements. See “Employment and Release Agreements” on page 49 for details.

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Annual Cash Incentive

We provide our executive officers the opportunity to earn annual cash incentive compensation under our Annual Incentive Plan (as amended and restated effective as of August 28, 2020, our “Annual Incentive Plan”). Awards under this plan are structured to provide payouts ranging from 0% to 200% of pre-established award target values, depending on:

our performance against specific pre-determined financial performance measures; and

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named executive officer performance against pre-determined individual objectives and contribution to our overall results.

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For executives, this structure creates:

the upside potential of above-target payouts if our financial performance is above target; and

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the downside risk of below-target payouts if our financial performance is below target.

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Through this structure, the annual cash incentive motivates our executives to focus on achieving or exceeding pre-determined financial performance measure targets and individual objectives strategically chosen to align with the interests of our shareholders.

AWARD TARGET VALUES

An award target value for the annual cash incentive is set for each executive officer early in or prior to the fiscal year. For our named executive officers, the target value is typically set using our compensation comparison peer group’s data as a reference point (if available for a comparable position) and/or other broad compensation market data, including surveys. The independent directors of our Board (based on the recommendation of our Compensation Committee) set the target values for our CEO, and our Compensation Committee sets the target values for other executive officers. For our named executive officers, target values generally are set as a percentage of base salary.

The table below shows each named executive officer’s annual cash incentive award target value for fiscal 2023. Cash incentive award target values for fiscal 2023 were unchanged from fiscal 2022 as a percentage of base salary.

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(1)

Mr. Bedingfield joined L3Harris in December 2023 and was entitled to a pro-rata portion of his cash incentive target value, as set forth in his Offer Letter Agreement. See “Employment and Release Agreements” on page 49 for details.

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(2)

Mr. Mehta joined L3Harris in fiscal 2023, and his cash incentive target value reflects the value set forth in his Offer Letter Agreement. See “Employment and Release Agreements” on page 49 for details.

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PERFORMANCE MEASURES

At the beginning of each fiscal year, the independent directors of our Board (in the case of our CEO) and our Compensation Committee (in the case of other executive officers) establish specific financial performance measures and their relative weightings, as well as targets and thresholds for each measure. Individual performance objectives for each executive officer are also set at this time.

The graphic below shows the three financial performance measures and relative weighting for fiscal 2023 awards under our Annual Incentive Plan. After considering shareholder feedback, our Board and Compensation Committee chose these performance measures and their relative weighting based on their business judgment that the measures would incentivize performance against our key strategic priorities and our annual operating plan for fiscal 2023 and align with the interests of our shareholders. For fiscal 2023, in order to further emphasize our continued focus on cash flow performance our Board and Compensation Committee increased the weighting of adjusted free cash flow from 40% to 50%, with adjusted EBIT remaining at 30%, and revenue to 20%.

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We apply these three financial measures to L3Harris as a whole and to our four business segments. For corporate executives, such as Messrs. Kubasik, Bedingfield and Stackley, payouts are based 100% on consolidated L3Harris results. Payouts for our named executive officers who are segment presidents — Messrs. Mehta and Zoiss — are based 50% on segment results and 50% on consolidated L3Harris results.

PERFORMANCE TARGETS AND PAYOUT PERCENTAGES

The independent directors of our Board (based on the recommendation of our Compensation Committee, in the case of our CEO), and our Compensation Committee (in the case of other executive officers), seek to establish targets for our financial performance measures at levels we believe require significant effort on the part of executives, but also represent a reasonable expectation of financial results based on prior-year performance, existing business conditions, the markets in which we participate and our outlook. Our 2023 targets were set with this same rigor and commitment to strong performance as we have shown in previous years, taking into account both operating and non-operating challenges, including macro inflationary challenges, pension headwinds, and significantly increased income tax payments as a result of the Tax Cuts and Jobs Act of 2017 eliminating the option to deduct R&D expenditures, which impacted our adjusted EBIT and adjusted free cash flow outlook as compared to 2022 actual performance.

