UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OFExchange Act of 1934
Filed by the registrantx
Filed by a party other than the registrant¨
Check the appropriate box:
Filed by the Registrant | Filed by a Party other than the Registrant |
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| Preliminary Proxy Statement | ||
CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14a-6(e) (2)) | |||
Definitive Proxy Statement | |||
| Definitive Additional Materials | ||
| Soliciting Material Pursuant to |
Lockheed Martin CorporationLOCKHEED MARTIN CORPORATION
(Name of Registrant as Specified inIn Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Thanother than the Registrant)
Payment of filing fee (check the appropriate box):
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
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Executive Office
Lockheed Martin Corporation
6801 Rockledge Drive Bethesda MD 20817
March 9, 20128, 2013
Dear Fellow Stockholders:
On behalf of the Board of Directors, we would like to invite you to attend our 20122013 Annual Meeting of Stockholders. We will meet on Thursday, April 26, 2012,25, 2013, at 10:30 a.m. Central Daylight Time, at the Lockheed Martin Space Systems Company, 4800 Bradford Drive, Building 406, Huntsville, ALAlabama 35807. Prior to the meeting, you are invited to join the Board of Directors and senior management at a reception at 10:00 a.m. If
While our industry experienced some challenges in 2012 due to the global economic environment, we delivered strong performance that enabled us to:
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attain record levels for several key financial metrics;
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increase our dividend by 15 percent, representing the tenth consecutive annual double-digit percentage increase; and
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generate total stockholder return of 20 percent.
We remain committed to achieving long-term business growth and delivering value to our stockholders through execution of sound business strategies, diligent risk oversight, top-quality talent development, and robust succession planning. During the last year, we strengthened our focus on corporate sustainability, investor engagement, and executive compensation best practices. Based on direct feedback from our investors and stakeholders, we have adopted additional improvements to our governance and compensation programs.
Your vote is important. We urge you cannotto vote promptly, even if you plan to attend you may listen to a live webcast of the Annual Meeting at our website,http://www.lockheedmartin.com/investor.
Meeting. The accompanying Notice and Proxy Statement describeprovide information about the matters on which stockholdersyou may vote, at the Annual Meeting. Whether or not you plan to attend, please be sure to vote your shares by returning the enclosed proxy card, or by following the instructions for Internet or telephone voting printed on the proxy card. If you plan to attend, please let us know by marking the appropriate box when you cast your vote.our leadership changes, and our 2012 results.
If you plan to attend the Annual Meeting, please note that, forFor security reasons before being admitted:admitted into the Annual Meeting, you must present your admission ticket or proof of ownership and a valid photo identification. All hand-carried items will be subject to inspection, and all bags, briefcases, or packages must be checked.
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Thank you for your continued support of Lockheed Martin. We look forward to seeing you at the Annual Meeting.
Sincerely,
Sincerely,
Marillyn A. Hewson | ||
Robert J. Stevens | ||
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Lockheed Martin Corporation
6801 Rockledge Drive Bethesda MD 20817
NOTICE OF 2012 ANNUAL MEETING OF STOCKHOLDERS
Notice of 2013 Annual Meeting of Stockholders |
Thursday, April 25, 2013
">10:30 a.m. Central Daylight Time">Lockheed Martin Space Systems Company, 4800 Bradford Drive, Building 406, Huntsville, Alabama 35807Lockheed Martin Corporation stockholders of record at the close of business on March 1, 20122013 are entitled to receive notice of, and to vote at, the Annual Meeting.
Items of Business:Business:
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Election of 12 director-nominees to serve on the Board for a one-year term ending at next year’s Annual Meeting.
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Ratification of the appointment of Ernst & Young LLP, an independent registered public accounting firm, as our independent auditors for 2013.
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Advisory vote to approve the compensation of our named executive officers.
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Consideration of three stockholder proposals described in the accompanying Proxy Statement, if properly presented at the Annual Meeting.
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Consideration of any other matters that may properly come before the meeting.
We have enclosed our 20112012 Annual Report to Stockholders. The report is not part of the proxy soliciting materials for the Annual Meeting.
Please vote your shares at your earliest convenience. This will help us to ensure the presence of a quorum at the meeting. Promptly voting your shares via the Internet, by telephone, or by signing, dating, and returning the enclosed proxy card will save the expensesexpense of additional solicitation. If you wish to vote by mail, we have enclosed ana self addressed, envelope, postage prepaid if mailed in the United States.envelope. Submitting your proxy now will not prevent you from voting your shares at the meeting, as your proxy is revocable at your option.
Sincerely,
Maryanne R. Lavan
Senior Vice President, General Counsel
and Corporate Secretary
March 9, 2012
PROXY STATEMENT SUMMARY
This summary highlights information contained elsewhere in our proxy statement. The summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.
BUSINESS OPERATIONS
Financial Results. In January 2011, we provided guidance on our forecasted 2011 financial results. At the conclusion of 2011, we exceeded or met all of the projected results:
Initial Guidance | Results | |||||||||
Ø Sales | $45,750 – $47,250M | $46,499M | ||||||||
Ø Segment Operating Profit* | $4,950 – $5,100M | $5,281M | ||||||||
Ø Segment Operating Margin* | 10.8% | 11.4% | ||||||||
Ø Earnings Per Share | $6.70 – $7.00 | $7.85 | ||||||||
Ø Cash from Operations** | ³$4,175M | $4,253M | ||||||||
* See Appendix A for explanation of non-GAAP terms. ** Original goal of $4,000M revised to reflect the reclassification of capitalized software from cash from operations to cash from investing, consistent with the Corporation’s accounting presentation overall. |
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Returning Cash to Stockholders. We executed our goal to return cash to stockholders by repurchasing 31.8 million shares and paying $1.1B to stockholders through quarterly dividends. In September 2011, we announced a 33% increase in our quarterly dividend rate, resulting in a new quarterly dividend of $1.00 per share beginning with our December 2011 dividend payment.
Total Stockholder Return (“TSR”).Our one-year TSR of 21% outperformed the S&P 500 (one-year TSR of 2%), the S&P Industrials Index (one-year TSR of negative 1%), and the S&P Aerospace & Defense Index (one-year TSR of 5%).
Our Governance Profile Reflects Best Practices:
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Corporate Responsibility:
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Longstanding Stockholder Engagement Program.We continued to expand our stockholder engagement program and met or talked with 26 of our largest investors who represent nearly half of the Corporation’s outstanding shares. As a result of those discussions, we have expanded our disclosure in this year’s proxy statement and made changes to our executive compensation program.
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PROXY STATEMENT SUMMARY
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VOTING MATTERS AND BOARD’S VOTING RECOMMENDATIONS
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TABLE OF CONTENTS
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On behalf of your Board of Directors (the “Board”), we are furnishing the Notice, Proxy Statement, and proxy card (“Proxy Materials”) in connection with the solicitation of proxies to be voted at our 2012 Annual Meeting of Stockholders (the “Annual Meeting”) and at any adjournment or postponement of the Annual Meeting. Lockheed Martin Corporation (“Lockheed Martin” or the “Corporation”) is a Maryland corporation.
Our Annual Meeting will take place on April 26, 2012, at 10:30 a.m. Central Daylight Time, at the Lockheed Martin Space Systems Company, 4800 Bradford Drive, Building 406, Huntsville, AL 35807. Directions to the meeting are provided in Appendix B.
We began mailing the Proxy Materials for the Annual Meeting and our 2011 Annual Report to Stockholders (“Annual Report”) on or about March 9, 2012.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on April 26, 2012:25, 2013: The 2013 Proxy Statement and 2012 Annual Report are available at
http://www.lockheedmartin.com/investor.
Do I need an admission ticket to attend the Annual Meeting?
Yes. You must present both an admission ticket or proofTable of ownership and valid photo identification to attend the Annual Meeting.
Contents
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Stockholder Right to |
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS |
PROPOSAL 3: ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS (“SAY-ON-PAY”) |
2013 Proxy Statement 4
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS |
Definition of Non-GAAP (Generally Accepted Accounting Principles) Measures |
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2013 Proxy Statement 5
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If you do not have an admission ticket or proofBack to Contents
PROXY STATEMENT
The Board of ownershipDirectors (the “Board”) of Lockheed Martin Corporation (the “Corporation”) is providing the Notice, Proxy Statement, and valid photo identification, you will notproxy card (“Proxy Materials”) in connection with the Corporation’s solicitation of proxies to be admitted into the Annual Meeting.
Will there be a webcast of the Annual Meeting?
Yes. We will webcastvoted at the Annual Meeting liveof Stockholders (the “Annual Meeting”) to be held on April 26, 2012. To access the webcast, go to
http://www.lockheedmartin.com/investor25, 2013, at 10:30 a.m. Central Daylight Time, at Lockheed Martin Space Systems Company, 4800 Bradford Drive, Building 406, Huntsville, Alabama 35807, and at any adjournment or postponement thereof. Proxy Materials or a Notice of Internet Availability were first sent to stockholders on April 26,or about March 8, 2013.
PROXY SUMMARY
This summary highlights information contained elsewhere in our Proxy Statement. The summary does not contain all of the information that you should consider, and we encourage you to read the entire Proxy Statement carefully.
Business Highlights
Financial Highlights
We had a strong year financially and exceeded goals for several key financial metrics despite budget and financial uncertainties.
| 2012 Goal | 2012 Actual | Assessment | ||||
• Sales | $ | 45,000 – 46,000M | $ | 47,182M | Exceeded Goal | ||
• Segment Operating Profit* | $ | 5,025 – 5,125M | $ | 5,583M | Exceeded Goal | ||
• Segment Operating Margin* | 11.2 | % | 11.8 | % | Exceeded Goal | ||
• Earnings Per Share | $ | 7.70 – 7.90 | $ | 8.36 | Exceeded Goal | ||
• Cash From Operations | $ | 3,800M | $ | 1,561M | $2.2B below goal after making discretionary pension contributions of $2.5B | ||
• ROIC* | ≥14.5 | % | 15.5 | % | Exceeded Goal | ||
* See Appendix A for explanation of non-GAAP terms. |
In addition to the metrics presented in the table above, we also had a record amount of orders during 2012 which led to a record backlog at the end of 2012. Stockholders who wish
Returning Cash to accessStockholders
Through effective cash management, we returned value to stockholders through $2,342 million in cash dividends and stock repurchases. In September 2012, we increased our dividend by 15%, marking the webcast should pre-registertenth year in a row that we have increased our dividend by a double-digit percentage.
Total Stockholder Return (“TSR”)
Over the one-and three-year periods ended December 31, 2012, we provided better total returns to our stockholders than the market overall. During 2012, our TSR of 20% outperformed the S&P Aerospace and Defense (A&D) Index (15%) and the S&P 500 Index (16%). Over the three-year period ended December 31, 2012, we performed in line with the S&P A&D Index, while outperforming the S&P 500 Index.
We use the following non-GAAP terms in this Proxy Statement – “segment operating profit,” “segment operating margin,” “return on invested capital (ROIC),” and “adjusted cash from operations” – which are defined in Appendix A. Please refer to Appendix A for an explanation of these terms as well as our disclosure regarding forward-looking statements concerning future performance or goals for future performance.
2013 Proxy Statement 6
Corporate Governance Best Practices
Our Governance Profile Reflects Best Practices
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Annual Election of Directors
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Simple Majority Voting for Directors
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Resignation Policy for Directors in Failed Elections
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Over 90% Average Board Meeting Attendance with No Director Attendance of Less Than 75%
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Regular Executive Sessions of Non-Management Directors
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Policy Prohibiting Pledging and Hedging of Our Stock by Directors and Employees
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Majority Independent Directors
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Independent Lead Director With Broad Authority
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Director Stock Ownership Guidelines
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Director Attendance at Annual Meeting
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Mandatory Retirement Policy
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Overboarding Policy
Corporate Sustainability
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Published Comprehensive Sustainability Report
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Ethics Policy
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Human Rights Policy
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“Go Green” Initiatives
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Disclosure of Corporate Political Contributions
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Target Zero Worker Safety Program
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Board-Level Committee With Ethics and Sustainability Oversight
Long-Standing Investor Engagement Program
We continued to expand our investor engagement program on governance and compensation matters and met or talked with investors representing more than half of the Corporation’s outstanding shares. Consistent with our strong interest in investor engagement, communication, and transparency, the Management Development and Compensation Committee (the “Compensation Committee”) continued to refine our executive compensation program to better align the interests of our executives and stockholders and respond to investor feedback, making the changes summarized below.
Executive Compensation Summary
2012 Pay Aligns to Performance
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Our 2012 annual incentive bonus paid above target, reflecting record-setting financial results as well as key strategic and operational accomplishments.
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The 2010-2012 Long-Term Incentive Performance (“LTIP”) award paid out at 150.8%, based on our website no later than 10:00 a.m., Central Daylight Time. Listeningthree-year cash generation and return on invested capital (“ROIC”) performance against our long-range plan and our three-year cumulative TSR placing us in the 53rd percentile of the S&P Industrials Index.
Executive Compensation Changes
In response to feedback from our investors following our 2012 Annual Meeting, webcast will not represent attendance at the meeting, and you will not be able to cast your vote as part ofCompensation Committee approved the live webcast.following changes (effective for 2013, unless noted otherwise):
Who is entitled to vote at the Annual Meeting?•
Holders of our common stock at the close of business on March 1, 2012 are entitled to vote their shares at the Annual Meeting. As of the Record Date, there were 324,652,425 shares outstanding. Each share outstanding on the Record Date is entitled to one vote on each proposal presented at the Annual Meeting. This includes shares held through Direct Invest, our dividend reinvestment and stock purchase plan, or through our employee benefit plans. Your proxy card showsReduced the number of shares heldwe use each year for equity compensation (“burn rate”) by using Performance Stock Units (“PSUs”) instead of stock options.
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Assigned weightings to the organizational metrics (60% financial, 20% operational, 20% strategic) we use as part of our assessment of performance in your account(s).order to clarify the framework around which annual incentive compensation decisions are made. We made this change in 2012.
GENERAL INFORMATION•
What isIncreased the difference between holding shares as a registered stockholder and as a beneficial owner?
If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A. (“Computershare”), you are consideredemphasis on company performance for annual incentive awards decisions by increasing the “registered stockholder” of those shares. We mail the Proxy Materials and our Annual Report to you directly.
