UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTIONProxy Statement Pursuant to Section 14(a) OF THE SECURITIES
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2021
Notice of Annual Meeting of
Shareholders and Proxy Statement
Letter to Our Shareholders |
March 22, 201825, 2021
Dear Fellow Shareholder:
We are pleased to sendDEAR FELLOW SHAREHOLDER:
Enclosed you will find the 20182021 General Dynamics Proxy Statement. We remain committedStatement, in which we articulate our commitment to sound corporate governance and to a strong link betweenlinking executive pay to company performance. As always, we encourage a careful reading of our proxy and welcome any comments or suggestions you may have.
2020 Performance
Despite the disruptive impact from COVID-19 on our two business aviation units, we performed well in 2020 and continued to build for the future. We had solid cash performance and significantly added to our backlog. We ended the year with a record backlog of $89.5 billion and our total estimated contract value rose to a record $134.7 billion. The total company book-to-bill was 1.1 to 1, including the award of a $9.5 billion contract at Electric Boat for construction of the first two of 12 Columbia-class ballistic missile submarines. We generated $2.9 billion of free cash flow, a solid 91% of our net earnings. We also reduced our net debt by $854 million and increased our dividend by 8%, marking the 23rd consecutive year of annual increases.
Shareholder Engagement
Every year we seek our shareholders’ input. This year was no exception. Throughout the year we discussed company performance, in our executivesustainability, governance and compensation program. The detailswith shareholders. We find these conversations important and helpful as we continue to work hard to create value for you and for all of our governancestakeholders. These conversations will continue in 2021 and executive compensation programs are containedwe encourage you to raise questions you may have.
Board Engagement and Qualifications
This proxy describes our Board in this Proxy Statement and referenced documents.
Our shareholder engagement program continued in 2017 and remains a key focus for our company to ensure we are aware of your top priorities. Over the past year, we have spoken with shareholders about a number of critical topics,detail, including our company strategy, executive compensation programdirectors’ experience and corporate governance practices. We continue to be encouraged by the positive shareholder feedback regarding our corporate governance and executive compensation programs. We value the input we receive from our shareholders.
Our Board continues to reflect a diverse and well-qualified groupareas of business leaders, aerospace and defense industry experts and financial and strategic advisors. To ensure that our Board represents diverse skills and experiences, we have added several new directors through a thoughtful and deliberate process over the past several years. Ward Nye, who is nominated for election to the Board at the Annual Meeting, will bring extensive knowledge of manufacturing and industrial operations, as well as providing additional public company governance perspective to the Board.
Two of our longer-serving directors will be retiring from the Board in May pursuant to our Director Retirement Policy. We are grateful to Mr. Chabraja for his wise counsel and 24 years of service on the Board, including 13 years as our Chairman. Mr. Keaneexpertise. In February 2021, Robert Steel joined our Board, in 2004bringing outstanding business, finance, government and we appreciate the sound guidance he has provided over the years.
Our company enjoyed outstanding operating performance in 2017. Revenue, operating earnings, operating margin, return on salessustainability experience to our Board. The addition of Mr. Steel reflects our ongoing deliberate and earnings per share all increased from 2016. Free cash flow and return on invested capital, two key metrics for our executive compensation program, also increased, with free cash flow representing 119 percent of earnings from continuing operations. Our backlog increased nearly $1 billion from 2016, supporting our long-term growth expectations.
On behalf ofthoughtful process to ensure that the Board of Directors I invite youcontinues to attendprovide experienced, strategic leadership for our company across a broad array of areas.
Finally, this proxy includes an invitation to the 20182021 Annual Meeting of ShareholdersShareholders. As you know, we held our 2020 shareholders’ meeting virtually given the government directed lock-downs in effect last spring. We found, however, that the virtual meeting did not provide the full and even ifpersonal engagement afforded by an in-person meeting, so this year we intend to return to hosting the meeting at our corporate headquarters. If you are not ableunable to attend, we encourage you to vote by proxy. The accompanying Proxy Statement contains information about the mattersWe have described in detail those items on which you are asked to vote. I urgevote, and we ask that you to read the materials carefully and vote in accordance with the recommendations of the Board of Directors’ recommendations.Directors. Your vote is very important.
Sincerely,
Phebe N. Novakovic
Chairman and Chief Executive Officer
2941 Fairview Park Drive, Suite 100
Falls Church, Virginia 22042
2021 Proxy Statement | 1 |
Notice of Annual Meeting of Shareholders |
Date and Time Wednesday, May 5, 2021 9 a.m. eastern time | Location* General Dynamics 11011 Sunset Hills Road Reston, Virginia 20190 | Who Can Vote Shareholders as of March 8, 2021, are entitled to vote |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Important Notice Regarding the Availability of Proxy Materials
for the Shareholder Meeting to Be Held on May 2, 2018
The Proxy Statement and 2017 Annual Report are Available at
www.generaldynamics.com/2018proxy
You are invited to our Annual Meeting of Shareholders of General Dynamics Corporation, a Delaware corporation, on Wednesday, May 2, 2018, at 9 a.m. local time at the General Dynamics Corporation headquarters located at 2941 Fairview Park Drive, Falls Church, Virginia. Proposals to be considered at the Annual Meeting include:
Proposal | Board Recommendation | Additional Information | ||
1. | Election of Directors | “FOR” each nominee | See pages 13 through 22 for more information on the nominees | |
2. | Advisory Vote on the Selection of Independent Auditors | “FOR” | See page 36 for details | |
3. | Advisory Vote to Approve Executive Compensation | “FOR” | See page 39 for details | |
4. | Shareholder Proposal – Special Shareholder Meetings | “AGAINST” | See pages 86 through 88 for details |
the election of 10 directors from the nominees named in the Proxy Statement (proposal 1);
an advisory voteShareholders will also act on the selection of KPMG LLP, an independent registered public accounting firm, as the company’s independent auditors for 2018 (proposal 2);
an advisory vote to approve executive compensation (proposal 3);
a shareholder proposal as described in this Proxy Statement, provided it is presented properly at the meeting (proposal 4); and
the transaction of all other business that properly comes before the meeting or any adjournment or postponement of the meeting.
The Board of Directors unanimously recommends that you vote FOR proposals 1, 2 and 3.
The Board of Directors unanimously recommends that you vote AGAINST proposal 4.
Shareholders may raise other matters as described in the accompanying Proxy Statement.
The Board of Directors set the close of business on March 8, 2018,2021, as the record date for determining the shareholders entitled to receive notice of, and to vote at, the Annual Meeting. It is important that your shares be represented and voted at the meeting. Please complete, sign and return a proxy card or use the telephone or Internetinternet voting systems.
A copy of the 20172020 Annual Report accompanies this Notice and Proxy Statement and is available on the website listed above.below.
By Order of the Board of Directors,
Gregory S. Gallopoulos
Secretary
Falls Church,Reston, Virginia
March 22, 201825, 2021
General Dynamics 2018 Proxy Statement
HOW TO VOTE
Access www.ProxyVote.com and follow the instructions. | ||||
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General Dynamics 2018 Proxy Statement
PROXY STATEMENT
The Board of Directors of General Dynamics Corporation is soliciting your proxy for the Annual Meeting of Shareholders to be held on May 2, 2018, at 9 a.m. local time, or at any adjournment or postponement of the meeting. This Proxy Statement and the accompanying Notice of Annual Meeting of Shareholders and proxy card are being distributed on or about March 22, 2018, to holders of General Dynamics common stock, par value $1.00 per share (Common Stock).
This summary highlights selected information that is provided in more detail throughout this Proxy Statement. This summary does not contain all of the information you should consider before voting. You should read the full Proxy Statement before casting your vote.
VOTING MATTERSAND BOARD RECOMMENDATIONS
At this year’s Annual Meeting, we are asking our shareholders to vote on the following matters:
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| Sign and date each proxy card received and return each card using the prepaid postage envelope. | ||
| In Person Attend the Annual Meeting and vote by ballot. |
Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 5, 2021 The Proxy Statement and 2020 Annual Report are Available at www.gd.com/2021proxy |
* | Although we are currently planning an in-person meeting, as part of our precautions relating to the COVID-19 pandemic, we are planning for the possibility that the Annual Meeting may be held solely by means of remote communication in a Virtual Annual Meeting format. If we take this step, we will announce the decision to do so as soon as practicable in advance of the Annual Meeting on our website at www.gd.com/proxy. In that event, the 2021 Annual Meeting of Shareholders would be conducted solely virtually, on the above date and time, via live audio webcast. |
2 | General Dynamics |
Table of Contents |
2021 Proxy Statement | 3 |
Proxy Summary |
This summary highlights selected information aboutthat is provided in more detail throughout this Proxy Statement. This summary does not contain all the information you should consider before voting. You should read the full Proxy Statement before casting your vote.
Voting Matters and Board Recommendations
At this year’s Annual Meeting, we are asking shareholders of our Common Stock, par value $1.00 per share (Common Stock) to vote on the following matters:
PROPOSAL 1 | |
ELECTION OF DIRECTORS | |
ü The Board recommends a vote FOR all director nominees. | See Page 13 |
PROPOSAL 2 | |
ADVISORY VOTE ON THE SELECTION OF INDEPENDENT AUDITORS | |
üThe Board recommends a vote FOR this proposal. | See Page 36 |
PROPOSAL 3 | |
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION | |
üThe Board recommends a vote FOR this proposal. | See Page 39 |
PROPOSAL 4 | |
SHAREHOLDER PROPOSAL – SPECIAL SHAREHOLDER MEETINGS | |
The Board recommends a vote AGAINST this proposal. | See Page 86 |
4 | General Dynamics |
Proxy Summary
Who We Are
Overview of Our Business and voting can be found beginning on page 58.Strategy
General Dynamics 2018 Proxy Statement 1is a global aerospace and defense company. From Gulfstream business jets and nuclear-powered submarines to combat vehicles, IT services and communications and networking systems, our customers depend on us to produce the world’s most technologically advanced products and services to ensure their safety and security. We offer these products and services through our four business segments: Aerospace, Marine Systems, Combat Systems and Technologies.
We have a balanced business model that gives each business unit flexibility to stay agile and maintain an intimate understanding of customer requirements. Each business unit is responsible for the development and execution of its strategy and operating results. Our corporate leaders set the overall strategy and governance for the company and are responsible for allocating and deploying capital. Our ethos – based on transparency, trust, alignment and honesty – undergirds our culture, our business model and our decision-making. This unique model keeps us focused on our priorities: exceeding customer expectations; executing on backlog; managing costs; implementing continuous improvement; and maximizing earnings, cash and return on invested capital. This model, which serves us well every year, was especially important this year as we remained operational throughout the COVID-19 pandemic.
2020 Financial Highlights
Delivering Long-Term Shareholder Value
Despite the impact of the pandemic on our business aviation units, we met many of our operational and financial goals and continued to build for the future. The company’s backlog increased 3%, with significant wins at Marine Systems, Combat Systems and Technologies. Gulfstream made solid progress with the G700, inducting the first five aircraft of this new state-of-the-art plane into the flight test program. We also continued to invest in our shipyards, particularly at Electric Boat to support the planned growth in submarine construction. We had good cash performance, generating $2.9 billion of free cash flow, or 91% of net earnings. We again boosted our dividend in 2020, raising the quarterly rate by 8%. This is the 23rd consecutive year of annual increases.
DIVIDEND HISTORY
REVENUE
$37.9 billion
Sequential growth throughout the year despite COVID-19 challenges
DILUTED EARNINGS PER SHARE (EPS)
$11.00
Delivered on our post-COVID EPS projections for the year
RETURN ON INVESTED CAPITAL*
11.8%
Continued our ongoing investment in the business, particularly at Gulfstream and Electric Boat, to position the company for further growth
QUARTERLY DIVIDENDS
$1.10 per share
23rd consecutive year with a dividend increase
NET EARNINGS
$3.2 billion
Third-straight year of net earnings in excess of $3 billion
OPERATING MARGIN
10.9%
Second-half margin exceeded the average for the year
CASH FROM OPERATING ACTIVITIES
$3.9 billion
Second-highest-ever cash from operations
BACKLOG
$89.5 billion
Record-high backlog for the company; increased by $2.5 billion, or 2.9%, over 2019
* | See Appendix A for a discussion of this non-GAAP measure. |
2021 Proxy Statement | 5 |
Proxy Summary
2018 BOARDOF DIRECTORS NOMINEES2021 Board of Director Nominees
DIRECTOR NOMINEES
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Nominee | Director Since | Independent | Primary Occupation | |||||
James S. Crown*
| 1987
| Yes
| President, Henry Crown and Company
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Rudy F. deLeon
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2014
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Yes
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Senior Fellow, Center for American Progress
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Lester L. Lyles
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2003
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Yes
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Retired General, U.S. Air Force
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1
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Mark M. Malcolm
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2015
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Yes
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Former President and CEO, Tower International
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1
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Phebe N. Novakovic
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2012
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Chairman and CEO, General Dynamics
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1
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C. Howard Nye
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—
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Yes
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Chairman, President and CEO, Martin Marietta Materials
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1**
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William A. Osborn
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2009
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Yes
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Former Chairman and CEO, Northern Trust Corporation
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Catherine B. Reynolds
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2017
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Yes
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Chairman and CEO, EduCap
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1
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Laura J. Schumacher
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2014
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Yes
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EVP, External Affairs and General Counsel, AbbVie
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Peter A. Wall
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2016
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Yes
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Retired General, British Army
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Other Public | Committee Membership | ||||||||
Name and Primary Occupation | Independent | Director Since | Company Boards | AC | CC | FBPC | NCGC | ||
James S. Crown Lead Director Chairman and CEO, Henry Crown and Company | ü | 1987 | 1 | O | O | l | |||
Rudy F. deLeon Senior Fellow, Center for American Progress | ü | 2014 | O | l | |||||
Cecil D. Haney Retired Admiral, U.S. Navy | ü | 2019 | 1 | O | O | ||||
Mark M. Malcolm Former President and CEO, Tower International | ü | 2015 | l | O | |||||
James N. Mattis Former United States Secretary of Defense and Retired General, U.S. Marine Corps | ü | 2019 | O | O | |||||
Phebe N. Novakovic Chairman and CEO, General Dynamics | 2012 | 1 | |||||||
C. Howard Nye Chairman, President and CEO, Martin Marietta Materials | ü | 2018 | 1 | O | O | ||||
Catherine B. Reynolds Chairman and CEO, EduCap | ü | 2017 | 1 | O | O | ||||
Laura J. Schumacher Vice Chairman, External Affairs and Chief Legal Officer, AbbVie | ü | 2014 | 1 | l | O | ||||
Robert K. Steel Partner and Chairman, Parella Weinberg Partners | ü | 2021 | 1 | O | |||||
John G. Stratton Former Executive Vice President and President of Global Operations, Verizon Communications | ü | 2020 | 1 | O | |||||
Peter A. Wall Retired General, British Army | ü | 2016 | O | O |
| l | Committee Chair |
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Finance and Benefit Plans Committee | ||||
NCGC | Nominating and Corporate Governance Committee |
6 | General Dynamics |
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Proxy Summary
Composition of the General Dynamics Board
(As Nominated for Election at the Annual Meeting)
DIRECTOR TENURE
6.5 Years
average Tenure
AGE
64.3 Years
average Age
AN INDEPENDENT BOARD
11 of 12
Nominees are Independent
DIVERSITY
3 of 12
Nominees are Women
2 of 12
Nominees are Ethnic or Racial Minorities
GUIDED BY EXPERTISE – KEY BOARD SKILLS AND EXPERIENCE
2021 Proxy Statement | 7 |
Proxy Summary
A COMMITMENTTO SOUND CORPORATE GOVERNANCECommitment to Sound Corporate Governance
Our Board of Directors believes that a commitment to good corporate governance enhances shareholder value. Sound corporate governance starts with a strong value system, and the value system starts in the boardroom. The General Dynamics ethosEthos – our distinguishing moral nature – is rooted in fivefour overarching values.
These values:
Drive how we operate our business. | ||||
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Years on Board % = Percentage of meetings attended by directors
2 General Dynamics 2018 Proxy Statement
Proxy Summary
Highlights of our governance practices include:
suppliers. | ||||||
Guide the way we treat our workforce. | ||||||
Determine how we connect with our communities and impact our environment. |
Adherence to our ethos ensures that we continue to be good stewards of the investments in us by our shareholders, customers, employees and communities.
General Dynamics |
Proxy Summary
Corporate Governance Highlights
Governance Practice | For more information | ||||||
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P. 70 | |||||||
Thoughtful Board refreshment, leading to average tenure of 6.5 years and supportingcontinued strong Board diversity. | P. | ||||||
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100% independent. | P. | ||||||
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P. 29 | |||||||
Diligent Board oversight of risk is a cornerstone of our risk management program. | P. 27 | ||||||
Annual Board and committee self-assessments enable the Board to monitor the performance and effectiveness of the Board and its committees. | P. 32 | ||||||
Our related person transactions policy ensures appropriate Board review of relatedperson transactions. | P. 33 | ||||||
Our directors are elected annually based on a majority voting standard foruncontested elections. We have a resignation policy if a director fails to receive amajority of votes cast. | P. 91;Bylaws* | ||||||
Our directors are restricted in the number of other boards on which they may serve toprevent overboarding(directors may not serve on more than four other public companyboards and Audit Committee members may not serve on the audit committee of morethan two other public companies). | |||||||
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Our Corporate Sustainability Report discusses our Ethos, our commitment to ourstakeholders and communities and our commitment to diversity and inclusion. | CSR** | ||||||
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CSR** | |||||||
Our Board and management team oversee our environmental sustainability initiativesand implementation. | CSR** | ||||||
Bylaws* | |||||||
CGG* | |||||||
Bylaws* | |||||||
Our shareholders have the right to request aspecial meetingof shareholders. | Bylaws* | ||||||
Voting rights are proportional to economic interests. One share equals one vote. |
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Bylaws*
* | Our Corporate Governance Guidelines (CGG), Certificate of Incorporation and Bylaws are available on our website at www.gd.com/CorporateGovernance. |
** | Our Standards of Business Ethics and Conduct, Codes of Ethics and Corporate Sustainability Report (CSR) are available on our website at www.gd.com/Responsibility. | |
*** | See www.gd.com/AdditionalDisclosure. |
2021 Proxy Statement | 9 |
Proxy Summary
Shareholder Engagement
KEY ITEMS DISCUSSED WITH SHAREHOLDERS IN 2020 | ||
Board ofDirectors andCorporateGovernance | Tenure and refreshment Director diversity Shareholder rights | |
RiskManagementOversight | Supply chain management Human capital management | |
ExecutiveCompensation | 2020 Shareholder vote on executive compensation Program structure, including role of equity compensation Pay-for-performance alignment COVID-19 impacts on executive compensation program, particularly on annual incentive determinations | |
CorporateResponsibility | COVID-19 response •Focus on employee health and safety •Supporting our communities Diversity and inclusion initiatives Workforce development Sustainability, including environmental initiatives |
Executive Compensation Highlights
Components of 2020 Compensation Program
Component | ||||
CEO | Other NEOs | Description | ||
Annual Base Salary | ||||
Base Salary is set near the median of our peers and also reflects the experience, potential and performance track-record of executives, to represent a fixed level of competitive compensation. | ||||
Annual Incentive Compensation | ||||
Targeted around the median of our peers, the cash incentive is designed to motivate and align management with annual business goals and varies based on achievements. Typically includes a balance of financial and strategic and operational measures to align with annual priorities. Incorporates financial metrics – diluted earnings per share from continuing operations (25%), free cash flow from operations (25%) and operating margin (20%) – along with strategic and operational performance (30%). Strategic and operational performance measures include but are not limited to: financial performance improvement, prudent allocation of capital, human capital management, debt management, segment performance, cost reductions, leadership and other significant factors not contemplated at the start of the year. | ||||
Long-Term Incentive (LTI) Compensation | ||||
50% Performance Stock Units 30% Stock Options 20% Restricted Stock | LTI awards are based upon peer market data and balance other considerations such as company performance, complexity of the role, length of service, future expected contributions to the company and impact on dilution. LTI awards have multi-year performance metrics designed to align NEOs with the objectives of our company and shareholders. The LTI element of compensation is based on a pay-for-performance model and for retention. The 2020 annual grant was divided as follows: 50% performance stock units (with a three-year average performance period based on Return on Invested Capital (ROIC) and a modifier based on a relative Total Shareholder Return (rTSR)), 30% stock options and 20% restricted stock with a three-year cliff vest. A mix of elements serves to focus leaders on specific long-term performance results, reward management for improvements in shareholder value, retain key employees through longer-term vesting and performance periods, and provide an opportunity for wealth accumulation over time that is consistent with the shareholder experience. | |||
10 | General Dynamics |
General Dynamics 2018 Proxy Statement 3Table of Contents
Corporate Responsibility and Sustainability |
Proxy SummaryOur Board and management take seriously our commitment to corporate responsibility, and we implement our sustainability program in a way that benefits our stakeholders, including investors, customers, employees, suppliers and communities. This imperative is rooted in our Ethos – our defining moral character as a company and the standard to which we hold ourselves.
Our Board is Committed to Robust Shareholder Engagement. Our shareholder engagement program allows us to discuss corporate governance, executive compensation and corporate responsibility mattersOngoing conversations with a significant number of shareholders, as well as other items of interest to our shareholders. Asstakeholders have been an integral part of building and evolving our ongoing program, in 2017 we reached outsustainability program. We remain committed to holders representing approximately 65 percentreducing our global environmental impact, including our carbon footprint; protecting and promoting human rights; increasing diversity and opportunity for our workforce; supporting the health, welfare and safety of our outstanding common stock. At the Board level, anad hoc groupemployees; and being transparent about our strengths and weaknesses on these issues. As with all aspects of directors, anchored by the chairman and the independent Lead Director, is in place to liaise with significant shareholders.our business, we strive for constant improvement. Our Board remains committed to soliciting and understanding shareholder views and responding as appropriate.
OUR SHAREHOLDER ENGAGEMENT PROGRAMsustainability initiatives are no exception.
In 2020, we published an updated Corporate Sustainability Report, available on our website at www.gd.com/ Responsibility. In this report, we highlight how our Ethos is reflected in our people and actions. Through our goals, policies and behavior, we seek to demonstrate our commitment to responsible investment and enduring value creation for all our stakeholders.
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| HUMAN CAPITAL MANAGEMENT | ||
Everything we do is rooted in trust. This demands the highest ethical standards, sound governance processes and a culture of accountability that reinforces the trust we have earned from our employees, customers, suppliers and investors. | People are the heart of our company. We are committed to the | |||
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| DIVERSITY AND INCLUSION | ENVIRONMENT | ||
We believe that a diverse workplace yields better ideas and outcomes. We are committed to promoting a workforce that reflects a rich tapestry of different backgrounds, experiences and perspectives, where all are welcomed. | As a company with multiple business lines that include heavy manufacturing, we recognize that our actions have an impact on our planet. Reducing carbon emissions, solid waste and energy consumption are integral goals in our decision-making and our capital investments. | |||
COMMUNITIES | ||||
Although we are a global company, we never lose sight of the communities where we live and work. Whether through philanthropy, volunteer service, educational partnerships or civic engagement, we seek to contribute to the betterment of our local communities. |
Shareholders discussed their priorities in the evolving area of corporate responsibility, including consideration of climate change risks,
2021 Proxy Statement | 11 |
Corporate Responsibility and Sustainability
Since the start of the pandemic, we have continued to serve our customers at the level that they have come to expect, while focusing on protecting our employees and doing our part as a corporate citizen. Our Board of Directors has provided strategic oversight of management’s detailed response to COVID-19. Below are examples of key actions we have taken:
Implemented strict health and safety | |
Modified employee | |
Coordinated closely with our suppliers and customers. | |
Advanced cash payments to our suppliers to ensure they could meet their financial obligations, especially to their workers. | |
Instituted various aspects of our business continuity programs including facilitating remote work. | |
Worked directly with the federal government to rush stocks of personal protective equipment (PPE) to communities and first responders where the need was most critical. | |
Helped with the production of medical supplies including face shields and packaging machines that doubled the production by one of the world’s principal providers of nasal swabs used for testing, and several components for COVID-19 diagnostics testing units. | |
Increased donations to local hospitals to help with the costs of the pandemic. | |
Participated in humanitarian efforts to provide support for urgent medical or supply missions. | |
Provided financial support through donations to charities, food banks and other non-profit organizations. |
12 | General Dynamics |
Election of the Board of Directors of the Company |
PROPOSAL 1 ELECTION OF DIRECTORS |
Accomplished slate of nominees, with diversity of thought, experience and skills beneficial to our company | |
All nominees are independent, except the chairman | |
Average director tenure of 6.5 years |
Your Board of Directors unanimously recommends a vote FOR all director nominees. |
4 General Dynamics 2018 Proxy Statement
Proxy SummaryDirector Nominations
PERFORMANCEAND EXECUTIVE COMPENSATION HIGHLIGHTS
Delivering Long-Term Shareholder Value. In 2017, each of our businesses contributed to strong operating performance through exceptional execution and a focus on delivering shareholder value. We deployed capital prudently through continued investment in the future growth areas of our company and the acquisition of several accretive businesses. We also used $2.9 billion of cash in 2017 for share repurchases and dividends. In addition to our strong operating performance, we added several significant contracts to backlog, resulting in a robust backlog that supports our long-term growth expectations.
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A Consistent Focus on Aligning Compensation with Performance. Our compensation philosophy at General Dynamics is to align executive compensation with company, business group and individual performance, and to provide the incentives necessary to attract, motivate and retain the executives that help drive the company’s success. We have received positive shareholder feedback about our executive compensation program, and received a greater than 96% vote in favor of our executive compensation program at last year’s annual meeting. Our program’spay-for-performance philosophy has generated strong results for the company.
General Dynamics 2018 Proxy Statement 5
ELECTIONOFTHE BOARDOF DIRECTORSOFTHE COMPANY
(PROPOSAL 1)
Director Nominations. General Dynamics’ directorsDirectors are elected at each annual meetingAnnual Meeting of shareholdersShareholders and hold office forone-year terms or until successors are elected and qualified. The Nominating and Corporate Governance Committee considersleads consideration of director nominees from various sources and choosesidentifies nominees with the primary goal of ensuring the Board collectively serves the interests of shareholders.
NOMINEES ARE THOROUGHLY EVALUATED TO ENSURE A BALANCED AND EFFECTIVE BOARD
2021 Proxy Statement | 13 |
Election of Directors
Director Skills and Experience
In considering Board nominees, the Nominating and Corporate Governance Committee considers each individual’s background and personal and professional experiences in addition to general qualifications. Nominees are evaluated in the context of the Board as a whole, with a focus on achieving an appropriate mix of skills needed to lead the company at the Board level. The committee regularly assesses and communicates with the Board about the current and future skills and backgrounds to ensure the Board maintains an appropriate mix. These skills are reflected in the following table. Each nominee also possesses additional skills and experience that are not highlighted among those listed below.
DIRECTOR NOMINEES SKILLS, KNOWLEDGE AND EXPERIENCE MATRIX
Why is this important for General Dynamics? | ||||||||||||||
Aerospace andDefense Industry | Supports oversight of the company’s business performance and strategic developments in our industry | |||||||||||||
Corporate Governance and Public CompanyBoard | Provides the background and knowledge necessary to provide effective oversight and governance | |||||||||||||
Finance orAccounting | Enables in-depth analysis of our financial statements and understanding of our capital structure, financial transactions and financial reporting processes | |||||||||||||
GovernmentRelations andRegulatory | Critical for an understanding of the complex regulatory and governmental environment involving our business | |||||||||||||
Global Businessand Strategy | Important for oversight of a complex organization with operations worldwide | |||||||||||||
Operations andManufacturing | Necessary in overseeing a sustainable, complex, global manufacturing company | |||||||||||||
Technology andCybersecurity | Supports our businesses in navigating the rapidly changing landscape for technology and cybersecurity |
14 | General Dynamics |
Election of Directors
Board Diversity and Inclusion.Inclusion
In order to sustain a global business, we must bring together a group of people with a vision for the future and diversity of thought. We must have leadership, at both the executive and Board levels, to develop and execute our business objectives better than our competition. At the heart of our company are diverse executives, managers and employees worldwide who rely on their intimate knowledge of customer requirements and a unique blend of skills and innovation to develop and deliver the best possible products and services.
The nominees
Highlights of the composition of the Board of Directors, as nominated, include:
Under the company’s Bylaws, no director shall stand for election tobeyond the Board come from a varietyage of backgrounds and bring a diverse set75. Additionally, the Bylaws provide that, under circumstances of skills and experiences to the boardroom. This ensures that our directors bring a broad perspectivesignificant benefit to the company, on a rangean individual over the age of important issues.
6 General Dynamics 2018 Proxy Statement
Election72 years may stand for election as director only with the approval of Directors
Director Skills and Experience. In assessing director candidates, the Nominating and Corporate Governance Committee considers the background and professional experiencea two-thirds vote of the candidatesdirectors then in office.
Director Retirement. William A. Osborn, age 73, will not stand for re-election at the contextAnnual Meeting. General Dynamics and the Board appreciate his many years of dedicated service and valuable counsel as a member of the current Board composition to ensure a diverse range of backgrounds, talent, skill and expertise, including gender and racial diversity. Relevant criteria considered by the committee include: business and financial expertise, technical expertise and familiarity with issues affecting aerospace and defense businesses. The committee also carefully considers any potential conflicts of interest. All nominees must possess good judgment, an inquiring and independent mind, and a reputation for the highest personal and professional ethics, integrity and values. Nominees must be willing to devote sufficient time and effort to carrying out their duties and responsibilities through attendance and engagement with the company, as well as a commitment to serving on the Board for an extended period of time.
For the nomination of director candidates forre-election, the committee considers the factors described above and each director’s attendance record at, and participation in, Board and committee meetings and participation in, and contributions to, Board and committee activities.
In considering Board nominees, the Nominating and Corporate Governance Committee considers each individual’s background and personal and professional experiences in addition to the general qualifications. Nominees are evaluated in the context of the Board as a whole, with a focus on achieving an appropriate mix of skills needed to lead the company at the Board level. The committee regularly assesses and communicates with the Board about the current and future skills and backgrounds to ensure the Board maintains an appropriate mix. These skills are reflected in the following table. Each nominee also possesses additional skills and experience that are not highlighted among those listed below.Board.
2021 Proxy Statement | 15 | |||||||||||
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General Dynamics 2018 Proxy Statement 7
Election of Directors
20182021 Director Nominees. Nominees
The following 1012 nominees are standing for election to the Board of Directors at the Annual Meeting. If any nominee withdraws or for any reason is unable to serve as a director, your proxy will be voted for any remaining nominees (except as otherwise indicated in your proxy) and any replacement nominee designated by the Nominating and Corporate Governance Committee of the Board of Directors.
JAMES S. CROWNLead Director Independent Age: 67 Director Since: May 1987 Committees: Audit, Compensation, Nominating and Corporate Governance (Chair) | ||||
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As the longest-serving member of our Board and a significant shareholder, Mr. Crown has an abundance of knowledge regarding General Dynamics and our history. As |
RUDY F. deLEON Independent
Director Since: September 2014 Committees: Compensation, Finance and Benefit Plans (Chair)
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Mr. deLeon’s experience as the second-highest ranking civilian official in the U.S. Department of Defense and as a foreign policy and military advisor | |||
COMMITTEES:
Compensation
Finance and Benefit Plans
DIRECTORSINCESEPTEMBER2014
AGE:65
16 | General Dynamics |
8 General Dynamics 2018 Proxy Statement
Election of Directors
Election of Directors
Election of Directors
Election of Directors
Election of Directors
Election of Directors Independence Standards Our Board of Directors assesses the independence of our directors and examines the nature and extent of any relationships between General Dynamics and our directors, their families and their affiliates. Our Board has established an objective that at least two-thirds of the directors be independent. For a director to be considered independent, the Board must determine that a director does not have any direct or indirect material relationship with General Dynamics. Our Board has established director independence guidelines (the Director Independence Guidelines) as part of the Corporate Governance Guidelines to assist in determining director independence in accordance with the rules of the New York Stock Exchange. The Corporate Governance Guidelines are available at www.gd.com/CorporateGovernance. Independence Determinations The Board has determined that each current non-management director – Ms. Reynolds, Ms. Schumacher and Messrs. Crown, deLeon, Haney, Malcolm, Mattis, Nye, Osborn, Steel, Stratton and Wall – qualifies as an independent director. In March of each year and at other times during the year for director nominations or appointments occurring outside of the annual meeting, the Board of Directors considers whether each director and nominee to the Board meets the definition of an “independent director” in accordance with the rules of the New York Stock Exchange and the company’s Director Independence Guidelines. To make these independence determinations, the Board reviewed all relationships between General Dynamics and the directors and affirmatively determined that none of the individuals qualifying as independent has a material business, financial or other type of relationship with General Dynamics, other than as a director or shareholder of the company. Specifically, the Board considered the relationships listed below and the related person transactions listed on page 33 of this Proxy Statement and found them to be immaterial. For each of the relationships that the Board considered for 2018, 2019 and 2020, the payments made or received by General Dynamics, and the charitable contributions made by General Dynamics, fell below the thresholds in our Director Independence Guidelines (the greater of $1 million or 2% of the consolidated gross revenue of the other company). Listed below are the relationships that existed in 2020 that were considered by the Board as part of their independence determinations.