We established targets for our consolidated L3Harris and individual segment results, and the payout for varying performance levels was linked to specific resulting payout percentages for each performance measure. Performance below threshold for each metric (set at 80% of target performance for adjusted free cash flow, 85% for adjusted EBIT and 90% for revenue) results in 0% payout for the weighted percentage of such metric. Payouts are interpolated on a linear basis between threshold and maximum payouts. Performance at or in excess of the cap for each metric (set at 115% of target performance for adjusted free cash flow and adjusted EBIT and 110% for revenue) results in a payout factor of 200% for the weighted percentage of such metric.

Certain of the fiscal 2023 performance targets were adjusted. See the Results and Payout Percentages for Fiscal 2023 table below and the associated footnotes for the adjusted performance targets and a description of the adjustments.

DETERMINING PAYOUTS

The independent directors of our Board (based on the recommendation of our Compensation Committee, in the case of our CEO), and our Compensation Committee (in the case of other executive officers), determine and approve payouts of performance-based, cash incentive compensation under our Annual Incentive Plan, based on formulaic calculations of our financial results against the targets. These preliminary results may be further adjusted based on assessments by the independent directors of our Board (for the CEO) and by the Compensation Committee (for other executive officers) of performance relative to pre-determined objectives for the fiscal year. In addition to strategic and operating objectives, the pre-determined objectives also include progress toward achieving workplace injury and lost day rates, environmental goals, as well as workforce diversity representation and ethics.

Payout determinations typically occur after audited financial statements become available after the end of each fiscal year. In certain instances, as permitted under our Annual Incentive Plan, financial performance measure targets and our actual results may be adjusted in recognition of unusual or nonrecurring events affecting us or our financial statements, such as items that are determined not to be reflective of normal, ongoing business operations. At the request of our Audit Committee, our Internal Audit Department independently verifies calculations for Annual Incentive Plan payouts.

Results and Payout Percentages for Fiscal 2023

The table below shows targets and results for each financial performance measure for L3Harris as well as for our Communication Systems and Space & Airborne Systems segments*. It also shows how we used those results to calculate weighted payout percentages for annual cash incentive awards under our Annual Incentive Plan.

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Targets for our Integrated Mission Systems and Aerojet Rocketdyne reporting segments are omitted as permitted under applicable rules because they are not relevant for payouts for named executive officers for fiscal 2023.

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(1)

For comparability of performance targets with full-year results due to a divestiture of a business during fiscal 2023 impacting L3Harris and Space & Airborne Systems, L3Harris and Space & Airborne Systems were decreased by excluding, as applicable, the pro-rata amounts for the divested business’ EBIT, adjusted free cash flow and revenue attributable to the remainder of fiscal 2023 following the applicable divestiture date, based on our original fiscal 2023 annual operating plan. Additionally, L3Harris revenue and adjusted EBIT targets were increased following the acquisition of Aerojet Rocketdyne in the third quarter of fiscal 2023. The adjusted free cash flow target was not increased due to the acquisition of Aerojet Rocketdyne as the cash generated in the 5 months of ownership was more than offset by the incremental interest expense incurred from the debt used to close the transaction.

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(2)

Calculations are based on our financial results calculated in accordance with GAAP, adjusted as permitted under our Annual Incentive Plan in recognition of unusual or nonrecurring events affecting us or our financial statements. These adjustments are made in accordance with pre-established guidelines. See Appendix A for reconciliations of GAAP to non-GAAP financial measures.

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The adjusted EBIT result for L3Harris was increased $1,496 million on a net basis, reflecting (a) the exclusion of $1,523 million of charges consisting of (i) $779 million for significant and /or non-recurring items included in operating income above amortization of acquisition-related intangibles, (ii) $370 million for the following anticipated types of charges: merger, acquisition and divestiture-related expenses, additional cost of sales related to the fair value step-up in inventory sold, LHX NeXt and amortization of acquisition-related intangibles, losses from the sale of an asset group and business divestiture-related losses, net, and (iii) $374 million for impairment of goodwill and other assets; (b) partially offset by the exclusion of $27 million of favorable adjustments for gains on the sale of property, plant and equipment. The reported net cash provided by operating activities result for L3Harris was decreased by $393 million net additions of property, plant and equipment and increased $306 million for cash flow used for merger, acquisition and divestiture related expenses.