If your shares are held in a stock brokerage account or by a bank or other nominee (“street name”), you are considered the “beneficial owner”weighting of the shares that are registered in street name. In this case, the Proxy Materials and our Annual Report were forwardedorganizational performance factors (as opposed to you by your broker, bank, or other nominee, which is considered the registered stockholder. As the beneficial owner, you have the rightindividual performance factors) to direct your broker, bank, or other nominee how to vote your shares by following the voting instructions includedbe used in the mailing.assessment.
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Changed the equity component of our long-term incentive (“LTI”) package for the Chief Executive Officer (“CEO”) and the other named executive officers (“NEOs”) from 60% to 80%.
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Increased the portion of our LTI that is based on achievement of specified performance goals from 40% to 70%.
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Refined our executive compensation philosophy to:
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Set the market rate for total compensation at the 50th percentile of our comparator group of peer companies, subject to the ability to set compensation above or below the market rate for performance, experience, time in position, and critical skill needs; and
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Set salary and LTI for executives who are new to a position at 85% of the market rate with shares allocatedthe goal of moving to a market-rate level in an employee benefit plan account will not receive a paper mailingtwo years based on performance.
2013 Proxy Statement 7
Voting Matters and should review the information on procedures for voting by employees on page 4.
What am I voting on and what are the Board’s voting recommendations?
Our stockholders will be voting on the following proposals:
Voting Recommendations
Management Proposals: | Board’s Voting Recommendations |
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Election of | FOR ALL DIRECTOR-NOMINEES | 19 | |||
Ratification | FOR | 26 | |||
Advisory Officers (“ | FOR | 27 | |||
Stockholder Proposals: | |||||
Stockholder Action by Written Consent (Proposal | AGAINST | 70 | |||
Adopt a | AGAINST | 71 | |||
Report on Corporate Lobbying Expenditures | AGAINST | 72 |
Can other matters be decided at the Annual Meeting?
At the time this Proxy Statement went to press, we were not aware of any other matters to be presented at the Annual Meeting. If other matters are properly presented for consideration at the Annual Meeting, the proxy holders appointed by your Board (who are named on your proxy card if you are a registered stockholder) will have the discretion to vote on those matters in accordance with their best judgment on behalf of stockholders who provide a valid proxy by Internet, by telephone, or by mail.
What is the procedure for voting?
If your shares are registered in your name, you may vote using any of the methods described below. If your shares are held in the name of a broker, bank, or other nominee, your nominee will provide you with instructions on the procedure for voting your shares. Employees with shares allocated in an employee benefit plan account should review the information on procedures for voting by employees on page 4.
If you hold shares in multiple accounts, you may receive multiple proxy material packages (electronically and/or by mail). Please be sure to vote all of your Lockheed Martin shares in each of your accounts in accordance with the voting instructions you receive.
By Internet or Telephone
You may vote via the Internet athttp://www.investorvote.com. Please have your proxy card in hand when you go online. You will receive instructional screen prompts to guide you through the voting process. You also will have an opportunity to confirm your voting selections before your vote is recorded.
GENERAL INFORMATION
You can vote by telephone by calling toll free 1-800-652-8683 within the U.S., Canada, and Puerto Rico, or 1-781-575-2300 from outside the U.S. Please have your proxy card in hand when you call. You will receive voice prompts to guide you through the voting process. You also will have an opportunity to confirm your voting selections before your vote is recorded.
Internet and telephone voting facilities for registered stockholders will be available 24 hours a day until 1:00 a.m., Eastern Daylight Time, on April 26, 2012. If you vote on the Internet or by telephone, you do not have to return your proxy card.
The availability of Internet and telephone voting for beneficial owners will depend on the voting processes of your broker, bank, or other nominee. You should follow the voting instructions in the materials that you received from your nominee.
By Mail
Mark, date, and sign the proxy card and return it in the postage-paid envelope provided.
If you want to vote in accordance with the Board's recommendations, sign, date, and return the proxy card. The named proxy holders will vote signed but unmarked proxy cards in accordance with the Board’s recommendations.
If you are a registered stockholder, and the postage-paid envelope is missing, please mail your completed proxy card to Lockheed Martin Corporation, c/o Computershare Investor Services, P.O. Box 43116, Providence, RI 02940.
In Person at the Annual Meeting
All registered stockholders may vote in person at the Annual Meeting. Voting your proxy electronically through the Internet, by telephone, or by mail does not limit your right to vote at the Annual Meeting. You also may chose to be represented by another person at the Annual Meeting by executing a legally valid proxy designating that person to vote on your behalf. If you are a beneficial owner of shares, you must obtain a legally valid proxy from your broker, bank, or other nominee and present it to the inspectors of election with your ballot to be able to vote at the Annual Meeting. A legally valid proxy is an authorization from your broker, bank, or other nominee to vote the shares held in the nominee's name that satisfies Maryland law and Securities and Exchange Commission (“SEC”) requirements for proxies.
Your vote is important. You can save us the expense of a reminder mailing by voting promptly, even if you plan to attend the Annual Meeting.
Yes. If you are a registered stockholder, you can change your proxy vote or revoke your proxy at any time before the Annual Meeting by:
following ways:
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You can vote |
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If you are a beneficial owner of shares, you may submit new voting instructions by contacting your broker, bank, or other nominee. You also may vote in person at the Annual Meeting if you obtain a legally valid proxy from the registered stockholder as described in the answer to the previous question.
Your personal attendance at the Annual Meeting does not revoke your proxy. Unless you vote at the Annual Meeting, your last valid proxy prior to or at the Annual Meeting will be used to cast your vote.
GENERAL INFORMATION
What if I return my proxy card but do not provide voting instructions?
Proxies that are signed and returned but do not contain voting instructions will be voted:
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In the | You can vote by mail by marking, dating, and signing your proxy | Scan this QR code to vote with your mobile device. | Attend the meeting to vote in person. |
2013 Proxy Statement 8
CORPORATE GOVERNANCE
Lockheed Martin has a culture dedicated to ethical behavior and responsible corporate activity. This commitment is reflected in our core values: “Do What’s Right;” “Respect Others;” and “Perform with Excellence.” These values are shared across the population of approximately 120,000 employees of Lockheed Martin and are the foundation of our commitment to sustainability: “Fostering innovation, integrity and security to preserve the environment, strengthen communities and propel responsible growth.”
Lockheed Martin’s Code of Ethics and Business Conduct (“Code of Conduct”) has been in place since the Corporation was formed in 1995. The Code of Conduct (which is available on the Corporation’s website located at http://www.lockheedmartin.com/content/dam/lockheed/data/corporate/documents/setting-the-standard.pdf)
applies to all directors, officers, and employees and provides our policies and expectations on a number of topics, including our commitments to good citizenship, promoting a positive and safe work environment, providing transparency in our public disclosures, avoiding conflicts of interest, honoring the confidentiality of sensitive information, preservation and use of company assets, compliance with all laws, and operating with integrity in all that we do. There were no waivers from any provisions of our Code of Conduct or amendments applicable to any director or executive officer. Directors and employees participate in oneethics training annually. We inform active suppliers about our Code of Conduct annually and make it available for distribution.
Corporate Sustainability
Corporate sustainability is part of our business strategy as it influences our operations and informs our decision-making at every stage of our business lifecycle. In 2012, we:
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Amended the Charter for the Ethics and Sustainability Committee of the Corporation's 401(k) or defined contribution plans?Board to clarify the Committee’s responsibility for sustainability.
As a participant in one A copy of the 401(k) or defined contribution plans, you may directCharter is available on the plan trustees how to vote shares allocated to your account(s) on a proxy voting direction or instruction card, by telephone, or electronicallyCorporation’s website located at http://www.lockheedmartin.com/board-ethics-charter.
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Created the Office of Sustainability. The office is led by the Internet. Most active employees who participate in these benefit plans will receive an email notification announcing Internet availabilityVice President of this Proxy StatementEthics and how to submit voting directions.Sustainability. The office has convened a Sustainability Council of executive leaders from each of our business areas and key corporate functions.
If you do not provide timely directions to•
Published our first comprehensive Sustainability Report. The report discloses performance indicators on our environmental and social responsibilities. A copy of the plan trustee, shares allocated to your account(s) will be voted by the plan trustee dependingreport is available on the terms of your plan or other legal requirements.Corporation’s website located at http://www.lockheedmartin.com/sustainability.
Plan participants may attend the Annual Meeting, but may not vote plan shares at the Annual Meeting. If you wish to vote, whether you plan to attend the Annual Meeting or not, you should direct the trustee of your plan(s) how you wish to vote your plan shares no later than 11:59 p.m., Eastern Daylight Time, on April 23, 2012.•
How many shares must be present to hold the Annual Meeting?
In order for us to conduct our Annual Meeting,Convened a majorityformal stakeholder engagement session. The purpose of the shares outstandingsession with external constituencies was to collect input on our sustainability reporting, program goals, progress, and entitledplans. This input will contribute to vote asour ongoing assessment of March 1, 2012 must be presentenvironmental, social and governance issues, and their possible impact on our performance.
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Achieved year-over-year reductions through our Go Green initiative. Our reductions in person or by proxy. This is referred to as a quorum. Your sharescarbon emissions, use of water, and waste in operations through our Go Green initiative are counted as present at the Annual Meeting if you attend the Annual Meeting and votedescribed in person or if you properly return a proxy by Internet, by telephone, or by mail in advance of the Annual Meeting and do not revoke the proxy.
Will my shares be voted if I don't provide my proxy or instruction form?
Registered Stockholders: If your shares are registered in your name, your shares will not be voted unless you provide a proxy by Internet, by telephone, by mail, or vote in person at the Annual Meeting.
Plan Participants: If you are a participant in one of the 401(k) or defined contribution plans and you do not provide timely directions to the plan trustee, shares allocated to your account(s) will be voted by the plan trustee dependingfurther detail on the termsCorporation’s website located at http://www.lockheedmartin.com/go-green.
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Expanded our carbon disclosure. Our expanded disclosure of your plan or other legal requirements.
Beneficial Owners: If you hold shares through an account with a broker,Scope 1, 2, and you do not provide voting instructions, under New York Stock Exchange (“NYSE”) rules, your broker may vote your shares on routine matters only. The ratification of the appointment of Ernst & Young LLP (Proposal 2) is considered a routine matter,3 carbon measurement and your nominee can therefore vote your shares on that Proposal if you do not provide voting instructions. Proposal 1, Proposal 3, and Proposal 4 are not considered routine matters, and your nominee cannot vote your shares on those Proposals unless you provide voting instructions. Votes withheld by brokersreductions in our operations in the absenceCarbon Disclosure Project, a copy of voting instructions from a beneficial owner are referredwhich is available at https://www.cdproject.net/en-US/Results/Pages/Company-Responses.aspx?company=10820.
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Took additional steps to as “broker non-votes.”
What is the vote required for each proposal?protect natural infrastructure.
For Proposal 1, the votes that stockholders cast “FOR” must exceed the votes that stockholders cast “AGAINST” to approve the proposal. For Proposals 2, 3, and 4, the affirmative vote of a majority of the votes cast is required to approve each proposal. Proposal 3 is advisory and non-binding. The Board will review the voting results on
GENERAL INFORMATION
Proposal 3 and take it into account when making future decisions regarding executive compensation. “Votes cast” exclude abstentions and broker non-votes.
What is the effect of an abstention?
A stockholder who abstains on some or all matters is considered present for purposes of determining if a quorum is present at the Annual Meeting, but an abstention is not counted as a vote cast. An abstention has no effect for the vote on any proposal.
What is the effect of a broker non-vote?
Broker non-votes will be counted for purposes of calculating whether a quorum is present at the Annual Meeting, but will not be counted for purposes of determining We made multiple pledges, including increasing the number of votes present in person or represented by proxy and entitledcertified e-Stewards® recyclers supporting our business, to vote with respect to a particular proposal. Thus, a broker non-vote will not impact our ability to obtain a quorum, will not affect the outcome with respect to the election of directors, and will not otherwise affect the outcomeensure 95 percent of the vote on a proposal that requiresCorporation’s electronic waste is handled by such recyclers by June 2013. A full description of our pledge is included in the affirmative vote of a majority of the votes castCorporate Eco Forum report available at http://corporateecoforum.com/valuingnaturalcapital.
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Improved “Target Zero” program. We improved our safety reporting and accident prevention through our “Target Zero” program aimed at eliminating workplace injuries. This program is described in greater detail on the proposal.Corporation’s website located at http://www.lockheedmartin.com/target-zero.
Community Involvement and Employee Engagement
Representatives of Computershare will tabulate the votes and act as inspectors of election for the Annual Meeting.
Where can I find the voting results of the Annual Meeting?
The preliminary voting results will be announced atEthics and Sustainability Committee oversees the Annual Meeting. The final voting results will be talliedcorporate social responsibility efforts in strategic philanthropy, employee engagement, corporate community involvement, and investing for social return. In 2012, we:
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Achieved $6.4 billion in total spending with small diverse businesses, including businesses owned by women, veterans, service-disabled veterans, small, disadvantaged businesses, and historically under-utilized business zones.
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Provided training and mentorship to develop 11 protégés within the inspectorsU.S. Department of electionDefense Mentor-Protégé program.
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Partnered on more than 300 solicitation topics with over 130 suppliers to exploit new technologies through the Small Business Innovation Program.
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Attended more than 100 local and disclosed by the Corporation in a Current Report on Form 8-K filed with the SEC within fournational conferences and events to meet small business days following the Annual Meeting.and diverse suppliers.
What is “householding” and how does it affect me?•
We have adopted a procedure approved by the SEC called “householding.” Under this procedure, we send only one Annual Report and Proxy Statement to eligible stockholders who share a single address, unless we have received instructions to the contrary from any stockholder at that address. This practice is designed to reduceExpanded our printing and postage costs. Stockholders who participate in householding will continue to receive separate proxy cards. We do not use householding for any other stockholder mailings, such as dividend checks, Forms 1099, or account statements.
