TransDigm Group INC
For the period ended Sep 30, 2024. Filed Jan 24, 2025.
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What shareholders are asked to vote on at a company's meeting. It is where to find what directors and top executives are paid, and who owns the most shares.
Sep 30, 2024 · Filed Jan 24, 2025
Use the contents to explore the available documents and sections.
Contents
2024 Compensation Program Modifications
Executive Compensation
2024 Compensation Program Modifications
As further discussed in our shareholder outreach section, we obtained feedback regarding our compensation program from 34 investors representing over 71% of our outstanding common stock. We believe that obtaining this feedback is important. In 2024, 68.8% of our shareholders who voted supported our annual advisory Say-on-Pay proposal to approve the compensation of our NEOs. We have made several notable changes, described below, that were directly responsive to our shareholders’ feedback. We believe that implementing these enhancements, while maintaining our unique performance-driven compensation program, will further align management’s interests with those of our shareholders.
| No DiscretionaryEquity Awards | We heard feedback from our shareholders criticizing the use of discretionary option awards. As a result, we did not issue any discretionary equity awards in FY 2024, as further described below in Compensation Discussion and Analysis – 2024 NEO Compensation – 2024 Equity Based Incentives. | |
| No Upward Discretion Usedin Annual Cash Incentive | Our shareholders provided feedback that they would prefer for positive payout discretion not to be used on the Annual Cash Incentive for our NEOs. We did not utilize any positive payout discretion on these Annual Cash Incentives in response to this feedback. | |
|---|---|---|
| Continued Enhancement of Our Investor Outreach Program | We continue to bolster our formal year-round shareholder engagement program, increasing the number of shareholder feedback meetings by almost 33% compared to FY 2023. | |
| Increased ShareholderResponsiveness | We have taken actions in response to over 80% of feedback received from our shareholders. | |
| Enhanced Compensation Program Disclosure | We continue to enhance the disclosure of our executive compensation program, including how our option compensation creates strong alignment between our NEOs and shareholders and additional details regarding the mechanics of our option grants. | |
| Use of Refreshed Peer Group | We have implemented our new peer group which we believe is more reflective of our business. | |
| Adoption of a Modified “Rule of 70” for Continued Vesting | We heard from our shareholders that they would prefer that the Company not use discretion in vesting the options of retiring NEOs. We adopted retirement vesting criteria that is more robust as it treats age and tenure more equitably by considering the sum of years of service and age. |
| 40 2025 Proxy Statement | TransDigm Group Incorporated |
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Executive Compensation
Compensation Program Overview
Our compensation program is designed to drive exceptional performance and align the interests of management with our shareholders. This goal is accomplished by heavily weighting compensation towards long-term performance-based options. Initial NEO awards generally vest over a five-year period based on performance, which incentivizes long-term performance and aids in retention.
More than 93% of the CEO’s compensation is comprised of performance-based compensation. In excess of 93% of the remaining NEOs’ compensation, on average, is based on performance-based compensation. Options, which make up the majority of NEO’s compensation, are subject to stringent vesting criteria, which are more fully described in the “2024 Equity Based Incentives” discussion that starts on page 47. Cash compensation constitutes less than 20% of our NEOs’ total compensation.
| BaseSalary | |
| Fixed element of annual compensation | |
| On average, accounts for 10% or less of NEO total compensation | |
| Modest increases for Mr. Stein and Mr. Lisman. Salary increases for Ms. Wynne, Mr. Reiss, and Ms. Warren were more significant due to their position changes | |
| TargetAnnualCash Incentive | |
| Short-term cash incentive with variable payout opportunities | |
| On average, accounts for less than 10% of NEO compensation | |
| No upward payout discretion was used for any of the NEOs | |
| Robust and equally weighted targets of 51.0% EBITDA As Defined margin and $4.076B EBITDA As Defined dollars | |
| We exceeded target goals for both EBITDA As Defined margin and EBITDA as Defined dollars | |
| Long-TermEquityAwards | |
|---|---|
| Long-term equity incentives in the form of performance-based stock options with multi-year vesting schedules | |
| Long-term equity awards remain 100% at-risk and performance-based | |
| The Compensation Committee has a policy that it will not use discretion in vesting performance-based options | |
| Full vesting requires 17.5% compound annual growth for AOP, which aligns performance with top performing private equity funds | |
| Starting in FY 2025, all NEOs will shift to annual extension option awards. Mr. Stein’s annual extension option awards vest in year 5. The remainder of the NEOs’ annual extension option awards vest equally in years 4 and 5 | |
| TransDigm Group Incorporated | 2025 Proxy Statement 41 |
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Executive Compensation
Summary of Key NEO Compensation Decisions and Actions in 2024
BaseSalary
The salaries of Messrs. Stein and Lisman were each increased by 5%. Ms. Wynne’s salary increased by 7%. Mr. Reiss’ salary increased by 14%, and Ms. Warren’s salary increased by 16%.