Payouts for Fiscal 2023*

The table below shows how the weighted payout percentages in the previous table were used to determine payouts for our named executive officers, linking their annual cash incentive award payouts under our Annual Incentive Plan to our fiscal 2023 results for each pre-established financial performance measure.

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Pursuant to her Release Agreement, Ms. Turner did not receive any annual cash incentive and instead received a fixed amount in lieu of any payments under our Annual Incentive Plan. See “Employment and Release Agreements” on page 49 for details.

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(1)

Weighted payout percentage reflects 50% of the calculated weighted payout percentage for the applicable segment (Communication Systems for Mr. Mehta and Space & Airborne Systems for Mr. Zoiss) and 50% of calculated weighted payout percentage for L3Harris in accordance with provisions designed to incentivize segment executives to drive both segment and overall Company results.

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(2)

Mr. Bedingfield was entitled to 5% of the target award based on his pro-rated service in 2023, as adjusted for performance following completion of the fiscal year.

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The payouts under our Annual Incentive Plan for fiscal 2023 are also shown in the “Non-Equity Incentive Plan Compensation” column of the Fiscal 2023 Summary Compensation Table on page 58.

Long-Term Incentives

We currently provide long-term incentive compensation to executive officers under our 2015 Equity Incentive Plan. Long-term incentive compensation is designed to motivate our executives to focus on achievement of our long-term financial goals and strategic objectives.

DETERMINING EQUITY GRANTS

Early in the fiscal year, the following are determined for each executive officer:

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For fiscal 2023, we valued performance share units based on the closing market price of our common stock on the grant date, which differs from the valuation method required for calculating amounts shown in the “Stock Awards” column of the Fiscal 2023 Summary Compensation Table on page 58, and we valued restricted stock units and options using the grant date fair value method, consistent with the valuation method required for calculating amounts shown in the “Stock Awards” and “Option Awards” columns of the Fiscal 2023 Summary Compensation Table on page 58.

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EQUITY GRANTS FOR FISCAL 2023

The table below shows the total target value of our fiscal 2023 long-term incentive awards for our named executive officers as compared to fiscal 2022. The target values for all named executive officers were set based on the factors described below for each type of incentive award.

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(1)

Mr. Bedingfield joined L3Harris subsequent to the grant of long-term incentive awards for fiscal 2023.

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(2)

Mr. Mehta joined L3Harris in fiscal 2023, and his fiscal 2023 Target Value reflects the value set forth in his Offer Letter Agreement.

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Types and Mix of Equity-Based Compensation for Named Executive Officers for Fiscal 2023

The target values for fiscal 2023 annual cycle awards were allocated as follows:

This equity-based compensation mix was determined based on the value of each type of equity-based compensation in motivating achievement of financial performance targets that our named executive officers can influence directly, our named executive

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officers’ retention value, trends within our compensation comparison peer group and in the market, anticipated effects on mitigating shareholder dilution and the recommendations of FW Cook.

For further information related to grants to our named executive officers of fiscal 2023 annual compensation cycle equity-based awards and related terms and conditions, see the Grants of Plan-Based Awards in Fiscal 2023 Table on page 61 and related notes.

OUR PERFORMANCE SHARE UNITS

Establishing the Performance Measures

Early in the first fiscal year of each multi-year performance period (generally three years), we establish specific financial performance measures and their relative weighting and associated targets and thresholds, which serve as the basis for measuring how we perform and for determining payouts. The independent directors of our Board (based on the recommendation of our Compensation Committee, in the case of our CEO), and our Compensation Committee (in the case of other executive officers), establish the measures for our CEO and other executive officers, which have typically been the same.

As a general principle, we seek to establish targets for financial performance measures that are aligned with our three-year strategic plan and are challenging yet achievable. Targets are set at levels we believe require significant effort on the part of executives, yet also represent a reasonable expectation of financial results based on prior-year performance, existing business conditions, the markets in which we participate and our outlook.