If you are eligible for householding, but received multiple copiesdisclosure of the Annual Report and Proxy Statement and prefer to receive only a single copy of each of these documents for your household, please contact Computershare Trust Company, N.A., Shareholder Relations, P.O. Box 43078, Providence, RI 02940-3078, or call 1-877-498-8861. If you are a registered stockholder residing at an address with other registered stockholders and wish to receive a separate Annual Report or Proxy Statement in the future, please contact Computershare as indicated above. If you own shares through a broker, bank, or other nominee, you should contact the nominee concerning householding procedures.
Shares held in an employee benefit plan cannot be combined with other shares. Accordingly, you will receive a separate solicitation and proxy for each employee benefit plan in which shares are held.
Can I receivepolitical contributions, a copy of which is available on the Annual Report?Corporation’s website located at http://www.lockheedmartin.com/corporate-governance.
Yes. We will provide
2013 Proxy Statement 9
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Published a policy to ensure that employees and suppliers take appropriate steps to mitigate the risk of human trafficking and slavery from occurring in any aspect of the supply chain, a copy of which is available on the Corporation’s website located at http://www.lockheedmartin.com/eradicate-human-trafficking.
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Established a new Leadership Forum for three employee communities: People with Disabilities; Military/Veterans; and Lesbian, Gay, Bisexual, and Transgender—each of which held inaugural conferences to provide additional opportunities for professional development, mentoring, and networking.
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Increased our Annual Report without charge, upon written request,percentage of military veteran hires as a percentage of all external hires to any registered or beneficial ownerapproximately 39 percent and hired 2,956 veterans.
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Contributed more than $25 million to 1,251 charitable organizations in our community including those with a focus on veteran/military care and science, technology, engineering, and math (STEM) education. Separately, our employees contributed more than $21 million of common stock entitledtheir own money and volunteered more than 900,000 hours to vote at the Annual Meeting. Requests should be madeworthy causes. Since 2002, employees have volunteered more than 11 million hours of their time in writing addressedservice to Investor Relations, their communities.
Corporate Governance Guidelines
Lockheed Martin Corporation, 6801 Rockledge Drive, Bethesda, MD 20817, by calling Lockheed Martin Shareholder Direct at 1-800-568-9758, or by accessingis committed to maintaining and practicing the Corporation's website athttp://www.lockheedmartin.com/investor.highest standards of corporate governance. The SEC also maintains a website athttp://www.sec.govBoard has adopted Corporate Governance Guidelines that contains reports, proxy statements,describe the framework within which the Board and other information regarding Lockheed Martin.
GENERAL INFORMATION
Can I viewits committees oversee the Proxy Statement and Annual Report ongovernance of the Internet?
Yes.Corporation. The Proxy Statement and Annual Reportcurrent Corporate Governance Guidelines are available on the InternetCorporation’s website located at
http://www.lockheedmartin.com/investor. Subject tocorporate-governance, by clicking on “Corporate Governance Guidelines.” The Nominating and Corporate Governance Committee (the “Governance Committee”) regularly assesses our governance practices in light of new or emerging trends and best practices.
Our Corporate Governance Guidelines cover a wide range of subjects, including: the “householding” discussion above, all stockholders will receive paper copies of the Proxy Statement, proxy card, and Annual Report by mail unless the stockholder has consented to electronic delivery or is an employee with shares allocated in an employee benefit plan.
Can I choose to receive the Proxy Statement and Annual Report on the Internet instead of receiving them by mail?
Yes. If you are a registered stockholder or beneficial owner, you can elect to receive future Annual Reports and Proxy Statements on the Internet only and not receive copies in the mail by visiting Shareholder Services at
http://www.lockheedmartin.com/investor and completing the online consent form. Your request for electronic transmission will remain in effect for all future Annual Reports and Proxy Statements, unless withdrawn. Withdrawal procedures also are located at this website.
Most active employees who participate in the Corporation's savings plans will receive an email notification announcing Internet availability of the Annual Report and Proxy Statement. A paper copy will not be provided unless requested by the employee.
Who pays for the cost of this proxy solicitation?
The Corporation pays for the cost of soliciting proxies on behalfrole of the Board and director responsibilities; the role and enhanced responsibilities of the Lead Director; a comprehensive Code of Ethics and Business Conduct; director nomination procedures and qualifications; director independence standards; a policy for the review, approval, and ratification of related person transactions; director orientation and continuing education; procedures for annual performance evaluations of the Board, its committees, and directors; director stock ownership guidelines; a prohibition on hedging transactions; and a claw back policy for executive incentive compensation.
The Corporate Governance Guidelines state the Board’s expectation that any incumbent director who fails to receive more votes for his or her election than against his or her election is required to offer his or her resignation to the Board, as well as set forth the procedures to be followed by the Board in considering whether to accept or reject the resignation.
In recent years, we have amended the Corporate Governance Guidelines to formally implement certain best governance practices and enhance the efficient operation of the Board and its effectiveness. For example, in 2011 we raised the mandatory retirement age for directors from 72 to 75 in recognition of the contributions that experienced directors, with knowledge of the Corporation, bring to effective board oversight. In 2012, we modified the responsibilities of our Lead Director making explicit his authority to approve all board and committee agendas, as well as the ability to call a special meeting of the Board at any time, at any place, and for any purpose. In 2013, we further amended the Bylaws to clarify that the Lead Director has authority to approve the topics and schedules of Board meetings, approve information sent to the Board, and call a special meeting of independent directors.
In addition, all directors and employees are prohibited from hedging and pledging transactions involving our stock either through corporate policy statements or the Corporate Governance Guidelines.
Described below are some of the other significant corporate governance practices conducted by the Board.
Role of the Board of Directors
The Board plays an active role in overseeing management and representing the interests of stockholders. Directors are expected to attend Board meetings, the meetings of the committees on which they serve, and the Annual Meeting. We may solicit proxies by Internet, by telephone, by mail, or in person. We may make arrangementsBetween meetings, directors interact with brokerage housesthe Executive Chairman, the Lead Director, the CEO, and other custodians, nominees,members of management and fiduciariesare available to send Proxy Materialsprovide advice and counsel to beneficial owners on our behalf. We reimburse them for their reasonable expenses. We have retained Morrow & Co., LLC, 470 West Avenue, Stamford, CT 06902management.
In 2012, the Board met a total of ten times. All directors attended at least 75 percent of the total board and committee meetings to aidwhich they were assigned. Marillyn A. Hewson was elected to the Board in November 2012 and attended all meetings after that date in her capacity as a director. All incumbent directors attended the solicitation2012 Annual Meeting.
The Board and the committees regularly schedule and hold executive sessions without any members of proxies and to verify related records at a fee of $45,000, plus expenses. To the extent necessary to ensure sufficient representation at the Annual Meeting, we may request the return of proxies by mail, express delivery, courier, telephone, Internet, or other means. Stockholders are requested to return their proxies without delay.management present.
How do I submit a proposal for the Annual Meeting of Stockholders in 2013?
Any stockholder who wishes to submit a proposal for consideration at the 2013 Annual Meeting and for inclusion in the 2013 Proxy Statement should send 10
Service on Other Boards
The Board recognizes that its members benefit from service on the boards of other companies and it encourages such service. The Board also believes, however, that it is critical that directors have the opportunity to dedicate sufficient time to their proposal to:service on the Corporation’s Board. Therefore, the Corporate Governance Guidelines provide that, without obtaining the approval of the Governance Committee:
Lockheed Martin Corporation•
Attention:A director may not serve on the boards of more than four other public companies; or
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If the director is an active CEO or equivalent of another public company, the director may not serve on the boards of more than two other public companies; and
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No member of the Audit Committee may serve on more than two other public company audit committees; and
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No member of the Compensation Committee may serve on more than three other public company compensation committees. This policy was added in 2013 in acknowledgement of the increased workload on the committee.
In addition, directors must notify the Chairman, Lead Director, and Senior Vice President, General Counsel and Corporate Secretary
6801 Rockledge Drive
Bethesda, MD 20817.
Proposals must be received no later than November 9, 2012 and satisfy the requirements under applicable SEC Rules (including SEC Rule 14a-8) before accepting an invitation to be included in the Proxy Statement andserve on the proxy card that will be used for solicitation of proxies by the Board for the 2013 Annual Meeting.
Our Bylaws also require advance noticeboard of any proposal by a stockholder to be presented at the 2013 Annual Meeting that is not included in our proxy statement and on the proxy card, including any proposal for the nomination of a director for election.
To be properly brought before the 2013 Annual Meeting, written nominations for directors or other business to be introduced by a stockholder must be received between the dates of October 10, 2012 and November 9, 2012, inclusive. A notice of a stockholder proposal must contain the information required by our Bylaws about the matter to be brought before the annual meeting and about the stockholder proponent and persons associated with the stockholder through control, ownership of the shares, agreement, or coordinated activity. Waiver of these requirements by us in a particular instance does not constitute a waiver applicable to any other stockholder proposal, nor does it obligate us to waive the requirements for future submissions. A list of the information which is requiredpublic company.
GENERAL INFORMATION
to be included in a stockholder proposal may be found in Section 1.10 of our Bylaws at http://www.lockheedmartin.com/corporate-governance.
How can I contact the Corporation's non-management directors?
Stockholders and all interested parties may communicate confidentially with the Lead Director or with the non-management directors as a group. If you wish to raise a question or concern to the Lead Director or the non-management directors as a group, you may do so by writing to:
Lead Director
or
Non-Management Directors
c/o Senior Vice President, General Counsel and Corporate Secretary
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817.
Our Senior Vice President, General Counsel and Corporate Secretary or her delegate reviews all correspondence sent to the Board. The Board has authorized our Senior Vice President, General Counsel and Corporate Secretary or her delegate to respond to correspondence regarding routine stockholder matters and services (e.g., stock transfers, dividends, etc.). Correspondence from stockholders relating to accounting, internal controls, or auditing matters are brought to the attention of the Audit Committee. All other correspondence is forwarded to the Lead Director who determines whether distribution to the full Board for review is appropriate. Any director may, at any time, review a log of all correspondence addressed to the Board and request copies of such correspondence.
Can I find additional information on the Corporation's website?
Yes. Although the information contained on our website is not part of this Proxy Statement, you will find information about the Corporation and our corporate governance practices at
http://www.lockheedmartin.com/corporate-governance. Our website contains information about our Board, Board committees, Charter and Bylaws, Code of Ethics and Business Conduct, Corporate Governance Guidelines, and information about insider transactions. Stockholders may obtain, without charge, hard copies of the above documents by writing to:
Investor Relations
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817.
Lockheed Martin has a culture dedicated to ethical behavior and responsible corporate activity. This commitment is reflected in our core values: “Do What's Right;” “Respect Others;” and “Perform with Excellence.” These values are shared across the 123,000 employees of Lockheed Martin and are the foundation of our dedication to the highest standards of ethical conduct, conscientious global philanthropic support, and proactive efforts to avoid harmful effects on the environment.
Lockheed Martin’s code of conduct has been in place since the Corporation was formed in 1995, well before codes were required for stock exchange listing. We and our heritage companies were among the first in the aerospace and defense industry to adopt an ethics code.
Our Code of Ethics and Business Conduct, “Setting the Standard,” applies to all directors, officers, and employees. It provides our policies and expectations on a number of topics, including our commitments to good citizenship, promoting a positive and safe work environment, transparency in our public disclosures, avoiding conflicts of interest, honoring the confidentiality of sensitive information, preservation and use of company assets, compliance with all laws, and operating with integrity in all that we do. The Code was revised in 2011 reflecting updates in policy, law and regulation, and reinforcing the obligation to take proper action whenever faced with an ethical or compliance question or concern. Directors and employees participate in ethics training annually.
“Setting the Standard” is posted on our website athttp://www.lockheedmartin.com/corporate-governance. Printed copies of our Code may be obtained, without charge, by writing to Investor Relations, Lockheed Martin Corporation, 6801 Rockledge Drive, Bethesda, MD 20817. In 2011, there were no waivers from any provisions of our Code or amendments applicable to any director or executive officer. We intend to disclose any such waivers or amendments promptly to our stockholders by posting on our website.
Good corporate citizenship is part of our business strategy as it shapes our mission and informs our decision-making. In 2011, we:
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CORPORATE GOVERNANCE
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Corporate Governance Guidelines
Lockheed Martin is committed to maintaining and practicing the highest standards of corporate governance. The Board has adopted Corporate Governance Guidelines that describe the framework within which the Board and its committees oversee the governance of the Corporation. The current Corporate Governance Guidelines are posted athttp://www.lockheedmartin.com/corporate-governance.
The Corporate Governance Guidelines contain the Board's views on a number of governance topics that reflect our commitment to, and appreciation of, the importance of good governance in protecting and enhancing stockholder value. The Nominating and Corporate Governance Committee (the “Governance Committee”) regularly assesses our governance practices in light of new or emerging trends and best practices.
Our Corporate Governance Guidelines cover a wide range of subjects, including: the role of the Board and director responsibilities; the role and enhanced responsibilities of the Lead Director; a comprehensive Code of Ethics and Business Conduct; director nomination procedures and qualifications; director independence standards; a policy for the review, approval, and ratification of related person transactions; director orientation and continuing education; procedures for annual performance evaluations of the Board, its committees, and directors; director stock ownership; a prohibition on hedging and pledging transactions; and a clawback policy for executive incentive compensation.
The Corporate Governance Guidelines state the Board's expectation that any incumbent director who fails to receive more votes for his or her election than against his or her election is required to offer his or her resignation to the Board, as well as set forth the procedures to be followed by the Board in considering whether to accept or reject the resignation.
In 2011, we amended the Corporate Governance Guidelines to raise the mandatory retirement age for directors from 72 to 75. The Board made the change in recognition of the contribution that experienced directors, with knowledge of the Corporation, bring to effective board oversight. The Board also amended the Corporate Governance Guidelines to prohibit directors from hedging in our securities, and directors, as well as the Corporation’s employees, are prohibited by corporate policy from pledging Lockheed Martin securities.
Described below are some of the other significant corporate governance practices that have been instituted by the Board.
Executive Office of the Chairman
In 2011, we created the Executive Office of the Chairman. Under this structure, the Chairman and CEO and the President and COO act interchangeably in management decisions.
Role of the Board of Directors
The Board plays an active role in overseeing management and representing the interests of stockholders. Directors are expected to attend Board meetings, the committee meetings on which they serve, and the Annual Meeting. Between meetings, directors interact with the Chairman and CEO and other members of management and are available to provide advice and counsel to management.