Nominees to the Board Submitted by The committee will consider director nominees recommended by shareholders in the same manner as it considers and evaluates potential directors identified by the company. Additionally, our
The General Dynamics Board of Directors believes that a commitment to good corporate governance enhances shareholder value. To that end, General Dynamics is committed to employing strong corporate governance practices to promote a culture of ethics and integrity that defines how we do business. At the core, we are in business to earn a fair return for our shareholders. On the recommendation of the Nominating and Corporate Governance Committee, the Board has adopted the General Dynamics Corporate Governance Guidelines to provide a framework for effective governance of the Board and the company. The guidelines establish policies and practices with respect to Board operations and responsibilities, including board structure and composition, director independence, executive and director compensation, succession planning and the receipt of concerns and complaints by the Board. The Board regularly reviews these guidelines and updates them periodically in response to changing regulatory requirements, feedback from shareholders on governance matters and evolving best practices in corporate governance. The Board believes that its commitment to good governance is demonstrated by key corporate governance practices,
As part of our commitment to strong corporate governance practices, we maintain an active and robust ethics program. Our ethics program is rooted in our ethos – our distinguishing moral nature. Our ethos is defined by
Adherence to our We have a Standards of Business Ethics and Conduct Handbook that applies to all employees. This handbook, known as the Blue Book, has been updated and improved as we have grown and changed over the years. Our ethics program also includes periodic training on ethics and compliance topics for all employees and a24-hour ethics helpline, which employees can access via telephone or online to communicate any business-related ethics concerns.
We have adopted ethics codes specifically applicable to our Board of Directors and our financial professionals. The Code of Conduct for Members of the Board of Directors embodies our Board’s commitment to manage our business in accordance with the highest standards of ethical conduct. The Code of Ethics for Financial Professionals, which supplements the Blue Book, applies to our chief executive officer, chief financial officer, controller and persons performing similar financial functions. Any amendments to or waivers from the Standards of Business Ethics and Conduct, Code of Ethics for Financial Professionals or Code of Conduct for Members of the Board of Directors on behalf of any of our executive officers, financial professionals or directors will be disclosed on our website. The current Standards of Business Ethics and Conduct are available on our website at www.gd.com/Responsibility.
Governance of the Company
Our Board comprises independent, accomplished and experienced directors who provide advice and oversight to further the interests of our company and our shareholders. The Board evaluates regularly its leadership structure, including whether to combine the positions of chairman and chief executive officer. Our Board currently believes that Chairman – Strong and Effective Independent Lead Director – Additional Independent
The Nominating and Corporate Governance Committee is responsible for reviewing, approving and, where applicable, ratifying related person transactions. If a member of the committee has an interest in a related person transaction, then he or she will not be part of the review process. In considering the appropriate action to be taken regarding a related person transaction, the committee or the Board will consider the best interests of General Dynamics and whether the transaction is fair to the company, is on terms that would be obtainable in anarm’s-length transaction or is pursuant to a company discount program for which the related person is eligible, serves a compelling business reason and any other factors it deems relevant. As a condition to approving or ratifying any related person transaction, the committee or the Board may impose whatever conditions and standards it deems appropriate, including periodic monitoring of ongoing transactions. The following transactions with a related person were determined to pose no actual conflict of interest and were reviewed and approved by the committee or the Board pursuant to our related person transactions policy:
Table of
Governance of the Company
We compensate eachnon-management director for service on the Board of Directors. The Compensation Committee reviews director compensation on an annual basis.
2020 Compensation Non-management director compensation for
|
As part of the Compensation Committee’s annual review in early 20172020 and at its request, management engaged Aon to conduct a director compensation survey. Aon provided director compensation data for the peer group that we used to benchmark executive compensation. This information showed that the annual retainer andcompany’s director compensation was below the value of the annual equity award were below thepeer median. Based on this review, the committee increasedrecommended, and the Board approved, an increase of $10,000 for the annual retainer to $85,000 and increased the valuean increase of $10,000 for the annual equity award to approximately $150,000. Although the program is reviewed annually, this was the first change to cash compensation since 2011 and the first change to equity compensation since 2015.award.
Non-management directors have
Each non-management director has the option of receiving all or part of theirthe annual retainersretainer in the form of Common Stock. The annual retainer, additional committee chair retainer (if any) and attendance fees paid to each director during 20172020 are reflected in the Fees Earned or Paid in Cash column of the Director Compensation for Fiscal Year 20172020 table, irrespective of whether a director took the annual retainer in shares of Common Stock. The annual equity award consists of restricted stock and stock options granted pursuant to our shareholder-approved equity compensation plan and on the same terms, limits and schedule as awards to other plan participants.
In light of the travel required by service on the Board, we also provide each director with accidental death and dismemberment insurance coverage. Payments by General Dynamics for director accidental death and dismemberment insurance premiums are reflected in the All Other Compensation column of the Director Compensation for Fiscal Year 20172020 table.
2018 Compensation.
2021 Compensation
In early 2018,2021, as part of its annual review of director compensation, the Compensation Committee requested that management update its director compensation analysis. Management again engaged Aon to provide survey data for the peer group used to benchmark executive compensation. The committee reviewed the survey data regarding director compensation provided by Aon. This information showed that the directors’ pay program was approximate tobelow the median of the peer group. Based on this review, theThe committee recommended no changes to director compensation.
DIRECTOR STOCK OWNERSHIP GUIDELINES
The Board of Directors believes that each director should develop a meaningful ownership position in General Dynamics. Therefore, the Board of Directors adopted stock ownership guidelines fornon-management directors. Pursuant to these guidelines, eachnon-management director is expected to own shares of our Common Stock having a value equal tocompensation at least eight times the annual retainer.Non-management directors are subject to the same holding requirements as our named executive officers and are expected to retain shares upon the vesting of restricted stock or exercise of options until the ownership guidelines are met. Management directors are subject to the ownership requirements discussed under “Compensation Discussion and Analysis – Stock Ownership Guidelines.”this time.
34 | General Dynamics |
20 General Dynamics 2018 Proxy StatementTable of Contents
Governance of the Company
DIRECTOR COMPENSATION TABLEDirector Compensation Table
The table below provides total compensation for 20172020 for each of General Dynamics’non-management directors director serving during the year. The number of shares of restricted stock and stock options awarded to the directors annually are the same for each director.
DIRECTOR COMPENSATIONFOR FISCAL YEAR 2017 | ||||||||||||||||||||
NAME | FEES EARNED OR PAID IN CASH (a) | STOCK AWARDS (b) | OPTION AWARDS (C) | ALL OTHER COMPENSATION (d) | TOTAL | |||||||||||||||
Mary T. Barra (e)
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$
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48,899
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$
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74,767
|
|
$
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75,092
|
|
$
|
0
|
|
$
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198,758
|
| |||||
Nicholas D. Chabraja
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$
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530,000
|
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$
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74,767
|
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$
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75,092
|
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$
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4,080
|
|
$
|
683,939
|
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James S. Crown
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$
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189,000
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$
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74,767
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$
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75,092
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$
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2,140
|
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$
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340,999
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Rudy F. deLeon
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$
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164,195
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$
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74,767
|
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$
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75,092
|
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$
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2,140
|
|
$
|
316,194
|
| |||||
William P. Fricks (f)
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$
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68,399
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$
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74,767
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$
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75,092
|
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$
|
60,000
|
|
$
|
278,258
|
| |||||
John M. Keane
|
$
|
146,000
|
|
$
|
74,767
|
|
$
|
75,092
|
|
$
|
4,080
|
|
$
|
299,939
|
| |||||
Lester L. Lyles
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$
|
155,000
|
|
$
|
74,767
|
|
$
|
75,092
|
|
$
|
4,080
|
|
$
|
308,939
|
| |||||
Mark M. Malcolm
|
$
|
164,195
|
|
$
|
74,767
|
|
$
|
75,092
|
|
$
|
2,140
|
|
$
|
316,194
|
| |||||
James N. Mattis (g)
|
$
|
0
|
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$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
| |||||
William A. Osborn
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$
|
166,000
|
|
$
|
74,767
|
|
$
|
75,092
|
|
$
|
4,080
|
|
$
|
319,939
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Catherine B. Reynolds (h)
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$
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91,663
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$
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49,590
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$
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50,318
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$
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2,140
|
|
$
|
193,711
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| |||||
Laura J. Schumacher
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$
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150,000
|
|
$
|
74,767
|
|
$
|
75,092
|
|
$
|
2,140
|
|
$
|
301,999
|
| |||||
Peter A. Wall
|
$
|
144,000
|
|
$
|
74,767
|
|
$
|
75,092
|
|
$
|
2,140
|
|
$
|
295,999
|
|
DIRECTOR COMPENSATION FOR FISCAL YEAR 2020
Name | Fees Earned or Paid in Cash(a) | Stock Awards(b) | Option Awards(c) | All Other Compensation(d) | Total | |||||||||||||
James S. Crown | $ | 192,000 | $ | 80,253 | $ | 79,736 | $300 | $ | 352,289 | |||||||||
Rudy F. deLeon | $ | 151,000 | $ | 80,253 | $ | 79,736 | $300 | $ | 311,289 | |||||||||
Cecil D. Haney | $ | 149,000 | $ | 80,253 | $ | 79,736 | $300 | $ | 309,289 | |||||||||
Lester L. Lyles(e) | $ | 61,915 | $ | 80,253 | $ | 79,736 | $300 | $ | 222,204 | |||||||||
Mark M. Malcolm | $ | 157,000 | $ | 80,253 | $ | 79,736 | $300 | $ | 317,289 | |||||||||
James N. Mattis | $ | 147,000 | $ | 80,253 | $ | 79,736 | $300 | $ | 307,289 | |||||||||
C. Howard Nye | $ | 151,000 | $ | 80,253 | $ | 79,736 | $300 | $ | 311,289 | |||||||||
William A. Osborn | $ | 160,885 | $ | 80,253 | $ | 79,736 | $300 | $ | 321,174 | |||||||||
Catherine B. Reynolds | $ | 147,000 | $ | 80,253 | $ | 79,736 | $300 | $ | 307,289 | |||||||||
Laura J. Schumacher | $ | 147,113 | $ | 80,253 | $ | 79,736 | $300 | $ | 307,402 | |||||||||
John G. Stratton(f) | $ | 127,805 | $ | 80,253 | $ | 79,736 | $300 | $ | 288,094 | |||||||||
Peter A. Wall | $ | 147,000 | $ | 80,253 | $ | 79,736 | $300 | $ | 307,289 |
(a) | Messrs. Malcolm, Nye and Stratton, Ms. Reynolds and Ms. Schumacher |
(b) | The amounts reported in the Stock Awards column reflect the aggregate grant date fair value computed in accordance with ASC Topic 718,Compensation |
(c) | The amounts reported in the Option Awards column reflect the aggregate grant date fair value computed in accordance with ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note |
(d) | Amounts reflect payments |
(e) |
|
Mr. |
|
|
Director Stock Ownership Guidelines
The Board of Directors believes that each director should develop a meaningful ownership position in General Dynamics 2018 Proxy Statement 21Dynamics. Therefore, the Board of Directors adopted stock ownership guidelines for non-management directors. Pursuant to these guidelines, each non-management director is expected to own shares of our Common Stock having a value equal to at least eight times the annual retainer. Non-management directors are subject to the same holding requirements as our NEOs and are expected to retain shares received upon the vesting of restricted stock or exercise of options until the ownership guidelines are met. Management directors are subject to the ownership requirements discussed under Compensation Discussion and Analysis – Stock Ownership Guidelines and Holding Requirements.
2021 Proxy Statement | 35 |
Advisory Vote on The Selection of Independent Auditors |
PROPOSAL 2
ADVISORY VOTE ON THE SELECTION OF INDEPENDENT AUDITORS
ADVISORY VOTEONTHE SELECTIONOF INDEPENDENT AUDITORS
(PROPOSAL 2)
The Audit Committee of the Board of Directors has the sole authority to retain the company’s independent auditors and is responsible for the compensation and oversight of the work of the independent auditors for the purpose of preparing or issuing an audit report or related work. The Audit Committee has selected KPMG LLP (KPMG), an independent registered public accounting firm, as our independent auditors for 2018.2021. KPMG has been retained as the company’s independent auditors since 2002. In order to assure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent audit firm. The members of the Audit Committee believe that the continued retention of KPMG to serve as the company’s independent auditors is in the best interests of the company and its shareholders.
Your Board of Directors is submitting this selection of KPMG as the independent auditors for 20182021 to an advisory vote of the shareholders. The Sarbanes-Oxley Act of 2002 requires that the Audit Committee be directly responsible for the appointment, compensation and oversight of the audit work of the independent auditors. Nevertheless, as a good corporate governance practice, your Board has determined to solicit the vote of the shareholders on an advisory basis in making this appointment.
If the shareholders do not vote on an advisory basis in favor of the selection of KPMG as our independent auditors, the Audit Committee will reconsider whether to engage KPMG and may ultimately determine to engage that firm or another audit firm without resubmitting the matter to shareholders. Even if the shareholders vote in favor of the selection of KPMG, the Audit Committee may in its sole discretion terminate the engagement of KPMG and direct the appointment of another independent audit firm at any time during the year.
Your Board of Directors unanimously recommends a vote FOR this proposal. |
36 | General Dynamics |
Advisory Vote on The Selection of Independent Auditors
The following table shows aggregate fees for professional services rendered by KPMG for the audit of our annual consolidated financial statements for the years 20172020 and 2016,2019, and fees billed for other services rendered by KPMG during those years.
2017 | 2016 | |||||||
Audit Fees (a)
| $
| 19,967,000
|
| $
| 18,333,000
|
| ||
Audit-related Fees (b)
|
| 1,882,000
|
|
| 4,731,000
|
| ||
Tax Fees (c)
|
| 1,226,000
|
|
| 1,063,000
|
| ||
All Other Fees (d)
|
| 5,000
|
|
| 51,000
|
| ||
Total Fees | $ | 23,080,000 | $ | 24,178,000 |
2019 | 2020 | |||||||
Audit Fees(a) | $ | 25,471,000 | $ | 23,570,000 | ||||
Audit-related Fees(b) | 1,809,000 | 1,911,000 | ||||||
Tax Fees(c) | 1,602,000 | 1,024,000 | ||||||
All Other Fees(d) | 229,000 | 140,000 | ||||||
Total Fees | $ | 29,111,000 | $ | 26,645,000 |
(a) | Audit fees are fees for professional services performed by KPMG for the audit of our consolidated annual financial statements (including the audit of internal control over financial reporting) and review of our consolidated quarterly financial statements. These fees also include fees for services that are normally provided in connection with statutory and regulatory filings. |
(b) | Audit-related fees are fees for assurance and related services performed by KPMG that are reasonably related to the performance of the audit or review of our consolidated financial statements. These fees consist primarily of fees for professional services for benefit plan audits and evaluation of new accounting standards. |
(c) | Tax fees are fees for professional services performed by KPMG for tax compliance, tax advice and tax planning. These fees consist primarily of fees for tax return preparation and review, tax compliance services for expatriates and advice regarding tax implications of certain transactions. |
(d) | All other fees are primarily related to professional services performed by KPMG for information technology contract compliance, assessment and advisory services. |
The Audit Committee has considered whether the services rendered by KPMG are compatible with maintaining KPMG’s independence. Representatives of KPMG are expected to attend the Annual Meeting, may make a statement if they desire to do so and will be available to respond to questions.
Policy onPre-Approval. Pre-Approval
The company and the Audit Committee are committed to ensuring the independence of the independent auditors, both in fact and in appearance. Therefore, in accordance with the applicable rules of the Securities and Exchange Commission,SEC, the Audit Committee has established policies and procedures forpre-approval of all audit and permittednon-audit services provided by the independent auditors. The Audit Committee determines annually whether to approve all audit and permittednon-audit services proposed to be performed by the independent auditors (including an estimate of fees). If other audit or permittednon-audit services not included in thepre-approved services are required during the year, such services must be approved in advance by the Audit Committee. The Audit Committee may delegate authority to grantpre-approvals to its chair or a subcommittee as it deems appropriate, subject to a reporting obligation to the Audit Committee. All audit and permittednon-audit services listed above werepre-approved.
2021 Proxy Statement | 37 |
YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE FORTHISPROPOSAL.Table of Contents
Advisory Vote on The Selection of Independent Auditors
22 General Dynamics 2018 Proxy Statement
The following Audit Committee Report shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement or any portion hereof into any filing under the Securities Act of 1933, as amended (Securities Act) or the Securities Exchange Act of 1934, as amended (Exchange Act), and shall not otherwise be deemed filed under such acts.
The Audit Committee of the Board of Directors has furnished the following report.
The following fiveseven directors serve on the Audit Committee: Mark M. Malcolm (Chair), James S. Crown, Lester L. Lyles,Cecil D. Haney, James N. Mattis, C. Howard Nye, William A. Osborn and Catherine B. Reynolds.
None of these directors is an officer or employee of General Dynamics. They all meet the independence requirements of the New York Stock Exchange and Rule10A-3 of the Exchange Act. The Board has determined that Mr.Messrs. Malcolm, Mr.Nye and Osborn and Ms. Reynolds each qualifies as an “audit committee financial expert” as defined by the Securities and Exchange CommissionSEC in Item 407(d) of RegulationS-K. The Audit Committee is governed by a written charter approved by the Board. In accordance with that charter, the Committeecommittee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of General Dynamics. The Committeecommittee held nineeight meetings in 2017.2020.
The Audit Committee has reviewed and discussed with management and the company’s independent auditors for 2017,2020, KPMG LLP, an independent registered public accounting firm, the company’s audited consolidated financial statements as of December 31, 2017,2020, and for the year ended on that date. Management is responsible for the company’s financial reporting process, including maintaining a system of internal controls, and for preparing the consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). KPMG is responsible for auditing those consolidated financial statements and for expressing an opinion on the conformity of the consolidated financial statements with GAAP. In addition, in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the Audit Committee reviewed and discussed with management the company’s internal auditors and KPMG management’s report on the operating effectiveness of internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act and KPMG’s attestation report on the company’s internal control over financial reporting.
The Audit Committee has discussed with KPMG the matters required under applicable professional auditing standards and regulations adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee has received and reviewed the written disclosures and letter from KPMG required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG’s communications with the Audit Committee concerning independence, and has discussed with KPMG its independence, including the compatibility ofnon-audit services with maintaining KPMG’s independence. Based on the foregoing discussions and reviews, the Audit Committee has satisfied itself as to the independence of KPMG.
In reliance on the reviews and discussions described above, the Audit Committee recommended to the Board, and the Board approved, the inclusion of the audited consolidated financial statements in the company’s Annual Report on Form10-K as of and for the year ended December 31, 2017,2020, for filing with the Securities and Exchange Commission.
This report is submitted by the Audit Committee.
Mark M. Malcolm | James S. Crown
| James N. Mattis | William A. Osborn |
(Chair) | Cecil D. Haney | C. Howard Nye | Catherine B. Reynolds |
February 10, 20185, 2021
38 | General Dynamics |
General Dynamics 2018 Proxy Statement 23Table of Contents
Advisory Vote to Approve Executive Compensation |
PROPOSAL 3
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
ADVISORY VOTETO APPROVE EXECUTIVE COMPENSATION
(PROPOSAL 3)
As required by Section 14A of the Exchange Act, we are seeking shareholder input on our executive compensation as disclosed in this Proxy Statement. The Board and the Compensation Committee actively monitor our executive compensation practices in light of the industry in which we operate and the marketplace for talent in which we compete. We remain focused on compensating our executive officers fairly and in a manner that emphasizes performance while providing the tools necessary to attract and retain the best talent.
As described in the Compensation Discussion and Analysis section, our executive compensation program is designed to create incentives both for strong operational performance in the current year and for the long-term benefit of the company, thereby closely aligning the interests of management with the interests of our shareholders.
For these reasons, the Board recommends shareholders vote in favor of the following resolution:
“Resolved, that the compensation paid to the company’s named executive officers, as disclosed pursuant to Item 402 of RegulationS-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”
The vote is advisory and is not binding on the Board. However, the Compensation Committee of the Board expects to take into account the outcome of the vote as it continues to consider the company’s executive compensation program.
YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE FORTHISPROPOSAL.
Your Board of Directors unanimously recommends a vote FOR this proposal. |
24 General Dynamics 2018 Proxy Statement
2021 Proxy Statement | 39 |
COMPENSATION DISCUSSIONAND ANALYSIS
In the Compensation Discussion and Analysis, we describe the details of our named executive officer executive compensation program.
The section is organized as follows:
Table of Contents
Compensation Discussion & Analysis |
Table of Contents
41 | EXECUTIVE SUMMARY | ||||
41 | |||||
42 | 2020 Performance Highlights | ||||
44 | |||||
45 | |||||
46 | THE COMPENSATION PROCESS | ||||
46 | |||||
47 | |||||
48 | Shareholder Engagement | ||||
| COMPONENTS OF EXECUTIVE COMPENSATION AND ALIGNMENT WITH COMPANY PERFORMANCE | ||||
50 | |||||
50 | |||||
63 | |||||
67 | |||||
69 | |||||
40 | General Dynamics |
General Dynamics 2018 Proxy Statement 25Table of Contents
Compensation Discussion and& Analysis
This Compensation Discussion and Analysis (CD&A) describes the 2020 compensation of our Named Executive Officers (NEOs) for 2017 and includes the following individuals:who are identified below:
Name | Title | Tenure in Role | ||
Phebe N. Novakovic | Chairman and Chief Executive Officer | 8 years | ||
Jason W. Aiken | Senior Vice President and Chief Financial Officer | |||
| 7 years | |||
Mark C. Roualet | Executive Vice President, Combat Systems | 8 years | ||
Robert E. Smith | Executive Vice President, Marine Systems | |||
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| 5 years |
General Dynamics is a global aerospace and defense company that offersspecializes in high-end design, engineering and manufacturing to deliver state-of-the-art solutions to our customers. We offer a broad portfolio of products and services in:
Businessin business aviation;
Combat ship construction and repair; land combat vehicles, weapons systems and munitions; and technology products and services. Our leadership positions in attractive business aviation and defense markets enable us to deliver superior and enduring shareholder returns.
Information technology services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions; and
Shipbuilding and ship repair.
We operate and manage our tenOur company consists of 10 business units, throughwhich are organized into four operating segments: Aerospace, Marine Systems, Combat Systems and Technologies. We refer to the latter three collectively as our defense segments. To optimize market focus, customer intimacy, agility and operating expertise, each business groups as shown below:unit is responsible for the development and execution of its strategy and operating results. This structure allows for a lean corporate function, which sets the overall strategy and governance for the company and is responsible for allocating and deploying capital.
2021 Proxy Statement | 41 |
Compensation Discussion & Analysis
CONSISTENT COMMITMENT TO DELIVERING STRONG FINANCIAL PERFORMANCE | |||
REVENUE |
| CASH RETURNED | BACKLOG |
$37.9 billion | $3.9 billion 122% of Net Earnings | $1.8 billion | $89.5 billion
Record High |
| REDUCTION IN | CASH INVESTED IN | BOOK-TO-BILL |
$11.00 | $854 million | $1.5 billion | 1.1x |
OUTSTANDING EFFORT TO OFFSET SIGNIFICANT COVID-19 IMPACT |
Our businesses performed well in 2020 despite the impacts from the COVID-19 pandemic, especially on our Aerospace segment. Throughout the 10 months affected by the pandemic, management worked aggressively to mitigate disruptions with a principal focus on keeping our employees healthy while remaining open and operating in our capacity as a critical infrastructure business. We continued to fully meet our customer commitments in the face of a multitude of COVID-driven challenges. During this time, we fully conducted our operations in an efficient and safe manner while maintaining a high level of profitability. We remained focused on working to achieve our pre-pandemic operating plans and we made difficult, yet deliberate decisions that supported the company’s strategy and were aligned with the long-term interests of our shareholders. Our management team was on site – at their posts – throughout the pandemic to lead by example.
Response to COVID-19
Since the start of the pandemic, in addition to continuing to serve our customers at the level that they have come to expect, we focused on protecting our employees and doing our part as a corporate citizen. We engaged extensively with employees about their health and safety concerns, finding their input essential in designing and maintaining safe operations throughout the year. Our efforts included the following:
Modified employee work locations and schedules where possible and permitted under our contracts.
Advanced cash payments to our suppliers to ensure they could meet their financial obligations, especially to their workers.
Instituted various aspects of our business continuity programs including facilitating remote work. |
Helped with the production of medical supplies including face shields and
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Participated in humanitarian efforts to provide support for urgent medical or supply missions.
Provided financial support through donations to hospitals, food banks and |
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other non-profit organizations. |
26 General Dynamics 2018 Proxy Statement
Compensation Discussion and Analysis
COMPANY PERFORMANCE HIGHLIGHTS
Shareholder Value. In 2017, the company’s commitment to operational excellence delivered another year of value creation for shareholders. The success of our approach under Ms. Novakovic’s leadership is evident in our strong operating results. We balance our focus on operations with a thoughtful capital deployment strategy. As stewards of your capital, in 2017 we maintained a deliberate approach to creating shareholder value through our prudent use of capital including investment in long-term business opportunities, an increase in the dividend for the 20th consecutive year and tactical share repurchases.OVERALL – STRONG FINANCIAL AND OPERATIONAL PERFORMANCE
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Financial Performance Summary. In 2017, the company demonstrated the successful results of a continued focus on operational excellence, resulting in positiverevenue, operating leverage, strong earnings, and record-setting margin. The following charts show key performance metrics over relevant periods. On January 1, 2017, we adopted a new revenue recognition standard, Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers. Prior-period information for 2015 and 2016 has been restated and any comparisons shown in this proxy statement are to the comparable information. In the fifth year under Ms. Novakovic’s leadership, the company improved performance while also adding new contracts to backlog, thereby sustaining the opportunity for strong execution in the future. In addition, our prudent capital allocation has enabled the company to invest in our businesses while also returning capital to shareholders through dividends and share repurchases.
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General Dynamics 2018 Proxy Statement 27
Compensation Discussion and Analysis
| diluted earnings per share, free cash flow as well as our cash conversion percentage. Free cash flow | year at 91%. |
42 | General Dynamics |
Compensation Discussion & Analysis
Our backlog increased 3% to a record-high $89.5 billion with strong book-to-bill in each of the segments, driven by large awards including $9.5 billion from the U.S. Navy for construction of the first two Columbia-class ballistic missile submarines, a $4.3 billion maximum potential value contract to upgrade Abrams main battle tanks for the U.S. Army and a $4.4 billion maximum potential value contract for the Department of Defense Enterprise Office Solutions (DEOS) program. | ||||
Absent the pandemic, our analysis of the discrete impacts of COVID-19 showed that the company would have significantly exceeded its 2020 operating plan and demonstrated growth from 2019 in all metrics – revenue, operating earnings, operating margin, diluted earnings per share and free cash flow from operations. | ||||
DEFENSE BUSINESS – EXCEPTIONAL PERFORMANCE
| |||
In our other defense businesses, we were able to quickly overcome most of the initial slowdown in material from some suppliers and COVID-driven inefficiencies at some of our manufacturing sites. Internationally, government actions shut down some of our facilities for several months. Despite the | addition, cash flow generation was notably strong with the defense segments exceeding the company’s pre-pandemic operating plan for cash. |
†See Appendix A for a discussion of these non-GAAP measures and a reconciliation to their more directly comparable GAAP measures.
AEROSPACE BUSINESS – SIGNIFICANT CHALLENGES WITH SOLID RESULTS
The COVID-related disruptions within our Aerospace segment were more pronounced given the worldwide collapse in the commercial aviation market. As an example, business aviation flight hours (an indication of market activity) dropped approximately 75% year-over-year in the months following the onset of the pandemic. | |||||||||||||||
Despite this collapse, our Aerospace businesses generated over $1 billion in operating earnings, particularly noteworthy in the face of operating losses sustained by many other major civil aviation airframe original equipment manufacturers (OEMs). Early in the COVID-19 crisis, to lessen risk within the supply chain and better align production with demand, we reduced our aircraft production rate, adjusted staffing levels, and implemented other cost control measures. Throughout 2020, the Aerospace segment remained focused on ensuring the health and safety of our workforce, while maintaining operations and booking new aircraft orders to help build for the future. |
CAPITAL ALLOCATION – ACTIONS AND INVESTMENTS TO STRENGTHEN OUR POSITION
Liquidity: We took several actions in 2020 to strengthen our liquidity, which preserved financial flexibility during the pandemic. In March 2020, we issued $4 billion of fixed-rate notes to repay $2.5 billion of fixed- and floating-rate notes that matured in May 2020 and for general corporate purposes, including the repayment of a portion of the borrowings under our commercial paper program. In addition to this long-term borrowing, we renewed our access to $5 billion of credit facilities. | |||||||||||||||
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*Represents adjusted
2021 Proxy Statement | 43 |
non-GAAP earnings from continuing operations which excludes a $119 million tax impact as a resultTable of the passage of the Tax Cuts and Jobs Act of 2017 in late December 2017. The Compensation Committee chose to adjust the result because the tax impact resulting primarily from the change in value of deferred tax assets and liabilities was not reflective of the actual operating performance of the company in 2017. A reconciliation to the GAAP figure can be found in Appendix A.Contents
Long-term Incentive |
2015 – 2017 Performance Period
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Financial Performance Metrics
| Target
| Actual
| Achievement
| |||
Return on Invested Capital**
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14.1% |
17.4% |
Exceeded |
**For purposes of determining the achievement for PRSUs granted in 2015, the calculation reflects the average of the ROIC reported on Form10-K for each year during the performance period. As such, amounts for 2015 and 2016 do not reflect the adoption of Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers.
28 General Dynamics 2018 Proxy Statement
Compensation Discussion and& Analysis
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The goalsgoal of our executive compensation program areis to incentivize managementclosely link pay to achieve operational excellencethe performance of our executives, results of our company and align the interestsexperience of management and shareholders. To achieve these goals,maximize results across all of General Dynamics, the Compensation Committee (Committee) governs and annually establishes our executive compensation for NEOs is driven by how the company performs on metrics that the Board of Directors believes create shareholder value.
Ourprogram. The Committee uses this program to focus our management team delivers shareholder returns through disciplined execution on backlog, efficient cash flow conversion and prudent capital deployment. We manage costs, undertake continuous improvement initiatives, and collaborate across our businesses to achieve our goals of maximizing earnings and cash flow and creating value for our shareholders. Management’s focus on these metrics is reflected in the goals set forth in the company’s incentive plans because we believefundamental business priorities, including:
Delivering shareholder returns through disciplined execution on backlog, efficient cash flow conversion and prudent capital deployment; | |
Managing costs and investments, providing thoughtful human capital management and leadership; and | |
Undertaking continuous improvement initiatives and collaboration across our businesses to achieve our goals. |
The Board believes that successful execution in these areas directly translates to shareholder value creation. Thus, company-wide performance measures are the key metrics the Compensation Committee (the Committee) considers when making executive compensation decisions for the NEOs.
Our program is evolving constantly to ensure alignment with shareholders and market best practices. Over the past several years, we have made strategic changes to the structure ofConsequently, our plans to maintain this alignment. In 2017, we introduced long-term incentive (LTI) guidelines which allow the Committee to make LTI grants within a set range determined by market data. The Committee also engaged a new independent compensation consultant to provide an outside, independent perspective on issues relating to executive compensation.
We believe that compensation decisions for NEOs should be made within a strong and independent governance framework. The executive compensation program, is independently governed by the Committee with theand specifically our incentive plans, are designed to focus and reward our management team for achieving results against a set of performance metrics and goals that support of company management and the Committee’s independent compensation consultant. The following are characteristics of the program that demonstrate strong governance.these priorities.