The graphic below shows the financial performance measures and their relative weighting for Fiscal 2023-2025 Cycle performance share units granted in fiscal 2023 to named executive officers under our 2015 Equity Incentive Plan, as approved early in fiscal 2023 in accordance with the discussion above.

The independent directors of our Board and Compensation Committee chose 3-year cumulative EPS and 3-year average ROIC financial performance measures, weighted equally, based on their business judgment that these measures would motivate elements of performance that management could influence directly and also would improve EPS and capital management over the long term and create long-term shareholder value, while the relative TSR measure would promote further alignment with shareholder interests. The independent directors of our Board and Compensation Committee also considered input received from our large shareholders regarding financial performance measures.

Performance Measures, Weighting and Rationale for Fiscal 2023-2025 Cycle Performance Share Unit Awards

TSR measures cumulative value to shareholders through stock price appreciation and dividends. Relative TSR compares our TSR percentile ranking with the ranking of other companies in the S&P 500 (a broad market index of companies with which we compete for shareholder investment).

Determining Payouts

The independent directors of our Board (based on the recommendation of our Compensation Committee, in the case of our CEO), and our Compensation Committee (in the case of other executive officers), determine and approve payouts for the multi-year performance period that concludes at the end of the relevant fiscal year, based on formulaic calculations of our financial results against pre-determined targets for such performance period. Payout determinations typically occur after audited financial statements become available after the end of each fiscal year. Performance share unit awards generally are structured to provide payouts in shares of our common stock ranging from 0% to 200% of the target number of units granted under such awards.

In certain instances, as permitted under our 2015 Equity Incentive Plan, financial performance measure targets and our actual results may be adjusted in recognition of unusual or nonrecurring events affecting us or our financial statements, such as items that are determined not to be reflective of normal, ongoing business operations. At the request of our Audit Committee, our Internal Audit Department independently verifies calculations for payouts in respect of performance share unit awards.

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Relationship Between Performance and Payout Percentage for Fiscal 2023-2025 Cycle Performance Share Units

The graphics below show how varying levels of performance for each performance measure result in different payout percentages for Fiscal 2023-2025 Cycle performance share units, which are the same percentages as the Fiscal 2022-2024 Cycle performance share units. Performance below threshold (which was set at 90% of target for 3-year cumulative EPS and 80% of target for 3-year average ROIC) would result in a payout percentage of zero. The maximum payout percentage is capped at 200%.

The graphic at right shows how the potential relative TSR performance payout adjustment (up to +/-20%) is dependent on our percentile ranking for TSR performance over the fiscal 2023-2025 performance period compared with other companies in the S&P 500.

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Payout of Fiscal 2021-2023 Cycle Performance Share Unit Awards

The fiscal 2021-2023 Cycle Performance Share Unit awards were structured similarly to the fiscal 2023-2025 Cycle Performance Share Unit awards described above, except that they had a TSR performance adjustment of up to +/- 33%.

Following the three-year performance period, our Compensation Committee calculated an initial payout based on our 3-year average ROIC and 3-year cumulative EPS performance. L3Harris’ TSR over the period was compared to that of the S&P 500. The targets and outcomes of the fiscal 2021-2023 measurement period are below:

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(1)

ROIC and EPS are non-GAAP financial measures. See Appendix A for reconciliations of GAAP to non-GAAP financial measures.

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(2)

The 3-year target for ROIC remained constant at 16% for each fiscal year during the three-year performance period and is not adjusted.

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The 3-year cumulative EPS target represents the sum of the EPS targets set by our Compensation Committee for each of fiscal 2021, fiscal 2022 and fiscal 2023 that were adjusted as follows: (i) the fiscal 2021 target of $12.75 was adjusted to $12.48 to reflect the impact of divestitures, net of share buybacks with divestiture proceeds; (ii) the fiscal 2022 target of $14.05 was adjusted to $13.16 to reflect the impact of divestitures, net of share buybacks with divestiture proceeds, and accounting regulatory changes related to pension adjustments; and (iii) the fiscal 2023 target of $15.40 was adjusted to $14.19 to reflect the impact of divestitures, acquisitions, net of share buybacks with divestiture proceeds, and accounting regulatory changes related to pension adjustments.