In 2011, the Board met a total of nine times. All directors attended at least 75 percent of the total board and committee meetings to which they were assigned. All incumbent directors attended the 2011 Annual Meeting. The Board held executive sessions regularly without any members of management present following the meetings.
CORPORATE GOVERNANCE
The Board recognizes that its members benefit from service on the boards of other companies and it encourages such service. The Board also believes, however, it is critical that directors have the opportunity to dedicate sufficient time to their service on the Corporation’s Board. To that end, we recently amended the Corporate Governance Guidelines to provide that without obtaining the approval of the Governance Committee:
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In addition, directors must notify the CEO, Lead Director, and Senior Vice President, General Counsel and Corporate Secretary before accepting an invitation to serve on the board of any other public company.
The Board regularly reviews its leadership structure in light of the Corporation'sCorporation’s then current needs, governance trends, internal assessments of Board effectiveness, and other factors. In accordance with our Bylaws and Corporate Governance Guidelines, the independent members of the Board annually electselect one of the independent directors to serve as the Lead Director by the affirmative vote of a majority of the directors who have been determined to be “independent” for purposes of the NYSENew York Stock Exchange (“NYSE”) listing standards. The Board has structured the role of the lead directorLead Director with sufficient authority to fulfill the important requirements of independent leadership on the Board. Mr. McCorkindale servesserve as the elected Lead Director.a counter-balance to management. The responsibilities specified in our Bylaws for the Lead Director are to:
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CORPORATE GOVERNANCE•
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Determine the frequency and timing of executive sessions of non-management directors and report to the Executive Chairman on all relevant matters arising from those sessions, and shall invite the Executive Chairman to join the executive session for further discussion as appropriate.
• Consult with the Executive Chairman, the CEO, and committee chairs regarding the topics and schedules of the meetings of the Board and committees and approve the topics and schedules of Board meetings. • Review and approve all Board and committee agendas and provide input to management on the scope and quality of and approve information sent to the Board. • Assist with recruitment of director candidates and, along with the Executive Chairman, may extend the invitation to a new potential director to join the Board. • Act as liaison between the Board and management and among the directors and the committees of the Board. • Serve as member of the Executive Committee of the Board. • Serve as ex-officio member of each committee if not otherwise a member of the committee. • Serve as the point of contact for stockholders and others to communicate with the Board. • Recommend to the Board and committees the retention of advisors and consultants who report directly to the Board. • Call a special meeting of the Board or of the independent directors at any time, at any place, and for any purpose. • Perform all other duties as may be assigned by the Board from time to time. The Lead Director and the committee Chairmen review and discuss the agendas for the meetings in advance of distribution of the agendas and related board material. Mr. McCorkindale served as the elected Lead Director in 2012 and was re-elected to serve as Lead Director by the independent directors for 2013. |
Positions of Chairman and Chief Executive Officer
The Board periodically reviews and considers whether the positions of Chairman and CEO should be combined or separated as part of its regular review of the effectiveness of the Corporation'sCorporation’s governance structure. The positions of Chairman and CEO currently are combined at Lockheed Martin. Because of our CEO’s range of industry experience and depth of knowledge, the Board has determined that our CEO is currently best suited to focus on strategy and set the Board agendas. The combination of these roles promotes unified leadership and a more cohesive corporate culture, which strengthens our ability to stay ahead of the challenges faced by our industry. The Corporation'sCorporation’s policy as to whether the roles of the Chairman and CEO should be separate is to adopt the practice whichthat best serves the Corporation'sCorporation’s needs at any particular time.
The Board believes that no single, one-size fits all, board-leadership model is universally or permanently appropriate. In the past, the positions have been separated when deemed appropriate by the Board. This structure has proven especially useful to facilitate executive succession and orderly transitions.
2013 Proxy Statement 11
In 2012, the Board reviewed its leadership structure in connection with Mr. Stevens’ announcement of his plans to retire as CEO at the end of 2012. The Board determined that the transition to the new CEO would be best accomplished by having Mr. Stevens serve as Executive Chairman through 2013 which results in a separation of the roles of Chairman and CEO. As Executive Chairman, Mr. Stevens will lead the Board in its governance and oversight responsibilities with regard to the Corporation. He will also continue as an employee in the role of Strategic Advisor to the CEO in order to provide assistance and counsel to Ms. Hewson with regard to the day-to-day management of the Corporation. At present, the Board believes that its currentthis structure, along with the authority given to the independent Lead Director, effectively maintains independent oversight of management. We plan to continue to reexamineexamine our corporate governance policies and leadership structures on an ongoing basis to ensure that they continue to meet the Corporation’s needs.
The Compensation Committee is responsible for reviewing and approving corporate goals and objectives relevant to the compensation of both the CEO and the Strategic Advisor to the CEO, evaluating the performance of the CEOthese officers and, either as a committee or together with the other independent members of the Board, determining and approving the compensation levels of the CEO, Strategic Advisor to the CEO, and senior management. Consistent with its historic policy of not providing board compensation to employee directors, Mr. Stevens will not receive director or chairman compensation for his services as Executive Chairman.
Succession Planning and Talent Management
The Board is actively engaged in talent management. We have established bi-annual talent reviews that coincide with our business operating processes, as well as quarterly reviews within each of our operating businesses. During these reviews, the executive leadership team discusses succession plans for key positions and identifies top talent so that we can actively develop them for future leadership roles. Annually, the Board evaluates our succession strategy and leadership pipeline for key roles. High potential leaders are given exposure and visibility to Board members through formal presentations and informal events. More broadly, the Board is regularly updated on key talent indicators for the overall workforce, including diversity, recruiting, and development programs. Board members also are active partners, engaging and spending time with our high potential leaders throughout the year.
Enterprise Risk Management
The Audit Committee reviews our policies and practices with respect to risk assessment and risk management, including discussing with management the Corporation'sCorporation’s major risk exposures and the steps that have been taken to monitor and control such exposures. The Audit Committee reports the results of its review to the Board.
Matters of risk management are brought to the attention of the Audit Committee by the Executive Vice President and CFO,Chief Financial Officer (“CFO”), who serves as the Corporation'sCorporation’s Chief Risk Officer, or by the Vice President, Internal Audit, who regularly reviews and assesses internal processes and controls for ongoing compliance with internal policies and legal and regulatory requirements, as well as for potential weaknessesdeficiencies that could result in a failure of an internal control process. Management reviews and reports on potential areas of risk at the request of the Audit Committee or other members of the Board.
We have a number of risk identification and mitigation strategies. A panel of executives reviews all major proposals to ensure the technical and pricing structures are consistent with our tolerance for risk. Corporate management conducts reviews of ongoing business performance and financial results and future opportunities through the long rangelong-range planning process, executive management meetings, and staff meetings. In addition, in order to ensure integration and dissemination of information about identified risks to management and throughout the Corporation, we have established an “umbrella” risk identification and mitigation committee (the “Risk and Compliance Committee”),Integrated Risk Council, composed of representatives of the direct reports to the Chairman and CEO and President, is charged with overseeing the Corporation’s Enterprise Risk Management program and with the integration and dissemination of risk information to management and throughout the President and COO.Corporation. This committeeCommittee met 11eight times in 20112012 and reports to a risk council made up of the Executive Vice President and CFO; Senior Vice President, General Counsel and Corporate Secretary; Senior Vice President, Corporate Communications; Vice President, Ethics and Business Conduct;Sustainability; and the Vice President of Internal Audit. At the request of the Audit Committee, the Risk and Compliance Committee has undertaken to survey our businesses to identify risks, analyze the probability of occurrence and potential impact to our business of those risks, and assess mitigation efforts.
2013 Proxy Statement 12
Identifying and Evaluating Nominees for Directors
Each year, the Governance Committee recommends to the Board the slate of directors to propose as nominees for election by the stockholders at the Annual Meeting. The process for identifying and evaluating candidates to be nominated to the Board starts with an evaluation of a candidate by the Chairman of the Governance Committee followed by the entire Governance Committee and the Chairman and CEO.Executive Chairman. Director candidates may also be identified by stockholders and will be evaluated and considered by the Governance Committee in the same manner
CORPORATE GOVERNANCE
as other director candidates. The Corporation has retained Korn/Ferry International from time to time to assist in the identification and evaluation of potential director candidates.
Stockholder proposals for nominations to the Board should be submitted to the Nominating and Corporate Governance Committee, c/o the Senior Vice President, General Counsel and Corporate Secretary, at Lockheed Martin Corporation, 6801 Rockledge Drive, Bethesda, MD 20817. To be considered by the Board for nomination at the 20132014 Annual Meeting, written notice of nominations by a stockholder must be received between the dates of October 10, 20129, 2013 and November 9, 2012,8, 2013, inclusive.
The information requirements for any stockholder proposal or nomination can be found in Section 1.10 of our Bylaws available on the Corporation’s website located athttp://www.lockheedmartin.com/corporate-governance. A summary of the requirements can be found in the “General Information” section of this Proxy Statement on page 6. Self-nominations will not be considered. Proposed stockholder nominees are presented to the Chairman of the Governance Committee, who decides if further consideration should be given to the nomination by the Board.
Majority Voting Policy for Uncontested Director Elections
The Corporation'sCorporation’s Charter and Bylaws provide for simple majority voting. Pursuant to the Corporate Governance Guidelines, in any uncontested election of directors, any incumbent director who fails to receive more “FOR” votes than “AGAINST” votes is required to offer his or her resignation for Board consideration.
Upon receipt of a resignation of a director tendered as a result of a failed stockholder vote, the Governance Committee will make a recommendation to the Board as to whether to accept or reject the resignation, or whether other action is recommended. In considering the tendered resignation, the Board will consider the Governance Committee'sCommittee’s recommendation as well as any other factors it deems relevant, which may include:
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The qualifications of the director whose resignation has been tendered. • The director’s past and expected future contributions to the Corporation. • The overall composition of the Board and its committees. • Whether accepting the tendered resignation would cause the Corporation to fail to meet any applicable rule or regulation (including NYSE listing standards and the federal securities laws). • |
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The percentage of outstanding shares represented by the votes cast at the Annual Meeting. |
Any director whose resignation has been tendered may not participate in the deliberations of the Governance Committee or in the Board'sBoard’s consideration of the Governance Committee'sCommittee’s recommendation with respect to such director. In the event that a majority of the members of the Governance Committee have offered to resign as a result of their failure to receive the required vote for their election by the stockholders, then the independent members of the Board who have not offered to resign, without further action by the Board, will constitute a committee of the Board for the purpose of considering the offered resignation(s), and will recommend to the Board whether to accept or reject those offers and, if appropriate, make a recommendation to take other actions. If there are no such independent directors, then all of the independent directors, excluding the director whose offer to resign is being considered, without further action of the Board, will constitute a committee of the Board to consider each offer to resign, make a recommendation to the Board to accept or reject that offer and, if appropriate, make a recommendation to take other actions.
The Board will act on a tendered resignation within 90 days following certification of the stockholder vote for the annual meeting and will promptly disclose its decision and rationale as to whether to accept the resignation (or the reasons for rejecting the resignation, if applicable) in a press release, in a filing with the SECSecurities and Exchange Commission (“SEC”) or by other public announcement, including a posting on the Corporation'sCorporation’s website.
If a director'sdirector’s resignation is accepted by the Board, or if a nominee for director who is not an incumbent director is not elected, the Board may fill the resulting vacancy or may decrease the size of the Board pursuant to the Corporation'sCorporation’s Bylaws. The Board may not fill any vacancy so created with a director who was nominated but not elected at the annual meeting by the vote required under the Corporation'sCorporation’s Bylaws.
CORPORATE GOVERNANCEStockholder Right to Call Special Meeting
As part of the Board’s continuing commitment to best corporate governance practices and as a result of dialogue with stockholders, the Board amended the Corporation’s Bylaws in 2010 to permit any stockholder who individually owns 10%, or stockholders who in the aggregate own 25%, of the outstanding common stock to call a special meeting to consider any business properly before the stockholders.
2013 Proxy Statement 13
Director Independence
Under applicable NYSE listing standards, a majority of the Board and each member of the Audit Committee, Governance Committee, and Compensation Committee must be independent.
Under the NYSE listing standards and our Corporate Governance Guidelines, a director is not independent if the director has a direct or indirect material relationship with the Corporation. The Governance Committee annually reviews the independence of all directors and reports its findings to the full Board. To assist in this review, the Board has adopted director independence guidelines that are included in our Corporate Governance Guidelines, which are available on our Corporation’s website located athttp://www.lockheedmartin.com/corporate-governance.
Our director independence guidelines set forth certain relationships between the Corporation and directors and their immediate family members, or affiliated entities, that the Board, in its judgment, has deemed to be material or immaterial for purposes of assessing a director'sdirector’s independence. In the event a director has a relationship with the Corporation that is not addressed in the independence guidelines, the independent members of the Board determine whether the relationship is material.
The Board has determined that the following directors are independent: Nolan D. Archibald, Rosalind G. Brewer, David B. Burritt, James O. Ellis, Jr., Thomas J. Falk, Gwendolyn S. King, James M. Loy, Douglas H. McCorkindale, Joseph W. Ralston, and Anne Stevens. As Chairman and CEO, Robert J. Stevens, is an employeeExecutive Chairman, and Marillyn A. Hewson, CEO and President, are employees of the Corporation (as was Christopher E. Kubasik) and isare not independent under the NYSE listing standards or our Corporate Governance Guidelines. In determining that each of the non-management director-nominees is independent, the Board considered the relationships described under “Certain Relationships and Related Person Transactions of Directors, Executive Officers, and 5 Percentpercent Stockholders,” on page 14,15, which it determined were immaterial to the individual'sindividual’s independence.
