L3HARRIS TECHNOLOGIES INC DE
For the period ended Apr 18, 2025. Filed Mar 7, 2025.
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Apr 18, 2025 · Filed Mar 7, 2025
Contents
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 2024
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Pay Element | Form of Compensation | | Purpose | ||||||||
| | FIXED | | Base Salary | | Cash | | | Intended to provide a stable portion of income to attract and retain executive talent. | | |||
| | VARIABLE | | Annual IncentiveAT-RISK | | Cash | | | Motivates our executives to focus on achieving or exceeding pre-determined short-term financial targets and individual objectives strategically chosen to align with the interests of our shareholders. | | |||
| | | | Long-term IncentiveAT-RISK | | Performance share units (50%) | | | Motivate our executives to achieve long-term financial and operating goals. As the majority of each named executive officer’s total equity grant is performance based, the ultimate value each named executive officer realizes at the end of the three-year performance period is highly correlated with company performance. | | |||
| | | | | | Stock options(25%) | | | Motivate our executives to increase shareholder value. Executives only realize benefits if share price exceeds the exercise price. Options vest in equal installments on the first, second and third anniversaries following the grant date with a ten-year term. | | |||
| | | | | | Restricted stock units (25%) | | Primarily facilitate retention and succession planning. The restricted stock units cliff vest after a three-year period. | | | |||
Base Salary
Our Compensation Committee reviews executive base salaries 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 page 40-41, 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. Executive base salaries are not subject to automatic annual adjustments.
The table below shows the fiscal 2024 base salary for each named executive officer, including a comparison with fiscal 2023.
| · · · · · · · · | |||||||
|---|---|---|---|---|---|---|---|
| · Fiscal 2023 Annual · Fiscal 2024 Annual · · | |||||||
| · · Base Salary* · · Base Salary* · · · · | |||||||
| · · $ · · $ · · % Change · · Reason for Change | |||||||
| Mr. Kubasik | 1,550,000 | | 1,550,000 | | 0.0% | | n/a |
| Mr. Bedingfield | 850,000 | | 875,000 | | 2.9% | | merit/market |
| Mr. Mehta | 725,000 | | 750,000 | | 3.4% | | merit/market |
| Mr. Rambeau | 725,000 | | 750,000 | | 3.4% | | merit/market |
| Mr. Zoiss | 725,000 | | 750,000 | | 3.4% | | merit/market |
| * | For actual base salary amounts paid for fiscal 2024 and prior periods, see the “Salary” column of the Fiscal 2024 Summary Compensation Table on page 44. |
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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. For executives, this structure creates the upside potential of above-target payouts if our financial performance is above target, and the downside risk of below-target payouts if our financial performance is below target.
L3HARRIS 2025 PROXY STATEMENT 29
COMPENSATION DISCUSSION AND ANALYSIS ELEMENTS OF OUR COMPENSATION PROGRAM
AWARD TARGET VALUES
An award target value for the annual cash incentive is set for each executive officer early in 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. Cash incentive award target values for fiscal 2024 were unchanged from fiscal 2023 as a percentage of base salary.
| · · · · · | ||||
|---|---|---|---|---|
| · Fiscal 2023 Cash · Fiscal 2024 Cash | ||||
| · · Incentive Target Value · · Incentive Target Value · | ||||
| · · $ · · $ · | ||||
| Mr. Kubasik | 3,100,000 | | 3,100,000 | |
| Mr. Bedingfield | 850,000 | | 875,000 | |
| Mr. Mehta | 725,000 | | 750,000 | |
| Mr. Rambeau | 725,000 | | 750,000 | |
| Mr. Zoiss | 725,000 | | 750,000 | |
PERFORMANCE MEASURES
The graphic below shows the five financial performance measures and relative weighting for fiscal 2024 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 2024 and align with the interests of our shareholders. For fiscal 2024, our Board and Compensation Committee added adjusted segment operating margin and strategic goals (LHX NeXT cost savings for fiscal 2024), weighted at 10% each, and decreased the weighting of adjusted EBIT from 30% to 20% and revenue from 20% to 10%. LHX NeXt, announced in 2023, is a strategic, three-year initiative designed to accelerate enterprise transformation. The focus is on enhancing agility and performance by leveraging the scale of the enterprise, strengthening relationships, streamlining operations, optimizing the supply chain, and driving cross-segment collaboration. LHX NeXt has delivered tangible benefits to date and will continue to do so throughout the program. Given its significance, LHX NeXt has been incorporated as a key performance metric for 2024. Additionally, Segment Operating Margin was added to reflect a continued focus on margin expansion, in line with feedback from top shareholders.