Component | |||||
| Description | ||||
Annual BaseSalary | Provides competitive, fixed-rate cash compensation | Base Salary is set near the median of our peers and also reflects the experience, potential and performance track-record of executives. | |||
Annual IncentiveCompensation | Provides a cash incentive opportunity based on annual performance and aligned with our financial, strategic and operational goals | Targeted around the median of our peers, the cash incentive is designed to motivate and align management with annual business goals and varies based on achievements. Typically includes a balance of financial and strategic and operational measures to align with annual priorities. | |||
2020 annual incentives were based on three financial metrics of diluted earnings per share from continuing operations (25%), free cash flow from operations (25%) and operating margin (20%), as well as strategic and operational goals (30%). | |||||
Strategic and operational performance measures include, but are not limited to: financial performance improvements, prudent allocation of capital, human capital management, debt management, segment performance, cost reductions, leadership and other significant factors not contemplated at the start of the year. | |||||
Long-TermIncentive (LTI)Compensation | Provides our NEOs with a significant personal stake in the long-term success of the company by tying earned amounts to our multi-year financial and total shareholder return (TSR) performance; aligns management’s interest with that of shareholders; and supports our human capital strategy | LTI awards are targeted in a range around the median of our peers and also reflect the experience, potential and performance track-record of executives. LTI awards have multi-year performance metrics designed to align NEOs with the objectives of our company and shareholders. | |||
The LTI program consists of three elements, including performance stock units, or PSUs (50%), stock options (30%) and restricted stock (20%). | |||||
A mix of elements serves to: | |||||
• | Focus leaders on specific long-term performance results; | ||||
• | Reward management for improvements in shareholder value; | ||||
• | Retain key employees through longer-term vesting and performance periods; and | ||||
• | Provide an opportunity for wealth accumulation over time that is consistent with the shareholder experience. |
44 | General Dynamics |
Compensation Discussion & Analysis
100 percent
CEO | OTHER NEOs – AVERAGE | |
Our Executive Compensation Governance Practices
WHAT WE DO | ||||
100% independent Compensation Committee | ||||
| Independent compensation consultant reporting to the | |||
Director and management proactive annual engagement with shareholders | ||||
| Market-leading stock ownership requirements (15x salary for the CEO and 8x to 10x salary for the other officers) | |||
Incentive compensation based on clear, measurable stretch goals for key financial and operational metrics that drive business performance | ||||
The value of earned long-term incentives is based on our future and sustained performance and shareholder value creation | ||||
Double-trigger change in control arrangements | ||||
Clawback, anti-hedging and anti-pledging policies | ||||
Thoughtfully selected peer group consisting of other aerospace and defense firms as well as other large-cap companies in related industries with annual Committee review | ||||
Conduct proactive annual shareholder engagement to discuss executive compensation program | ||||
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WHAT WE DON’T DO | ||||
No single-trigger equity acceleration on change in control | ||||
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No excise tax gross ups | ||||
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| No employment agreements with NEOs | |||
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2021 Proxy Statement | 45 |
General Dynamics 2018 Proxy Statement 29Table of Contents
Compensation Discussion and& Analysis
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The Committee approves and is actively engaged in the developmentdesign and implementation of the executive compensation program, with the support offrom the independent compensation consultant and company management. The program is structured to:
Compensate executives subject to clear and challenging performance metrics
Provide market-competitive total compensation opportunities with actual pay that varies with short- and longer-term performance. | |
Compensate executives subject to clear and challenging performance metrics tied to our operating and strategic plans. | |
Align executive compensation with shareholder value creation. | |
Support our human capital and sustainability strategy. |
Align executive compensation with shareholder value creation
Ensure retention and growth for executives in a competitive environment
Program objectives areThe program objective of pay-for-performance is achieved through the use of short- and long-term incentives. The company currently targets the median pay opportunity of our peers as further discussed in detail below. In addition, through the annual incentive plan,and long-term incentives, the NEOs are rewarded above median for achieving annualoutperforming on company goals.
SETTING COMPENSATION LEVELSAND EVALUATING PERFORMANCE
Setting compensation for senior executives is a16-month process that begins in the Similarly, actual pay will fall of each year. The first steps in this process focus on establishing the operating goals for the company for the upcoming year. During this phase, the business units develop challenging but achievable goals which then form the basis of the business group operating plans. In consultation with the chairman and chief executive officer and chief financial officer, these plans are presentedbelow target when performance fails to the Board of Directors early the next year. After review and, where appropriate, adjustment, by the Board, the company operating plan for the year is adopted. Throughout the year, the Board reviews and monitors company performance as compared to the operating plan through a series of financial and operating reports given by the chief financial officer and the executive vice presidents.
Compensation discussions begin immediately following the execution of the operating plan. Based on company and individual performance, the chairman and chief executive officer calculates and assigns a score to each NEO (other than herself) using a scorecard. The score for the CEO is calculated solely by a review of independent directors. The scores determine the compensation recommendations that are made in the first quarter of the year. In February, the Committee reviews the NEO scorecards, calculates the score for the CEO and reviews the compensation recommendations supported by the scores. As part of this process, the Committee reviews market data to ensure that any base salary increase does not place the NEO’s annual salary in excess of the 50th percentile of our peer group.
The Committee convenes again in early March to review the final scorecards for the company and approve any base salary increases, annual incentive payments and long-term incentive grants. The Committee reviews, refines and approves compensation for the chairman and chief executive officer in executive session at the March meeting. The Committee approves compensation based on the clearly defined and disclosed performance goals described in this Proxy Statement. The Committee’s decisions also reflect factors such as the degree of difficulty of goals, market conditions and exceptional individual achievement.meet expectations.
30 General Dynamics 2018 Proxy Statement
Evaluation and Compensation Discussion and Analysis
2017 EVALUATIONAND COMPENSATION PROCESS TIMELINEProcess Timeline
November 2019 | Business unit presidents present operating goals and plans to the chairman and chief executive officer. | |||
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| The | |||
February 2020 | ||||
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over a three-day | ||||
The plan. | ||||
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for each executive, along with commentary on financial performance accomplishments, strategic and operational performance and any other factors not contemplated at the start of the year. | ||||
Based on company and individual performance for the prior fiscal year, the chairman and chief executive officer calculates a score for each NEO (other than herself). | ||||
The Committee | ||||
The proposed annual incentive payouts for 2020 performance, together with proposed base salary and long-term incentive grant values for 2021, are presented to the Committee on a scorecard for each executive, along with commentary on financial performance accomplishments, strategic and operational performance and any other factors not contemplated at the start of the year. |
46 | General Dynamics |
Compensation Discussion & Analysis
March 2021 | The Committee reviews the NEO scorecards with pay recommendations from management and approves compensation based on the clearly defined and disclosed performance metrics described in this Proxy Statement. The Committee’s decisions also reflect factors such as the degree of difficulty of goals, market conditions and exceptional individual achievement. | ||
The Committee meets in executive session to review, refine and approve compensation for | |||
| The Committee
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The Committee reviews, refines and approves |
General Dynamics 2018 Proxy Statement 31
Compensation DiscussionPeer Group and AnalysisBenchmarking to the Market
PEER GROUPAND BENCHMARKINGTOTHE MARKET
Each year the Committee, in consultation with management and with support from its independent compensation consultant, identifiesreviews and approves a corepeer group that is used to provide relevant market context for the Committee’s decisions. The Committee analyzes the peer group annually for reasonableness and alignment with the objectives listed below. It is comprised of companies that are:
In similar industries and where General Dynamics competes for business
In similar industries and where General Dynamics competes for business. | |
Likely sources of or competition for executive talent. | |
Reasonably comparable in size, as measured by revenue and market capitalization. | |
Reasonably similar in organizational structure and complexity. | |
Included as peers of some of our peer companies or that include the company as a peer. |
Likely sources of or destinations for executive talent
Reasonably comparable in size, as measured by revenue and market capitalization
Reasonably similar in organizational structure and complexity
Consist of some of the peers of our peer companies
The companies inFor this year, our peer group for 2017, which is unchanged from 2016, are listed below. We believe this peer group is appropriate for our industrywas modified slightly to reflect the combination of United Technologies Corporation and where we compete for talent.the Raytheon Company in 2020. Peer group compensation data, drawn from annual proxy datafilings and a survey data provided by Aon, arewere utilized to assess the competitiveness of our executive compensation practices, structures and levels. The Committee will continue to review and analyze the peer group for reasonableness and competitiveness with General Dynamics’ business offerings.
Peer Group Companies*
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Market (in millions) | (in millions) | Employee Population | Peer of Peers | |||||||
The Boeing Company
| $ 175,642
| $ 93,392
| 140,800
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| ✓
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Honeywell International Inc.
| $ 116,064
| $ 40,534
| 131,000
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| ✓
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L-3 Technologies Inc.
| $ 15,460
| $ 9,573
| 31,000
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| ✓
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Lockheed Martin Corporation
| $ 92,056
| $ 51,048
| 100,000
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| ✓
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Northrop Grumman Corporation
| $ 53,426
| $ 25,803
| 70,000
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| ✓
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Raytheon Company
| $ 54,305
| $ 25,348
| 64,000
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| ✓
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Rockwell Collins, Inc.
| $ 22,214
| $ 7,640
| 29,000
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| ✓
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Textron Inc.
| $ 14,907 | $ 14,198
| 37,000
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| ✓
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United Technologies Corporation
| $ 101,874
| $ 59,837
| 204,700
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| ✓
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Median
| $ 54,305
| $ 25,803
| 70,000
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General Dynamics
| $ 60,747
| $ 30,973
| 98,600
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| ✓
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General Dynamics (Percentile Rank)
| 52%
| 54%
| 62%
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Market | ||||||||||||||
Capitalization | Revenue | Employee | Peer of | |||||||||||
Peer Group Companies | (in millions)* | (in millions)** | Population | Peers | ||||||||||
3M Company | $ | 100,823 | $32,184 | 94,987 | ||||||||||
Accenture plc† | $ | 165,669 | $44,327 | 506,000 | ||||||||||
The Boeing Company† | $ | 120,843 | $58,158 | 141,000 | ||||||||||
Caterpillar Inc. | $ | 98,884 | $41,748 | 97,300 | ||||||||||
Cisco Systems, Inc. | $ | 189,092 | $49,301 | 77,500 | ||||||||||
Deere & Company† | $ | 84,310 | $35,540 | 69,634 | ||||||||||
Eaton Corporation plc | $ | 48,092 | $17,858 | 92,000 | ||||||||||
Emerson Electric Co.† | $ | 48,179 | $16,785 | 83,500 | ||||||||||
Honeywell International Inc.† | $ | 149,249 | $32,637 | 103,000 | ||||||||||
Johnson Controls International plc† | $ | 33,727 | $22,317 | 97,000 | ||||||||||
Lockheed Martin Corporation† | $ | 99,318 | $65,398 | 114,000 | ||||||||||
Northrop Grumman Corporation† | $ | 50,802 | $36,799 | 97,000 | ||||||||||
Raytheon Technologies Corporation† | $ | 107,863 | $56,587 | 181,000 | ||||||||||
Textron Inc.† | $ | 11,062 | $11,651 | 33,000 | ||||||||||
General Dynamics | $ | 42,609 | $37,925 | 100,700 | ||||||||||
General Dynamics (Percentile Rank) | 12% | 56% | 66% |
* | As of December 31, 2020 |
** | As of latest annual filing |
† | Lists General Dynamics as a peer |
2021 Proxy Statement | 47 |
*Peer group data are asTable of December 31, 2017.Contents
32 General Dynamics 2018 Proxy Statement
Compensation Discussion and& Analysis
2020 Say on Pay Vote
In 2020, we received 82% approval for our advisory vote on executive compensation. Based on our discussions with shareholders, we believe that the relatively lower level of support compared with the prior year was based primarily on a specific item related to 2019 compensation (scoring of the free cash flow metric for the annual incentive, which was unique to 2019) rather than concerns with the overall structure of our executive compensation program.
Shareholder Engagement Overview
We encourage, thoughtfully consider and incorporate shareholder feedback regarding our executive compensation program. The most recent enhancements to our executive compensation program were based on the feedback we received from shareholder meetings over the last several years. These improvements include:
Each NEO receives a mix of fixed and variable components of compensation. The following charts summarize the various forms of compensation.
Structural Alignment of Pay with Performance. We demonstratebelieve that these enhancements highlight our commitment to aligningpay-for-performance philosophy as well as better align our long-term compensation with company performance through the following key elements of the program:
Executive compensation is linked strongly to the financial and operationalrelative stock performance of the company. Over 90 percent of the CEO’s total compensation is at risk, while over 85 percent of the other NEOs’ compensation is at risk. A significant amount of theat-risk compensation is delivered through equity: performance restricted stock units (PRSUs), restricted stock and stock options.
To emphasize a culture of ownership and strengthen management’scompany ensuring alignment with long-term shareholder interests, the Committee requires one of the strictest set of stock ownership guidelines across the Fortune 100our shareholders.
2020 Shareholder Engagement Process and Outcome
As we have for the NEOs. Our CEO is requiredpast several years, we conducted a robust shareholder outreach campaign during 2020 targeted at holders of approximately 65% of our Common Stock. Senior representatives of investor relations, corporate governance and human resources, supplemented by our Compensation Committee Chair as appropriate, met with shareholders and proxy advisors to hold General Dynamics stock with a value equal to 15 times base salary. Thegather feedback on our executive compensation program and discuss other NEOs are required to hold 10 times base salary.topics such as our COVID-19 response, sustainability efforts, operational performance, human capital management issues, governance and other business topics. Executive compensation-related feedback included:
Overall support for our executive compensation program structure was expressed by the shareholders with whom we engaged. | ||
| Recognition by shareholders of the extraordinary circumstances presented by the pandemic but anticipated enhanced disclosure to understand the environment and resulting compensation actions taken. |
This feedback was presented to, and discussed in detail with, the Compensation Committee. The Committee determined that, in balancing this input with the support we received in our 2020 advisory vote on executive compensation and the needs and priorities of all stakeholders, there continued to be strong support for our compensation philosophy and programs. As a result, the Committee made no structural changes to our compensation programs during 2020 but did acknowledge the need for enhanced disclosure, in particular the rationale for decisions to properly describe the impact of the pandemic on compensation decisions.
48 | General Dynamics |
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Linking Pay Levels to the MarketTable of Contents
Compensation Discussion & Analysis
Components of Executive Compensation and General Dynamics Performance. Each component of our Alignment with Company Performance
NEO compensation is generally targeted toat the median of the peer group.group by component and reflective of the experience, potential and performance of each executive. To the extent compensation exceeds targeted levels, it is directly attributable to
General Dynamics 2018 Proxy Statement 33
Compensation Discussion and Analysis
performance whichthat increases shareholder value and exceeds measurable, clearly defined performance goals. Conversely, total compensation can be substantially less than targettargeted levels for performance that falls significantly short ofpre-established targets. goals.
Setting Challenging Targets Based on Market Conditions. Annual and long-term incentives are based on measurable and objective performance metrics. Annual incentive performance targets were set in early 2017 based on backlog, anticipated order activity and expected market conditions. Three-year target goals for the PRSUs were set in early 2017 based on our long-term operating plans. Targets were in line with guidance provided
Executive compensation is linked strongly to the market byfinancial and operational performance of the company. As such, we demonstrate our commitment to aligning compensation with company management.performance through the following key elements of the executive compensation program:
In 2020, over 90% of the chairman and chief executive officer’s total compensation was linked to metrics assessing company or stock performance and therefore meaningfully at-risk, while over 80% of the other NEOs’ compensation was comprised of a similar profile. Over 75% of the variable compensation is delivered through equity: PSUs, stock options and restricted stock. | |
Our annual incentive is based on a formulaic result driven by performance against key financial and strategic and operational metrics and reflects our pay for performance philosophy. | |
To emphasize a culture of ownership and strengthen management’s alignment with long-term shareholder interests, the Committee requires one of the strictest sets of stock ownership guidelines across the Fortune 100 for the NEOs. Our chairman and chief executive officer is required to hold General Dynamics stock with a value at least equal to 15 times base salary. The other NEOs are required to hold General Dynamics stock with a value at least eight to 10 times base salary. |
Each NEO’s compensation consists of a mix of fixed and variable components. The following charts summarize the various forms of compensation.
Components of Compensation | Description | |||
Annual Base Salary (Cash) | Base Salary is set near the median of our peers and reflects the experience, potential and performance of each executive. It represents a fixed level of competitive compensation commensurate with the responsibilities of each role. | |||
Annual Incentive Compensation (Cash) | The annual incentive program for 2020 was based on company performance for three financial metrics – diluted earnings per share from continuing operations (25%), free cash flow from operations (25%) and operating margin (20%), as well as overall and individual strategic and operational performance (30%). | |||
Strategic and operational performance measures include, but are not limited to: financial performance improvements, prudent allocation of capital, human capital management, debt management, segment performance, cost reductions, leadership and any other factors not contemplated at the start of the year. | ||||
Long-Term Incentive Compensation | ||||
Performance Stock Units (PSUs): 50% | PSUs closely connect NEOs to the company’s sustained financial performance through return on invested capital and relative total shareholder return, and act as a retentive tool over a three-year period. | |||
Stock Options: 30% | Stock options link the NEOs to the company’s stock price performance and align our executive team with shareholders over the long term. | |||
Restricted Stock: 20% | Restricted stock aligns the NEOs with the company’s total shareholder return performance over each three-year vesting period, acts as a retention tool and directly supports stock ownership. | |||
Benefits and Perquisites | The company provides market competitive perquisites, retirement, health and welfare benefits and change-in-control arrangements for purposes of recruitment and retention and to ensure the security and accessibility of our executives to facilitate the transaction of business. |
2021 Proxy Statement | 49 |
Table of ContentsANNUAL BASE SALARY
We pay executives an annualCompensation Discussion & Analysis
Each NEO’s base salary in cash that is tiedset around the median of our peers and is reflective of the NEO’s experience and track-record of performance, and balances other considerations such as complexity of the role, length of service and future expected contributions to the peer group median (50th percentile) for salaries of executives in comparable positions at our peer group companies based on survey data.company. Salaries are reviewed annually, and increases, when they occur, are driven primarily by changes in the market. Consequently, early in 2020 (prior to COVID-19) the salaries for all our NEOs except the chairman and chief executive officer were adjusted to reflect compensation changes within our peer group. We believe that organizations that perform well over the long term, like General Dynamics, make an effort to pay salaries at or near the market median and create opportunities for executives to earn above-median compensation through annual and long-term incentives that are awarded based on performance relative to challenging and clear performance goals.median. The goal of our base salary is to provide a competitive, fixed ratelevel of cash compensation. In 2017,compensation reflecting the market median for base salary increased for all NEOs exceptunderlying responsibilities of the CEO.role and experience level of our executives.
NAMEAND TITLE
|
2016 BASE
|
2017 BASE
|
% INCREASE
| ||||||||||||
Ms. Novakovic Chairman and Chief Executive Officer
|
$ 1,585,000
|
$ 1,585,000
|
0%
| ||||||||||||
Mr. Aiken Senior Vice President and Chief Financial Officer
|
$ 710,000
|
$ 770,000
|
8%
| ||||||||||||
Mr. Casey Executive Vice President, Marine Systems
|
$ 755,000
|
$ 780,000
|
3%
| ||||||||||||
Mr. Roualet Executive Vice President, Combat Systems
|
$ 755,000
|
$ 780,000
|
3%
| ||||||||||||
Mr. Johnson Executive Vice President, Information Systems and Technology
|
$ 725,000
|
$ 780,000
|
8%
|
Name and Title | 2019 Base Salary | 2020 Base Salary | ||||
Ms. Novakovic* Chairman and Chief Executive Officer | $ | 1,585,000 | $ | 1,585,000 | ||
Mr. Aiken Senior Vice President and Chief Financial Officer | $ | 850,000 | $ | 900,000 | ||
Mr. Roualet Executive Vice President, Combat Systems | $ | 800,000 | $ | 835,000 | ||
Mr. Smith Executive Vice President, Marine Systems | $ | 720,000 | $ | 800,000 | ||
Mr. Burns Vice President and President, Gulfstream Aerospace | $ | 655,000 | $ | 705,000 |
* | Ms. Novakovic’s base salary has remained constant since 2015. |
ANNUAL INCENTIVE COMPENSATIONAnnual Incentive Compensation
The NEOs are eligible to earn an annual incentive paid in cash based on the company’s prior-yearand their individual performance. The incentive is designed to place at risk a significant portion of each NEO’s total compensation at risk and create opportunities for executives to earn above-target compensation through annual compensation.incentives that are awarded based on performance relative to challenging and clear performance goals. The incentive payout is based on performance against specific, measureable goalsmeasurable metrics established and approved by the Committee at the beginning of the year and approved by the Committee as well as the Committee’s assessment of each NEO’s individual contribution to company performance during the year. The goals are designed to be difficult but achievable through solid execution.execution but difficult to exceed and are directly linked to the annual operating plan approved by the Board of Directors. The Committee believes the chosen incentive metrics are goodcritical indicators of the company’s overall performance and lead to thevalue creation of long-term value for our shareholders.
NEO PERFORMANCE METRICSAND TARGETS
In 2017, the annual incentive for each NEO was determined based on the same metrics: company operating earnings and free cash flow from operations. The Committee decided that, because the executive vice presidents play a major role in the overall success of the company in addition to overseeing their business group, they should be evaluated on the same company-wide metrics as the chief executive officer and the chief financial officer. The below charts demonstrate the NEO goals for 2017.
Setting Target Annual Incentive Opportunities. Each NEO’s target annual incentive, as a percentage of base salary, was determined during our annual compensation benchmarking process and is generally designed to provide total cash compensation near the 50th percentilemedian of the peer group for similar roles if targetsperformance goals are met. Consistent with peer and market practice, the maximum incentive that can be earned under this plan is two times the target amount. For performance that falls significantly short of thepre-established target, there may be no payout. 2017 was a strong operational year
34 General Dynamics 2018 Proxy Statement
50 | General Dynamics |
Compensation Discussion and& Analysis
For 2020, the annual incentive award for General Dynamics. Above-target each NEO was determined based on three financial metrics – diluted earnings per share from continuing operations, free cash flow from operations, and operating margin – and one qualitative metric encompassing individual and company strategic and operational goals. Diluted earnings per share from continuing operations and free cash flow from operations are the primary financial metrics utilized to drive performance at the company’s 10 business units. Operating margin was added to the financial metrics for 2020 to reflect the company’s strategic focus on improving the operating performance and profitability of its businesses.
2020 Performance Targets. The Committee approved the targets for the annual incentive metrics in the first week in March 2020, in alignment with our annual operating plan and financial guidance, with the conviction that they were appropriately challenging and demonstrated significant rigor, considering our business outlook at the time. The Committee approved these targets before the full onset of the COVID-19 pandemic.
Diluted Earnings Per Share from Continuing Operations Goal: 4.6% above 2019 actual performance and 8% higher than the 2019 goal. | |
Free Cash Flow from Operations Goal: 26.7% above 2019 actual performance; intentionally set below the 2019 goal as the prior year’s goal included a significant, nonrecurring payment of $500 million on an international contract that was credited to management in 2019 (and not included in calculating 2020 performance). | |
Operating Margin Goal: Added in 2020 to drive performance as business mix was projected to negatively affect profitability. Therefore, the metric was established to focus on, incent and drive profitability improvement across the business. |
In assessing 2020 performance and results under the annual incentive plan, it is important to note that despite the impact of the pandemic, the pre-COVID performance targets were not adjusted by the Committee. |
2021 Proxy Statement | 51 |
Compensation Discussion & Analysis
The Compensation Committee’s Actions Relating to the Impact of the Pandemic
Annual Incentive. The Committee approved the metrics for the 2020 annual incentive awards on March 3, 2020, shortly before the full onset of the global pandemic. The company’s operating plan as originally envisioned was overcome by the events of the pandemic within weeks of approval given the challenges presented, including the global lockdown and the corresponding direct impact on the commercial aerospace market, which particularly impacted two of the company’s business units.
The Board of Directors, along with the Committee in its oversight capacity for the compensation programs, fully supported management’s focus on ensuring the health and safety of its employees while remaining fully operational and maintaining a high level of financial performance. The Board fully supported the actions management took to respond to the pandemic.
The Committee engaged with management throughout the year, including holding additional meetings to evaluate the company’s response to the pandemic and its corresponding impact on performance and the outlook for the business. The Committee also extensively reviewed and deliberated how to appropriately both reward the business’s operational performance, recognizing the unprecedented challenges presented by the global pandemic and ensure alignment with shareholders’ expectations.
The Committee’s in-depth discussions with management included input from the Committee’s independent compensation consultant. These discussions centered on how to appropriately balance rewarding and retaining executive talent particularly in this environment, with the impact that the pandemic had on the company. The Committee also reviewed and assessed the totality of management’s performance in light of financial performance goals that were in some cases rendered unachievable by the pandemic almost immediately following adoption.
The Committee recognized that despite the impact from COVID-19, the company generally maintained its original financial guidance and operating plan in almost all of its lines of business. As noted previously, the company’s IT services business for the U.S. government was impacted by the shutdown of some customers’ sites. The company’s Aerospace segment faced a global collapse in the aviation market and yet was profitable with over $1 billion in operating earnings while many other major civil airframe OEMs incurred operating losses. The Committee also noted that the company continued to hire throughout the year as several of its lines of business continued to expand and grow. The Committee discussed and evaluated a variety of approaches to determine how to score and award annual compensation, including changing performance targets and metrics, reweighting the goals or applying discretion to the final award.
Ultimately, the Committee determined that the appropriate balance was best obtained by retaining the originally approved financial metrics and reflecting the outstanding performance necessitated by the pandemic in the scoring of the strategic and operational goals. This approach allowed for consideration of the specific impacts of the pandemic on each business segment. This approach also afforded the Committee the ability to recognize the critical and immediate pivot that management took early in the crisis to effectively respond to the collapse in the commercial aviation market, thereby preserving that segment’s profitability. Importantly, this approach preserved the integrity of the originally approved performance metrics and goals. The results yielded annual incentives were awardedfor 2020 performance that declined 16% on average compared to the 2019 annual incentive payouts for the four NEOs in recognitiontheir positions for the entirety of both years. The Committee determined the average 16% reduction in the annual incentives to be appropriate given COVID-19’s impact on the company’s financial results, driven primarily by the Aerospace segment. By way of example, the Committee considered, among other things, the 9.6% decrease in operating earnings from the prior year.
Long-Term Incentive. The Committee chose not to take any action with respect to any of the long-term incentives (equity awards) previously granted or adjust any payout outcomes because of the pandemic despite the varying levels of impact to “in-flight” grants.
52 | General Dynamics |
Compensation Discussion & Analysis
ANNUAL INCENTIVE TARGETS AND ACHIEVEMENT – 2020
Performance Metrics | Threshold* | Target* | Maximum* | 2020 Result | Weighting* | Payout (% of Target) | ||||
Diluted Earnings Per Share from Continuing Operations | $10.65 | $12.53 | $13.16 | $11.00 | 25% | 59.3% of Target | ||||
Free Cash Flow from Operations** | $2,022 million | $2,527 million | $2,780 million | $2,391 million | 25% | 86.5% of Target | ||||
Operating Margin | 10.9% | 11.7% | 11.9% | 10.9% | 20% | 50.6% of Target | ||||
Strategic and Operational | 0% | 100% | 200% | See Discussion Below | 30% | See Discussion Below |
* | Unchanged from pre-pandemic amounts. |
** | See Appendix A for a discussion of this non-GAAP measure. |
Overall Scoring Commentary. Having closely tracked the impact of COVID-19 on the company’s business throughout 2020, the Committee aimed to recognize the exceptional and unprecedented efforts undertaken by management to meet the challenges of the pandemic, while acknowledging the inherent practical impacts of the pandemic on the company’s operations and financial results. The Committee considered management’s efforts to protect the health and safety of the company’s employees and support the overall well-being of its communities, while continuing to meet its obligations as a critical infrastructure provider to the aerospace and defense community of the United States and many of its allies. The company’s support to communities included:
The donation of over 200,000 items of PPE to first responders, | |
Repurposing factory equipment to manufacture swabs in support of COVID-19 testing, and | |
Financial and other donations to local hospitals and charities. |
In keeping its operations open and continuing to deliver on its commitments to customers and shareholders, the management team demonstrated the resilience required to weather the pandemic and took several efforts to further strengthen the company as a result. In fact, hiring continued throughout 2020 to support the anticipated growth at several of our businesses.
Financial Performance (70% Weight) Commentary. Despite changing priorities and the business ramifications associated with COVID-19 in 2020 on several of the company’s lines of business, the NEO financial goals were unchanged from the pre-pandemic environment. Each NEO had financial goals (shown in the table above) that determined 70% of their roletotal annual incentive score. Structurally, the financial goals payout is as follows: 200% at maximum, 100% at target, 50% at threshold and 0% for performance below threshold. It is important to note that despite COVID-19, the company demonstrated strong operating performance across the board. Specifically, as it relates to the actual performance, including the impact of the pandemic against the targets established in driving thesethe pre-pandemic environment, the Committee in reviewing the formulaic scoring of the financial metrics also noted the following:
2021 Proxy Statement | 53 |
Compensation Discussion & Analysis
Diluted Earnings Per Share from Continuing Operations | ||
Despite COVID-19, the company demonstrated strong earnings performance and generated earnings of $11.00 per share for the year. While the 2020 diluted earnings per share from continuing operations fell short of target and reflected a decline from the results achieved in 2019, this shortfall, caused by the global pandemic, was most prevalent in two segments – Aerospace and the IT services business in Technologies. | ||
The Aerospace segment delivered compelling operational results amid a broader aviation market collapse. Business aviation flight hours (an indication of market activity) dropped 75% in the months following the onset of the pandemic. To de-risk elements of the supply chain and better align production with demand, in April 2020 management prudently reduced aircraft production and delivery rates for the year. Despite these actions, the Aerospace segment still delivered in excess of $1 billion of operating earnings and an operating margin of 13.4% while many other major civil aviation airframe OEMs incurred operating losses. | ||
The IT services business in the Technologies segment experienced lower services revenue driven by the COVID-19 pandemic resulting from the closure of some customer sites and a lower level of program activity. Two specific COVID-related disruptions affected earnings negatively within the segment, including 1) customer reimbursement of idled workforce at zero fee on several U.S. government contracts and 2) a loss on a contract with an international customer due to schedule delays resulting from COVID-19 travel restrictions. While the Technologies segment experienced a decline of 9.6% in operating earnings compared to target, management undertook extensive efforts to constrain spending resulting in an EBITDA margin of 13.5%. | ||
Free Cash Flow from Operations | ||
The company’s cash flow performance for 2020 was extremely strong considering the many COVID-related obstacles that faced the company. While a cash conversion of 91% of net earnings was achieved (which exceeded the pre-pandemic plan of approximately 85%) the 2020 free cash flow from operations fell below target because of the impact of COVID-19 on the company. This shortfall was primarily within the Aerospace segment where revenue declined abruptly as the broader business aviation market was severely impacted by travel limitations and the economic downturn resulting from the global pandemic. Overall, the company’s ability to drive cash conversion was limited by the following factors: | ||
Each of the businesses in the Aerospace segment, Gulfstream and Jet Aviation, reduced production and service levels; however, a full complement of the related cost structure could not be curtailed or eliminated as quickly as revenue declined despite tremendous efforts to cut expenses at these businesses. As an example, supplier commitments associated with pre-pandemic higher production levels could not be altered or severed economically with such short notice. | ||
The U.S.-based defense businesses participated in an effort by the U.S. Department of Defense to assist the supply chain in the Defense Industrial Base (DIB) weather pandemic-related financial struggles. The company prioritized meeting its obligations as a critical contributor to the overall health of the DIB and, therefore, temporarily advanced over $2 billion of payments across their supplier base to help maintain the health and liquidity of the supply chain. Despite this, the U.S.-based defense businesses outperformed their target for free cash flow by almost $600 million. | ||
In the Marine Systems segment, at Electric Boat, significant capital expenditures were required to support the future growth of its submarine business, including the Columbia-class ballistic-missile submarine program, the U.S. Navy’s top priority. |
54 | General Dynamics |
Compensation Discussion & Analysis
Operating Margin
The 2020 operating margin performance was solid across the segments even as wellrevenue declined precipitously – 17.6% – in the Aerospace segment because of COVID-19’s impact on travel and the economy. As a result of management’s swift and deliberate actions to reduce costs, the company’s operating margin declined only 70 basis points for the year to 10.9%, falling below target. To illustrate the significant efforts by the management team to drive operating margin, the 2020 quarterly operating margin profile was as follows.