The Governance Committee and Board considered that the Corporation in the ordinary course of business purchases products and services from, or sells products and services to, companies or subsidiaries or parents of companies at which some of our director-nominees are or have been directors.directors or officers. These relationships included: Mr. Archibald (Stanley Black & Decker, Inc., Brunswick Corporation, and Huntsman Corporation); Mrs. Brewer (Sam’s Club, a subsidiary of Walmart Stores, Inc.); Mr. Ellis a director of Inmarsat plc.(Inmarsat plc and Level 3 Communications, Inc.); Mrs. King, a director of Marsh & McLennan Companies,Mr. Falk (Kimberly-Clark Corporation and Catalyst, Inc. through May 2011;); Mr. Loy a director of L-1 Identity Solutions, Inc. through July 2011; and(RAND Corporation); Mr. Ralston a director of Lynden(Lynden Incorporated, The Timken Company, and URS Corporation.Corporation); and Ms. Stevens (Anglo American plc). In determining that these relationships did not affect the independence of those directors, the Board considered that none of the director-nominees serving as directors of other companies had any direct material interest in, or received any special compensation in connection with, the Corporation'sCorporation’s business relationships with those companies.
The Governance Committee also concluded that all members of each of the Audit Committee, the Compensation Committee, and the Governance Committee are independent within the meaning of our Corporate Governance Guidelines and NYSE listing standards as these currently apply and as these will apply to NYSE listed corporations after our Annual Meeting.
Related Person Transaction Policy
The Board has approved a written policy and procedures for the review, approval, and ratification of transactions among the Corporation and its directors, executive officers, and their related interests. A copy of the policy is available on the Corporation’s website located athttp://www.lockheedmartin.com/corporate-governance.corporate-governance. Under the policy, all related person transactions (as defined in the policy) are to be reviewed by the Governance Committee of the Board.Committee. The Governance Committee may approve or ratify related person transactions at its discretion if deemed fair and reasonable to the Corporation. This may include situations where the Corporation provides products or services to related persons on an arm'sarm’s length basis on terms comparable to those provided to unrelated third parties. Any director who participates in or is the subject of an existing or potential related person transaction may not participate in the decision-making process of the Governance Committee with respect to that transaction.
Under the policy, and consistent with SEC regulations and NYSE listing standards, a related person transaction is any transaction in which the Corporation was, is, or will be a participant, where the amount involved exceeds $120,000, and in which a related person had, has, or will have a direct or indirect material interest. A related person includes any director or executive officer of the company, any person who is known to be the beneficial owner of more than 5%5 percent of any class of the company'scompany’s voting securities, an immediate family member of any person described above, and any firm, corporation, or other entity controlled by any person described above.
CORPORATE GOVERNANCE
The policy requires each director and executive officer to complete an annual questionnaire to identify their related interests and persons, and to notify the Corporation of changes in that information. Based on that information, the Corporation maintains a master list of related persons for purposes of tracking and reporting related person transactions.
The policy contemplates that the Governance Committee may ratify transactions after they commence or pre-approve categories of transactions or relationships, because it may not be possible or practical to pre-approve all related person transactions. If the Governance Committee declines to approve or ratify a transaction, the related person transaction is referred to management to make a recommendation to the Governance Committee concerning whether the transaction should be terminated or amended in a manner that is acceptable to the Governance Committee.
2013 Proxy Statement 14
Certain Relationships and Related Person Transactions of Directors, Executive Officers, and 5 Percent Stockholders
The following transactions or relationships are considered to be “related person” transactions under our corporate policy and applicable SEC regulations and NYSE listing standards.
Two of our directors, Mr. Loy and Mr. Ralston, are employed as Senior Counselor and Vice Chairman, respectively, of The Cohen Group, a consulting business that performs services for the Corporation. In 2011,2012, we paid The Cohen Group approximately $700,000$670,000 for consulting services and expenses.
Mr. Archibald is an executive officerIn accordance with the requirements of Stanley Black & Decker, Inc. During 2011,our Bylaws and the Corporation’s past practice, the Corporation purchased productspaid for the expenses of individual legal counsel for Linda R. Gooden, Executive Vice President, Information Systems & Global Solutions, one of our NEOs, in connection with the ordinary courseCity of business from Stanley Black & Decker, Inc. totalingPontiac General Employees’ Retirement System litigation. These expenses totaled approximately $9,220,500.$233,143.
We currently employ approximately 123,000120,000 employees and have an active recruitment program for soliciting job applications from qualified candidates. We seek to hire the most qualified candidates and consequently do not preclude the employment of family members of current directors and executive officers. These relationships (and 2011 cash2012 compensation) were Mr. Stevens’ son, John E. Stevens, Assistant General Counsel in the Legal Department ($190,000195,150 in base salary, $24,100 in MICP,an annual incentive bonus of $49,200, and a $30,000 cash signing bonus)grant of 580 restricted stock units (“RSUs”)) and Mr. Ralston'sa board member’s (Joseph Ralston) brother-in-law, Mark E. Dougherty, Business Development Analyst ($154,931159,443 in base salary). Messrs. Stevens and Dougherty may participate in other employee benefit plans and arrangements which are generally made available to other employees at the same level (including health, welfare, vacation, and retirement plans). Their compensation was established in accordance with the Corporation'sCorporation’s employment and compensation practices applicable to employees with equivalent qualifications, experience, and responsibilities. Neither John Stevens nor Mark Dougherty served as an executive officer of the Corporation during 2011.2012.
From time to time, the Corporation has purchased services in the ordinary course of business from financial institutions that beneficially own 5%5 percent or more of Lockheed Martin'sMartin’s common stock. In 2011,2012, the Corporation paid fees of approximately $5,281,333$4,648,708 to State Street Bank and Trust Company for credit facility and benefit plan administration $961,466 to BlackRock, Inc. and its affiliates for investment management fees, and $227,000 to Capital Guardian, an affiliate of Capital World Investors, for investment management fees.
Director Orientation and Continuing Education
Upon joining the Board, directors are provided with an orientation about our Corporation, including our business operations, strategy, and governance. Directors may enroll in director education programs on the principles of corporate governance and director professionalism offered by nationally-recognized sponsoring organizations at the Corporation’s expense. Directors also may attend outside director continuing education programs sponsored by educational and other institutions to assist them in remaining abreast of developments in corporate governance and critical issues relating to the operation of public company boards. Members of our senior management regularly present reports at Board meetings and review the operating plan of each of our business segmentsareas and the companyCorporation as a whole. The Board also conducts periodic visits to companyour facilities as part of its regularly scheduled Board meetings.
CORPORATE GOVERNANCE
Board Performance Self-Assessment
Each year the Board evaluates its performance and effectiveness. Each director participates in an annual performance evaluation to elicit feedback on specific aspects of the Board'sBoard’s role, organization, and meetings.meetings (including committee meetings). The collective ratings and comments are compiled by the Senior Vice President, General Counsel and Corporate Secretary or her delegate and presented to the Governance Committee and the full Board. Each Board committee conducts an annual performance self-assessment through a similar process.
The Corporation does not have a Stockholder Rights Plan, otherwise known as a “Poison Pill.” Through our Corporate Governance Guidelines, the Board has communicated that it has no intention of adopting one at this time. If the Board does choose to adopt a Stockholder Rights Plan, the Board has indicated that it would seek stockholder ratification within 12 months from the date of adoption.
2013 Proxy Statement 15
The Board believes that directors and management should hold meaningful equity ownership positions in the Corporation. To further encourage a link between director and stockholder interests, the Board has adopted stock ownership guidelines for directors. Similar guidelines apply to our management as described under the “Stock Ownership Requirements for Key Employees” on page 51. Directors receive half their compensation in the form of Lockheed Martin common stock units or stock options (with the potential to defer the cash portion of director compensation in stock units). Directors are expected to own shares or stock units equal to two times the annual retainer within five years of joining the Board. The securities counted toward their target threshold include common stock and vested and unvested stock units held under all the director plans. As of February 1, 2012, each of the directors has exceeded the stock ownership guidelines with current holdings of shares and stock units valued in excess ofthree times their annual retainer, with the exception of Mrs. Brewer who joined our Board in April 2011 and has until April 2016 to satisfy the ownership guidelines. Mrs. Brewer defers a portion of her cash compensation in stock units.
COMMITTEES OF THE BOARD OF DIRECTORS
* Lead Director.
The Board has seven standing committees as prescribed by our Bylaws:
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Our Bylaws containBylaws. The following table lists our board committees, the charterchairs of each committee, the directors who currently serve on them, and the number of Committee meetings held in 2012. Charters for each ofcommittee are available on the standing committees. Our Bylaws are postedCorporation’s website located athttp://www.lockheedmartin.com/corporate-governance.corporate-governance.
Membership on Board Committees Director Audit Classified Business and Security Ethics and Sustainability Executive Management Development and Compensation Nominating and Corporate Governance Strategic Affairs and Finance Nolan D. Archibald X X Chair Rosalind G. Brewer X X David B. Burritt Chair X X X James O. Ellis, Jr. Chair X X X Thomas J. Falk X X Marillyn A. Hewson* X Gwendolyn S. King Chair X X James M. Loy X X X Douglas H. McCorkindale** X X X X Chair Joseph W. Ralston X X X Anne Stevens X X Chair Robert J. Stevens Chair Meetings held in 2012 5 3 3 0 8 4 3 * Elected Committee member on January 24, 2013 ** Lead Director Audit Committee
The Audit Committee oversees our financial reporting process on behalf of the Board. In addition to oversight of the Corporation’s internal audit organization, it is directly responsible for the appointment, compensation, and oversight of the Corporation’s independent auditors. The functions of the Audit Committee are further described under the heading “Audit Committee Report” on page 18.
All the members of the Audit Committee are independent within the meaning of the NYSE listing standards, our Corporate Governance Guidelines, and applicable SEC regulations. In order to be considered independent under SEC regulations, a member of the Audit Committee cannot accept any consulting, advisory, or other compensatory fee from the Corporation, or be an affiliated person of the Corporation or its subsidiaries.
The Board has determined that Mr. Burritt, Chairman of the Audit Committee, Mr. Falk, and Mr. McCorkindale are qualified audit committee financial experts within the meaning of SEC regulations. All members of the Audit Committee have accounting and related financial management expertise sufficient to be considered financially literate within the meaning of the NYSE listing standards.
COMMITTEES OF THE BOARD OF DIRECTORS
Classified Business and Security Committee
The Classified Business and Security Committee (the “CBS Committee”) assists the Board in fulfilling its oversight responsibilities relating to the Corporation’s classified business activities and the security of personnel, data, and facilities. The CBS Committee consists of three or more directors who meet the independence requirements of the NYSE and who possess the appropriate security clearance credentials, at least one of whom shall be a member of the Audit Committee, and allnone of whom are not officers or employees of the Corporation and are free from any relationship that, in the opinion of the Board, would interfere with the exercise of independent judgment as a member of the CBS Committee.
2013 Proxy Statement 16
Ethics and Corporate ResponsibilitySustainability Committee
The Ethics and Corporate ResponsibilitySustainability Committee monitors compliance and recommends changes to our Code of Ethics and Business Conduct. It reviews our policies, procedures, and compliance with respect to sustainability, including corporate responsibility, including human rights, environmental stewardship, employee health and safety, ethical business practices, community outreach, philanthropy, diversity, inclusion, and equal opportunity. It oversees matters pertaining to community and public relations, including government relations, political contributions, and charitable contributions.
Executive Committee
The Executive Committee primarily serves as a means for taking action requiring Board approval between regularly scheduled meetings of the Board. The Executive Committee is authorized to act for the full Board on all matters other than those specifically reserved by Maryland law to the full Board.
Management Development and Compensation Committee
The Compensation Committee is responsible for reviewingreviews and approvingapproves the corporate goals and objectives relevant to the compensation of the CEO evaluatingand the Strategic Advisor to the CEO, evaluates the performance of the CEO and the Strategic Advisor to the CEO and, either as a committee or together with the other independent members of the Board, determiningdetermines and approvingapproves the compensation philosophy and levels of the CEO and the Strategic Advisor to the CEO and other members of senior management.
Additional information regarding the role of the Compensation Committee and our compensation practices and procedures is provided under the captions “Compensation Committee Report” on page 29,28, “Compensation Discussion and Analysis”Analysis (“CD&A”)” beginning on page 30,28, and specifically to the discussion on “Other Corporate Governance Considerations in Compensation” beginning on page 50. 48.
All members of the Compensation Committee are independent within the meaning of the NYSE listing standards and our Corporate Governance Guidelines.
Nominating and Corporate Governance Committee
The Governance Committee is responsible for developing and implementing policies and practices relating to corporate governance, including our Corporate Governance Guidelines. The Governance Committee assists the Board by selecting and recommendingcandidates to be nominated to the Board, nominees, making recommendations concerning the composition of Board committees, and by overseeing the evaluation of the Board and its committees.
The Governance Committee reviews and recommends to the Board the compensation of directors. Our executive officers do not play a role in determining director pay other than to gather publicly available information, although the Executive Chairman and CEO is consulted regarding the impact of any change in director pay on the Corporation as a whole.
The functions of the Governance Committee are further described under the caption “Corporate Governance.” All members of the Governance Committee are independent within the meaning of the NYSE listing standards and our Corporate Governance Guidelines.
COMMITTEES OF THE BOARD OF DIRECTORS
Strategic Affairs and Finance Committee
The Strategic Affairs and Finance Committee (“Finance Committee”) reviews and recommends to the Board management’s long-term strategy including allocation of corporate resources. The Finance Committee reviews the financial condition of the Corporation, the status of all benefit plans, and proposed changes to theour capital structure.
2013 Proxy Statement 17
Audit Committee Report
We oversee Lockheed Martin’s financial reporting process on behalf of the Board. Lockheed Martin’s management is responsible for the financial reporting process and preparation of the quarterly and annual consolidated financial statements, including maintaining aan effective system of internal control over financial reporting. In addition to our oversight of the Corporation’s internal audit organization, we are directly responsible for the appointment, compensation, retention, oversight, and termination of the Corporation’s independent auditors, Ernst & Young LLP, an independent registered public accounting firm. The independent auditors are responsible for auditing the annual consolidated financial statements and expressing an opinion on the conformity of those financial statements with U.S. generally accepted accounting principles, and for expressing an opinion on the effectiveness of internal control over financial reporting.
In connection with the December 31, 20112012 audited consolidated financial statements, we have:
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Reviewed and discussed the Corporation’s audited consolidated financial statements with management, including discussions regarding critical accounting policies, financial accounting and reporting principles and practices, the quality of such principles and practices, the reasonableness of significant judgments and estimates, and the effectiveness of internal control over financial reporting.