| | | | | | |
|---|---|---|---|---|---|
| Adjusted Free Cash Flow (50%)Adjusted Free Cash Flow measures how much cash we generate after accounting for capital expenditures such as buildings or equipment and merger, acquisition and severance expenses. This can be used for expansion, dividends, reducing debt, pension funding or other purposes. We can influence adjusted free cash flow by accelerating the receipt of cash, improving payment terms, reducing inventory, timely invoicing, increasing selling prices of products and services and reducing expenses. | | | Adjusted EBIT (20%)Adjusted EBIT measures our ability to generate enough earnings to be profitable, pay down debt and fund ongoing operations after adjusting for significant and/or non-recurring items included in our operating income (see Appendix A). Our adjusted EBIT improves when we grow revenue while reducing costs and operating expenses, improving procurement practices, increasing efficiencies within our businesses and achieving operational excellence. | | Revenue (10%)Revenue measures what we generate from the delivery of products and services to our customers. We can have an impact on revenue generation by improving market share, introducing new products, enhancing program execution, entering new markets and pricing effectively. |
| Adjusted Segment Operating Margin (10%)Adjusted segment operating margin measures how much profit we make on a dollar of sales after paying for variable costs of production and certain overhead charges, such as wages and raw materials, but before FAS/CAS operating adjustment*, corporate expenses, other unallocated items, non-operating income/expense, interest or tax. It represents how efficiently we are able to generate profit through our core operations. | Strategic Goals - LHX NeXt Cost Savings (10%)LHX NeXt Cost Savings measures annual gross run rate savings driven by our LHX NeXt transformation initiative. It is an operational measure that includes savings from initiatives related to labor and function optimization, direct and indirect procurement, and infrastructure expected to recur on an ongoing basis. |
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*Represents the difference between the service cost component of Financial Accounting Standards (“FAS”) pension and Other Postretirement Benefits (“OPEB”) income or expense and total U.S. Government Cost Accounting Standards (“CAS”) pension and OPEB cost.
We apply these financial measures to L3Harris as a whole and to our four business segments. For corporate executives, such as Mr. Kubasik and Mr. Bedingfield in 2024, payouts are based 100% on consolidated L3Harris results. Payouts for our other named executive
30 L3HARRIS 2025 PROXY STATEMENT
COMPENSATION DISCUSSION AND ANALYSIS ELEMENTS OF OUR COMPENSATION PROGRAM
officers, who were segment presidents in 2024 — Messrs. Mehta, Rambeau and Zoiss — are based 50% on segment results and 50% on consolidated L3Harris results. The LHX NeXt cost savings is measured at the L3Harris consolidated level only, and is applied equally to corporate and segment executives.
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. We established performance ranges for our consolidated L3Harris and individual segment results, whereby payouts are interpolated on a linear basis between threshold and maximum performance.
DETERMINING PAYOUTS
Payouts for performance-based, cash incentive compensation under our Annual Incentive Plan, are determined based on formulaic calculations of our 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.