Strategic and Operational Performance (30% Weight) Commentary. At the beginning of 2020, prior to the global pandemic, the Committee approved the strategic and operational goals for each NEO. The goals were designed to reflect the significant individual performance expectations for each NEO and fully contemplated that notable achievements beyond the approved goals could be recognized in the individual achievements for the year. Annually, each NEO is expected to contribute to the financial performance of the company beyond that specifically recognized in the financial performance metrics listed in the table above.
Once the pandemic began to impact the company in early spring, the full Board of Directors, and specifically the Committee in its oversight of the compensation program, approved of management’s principal focus of keeping employees safe and healthy and the businesses open and operational to support critical infrastructure. Because of COVID-19, many priorities shifted throughout the year. Therefore, the Committee evaluated the performance of each NEO holistically against the original strategic and operational goals and the shifting priorities brought on by the pandemic.
The 2020 NEO qualitative achievements highlighted below provide a basis for the evaluation of, and score assigned to, each of the NEOs for their individual performance and achievementscontribution to overall company results and reflects the changing nature of the business priorities resulting from the COVID-19 pandemic. The Committee’s qualitative evaluation and scoring of the strategic and operational goals for the NEOs includes a combination of qualitative factors and various internal quantitative metrics that we do not disclose herein due to competitive considerations.
2021 Proxy Statement | 55 |
Compensation Discussion & Analysis
2020 NEO QUALITATIVE ACHIEVEMENTS – STRATEGIC AND OPERATIONAL
Phebe N. Novakovic | |||
Financial Performance. Drive the financial performance of the company while prudently allocating capital. | |||
Drove strong overall operating performance across the businesses despite COVID-19’s impact on the company’s performance (most notably in its Aerospace segment) and on the ways in which the company conducted its business. The company demonstrated resiliency agility, and flexibility in business operations to support its consistent commitment to delivering strong financial results. | |||
• | Aerospace: Delivered in excess of $1 billion of operating earnings and an operating margin of 13.4% while many other major civil aviation airframe OEMs incurred operating losses. | ||
• | Marine Systems: Produced the highest-ever backlog, revenue and operating earnings, and year-over-year increases in revenue, operating earnings and other key financial metrics. | ||
• | Combat Systems: Demonstrated increases over 2019 in orders, revenue, operating earnings, operating margin and cash flow. Revenue, operating earnings and operating margin all improved sequentially each quarter of the year. | ||
• | Technologies: Undertook extensive efforts to constrain spending, resulting in an EBITDA margin of 13.5% and significantly exceeded its pre-pandemic cash flow target. | ||
• | Overall: | ||
– | Exceeded the company’s pre-pandemic free cash flow goal of approximately 85% of net earnings with results of 91% of net earnings. | ||
– | Generated the second highest cash flow from operating activities in company history. | ||
– | Delivered notable sequential financial performance, rebounding quickly from the negative impact of the pandemic on the second quarter with quarter-over-quarter improvements in revenue, operating earnings, operating margin, diluted earnings per share from continuing operations, free cash flow from operations as well as cash conversion percentage. | ||
Made prudent capital allocation decisions during a period of pandemic-induced market uncertainty. | |||
• | Proactively strengthened the company’s liquidity early in the pandemic with the issuance of $4 billion of fixed-rate notes to repay $2.5 billion of fixed- and floating-rate notes that matured. | ||
• | Repaid borrowings under the commercial paper program. | ||
• | Renewed access to $5 billion of credit facilities. | ||
• | Achieved a $854 million reduction in net debt. | ||
• | Increased the dividend by 8% in 2020: the company’s 23rd consecutive annual increase. | ||
• | Continued to support aircraft development programs at Gulfstream and managed through a multi-year capital investment plan to support the substantial growth anticipated at Electric Boat. | ||
Achieved record-high backlog of $89.5 billion, ending the year with a strong book-to-bill, supporting the company’s long-term growth expectations. Noteworthy awards included: | |||
• | $9.5 billion contract from the U.S. Navy for construction of the first two Columbia-class ballistic missile submarines. | ||
• | $4.3 billion contract to upgrade Abrams main battle tanks for the U.S. Army. | ||
• | $4.4 billion award for the DEOS program. | ||
Supported the efforts of the federal government to advance over $2 billion of cash to suppliers in the DIB so that key critical infrastructure providers could weather the economic downturn brought on by COVID-19. |
56 | General Dynamics |
Compensation Discussion & Analysis
Phebe N. Novakovic (continued) | ||
Cost Containment and Reduction. Provide strong oversight of cost containment and reduction initiatives throughout the company. | ||
Directed necessary and significant cost-cutting and cost-containment across the company to focus efforts on maintaining profitability and driving cash generation during a period of substantial market uncertainty and disruption driven by the pandemic. | ||
As a result of swift and deliberate actions to reduce costs, the company’s operating margin declined only 70 basis points for the year to 10.9%, impressive against the backdrop of a business aviation market collapse. | ||
Demonstrated strong quarter-over-quarter improvements with the fourth quarter 2020 operating margin of 12.3% including the impact of COVID-19, exceeding the pre-pandemic fourth-quarter 2019 operating margin of 12.1%. | ||
Human Capital & Sustainability. Effectively manage key human capital and sustainability efforts with a focus on diversity and inclusion. | ||
Managed succession planning through thoughtful senior leadership transitions, and provided key guidance and oversight to new leaders. | ||
Committed to furthering diversity and inclusion efforts across the company and demonstrated improved results, including the appointment of a vice president of diversity and inclusion reporting directly to the chairman and chief executive officer. | ||
Supported sustainability efforts across the company including driving a company culture rooted in the ethos of transparency, trust, alignment and honesty; a robust safety mindset; and a reduction of greenhouse gas emissions at the company’s facilities. | ||
Continued hiring efforts during the pandemic to prepare for anticipated growth at certain business units. | ||
Led company-wide efforts to gather and ship excess PPE to areas where it was most needed in the early stages of the pandemic. | ||
Manage Segment Enterprise Challenges. | ||
Aerospace – Manage successfully through new model transitions to drive long-term growthwhile focusing on improving profitability to achieve market-leading returns. | ||
• | Provided constant oversight and guidance to the strategic efforts at Gulfstream to manage through new model transitions. | |
• | Retained market-leading profitability during the collapse of the aviation market brought on by COVID-19 despite a necessary adjustment in production schedules. | |
• | Funded significant research and development efforts to support new models and technical efforts throughout the product lines. | |
Marine Systems – Influence significant and far-reaching contract negotiations on submarineprograms. Guide capital investment plan designed to support significant anticipated growth atElectric Boat. | ||
• | Achieved a successful negotiation on the $9.5 billion contract for the construction of the first two Columbia-class ballistic missile submarines, fully protecting lead-ship risk and providing return on investment. | |
• | Drove accountability for and achieved performance improvements on the Virginia-class submarine program. |
2021 Proxy Statement | 57 |
Compensation Discussion & Analysis
Phebe N. Novakovic (continued) | ||
Combat Systems – Develop next-generation platforms and technologies to meet customers’emerging requirements to enhance future growth opportunities. | ||
• | Awarded the first production contract for the SMET (small multi-purpose equipment transport) autonomous vehicles in 2020 while next generation electronic architecture is being introduced in a phased approach in all wheeled and tracked vehicles. | |
• | Received contracts for the development of next generation artillery with production scheduled to begin in 2024. | |
• | Continued the development of next generation electronic architecture, manned and unmanned weapon stations, hybrid-electric drive technologies along with artificial intelligence (AI) systems capable of integrating autonomous aerial and ground systems into vehicle platforms along with leading the development of next generation artillery. | |
Technologies – Drive earnings growth and margin improvement while working to expandmarket opportunities. | ||
• | Overcame significant COVID-related operating margin headwinds, particularly at GDIT, with aggressive overhead cost reduction and performance management on every controllable element of the portfolio. While the customer reimbursed the cost of idled workforce unable to access certain government facilities, this revenue was recorded without normal profits. | |
• | Established leadership position in large-scale cloud implementation with the $4.4 billion award of the DEOS program, in cyber with the Southern Command Cyber Information Technology Enterprise Services (SCITES) program, in AI with the Department of Veterans Affairs, and in the nuclear triad with major positions on the Ground-Based Strategic Deterrent (GBSD) program. | |
• | Led GDIT through a contract negotiation with an international customer, as issues resulting from travel restrictions impacted our ability to properly execute an international IT program. | |
Overall. | ||
Directed and provided extraordinary leadership of the company’s efforts to keep all of its businesses open and operational, despite the challenges posed by COVID-19, delivering on commitments to customers while employing various measures to maintain safe work environments for over 100,000 employees. | ||
Remained focused on fulfilling financial commitments to shareholders while responding to the immediacy of the pandemic crisis, working closely with key customers to keep mission-critical work flowing, and providing for the longer-term future of the company. | ||
The Committee’s Assessment of CEO Performance. | ||
The Committee recognized Ms. Novakovic’s exemplary leadership of the company as it traversed uncharted territories brought upon the businesses so swiftly by the COVID-19 pandemic. The company continued to deliver strong financial performance despite significant adverse impacts on the global aerospace market and challenges thrust upon the company’s defense businesses. Ms. Novakovic’s disciplined management methods and unity of purpose focused the management team on maintaining a high level of profitability and cash conversion to offset a COVID-induced revenue decline coupled with the concern for and rigorous approach to maintaining COVID-safe environments for employees. | ||
The Committee was cognizant of Ms. Novakovic’s tenure in her role and the desire to retain her leadership as the company executes its long-term strategy. The Committee acknowledged the effective management and critical contributions by Ms. Novakovic as highlighted in the above noteworthy accomplishments which significantly exceeded expectations in strategic and operational areas, and assigned a score of 200% for her outstanding 2020 performance. However, the Committee recognized the impact of the pandemic on the company’s financial results and supported an overall significant decrease in her annual incentive payout for 2020 performance when compared with the prior year’s payout, consistent with a philosophy of pay-for-performance. | ||
2020 Strategic and Operational Score for Ms. Novakovic: 200% of Target |
58 | General Dynamics |
Compensation Discussion & Analysis
Jason W. Aiken | |
Successfully manage tax planning strategies to achieve an effective tax rate in-line with projections in the mid-17% range. | |
Achieved a record-low full-year effective tax rate of 15.3% vs. operating plan target of 17.5% through the management of efficient tax planning strategies. | |
Direct effective debt management strategies and drive cash flow performance. | |
Led issuance of $4 billion of fixed-rate notes at the height of the pandemic-induced financial crisis. | |
Pivoted from original financing plans for 2020 to position the company to repay a pending debt maturity in May, reduce the company’s reliance on the commercial paper market, and support the company’s liquidity given the uncertainty presented by COVID-19. | |
Repaid all outstanding commercial paper balances by the end of the third quarter and ended the year with zero commercial paper outstanding. | |
Achieved $854 million reduction in net debt to approximately $10 billion at year end. | |
Exceeded the company’s pre-pandemic free cash flow generation goal of approximately 85% of net earnings with results of 91% of net earnings. | |
Generated the second-highest cash flow from operating activities in company history. | |
Coordinated overall efforts to temporarily accelerate payments to our suppliers in support of the Department of Defense’s initiative to sustain the DIB supply chain during the pandemic; the company accelerated over $2 billion in payments to suppliers from April through December. | |
Provide leadership, succession planning and oversight of the finance departments across the company. | |
Provided ongoing leadership and development of the finance function across the company with significant direction and influence to ensure that succession planning efforts were timely, appropriately considered diverse candidates, and were executed without management interruption. | |
Senior finance leadership transitions were significant and included the succession of five business unit chief financial officers and three corporate-level senior finance staff. | |
Support the chairman and chief executive officer and investor relations in shareholder engagement activities. | |
Led the development of investor engagement presentation on the company’s enduring value creation, which became the focal point of investor engagements. | |
Participated as the company’s representative in a significant investor conference as well as numerous engagements with shareholders, securities analysts and potential investors. | |
Participated in numerous virtual meetings with analysts and investors during the year to ensure the company’s value creation message continued to reach key constituents when face-to-face engagement was not possible. | |
Overall. | |
Supported the chairman and chief executive officer on-site every day throughout the pandemic, providing leadership and guidance to the business units and directing corporate activities. | |
Coordinated efforts to drive operating performance improvements and achieve cost savings to offset the impacts of COVID-19 on the business. | |
Provided financial leadership over the development of revised public financial guidance during rapidly evolving impacts of the pandemic; achieved the revised financial targets for diluted earnings per share and free cash flow from operations. | |
2020 Strategic and Operational Score for Mr. Aiken: 200% of Target |
2021 Proxy Statement | 59 |
Compensation Discussion & Analysis
Mark C. Roualet | |
Meet or exceed Combat Systems segment financial goals. Generate $200 million in cost reductions to drive segment earnings. | |
Strong Combat Systems performance in a year with many COVID-related challenges. | |
Exceeded planned orders by $300 million – a total of $6.2 billion in orders were booked despite the U.S. Army’s decision to re-compete the optionally manned fighting vehicle (OMFV). | |
Achieved revenue of $7.2 billion on a goal of $7.3 billion. | |
Achieved $1,041 million in operating earnings, only $6 million short of the goal. | |
Exceeded the operating margin goal of 14.3%. The Combat Systems segment generated over $200 million in cost reductions and achieved an operating margin of 14.4%. | |
Achieved cash conversion of over 100% of imputed net earnings but fell $23 million short of the cash goal. | |
Demonstrated increases over 2019 in orders, revenue, operating earnings, operating margin and cash flow. | |
Improved revenue, operating earnings and operating margin sequentially each quarter of the year. | |
Provide leadership and guidance to the business unit presidents. | |
Provided experienced leadership and oversight of the Combat Systems segment including advice and counsel to the business unit presidents on a variety of matters. | |
Develop next generation leadership to bolster succession plans. | |
Provided significant direction and influence to ensure that succession planning efforts within the Combat Systems segment were timely, appropriately considered diverse candidates, and were executed without management interruption. | |
Managed senior leadership transitions across the segment including a new business unit president and 30% of the leadership team. | |
Manage and thoroughly/frequently report business unit challenges and opportunities to the CEO. | |
Worked in conjunction with the chairman and chief executive officer to manage the business risks and opportunities to position the Combat Systems segment for future growth. | |
Overall. | |
Supported the chairman and chief executive officer on-site every day throughout the pandemic, providing leadership and guidance to the business units. Oversaw and directed key operational and pandemic-related challenges including redesigning COVID-safe operations and maintaining efficient manufacturing capabilities resulting in all program cost and schedule milestones being met. Conducted weekly in-depth operational meetings across the segment to assess and effectively manage the manufacturing impact of COVID-19. | |
Kept all facilities open (as allowed) and operational, and all programs remained on schedule. | |
Received customer recognition for efforts to keep mission-essential work flowing despite a multitude of COVID-19 impacts. | |
Completed on-time delivery of all pre-production Mobile Protected Firepower (MPF) vehicles to the U.S. Army for testing (the only contractor to do so). Delivered all non-turreted Initial Operation Capable AJAX vehicles on schedule. | |
Served as the interface to the federal government task force and company coordinator to quickly disperse critical PPE to areas most significantly affected by COVID-19. Coordinated the delivery of approximately 200,000 PPE items from sites across the U.S. to hard-hit areas in the early days of the crisis. Coordinated the initial trials of COVID-19 rapid test devices at Land Systems’ Lima operation. | |
2020 Strategic and Operational Score for Mr. Roualet: 185% of Target |
60 | General Dynamics |
Compensation Discussion & Analysis
Robert E. Smith | |
Meet or exceed Marine Systems segment financial goals. Assist segment in achieving cost reductions to drive segment earnings. | |
Exceeded Marine Systems operating plan in a year with many COVID-related challenges. | |
Exceeded planned orders by more than $2 billion, or 16%. | |
Exceeded revenue goal of $9.8 billion by 2%. | |
Exceeded operating earnings goal by 1%. | |
Achieved operating margin goal of 8.6% by generating in excess of $450 million in cost reductions. | |
Exceeded cash flow goal by over $200 million. | |
2020 financial performance was notable with the highest-ever backlog, revenue and operating earnings; revenue, operating earnings and other key financial metrics demonstrated year-over-year increases. | |
Provide assistance to Electric Boat to improve Virginia-class construction performance. | |
Achieved improved Virginia-class submarine construction performance on Block IV during the year primarily as a result of considerable efforts to remove obstacles hindering efficient production. Continued to drive efforts to improve overall performance on the program and meet required delivery cadence for Virginia-class Block V. | |
Assist in the negotiation for large Marine Systems contracts. | |
Instrumental in the negotiation strategy and execution for the $9.5 billion contract for construction of the first two Columbia-class ballistic missile submarines, fully protecting lead-ship risk and providing return on investment. | |
Manage and thoroughly/frequently report business unit challenges and opportunities to the CEO. | |
Worked in conjunction with the chairman and chief executive officer to manage the business risks and opportunities to position the Marine Systems segment for future growth. Worked directly with head of Federal Mediation & Conciliation Service and Bath Iron Works and union leadership to settle a nine-week work stoppage. | |
Provided experienced leadership and oversight of the Marine Systems segment including advice and counsel to the business unit presidents on a variety of matters. | |
Overall. | |
Supported the chairman and chief executive officer on-site every day throughout the pandemic, providing outstanding leadership and guidance to the Marine Systems business units. Conducted frequent in-depth operational meetings across the segment to assess and manage manufacturing impact of the pandemic, including redesigning COVID-safe operations to reduce workforce density. Kept all facilities open and operational. | |
Received customer recognition for the company’s efforts to keep mission-essential work flowing while experiencing a multitude of COVID-19 impacts. | |
Served as the interface on the federal initiative to implement COVID-19 testing procedures at two of the company’s large facilities early in the pandemic. Over 7,000 tests were administered to help assess various testing procedures. | |
Coordinated efforts to temporarily accelerate over $2 billion of cash to the DIB supply chain utilizing improved terms and conditions provided by the U.S. Navy; minimized resultant supply chain disruption within Marine Systems. | |
2020 Strategic and Operational Score for Mr. Smith: 200% of Target |
2021 Proxy Statement | 61 |
Compensation Discussion & Analysis
Mark L. Burns | |
Meet or exceed Gulfstream financial goals. Exceed plan operating margin by 20 basis points. Exceed new aircraft order goal. | |
Led Gulfstream to generate operating earnings in excess of $1 billion despite the challenges experienced from the COVID-19 pandemic, far outperforming other major civil aviation airframe OEMs. | |
Exceeded the COVID-adjusted business plan goal for free cash flow. | |
Ensured that all aspects of the business continued to function efficiently including improving productivity in all of Gulfstream’s lines of business. | |
Generated aircraft order book-to-bill of 0.9x for the year even though a significant portion of the customer base was not able to travel for most of the year. This book-to-bill ratio was important to continuing to build the backlog for long-term production and productivity. | |
Meet major development and other milestones. Achieve positive outcome from supplier settlements. | |
Achieved all significant product-development milestones, including the first flight of the new G700 aircraft, which remains on schedule for entry into service in the fourth quarter of 2022, European Union Aviation Safety Agency (EASA) certification of the G600, and positive settlements with suppliers. | |
Certified the Predictive Runway Performance System, an industry first and a meaningful safety technology, to prevent runway overruns. | |
Recognized for significant sustainability efforts to utilize and promote the use of sustainable aviation fuel (SAF) including surpassing 1 million nautical miles flown on company flights and conducting all G700 test flights with SAF as well as offering SAF for sale. | |
Opened three new facilities including a European service center and two U.S. service centers on schedule and budget. | |
Overall. | |
Responded quickly and effectively to significant COVID-related disruptions in the face of the broader aviation market collapse. Uncertain economic conditions and COVID-19 travel limitations resulted in lower demand for aircraft services and disrupted aircraft sales. In response, reduced the aircraft production rate to lessen risk within the supply chain and better align production with demand. | |
Employed cost-control measures to retain profitability and booked new aircraft orders which exceeded COVID-adjusted expectations. Given that context, while missing the unachievable pre-pandemic financial goals, the business performed extraordinarily well against its pandemic-adjusted financial forecast developed in April 2020. | |
Oversaw and directed key operational and pandemic-related challenges, including redesigning COVID-safe operations and maintaining efficient manufacturing capabilities. Successful in keeping all facilities open and operational (except Mexico, which briefly closed under government direction). First in business aviation to establish COVID-19 operating protocols with the Federal Aviation Administration and EASA. | |
2020 Strategic and Operational Score for Mr. Burns: 185% of Target |
62 | General Dynamics |
Compensation Discussion & Analysis
ANNUAL INCENTIVE PAYOUT (AIP)
The below table summarizes each NEO’s targetthe NEOs’ targets and the Committee’s determination of final incentives.their earned annual incentive. The annual incentive payouts for 2020 performance declined from the prior year despite the outstanding contributions of our executives to lead the company through a challenging year, appropriately reflecting the impact of the pandemic on operations and our pay-for-performance philosophy.
NEO Financial Goals
Name | 2020 Base Salary | Target Incentive (% of Base) | Maximum Incentive (% of Target) | Target Incentive | Overall Achievement (% of Target) | Annual Incentive Payout | Prior Year’s AIP | Percent Change | |||||||||||||||||
Ms. Novakovic | $ | 1,585,000 | 170% | 200% | $ | 2,694,500 | 106.6% | $ | 2,872,000 | $ | 3,482,000 | -17.5% | |||||||||||||
Mr. Aiken | $ | 900,000 | 100% | 200% | $ | 900,000 | 106.6% | $ | 959,000 | $ | 1,098,000 | -12.7% | |||||||||||||
Mr. Roualet | $ | 835,000 | 100% | 200% | $ | 835,000 | 102.1% | $ | 852,000 | $ | 1,010,000 | -15.6% | |||||||||||||
Mr. Smith | $ | 800,000 | 100% | 200% | $ | 800,000 | 106.6% | $ | 853,000 | $ | 801,000 | 6.5% | * | ||||||||||||
Mr. Burns | $ | 705,000 | 100% | 200% | $ | 705,000 | 102.1% | $ | 720,000 | $ | 840,000 | -14.3% |
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*Represents adjustednon-GAAP earnings from continuing operations which excludes a $119 million tax impact
In fact, as a resultfurther evidence of our pay-for-performance philosophy, for the passage ofthree executives that have been NEOs consistently over the Tax Cutspast several years, Ms. Novakovic and Jobs Act of 2017 in late December 2017. The Committee chose to adjustMessrs. Aiken and Roualet, their annual incentive payouts have declined 46%, 31% and 39%, respectively, over the result because the tax impact resulting primarily from the change in value of deferred tax assets and liabilities was not reflective of the actual operating performance of the company in 2017. A reconciliation to the GAAP figure can be found in Appendix A.
NEO Annual Incentive Achievementlast three years.
NAMEAND TITLE
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2017 BASE
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TARGET
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MAXIMUM
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TARGET
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MAXIMUM
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ANNUAL
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Ms. Novakovic Chairman and Chief Executive Officer
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$ 1,585,000
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170%
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340%
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$ 2,694,500
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$5,389,000
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$5,300,000
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Mr. Aiken Senior Vice President and Chief Financial Officer
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$ 770,000
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100%
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200%
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$ 770,000
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$1,540,000
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$1,386,000
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Mr. Casey Executive Vice President, Marine Systems
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$ 780,000
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100%
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200%
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$ 780,000
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$1,560,000
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$1,404,000
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Mr. Roualet Executive Vice President, Combat Systems
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$ 780,000
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100%
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200%
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$ 780,000
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$1,560,000
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$1,404,000
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Mr. Johnson Executive Vice President, Information Systems and Technology
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$ 780,000
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100%
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200%
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$ 780,000
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$1,560,000
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$1,378,000
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Name | 2017 Annual Incentive Payout | 2018 Annual Incentive Payout | Percent Change | 2019 Annual Incentive Payout | Percent Change | 2020 Annual Incentive Payout | Percent Change | Percent Change Since 2017 | ||||||||||||
Ms. Novakovic | $5,300,000 | $4,727,000 | -10.8 | % | $3,482,000 | -26.3% | $ | 2,872,000 | -17.5% | -45.8% | ||||||||||
Mr. Aiken | $1,386,000 | $1,275,000 | -8.0 | % | $1,098,000 | -13.9% | $ | 959,000 | -12.7% | -30.8% | ||||||||||
Mr. Roualet | $1,404,000 | $1,288,000 | -8.3 | % | $1,010,000 | -21.6% | $ | 852,000 | -15.6% | -39.3% |
LONG-TERM INCENTIVE COMPENSATIONLong-Term Incentive Compensation
Long-term incentive compensation (LTI) is provided to NEOs to align management’s interest with that of shareholders several years intothrough share ownership, to reward NEOs for achievement of multi-year financial goals and total shareholder return performance consistent with the future.shareholder experience, and to retain key talent through longer-term vesting and performance schedules. LTI comprises a major portion of total target compensation provided to NEOs and thus gives managementeach NEO. This provides our executives with a significant personal stake in the long-term success of General Dynamics. By awarding LTI through various types of equity instruments, different elements of shareholder alignment are achieved. We awardThe following chart illustrates the allocation of LTI based on the following allocation:in our annual grants:
2020 LONG-TERM INCENTIVE ALLOCATION |
General Dynamics 2018 Proxy Statement 35
Compensation Discussion and Analysis
Setting Long-termLong-Term Grant AmountsAmounts. .The Committee uses guidelines that are constructed around thebased upon peer market mediandata and balances other considerations such as prior-yearcompany performance, complexity of the role, length of service, future expected contributions to the company and impact on dilution when determining actual LTI grant amounts. We believe that thisThis approach allows for the consideration of a multitude of factors in addition to the quantitative metrics that drive annual incentive payments. This allows the Committee to make grant decisions that better meetproperly reward and incent management for long-term performance
2021 Proxy Statement | 63 |
Compensation Discussion & Analysis
and align the needs of ourthe business andwith that of the shareholders. As shown below, the annual LTI grants awarded pre-pandemic during the first quarter of 2020 for the individual performance of the NEOs were as follows:
PERFORMANCE RESTRICTED STOCK UNITS
Name | 2020 LTI Grant* | ||
Ms. Novakovic | $ | 13,800,000 | |
Mr. Aiken | $ | 4,000,000 | |
Mr. Roualet | $ | 3,070,000 | |
Mr. Smith | $ | 2,900,000 | |
Mr. Burns | $ | 3,000,000 |
* | Amounts awarded by the Committee may differ from those displayed in the Summary Compensation Table (SCT) due to the requirement to value the equity amounts in the SCT at aggregate grant date fair value computed in accordance with ASC Topic 718, Compensation – Stock Compensation. |
Performance Restricted Stock Units (PRSUs)– 50% of LTI. PSUs are a form of equity compensation tied to the achievement of specific performance goals and linked to the long-term performance of the company. This element of executive compensation closely connects executivesThey are calculated by multiplying the overall LTI award value by the 50% weighting assigned to the company’s financial and stock performance overPSU portion of the long term and acts as a retention tool. NEOs who voluntarily resign or are terminated for cause immediately forfeit all PRSUs that have not vested unless otherwise determined by the Committee. PRSUs at General Dynamics are structured as follows:
Target Setting:
The three-year ROIC target is set on the date of grant. The Committee does not have discretion to reset the target during the three-year performance cycle.
The performance targetquantity of PSUs granted is set to be challenging, yet achievable.
For the 2017-2019 performance period, the ROIC target was established at 15.2 percent. This target reflects the multi-year operating plan for the company and takes into account management’s assessment of future performance. Because we operate in a dynamic and competitive environment, the target established each year represents the outlook for the three-year period and may not be comparable to past targets or past achievement. In light of these circumstances, the Committee believes this three-year target is challenging but achievable through continued strong operating performance.
Plan Operation:
After the three-year performance period, the number of PRSUs earned will be determined based on the following performance and payout schedule, which applies a +/- 2.5 percent collar around the three-year average ROIC target:
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We define ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after taxes is defined as earnings from continuing operations plusafter-tax interest and amortization expense. Average invested capital is defined as the sum of the average debt and shareholders’ equity excluding accumulated other comprehensive loss (AOCL). ROIC excludes goodwill impairments andnon-economic accounting changes as they are not reflective of company performance. The ROIC calculation for purposes of measuring PRSU performance would be adjusted if a significant business acquisition or divestiture (as defined in RegulationS-X of the Exchange Act) occurs during the performance period.
2015-2017 PRSU Achievement. For PRSUs granted in 2015, the Committee has certified the three-year ROIC achievement against the target established for the 2015-2017 performance period. After reviewing company results, the Committee certified our three-year average ROIC of 17.4% which was 3.3% above the target and translated into a payout of 150% of the target number of shares.
36 General Dynamics 2018 Proxy Statement
Compensation Discussion and Analysis
RESTRICTED STOCK
Restricted stock awards are designed to attract and retain executives by providing them with some of the benefits associated with stock ownership during the restriction period, while incentivizing them to remain with General Dynamics. Restricted stock awards are service-based, meaning that executives who voluntarily resign or are terminated for cause prior to the end of the vesting period forfeit their restricted stock unless otherwise determined by the Committee. The Committee has determined that the use of three-year cliff vesting on our restricted stock ensures that executives are focused on long-term value creation while supporting the company’s need to attract and retain executives during all market conditions. During the vesting period, executives may not sell, transfer, pledge, assign or otherwise convey their restricted shares. Executives are eligible, however, to vote their shares and receive dividend payments and other distributions on our Common Stock when declared by the Board of Directors.
STOCK OPTIONS
The Committee grants stock options to align executive interests with shareholder interests for many years into the future. They serve as a retention tool and a value driver. Stock options give our NEOs the right to buy a share of our Common Stock in the future at a predetermined exercise price, which is established as the average of the high and low quoted stock price per share of the company’s Common Stock on the New York Stock Exchange on the date of grant.
Purpose | This element of executive compensation closely connects NEOs to the company’s financial performance and total shareholder return over the long term and acts as a retention tool. | |
Performance Metrics | Three-year average ROIC** subject to an rTSR modifier | |
Vesting | Three-year cliff vesting | |
Dividend and Voting Rights and Share Ownership | Dividend equivalents are deemed reinvested in additional stock units, which are earned only if and when the underlying PSU is earned; PSUs do not have voting rights, nor do they count for share ownership guideline purposes until vested. | |
Forfeiture | NEOs who voluntarily resign or are terminated for cause prior to the end of the applicable performance period immediately forfeit all PSUs that have not vested unless otherwise determined by the Committee. |
** | See Appendix A for additional information. |
2020 PSU GRANT (2020 – 2022 PERFORMANCE CYCLE)
HOW WE CHOSE OUR TARGET GOAL
The company operates in a dynamic and competitive environment. As such, the ROIC target established each year represents the outlook for the upcoming three-year period and may not be comparable to past targets or prior achievement. It is set to be a challenging, yet achievable target. | |
The established target reflects the multi-year operating plan for the company. It reflects the Committee’s and management’s assessment of future company performance and required investments to support the long-term growth of the company. | |
For the 2020 – 2022 performance period, the ROIC target was set at 13.2% which was in line with the previous two targets for the 2019 – 2021 and 2018 – 2020 performance periods of 13.6% and 13.4%, respectively. In setting the current ROIC target, the Committee considered the period of investment that the company is in and its impact on the balance sheet, including the continued capital investment at Electric Boat and the product line expansion at Gulfstream. | |
The ROIC calculated on an annual basis fluctuates given the investment needs of the business, the long lead times on several business units and the different payment cycles within the businesses. Therefore, comparisons of ROIC on a year-over-year basis or of any given year to a 3-year average, may not appropriately reflect the underlying strategic investments to support the long-term performance of the business or the complexity of the business cycles. | |
The three-year ROIC target for the 2020 – 2022 performance period was approved in early March 2020 (pre-pandemic) and reflected the best judgment of the Committee at that time. |
64 | General Dynamics |
Compensation Discussion & Analysis
After the three-year performance period (2020 – 2022), the number of PSUs earned will be determined based on our three-year average ROIC subject to the rTSR modifier.
Three-Year Average ROIC Performance* | PSU Performance after 3 Years from Grant Date |
2.5% or more above target | 150% of target PSUs |
At target | 100% of target PSUs |
2.5% below target | 50% of target PSUs |
More than 2.5% below target | 0% of target PSUs |
* | Performance interpolated between 2.5% below and 2.5% above target. |
The resulting percentage earned from the three-year average ROIC will be subject to an rTSR modifier, which compares our TSR performance to the TSR performance of the other companies in the S&P 500 to produce the final number of earned units. The Committee believes the S&P 500 provides a more comprehensive comparison for share price performance compared to our compensation peer group, which is a customized benchmark based on a limited number of companies. The rTSR modifier will increase or decrease the PSU payout by as much as one-third, resulting in a payout range between zero and 200% of the target units granted. To achieve a maximum payout for the PSUs, the company must achieve both maximum ROIC performance and achieve rTSR of 75th percentile or above.