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Discussed with the independent auditors the quality of the financial statements, the clarity of the related disclosures, the effectiveness of internal control over financial reporting, and other items required to be discussed under Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 16, Communications with Audit Committees.
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Received from the independent auditors written disclosures regarding the auditors’ independence required by PCAOB Ethics and Independence Rule 3526, Communication with Audit Committees Concerning Independence, and discussed with the independent auditors any matters affecting their independence.
Based on the reviews and discussions above, we recommended to the Board that the audited consolidated financial statements for 20112012 be included in Lockheed Martin’s Annual Report on Form 10-K for the year ended December 31, 20112012 for filing with the SEC. The Board approved our recommendation.
Submitted on February 23, 201228, 2013 by the Audit Committee:
David B. Burritt, Chairman | Douglas H. McCorkindale | |
Thomas J. Falk | Anne Stevens |
2013 Proxy Statement 18
PROPOSAL 1 –1: ELECTION OF DIRECTORS
There are 1112 director-nominees for election to the Board at the Annual Meeting. Each director-nominee currently serves as a director. Each director-nominee was recommended for nomination by the Governance Committee. The Governance Committee has determined that all the current director-nominees, except for Robert J. Stevens, our Executive Chairman, and Marillyn A. Hewson, CEO and President, are independent under the listing standards of the NYSE and our Corporate Governance Guidelines. The Board ratified the slate of director-nominees and recommends that our stockholders vote for the election of all the individuals nominated by the Board.
Director-nominees are expected to attend the 20122013 Annual Meeting. All incumbent directors attended the 20112012 Annual Meeting, except for Ms. Hewson who was elected to the Board in November 2012 following the Annual Meeting. All director-nominees who are elected towill serve a one-year annual term that will end at the 20132014 Annual Meeting.Meeting except Mr. Stevens who will retire as a director on December 31, 2013. If any of the director-nominees are unable or unwilling to stand for election at the 20122013 Annual Meeting (an event which is not anticipated), the Board may reduce its size or designate a substitute. If a substitute is designated, proxy holders may vote for the substitute nominee or refrain from voting for any other director-nominee at their discretion. Directors’ ages are reported as of the 20122013 Annual Meeting.
Board Composition, Qualifications, and Diversity
We have no agreements obligating the Corporation to nominate a particular candidate as a director, and none of our directors represent a special interest or a particular stockholder or group of stockholders. Subject to election as a director by the stockholders, the Board intends to elect Mr. Stevens as Executive Chairman. As a result of Mr. Stevens’ announcement that he will retire from the Board effective December 31, 2013, the Board will elect a new Chairman effective January 1, 2014.
We believe that our business accomplishments are a result of the efforts of our employees around the world, and that a diverse employee population will result in a better understanding of our customers’ needs. Our success with a diverse workforce also informs our views about the value of a board of directors that has persons of diverse skills, experiences, and backgrounds. To this end, the Board seeks to identify in each candidatecandidates with areas of knowledge or experience that wouldwill expand or complement the Board’s existing expertise in overseeing a technologically advanced global security and aerospace company.
TheUnder the Corporate Governance Guidelines, the Board seeksdesires a diverse group of candidates who at a minimum possess the background, skills, expertise, and time to make a significant contribution to the Board, the Corporation, and its stockholders. The Governance Committee makes recommendations to the Board concerning the composition of the Board and its committees, including size and qualifications for membership. The Governance Committee evaluates prospective nominees against the standards and qualifications set forth in the Corporation’s Corporate Governance Guidelines, as well as other relevant factors as it deems appropriate, including: the need for the Board, as a whole, to be diverse and consist of individuals with varied and relevant career experience; relevant technical skills; industry knowledge and experience; financial expertise; and minimum individual qualifications, including strength of character, mature judgment, familiarity with the Corporation’s business and industry, independence of thought, and an ability to work collegially. The Governance Committee also may consider the extent to which the candidate would fill a present need on the Board.appropriate.
Listed below are the skills and experience that we considerhave considered important for our directors to have in light of our current business and structure. The directors’ biographies that follow note each director’s relevant experience, qualifications,skills, and skillsqualifications relative to this list.
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Public Company Board Experience. Directors who have served on other public company boards can offer advice and insights with regard to the dynamics and operation of a board of directors, the relationship between a board and the CEO and other management personnel, the importance of particular agenda and oversight matters, and oversight of a changing mix of strategic, operational, and compliance-related matters. • Financial Expertise.Knowledge of financial markets, financing and funding operations, and accounting and financial reporting processes are important because it assists our directors in understanding, advising, and overseeing the Corporation’s capital structure, financing and investment activities, financial reporting, and internal control of such activities. • Government and Military Expertise.Directors who have served in government and senior military positions can provide experience and insight into working constructively with our core customer and governments around the world and addressing significant public policy issues, particularly in areas related to the Corporation’s business and operations. They also provide support for science, technology, engineering, and mathematics education. • Global Expertise. Because we are a global organization with increasing revenue coming from sales outside the United States, directors with global expertise can provide useful business and cultural perspectives regarding many significant aspects of our business. 2013 Proxy Statement 19
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As part of its annual assessment of Board effectiveness, the Board is asked to evaluate whether it has the appropriate mix of general business expertise, skills, and specific expertise in areas vital to our success. The 2012 assessment reflected that the incumbent slate has the right mix, and the addition of Ms. Hewson complements and strengthens the Board’s business and operations background. Under our Bylaws, unless exempted by the Board, an individual is not eligible to be elected as a director for a term that expires at the Annual Meeting following the individual’s 75th birthday.
The Board unanimously recommends a vote FOR each of the following director-nominees. |
Director-Nominees
birthday.Nolan D. Archibald
(Age 69)
Director Since April 2002
Committees: Executive Committee; Nominating and Corporate Governance Committee; Strategic Affairs and Finance Committee (Chair)
Executive Chairman of the Board of Stanley Black & Decker, Inc. since March 2010. Previously, Mr. Archibald was Chairman of the Board and Chief Executive Officer of The Black & Decker Corporation from 1986 to March 2010; President of The Black & Decker Corporation from 1985 to 2010; and Chief Operating Officer of The Black & Decker Corporation from 1985 to 1986. Mr. Archibald held various management positions at Beatrice Companies, Inc. from 1977 to 1985, including Senior Vice President and President of the Consumer & Commercial Products Group, and currently serves as a director of Brunswick Corporation and Huntsman Corporation.
Skills and Qualifications:
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Experience with the demands and challenges of the global marketplace with a focus on innovation from his prior positions as Executive Chairman of Stanley Black & Decker, Inc. and Chairman, CEO and Chief Operating Officer of The Black & Decker Corporation, companies that have sold products in more than 100 countries.
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Experience in talent management, business management, strategic planning, and international business operations.
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Corporate governance expertise from service as director of large public companies.
Rosalind G. Brewer
(Age 50)
Director Since April 2011
Committees: Ethics and Sustainability Committee; Management Development and Compensation Committee
President and Chief Executive Officer of Sam’s Club since February 2012. Previously, Mrs. Brewer was Executive Vice President and President of Walmart Stores, Inc.’s East Business Unit from February 2011 to January 2012; Executive Vice President and President of Walmart South from February 2010 to February 2011; Senior Vice President and Division President of Southeast Operating Division from March 2007 to January 2010; and Regional General Manager, Georgia Operations, from 2006 to February 2007. Previously, Mrs. Brewer was President of Global Nonwovens Division for Kimberly-Clark Corporation from 2004 to 2006; and held various management positions of increasing responsibilities at Kimberly-Clark Corporation from 1984 to 2006. Mrs. Brewer formerly served as a director of Molson Coors Brewing Company from 2006 to 2011 and currently serves on the Board of Trustees of Spelman College and Westminster Schools.
Skills and Qualifications:
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Experience in large-scale operations based on her positions as President and Chief Executive Officer of Sam’s Club, Executive Vice President for Walmart Stores, Inc., and more than two decades of experience as an executive with Kimberly-Clark Corporation.
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Experience in product development, product management, manufacturing, large-scale operations, supply chain logistics, and leading change management initiatives.
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Leadership and executive expertise in international consumer business operations.
2013 Proxy Statement 20
David B. Burritt
(Age 57)
Director since April 2008
Committees: Audit Committee (Chair); Executive Committee; Management Development and Compensation Committee; Strategic Affairs and Finance Committee
Vice President and Chief Financial Officer of Caterpillar Inc. from 2004 to June 2010; Corporate Controller and Chief Accounting Officer of Caterpillar Inc. from 2002 to 2004; held various positions of increasing responsibility for Caterpillar Inc. in finance, tax, accounting, and international operations from 1978 to 2002; and currently serves as a director of Aperam and Global Brass & Copper Holdings, Inc.
Skills and Qualifications:
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Expertise in public company accounting, risk management, disclosure, and financial system management from roles as CFO and Controller at Caterpillar Inc.
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Experience with the demands and challenges of the global marketplace from his positions at Caterpillar Inc., a company that manufactures equipment in over 20 countries and sells products in more than 180 countries.
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The Board unanimously recommends a vote FOR eachhas determined that Mr. Burritt meets the SEC’s criteria of an “audit committee financial expert.”
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Contributing member of Pathways Commission to define the future of the following director-nominees.accounting profession.
Director-NomineesJames O. Ellis, Jr.
(Age 65) Director since November 2004 Committees: Classified Business and Security Committee (Chair); Executive Committee; Nominating and Corporate Governance Committee; Strategic Affairs and Finance Committee President and Chief Executive Officer, Institute of Nuclear Power Operations from May 2005 until his retirement in May 2012. Retired from active duty in July 2004. Admiral and Commander, United States Strategic Command, Offutt Air Force Base, Nebraska from October 2002 to July 2004; Commander in Chief, United States Strategic Command from November 2001 to September 2002; Commander in Chief, U.S. Naval Forces, Europe and Commander in Chief, Allied Forces from October 1998 to September 2000; Deputy Chief of Naval Operations (Plans, Policy and Operations) from November 1996 to September 1998; director of Burlington Capital Group from 2004 to 2007; and currently serves as a director of Inmarsat plc and Level 3 Communications, Inc. In February 2013, Mr. Ellis was elected as a member of the National Academy of Engineering. Skills and Qualifications: • Industry-specific expertise and knowledge of our core customer from his service in senior leadership positions with the military. • Expertise in aeronautical and aerospace engineering and emerging energy issues. • Over 40 years experience in managing and leading large and complex technology-focused organizations, in large part as a result of serving for 35 years as an active duty member of the U.S. Navy. 2013 Proxy Statement 21 Thomas J. Falk | ||
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(Age 54)
Director since June 2010 Committees: Audit Committee; Nominating and Corporate Governance Committee Chairman of the Board and Chief Executive Officer of Kimberly-Clark Corporation since 2003; Chief Executive Officer from 2002 and President and Chief Operating Officer from 1999 to 2002; held various senior management positions since joining Kimberly-Clark Corporation in 1983; director of Centex Corporation from 2003 to 2009 (Centex Corporation was acquired by Pulte Homes in 2009); and currently serves as a director of the nonprofit organizations, Catalyst, Inc., the University of Wisconsin Foundation, and The Consumer Goods Forum, and serves as a governor of the Boys & Girls Clubs of America. Skills and Qualifications: • Experience with the demands and challenges associated with managing global organizations from his experience as Chairman and CEO of Kimberly-Clark Corporation. • Knowledge of financial system management, public company accounting, disclosure requirements, and financial markets. • Marketing, talent management, compensation, governance, and public company board experience. •
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The Board unanimously recommendshas determined that you vote FORMr. Falk meets the electionSEC’s criteria of eachan “audit committee financial expert.”
Marillyn A. Hewson
(Age 59)
Director since November 2012
Committee: Executive Committee
Chief Executive Officer and President of Lockheed Martin since January 2013; President and Chief Operating Officer from November 2012 to December 2012; Executive Vice President – Electronic Systems from January 2010 to December 2012; President, Systems Integration – Owego from September 2008 to December 2009; Executive Vice President – Global Sustainment for Aeronautics from February 2007 to August 2008; President, Lockheed Martin Logistics Services Company from January 2007 to February 2007; and President and General Manager, Kelly Aviation Center, L.P. from August 2004 to December 2007; and director of Carpenter Technology Corporation from 2002 to 2006. Ms. Hewson chairs the Board of Directors of Sandia Corporation, serves on the Association of the director-nominees.U.S. Army Council of Trustees and the University of Alabama’s Culverhouse College of Commerce and Business Administration Board of Visitors, and currently serves as a director of E. I. du Pont de Nemours and Company (DuPont).
Skills and Qualifications:
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Broad insight and knowledge into the complexities of global business management, strategic planning, finance, supply chain, and leveraged services based on more than two decades of experience in executive and operational roles with the Corporation and in our industry.
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Expertise in government relations, government contracting, manufacturing, marketing, and human resources.
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Corporate governance and audit expertise derived from service on boards of other multinational corporations and nonprofit organizations.
2013 Proxy Statement 22
Gwendolyn S. King
(Age 72)
Director since March 1995
Committees: Ethics and Sustainability Committee (Chair); Executive Committee; Nominating and Corporate Governance Committee
President of Podium Prose, a Washington, D.C. speaker’s bureau and speechwriting service, since 2000. Founding Partner, The Directors’ Council, a corporate board search firm, from October 2003 to June 2005; Senior Vice President of Corporate and Public Affairs of PECO Energy Company (formerly Philadelphia Electric Company) from October 1992 until her retirement in February 1998; Commissioner of the Social Security Administration from August 1989 to September 1992; director of Marsh & McLennan Companies, Inc. from 1998 to May 2011; and currently serves as a director of Monsanto Company.
Skills and Qualifications:
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Experience and industry-specific knowledge of our civil customer and the demands and challenges associated with managing large organizations and regulated industries from experience as Senior Vice President at PECO Energy Company and Commissioner of the Social Security Administration.
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Expert in external communications and extensive experience in matters relating to public policy, regulatory oversight, and government relations from her senior advisory roles in two previous White House administrations.
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Corporate governance expertise and compliance experience from her service on the board of the National Association of Corporate Directors.