Results and Payout Percentages for Fiscal 2024
The table below shows targets and results for each financial performance measure for L3Harris as well as for our Space & Airborne Systems, Integrated Mission Systems and Communication 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. Targets for financial performance measures were set above prior year actual performance, by an average of 6%, reflecting our philosophy of setting rigorous targets to incentivize year over year growth.
| · · · · · · · · · · · · · · · · · · · · · | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| · · Threshold · Target · Maximum · · · Result · · | ||||||||||||||||||
| Financial Performance | | | | (50% | | (100% | | (200% | | | | | Relative to | | Resulting | | | Weighted |
| Measure | | Weighting | | Payout)(1) | | Payout)(1) | | Payout)(1) | | Result(2) | | Target(2) | | Payout % | | | Payout% | |
| L3HARRIS (100% for Kubasik and Bedingfield; 50% for other named executive officers) | | |||||||||||||||||
| Adjusted Free Cash Flow | 50% | $1,785 | | $2,232 | | $2,567 | | $2,319 | 104% | 126% | | | ||||||
| Adjusted EBIT | 20% | $2,938 | | $3,457 | | $3,975 | | $3,551 | 103% | 118% | | | ||||||
| Revenue | 10% | $19,095 | | $21,217 | | $23,339 | | $21,325 | 101% | 105% | > | 135% | ||||||
| Adjusted Segment Operating Margin | 10% | | 14.3% | | | 15.0% | | | 15.5% | | | 15.4% | 103% | 180% | | |||
| LHX NeXt Cost Savings | 10% | $300 | | $400 | | $500 | | $800 | 200% | 200% | | |||||||
| SPACE & AIRBORNE SYSTEMS SEGMENT (50% for Zoiss) | | | ||||||||||||||||
| Adjusted Free Cash Flow | 50% | $620 | | $775 | | $891 | | $649 | 84% | 60% | | | ||||||
| Adjusted EBIT | 20% | $706 | | $830 | | $955 | | $812 | 98% | 93% | | | ||||||
| Revenue | 10% | $6,292 | | $6,991 | | $7,690 | | $6,869 | 98% | 92% | > | 87% | ||||||
| Segment Operating Margin | 10% | | 11.3% | | | 11.9% | | | 12.4% | | | 11.8% | 99% | 92% | | |||
| LHX NeXt Cost Savings | 10% | $300 | | $400 | | $500 | | $800 | 200% | 200% | | |||||||
| INTEGRATED MISSION SYSTEMS (50% for Rambeau) | | | ||||||||||||||||
| Adjusted Free Cash Flow | 50% | $666 | | $832 | | $957 | | $856 | | 103% | 119% | | | |||||
| Adjusted EBIT | 20% | $683 | | $804 | | $924 | | $838 | | 104% | 129% | | | |||||
| Revenue | 10% | $6,144 | | $6,827 | | $7,509 | | $6,842 | | 100% | 102% | > | 134% | |||||
| Segment Operating Margin | 10% | | 11.2% | | | 11.8% | | | 12.3% | | | 12.2% | 103% | 180% | | |||
| LHX NeXt Cost Savings | 10% | $300 | | $400 | | $500 | | $800 | 200% | 200% | | |||||||
| COMMUNICATION SYSTEMS SEGMENT (50% for Mehta) | | | ||||||||||||||||
| Adjusted Free Cash Flow | 50% | $1,120 | | $1,400 | | $1,610 | | $1,321 | | 94% | 86% | | | |||||
| Adjusted EBIT | 20% | $1,124 | | $1,322 | | $1,520 | | $1,348 | | 102% | 113% | | | |||||
| Revenue | 10% | $4,860 | | $5,400 | | $5,940 | | $5,459 | | 101% | 111% | > | 111% | |||||
| Segment Operating Margin | 10% | | 23.3% | | | 24.5% | | | 25.0% | | | 24.7% | 101% | 140% | | |||
| LHX NeXt Cost Savings | 10% | $300 | | $400 | | $500 | | $800 | 200% | 200% | | |||||||
| * | Targets and results for our Aerojet Rocketdyne reporting segment are omitted as permitted under applicable rules because they are not relevant for payouts for named executive officers for fiscal 2024. |
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L3HARRIS 2025 PROXY STATEMENT 31
COMPENSATION DISCUSSION AND ANALYSIS ELEMENTS OF OUR COMPENSATION PROGRAM
| (1) | For comparability of performance targets with full-year results due to a divestiture of a business during fiscal 2024 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’ adjusted free cash flow, adjusted EBIT, revenue and segment operating margin attributable to the remainder of fiscal 2024 following the applicable divestiture date, based on our original fiscal 2024 annual operating plan. Additionally, as the originally approved targets only included two quarters of Commercial Aviation Systems in anticipation of the divestiture, which did not close in 2024, L3Harris and Integrated Mission Systems’ adjusted free cash flow, adjusted EBIT, revenue and segment operating margin targets were increased, as applicable, to include third and fourth quarter amounts from the annual operating plan. |
| (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. |
Payouts for Fiscal 2024
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 2024 results for each pre-established financial performance measure.
| · · · · · · · · · · · · · · | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| · · · · · Adjustment based · · · Actual Payout | |||||||||
| · · Annual Incentive · · Weighted Payout % Under · · on individual · · Actual Payout · · (as % of | |||||||||
| | | Plan Target Granted | | Annual Incentive Plan(1) | performance (+/-) | | (in $) | | Target) |
| Mr. Kubasik | | $3,100,000 | 135% | | n/a | | $4,185,000 | | 135% |
| Mr. Bedingfield | | $875,000 | 135% | | n/a | | $1,181,300 | | 135% |
| Mr. Mehta | | $750,000 | 123% | > | n/a | | $922,500 | | 123% |
| Mr. Rambeau | | $750,000 | 134% | | n/a | | $1,005,000 | | 134% |
| Mr. Zoiss | | $750,000 | 111% | | n/a | | $832,500 | | 111% |
| (1) | Weighted payout percentage reflects 50% of the calculated weighted payout percentage for the applicable segment (Communication Systems for Mr. Mehta, Integrated Mission Systems for Mr. Rambeau 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. |
Payouts are shown in the “Non-Equity Incentive Plan Compensation” column of the Fiscal 2024 Summary Compensation Table on page 44.
Long-Term Incentives
Long-term incentive compensation motivates our executives to focus on achieving long-term financial goals and strategic objectives.
EQUITY GRANTS FOR FISCAL 2024
The table below shows the total target value of our fiscal 2024 long-term incentive awards for our named executive officers as compared to fiscal 2023.
| · · · · · · | ||||
|---|---|---|---|---|
| | Fiscal 2023 | Fiscal 2024 | ||
| | | Target Value* | | Target Value* |
| Mr. Kubasik | | $13,500,000 | | $13,500,000 |
| Mr. Bedingfield | | n/a | | $3,750,000 |
| Mr. Mehta | | $2,550,000 | | $2,600,000 |
| Mr. Rambeau | | $2,550,000 | | $2,600,000 |
| Mr. Zoiss | | $2,550,000 | | $2,600,000 |
| * | We value 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 Summary Compensation Table on page 44, and we value 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 Summary Compensation Table on page 44. |
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Types and Mix of Equity-Based Compensation for Named Executive Officers for Fiscal 2024
The target values for fiscal 2024 annual cycle awards were allocated as follows:
| | | | | |
|---|---|---|---|---|
| 50% | 25% | 25% | ||
| as performance share units | | as stock options | | as restricted stock units |
This equity-based compensation mix was determined after considering relevant data for our compensation comparison peer group, the retention value of each type of equity-based compensation and other factors important to us, including linking incentive compensation to performance, tax and accounting treatment, anticipated effects on mitigating shareholder dilution, and the recommendations of Frederic W. Cook & Co., Inc. (“FW Cook”), our Compensation Committee’s independent compensation consultant. For further information related to grants to our named executive officers of fiscal 2024 annual compensation cycle equity-based awards and related terms and conditions, see the Grants of Plan-Based Awards in Fiscal 2024 Table on page 47 and related notes.
32 L3HARRIS 2025 PROXY STATEMENT
COMPENSATION DISCUSSION AND ANALYSIS ELEMENTS OF OUR COMPENSATION PROGRAM
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.
The graphic below shows the financial performance measures and their relative weighting for the fiscal 2024-2026 cycle performance share units granted in fiscal 2024 to named executive officers under our 2015 Equity Incentive Plan, as approved early in fiscal 2024 in accordance with the discussion above.