´ | rTSR Modifier | = | Maximum Total PSU Payout 200%
0% | |||
ROIC Performance (As shown in the chart above) (0 – 150%) | Relative TSR Performance | Payout | ||||
75th percentile and above | 133.3% | |||||
50th percentile | 100.0% | |||||
25th percentile and below | 66.7% | |||||
Payout interpolated for performance between 25th and 75th percentile |
PSU GRANT PERFORMANCE
2018 – 2020 PSU Performance. In March 2021, the Committee certified the three-year ROIC achievement of 13.74% for PSUs granted in 2018, against the target of 13.4% established for the 2018 – 2020 performance period. The ROIC results for 2020 were impacted by COVID-19 but were not adjusted by the Committee.
Performance Metric | 0% Payout of Target PSU | 50% Payout of Target PSU | 100% Payout of Target PSU | 150% Payout of Target PSU | Payout* (% of Target) |
3-year Average ROIC Performance | 108% of Target PSUs |
* | The 2018 – 2020 performance period did not include the relative TSR modifier which was added for performance periods starting in 2019. |
Impact of COVID-19 on PSU Grants. When the performance cycles conclude for the 2019 and 2020 grants, there will be periods within each of the grants significantly impacted by COVID-19. However, despite the varying levels of impact to these “in-flight” grants, the Committee did not make any adjustments to the grants or future payout outcomes because of the pandemic. |
2021 Proxy Statement | 65 |
Compensation Discussion & Analysis
Restricted Stock – 20% of LTI. Restricted stock awards are a form of equity compensation tied to the completion of a service period. They are calculated by multiplying the overall LTI award value by the 20% weighting assigned to the restricted stock portion of the grant. The quantity of restricted stock granted is determined based on the average of the high and low quoted stock price per share of the company’s Common Stock on the New York Stock Exchange on the date of grant.
Purpose | This element of executive compensation closely connects NEO compensation to the company’s total shareholder return performance over the vesting period and acts as a retention tool. | |
Vesting | The shares are subject to a three-year cliff vesting period (i.e., 100% of the shares vest on the third anniversary of the grant). The Committee believes the use of three-year cliff vesting on our restricted stock ensures that executives are focused on long-term value creation while supporting the company’s need to attract and retain executives during all market conditions. | |
Dividend and Voting Rights and Share Ownership | During the restriction period, NEOs may not sell, transfer, pledge, assign, or otherwise convey their restricted shares. NEOs are eligible to vote their shares and receive dividend payments and other distributions on our Common Stock when declared by the Board of Directors. Restricted stock awards count toward share ownership guidelines. | |
Forfeiture | NEOs who voluntarily resign or are terminated for cause prior to the end of the applicable vesting period forfeit their restricted stock unless otherwise determined by the Committee. |
Stock Options – 30% of LTI. Stock options are a form of equity compensation linked to the long-term share performance of the company. A stock option gives our NEOs the right to buy up to a specified number of shares of our Common Stock over the term of the option at a predetermined fixed exercise price. They are calculated by multiplying the overall LTI award value by the 30% weighting assigned to the stock option portion of the grant. The quantity of stock options granted is determined using the Black-Scholes option pricing model on the date of grant. A stock option’s exercise price is the average of the high and low share price of our Common Stock on the date of award.grant. In 2017,March 2020, the exercise price for stock options granted in March was $191.71 for each stock option. Stock options vest after three years, with 50 percent of theCommittee approved a grant exercisable after two years and 50 percent exercisable after three years, and expire 10 years after the grant date.
Stock option values are determined using the Black-Scholes methodology applying the same assumptions used for recognizing stock option expense in our audited financial statements. These assumptions are set out in Note P to our financial statements contained in our Form10-K. The Black-Scholes formula is based on a set of key variables and assumptions and is an accepted model for valuing stock options under FASB ASC Topic 718.
As with restricted stock and PRSU awards, NEOs who voluntarily resign or are terminated for cause immediately forfeit all stock options that have not vested unless otherwise determined by the Committee. Our equity compensation plan prohibits the repricing of stock options including the exchangeto each NEO. The exercise price of underwaterthese stock options was set at $165.47.
Purpose | This element of executive compensation closely connects NEOs to the company’s stock price performance over the long term and acts as a retention tool. | |
Vesting | The stock options vest as follows: 50% of the grant becomes exercisable on the second anniversary of the grant and 50% becomes exercisable on the third anniversary of the grant. Vested stock options remain exercisable through the options’ expiration date, which occurs on the day prior to the 10th anniversary of the grant date. Due to our strenuous stock ownership guidelines, stock options, when exercised, must be held as shares until the ownership requirement is met. | |
Share Ownership | Stock options do not count toward share ownership guidelines until the option is exercised and purchased shares are retained. | |
Repricing of Stock Options | Our equity compensation plan prohibits the repricing of stock options, including the exchange of underwater stock options for another award or for cash, without the approval of shareholders. | |
Forfeiture | NEOs who voluntarily resign or are terminated for cause immediately forfeit all stock options that have not vested unless otherwise determined by the Committee. |
66 | General Dynamics |
ContentsBENEFITSAND PERQUISITES
BENEFITSCompensation Discussion & Analysis
BENEFITS
General Dynamics-provided benefits are an important tool used to attract and retain outstanding executives. Benefit levels are reviewed periodically to ensure they are cost-effective, competitive and support the overall needs of our employees. The company makes available medical, dental, vision, life insurance and disability coverage to all NEOs.coverage. NEOs can select the level of coverage appropriate for their circumstances. The company also provides NEOs group life insurance coverage worth two timestwo-times base salary and long-term disability coverage worth 50 percent50% of base salary.
COMPANY-SPONSORED RETIREMENT PLANS
COMPANY-SPONSORED RETIREMENT PLANS
We provide retirement plans to our eligible employees, including the eligible NEOs, through a combination of qualified andnon-qualified plans. Following is a descriptionare descriptions of the retirement plans in which the NEOs participate:
General Dynamics 401(k) Plan
Each NEO is eligible to participate in the General Dynamics Corporation 401(k) Plan, a tax-qualified defined contribution retirement plan. Each NEO is eligible to make before-tax contributions and receive company matching contributions under the 401(k) Plan. During 2020, the 401(k) Plan provided for a company-matching contribution of 100% on contributions up to the first 6% of eligible pay for the NEOs. Our matching contributions during 2020 for the NEOs are included in footnote (d) to the All Other Compensation column of the Summary Compensation Table.
Defined-Benefit Retirement Plan. Each NEO other than Mr. Johnson participates in aPlans
Benefits under the company-sponsored defined-benefit plan called the General Dynamics Salaried Retirement Plan.Beginning January 1, 2014, pension accruals under this plan stoppedPlan (the Salaried Plan) were frozen for employees at our corporate headquarters, including the participating NEOs. Ms. Novakovic and Messrs. Aiken, Roualet and Smith participate in the Salaried Plan.
The benefit under the planSalaried Plan is payable as a life annuity. The Salaried Retirement Plan is a funded,tax-qualified, noncontributory defined-benefit pension plan. It was amended effective January 1, 2007, to exclude any employee initially hired or who incurs a break in service after that date. The benefit formula under the Salaried Retirement Plan for employees hired before December 31, 2006,January 1, 2007, is
General Dynamics 2018 Proxy Statement 37
Compensation Discussion and Analysis
1.0 percent 1.0% times a participant’s highest final average pay frozen as of December 31, 2013 (as of March 31, 2017 for Mr. Smith), multiplied by years of service earned on or after January 1, 2007, and before January 1, 2014 (before April 1, 2017 for Mr. Smith), plus 1.333 percent1.333% times a participant’s highest final average pay frozen as of December 31, 2010, multiplied by years of service earned prior to January 1, 2007. Final average pay for purposes of calculating retirement benefits includes a NEO’s base salary and annual incentive. The company makes contributions to the Salaried Retirement Plan through payments into a trust fund from which the benefits are paid.
Mr. Burns participates in a company-sponsored defined-benefit plan called the Gulfstream Aerospace Corporation Pension Plan (the GAC Plan). The plan was amended in December 2018, freezing the benefits for Mr. Burns as of December 31, 2018. The GAC Plan is a funded, tax-qualified, noncontributory defined-benefit pension plan. For service prior to January 1, 2004, Mr. Burns has a frozen pension accrued benefit under the GAC Plan that totals approximately $3,400 payable monthly as a single-life annuity. Upon his retirement, this amount will increase with cost-of-living adjustments up to a maximum of 3% annually. Effective January 1, 2004, the GAC Plan was amended to provide benefits for each month of credited service earned after December 31, 2003, based on 1.125% of the final average monthly pay at or below the monthly integration level plus 1.25% of the excess above the integration level. Final average monthly pay takes into account salary and annual bonus after December 31, 2003 but excludes equity awards. The portion of Mr. Burns’ benefit earned after December 31, 2003, is frozen as of December 31, 2018, is payable monthly as a life annuity, and is not subject to cost-of-living adjustments.
2021 Proxy Statement | 67 |
Compensation Discussion & Analysis
Supplemental Retirement Plan.Plan
The amount of cash compensation used to calculate pension benefits for participants in the Salaried Retirement Plan is limited by the Internal Revenue Code ($270,000285,000 in 2017)2020). To provide a benefit calculated on compensation in excess of this compensation limit, the company provides eligible executives participating in the Salaried Plan with coverage under the General Dynamics Corporation Supplemental Retirement Plan.Plan (the Supplemental Retirement Plan). Benefits under the Supplemental Retirement Plan are general unsecured obligations of General Dynamics. Each NEO, other than Mr. Johnson, participatesMs. Novakovic and Messrs. Aiken, Roualet and Smith participate in the Supplemental Retirement Plan.Beginning January 1,2014, pension Pension accruals under this plan stopped for employees at our corporate headquarterswere frozen as of December 31, 2013, including the participating NEOs.
Anteon International Corporation Supplemental Retirement Savings Plan. NEOs (other than Mr. Johnson has an account balanceSmith). Mr. Smith’s pension accruals under the plan were frozen Anteon International Corporation Supplemental Retirement Savings Plan. Under the plan, certain eligible employees of Anteon could defer receipt of all or a portion of their annual cash compensation prior to the plan being frozen in 2007. Upon his retirement or other separation from the company, Mr. Johnson may elect to receive the deferred compensation in either a lump sum or in annual installments over a period of up to ten years.March 31, 2017.
401(k) Plan. Each NEO is eligible to participate in the General Dynamics Corporation 401(k) Plan, atax-qualified defined contribution retirement plan. Each NEO is eligible to makebefore-tax contributions and receive company matching contributions under the 401(k) Plan. During 2017, for NEOs other than Mr. Johnson, the 401(k) Plan provided for a company-matching contribution of 100 percent onbefore-tax contributions up to the first 6 percent of a participant’s eligible pay. From January 1, 2017, through July 13, 2017, Mr. Johnson participated in a version of the 401(k) Plan that provided for a company-matching contribution of 50 percent onbefore-tax contributions up to the first 6 percent of a participant’s eligible pay. From July 14, 2017, through August 31, 2017, Mr. Johnson participated in a version of the 401(k) Plan that provided for a company-matching contribution of 100 percent onbefore-tax contributions up to the first 1 percent of a participant’s eligible pay and 50 percent onbefore-tax contributions of the next 5 percent of a participant’s eligible pay. Finally, Mr. Johnson became eligible on September 1, 2017, for the version of the 401(k) Plan that provides for a company-matching contribution of 100 percent onbefore-tax contributions up to the first 6 percent of a participant’s eligible pay. Our matching contributions during 2017 for the NEOs are included in footnote (d) to the All Other Compensation column of the Summary Compensation Table.
Supplemental Savings Plan. Plan
The company provides a Supplemental Savings Plan to key employees, including each NEO. The purpose of the Supplemental Savings Plan is to allow key executives to defer salary and receive matching contributions on compensation in excess of the compensation limit imposed by the Internal Revenue Service on earnings used to calculate 401(k) contributions. Matching contributions during 20172020 for the NEOs are included in footnote (d) to the All Other Compensation column of the Summary Compensation Table.
Other Retiree Benefits. Benefits
Eligible key executives throughout the company, including the NEOs (other than Mr. Burns), can purchase group term life insurance prior to retiringat retirement of up to two timestwo-times their base pay. For executives who retire early (prior to age 65), we pay for insurance coverage equal toone-half the executive’s base salary until the executive reaches age 65. For early retirees who elect coverage in excess ofone-half of base pay, they will pay monthly premiums for the additional coverage. For executives retiring at or after age 65, we pay for insurance coverage up to two timestwo-times an executive’s base salary. This coverage is ratably reduced over a five-year period following the executive’s retirement, or beginning at age 65 for early retirees, subject to a maximum coverage level of 25 percent25% of the coverage in effect at the time of retirement.
PERQUISITES
PERQUISITES
We continue to offer onlyprovide our NEOs perquisites that the Committee believes are reasonable yet competitive. The company provides perquisites to key executive officers, including the NEOs for purposes of recruiting,recruitment, retention and security. We provide perquisites to ensure the security and accessibility of our executives and to facilitate the transaction of business. As a reasonableness test, we compare these perquisites to generally accepted corporate practices.
38 General Dynamics 2018 Proxy Statement
Compensation Discussion and Analysis
TheIn 2020, the perquisites provided to our NEOs in 2017 were financial planning and tax preparation services, physical examinations, home security systems, personal liability and supplemental accidental death and dismemberment insurance, and the personal use of automobiles owned or leased by the company. In addition, personal use of our aircraft was provided only to our chairman and chief executive officer as required by the Board to help ensure her security and accessibility. The company also provided a club membership to one NEO in his role as a business unit president.
We have provided additional information on perquisites in footnote (d) to the All Other Compensation column of the Summary Compensation Table.
68 | General Dynamics |
Table of Contents2017 SHAREHOLDER ENGAGEMENT
As partCompensation Discussion & Analysis
STOCK OWNERSHIP GUIDELINES AND HOLDING REQUIREMENTS
Our stock ownership and retention guidelines are among the most stringent in the Fortune 100. Stock ownership guidelines strongly align the interests of management with the interests of shareholders because executives become shareholders with a considerable investment in General Dynamics.
Our stock ownership and retention guidelines preclude NEOs from selling shares of our ongoing shareholder engagement program, eachCommon Stock until they own shares with a market value of eight to 10 times their base salary and 15 times for the chief executive officer. Shares held outright, shares held through our 401(k) plans, and unvested shares of restricted stock are counted for purposes of meeting the ownership guidelines. Stock options (whether vested or not) and PSUs are not counted in the ownership calculation.
When exercising options, officers who have not met the ownership guideline may sell shares acquired upon exercise to cover transaction costs and taxes and are expected to hold any remaining shares until the guidelines are met. Similarly, net shares received upon vesting of restricted stock and PSUs (after withholding taxes) may not be sold until the ownership guidelines are met. Once an officer attains the required ownership level, the officer must maintain that ownership level until he or she no longer serves as an officer. The stock ownership and retention guidelines are reviewed annually by the Committee. For the year we engage with our largest shareholders to understand their views on our executive compensation program or executive compensation generally. In 2017 andended December 31, 2020, the past several years, we have engaged with holders of approximately 65 percent of our outstanding Common Stock. Following changes to our executive compensation program resulting in part from shareholder engagement, our shareholders have expressed very strong support for our program and the results the program is driving. At our 2017 annual shareholder meeting, investors strongly supported our executive compensation program with over 95 percenttotal number of shares voted in favor ofowned by our Say on Pay proposal. We consider feedback from our shareholder engagement program, the results of our annual Say on Pay voteCEO and other considerations to ensure that our executive compensation program continues to meet our compensation objectives.officers represented 14 times their combined annual salaries.
POTENTIAL SEVERANCE AND CHANGE CHANGE IN CONTROL BENEFITS CONTROL BENEFITS
The company has change in control agreements, also known as severance protection agreements, with each of the NEOs. The company believes that these agreements are an important tool for recruiting and retaining highly qualified executives. The agreements are structured to protect the interests of shareholders by including a “double trigger”“double-trigger” mechanism that results in a severance payout only when:
A change of control is consummated, and
A change in control is consummated, and | |
The executive’s employment is terminated by the company without cause or by the executive for good reason within 24 months following the change in control. |
The executive’s employment is terminated by the company without cause or by the executive for good reason within 24 months following the change in control.
A “change in control” is defined to include specified stock acquisition, merger or disposition transactions involving General Dynamics. The Committee evaluates and reviews payment and benefit levels under the change in control agreements regularly.periodically. These reviews support the view that the agreements are consistent with the practices of our peer group companies. Our severance protection agreements for NEOs exclude any provision for reimbursement of excise taxes that may become due upon a change in control.
Payments and benefits provided to NEOs pursuant to the change in control agreements are described in the Potential Payments upon Termination or Change in Control section beginning on page 5079 of this Proxy Statement.
2021 Proxy Statement | 69 |
General Dynamics 2018 Proxy Statement 39
Compensation Discussion and& Analysis
ROLEROLE OFTHE INDEPENDENT COMPENSATION CONSULTANT INDEPENDENT COMPENSATION CONSULTANT
The Committee’s charter provides that the Committee has sole authority to engage the services of an independent compensation consultant for the Committee and approve fees paid to the consultant by the company. The Committee engaged Meridian Compensation Partners, LLC (Meridian) as an independent compensation consultant to provide advice on executive compensation matters. The Committee found that Meridian provided important perspectives about market practices for executive compensation, peer company analysis, and selection, the levels and structure of the compensation program, and compensation governance. During 2017,2020, at the Committee’s request, Meridian performed the following specific services:
Attended all Committee meetings
Provided a regulatory education session for the Committee
Provided information and advice relating to executive compensation matters
Reviewed compensation-related disclosures in the company’s proxy statement
Attended all Committee meetings. | |
Provided regulatory updates to the Committee. | |
Provided information and advice relating to executive compensation matters. | |
Reviewed compensation-related disclosures in the company’s proxy statement. |
Before engaging Meridian, theThe Committee reviewed the factors influencing Meridian’s independence (as specified by the New York Stock Exchange listing standards) and determined that no conflict of interest exists.
ANTI-HEDGINGANTI-HEDGING AND ANTI-PLEDGING POLICIES ANTI-PLEDGING POLICIES
The company has a longstanding policy in place that prohibits all directors and executive officers from hedging company securities. Since 2014, the company has maintained a policy prohibiting all directors and executive officers from pledging company securities that they own directly.
Mr. Crown has the ownership of certain shares attributed to him that arise from the business of Henry Crown and Company, an investment company where Mr. Crown serves as President,Chairman and Chief Executive Officer, and trusts of which Mr. Crown serves as trustee (Attributed Shares). Mr. Crown disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest. The Attributed Shares are distinct from shares owned by Mr. Crown or his spouse individually, or shares held in trusts for the benefit of his children (Crown Personally Held Shares). The company has reviewed the potential pledging of the Attributed Shares with Mr. Crown, recognizes Mr. Crown’s distinct obligations with respect to Henry Crown and Company and the trusts, and believes such shares may be prudently pledged or held in margin loan accounts. Under the company’s anti-pledging policy, Crown Personally Held Shares are considered company securities that are owned directly by Mr. Crown and, accordingly, may not be and are not held in margin accounts or otherwise pledged as collateral, nor may the economic risk of such shares be hedged.
STOCK OWNERSHIP GUIDELINESAND HOLDING REQUIREMENTSCLAWBACK POLICY
Our stock ownership and retention guidelines are the most stringent in our peer group. Stock ownership guidelines strongly align the interests of management with the interests of shareholders because executives become shareholders with a considerable investment in General Dynamics.
Our stock ownership and retention guidelines preclude NEOs from selling shares of General Dynamics common stock until they own shares with a market value of 10 times their base salary and 15 times for the CEO. Shares held outright and shares held through our 401(k) plans are counted for purposes of meeting the ownership guidelines. Stock options (whether vested or not), PRSUs and unvested shares of restricted stock are not counted in the ownership calculation.
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40 General Dynamics 2018 Proxy Statement
Compensation Discussion and Analysis
When exercising options, executives who have not met the ownership guideline may sell shares acquired upon exercise to cover transaction costs and taxes and are expected to hold any remaining shares until the guidelines are met. Similarly, shares received upon vesting of restricted stock and PRSUs may not be sold until the ownership guidelines are met. Once an officer attains the required ownership level, the officer must maintain that ownership level until he or she no longer serves as an officer. The stock ownership and retention guidelines are reviewed annually by the Committee.
The company has in place an executive compensation recoupment policy, or “clawback”clawback policy, which applies to senior executive officers of the company (referred to as the covered executive officers), including the NEOs. In the event of a restatement of our financial results due to a covered executive officer engaging in fraud or intentional illegal conduct, the result of which is that any equity or other performance-based compensation paid to that covered executive officer would have been a lower amount had it been calculated based on the restated results, the Committee will have the authority to recover any excess compensation that was awarded to that covered executive officer. In determining the excess compensation, the Committee will take into account its good faith estimate of the value of awarded and actual compensation that may have been affected by the restatement and the events leading to it. This includes all performance-based cash incentives and equity-based grants which may have vested or been exercised during the period in question.
COMPENSATION AND RISK MANAGEMENT RISK MANAGEMENT
With the support of management and the independent compensation consultant, the Committee evaluates the company’s overall risk profile relative to the incentive components of compensation to ensure that NEOs are not overly incentivized to focus on short-term stock performance. The use of long-term equity incentive awards as a significant portion of total direct compensation and robust stock ownership guidelines are structured to ensure management is focused on the long term and not incentivized to take excessive risk.
70 | General Dynamics |
Table of ContentsTAX CONSIDERATIONS
As part of the annual compensation review process, the Committee considers the implications of Section 162(m) of the Internal Revenue Code, which is a provision that precludes the company from taking a tax deduction for individual compensation in excess of $1 million. The Committee also considers the exemptions to the $1 million limit, which are also provided in Section 162(m), including the exemption for “performance-based compensation” as defined in Section 162(m). The exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed as of 2018, such that compensation paid to our covered executive officers in excess of $1 million will not be deductible, unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.
Executive Compensation |
General Dynamics 2018 Proxy Statement 41
SUMMARY COMPENSATION
The Summary Compensation Table conforms to requirements of the SEC and shows base salary, annual incentive, equity awards (restricted stock, performance restricted stock units (PSUs) and stock options) and all other compensation, which includes among other things the value of perquisites, 401(k) contributions and tax reimbursements (see footnote (d) to the Summary Compensation Table for a complete listing of categories included in All Other Compensation). The table also includes a column titled Change in Pension Value and Nonqualified Deferred Compensation Earnings. For our eligible named executive officers,NEOs, this includes only the change in pension value (see footnote (c)), which is an actuarial estimate of the present value of the future cost of pension benefits. The value does not reflect a current cash cost to General Dynamics or, necessarily, the pension benefit that an executive would receive, since that is determined by a number of factors, including length of service, age at retirement and longevity.
SUMMARY COMPENSATION TABLE
Name and Principal Position | Year | Salary | Stock Awards(a) | Option Awards(a) | Non-Equity Incentive Plan Compensation(b) | Change in Pension Value and Nonqualified Deferred Compensation Earnings(c) | All Other Compensation(d) | Total | |||||||||||||||||||
Phebe N. Novakovic | 2020 | $ | 1,585,000 | $ | 10,070,467 | $ | 4,139,834 | $ | 2,872,000 | $ | 381,567 | $ | 279,631 | $ | 19,328,499 | ||||||||||||
Chairman and Chief Executive Officer | 2019 | 1,585,000 | 8,630,680 | 3,746,192 | 3,482,000 | 484,613 | 384,719 | 18,313,204 | |||||||||||||||||||
2018 | 1,585,000 | 7,000,052 | 6,999,708 | 4,727,000 | — | 408,494 | 20,720,254 | ||||||||||||||||||||
Jason W. Aiken | 2020 | $ | 887,500 | $ | 2,918,669 | $ | 1,200,020 | $ | 959,000 | $ | 142,924 | $ | 68,407 | $ | 6,176,520 | ||||||||||||
Senior Vice President and Chief Financial Officer | 2019 | 850,000 | 2,052,799 | 890,624 | 1,098,000 | 158,659 | 73,227 | 5,123,309 | |||||||||||||||||||
2018 | 830,000 | 1,650,364 | 1,649,508 | 1,275,000 | — | 66,158 | 5,471,030 | ||||||||||||||||||||
Mark C. Roualet | 2020 | $ | 826,250 | $ | 2,239,894 | $ | 921,316 | $ | 852,000 | $ | 432,529 | $ | 76,183 | $ | 5,348,172 | ||||||||||||
Executive Vice President, Combat Systems | 2019 | 800,000 | 2,003,157 | 868,859 | 1,010,000 | 542,898 | 81,760 | 5,306,674 | |||||||||||||||||||
2018 | 795,000 | 1,610,057 | 1,609,715 | 1,288,000 | — | 78,162 | 5,380,934 | ||||||||||||||||||||
Robert E. Smith | 2020 | $ | 775,000 | $ | 2,116,565 | $ | 869,648 | $ | 853,000 | $ | 299,541 | $ | 79,269 | $ | 4,993,023 | ||||||||||||
Executive Vice President, Marine Systems | |||||||||||||||||||||||||||
Mark L. Burns | 2020 | $ | 692,500 | $ | 2,189,014 | $ | 899,953 | $ | 720,000 | $ | 94,110 | $ | 62,096 | $ | 4,657,673 | ||||||||||||
Vice President of the Company and President, Gulfstream Aerospace | 2019 | 655,000 | 1,272,160 | 1,272,817 | 840,000 | 267,984 | 64,524 | 4,372,485 |
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The amounts reported in the Stock Awards and the Option Awards columns reflect aggregate grant date fair value computed in accordance with ASC Topic |
(b) | Payments are reported for the fiscal year in which the related services were rendered, although the actual payments are made in the succeeding year. |
(c) | The values listed in this column represent the change in the present value of accumulated benefits from December 31 of the prior year to December 31 of the respective year calculated for all the pension plans in which the executive participates. The values are an actuarial estimate of the present value of the future cost of pension benefits for each of the |
2021 Proxy Statement | 71 |
42 General Dynamics 2018 Proxy Statement
Executive Compensation
(d) | All Other Compensation for |
ALL OTHER COMPENSATION
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NAME | REIMBURSEMENT | RETIREMENT PLAN | TERM LIFE INSURANCE | PERQUISITES (3) | ||||
Ms. Novakovic
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$2,565
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$47,900
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$16,253
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$249,328
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Mr. Aiken
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$3,989
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$30,400
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$ 4,666
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$ 26,114
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Mr. Casey
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$3,860
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$31,300
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$13,154
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$ 15,336
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Mr. Roualet
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$4,276
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$31,300
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$ 9,042
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$ 39,308
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Mr. Johnson
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$ 803
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$22,600
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$19,558
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$ 9,547
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ALL OTHER COMPENSATION
Name | Reimbursement of Taxes(1) | Retirement Plan Contributions and Allocations(2) | Term Life Insurance Payments | Perquisites(3) | ||||||||||
Ms. Novakovic | $ | 3,468 | $48,800 | $ | 22,953 | $ | 204,410 | |||||||
Mr. Aiken | $ | 3,822 | $34,100 | $ | 4,569 | $ | 25,915 | |||||||
Mr. Roualet | $ | 4,375 | $33,100 | $ | 12,151 | $ | 26,557 | |||||||
Mr. Smith | $ | 18,455 | $31,100 | $ | 5,517 | $ | 24,196 | |||||||
Mr. Burns | $ | 0 | $30,200 | $ | 6,533 | $ | 25,363 |
(1) | Reflects amounts reimbursed for the payment of taxes associated with a company-provided dining room benefit. All employees at our corporate headquarters receive this dining room benefit and associated tax reimbursement. For Mr. Smith, the amount also includes reimbursement of taxes associated with his prior service as president of one of the company’s non-U.S. subsidiaries. |
(2) | Represents amounts contributed by General Dynamics to the 401(k) Plan and allocations by General Dynamics to the Supplemental Savings Plan. |
(3) | Noncash items (perquisites) provided to |
General Dynamics 2018 Proxy Statement 43
Executive CompensationEquity-Based Awards
2017 EQUITY-BASED AWARDS
General Dynamics’Our long-term compensation for senior executives, including the named executive officers,NEOs, consists of equity awards in the form of restricted stock, PRSUsPSUs and stock options. The following table provides information on the equity awards in 20172020 for the named executive officers.NEOs. The table includes the grant date of each equity award, the number of shares of restricted stock, PRSUsPSUs and stock options, the exercise price of the stock options, the closing price of our Common Stock on the date of grant, and the grant date fair value of the equity awards. As discussed in the Compensation Discussion and Analysis section, we use the average of the high and low stock price of our Common Stock on the date of the grant, not the closing price, to value the restricted stock and PRSUsPSUs and set the exercise price for stock options.
GRANTSOF PLAN-BASED AWARDSIN FISCAL YEAR 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||
NAME
| GRANT
| DATEOF
| ESTIMATED POSSIBLE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (A) |
ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS (B) | ALL OTHER (C)
| ALL OTHER
| EXERCISE (D)
| GRANT DATE (E)
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THRESHOLD
| TARGET
| MAXIMUM
| THRESHOLD
| TARGET
| MAXIMUM
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Ms. Novakovic | 0 | $2,694,500 | $5,389,000 | |||||||||||||||||||||||||||||||||||||||||||||
3/1/17 | 2/28/17 | 0 | 18,255 | 27,382 | 18,255 | — | — | $ | 6,999,332 | |||||||||||||||||||||||||||||||||||||||
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| 211,620
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| 191.71
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| 7,000,390
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Mr. Aiken | 0 | $ 770,000 | $1,540,000 | |||||||||||||||||||||||||||||||||||||||||||||
3/1/17 | 2/28/17 | 0 | 4,240 | 6,360 | 4,240 | — | — | $ | 1,625,701 | |||||||||||||||||||||||||||||||||||||||
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| 2/28/17
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| 49,100
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| $
| 191.71
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| 1,624,228
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Mr. Casey | 0 | $ 780,000 | $1,560,000 | |||||||||||||||||||||||||||||||||||||||||||||
3/1/17 | 2/28/17 | 0 | 4,200 | 6,300 | 4,200 | — | — | $ | 1,610,364 | |||||||||||||||||||||||||||||||||||||||
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| 48,650
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| 191.71
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Mr. Roualet | 0 | $ 780,000 | $1,560,000 | |||||||||||||||||||||||||||||||||||||||||||||
3/1/17 | 2/28/17 | 0 | 4,200 | 6,300 | 4,200 | — | — | $ | 1,610,364 | |||||||||||||||||||||||||||||||||||||||
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| 48,650
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| 191.71
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| 1,609,342
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Mr. Johnson | 0 | $ 780,000 | $1,560,000 | |||||||||||||||||||||||||||||||||||||||||||||
3/1/17 | 2/28/17 | 0 | 4,070 | 6,105 | 4,070 | — | — | $ | 1,560,519 | |||||||||||||||||||||||||||||||||||||||
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| 47,140
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| 191.71
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General Dynamics |
Executive Compensation
GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2020
Date of Compensation Committee Action | All Other Stock Awards: Number of Shares of Stock or Units(c) | All Other Option Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards(d) | Closing Price on Date of Grant | Grant Date Fair Value of Stock and Option Awards(e) | |||||||||||||||||||
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(a) | Estimated Future Payouts Under Equity Incentive Plan Awards(b) | |||||||||||||||||||||||
Name | Grant Date | Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||
Ms. Novakovic | 0 | $ | 2,694,500 | $ | 5,389,000 | |||||||||||||||||||
03/04/2020 | 03/03/2020 | 13,900 | 41,700 | 83,400 | 16,680 | — | — | $ | 10,070,467 | |||||||||||||||
03/04/2020 | 03/03/2020 | — | — | — | — | 166,660 | $165.47 | $168.28 | 4,139,834 | |||||||||||||||
Mr. Aiken | 0 | $ | 900,000 | $ | 1,800,000 | |||||||||||||||||||
03/04/2020 | 03/03/2020 | 4,028 | 12,085 | 24,170 | 4,835 | — | — | $ | 2,918,669 | |||||||||||||||
03/04/2020 | 03/03/2020 | — | — | — | — | 48,310 | $165.47 | $168.28 | 1,200,020 | |||||||||||||||
Mr. Roualet | 0 | $ | 835,000 | $ | 1,670,000 | |||||||||||||||||||
03/04/2020 | 03/03/2020 | 3,092 | 9,275 | 18,550 | 3,710 | — | — | $ | 2,239,894 | |||||||||||||||
03/04/2020 | 03/03/2020 | — | — | — | — | 37,090 | $165.47 | $168.28 | 921,316 | |||||||||||||||
Mr. Smith | 0 | $ | 800,000 | $ | 1,600,000 | |||||||||||||||||||
03/04/2020 | 03/03/2020 | 3,022 | 8,765 | 17,530 | 3,505 | — | — | $ | 2,166,565 | |||||||||||||||
03/04/2020 | 03/03/2020 | — | — | — | — | 35,010 | $165.47 | $168.28 | 869,648 | |||||||||||||||
Mr. Burns | 0 | $ | 705,000 | $ | 1,410,000 | |||||||||||||||||||
03/04/2020 | 03/03/2020 | 2,922 | 9,065 | 18,130 | 3,625 | — | — | $ | 2,189,014 | |||||||||||||||
03/04/2020 | 03/03/2020 | — | — | — | — | 36,230 | $165.47 | $168.28 | 899,853 |
(a) | These amounts represent cash awards that are possible under the company’s annual incentive plan. The value earned can be found in the Summary Compensation Table in the |
(b) | These amounts relate to |
(c) | These amounts relate to shares of restricted stock that are released three years after the grant date, subject to continuous service requirements. |
(d) | The exercise price for stock options is the average of the high and low stock price of our Common Stock on the date of grant. |
(e) | For |
44 General Dynamics 2018 Proxy Statement
Executive CompensationOption Exercises and Stock Vested
OPTION EXERCISESAND STOCK VESTED
The following table shows the stock options exercised by the named executive officersNEOs and restricted stock released to them during 2017.2020. As explained in the Compensation Discussion and Analysis section, we require officers to retain shares of Common Stock issued to them as compensation, up topre-determined levels, based on their position with General Dynamics. Once an ownership level is attained, the officer must maintain that minimum ownership level until he or she no longer serves as an officer of General Dynamics. The amounts reported in the Value Realized on Exercise and the Value Realized on Vesting columns in the table below arebefore-tax amounts.