James M. Loy
(Age 70)
Director since August 2005
Committees: Classified Business and Security Committee; Ethics and Sustainability Committee; Strategic Affairs and Finance Committee
Senior Counselor of The Cohen Group since 2005. Deputy Secretary of Homeland Security from 2003 to 2005; Administrator, Transportation Security Administration from 2002 to 2003; Commandant, U.S. Coast Guard from 1998 to 2002; Coast Guard Chief of Staff from 1996 to 1998; Commander of the Coast Guard’s Atlantic Area from 1994 to 1996; a director of L-1 Identity Solutions, Inc. from 2006 to 2011; and currently serves as a director of Rivada Networks, LLC and Board of Trustees of RAND Corporation, a nonprofit organization.
Skills and Qualifications:
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Experience with the demands and challenges associated with managing large organizations from his service as Commandant of the Coast Guard.
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Industry-specific expertise and knowledge with our core customer including requirements for acquisition of products and services from prior senior management positions with the Department of Homeland Security, Transportation Security Administration, and the Coast Guard.
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Leadership skills in organization transformation and redesigning larger scale operations from his 45-year career in public service.
2013 Proxy Statement 23
Douglas H. McCorkindale
(Age 73)
Director since April 2001
Committees: Audit Committee; Classified Business and Security Committee; Executive Committee; Management Development and Compensation Committee; Nominating and Corporate Governance Committee (Chair)
Chairman of Gannett Co., Inc. (“Gannett”) from 2001 until his retirement in June 2006. Chief Executive Officer of Gannett from June 2000 to 2005; President of Gannett from 1997 to 2005; Vice Chairman of Gannett from 1984 to January 2001; Chief Financial Officer of Gannett from 1979 to 1997; Chief Administrative Officer of Gannett from 1985 to 1997; director of Continental Airlines, Inc. from 1993 to 2010; and currently serves as a director or trustee of approximately 60 fund portfolios in the Prudential Fund Complex, the boards of which meet concurrently and function as a single board.
Skills and Qualifications:
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Experience with the demands and challenges associated with managing global organizations from prior positions as Chairman, CEO, and President of Gannett Co., Inc.
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Expertise in financial system management, public company accounting, disclosure, and financial markets from prior roles as CFO at Gannett Co., Inc. and as trustee of mutual funds.
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Corporate governance expertise from service as director of large public companies.
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The Board has determined that Mr. McCorkindale meets the SEC’s criteria of an “audit committee financial expert.”
Joseph W. Ralston
(Age 69)
Director since April 2003
Committees: Classified Business and Security Committee; Ethics and Sustainability Committee; Strategic Affairs and Finance Committee
Vice Chairman of The Cohen Group since March 2003. Retired from active duty in March 2003. Commander, U.S. European Command and Supreme Allied Commander Europe, NATO, Mons, Belgium from May 2000 to January 2003; Vice Chairman, Joint Chiefs of Staff, Washington, D.C. from March 1996 to April 2000; and currently serves as a director of The Timken Company and URS Corporation.
Skills and Qualifications:
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Industry-specific expertise and insight into our core customer, including requirements for acquisition of products and services, from prior senior leadership positions with the military.
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Experience with large organization management and assessing human resources, equipment, cyber, and financial requirements, as well as reputational risks during his service as a senior military officer, including Vice Chairman of the Joint Chiefs of Staff.
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Skilled in executive management, logistics, and military procurement due to his distinguished career managing 65,000 troops from 23 countries as Supreme Allied Commander.
2013 Proxy Statement 24
Anne Stevens
(Age 64)
Director since September 2002
Committees: Audit Committee; Executive Committee; Management Development and Compensation Committee (Chair)
Chairman, Chief Executive Officer and Principal of SA IT Services since June 2011. Previously, Ms. Stevens was Chairman, President and Chief Executive Officer of Carpenter Technology Corporation from November 2006 to October 2009; Executive Vice President, Ford Motor Company and Chief Operating Officer, The Americas, from November 2005 until her retirement in October 2006; Group Vice President, Canada, Mexico and South America, Ford Motor Company from October 2003 to October 2005; Vice President, North America Vehicle Operations of Ford Motor Company from August 2001 to October 2003; and Vice President, North America Assembly Operations of Ford Motor Company from April 2001 to August 2001. Ms. Stevens held various management positions at Ford Motor Company from 1990, including executive director in Vehicle Operations in North America, and held various engineering, manufacturing and marketing positions at Exxon Chemical Co. before joining Ford Motor Company. Member of the National Academy of Engineering and a Trustee of Drexel University and currently serves as a director of Anglo American plc.
Skills and Qualifications:
•
Experience with the demands and challenges associated with managing global organizations from prior executive positions at Ford Motor Company.
•
Public company management, talent management, and governance experience from prior positions as Chairman, President, and CEO of Carpenter Technology Corporation and Executive Vice President, Ford Motor Company.
•
Engineering and manufacturing expertise derived from educational training and experience managing production lines at Ford Motor Company.
Robert J. Stevens
(Age 61)
Director since October 2000
Committee: Executive Committee (Chair)
Executive Chairman and Strategic Advisor to the Chief Executive Officer of Lockheed Martin Corporation since January 2013; Chairman of the Board and Chief Executive Officer from January 2010 to December 2012; Chairman of the Board, President and Chief Executive Officer from April 2005 to January 2010; President and Chief Executive Officer from August 2004 to April 2005; President and Chief Operating Officer from October 2000 to August 2004; Executive Vice President and Chief Financial Officer from October 1999 to March 2001; Vice President of Strategic Development from November 1998 to October 1999; and currently serves as a director of Monsanto Company. In January 2012, President Obama appointed Mr. Stevens to the Administration’s Advisory Committee for Trade Policy and Negotiations.
Skills and Qualifications:
•
Industry leader with insight into the complexities of operating a global, technology-driven business, strategic planning, regulatory, legislative and public policy matters based on more than two decades of experience in executive and operational roles with the Corporation and in our industry.
•
Expertise in finance, information technology, technology development, manufacturing, marketing, and human resources, and broad international business management experience.
•
Corporate governance and risk management experience gained through position of Chairman and CEO of the Corporation.
2013 Proxy Statement 25
PROPOSAL 2 –2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee has appointed Ernst & Young LLP, an independent registered public accounting firm, as the independent auditors to perform an integrated audit of the Corporation for the year ending December 31, 2012.2013. Ernst & Young LLP served as our independent auditors in 2011.2012. The services provided to the Corporation by Ernst & Young LLP for the last two fiscal yearyears are described under the caption “Fees Paid to Independent Auditors” below.
The selection,Audit Committee is directly responsible for the appointment, compensation, retention, termination and oversight of the Corporation’s independent auditor are the responsibility of the Audit Committee in accordance with the NYSE listing standards. The Audit Committee also is responsible for the audit fee negotiations associated with the retention of Ernst & Young LLP. The Audit Committee has discussed the advantages and disadvantages of external audit firm rotation. Further, in conjunction with the periodic mandated rotation of the audit firm’s lead engagement partner, the Audit Committee and its chairman are directly involved in the selection of Ernst & Young LLP’s new lead engagement partner. The members of the Audit Committee and the Board believe that the continued retention of Ernst & Young LLP to serve as the Corporation’s independent external auditor is in the best interest of our stockholders.
Stockholder approval of the appointment is not required. However, the Board believes that obtaining stockholder ratification of the appointment is a sound corporate governance practice. If the stockholders do not vote on an advisory basis in favor of Ernst & Young LLP, the Audit Committee will reconsider whether to hire the firm and may retain Ernst & Young LLP or hire another firm without resubmitting the matter for stockholders to approve. The Audit Committee retains the discretion at any time to appoint a different independent auditor.
Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting, will be available to respond to appropriate questions, and will have the opportunity to make a statement if they desire.
The Board unanimously recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as independent auditors for 2013. |
The Board unanimously recommends a vote FOR the ratification of appointment of Ernst & Young LLP as independent auditors for 2012.
Pre-Approval of Independent Auditors Services
The Audit Committee pre-approves all audit, audit-related, tax, and other services performed by the independent auditors. The Audit Committee pre-approves specific categories of services up to pre-established fee thresholds. Unless the type of service had previously been pre-approved, the Audit Committee must approve that specific service before the independent auditors may perform it. In addition, separate approval is required if the amount of fees for any pre-approved category of service exceeds the fee thresholds established by the Audit Committee. The Audit Committee may delegate to one or more of its members pre-approval authority with respect to permitted services, provided that the member must report any pre-approval decisions to the Audit Committee at its next scheduled meeting.
Fees Paid to Independent Auditors
The following table presents the fees billed by Ernst & Young LLP, an independent registered public accounting firm, for audit, audit-related services, tax services, and all other services rendered for 20112012 and 2010.2011. All fees were pre-approved in accordance with the Audit Committee’s pre-approval policy. The Audit Committee considered and concluded that the provision of these services by Ernst & Young LLP was compatible with the maintenance of the auditor’s independence.
Ernst & Young LLP Fees | 2012 ($) | 2011 ($) |
Audit Fees | 15,185,000 | 15,990,000 |
Audit-Related Fees | 1,280,000 | 1,220,000 |
Tax Fees | 2,150,000 | 2,275,000 |
All Other Fees | 40,000 | 40,000 |
Ernst & Young Fees | 2011 ($) | 2010 ($) | ||||||
Audit Fees1 | 15,990,000 | 16,300,000 | ||||||
Audit-Related Fees2 | 1,220,000 | 2,900,000 | ||||||
Tax Fees3 | 2,275,000 | 2,700,000 | ||||||
All Other Fees4 | 40,000 | 100,000 |
NOTES TO TABLE:
(1) Audit Fees:This category includes fees principally include those for services related to the annual audit of the consolidated financial statements, including the audit of internal control over financial reporting, the interim reviews of our quarterly financial statements, statutory audits of our foreign subsidiaries, SEC registration statements and other filings, and consultation on accounting matters.
PROPOSAL 2 – RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORSAudit-Related Fees:
(2) For 2011, audit-related2012, this category principally includes fees principally include those for services related to employee benefit plan audits and due diligence in connection with acquisitions. For 2010, audit-related fees principally include those for services related to audits of employee benefit plans and services related to a service organization review at a business segment. For 2011, this category principally includes fees for services related to audits of divested entities.employee benefit plans and due diligence in connection with acquisitions.
(3) Tax fees principally includeFees: This category includes domestic and international tax compliance and advisory services.
(4) All other fees principally include those for advisoryOther Fees:This category includes services related to government contracting matters.
2013 Proxy Statement 26
PROPOSAL 3 –3: ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR
NAMED EXECUTIVE OFFICERS (“SAY-ON-PAY”)
We are askingask our stockholders to vote annually to approve, on an advisory (non-binding) basis, the compensation of our NEOsnamed executive officers (“NEOs”) as described in detail in the Compensation Discussion and Analysis (“CD&A&A”) and the accompanying tables in the Executive Compensation section beginning on page 29.28. This vote is commonly known as “say-on-pay.“Say-on-Pay.”
Stockholders should review the entire proxyProxy Statement and, in particular, the CD&A for information on our executive compensation program and other important items.
We believe that the information provided in this Proxy Statement demonstrates that our executive compensation program is designed to link pay to performance. Accordingly, the Board recommends that stockholders approve the compensation of our NEOs by approving the following say-on-paySay-on-Pay resolution:
RESOLVED, that the stockholders of Lockheed Martin Corporation approve, on an advisory basis, the compensation of the named executive officers identified in the “Summary Compensation Table,” as disclosed in the Lockheed Martin Corporation 2013 Proxy Statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and the accompanying footnotes and narratives. |
This vote is not intended to address any specific item of compensation, but rather our overall compensation policies and procedures related to the stockholders of Lockheed Martin Corporation approve, on an advisory basis, the compensation of the named executive officers identified in the “Summary Compensation Table,” as disclosed in the Lockheed Martin Corporation 2012 Proxy Statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables and the accompanying footnotes and narratives.
NEOs. Although the results of the say-on-paySay-on-Pay vote do not bind the Corporation, the Board will, as it does each year, continue to review the results very carefully and plans to continue to seek the views of our stockholders year-round.
The Board unanimously recommends that you vote FOR Proposal 3. |
The Board unanimously recommends that you vote FOR Proposal 3.
2013 Proxy Statement 27
EXECUTIVE COMPENSATION
The Management Development and Compensation Committee makes recommendations to the Board of Directors concerning the compensation of the Corporation’s executives. We have reviewed and discussed with management the Compensation Discussion and Analysis included in the Corporation’s Schedule 14A Proxy Statement, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended. Based on that review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Proxy Statement and incorporated by reference in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011.2012. The Board approved our recommendation.
Submitted on February 23, 201228, 2013 by the Management Development
and Compensation Committee:
Anne Stevens, Chairman | David B. Burritt | |||
Rosalind G. Brewer |
Douglas H. McCorkindale |
Compensation Committee Interlocks and Insider Participation
None of our executive officers served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board or our Compensation Committee.
Accordingly, there were no interlocks with other companies within the meaning of the SEC’s proxy rules during 2011.2012.
Compensation Discussion and Analysis (“CD&A”)
This CD&A discusses the compensation decisions for the NEOs shownlisted in the Summary Compensation Table on page 53. They49. The NEOs are:
Name | Title in 2012 |
Robert J. Stevens | Chairman & Chief Executive Officer |
Bruce L. Tanner | Executive Vice President & Chief Financial Officer |
Marillyn A. Hewson | Executive Vice President, Electronic Systems; President & Chief Operating Officer |
Linda R. Gooden | Executive Vice President, Information Systems & Global Solutions |
Joanne M. Maguire |
|
Christopher E. Kubasik | Vice Chairman, President & Chief Operating Officer (resigned November 9, 2012) |
Mr. Stevens retired as CEO effective December 31, 2012; during 2013, he is serving as Executive Chairman and Strategic Advisor to the CEO. Ms. Hewson served as Executive Vice President, Electronic Systems until December 31, 2012; effective with Mr. Kubasik’s resignation on November 9, 2012, Ms. Hewson was elected President and Chief Operating Officer. Effective January 1, 2013, she was elected CEO and President. Ms. Maguire and Ms. Gooden will step down from their respective positions as Executive Vice Presidents effective April 1, 2013. All references to CEO compensation in this CD&A (unless otherwise noted) reflect Mr. Stevens’ pay because he was the CEO during all of 2012.