AnnualCashIncentive
We achieved 114% of our EBITDA as Defined margin goal and 113.8% of our EBITDA as Defined dollars goal for our Annual Cash Incentive. The Annual Cash Incentive paid at 113.9% of the target goal as each of these metrics is equally weighted. The Compensation Committee did not exercise any discretion in the payment of Annual Cash Incentives to NEOs.
Long-TermEquityAwards
The Compensation Committee did not exercise any discretion in awarding long-term equity compensation to NEOs. Ms. Wynne and Mr. Reiss received promotion equity grants which vest equally over a period of five years. These promotion grants consist of five years of awards per the design of our program. The purpose of these awards, and our long-term equity awards generally, is to drive long-term performance and retain our executives. Mr. Lisman received an equity award in January 2024, which corrected an administrative error in his November 2022 equity award. Mr. Lisman received an annual extension grant in November 2022, when he should have received a biannual or two-year extension grant. This award is not a retention or other special award. See page 49 for a more detailed explanation.
Executive Compensation Policies and Practices
We are committed to sound executive compensation policies and practices, as highlighted in the following table.
| WhatWe Do | Equity compensation limited to performance-based optionsOur stock option plans do not authorize the issuance of any full value awards, such as stock, restricted stock or other stock-based units. Our option program relies on performance-vested options with robust performance criteria; we do not issue time-vested options. | |
|---|---|---|
| Prohibition on hedging, pledging and short salesWe prohibit hedging, pledging, transactions in derivatives, and short sales in TransDigm securities by all employees and directors, including our NEOs. | ||
| Equity ownership guidelinesWe have robust equity ownership guidelines for all of our option holders, including our NEOs. | ||
| Annual compensation risk assessmentThe Compensation Committee conducts an annual risk assessment of our compensation program. | ||
| Independent compensation consultantThe Compensation Committee directly retains an independent compensation consultant. | ||
| Double-trigger change in controlStarting with our FY 2024 options grants, we have incorporated double-trigger change in control provisions. | ||
| What WeDon’t Do | No repricingWe do not allow repricing of stock options without shareholder approval. | |
| No tax gross-upsWe do not provide for gross-ups of taxes, including in the event of a change in control or under Section 409A. | ||
| No evergreen employment contractsExecutive employment agreements do not contain automatic renewal provisions. |
| 42 2025 Proxy Statement | TransDigm Group Incorporated |
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Executive Compensation
Compensation Committee Judgment and Discretion
The Compensation Committee, consisting entirely of independent directors, reviews and approves the compensation of TransDigm’s NEOs and acts as the administrator for TransDigm’s equity compensation plans.
The Compensation Committee’s executive compensation determinations are subjective and the result of the Compensation Committee’s business judgment, which is informed by the experience of its members and input provided by its independent compensation consultant, other directors, our CEO (other than with respect to his own compensation), other members of management, and investors.
The Compensation Committee regularly evaluates TransDigm’s executive compensation program to determine if changes are appropriate. In so doing, the Compensation Committee may consult with its independent compensation consultant and management; however, the Compensation Committee makes final decisions regarding the compensation paid to our NEOs based on its own judgment. The Compensation Committee may consider factors such as individual performance, TransDigm performance, market conditions, financial goals, retention, and shareholder interests in determining compensation.
The Role of the Compensation Consultant. The Compensation Committee may periodically select and retain the services of an independent compensation consultant. The Compensation Committee did not engage a compensation consultant in FY 2024. The Compensation Committee did, however, engage Exequity LLP (“Exequity”), an independent compensation consultant, in FY 2023 to review and help establish our FY 2024 peer group and evaluate FY 2024 NEO compensation. The Compensation Committee has assessed the independence of Exequity, as required under NYSE listing rules. The Compensation Committee has also considered and assessed all relevant factors, including but not limited to those set forth in Rule 10C-1(b)(4)(i) through (vi) under the Exchange Act, that could give rise to a potential conflict of interest with respect to Exequity. Based on this review, the Compensation Committee is not aware of any conflict of interest that has been raised by the work performed by Exequity.