OPTION EXERCISESAND STOCK VESTEDIN FISCAL YEAR 2017 | ||||||||||||||||||||
OPTION AWARDS
| STOCK AWARDS
| |||||||||||||||||||
NAME | NUMBER OF | VALUE REALIZED | NUMBER OF | VALUE REALIZED | ||||||||||||||||
Ms. Novakovic
|
|
75,000
|
|
|
$8,893,500
|
|
|
118,352
|
|
|
$20,769,592
|
| ||||||||
Mr. Aiken
|
| 21,500
|
|
| $2,563,445
|
|
| 4,649
|
|
| $ 815,853
|
| ||||||||
Mr. Casey
|
| 69,895
|
|
| $9,021,706
|
|
| 22,577
|
|
| $ 3,962,038
|
| ||||||||
Mr. Roualet
|
| 59,460
|
|
| $7,993,208
|
|
| 23,615
|
|
| $ 4,144,196
|
| ||||||||
Mr. Johnson
|
| —
|
|
| —
|
|
| 8,135
|
|
| $ 1,427,611
|
|
OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2020
Option Awards | Stock Awards | ||||||||||
Number of Shares | Value Realized | Number of Shares | Value Realized | ||||||||
Name | Acquired on Exercise | on Exercise | Acquired on Vesting | on Vesting | |||||||
Ms. Novakovic | — | $ | — | 72,965 | $ | 12,325,247 | |||||
Mr. Aiken | 45,090 | $ | 1,480,756 | 16,380 | $ | 2,761,777 | |||||
Mr. Roualet | 75,640 | $ | 2,737,790 | 16,752 | $ | 2,829,437 | |||||
Mr. Smith | 14,540 | $ | 796,210 | 4,491 | $ | 758,214 | |||||
Mr. Burns | 22,410 | $ | 797,572 | 9,247 | $ | 1,547,107 |
General Dynamics 2018 Proxy Statement 45
2021 Proxy Statement | 73 |
Executive Compensation
OUTSTANDING EQUITY AWARDSOutstanding Equity Awards
The following table provides information on outstanding stock option and stock awards held by the named executive officersNEOs as of December 31, 2017.2020. The table shows the number of stock options that a named executive officerNEO holds (both exercisable and unexercisable), the option exercise price and its expiration date. For stock awards, the table includes the number of shares of restricted stock and PSUs that are still subject to the restriction period or the performance period (i.e., have not vested). For restricted stock and PRSUs,PSUs, the market value is based on the closing price of the company’s Common Stock on December 31, 2017.2020.
OUTSTANDING EQUITY AWARDSAT 2017 FISCAL YEAR-END
| ||||||||||||||||||||||||||||||||||||||||
OPTION AWARDS (A) | STOCK AWARDS | |||||||||||||||||||||||||||||||||||||||
NAME
| NUMBEROF
| NUMBEROF
| OPTION
| OPTION
| NUMBER
| MARKET VALUE
| EQUITY INCENTIVE
| EQUITY INCENTIVE THAT HAVE
| ||||||||||||||||||||||||||||||||
Ms. Novakovic | 157,356 | $32,014,078 | 85,122 | $17,318,071 | ||||||||||||||||||||||||||||||||||||
— | 211,620 | $191.71 | 2/28/2027 | |||||||||||||||||||||||||||||||||||||
— | 320,260 | 135.85 | 3/1/2026 | |||||||||||||||||||||||||||||||||||||
124,415 | 124,415 | 136.78 | 3/3/2025 | |||||||||||||||||||||||||||||||||||||
466,380 | — | 112.40 | 3/4/2021 | |||||||||||||||||||||||||||||||||||||
733,000 | — | 67.70 | 3/5/2020 | |||||||||||||||||||||||||||||||||||||
39,500 | — | 67.90 | 5/1/2019 | |||||||||||||||||||||||||||||||||||||
14,720 | — | 71.01 | 3/6/2019 | |||||||||||||||||||||||||||||||||||||
Mr. Aiken | 31,660 | $6,441,227 | 17,747 | $3,610,627 | ||||||||||||||||||||||||||||||||||||
— | 49,100 | $191.71 | 2/28/2027 | |||||||||||||||||||||||||||||||||||||
— | 67,400 | 135.85 | 3/1/2026 | |||||||||||||||||||||||||||||||||||||
24,415 | 24,415 | 136.78 | 3/3/2025 | |||||||||||||||||||||||||||||||||||||
90,180 | — | 112.40 | 3/4/2021 | |||||||||||||||||||||||||||||||||||||
28,890 | — | 67.70 | 3/5/2020 | |||||||||||||||||||||||||||||||||||||
Mr. Casey | 32,015 | $6,513,452 | 17,190 | $3,497,306 | ||||||||||||||||||||||||||||||||||||
— | 48,650 | $191.71 | 2/28/2027 | |||||||||||||||||||||||||||||||||||||
— | 74,320 | 135.85 | 3/1/2026 | |||||||||||||||||||||||||||||||||||||
23,600 | 23,600 | 136.78 | 3/3/2025 | |||||||||||||||||||||||||||||||||||||
90,470 | — | 112.40 | 3/4/2021 | |||||||||||||||||||||||||||||||||||||
Mr. Roualet | 29,175 | $5,935,654 | 17,935 | $3,648,876 | ||||||||||||||||||||||||||||||||||||
— | 48,650 | $191.71 | 2/28/2027 | |||||||||||||||||||||||||||||||||||||
— | 73,330 | 135.85 | 3/1/2026 | |||||||||||||||||||||||||||||||||||||
23,600 | 23,600 | 136.78 | 3/3/2025 | |||||||||||||||||||||||||||||||||||||
75,640 | — | 112.40 | 3/4/2021 | |||||||||||||||||||||||||||||||||||||
68,650 | — | 70.08 | 3/19/2020 | |||||||||||||||||||||||||||||||||||||
Mr. Johnson | 20,444 | $4,159,332 | 16,825 | $3,423,046 | ||||||||||||||||||||||||||||||||||||
— | 47,140 | $191.71 | 2/28/2027 | |||||||||||||||||||||||||||||||||||||
— | 65,940 | 135.85 | 3/1/2026 | |||||||||||||||||||||||||||||||||||||
| 22,420
|
|
| 22,420
|
|
| 136.78
|
|
| 3/3/2025
|
|
OUTSTANDING EQUITY AWARDS AT 2020 FISCAL YEAR-END
Option Awards | Stock Awards | |||||||||||||||||
Name | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable(a) | Option Exercise Price | Option Expiration Date | Number of Shares of Stock or Units That Have Not Vested(b) | Market Value of Shares of Stock or Units That Have Not Vested | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(c) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested | ||||||||||
Ms. Novakovic | 47,210 | $7,025,792 | 98,324 | $ | 14,632,604 | |||||||||||||
— | 166,660 | $165.47 | 03/03/2030 | |||||||||||||||
— | 129,090 | 167.61 | 03/05/2029 | |||||||||||||||
93,230 | 93,230 | 223.93 | 03/06/2028 | |||||||||||||||
211,620 | — | 191.71 | 02/28/2027 | |||||||||||||||
320,260 | — | 135.85 | 03/01/2026 | |||||||||||||||
248,830 | — | 136.78 | 03/03/2025 | |||||||||||||||
Mr. Aiken | 12,065 | $1,795,513 | 25,567 | $ | 3,804,919 | |||||||||||||
— | 48,310 | $165.47 | 03/03/2030 | |||||||||||||||
— | 30,690 | 167.61 | 03/05/2029 | |||||||||||||||
21,970 | 21,970 | 223.93 | 03/06/2028 | |||||||||||||||
49,100 | — | 191.71 | 02/28/2027 | |||||||||||||||
67,400 | — | 135.85 | 03/01/2026 | |||||||||||||||
48,830 | — | 136.78 | 03/03/2025 | |||||||||||||||
Mr. Roualet | 10,765 | $1,602,047 | 22,371 | $ | 3,329,286 | |||||||||||||
— | 37,090 | $165.47 | 03/03/2030 | |||||||||||||||
— | 29,940 | 167.61 | 03/05/2029 | |||||||||||||||
21,440 | 21,440 | 223.93 | 03/06/2028 | |||||||||||||||
48,650 | — | 191.71 | 02/28/2027 | |||||||||||||||
73,330 | — | 135.85 | 03/01/2026 | |||||||||||||||
47,200 | — | 136.78 | 03/03/2025 | |||||||||||||||
Mr. Smith | 7,021 | $1,044,819 | 14,225 | $ | 2,116,899 | |||||||||||||
— | 35,010 | $165.47 | 03/03/2030 | |||||||||||||||
— | 9,430 | 189.00 | 09/02/2029 | |||||||||||||||
— | 16,400 | 167.61 | 03/05/2029 | |||||||||||||||
5,785 | 5,785 | 223.93 | 03/06/2028 | |||||||||||||||
13,140 | — | 191.71 | 02/28/2027 | |||||||||||||||
19,320 | — | 135.85 | 03/01/2026 | |||||||||||||||
12,860 | — | 136.78 | 03/03/2025 | |||||||||||||||
Mr. Burns | 10,145 | $1,509,779 | 16,154 | $ | 2,403,967 | |||||||||||||
— | 36,230 | $165.47 | 03/03/2030 | |||||||||||||||
— | 43,860 | 167.61 | 03/05/2029 | |||||||||||||||
16,280 | 16,280 | 223.93 | 03/06/2028 | |||||||||||||||
31,590 | — | 191.71 | 02/28/2027 | |||||||||||||||
27,600 | — | 135.85 | 03/01/2026 | |||||||||||||||
1,600 | — | 143.33 | 06/30/2025 | |||||||||||||||
11,730 | — | 136.78 | 03/03/2025 |
General Dynamics |
Executive Compensation
(a) | Of the |
Of the 48,310 stock options held by Mr. Aiken with an exercise price of $165.47, 24,155 will become exercisable on March 4, |
Of the 49,100 stock options held by Mr. Aiken with an exercise price of $191.71, 24,550 will become exercisable on March 1, 2019, and 24,550 will become exercisable on March 1, 2020. Of the 67,400 stock options held by Mr. Aiken with an exercise price of $135.85, 33,700 became exercisable on March 2, 2018, and 33,700 will become exercisable on March 2, 2019. Of the 48,830 stock options held by Mr. Aiken with an exercise price of $136.78, 24,415 became exercisable on March 4, 2018.
Of the 48,650 stock options held by Mr. Casey with an exercise price of $191.71, 24,325 will become exercisable on March 1, 2019, and 24,325 will become exercisable on March 1, 2020. Of the 74,320 stock options held by Mr. Casey with an exercise price of $135.85, 37,160 became exercisable on March 2, 2018, and 37,160 will become exercisable on March 2, 2019. Of the 47,200 stock options held by Mr. Casey with an exercise price of $136.78, 23,600 became exercisable on March 4, 2018.
Of the 48,650 stock options held by Mr. Roualet with an exercise price of $191.71, 24,325 will become exercisable on March 1, 2019, and 24,325 will become exercisable on March 1, 2020. Of the 73,330 stock options held by Mr. Roualet with an exercise price of $135.85, 36,665 became exercisable on March 2, 2018, and 36,665 will become exercisable on March 2, 2019. Of the 47,200 stock options held by Mr. Roualet with an exercise price of $136.78, 23,600 became exercisable on March 4, 2018.
Of the 47,140 stock options held by Mr. Johnson with an exercise price of $191.71, 23,570 will become exercisable on March 1, 2019, and 23,570 will become exercisable on March 1, 2020. Of the 65,940 stock options held by Mr. Johnson with an exercise price of $135.85, 32,970 became exercisable on
46 General Dynamics 2018 Proxy Statement
Executive Compensation
March 2, 2018, and 32,970 will become exercisable on March 2, 2019. Of the 44,840 stock options held by Mr. Johnson with an exercise price of $136.78, 22,420 became exercisable on March 4, 2018.
| |
Of the | |
Of the | |
(b) | Shares release to participants on the first day on which the New York Stock Exchange is open for business after the third anniversary of the day of grant. PSUs that are earned release following certification by the Compensation Committee of the applicable performance result. |
Of the 157,356 restricted shares or units held by Ms. Novakovic, 28,740 restricted shares were released on January 2, 2018, with a market value of $5,805,193; 25,065 restricted shares will be released on January 2, 2019; 26,055 restricted shares will be released on January 2, 2020; 18,255 restricted shares will be released on March 2, 2020; and 59,241 PRSUs were released on January 2, 2018, with a market value of $11,966,090.
Of the 31,660 restricted shares or units held by Mr. Aiken, 5,560 restricted shares were released on January 2, 2018, with a market value of $1,123,064; 4,915 restricted shares will be released on January 2, 2019; 5,485 restricted shares will be released on January 2, 2020; 4,240 restricted shares will be released on March 2, 2020; and 11,460 PRSUs were released on January 2, 2018, with a market value of $2,314,805.
Of the 32,015 restricted shares or units held by Mr. Casey, 5,560 restricted shares were released on January 2, 2018, with a market value of $1,123,064; 4,750 restricted shares will be released on January 2, 2019; 6,045 restricted shares will be released on January 2, 2020; 4,200 restricted shares will be released on March 2, 2020; and 11,460 PRSUs were released on January 2, 2018, with a market value of $2,314,805.
Of the 29,175 restricted shares or units held by Mr. Roualet, 4,660 restricted shares were released on January 2, 2018, with market value of $941,273; 4,750 restricted shares will be released on January 2, 2019, 5,960 restricted shares will be released on January 2, 2020; 4,200 restricted shares will be released on March 2, 2020; and 9,605 PRSUs were released on January 2, 2018, with a market value of $1,940,114.
Of the 20,444 restricted shares or units held by Mr. Johnson, 2,120 restricted shares were released on January 2, 2018, with a market value of $428,219; 4,520 restricted shares will be released on January 2, 2019; 5,365 restricted shares will be released on January 2, 2020; 4,070 restricted shares will be released on March 2, 2020; and 4,369 PRSUs were released on January 2, 2018, with a market value of $882,494.
Of the 47,210 restricted shares or units held by Ms. Novakovic, 15,630 restricted shares were released on March 8, 2021 with a market value of $2,703,365; 14,900 restricted shares will be released on March 7, 2022; and 16,680 restricted shares will be released on March 6, 2023. | |
Of the 12,065 restricted shares or units held by Mr. Aiken, 3,685 restricted shares were released on March 8, 2021 with a market value of $637,358; 3,545 restricted shares will be released on March 7, 2022; and 4,835 restricted shares will be released on March 6, 2023. | |
Of the 10,765 restricted shares or units held by Mr. Roualet, 3,595 restricted shares were released on March 8, 2021 with a market value of $621,791; 3,460 restricted shares will be released on March 7, 2022; and 3,710 restricted shares will be release on March 6, 2023. | |
Of the 7,021 restricted shares or units held by Mr. Smith, 970 restricted shares were released on March 8, 2021 with a market value of $167,771; 1,486 restricted units will be released on March 7, 2022; 1,060 restricted shares will be released on September 4, 2022; and 3,505 restricted shares will be released on March 6, 2023. | |
Of the 10,145 restricted shares or units held by Mr. Burns, 2,725 restricted shares were released on March 8, 2021 with a market value of $471,316; 3,795 restricted shares will be released on March 7, 2022; and 3,625 restricted shares will be released on March 6, 2023. | |
(c) | Represents |
For Ms. Novakovic, 16,681 PSUs were released on March 2, 2021; 38,978 may release during the first quarter of 2022 and 42,665 may release during the first quarter of 2023. | |
For Mr. Aiken, 3,933 PSUs were released on March 2, 2021; 9,270 may release during the first quarter of 2022 and 12,365 may release during the first quarter of 2023. | |
For Mr. Roualet, 3,837 PSUs were released on March 2, 2021; 9,045 may release during the first quarter of 2022 and 9,490 may release during the first quarter of 2023. | |
For Mr. Smith, 1,035 PSUs were released on March 2, 2021; 4,222 may release during the first quarter of 2022; and 8,968 may release during the first quarter of 2023. | |
For Mr. Burns, 2,908 PSUs were released on March 2, 2021; 3,971 may release during the first quarter of 2022 and 9,275 may release during the first quarter of 2023. |
For Ms. Novakovic, 39,736 PRSUs released during the first quarter
2021 Proxy Statement | 75 |
For Mr. Aiken, 7,791 PRSUs released during the first quarter of 2018; 5,662 may release during the first quarter of 2019; and 4,294 may release during the first quarter of 2020.
For Mr. Casey, 7,530 PRSUs released during the first quarter of 2018; 6,240 may release during the first quarter of 2019; and 4,253 may release during the first quarter of 2020.
For Mr. Roualet, 7,530 PRSUs released during the first quarter of 2018; 6,152 may release during the first quarter of 2019; and 4,253 may release during the first quarter of 2020.
For Mr. Johnson, 7,165 PRSUs released during the first quarter of 2018; 5,538 may release during the first quarter of 2019; and 4,122 may release during the first quarter of 2020.
General Dynamics 2018 Proxy Statement 47
Executive Compensation
COMPANY-SPONSORED RETIREMENT PLANSCompany-Sponsored Retirement Plans
General Dynamics offers retirement programs through a combination of qualified and nonqualified Employee Retirement Income Security Act of 1974 plans. The named executive officers other than Mr. JohnsonNEOs participate in each of the retirement programs indicated next to their namenames in the table below. Mr. Johnson is not eligible to participate in the company’s pension plans.
Beginning January 1, 2014, pension accruals stopped for employees at our corporate headquarters, including the participating named executive officers.
The table shows the actuarial present value as of December 31, 2017,2020, of the pension benefits earned for each named executive officerNEO over the course of the officer’s career. All retirement plans in the table operate in exactly the same manner for the named executive officers as for all other plan participants. A description of the material terms and conditions of each of these plans and agreements follows the table. Pension benefits have been frozen for each NEO for the plans listed below.
PENSION BENEFITSFOR FISCAL YEAR 2017
| ||||||||
NAME
| PLAN NAME
| NUMBER OF
| PRESENT VALUE OF
| PAYMENTS DURING
| ||||
Ms. Novakovic (b) |
Salaried Retirement Plan |
13 |
$ 416,616 |
None | ||||
Supplemental Retirement Plan
| 13
| $2,111,699
| ||||||
Mr. Aiken (c) |
Salaried Retirement Plan |
11 |
$ 218,311 |
None | ||||
Supplemental Retirement Plan
| 11
| $ 227,777
| ||||||
Mr. Casey (d) |
Salaried Retirement Plan |
32 |
$1,282,577 |
None | ||||
Supplemental Retirement Plan
| 32
| $3,035,542
| ||||||
Mr. Roualet (e) |
Salaried Retirement Plan |
29 |
$ 990,611 |
None | ||||
Supplemental Retirement Plan
| 29
| $1,644,920
| ||||||
Mr. Johnson
|
—
|
—
|
—
|
—
|
PENSION BENEFITS FOR FISCAL YEAR 2020
Name | Plan Name | Number of Years Credited Service | Present Value of Accumulated Benefit(a) | Payments During Last Fiscal Year | |||||||
Ms. Novakovic(b) | Salaried Retirement Plan | 13 | $ | 536,220 | None | ||||||
Supplemental Retirement Plan | 13 | $ | 2,717,936 | ||||||||
Mr. Aiken(c) | Salaried Retirement Plan | 11 | $ | 333,896 | None | ||||||
Supplemental Retirement Plan | 11 | $ | 348,373 | ||||||||
Mr. Roualet(d) | Salaried Retirement Plan | 29 | $ | 1,294,526 | None | ||||||
Supplemental Retirement Plan | 29 | $ | 2,148,511 | ||||||||
Mr. Smith(e) | Salaried Retirement Plan | 26 | $ | 957,105 | None | ||||||
Supplemental Retirement Plan | 26 | $ | 713,333 | ||||||||
Mr. Burns(f) | Gulfstream Aerospace Corporation Pension Plan | 35 | $ | 1,750,198 | None |
(a) | The Present Value of Accumulated Benefit under each plan has been calculated as of December 31, |
(b) | Ms. Novakovic’s total service is |
(c) | Mr. Aiken’s total service is |
(d) | Mr. |
(e) | Mr. | |
(f) | Mr. Burns’ total service is 37 years and credited service is 35 years. |
Salaried Retirement Plan. Plan
The General Dynamics Salaried Retirement Plan (the Salaried Plan) is atax-qualified defined-benefit pension plan that provides benefits as a life annuity to retired participants. A participant’s benefit under the Salaried Retirement Plan increases with each year of service. Participants who leave before they are eligible for early retirement are paid a substantially reduced amount. All the named executive officers, other than Mr. Johnson,Ms. Novakovic and Messrs. Aiken, Roualet and Smith participate in the Salaried Retirement Plan.
Earnings used to calculate pension benefits (pensionable earnings) include only a participant’s base salary and cash bonus and exclude all other items of income, including equity awards. Under the Internal Revenue Code, the Salaried Retirement Plan does not take into account any earnings over a predetermined compensation limit, which was $270,000$285,000 for 2017,2020, and does not pay annual benefits beyond a predetermined benefit limit, which was $215,000$230,000 for 2017.2020.
Beginning January 1, 2014, pension accruals stopped
Benefits under the Salaried Plan were frozen as of December 31, 2013, for employees at our corporate headquarters, including the participating named executive officers.NEOs (other than Mr. Smith). Mr. Smith’s benefits under the Salaried Plan were frozen as of March 31, 2017. The Salaried Retirement Plan pays a monthly benefit equal to the product of (1) the benefit percentage times (2) the final average monthly pay times (3) the years of credited service. For credited service earned prior to January 1, 2007, the benefit percentage equals 1.333 percent.1.333%. For credited service earned on or after January 1, 2007, the benefit percentage equals 1.0 percent.1.0%. Final average monthly pay is equal to the average of the participant’s highest 60 consecutive months of pensionable earnings out of the participant’s last 120 months of employment. For credited service earned prior
76 | General Dynamics |
Executive Compensation
to January 1, 2007, the final average monthly pay used in the benefit calculation froze as of December 31, 2010. The normal retirement age under the Salaried Retirement Plan is age 65. The Salaried Retirement Plan benefit is calculated as a single-life monthly annuity beginning at age 65 and has multiple actuarially equivalent payment forms from which participants can choose to take their benefit. A cash lump sum is only available if a participant’s accrued benefit is less than $5,000. None of the eligible named executive officersNEOs had reached the normal retirement age as of December 31, 2017.
48 General Dynamics 2018 Proxy Statement
Executive Compensation2020.
A participant with at least 10 years of service qualifies for early retirement at age 55. Ms. Novakovic and Messrs. Casey andMr. Roualet have qualified for early retirement as of December 31, 2017.retirement. A participant who is eligible for early retirement is entitled to receive the following:
(1) | for benefits based on credited service earned prior to January 1, 2007, if a participant retires between age 55 and 62, his or her age 65 benefit is reduced by |
(2) | for benefits based on credited service earned on or after January 1, 2007, a participant who is eligible for early retirement and subsequently retires between age 55 and 65 will have his or her age 65 benefit reduced by |
Supplemental Retirement Plan. Plan
The General Dynamics Corporation Supplemental Retirement Plan (the Supplemental Retirement Plan) is a nonqualified defined-benefit plan that provides retirement benefits to eligible employees whose salaries exceed the Internal Revenue Code compensation limit or whose annual benefits would exceed the Internal Revenue Code benefit limit. All the named executive officers other than Mr. JohnsonMs. Novakovic and Messrs. Aiken, Roualet and Smith participate in the Supplemental Retirement Plan.
Beginning January 1, 2014,
Benefits under the Supplemental Retirement Plan pension accruals stoppedwere frozen as of December 31, 2013, for employees at our corporate headquarters, including the named executive officersNEOs (other than Mr. Smith) who participate in the plan. Mr. Smith’s benefits under the plan were frozen March 31, 2017. The Supplemental Retirement Plan provides benefits equal to the difference between (1) the amount that would have been provided under the Salaried Retirement Plan if the annual compensation limit and annual benefit limit did not apply, and (2) the benefit actually paid under the Salaried Retirement Plan. A participant’s pensionable earnings and forms of payment are the same under the Supplemental Retirement Plan as the Salaried Retirement Plan.
Gulfstream Aerospace Corporation Pension Plan
The Gulfstream Aerospace Corporation Pension Plan (the GAC Plan) is a tax-qualified defined-benefit pension plan that provides benefits as a life annuity to retired participants. A participant’s benefit under the GAC Plan increases with each year of service. Participants who leave before they are eligible for early retirement are paid a substantially reduced amount. Mr. Burns participates in the GAC Plan.
Earnings used to calculate pension benefits (pensionable earnings) include only a participant’s base salary and cash bonus and exclude all other items of income, including equity awards. Under the Internal Revenue Code, the GAC Plan does not take into account any earnings over a predetermined compensation limit and does not pay annual benefits beyond a predetermined benefit limit.
Benefits under the GAC Plan were frozen as of December 31, 2018, for Mr. Burns. For service prior to January 1, 2004, Mr. Burns has a frozen pension accrued benefit under the GAC Plan that totals approximately $3,400 payable monthly as a single-life annuity. Upon his retirement, this amount will increase with cost-of-living adjustments up to a maximum of 3% annually. Effective January 1, 2004, the GAC Plan was amended to provide benefits for each month of credited service earned after December 31, 2003, based on 1.125% of the final average monthly pay at or below the monthly integration level plus 1.25% of the excess above the integration level. The portion of Mr. Burns’ benefit earned after December 31, 2003, is payable monthly as a life annuity and is not subject to cost-of-living adjustments. The normal retirement age under the GAC Plan is age 65. The GAC Plan benefit is calculated as a single-life monthly annuity beginning at age 65 and has multiple actuarially equivalent payment forms from which participants can choose to take their benefit. A cash lump sum is only available if a participant’s present value of accrued benefit is less than $5,000. Mr. Burns did not reach the normal retirement age as of December 31, 2020.
2021 Proxy Statement | 77 |
NONQUALIFIED DEFINED-CONTRIBUTION DEFERRED COMPENSATIONTable of Contents
Executive Compensation
A participant with at least 20 years of service at age 50 or with at least 5 years of service at age 60 qualifies for early retirement. Mr. Burns qualified for early retirement as of December 31, 2020. A participant who is eligible for early retirement is entitled to receive the following:
(1) | If a participant retires between age 50 and 60, his or her age 65 benefit is reduced by a factor based on a table described in the GAC Plan document for each full year that he or she retires prior to age 60. |
(2) | If the participant retires between age 60 and 65, he or she will receive 100% of his or her age 60 benefit. |
Nonqualified Defined-Contribution Deferred Compensation
As part of General Dynamics’our overall retirement program, the named executive officersNEOs and other key employees are eligible to participate in a nonqualified defined-contribution plan. The following table illustrates the amounts due to each executive as of December 31, 2017.2020. In addition, the table shows contributions made by both the named executive officersNEOs and General Dynamics in 20172020 along with the earnings on each executive’s total account.
NONQUALIFIED DEFERRED COMPENSATIONFOR FISCAL YEAR 2017 | ||||||||||||||||||
NAME |
EXECUTIVE CONTRIBUTIONS IN LAST FISCAL YEAR |
REGISTRANT FISCAL YEAR (a) | AGGREGATE EARNINGS IN LAST FISCAL YEAR (b) | AGGREGATE DISTRIBUTIONS | AGGREGATE BALANCEAT LAST FISCAL YEAR END (c) | |||||||||||||
Ms. Novakovic
|
|
$158,500
|
|
|
$31,700
|
|
|
$136,145
|
|
—
|
|
$1,820,918
|
| |||||
Mr. Aiken
|
|
$ 14,200
|
|
|
$14,200
|
|
|
$ 28,913
|
|
—
|
|
$ 169,760
|
| |||||
Mr. Casey
|
|
$ 75,500
|
|
|
$15,100
|
|
|
$ 37,800
|
|
—
|
|
$ 882,640
|
| |||||
Mr. Roualet
|
|
$ 75,500
|
|
|
$15,100
|
|
|
$169,073
|
|
—
|
|
$1,092,055
|
| |||||
Mr. Johnson
|
|
$ 72,500
|
|
|
$14,500
|
|
|
$629,927
|
|
—
|
|
$3,527,534
|
|
NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL YEAR 2020
Name | Executive Contributions in Last Fiscal Year | Registrant Contributions in Last Fiscal Year(a) | Aggregate Earnings in Last Fiscal Year(b) | Aggregate Withdrawals/ Distributions | Aggregate Balance at Last Fiscal Year End(c) | |||||||||
Ms. Novakovic | $ | 158,500 | $31,700 | $ | (40,736 | ) | — | $ | 2,352,411 | |||||
Mr. Aiken | $ | 17,000 | $17,000 | $ | 46,032 | — | $ | 349,895 | ||||||
Mr. Roualet | $ | 80,000 | $16,000 | $ | (154,058 | ) | — | $ | 1,110,809 | |||||
Mr. Smith | $ | 14,000 | $14,000 | $ | (6,812 | ) | — | $ | 116,777 | |||||
Mr. Burns | $ | 65,500 | $13,100 | $ | 61,653 | — | $ | 497,415 |
(a) | The registrant contributions of $31,700, |
(b) | No amounts shown in the Aggregate Earnings in Last Fiscal Year column are reported as compensation in the Summary Compensation Table. |
(c) | Certain amounts in the Aggregate Balance at Last Fiscal Year End column were previously reported in the Summary Compensation Table in the Salary column (in the case of executive contributions) or in the All Other Compensation column (in the case of registrant contributions) for the |
General Dynamics Corporation Supplemental Savings Plan. Plan
The Supplemental Savings Plan is a nonqualified defined-contribution plan that provides key employees, including the named executive officers,NEOs, the opportunity to defer a portion of their salary without regard to the limitations imposed by the Internal Revenue Code on the 401(k) Plan and receive employer matching contributions on a portion of the contributions.
Effective January 1, 2014, for those who elect to participate in the Supplemental Savings Plan, a participant may contribute between 1 percent1% and 10 percent10% of the participant’s base salary to the plan. The company will match the participant’s contributions for the first 2 percent2% of the participant’s base salary on adollar-for-dollar basis. Investment performance mirrors the performance of the funds that are available to participants under the 401(k) Plan.
General Dynamics 2018 Proxy Statement 49
Executive Compensation
Supplemental Savings Plan participants, including the named executive officers,NEOs, do not receive any earnings on their Supplemental Savings Plan accounts that are not otherwise paid to all other 401(k) Plan participants with a balance in the same investment fund. Participants receivelump-sum payments six months after their separation from service for balances (including earnings) accumulated on or after January 1, 2005. For balances accumulated prior to January 1, 2005, payment is made as soon as possible after termination, and participants will receive alump-sum payment unless they have previously elected to receive a deferredlump-sum payment or annual installment payments.