Performance Measures, Weighting and Rationale for Fiscal 2024-2026 Cycle Performance Share Unit Awards
| | | |
|---|---|---|
| 33%3-Year Cumulative EPS | 33%3-Year Average ROIC | 33%Relative TSR |
| EPS is an indicator of profitability, often considered an important factor in determining share price, impacted by our operating income, our tax rate and the number of shares outstanding. Calculated for the 3-year cumulative performance period as follows: net income (after tax) from continuing operations / diluted weighted-average shares of common stock outstanding | Return on Invested Capital (“ROIC”) is an indicator of efficiency in using capital to generate returns (allocating capital to profitable investments). Calculated for the 3-year performance period as follows: net operating profit (after tax)/(debt + equity + minority interest – cash) | TSR measures cumulative value to shareholders through stock price appreciation and dividends. Relative TSR compares our TSR ranking with the rankings of other companies in the S&P 500 (a broad market index of companies with which we compete for shareholder investment) and a TSR performance peer group (a custom peer group of companies more closely aligned with our industry), each weighted equally at 50%). Calculated for the 3-year performance period as follows: (ending average stock price – beginning average stock price) / beginning average stock price |
Payouts for our named executive officers are subject to adjustment of up to +/- 25% based on achievement of adjusted segment operating margin in 2026, with total payout not to exceed 200%.
TSR Performance Peer Group
In February 2024, our Compensation Committee approved the TSR performance peer group below for the fiscal 2024 - 2026 cycle Performance Share Unit Awards:
| E Ss | | | | |
|---|---|---|---|---|
| | | | | |
| BAE Systems plc | | Huntington Ingalls Industries, Inc. | | Northrop Grumman Corporation |
| Booz Allen Hamilton Holding Corp. | | Leidos Holdings, Inc. | | Science Applications International Corp. |
| CACI International Inc. | | Leonardo S.p.A. | | Textron Inc. |
| General Dynamics Corporation | | Lockheed Martin Corporation | | Thales S.A. |
The TSR performance peer group was added as a second comparator group for our Relative TSR measure to emphasize performance compared to companies more closely aligned with our industry.
Determining Payouts
Payouts for the multi-year performance period that concludes at the end of the relevant fiscal year, are based on formulaic calculations of our financial results against pre-determined targets for such performance period. 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.
L3HARRIS 2025 PROXY STATEMENT 33
COMPENSATION DISCUSSION AND ANALYSIS ELEMENTS OF OUR COMPENSATION PROGRAM
Relationship Between Performance Targets and Payout Percentage for Fiscal 2024-2026 Cycle Performance Share Units
In our long-term incentive plans, balancing transparency with protecting competitive interests is crucial. While we value providing our shareholders with meaningful information, we have strategically decided not to disclose forward-looking targets on our long-term financial performance measures in our proxy statements for the following reasons:
| > | Competitive advantage: Disclosing targets could reveal strategic plans to competitors, undermining our competitive position; |
| > | Market sensitivity: Such disclosures are based on assumptions sensitive to market conditions and internal developments, potentially leading to confusion and potential misinterpretation by investors and analysts; |
| > | Confidential business information: Forward-looking targets often involve proprietary information. Keeping these details confidential protects our business strategies, and; |
| > | Focus on performance outcomes: We emphasize performance outcomes and strategic milestones. This proxy statement details the metrics used to evaluate performance, aligning executive compensation with shareholder value and ensuring accountability and transparency. |
Our target-setting process for long-term incentive plans is as rigorous as for short-term plans, incentivizing year-over-year growth and sustained performance with challenging, yet achievable, targets. Financial performance targets are disclosed after the performance period ends.