The Role of Peer Companies. The following peer group was used to evaluate TransDigm’s FY 2024 NEO compensation:
2024 Peer Group
| Ametek, Inc.Aptiv PLCDover CorporationEaton CorporationEmerson ElectricFortive Corp.General Dynamics | HEICO CorporationHowmet Aerospace Inc.*Illinois Tool WorksIngersoll Rand Inc.*L3Harris Technologies, Inc.Motorola Solutions, Inc.*Northrup Grumman | Parker-Hannifin Corp.RBC Bearings Inc.*Rockwell Automation, Inc.Roper Technologies, Inc.Teledyne Technologies Inc.*Textron Inc. |
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- New to peer group in 2024
This group was selected based on net sales, market capitalization, and enterprise value. We use a size-based peer group because we manage our business based on EBITDA growth and enterprise value. The Compensation Committee deemed that a peer group based solely on net sales is not comparable with TransDigm because TransDigm’s market capitalization and enterprise value far exceeded those of the potential sales-based peers. The Compensation Committee considers the peer group data to inform its decision-making process so it can set total compensation levels that it believes are commensurate with the relative size, scope, and success of TransDigm.
When identifying suitable peer companies, the Compensation Committee considered numerous factors, including:
| Industry fit and business comparabilityFocus on companies serving the Aerospace and Defense industries and/or manufacturers of engineered components. | Comparably-sized companiesFactors considered included net sales, market capitalization, total enterprise value, and EBITDA. |
In establishing the revised peer group, the Compensation Committee sought to position TransDigm within what it believes is a reasonable range of the peer group median net sales, market capitalization, and total enterprise value.
The revised peer group is significantly changed, with almost 60% turnover in composition. This new peer group was used in connection with setting compensation for FY 2024.
| TransDigm Group Incorporated | 2025 Proxy Statement 43 |
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Executive Compensation
Consistent with prior practices, Exequity excluded DEPs from its compensation analysis for two reasons—first, because DEPs are merely a mechanism for maintaining value already awarded, and second, because including DEPs are unpredictable and not considered when making compensation decisions.
The Role of the CEO and Other Members of Management. TransDigm’s management team assists the Compensation Committee with its work in designing, evaluating, and determining final payouts for NEO compensation. At the Compensation Committee’s request, for FY 2024, TransDigm’s CEO, Mr. Stein, provided input to the Compensation Committee regarding the recent performance and compensation of the other NEOs for FY 2023. This input was based on Mr. Stein’s assessment of general internal pay equity considerations, his knowledge of the other NEOs’ job responsibilities and importance to TransDigm’s overall business strategy, and Mr. Stein’s knowledge of TransDigm’s compensation philosophy. The Compensation Committee considered Mr. Stein’s evaluation and direct knowledge of each NEO’s performance and contributions when making compensation opportunity decisions for the NEOs for FY 2024. Although Mr. Stein’s input was given significant weight, the Compensation Committee retained the potential to use full discretion when determining compensation for the NEOs for FY 2024. Mr. Stein is not present during Compensation Committee voting and deliberations regarding his own compensation. TransDigm’s CFO also reviews proposed NEO compensation before it is submitted to the Compensation Committee to help ensure that it aligns with TransDigm’s financial goals. For FY 2024, this review was conducted by Ms. Wynne. As part of the executive compensation setting process, TransDigm’s General Counsel, Ms. Warren, also reviews NEO compensation to help ensure that it complies with the terms of any applicable employment agreements. Ms. Wynne and Ms. Warren provided guidance to the Compensation Committee in its evaluation of FY 2024 results and achievements, and in deciding final annual incentive payouts for the NEOs for FY 2024.
The Role of Investors. Shareholders are provided the opportunity to cast an annual advisory vote on the compensation of our NEOs. Last year, we received support from 68.8% approval of our shareholders for our annual advisory Say-on-Pay proposal to approve the compensation of our NEOs. As described below in “Shareholder Engagement Summary” starting on page 54, we continued to increase our shareholder engagement in FY 2024. The feedback received through these discussions is strongly considered by the Compensation Committee when reviewing our executive compensation program.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.