78 | General Dynamics |
Executive Compensation
Potential Payments Upon Termination or a portion of their annual cash compensation prior to the plan being frozenChange in 2007. Upon his retirement or other separation from the company, Mr. Johnson may elect to receive the deferred compensation in either a lump sum or in annual installments over a period of up to ten years.Control
POTENTIAL PAYMENTSUPON TERMINATIONOR CHANGEIN CONTROL
The following are estimated payments and benefits that would be provided to the named executive officersNEOs in the event of termination of the executive’s employment assuming a termination date of December 31, 2017.2020.
We have calculated these amounts for different termination scenarios based on our existing benefit plans and the General Dynamics Corporation equity compensation plan currently in effect (the Equity Compensation Plan). The actual amounts of the payments and costs of the benefits, however, can only be determined at the time of an executive’s separation from General Dynamics and, depending on the payment or benefit, may extend over several years.
For each termination and change in control scenario discussed below, the named executive officerNEO would also be entitled to:
(1) | the pension benefits described in the Pension Benefits for Fiscal Year |
(2) | the amounts listed in the Nonqualified Deferred Compensation for Fiscal Year |
The estimated totals presented in the table on the next page do not include these pension benefit and nonqualified deferred compensation amounts, nor do the totals include items that are provided to all employees, such as payment of accrued vacation.
Change in Control Agreements – Double Trigger. Double-Trigger
For a change in control situation, we have change in control agreements (also referred to as severance protection agreements) with key employees, including each of the named executive officers.NEOs. We have estimated the payments and benefits the named executive officersNEOs could receive under our existing benefit plans, change in control agreements and the equity compensation plans. Our calculations assume the executive was terminated on December 31, 2017,2020, and that this date was within 24 months following a change in control, thereby satisfying the “double-trigger” requirement under the change in control agreements. The actual amounts of the payments and costs of the benefits, however, can only be determined at the time of an executive’s separation from General Dynamics, and depending on the payment or benefit may extend over several years. As discussed under “CompensationCompensation Discussion and Analysis – Other Considerations – Potential Severance and Change in Control Benefits”Benefits the change in control agreements contain a “double-trigger” mechanism that is triggered only under certain circumstances. Our severance protection agreements do not provide for excise taxgross-ups. Rather, the agreements provide that, in the event change in control benefits would trigger an excise tax under Section 280G and Section 4999, then the value of the benefits will be either (1) delivered in full or (2) subject to a cutback, whichever provides the executive officer the greatest benefit on anafter-tax basis (with the excise tax being the responsibility of the executive to pay).
2021 Proxy Statement | 79 |
50 General Dynamics 2018 Proxy StatementTable of Contents
Executive Compensation
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
POTENTIAL PAYMENTSUPON TERMINATIONOR CHANGEIN CONTROL
| ||||||||||||||||||||
SCENARIOAND PAYMENT TYPE | MS. NOVAKOVIC | MR. AIKEN | MR. CASEY | MR. ROUALET | MR. JOHNSON | |||||||||||||||
Termination For Cause or Voluntary Resignation | ||||||||||||||||||||
Retiree Life Insurance Benefit (a)
|
|
$ 475,732
|
|
|
$ —
|
|
|
$ 269,040
|
|
|
$ 272,216
|
|
|
$ 310,831
|
| |||||
Retiree Medical and Dental Benefit (b)
|
|
52,457
|
|
|
—
|
|
|
66,097
|
|
|
118,170
|
|
|
—
|
| |||||
Stock Options
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
| |||||
Restricted Stock
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
| |||||
PRSUs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
| |||||
Total
|
|
$ 528,189
|
|
|
$ —
|
|
|
$ 335,137
|
|
|
$ 390,386
|
|
|
$ 310,831
|
| |||||
Death (c) | ||||||||||||||||||||
Life Insurance Benefit
|
|
$ 3,170,000
|
|
|
$ 1,540,000
|
|
|
$ 1,560,000
|
|
|
$ 1,560,000
|
|
|
$ 1,560,000
|
| |||||
Stock Options (d) (e)
|
|
32,428,743
|
|
|
6,760,422
|
|
|
7,168,595
|
|
|
7,101,671
|
|
|
6,505,709
|
| |||||
Restricted Stock (d) (f)
|
|
19,960,970
|
|
|
4,109,588
|
|
|
4,181,813
|
|
|
3,981,431
|
|
|
3,270,420
|
| |||||
PRSUs (d) (g)
|
|
22,104,708
|
|
|
4,392,683
|
|
|
4,433,619
|
|
|
4,044,249
|
|
|
2,838,992
|
| |||||
Total
|
|
$ 77,664,421
|
|
|
$16,802,693
|
|
|
$17,344,027
|
|
|
$16,687,351
|
|
|
$14,175,121
|
| |||||
Retirement, Termination without Cause or Disability (c) | ||||||||||||||||||||
Retiree Life Insurance Benefit (a)
|
|
$ 475,732
|
|
|
$ —
|
|
|
$ 269,040
|
|
|
$ 272,216
|
|
|
$ 310,831
|
| |||||
Retiree Medical and Dental Benefit (b)
|
|
52,457
|
|
|
—
|
|
|
66,097
|
|
|
118,170
|
|
|
—
|
| |||||
Stock Options (e) (h)
|
|
23,351,475
|
|
|
4,810,871
|
|
|
5,066,053
|
|
|
5,021,569
|
|
|
4,606,089
|
| |||||
Restricted Stock (f) (h)
|
|
19,539,274
|
|
|
4,019,044
|
|
|
4,088,140
|
|
|
3,888,372
|
|
|
3,183,508
|
| |||||
PRSUs (g) (h)
|
|
22,104,708
|
|
|
4,392,683
|
|
|
4,433,619
|
|
|
4,044,249
|
|
|
2,838,992
|
| |||||
Total
|
|
$ 65,523,646
|
|
|
$13,222,598
|
|
|
$13,922,949
|
|
|
$13,344,576
|
|
|
$10,939,420
|
| |||||
Change in Control, with Qualifying Termination | ||||||||||||||||||||
Annual Incentive (i)
|
|
$ 5,150,000
|
|
|
$ 1,200,000
|
|
|
$ 1,400,000
|
|
|
$ 1,400,000
|
|
|
$ 1,250,000
|
| |||||
Severance (j)
|
|
20,137,650
|
|
|
5,890,300
|
|
|
6,518,200
|
|
|
6,518,200
|
|
|
6,069,700
|
| |||||
Life, medical, dental and long-term disability benefits (k)
|
|
58,364
|
|
|
63,092
|
|
|
79,572
|
|
|
80,942
|
|
|
89,298
|
| |||||
Retiree life, medical and dental benefits (l)
|
|
440,120
|
|
|
—
|
|
|
260,458
|
|
|
318,816
|
|
|
293,289
|
| |||||
Outplacement services (m)
|
|
10,000
|
|
|
10,000
|
|
|
10,000
|
|
|
10,000
|
|
|
10,000
|
| |||||
Financial counseling and tax planning services (n)
|
|
30,000
|
|
|
30,000
|
|
|
30,000
|
|
|
30,000
|
|
|
30,000
|
| |||||
Supplemental retirement benefit (o)
|
|
122,233
|
|
|
71,238
|
|
|
74,040
|
|
|
74,040
|
|
|
—
|
| |||||
Stock Options (p)
|
|
32,428,743
|
|
|
6,760,422
|
|
|
7,168,595
|
|
|
7,101,671
|
|
|
6,505,709
|
| |||||
Restricted Stock (p)
|
|
19,961,497
|
|
|
4,109,690
|
|
|
4,181,915
|
|
|
3,981,517
|
|
|
3,270,459
|
| |||||
PRSUs (p)
|
|
26,654,815
|
|
|
5,409,944
|
|
|
5,484,062
|
|
|
5,088,696
|
|
|
3,822,461
|
| |||||
Total
|
|
$104,993,422
|
|
|
$23,544,686
|
|
|
$25,206,842
|
|
|
$24,603,882
|
|
|
$21,340,916
|
|
Scenario and Payment Type | Ms. Novakovic | Mr. Aiken | Mr. Roualet | Mr. Smith | Mr. Burns | |||||||||||
Termination For Cause or Voluntary Resignation | ||||||||||||||||
Retiree Life Insurance Benefit(a) | $ | 595,400 | $ | — | $ | 348,564 | $ | — | $ | — | ||||||
Retiree Medical and Dental Benefit(b) | 10,343 | — | 46,806 | — | 63,329 | |||||||||||
Stock Options | — | — | — | — | — | |||||||||||
Restricted Stock | — | — | — | — | — | |||||||||||
PSUs | — | — | — | — | — | |||||||||||
Total | $ | 605,743 | $ | — | $ | 395,370 | $ | — | $ | 63,329 | ||||||
Death(c) | ||||||||||||||||
Life Insurance Benefit | $ | 3,170,000 | $ | 1,800,000 | $ | 1,670,000 | $ | 1,600,000 | $ | 1,410,000 | ||||||
Stock Options(d) | — | — | — | — | — | |||||||||||
Restricted Stock(d) | 7,025,792 | 1,795,513 | 1,602,047 | 1,044,819 | 1,509,779 | |||||||||||
PSUs(d)(e) | 8,465,923 | 2,118,105 | 1,938,877 | 1,017,532 | 1,286,698 | |||||||||||
Total | $ | 18,661,715 | $ | 5,713,618 | $ | 5,210,924 | $ | 3,662,351 | $ | 4,206,477 | ||||||
Retirement, Termination without Cause or Disability(c) | ||||||||||||||||
Retiree Life Insurance Benefit(a) | $ | 595,400 | $ | — | $ | 348,564 | $ | — | $ | — | ||||||
Retiree Medical and Dental Benefit(b) | 10,343 | — | 46,806 | — | 63,329 | |||||||||||
Stock Options(f)(h) | — | — | — | — | — | |||||||||||
Restricted Stock(g)(h) | 6,583,752 | 1,667,637 | 1,503,613 | 952,152 | 1,413,554 | |||||||||||
PSUs(e)(h) | 8,465,923 | 2,118,105 | 1,938,877 | 1,017,532 | 1,286,698 | |||||||||||
Total | $ | 15,655,418 | $ | 3,785,742 | $ | 3,837,860 | $ | 1,969,684 | $ | 2,763,581 | ||||||
Change in Control, with Qualifying Termination | ||||||||||||||||
Annual Incentive(i) | $ | 4,503,000 | $ | 1,253,000 | $ | 1,234,000 | $ | 801,000 | $ | 990,000 | ||||||
Severance(j) | 18,203,120 | 6,437,470 | 6,186,310 | 4,786,990 | 3,390,000 | |||||||||||
Life, medical, dental and long-term disability benefits(k) | 77,080 | 74,795 | 100,433 | 79,078 | 41,950 | |||||||||||
Retiree life, medical and dental benefits(l) | 545,744 | — | 322,838 | 384,913 | 40,763 | |||||||||||
Outplacement services(m) | 10,000 | 10,000 | 10,000 | 10,000 | 10,000 | |||||||||||
Financial counseling and tax planning services(n) | 30,000 | 30,000 | 30,000 | 30,000 | 20,000 | |||||||||||
Supplemental retirement benefit(o) | 137,881 | 96,090 | 93,247 | 47,761 | 57,686 | |||||||||||
Stock Options(p) | — | — | — | — | — | |||||||||||
Restricted Stock(p) | 7,025,792 | 1,795,513 | 1,602,047 | 1,044,819 | 1,509,779 | |||||||||||
PSUs(p) | 14,632,429 | 3,804,583 | 3,328,955 | 2,116,518 | 2,403,741 | |||||||||||
Total | $ | 45,165,046 | $ | 13,501,451 | $ | 12,907,830 | $ | 9,301,079 | $ | 8,463,919 |
(a) | Assumes the executive elects the maximum oftwo-times-pay coverage at retirement. The estimated cost is calculated using the assumptions made for financial reporting purposes for valuing post-retirement life insurance at December 31, |
(b) | The estimated cost for this coverage is based on the difference between the COBRA rate that the executive would pay and the higher expense we must recognize for financial reporting purposes. We provide retiree medical and dental coverage only until an executive reaches age 65. Messrs. Aiken and Smith were not eligible for retiree medical and dental coverage at December 31, 2020. |
(c) | In situations where an executive has completed a full calendar year of service to the company, for certain termination scenarios not involving a change in control, the executive may remain eligible for an annual incentive for performance during the year, |
(d) | Under the terms of the Equity Compensation Plan, unvested stock options held by the executive would be treated as if the executive remained employed with General Dynamics throughout the option term. The options would be exercisable by the executive’s estate in accordance with the terms of the original option grant. |
General Dynamics 2018 Proxy Statement 51
Executive Compensation
|
General Dynamics |
Executive Compensation
in the table represents the difference between the closing share price of $148.82 on December 31, 2020, and the option grant price, multiplied by the number of retained unvested options. The value of the restricted stock represents the number of restricted shares held on December 31, 2020, multiplied by the closing share price of $148.82 on December 31, 2020. | |
(e) | The value of the prorated PSUs represents the number of earned units as of December 31, 2020, multiplied by the closing share price of $148.82 on December 31, 2020. |
(f) | The present value of the unvested options reflected in the table represents the difference between the closing share price of |
The present value of the restricted stock represents the number of restricted shares held on December 31, |
|
Under the terms of the Equity Compensation Plan, most participants qualify for retirement treatment after reaching age 55 with at least five years of continuous service with the company. For participants who are elected officers of the company and who have reached age 55, the plan provides for retirement treatment with the consent of the company’s chief executive officer or, in the case of the chief executive officer, the Compensation Committee. For purposes of this Proxy Statement, we assume that any required consents for retirement treatment have been obtained. Since Ms. Novakovic and Messrs. |
(i) | Any annual incentive amount paid in a change in control situation would be determined in accordance with the terms of the applicable change in control agreement. Since we assume that a change in control and triggering event had occurred on December 31, |
(j) | Calculated in accordance with the applicable change in control agreement. For the |
(k) | Represents an additional 36 months of life, medical, dental and long-term disability |
(l) | The costs of |
(m) | Represents the estimated outplacement services costs, obtained from an outplacement vendor, for 12 months for a senior executive. |
(n) | Represents financial counseling and tax planning services for 36 months (for NEOs other than Mr. Burns) or 24 months (for Mr. Burns) following the termination date, at a total cost not to exceed |
(o) | Represents a supplemental retirement benefit payable in cash equal to an additional 36 months (24 months for Mr. Burns) of company contributions to each defined-contribution plan in which the executive participates. |
(p) | Our Equity Compensation Plan and the applicable award agreements contain a “double trigger” mechanism for all participants, including the |
2021 Proxy Statement | 81 |
52 General Dynamics 2018 Proxy StatementTable of Contents
Executive Compensation
PAY RATIO RESULTSPay Ratio Results
The chief executive officer pay ratio figures below are a reasonable estimate calculated in a manner consistent with Item 402(u) of RegulationS-K under the Exchange Act.
We determined that as of October 1, 2017,
There have been no changes in our total number of U.S. employees was approximately 85,968 and our total number ofnon-U.S. employees was approximately 12,560. We excluded from this employee population or employee compensation arrangements in 2020 that we reasonably believe would result in a total of 4,727 employees from: Mexico (1,919), United Kingdom (1,484), Germany (458), Austria (189), United Arab Emirates (187), Saudi Arabia (141), Turkey (120), Italy (109), Estonia (79), India (33), China (5) and Czechia (3) assignificant change in our pay ratio disclosure. Therefore, we have based our pay ratio calculation for 2020 using compensation for the total number of employees from thesenon-U.S. jurisdictions was less than 5 percent of our total employee population. We also excluded employees from our 2017 acquisition of SC3 LLC (500).
To determine oursame median employee identified for 2018, which median employee was identified under the process described in our 2018 pay we chose base salary as our consistently applied compensation measure. We then calculated an annual base salary for each employee, annualizing pay for those employees who commenced work during 2017 and any employees who were on leave for a portion of 2017. For hourly employees, we used a reasonable estimate of hours worked to determine annual base pay. We used a clustered sampling methodology to identify the median base salary within this employee population.ratio calculation.
Total 2020 annual compensation for the median employee was valued at $98,563$111,362 and total annual compensation for the chief executive officer was valued at $21,501,429,$19,328,499, resulting in a ratio of median employee total annual compensation to chief executive officer total annual compensation of 1:218.174. Total annual compensation for the median employee and the chief executive officer is calculated according to the disclosure requirements of the Summary Compensation Table and includes base salary, annual incentive, equity awards, change in pension values and other compensation such as perquisites.perquisites and company-paid healthcare benefits.
COMPENSATION COMMITTEE REPORTCompensation Committee Report
The following Compensation Committee Report shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement or any portion hereof into any filing under the Securities Act or the Exchange Act and shall not otherwise be deemed filed under such acts.
The Compensation Committee of the Board of Directors has furnished the following report.
The following fourfive directors serve on the Compensation Committee: William A. OsbornLaura J. Schumacher (Chair), James S. Crown, Rudy F. deLeon, C. Howard Nye and Laura J. Schumacher.William A. Osborn.
None of these directors is an officer or employee of General Dynamics. They all meet the independence requirements of the New York Stock Exchange.
The Compensation Committee is governed by a written charter approved by the Board. In accordance with that charter, the Compensation Committee is responsible for evaluating the performance of the chief executive officer and other General Dynamics officers as well as reviewing and approving their compensation. The Committee also establishes and monitors company-wide compensation programs and policies, including the incentive compensation plans.policies. The Committee’s processes and procedures for the consideration and determination of executive compensation are explained in greater detail in the Compensation Discussion and Analysis section of this Proxy Statement.
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based on this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement in accordance with Item 407(e) of RegulationS-K.
This report is submitted by the Compensation Committee.
William A. Osborn (Chair)
Laura J. Schumacher (Chair) | C. Howard Nye |
James S. Crown | William A. Osborn |
Rudy F. deLeon | |
March 2, 2021 |
James S. Crown
82 | General Dynamics |
Rudy F. deLeonTable of Contents
Laura J. Schumacher
March 6, 2018
Security Ownership |
General Dynamics 2018 Proxy Statement 53
SECURITY OWNERSHIPOF MANAGEMENT
The following table provides information as of March 8, 2018,2021, on the beneficial ownership of Common Stock by (1) each of our directors and nominees for director, (2) each of the named executive officersNEOs and (3) all of our directors and executive officers as a group. The following table also shows Common Stock held by these individuals through company-sponsored benefits programs. Except as otherwise noted, the persons listed below have the sole voting and investment power for all shares held by them, except for such power that may be shared with a spouse.
Common Stock Beneficially Owned(a) | Common Stock Equivalents | Total Common | ||||||||||||||||||||||||||||
NAME OF BENEFICIAL OWNER
|
COMMON STOCK BENEFICIALLY OWNED(a) | COMMON STOCK BENEFICIALLY OWNED
| TOTAL COMMON
| |||||||||||||||||||||||||||
SHARES OWNED
| OPTIONS EXERCISABLE
| PERCENTAGE OF CLASS
| ||||||||||||||||||||||||||||
Name of Beneficial Owner | Shares Owned | Options Exercisable within 60 Days | Percentage of Class | Beneficially Owned(b) | Stock and Equivalents | |||||||||||||||||||||||||
Directors and Nominees
|
Directors and Nominees
|
| ||||||||||||||||||||||||||||
Nicholas D. Chabraja
| 636,328 | 20,060 |
|
|
*
|
|
0
|
| 656,388 | |||||||||||||||||||||
James S. Crown (c)
| 15,606,501 | 20,060 |
|
5.2
|
%
|
|
2,988
|
| 15,629,549 | 15,547,715 | 11,345 | 5.5% | 3,211 | 15,562,271 | ||||||||||||||||
Rudy F. deLeon
| 2,516 | 4,180 |
|
|
*
|
|
0
|
| 6,696 | 4,210 | 11,345 | * | 0 | 15,555 | ||||||||||||||||
John M. Keane
| 14,380 | 20,060 |
|
|
*
|
|
0
|
| 34,440 | |||||||||||||||||||||
Lester L. Lyles
| 7,662 | 20,060 |
|
|
*
|
|
0
|
| 27,722 | |||||||||||||||||||||
Cecil D. Haney | 1,503 | 1,295 | * | 0 | 2,798 | |||||||||||||||||||||||||
Mark M. Malcolm
| 1,455 | 2,215 |
|
|
*
|
|
0
|
| 3,670 | 6,991 | 9,985 | * | 0 | 16,976 | ||||||||||||||||
James N. Mattis | 1,125 | 0 | * | 0 | 1,125 | |||||||||||||||||||||||||
Phebe N. Novakovic
| 424,592 | 1,608,340 |
|
|
*
|
|
0
|
| 2,032,932 | 749,989 | 1,031,715 | * | 0 | 1,781,704 | ||||||||||||||||
C. Howard Nye
| 0 | 0 |
|
|
*
|
|
0
|
| 0 | 3,072 | 2,020 | * | 0 | 5,092 | ||||||||||||||||
William A. Osborn
| 25,775 | 20,060 |
|
|
*
|
|
0
|
| 45,835 | 36,266 | 11,345 | * | 0 | 47,611 | ||||||||||||||||
Catherine B. Reynolds
| 844 | 0 |
|
|
*
|
|
0
|
| 844 | 4,256 | 4,755 | * | 0 | 9,011 | ||||||||||||||||
Laura J. Schumacher
| 4,058 | 8,580 |
|
|
*
|
|
0
|
| 12,638 | 7,638 | 11,345 | * | 0 | 18,983 | ||||||||||||||||
Robert K. Steel | 475 | 0 | * | 0 | 475 | |||||||||||||||||||||||||
John G. Stratton | 4,562 | 0 | * | 0 | 4,562 | |||||||||||||||||||||||||
Peter A. Wall
| 1,226 | 0 |
|
|
*
|
|
0
|
| 1,226 | 2,898 | 6,875 | * | 0 | 9,773 | ||||||||||||||||
Other Named Executive Officers
|
| |||||||||||||||||||||||||||||
Other NEOs | ||||||||||||||||||||||||||||||
Jason W. Aiken
| 67,531 | 172,710 |
|
|
*
|
|
0
|
| 240,241 | 96,459 | 224,615 | * | 0 | 321,074 | ||||||||||||||||
John P. Casey
| 96,055 | 174,830 |
|
|
*
|
|
0
|
| 270,885 | |||||||||||||||||||||
Mark L. Burns | 52,075 | 127,010 | * | 0 | 179,085 | |||||||||||||||||||||||||
Mark C. Roualet
| 121,982 | 224,570 |
|
|
*
|
|
0
|
| 346,552 | 143,081 | 227,030 | * | 0 | 370,111 | ||||||||||||||||
S. Daniel Johnson
| 70,296 | 77,810 |
|
|
*
|
|
0
|
| 148,106 | |||||||||||||||||||||
Robert E. Smith | 37,598 | 65,090 | * | 0 | 102,688 | |||||||||||||||||||||||||
Directors and Executive Officers as a Group
|
Directors and Executive Officers as a Group
|
| ||||||||||||||||||||||||||||
(25 individuals)
| 17,506,616 | 3,168,115 | 6.9 | % | 2,988 | 20,677,719 | 17,087,242 | 2,392,735 | 6.8% | 3,211 | 19,483,188 |
* | Less than |
(a) | Includes shares in the 401(k) Plan |
(b) | Reflects phantom stock units that were received on December 1, 1999, upon termination of benefits under the former retirement plan for directors and additional phantom stock units resulting from the reinvestment of dividend equivalents on the phantom stock units. |
(c) | Based solely on information provided on behalf of Mr. Crown. Of the |
2021 Proxy Statement | 83 |
54 General Dynamics 2018 Proxy Statement
SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERSSecurity Ownership of Certain Beneficial Owners
Except as otherwise noted, the following table provides information as of March 8, 2018,2021, with respect to the number of shares of Common Stock owned by each person known by General Dynamics to be the beneficial owner of more than 5 percent5% of our Common Stock.
COMMON STOCK BENEFICIALLY OWNED (a)
| ||||||||||
NAMEOF BENEFICIAL OWNER
|
SHARES OWNED
|
PERCENTAGE OF CLASS
| ||||||||
Longview Asset Management, LLC (b) 222 North LaSalle Street
|
| 32,678,651
|
|
| 11.0
| %
| ||||
Newport Trust Company (c) 570 Lexington Avenue, Suite 1903
|
| 20,956,808
|
|
| 7.0
| %
| ||||
The Vanguard Group (d) 100 Vanguard Blvd.
|
| 20,420,815
|
|
| 6.9
| %
| ||||
Capital Research Global Investors (e) 333 South Hope Street
|
| 18,202,422
|
|
| 6.1
| %
| ||||
BlackRock, Inc. (f) 55 East 52nd Street
|
| 16,670,214
|
|
| 5.6
| %
|
Common Stock Beneficially Owned | ||||
Name of Beneficial Owner | Shares Owned | Percentage of Class | ||
Longview Asset Management, LLC(a) 222 North LaSalle Street Chicago, Illinois 60601 | 30,041,724 | 10.6% | ||
The Vanguard Group(b) 100 Vanguard Blvd. Malvern, Pennsylvania 19355 | 20,583,367 | 7.3% | ||
Newport Trust Company(c) 815 Connecticut Ave., NW, Suite 510 Washington, DC 20006 | 18,689,217 | 6.6% | ||
Wellington Management Group LLP(d) c/o Wellington Management Company LLP 280 Congress Street Boston, Massachusetts 02210 | 15,275,054 | 5.4% |
(a) |
|
This information is based solely on information provided by Longview Asset Management, LLC (Longview). Longview manages investment portfolios for clients who own Common Stock, which include accounts of clients related to Mr. Crown. Pursuant to its investment advisory agreements, Longview has voting and dispositive power over the Common Stock held in its clients’ accounts and is deemed to beneficially own |
Share information for the Vanguard Group is as of December 31, 2020, and is based solely on information contained in a Schedule 13G filed by The Vanguard Group with the SEC on February 10, 2021. | |
(c) | Newport Trust Company (Newport) is the independent fiduciary and investment manager for the assets of the General Dynamics Stock Fund under the General Dynamics Corporation 401(k) Plan Master Trust. Newport has shared voting power over the shares held in the General Dynamics Stock Fund. Share information for Newport is based solely on information provided on behalf of Newport. |
(d) |
|
|
|
84 | General Dynamics |
Security Ownership
EQUITY COMPENSATION PLAN INFORMATIONEquity Compensation Plan Information
The following table provides information as of December 31, 2017,2020, regarding Common Stock that may be issued under our equity compensation plans.
(A) | (B) | (C) | ||||||||||||||||
(A) | (B) | (C) | ||||||||||||||||
PLANCATEGORY
| NUMBER OF SECURITIES TO BE
| WEIGHTED-AVERAGE
| NUMBER OF SECURITIES REMAINING
| |||||||||||||||
Plan Category | Number of Securities to be Issued Upon the Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (A)) | |||||||||||||||
Equity compensation plans approved by shareholders
|
|
10,620,389
|
|
$
|
126.08
|
|
5,678,577
| 12,178,996 | (a) | $167.00 | (b) | 22,676,504 | ||||||
Equity compensation plans not approved by shareholders
|
|
—
|
|
|
—
|
|
—
| — | — | — | ||||||||
Total
|
|
10,620,389
|
|
$
|
126.08
|
|
5,678,577
| 12,178,996 | $167.00 | 22,676,504 |
(a) | Includes 11,128,721 stock options, 52,574 shares issuable upon vesting of restricted stock units (including dividend equivalents thereon) (RSUs), and 990,854 shares issuable upon vesting of PSUs (assuming achievement at the maximum payout and including dividend equivalents thereon); and 6,847 shares of the company’s Common Stock issuable upon vesting of restricted stock units subject to terms and conditions in equity compensation plans assumed by the company in connection with the acquisition of CSRA Inc. in 2018 (Converted CSRA RSUs). No additional awards or grants may be made under those CSRA plans. |
(b) | RSUs, PSUs and Converted CSRA RSUs do not have an exercise price and, therefore, are not taken into consideration in calculating the weighted average exercise price. |
2021 Proxy Statement | 85 |
Shareholder Proposal – Special Shareholder Meetings |
General Dynamics 2018 Proxy Statement 55
PROPOSAL 4 |
SHAREHOLDER PROPOSAL – SPECIAL SHAREHOLDER MEETINGS |
SHAREHOLDER PROPOSAL – SPECIAL SHAREHOLDER MEETINGS
(PROPOSAL 4)
We have been advised by John Chevedden, 2215 Nelson Avenue,Ave., No. 205, Redondo Beach, California 90278, owner of at least 10050 shares of Common Stock, that he intends to present the following shareholder proposal at the Annual Meeting. We are not responsible for the accuracy or content of the proposal and supporting statement, presented below, as received from the proponent. Our reasons for opposing the proposal are also presented below.
PROPOSALAND SUPPORTING STATEMENT
Proposal and Supporting Statement
Proposal 4 – Special Shareholder Meeting Improvement
Resolved, Shareowners
Shareholders ask our board to take the steps necessary (unilaterally if possible) to amend our bylaws and eachthe appropriate company governing documentdocuments to give holders in the aggregateowners of a combined 10% of our outstanding common stock the power to call a special shareownershareholder meeting.
A special shareholder meeting is a means shareholders can use to raise important matters outside the normal annual meeting cycle like the election of a new director.
For instance Mr. William Osborn, Chair of the General Dynamics management pay committee, received the most negative director votes in 2020. Meanwhile management pay was rejected by 18% of shares in 2020 when a 10% rejection is the norm.
This proposal topic won 40%-support at the 2020 GD annual meeting. This proposal does not impact our board’s current powerwas close to call a special meeting.
Scores of Fortune 500 companies allow a more reasonable 10% of51%-support from the shares that have access to call a special meeting compared to General Dynamics. General Dynamicsindependent proxy voting advice. Unfortunately most retail shareholders do not have access to independent proxy voting advice.
And since the full right2020 GD annual meeting there has been a dramatic development that makes shareholder meetings so much easier for management with a substantial cost reduction. Cost was a big part of the 2020 GD management resistance to callthis proposal topic. There will be zero management transparency on how inexpensive an online shareholder meeting is.
A special shareholder meeting can now be online shareholder meeting which makes it easier for management. The bylaws of a company can even specify, “The Board of Directors may designate that the special meeting is to be held solely by remote communication.”
Management claimed it relied on shareholder engagement to resist this topic. However so-called shareholder engagement lacks transparency. Management is free to present alternative facts to shareholders to get the results it wants from a self-fulfilling prophesy form of shareholder engagement.
Management entrenchment is so well defended at an online shareholder meeting that shareholders should have a corresponding greater flexibility in calling for a special shareholder meeting.
It is astounding what management can get away with at an online shareholder meeting. At a bare bones online shareholder meeting thatalmost everything is available under Delaware law.optional. For instance a management narrative on the state of the company is optional. Also management answers to shareholder questions are optional even if management asks for questions.
Special meetings allow shareowners
Management hardly needs to vote on important matters, such as electing new directors that can arise between annual meetings. This proposal topic wonprepare for an online shareholder meeting. Thus shareholders should rightfully have more than 70%-support at Edwards Lifesciences and SunEdisonflexibility in 2013.
A more user-friendly ability of shareholders to callrequesting a special shareholder meeting. The core purpose of such a meeting could give shareholders greater standing to improvecan simply be the makeupannouncement of our board of directors after the 2018 annual meeting. For instance, James Crown was Lead Director in spite of30-years long-tenure. Long-tenure can impair the independence of a director no matter how well qualified. Independence is anall-important qualification for a Lead Director. A Lead Director needs to be more independent than any other director.
Other directors with long-tenure were:vote.
86 | General Dynamics |
|
|
|
| |||
|
|
These long-tenured directors also had oversized influenceTable of Contents
Shareholder Proposal
For instance the Goodyear online shareholder meeting was spoiled by a trigger-happy management mute button for shareholders that was used to quash constructive criticism. AT&T would not even allow shareholders to speak at its online shareholder meeting.