The table below shows how varying levels of performance for each performance measure results in different payout percentages for fiscal 2024-2026 cycle performance share units.
| · · · · · · · · · · · · · · | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2024 - 2026 Performance Goals | |||||||||
| ROIC · EPS · Relative TSR(S&P 500) · Relative TSR(Performance Peers) · Adjusted Segment Operating Margin(Modifier) | |||||||||
| Goal | Payout | Goal | Payout | Percentile | Payout | Rank | Payout | Goal | Payout |
| 120% of Target | 200% | 110% of Target | 200% | 80th | 200% | 1st | 200% | At or Above Maximum | 25% |
| Target | 100% | Target | 100% | 50th | 100% | 7th | 100% | Between Threshold and Maximum | 0% |
| 80% of Target | 50% | 90% of Target | 50% | 20th | 50% | 13th | 0% | Below Threshold | (25)% |
Payout of Fiscal 2022-2024 Cycle Performance Share Unit Awards
The fiscal 2022-2024 cycle performance share unit awards were based on the same performance measures as the fiscal 2024-2026 cycle performance share unit awards described above, except that 3-year Cumulative EPS and 3-year Average ROIC were weighted equally at 50%, and they had a TSR performance adjustment of up to +/- 20% as compared to that of the S&P 500 (not a core metric), and there was no adjusted segment operating margin performance adjustment.
The targets and outcomes of the fiscal 2022-2024 measurement period are below:
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| · · · · Result · Resulting · Weighted · | ||||||||||||
| | | | | | | | Relative to | | Payout | | Payout | |
| Financial Performance Measures(1) · · Weighting · · Target(2) · · Target · · % · · % · | ||||||||||||
| 3-year Average ROIC | | 50% | | 16.0% | 113.0% | 164.8% | 108.6% | |||||
| 3-year Cumulative EPS(3) | | 50% | $42.41 | | 90.5% | 52.3% | | | ||||
| | | | | | | | | | | | | |
| TSR vs. S&P 500(4) | Modifier | | 50thpercentile | 96% | (1.3)% | (1.3)% | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| 2022-2024 Performance Share Units Awarded to Executives (% of Target) | | | 107.1% | |||||||||
| | | | | | | | | | | | | |
| (1) | ROIC and EPS are non-GAAP financial measures. Calculations are based on our financial results calculated in accordance with GAAP, adjusted as permitted under our Equity Incentive Plans 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 for each of the 3 years. |
| (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. |
The 3-year cumulative EPS target represents the sum of the EPS targets set by our Compensation Committee for each of fiscal 2022, fiscal 2023 and fiscal 2024 that were adjusted as follows: (i) the fiscal 2022 target of $13.65 was adjusted to $13.19 to reflect the impact of divestitures, net of share buybacks with divestiture proceeds, and accounting regulatory changes related to pension adjustments; (ii) the fiscal 2023 target of $14.65 was adjusted to $13.99 to reflect the impact of divestitures, acquisitions, net of share buybacks with divestiture proceeds, and accounting regulatory changes related to pension adjustments; and (iii) the fiscal 2024 target of $15.85 was adjusted to $15.23 to reflect the impact of divestitures, acquisitions, net of share buybacks with divestiture proceeds, and accounting regulatory changes related to pension adjustments.
| (3) | The 3-year cumulative EPS target reflects adjustments from the original target of $44.15 for acquisitions, divestitures, share buybacks with divestiture proceeds, and accounting regulatory changes. See Appendix A for details. |
| (4) | For the 2022-2024 performance period, the Company’s percentile rank of the companies in the S&P 500 was 48th with a TSR of 10.03%. |
34 L3HARRIS 2025 PROXY STATEMENT
COMPENSATION DISCUSSION AND ANALYSIS ELEMENTS OF OUR COMPENSATION PROGRAM
The number of performance share units granted to each named executive officer that received performance share units in 2022, and the number of shares earned following the fiscal 2022-2024 measurement period is presented below:
| | | | | |
|---|---|---|---|---|
| · Number of performance · | ||||
| | | share units granted | | Number of shares earned |
| Mr. Kubasik | | 24,625 | | 26,374 |
| Mr. Zoiss | 4,711 | | 5,046 | |
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; |
| > | 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); |
| > | Expiration 10 years from the grant date; and |
| > | “Double trigger” accelerated vesting following a change in control. |
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 our 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 (in certain limited circumstances), death, disability or retirement.
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, which was made on February 1, 2024. See the Grants of Plan-Based Awards in Fiscal 2024 Table on page 47.
L3HARRIS 2025 PROXY STATEMENT 35
COMPENSATION DISCUSSION AND ANALYSIS OTHER COMPENSATION ELEMENTS
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