(3)

The ROIC and EPS results for each of fiscal 2021, fiscal 2022 and fiscal 2023 are set forth in Appendix A. The EPS result for fiscal 2021 used in calculating the 3-year cumulative EPS excludes $.03 of EPS that was reclassified for fiscal 2021 as L3Harris merger-related integration expenses for comparability with fiscal 2022. See Appendix A.

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(4)

The 3-year cumulative EPS target reflects adjustments from the original target of $42.20 for acquisitions, divestitures, share buybacks with divestiture proceeds, and accounting regulatory changes. The 3-year cumulative EPS result is adjusted to exclude amounts reclassified in fiscal 2021 for comparability with fiscal 2022 and fiscal 2023. See Appendix A for details.

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(5)

For the 2021-2023 performance period, the Company’s percentile rank of the companies in the S&P 500 was 42 nd with a TSR of 15.80%.

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The number of performance share units granted to each named executive officer, who was a named executive officer in 2021, and the number of shares earned following the fiscal 2021-2023 measurement period is presented below:

STOCK OPTIONS

Stock options granted to our executive officers typically have the following terms:

Exercise price equal to the closing price of our common stock on the grant date (or the preceding business day if the grant is made on a weekend or holiday);

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Vesting in equal installments of one-third each on the first, second and third anniversary of the grant date, subject to the recipient’s continued employment on such anniversary (except for certain new-hire grants described below);

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Expiration 10 years from the grant date; and

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“Double trigger” accelerated vesting following a change in control.

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Stock options may not be repriced, replaced, modified or regranted through cancellation if the effect thereof would be to reduce the exercise price of such stock options, except with prior approval of our shareholders, or in connection with a change in our capitalization, including spin-offs. Our Compensation Committee and Board, however, have discretion to set the exercise price of stock options higher than the closing market price of our common stock on the grant date.

RESTRICTED STOCK UNITS

Awards of restricted stock units, as noted above, are made primarily for retention purposes and as a recruitment mechanism to replace the value of equity awards that an executive may have forfeited upon leaving a former employer. They are granted to all executive officers, including the named executive officers.

These awards typically have 3-year “cliff” vesting, except for certain new-hire grants, meaning that the entire grant will vest on the third anniversary of the grant date if the recipient remains employed with L3Harris. Restrictions on these awards, which typically expire at the end of a three-year period, provide that the shares or units may not be sold or otherwise transferred and will be immediately forfeited if the recipient’s employment ends for any reason other than involuntary termination without cause, voluntary resignation for good reason, death, disability or retirement.

For more information about grants to our named executive officers of fiscal 2023 annual compensation cycle equity-based awards and related terms and conditions, see the Grants of Plan-Based Awards in Fiscal 2023 Table on page 61 and related notes.

NEW-HIRE GRANTS

Effective December 11, 2023, Kenneth L. Bedingfield was named Senior Vice President and Chief Financial Officer of L3Harris. In connection with this hire, Mr. Bedingfield and L3Harris entered into an employment offer letter agreement (the “Bedingfield Offer Letter Agreement”) which provided for a one-time grant of 45,000 three-year cliff vesting non-qualified stock options in fiscal 2024.

On January 3, 2023, Samir B. Mehta was named President of L3Harris’ Communication Systems segment. In connection with this hire, Mr. Mehta and L3Harris entered into an employment offer letter agreement, as amended (the “Mehta Offer Letter Agreement”), that provided for a one-time grant of (i) restricted stock units with a grant value of $2,500,000 vesting ratably over three years, (ii) restricted stock units with a grant value of $1,500,000 with half vesting on the third anniversary of the grant date and half vesting on the fifth anniversary of the grant date and (iii) three-year cliff vesting non-qualified stock options with a grant value of $750,000, in addition to his annual cycle grant made in fiscal 2023. These one-time grants were made in fiscal 2023 as an incentive for Mr. Mehta to join L3Harris and to offset forfeited awards from his previous employer.

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