Please see:
Goodyear’s virtual meeting creates issues with 6 seats on our most important board committees – includingshareholder
https://www.crainscleveland.com/manufacturing/goodyears-virtual-meeting-creates-issues-shareholder
Please see:
AT&T investors denied a majority of the nomination committee members.dial-in as annual meeting goes online
Plus we had 3 directors who came from the same culture that emphasizes following orders. It could be like if General Motors decided to have 3 directors come fromhttps://whbl.com/2020/04/17/att-investors-denied-a-dial-in-as-annual-meeting-goes-online/1007928/
Shareholders thus need greater flexibility in calling for a company that bought 100,000 GM cars a year for their daily rental fleet. Such directors could be a powerful faction on the board that voted in lockstep. This may not be good for board diversity. Such directors might better serve shareholders as consultants instead of directors.special shareholder meeting.
Please vote to improve management accountability to shareholders:yes:
Special Shareholder Meeting Improvement – Proposal 4
56 General Dynamics 2018 Proxy Statement
Statement by your Board of Directors Against the Shareholder Proposal
STATEMENTBYYOUR BOARDOF DIRECTORS AGAINSTTHE SHAREHOLDER PROPOSAL
This proposal seeks to amend our company’s current special shareholder meeting right. Our current bylaws provide that your Board will call a special meeting upon the written request of a single shareholder holding 10 percent of our company’s outstanding common stock, or one or more shareholders holding 25 percent of our company’s outstanding stock, without any material restrictions. the following:
a single stockholder holding 10% of our outstanding Common Stock, or | |
one or more stockholders holding 25% of our outstanding stock, without any material restrictions. |
Given the company’s current shareholder base, shareholders have the ability to call a special meeting at both thresholds. Your Board understands the importance that the right to call a special meeting can provide to the company’s shareholders, but also acknowledges that reasonable provisions must be in place so that the right serves its purpose without a risk of misuse.
The proposal requests that your Boardthe threshold for a group of Directors amend the company’s governing documentsstockholders to give shareholders of 10 percentcall a special shareholder meeting be set at 10% of the outstanding common stock the power to call special shareholder meetings.Common Stock. Your Board of Directors has considered this proposal and believes its adoption is unnecessary because theredundant as our existing special meeting bylaw strikes an appropriate balance between the right of shareholders to call a special meeting and the interests of our company and shareholders in promoting the appropriate use of corporate funds and resources.
Special meetings are expensive, time-consuming and require significant management attention and should occur only in extraordinary circumstances. Accordingly, your
Your Board believes thatproposes the expenditure of corporate funds and resources associated with a special meeting should only be incurred when shareholders meet an appropriate threshold of ownership interest in our company. The special meeting bylaw already contains an ownership threshold that ensures this is the case.
While the proponent mentions two examples where special shareholder meeting proposals at other companies received greater than 70 percent support, he fails to mention the more than 30 occurrences among the S&P 500 since 2012 where similar proposals have failed to receive majority support. Based upon public filings, in 2017 alone, similar proposals failed at five companies in the S&P 500 and passed at none. Additionally, the Board has considered current practice among S&P 500 companies, noting that for companies with a special meeting right in place the most prevalent ownership threshold for calling a special meeting is 25 percent. Our company’s current special shareholder meeting provision not only matches the prevalent practice, but goes further by granting a single 10 percent shareholder the right to call a special meeting.
Rather than acknowledge the meaningful existing right by our company’s shareholders to call a special meeting, the proponent focuses on unrelated topics with which your Board vehemently disagrees. First, your Board objectsfollowing responses to the proponent’s suggestion that the independenceletter:
Appropriate threshold for special meetings
The Board has concluded that a 10% threshold is too low for a group of investors to call a special meeting and that our current requirement is reasonable and appropriate for our company at this time, particularly when a single shareholder owning 10% can already call a meeting under our current structure. In recent engagements with a majority of our shareholders as part of our ongoing shareholder engagement program, we have continued to solicit input on this topic. While some shareholders support lower thresholds, most have conveyed support for levels that are in line with our current provision. Importantly, a 25% threshold is the most prevalent level among General Dynamics’ peers, as well as S&P 500 companies. In fact, the majority of General Dynamics’ peers have this threshold in place. In addition, 37% of S&P 500 companies require a 25% ownership threshold, as compared to only 16% for the 10% level (source: FactSet as of July 1, 2020). Moreover, General Dynamics’ current special shareholder meeting provision not only matches the prevalent practice but goes further by granting a single 10% shareholder the right to call a special meeting. |
2021 Proxy Statement | 87 |
Shareholder Proposal
Virtual Meetings
Rather than focusing on the actual merits of special meeting rights for shareholders, much of the proponent’s proposal engages in a diatribe regarding his views on virtual shareholder meetings. This discussion is irrelevant and out of place. |
Shareholder Votes on Director Elections and itsExecutive Compensation
The proponent inexplicably references the vote electing William Osborn, the then-serving Chair of the Compensation Committee, as a director at our 2020 Annual Meeting. Shareholders elected Mr. Osborn with a 96% vote in favor of his election. This vote result is hardly an indication of any meaningful shareholder concern. The proponent also invokes the approval of our executive compensation program at the 2020 Annual Meeting with 82% of votes in favor. The Board fails to see any link between that vote outcome and the topic of the proposal. |
Prior Shareholder Votes Rejecting a Lower Threshold
The proponent references the vote outcome of this same topic submitted by him in 2020. In both 2020 and 2018, our shareholders rejected proposals by the proponent seeking to reduce the special meeting threshold, with approximately 59% of votes cast against the proposal on both occasions. Notably, this year’s proposal seeking to lower the ownership threshold to 10% is meaningfully less restrictive than the 15% ownership threshold that our shareholders rejected in 2020. |
Our Provisions Comply with Applicable Laws and that these directors provide your Board with valuable insight into the long-term business cyclesRegulations and the complex operations of our company. Also, your Board reviews the independence of each director annually to confirm compliance with the company’s director independence guidelines and the independence rules of the New York Stock Exchange. Your Board rejects the notion that directors who have been duly elected by the shareholders and who show a long-term commitment to our company somehow lack independence. Furthermore, our longest-serving director, James Crown, is also affiliated with our largest shareholder and serves as our independent lead director, providing an important, shareholder-aligned voice on our Board.Are Not Onerous
Additionally, the proponent’s last paragraph, in which we assume his reference to “the same culture” means prior military service, suggests that he takes objection to anyone with a military background serving as a director. This assertion, and the wholly irrelevant example he proffers, is misplaced, erroneous and offensive to dedicated members of our Board with distinguished prior military service. This prior military service gives these directors an unparalleled understanding of the requirements and priorities of several of the company’s key customers. With the U.S. Government representing on average 60 percent of our revenues over the past several years, intimacy with our customer’s priorities and demands is critical. Our directors with prior military service play an irreplaceable role in advising our businesses on how to ensure that our products and services remain effective and responsive to our customers in supporting national security and defense programs. Furthermore, these directors are actively engaged in the Board’s deliberations and each exercises his own independent judgment in fulfilling fiduciary duties and maximizing shareholder value. Together with the other directors, our Board continues to reflect a diverse and extremely well-qualified group of business leaders, aerospace and defense industry experts and strategic advisors. The skills and experience of each of our director nominees, as well as our key corporate governance practices, are discussed in the Election of the Board of Directors of the Company and Governance of the Company sections of this Proxy Statement.
Your Board follows standard guidelines established by applicable laws and regulations and allows for sufficient time for the special meeting request to be conducted effectively. Any “small paperwork error” could be corrected in a timely manner and, thus, shareholders would be allowed sufficient time to process the request. |
Shareholder Meetings ARE Costly
Special meetings are expensive, time-consuming and require significant management attention and should occur only in extraordinary circumstances. This is true whether the meeting occurs in person or virtually. Accordingly, your Board believes that the expenditure of corporate funds and resources associated with a special meeting should only be incurred when shareholders meet an appropriate, meaningful threshold of ownership interest in our company, which is why our current special meeting bylaw requires a single 10% shareholder or group of shareholders owning at least 25% to call a special meeting. |
For the reasons stated above, we believe that the company’s current Bylaw provision granting shareholders the ability to call a special meeting provides the appropriate right to ensure that shareholders have a meaningful avenue to vote on important matters.
YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE AGAINSTTHISSHAREHOLDERPROPOSAL.
Your Board of Directors unanimously recommends a vote AGAINST this shareholder proposal. |
General Dynamics 2018 Proxy Statement 57
88 | General Dynamics |
Table of ContentsINFORMATION REGARDINGTHE ANNUAL MEETINGAND VOTING
Information Regarding the Annual Meeting and Voting |
All shareholders of record at the close of business on March 8, 2018,2021, are entitled to vote their shares of Common Stock at the Annual Meeting. On the record date, General Dynamics had 298,077,831283,553,159 shares of Common Stock issued and outstanding.
Following are questions and answers about the annual meetingAnnual Meeting and voting.
ANNUAL MEETING ATTENDANCE
Will I need to provide documentation to attend the Annual Meeting?Yes. All shareholders will need an admission ticket and personal photo identification for admission. You may print your own admission ticket and you must bring it to the meeting. Tickets can be printed by accessing Shareholder Meeting Registration at www.ProxyVote.com and following the instructions provided. If you are unable to print your tickets, please call Broadridge Financial Solutions, Inc. (Broadridge) at844-318-0137 1-844-318-0137 toll-free or925-331-6070 1-925-331-6070 international toll for assistance.
Could emerging developments regarding the coronavirus (COVID-19) situation affect the company’s ability to hold an in-person Annual Meeting? We are actively monitoring the coronavirus (COVID-19) situation. In the event that it is not possible or inadvisable to hold our Annual Meeting in person, we may decide instead to hold a Virtual Annual Meeting that is accessible only through the internet. If we decide to use that format, we will make a public announcement as soon as practicable in advance of the Annual Meeting on our website at www.gd.com/proxy and through the SEC’s website at www.sec.gov.
How many shares must be present to hold the Annual Meeting?A quorum of shares must be present to hold the Annual Meeting. A quorum is the presence, in person or by proxy, of holders of a majority of the issued and outstanding shares of Common Stock as of the record date. If you submit a properly completed proxy in accordance with one of the voting procedures described below or appear at the Annual Meeting to vote in person, your shares of Common Stock will be considered present. For purposes of determining whether a quorum exists, abstentions and brokernon-votes (as described below) will be counted as present. Once a quorum is present, voting on specific proposals may proceed. In the absence of a quorum, the Annual Meeting may be adjourned.
How are proxy materials being distributed for the Annual Meeting?As permitted by the rules of the Securities and Exchange Commission,SEC, we are providing the proxy materials for our 20182021 Annual Meeting via the Internetinternet to most of our shareholders. Use of the Internetinternet will expedite receipt of the 20182021 proxy materials by many of our shareholders and help to keep mailing costs for our Annual Meeting as low as possible. For shareholders who are participants in our 401(k) plans we are required generally to deliver proxy materials in hard copy. On March 22,25, 2021, we initiated delivery of proxy materials to our shareholders of record in one of two ways: (1) a notice containing instructions on how to access proxy materials via the Internetinternet or (2) a printed copy of those materials. If you received a notice in lieu of a printed copy of the proxy materials, you will not automatically receive a printed copy of the proxy materials in the mail. Instead, the notice provides instructions on how to access the proxy materials on the Internetinternet and how to vote online or by telephone. If you received such a notice and would also like to receive a printed copy of the proxy materials, the notice includes instructions on how you may request a printed copy.
VOTING
Who is entitled to vote at the Annual Meeting?You must be a shareholder of record on the record date, which is March 8, 2018,2021, to vote your shares at the Annual Meeting.
How do I vote my shares?How you vote your shares will depend on whether you are a shareholder of record or a beneficial owner of your shares.
2021 Proxy Statement | 89 |
Information Regarding the Annual Meeting and Voting
Shareholders of record.record. Each shareholder of record is entitled to one vote on all matters presented at the Annual Meeting for each share of Common Stock held. You are considered a shareholder of record if your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., as of the record date. If you are a shareholder of record, Broadridge provides proxy materials to you on our behalf. If your shares are registered in different names or held in more than one account, you may receive more than one proxy card or set of voting instructions. In that case, you will need to vote separately for each set of shares in accordance with the following voting procedures.
Shareholders of record may cast their vote in one of the following ways:
You May Cast Your Vote: | ||||||
| access www.ProxyVote.com and follow the instructions | |||||
By Telephone: | ||||||
| call1-800-690-6903 and follow the instructions | |||||
By Mail: | ||||||
| sign and date each proxy card received and return each card using the prepaid postage envelope | |||||
In Person: | ||||||
| attend the Annual Meeting and vote by | ballot. |
58 General Dynamics 2018 Proxy Statement
Annual Meeting Information
The telephone and Internetinternet voting systems are available 24 hours a day. They will close at 11:59 p.m. eastern time on May 1, 2018.4, 2021. Please note the voting deadline differs for participants in our 401(k) plans, as described below.All shares represented by properly executed, completed and unrevoked proxies that are received on time will be voted at the Annual Meeting in accordance with the specifications made in the proxy card.
FORthe election of directors as described in this Proxy Statement | ||
FORthe selection, on an advisory basis, of KPMG LLP as the independent auditors of the company | ||
FORthe approval, on an advisory basis, of the compensation of the named executive officers | ||
AGAINSTthe shareholder proposal | ||
IN ACCORDANCE WITHthe judgment of the proxy holders for other matters that properly come before the Annual |
Beneficial Owners.If your shares are held by a bank, broker or other holder of record (sometimes referred to as holding shares in “street name”), the bank, broker or other holder is the shareholder of record and you are the beneficial owner of those shares. Your bank, broker or other holder of record will forward the proxy materials to you. As the beneficial owner, you have the right to direct the voting of your shares by following the voting instructions provided with these proxy materials. Please refer to the proxy materials forwarded by your bank, broker or other holder of record to see which voting options are available to you.
401(k) Plan Participants.Fidelity Management Trust Company (Fidelity), as trustee, is the holder of record of the shares of Common Stock held in our 401(k) plans – the General Dynamics Corporation 401(k) Plan and the General Dynamics Corporation 401(k) Plan for Represented Employees. If you are a participant in one of these plans and in the fund that invests in shares of Common Stock, you are the beneficial owner of the shares of Common Stock credited to your plan account. As beneficial owner and named fiduciary, you have the right to instruct Fidelity, as plan trustee, how to vote your shares. If you do not provide Fidelity with timely voting instructions then, consistent with the terms of the plans, Newport Trust Company (Newport), will direct Fidelity, in Newport’s discretion, how to vote the shares. Newport serves as the independent fiduciary and investment manager for the General Dynamics Stock Fund of the 401(k) plans.
Broadridge provides proxy materials to participants in these plans on behalf of Fidelity. If you are a plan participant and also a shareholder of record, Broadridge may combine the shares registered directly in your name and the shares credited to your 401(k) plan account onto one proxy card. If Broadridge does not combine your shares, you will receive more than one set of proxy materials. In that case, you will need to submit a vote for each set of shares. The vote you submit via proxy card or the telephone or Internetinternet voting systems will serve as your voting instructions to Fidelity.To allow sufficient time for Fidelity to vote your 401(k) plan shares, your vote, or anyre-vote, must be received by 9 a.m.11:59 p.m. eastern time on AprilMay 2, 2021.
90 | General Dynamics |
Information Regarding the Annual Meeting and Voting
Can I change or revoke my proxy vote?A shareholder of record may change or revoke a proxy at any time before it is voted at the Annual Meeting by:
A | ||
Sendingwritten notice of revocation to our Corporate Secretary | ||
Submittinganother proxy card that is dated later than the original proxy card | ||
Re-votingby using the telephone or | ||
Attendingthe Annual Meeting and voting by ballot (attendance at the Annual Meeting alone will not act to revoke a prior proxy) . |
Our Corporate Secretary must receive notice of revocation, or a subsequent proxy card, before the vote at the Annual Meeting for a revocation to be valid. Except as described above for participants in our 401(k) plans, are-vote by the telephone or Internetinternet voting systems must occur before 11:59 p.m. eastern time on May 1, 2018.4, 2021. If you are a beneficial owner, you must revoke your proxy through the appropriate bank, broker or other holder of record.
General Dynamics 2018 Proxy Statement 59
Annual Meeting InformationVote Required
VOTE REQUIRED
What is a brokernon-vote?A brokernon-vote occurs when a bank, broker or other holder of record holding shares for a beneficial owner does not vote on a particular proposal because that holder does not have discretionary voting power for the proposal and has not received voting instructions from the beneficial owner. Banks, brokers and other holders of record have discretionary authority to vote shares without instructions from beneficial owners only on matters considered “routine” by the New York Stock Exchange, such as the advisory vote on the selection of the independent auditors. Onnon-routine matters, such as the election of directors, executive compensation matters and the shareholder proposal, these banks, brokers and other holders of record do not have discretion to vote uninstructed shares and thus are not “entitled to vote” on such proposals, resulting in a brokernon-vote for those shares. We encourage all shareholders that hold shares through a bank, broker or other holder of record to provide voting instructions to those holders to ensure that their shares are voted at the Annual Meeting.
What is the vote required for each proposal, and what is the effect of an abstention or brokernon-vote on the voting?
Vote Requirements and the Effect of Abstentions or Broker Non-Votes | ||||||||||
| Effect of Abstentions and Broker Non-Votes | |||||||||
Proposal 1: Election of the Board of Directors of the Company | Directors will be elected by a majority of the votes cast and entitled to vote at the Annual Meeting. A “majority of the votes cast” means the number of votes cast “for” a director’s election exceeds the number of votes cast “against” that director’s election. You may vote for, vote against or abstain from voting for any or all nominees. | Abstentions and brokernon-votes will not be counted as a vote cast “for” or “against” a director’s election. | ||||||||
Proposal 2: Advisory Vote on the Selection of Independent Auditors | This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter. | Abstentions will have the effect of a vote against this proposal. Brokernon-votes do not occur for this proposal because banks, brokers and other holders of record have authority under the New York Stock Exchange rules to vote in their discretion on the selection of independent auditors. | ||||||||
Proposal 3: Advisory Vote to Approve Executive Compensation | This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter. | Abstentions will have the effect of a vote against the proposal. Brokernon-votes will have no effect on the proposal. | ||||||||
Proposal 4: Special Shareholder Meetings | ||||||||||
| This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter. | Abstentions will have the effect of a vote against the proposal. Brokernon-votes will have no effect on the proposal. |
2021 Proxy Statement | 91 |
Information Regarding the Annual Meeting and Voting
Who will count the votes?Representatives of American Election Services, LLC, will tabulate the vote at the Annual Meeting.
Who is soliciting votes for the Annual Meeting?The Board of Directors is soliciting proxies from shareholders. Directors, officers and other employees of General Dynamics may solicit proxies from our shareholders by mail,e-mail, telephone, facsimile or in person. In addition, Innisfree M&A Incorporated (Innisfree), 501 Madison Avenue, New York, New York, is soliciting brokerage firms, dealers, banks, voting trustees and their nominees.
We will pay Innisfree approximately $15,000 for soliciting proxies for the Annual Meeting and will reimburse brokerage firms, dealers, banks, voting trustees, their nominees and other record holders for theirout-of-pocket expenses in forwarding proxy materials to the beneficial owners of Common Stock. We will not provide compensation, other than their usual compensation, to our directors, officers and other employees who solicit proxies.
92 | General Dynamics |
60 General Dynamics 2018 Proxy StatementTable of Contents
Other Information |
OTHER INFORMATIONAdditional Shareholder Matters
ADDITIONAL SHAREHOLDER MATTERS
If any other matters properly come before the Annual Meeting, the individuals named in the proxy card will have discretionary authority to vote the shares they represent on those matters, except to the extent their discretion may be limited under Rule14a-4(c) of the Exchange Act.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)Shareholder Proposals and Director Nominees For 2022 Annual Meeting of the Exchange Act requires our officers and directors, as well as anyone who is a beneficial owner of more than 10 percent of a registered class of our stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission and the New York Stock Exchange, and to furnish us with copies of these forms. To our knowledge, based solely on a review of the copies of Forms 3, 4 and 5 submitted to us, all of our executive officers and directors complied with all filing requirements imposed by Section 16(a) of the Exchange Act during 2017, other than Ms. Reynolds who filed a late Form 4 relating to an equity grant due to administrative error.Shareholders
SHAREHOLDER PROPOSALSFOR 2019 ANNUAL MEETINGOF SHAREHOLDERS
If you wish to submit a proposal for inclusion in our proxy materials to be distributed in connection with the 2019 annual meeting,2022 Annual Meeting, your written proposal must comply with the rules of the Securities and Exchange CommissionSEC and be received by us no later than November 22, 2018.25, 2021. The proposal should be sent to the Corporate Secretary, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church,11011 Sunset Hills Road, Reston, Virginia 22042.20190.
If you intend to present a proposal at the 2019 annual meeting2022 Annual Meeting that is not to be included in our proxy materials, including director nominations, you must comply with the various requirements established in our Bylaws. Among other things, the Bylaws require that a shareholder submit a written notice to our Corporate Secretary at the address in the preceding paragraph no earlier than January 2, 2019,5, 2022, and no later than February 1, 2019.4, 2022.
In addition, our Bylaws permit a shareholder or a group of up to 20 shareholders who have owned 3 percent3% or more of our outstanding shares of capital stock continuously for three years to submit director nominees for inclusion in our proxy statement if the shareholder(s) and nominee(s) satisfy the requirements specified in our Bylaws. These requirements can be found in Article II, Section 10 of our Bylaws, and include the requirement that the applicable notice be received by the company no earlier than October 23, 2018,26, 2021, and no later than November 22, 2018.25, 2021.
ANNUAL REPORTON FORM
The Annual Report, which includes our Form10-K and accompanies this Proxy Statement, is not considered a part of the proxy solicitation material. We will furnish to any shareholder, without charge, a copy of our 20172020 Annual Report, as filed with the Securities and Exchange Commission.SEC. A request for the report can be made verbally or in writing to Investor Relations, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church,11011 Sunset Hills Road, Reston, Virginia 22042, (703)876-300020190, 1-703-876-3559 or through our website. The Form10-K and other public filings are also available through the SEC’s website at www.sec.gov and on our website at www.gd.com/SECFilings.
DELIVERYOF DOCUMENTSTO SHAREHOLDERS SHARINGAN ADDRESS
Delivery of Documents to Shareholders Sharing an Address
We will deliver only one Annual Report and Proxy Statement to shareholders who share a single address unless we have received contrary instructions from any shareholder at the address. In that case, we will deliver promptly a separate copy of the Annual Report and Proxy Statement. For future deliveries, shareholders who share a single address can request a separate copy of our Annual Report and Proxy Statement. Similarly, if multiple copies of the Annual Report and Proxy Statement are being delivered to a single address, shareholders can request a single copy of the Annual Report and Proxy Statement for future deliveries. To make a request, please call703-876-3000 1-703-876-3000 or write to the Corporate Secretary, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church,11011 Sunset Hills Road, Reston, Virginia 22042.20190.
2021 Proxy Statement | 93 |
General Dynamics 2018 Proxy Statement 61Table of Contents
APPENDIX A(DOLLARS IN MILLIONS)
USE OFNON-GAAP FINANCIAL MEASURES
(DOLLARSINMILLIONS)
This Proxy Statement containsnon-GAAP financial measures, as defined by Regulation G of the Securities and Exchange Commission.SEC.
We emphasize the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. As described below, we use free cash flow from operations and ROICreturn on invested capital (ROIC) to measure our performance in these areas. While we believe these metrics provide useful information, they are not defined operating measures under U.S. generally accepted accounting principles (GAAP), and there are limitations associated with their use. Our calculation of these metrics may not be completely comparable to similarly titled measures of other companies due to potential differences in the method of calculation. As a result, the use of these metrics should not be considered in isolation from, or as a substitute for, other GAAP measures.
Free Cash Flow.We define free cash flow from operations as net cash provided by operating activities less capital expenditures. We believe free cash flow from operations is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying maturing debt, funding business acquisitions, repurchasing our common stockCommon Stock and paying dividends. We use free cash flow from operations to assess the quality of our earnings and as a performance measure in evaluating management. The following table reconciles the free cash flow from operations with net cash provided by operating activities:
Year Ended December 31 | 2017 | 2016 | 2015 | 2020 | 2019 | 2018 | ||||||||||||||||||
Net cash provided by operating activities | $ | 3,879 | $ | 2,198 | $ | 2,607 | $ | 3,858 | $ | 2,981 | $ | 3,148 | ||||||||||||
Capital expenditures | (428 | ) | (392 | ) | (569 | ) | (967 | ) | (987 | ) | (690 | ) | ||||||||||||
Free cash flow from operations | $ | 3,451 | $ | 1,806 | $ | 2,038 | $ | 2,891 | $ | 1,994 | $ | 2,458 |
Return on Invested Capital. We believe ROIC is a useful measure for investors because it reflects our ability to generate returns from the capital we have deployed in our operations. We use ROIC to evaluate investment decisions and as a performance measure in evaluating management. We define ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after taxes is defined as earnings from continuing operations plusafter-tax interest and amortization expense.expense, calculated using the statutory federal income tax rate. Average invested capital is defined as the sum of the average debt and shareholders’ equity for the year. ROIC excludesexcluding accumulated other comprehensive income (AOCI),loss. ROIC excludes goodwill impairments andnon-economic accounting changes as they are not reflective of company performance. ROIC is calculated as follows:
Year Ended December 31 | 2017 | 2016 | 2015 | 2020 | 2019 | 2018 | ||||||||||||||||||
Earnings from continuing operations | $ | 2,912 | $ | 2,679 | $ | 3,036 | $ | 3,167 | $ | 3,484 | $ | 3,358 | ||||||||||||
After-tax interest expense | 76 | 64 | 64 | 386 | 373 | 295 | ||||||||||||||||||
After-tax amortization expense | 51 | 57 | 75 | 280 | 287 | 258 | ||||||||||||||||||
Net operating profit after taxes | $ | 3,039 | $ | 2,800 | $ | 3,175 | $ | 3,833 | $ | 4,144 | $ | 3,911 | ||||||||||||
Average invested capital | $ | 18,099 | $ | 17,168 | $ | 17,579 | $ | 32,431 | $ | 29,620 | $ | 25,367 | ||||||||||||
Return on invested capital | 16.8 | % | 16.3 | % | 18.1 | % | 11.8 | % | 14.0 | % | 15.4 | % |
94 | General Dynamics |
AdjustedNon-GAAPTable of Contents Earnings from Continuing Operations.
This measure excludes the impactpage intentionally left blank
Table of tax reform enacted in December 2017, the Tax Cuts and Jobs Act (TCJA). Contents
This impact is considered by management apage intentionally left blank
one-time,non-cashTable of Contents event. Therefore, management developed thisnon-GAAP measure for 2017 results, which is used to evaluate performance. Management believes the measure is also useful supplemental information for investors to understand the company’s results. The GAAP measure comparable to adjustednon-GAAP earnings from continuing operations is earnings from continuing operations. The following table reconciles the 2017 adjustednon-GAAP earnings from continuing operations to earnings from continuing operations.
Year Ended December 31 | 2017 | |||
Earnings from continuing operations | $ | 2,912 | ||
Adjustment for change in tax law | 119 | |||
Adjustednon-GAAP earnings from continuing operations | $ | 3,031 |
General Dynamics 2018 Proxy Statement A-1
GENERAL DYNAMICS CORPORATION
2941 FAIRVIEW PARK DRIVE
FALLS CHURCH,
11011 SUNSET HILLS ROAD
RESTON, VA 2204220190
VOTE BY INTERNET -www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up untilinformation. Vote by 11:59 P.M. Eastern Time the day before the cut-off date or meeting date.on May 4, 2021 for shares held directly and by 11:59 P.M. Eastern Time on May 2, 2021 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until
instructions. Vote by 11:59 P.M. Eastern Time the day before the cut-off date or meeting date.on May 4, 2021 for shares held directly and by 11:59 P.M. Eastern Time on May 2, 2021 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
SHAREHOLDER MEETING REGISTRATION
To vote and/or attend the meeting, go to the “Register for Meeting” link atwww.proxyvote.com.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
E39052-P03067-Z71842 KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | |
D36082-P49110-Z79060 | KEEP THIS PORTION FOR YOUR RECORDS |
DETACH AND RETURN THIS PORTION ONLY | |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
GENERAL DYNAMICS CORPORATION | ||||||||||||||||||||||||
The Board of Directors recommends you vote FOR the following proposal: | ||||||||||||||||||||||||
1. | Election of Directors | |||||||||||||||||||||||
| Against | Abstain | ||||||||||||||||||||||
Nominees: | ||||||||||||||||||||||||
1a. | James S. Crown | ☐ | ☐ | ☐ | ||||||||||||||||||||
1b. | Rudy F. deLeon | ☐ | ☐ | ☐ | ||||||||||||||||||||
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1c. | Cecil D. Haney | ☐ | ☐ | ☐ | ||||||||||||||||||||
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1d. | Mark M. Malcolm | ☐ | ☐ | ☐ | ||||||||||||||||||||
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1e. | James N. Mattis | ☐ | ☐ | ☐ | ||||||||||||||||||||
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1f. | Phebe N. Novakovic
| ☐ | ☐ | ☐ | ||||||||||||||||||||
1g. | C. Howard Nye
| ☐ | ☐ | ☐ | ||||||||||||||||||||
1h. | Catherine B. Reynolds | ☐ | ☐ | ☐ | ||||||||||||||||||||
1i. | Laura J. Schumacher | ☐ | ☐ | ☐ | ||||||||||||||||||||
1j. | Robert K. Steel | ☐ | ☐ | ☐ | ||||||||||||||||||||
1k. | John G. Stratton | ☐ | ☐ | ☐ | ||||||||||||||||||||
1l. | Peter A. Wall | ☐ | ☐
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| The Board of Directors recommends you vote FOR the following proposals: | For | Against | Abstain | |||||||
2. | Advisory Vote on the Selection of Independent Auditors | ☐ | ☐ | ☐ | ||||||||
3. | Advisory Vote to approve Executive Compensation | ☐ | ☐ | ☐ | ||||||||
The Board of Directors recommends you vote AGAINST the following proposal: | For | Against | Abstain | |||||||||
4. | Shareholder Proposal to reduce the ownership threshold required to call a | ☐ | ☐ | ☐ | ||||||||
NOTE:Such other business as may properly come before the meeting or any adjournment thereof. |
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX] | Date |
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Signature (Joint Owners) | Date |
DIRECT DEPOSIT NOTICE
General Dynamics Corporation and Computershare remind you of the opportunity to have your quarterly dividends electronically deposited into your checking or savings account. The main benefit of direct deposit to you is knowing that your dividends are in your account on the payable date.
Telephone inquiries regarding stock, including registration for direct deposit of dividends, should be made to Computershare’s automated Toll-Free Telephone Response Center at 1-800-519-3111.1-800-519-3111 or manage your account online at www.us.computershare.com/investor/.
General Dynamics Corporation encourages you to take advantage of one of the convenient ways by which you can vote these shares for matters to be covered at the 20182021 Annual Meeting of Shareholders. You can vote these shares electronically through the Internet or by telephone, either of which eliminates the need to return the proxy card. If you do not wish to vote through the Internet or by telephone, you can vote by mail by following the instructions on the proxy card on the reverse side.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
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E39053-P03067-Z71842
D36083-P49110-Z79060 |
Proxy — GENERAL DYNAMICS CORPORATION | ||
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 5, 2021
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The undersigned hereby appoints PHEBE N. NOVAKOVIC, JASON W. AIKEN and GREGORY S. GALLOPOULOS, and each of them, as proxy or proxies, with full power of substitution, to vote all shares of common stock, par value $1.00 per share, of GENERAL DYNAMICS CORPORATION, a Delaware corporation, that the undersigned is entitled to vote at the 2021 Annual Meeting of Shareholders, and at any adjournment or postponement thereof, upon the matters set forth on the reverse side and upon such other matters as may properly come before the annual meeting, all as more fully described in the Proxy Statement for the 2021 Annual Meeting of Shareholders.
THIS PROXY WHEN PROPERLY EXECUTED AND TIMELY RETURNED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING, THIS PROXY WILL BE VOTED AT THE DISCRETION OF THE PROXIES NAMED ABOVE, AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IF THIS PROXY IS PROPERLY EXECUTED AND TIMELY RETURNED BUT NO DIRECTION IS MADE HEREON, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3, AND AGAINST PROPOSAL 4.
If you are a participant in the Company’s 401(k) plans, this proxy card constitutes your instructions to Fidelity, the trustee of the plans, as to the vote of the shares of Company common stock in your plan accounts. If you do not submit valid and timely voting instructions, Newport Trust Company, the independent fiduciary and investment manager for the Company common stock in your plan accounts, will direct the vote of your plan shares in its discretion.
PLEASE COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT IN THE POSTAGE-PAID ENVELOPE PROVIDED.