To assist stockholders in finding important information, thethis CD&A is organized as follows:
CD&A Highlights We Align Pay To Performance • At-Risk Compensation: We divide compensation opportunities into base salary, annual incentives, and long-term incentives (“LTI”). The annual incentive and LTI opportunities are • Specific Goals and • Market-Based: We
Our 2012 Performance • Strong Total Stockholder Return: Our 2012 TSR of 20% outperformed both the S&P Aerospace & Defense Index and • Record Performance: We reached record levels for sales, segment operating profit, segment operating margin, earnings per share (“EPS”), orders, and backlog. Our 2012 Pay Decisions Awards Reflective of
Investor Feedback in 2012 Investor Outreach: We spoke with owners of a majority of our shares after receiving 68% approval on our 2012 advisory Say-on-Pay proposal and made changes to our programs based on this feedback.
2013 Proxy Statement 29 Compensation Changes We Are Making Response to Our 2012 Advisory Say-on-Pay Vote In 2012, the Compensation Committee worked with management and its compensation consultants to strengthen the pay for performance alignment of our executive compensation program. To allow for sufficient time to consider available alternatives, appropriate changes in compensation philosophy and plan design, and stockholder feedback, the Compensation Committee added meetings to its schedule for 2012.
Although the
Our Corporate Governance Committee considered the feedback relating to corporate governance issues, and our Compensation Committee considered the feedback relating to our executive compensation program. The Compensation Committee considered all of these views in the context of our compensation philosophy, the programs of our competitors, and the unique demands of our industry, and adopted a A summary of the taken are highlighted below.
Other Changes We Made Since Our 2012 Annual Meeting In addition to the changes that were directly related to our discussions with many of our stockholders in 2012, we made the following changes in our executive compensation program: • We added double triggers for payouts following a change of control for all long-term incentive compensation awards. With a double trigger, if the successor assumes the LTI agreements, vesting accelerates following a change in control only for an employee who is terminated without cause or who terminates voluntarily for good reason. • Beginning with the 2013 long-term incentive awards, we made changes that enable the Compensation Committee Summary of Our Compensation Approach Principal Objective The objective of our compensation program is to align pay How We Implement This Objective Pay for Performance • The vast majority of executive pay is “at-risk” based on individual and business performance. • Annual incentive compensation awards are based on achievement of pre-established financial, strategic, and operational goals and individual performance against specific objectives that are tailored to the • Long-term incentive awards are tied to key business financial goals and TSR: – Stock options, which were part of our equity incentives through the end of 2012, provide value from stock price appreciation. In recent years, stock options granted to our CEO included performance goals based on the achievement of specified levels of adjusted cash from operations and ROIC. – Restricted stock units, or “RSUs,” provide value based on our – Cash-based long-term incentive performance (“LTIP”) awards are earned based on relative TSR performance (50%), adjusted cash from operations (25%), and ROIC (25%) over a three-year performance period. – PSUs, which replaced stock options in 2013, are earned based on relative TSR performance (50%), adjusted cash from operations (25%), and ROIC (25%) over a three-year performance period and provide value based on stock price performance. Pay Relative to Market • We utilize a group of companies that we believe represent an appropriate comparator group for compensation purposes. The companies range from one-half to two times our • We • We establish the market rate for • We generally set the target level for our incentive compensation at the market rate, with actual pay received determined by performance against the pre-established goals that are designed to support the Corporation’s objectives and • We seek to provide other benefits that are consistent with the 2013 Proxy Statement 31 Our 2012 Performance and Compensation Decisions 2012 Performance Despite financial, economic, and budget uncertainties, we had a strong year financially and attained record levels for six key financial metrics: • sales • segment operating profit • segment operating margin • earnings per share • orders • backlog 2010–2012 Performance Key financial metrics showed sustained growth when considered over the three-year period ended December 31, 2012. Over the one- and three-year periods ended December 31, 2012, we provided better total returns to our stockholders than the market overall. During 2012, our TSR of 20% outperformed the S&P Aerospace and Defense (A&D) Index (15%) and the S&P 500 Index (16%). Over the three-year period ended December 31, 2012, we performed in line with the S&P A&D Index, while outperforming the S&P 500 Index. 2013 Proxy Statement 32 Compensation Decisions for our CEO and our Other Named Executive Officers In 2012, target compensation
data from our comparator group of companies. In the chart NEO Years in Position as of December 31, 20112 Base Salary Annual Incentive LTI5 Total Target Compensation Amount ($) Percentage of Market Rate Target Target % as a Percentage of Market Rate4 Total LTI Target Economic Value ($) LTI Target Economic Value as a Percentage of Market Rate5 Total Compensation ($) As a Percentage of Market Rate Mr. Stevens 7 1,800,000 3 112 % 150 % 91 % 12,002,501 107 % 16,502,501 107 % Mr. Tanner 4 765,500 95 % 90 % 86 % 3,431,944 100 % 4,886,394 96 % Ms. Hewson1 2 700,000 90 % 90 % 98 % 2,926,192 100 % 4,256,192 96 % Ms. Gooden 5 673,000 94 % 90 % 103 % 2,417,800 100 % 3,696,500 98 % Ms. Maguire 6 668,000 92 % 90 % 102 % 2,525,008 102 % 6 3,794,208 99 % (1) Target compensation for Ms. Hewson reflects compensation and market rate for the position she held at the beginning of 2012 (Executive Vice President, Electronic Systems). (2) Rounded years in position as of December 31, 2011 (2012 compensation decisions were made in January 2012). (3) Mr. Stevens’ base salary has not changed since 2008. It is above-market for a number of reasons, including tenure, sustained high performance, and changes in management of the members of the comparator group which resulted in lower market rates. (4) Based on 2012 annual incentive compensation target as a percentage of base salary. The market rate for the annual incentive target was rounded up or down to 90%. This resulted in an actual annual incentive target slightly above the market target (Mss. Gooden and Maguire) and slightly below the market target (Mr. Stevens and Ms. Hewson). Mr. Tanner’s target was set at 90% to be consistent with the targets of the other executive vice presidents. (5) In 2012, the LTI market values were reduced by 5% to address burn rate and affordability concerns. The position to market shown is calculated as the LTI grant value divided by the adjusted LTI market value. (6) Above target rate was used to compensate Ms. Maguire for elimination of other benefits and perquisites. Variable and Performance-Based Compensation
Annual Incentive
Market-Based Targets– We assign bonus levels for NEOs expressed as a percentage of the NEO’s base salary. Role of Performance– The annual incentive target award is adjusted for both individual and organizational performance.
2013 Proxy Statement 33 For each of the NEOs (other than the CEO), the Compensation Committee establishes individual performance objectives in the first quarter of the year. For the business area Formula for Calculating 2012 Annual Bonus Award – We used the following formula to determine annual bonus awards for 2012:
Because we multiply the organizational and individual performance factors together (a “multiplicative approach”), a zero rating on either factor results in no payment. Assessment of Organizational Performance for 2012 Annual Incentive Award – In January 2013, the Compensation Committee assigned an organizational rating of 1.40 (on a scale of 0 to 1.50) for corporate performance. In making this assessment, the Compensation Committee considered the financial, strategic, and operational goals it established in January 2012 (with the following weightings: financial results 60%, strategic results 20%, and operational results 20%), and the resulting performance assessments set forth below.
Contributions we make to our pension trust reduce the cash from operations that we report on our financial statements. For purposes of measuring performance against the cash from operations goal, our annual incentive plan authorizes us to include the amount of any discretionary contribution we make to our pension trust that we did not forecast in our long-range plan. When the 2012 discretionary pension contribution of $2.5 billion is included in our 2012 cash calculation, the result is an adjusted cash number for 2012 that exceeds the 2012 goal. We adjust cash in our annual incentive plan calculation so that the reduction in cash from operations that results from a discretionary pension contribution is not a factor in the decision as to whether to make the contribution.
Given the nature of the strategic and operational goals, the difficult contracting environment, and the increase in contractor challenges to contract award decisions, the Compensation Committee used its discretion to assess performance against these goals in reaching the following strategic and operational performance ratings.
2013 Proxy Statement 34
Applying the weighting of 60% financial performance, 20% strategic performance, and 20% operational performance resulted in a 2012 corporate performance score of 1.40 (rounded to nearest .05).
Assessment of Individual Performance The Compensation Committee used its discretion to evaluate the performance of each of our NEOs (other than the CEO) against their pre-established goals and assign individual performance ratings for their 2012 award. In the case of the CEO, whose individual performance rating initially was based on our organizational performance, the Compensation Committee used its discretion to evaluate the totality of Mr. Stevens’ performance and leadership during the year. The Compensation Committee concluded that the performance of each of the NEOs exceeded their commitments for the year and warranted individual performance ratings above the 1.0 target level. In making that determination, the Compensation Committee considered the following:
Mr. Kubasik did not receive an annual incentive award. 2013 Proxy Statement 35 2013 Annual Incentive Changes In January 2013, the Compensation Committee approved the following changes to our annual incentive program: • Performance will be assessed using the following elements: – Enterprise performance (0.00 – 1.30 rating) – Business area/corporate headquarters performance (0.00 or 0.50 – 1.25 rating) – Individual performance (0.00 – 1.25 rating) – Cap of 200% of target
No payment is made if performance on any element (enterprise, business area/organizational, or individual) falls below 0.50. • Enterprise and business area/corporate headquarters performance will each be based upon financial, strategic, and operational commitments, weighted 60%, 20%, and 20%, respectively. For corporate headquarters employees, the business area/corporate headquarters performance rating will be the average of the ratings for the five business areas subject to adjustment by the Compensation Committee of +/- .05 to take into account significant items. • Targets for individual performance will align to the market rate. The Compensation Committee reviewed the market data for the NEOs and approved a target level of 105% for Mr. Tanner; target level changes were not approved for Ms. Gooden and Ms. Maguire due to their announced retirements. The Compensation Committee did not change the 2013 target levels approved in 2012 for Ms. Hewson (175%) or for Mr. Stevens (150%). For 2013, the Compensation Committee will use the following performance definitions which align with the Corporation’s non-executive performance management system as follows:
The Compensation Committee adopted these parameters to establish the structure around which future annual incentive decisions would be made, to align participants to the performance of the overall enterprise, and to use financial performance as a core element of the rating. The Compensation Committee will retain discretion, including in choosing and approving metrics, assessing strategic, operational, and individual performance, and in applying the average business area performance factor to corporate headquarters employees. Establishment of 2013 Annual Incentive Performance Goals For 2013, the Compensation Committee approved key corporate commitments • Financial Commitments: Our financial commitments are established at the completion of our annual long-range planning process. This process includes reviews of the assumptions used by the business areas in generating their financial projections, such as industry trends and competitive assessments, current and future projected program performance levels, and the risks and opportunities surrounding these baseline assumptions. Business area financial projections are also compared against historical patterns of performance, and are independently assessed for reasonableness by our CFO’s Independent Cost Estimating (ICE) organization. The ICE organization uses the expertise it has developed through both evaluation of new business proposals and assessments of financial performance on existing contracts to provide an independent evaluation of the likelihood of our business areas achieving their financial projections. The financial commitments we use as our annual incentive performance goals are identical to our long-range plan commitments, and are consistent with the ranges we provided as public guidance in our year-end earnings release. These commitments are set forth below.
**
We did not provide guidance on orders as part of our year-end earnings release; however, we did indicate that year-end 2013 backlog is expected to be approximately $80 billion. Consistent with that expectation and our financial commitment as to the level of 2013 sales, we anticipate a range of orders for 2013 of $41,750 - $43,250 million. The Compensation Committee Our long-range plan values for orders, sales, segment operating profit, and adjusted cash from operations become the target level (1.0 rating) for each of these metrics. We established maximum (1.3 rating) and minimum payout levels (0.5 rating) around these targets based on a review of historical performance against long-range plan commitments for each of the four annual incentive performance goal metrics. We used straight line interpolation between target and both maximum and minimum historical performance levels. In all cases, payouts deteriorate more rapidly as we move from target level to the minimum payout level compared to the level of increase as we move from target level to maximum payout level. This asymmetry reflects the importance we place on meeting our financial goals. 2013 Proxy Statement 36 • Strategic Commitments: – Meet all corporate focus program objectives for 2013 and drive new business capture through winning new business, maintaining all follow-on program value, and maximizing international and adjacent market opportunities – Identify growth areas outside the core business and position the corporation for successful entry and sustainable returns in these areas – Embed our workforce planning strategies to define the capabilities needed for today and tomorrow, delivering an integrated talent management strategy that reinforces our culture of leadership and performance • Operational Commitments: – Perform successfully (achieve “mission success”) on identified critical events – Have no red programs Similar financial, strategic, and operational goals Strategic and operational performance assessments are inherently different than financial performance assessments. To the extent there are objective metrics for Because uncertainty existed at the time the commitments were established and continues as to whether an agreement will be reached on sequestration or other budget cuts intended to replace sequestration, our public guidance relating to our 2013 financial outlook and the related financial commitments as well as the commitment for orders established under our 2013 annual incentive program do not take into account the changes in our results that could occur from sequestration. In evaluating individual performance and the performance against strategic and operational commitments, the Compensation Committee retains discretion to consider all relevant factors, which would include its evaluation of how the Corporation responded to the challenges of sequestration or other budget cuts to replace sequestration, subject to the limitations on payments contained in the annual incentive plan. For the CEO, the enterprise goals will also serve as the CEO’s individual goals for 2013 (subject to the Compensation Committee’s consideration of any other relevant factors); likewise the organizational goals established for each business area will serve as the individual performance goals for the Executive Vice President in charge of the respective business area. The Compensation Committee approved individual commitments for the Executive Chairman based on the Long-Term Incentive Compensation After determining the
2013 Proxy Statement 37 Stock Option Grants
In
Restricted Stock Unit Grants
As a general matter, RSU
$81.93. As such, the formula (excluding rounding) for determining the number of RSUs awarded to a NEO was:
To further link RSUs to organizational performance, all RSUs awarded to NEOs in 2012 were subject to forfeiture to the extent the grant date value of the RSUs exceeded 0.2% of 2012 adjusted cash from operations in the case of the CEO and 0.1% in the case of each of the other NEOs. These performance requirements were satisfied and no forfeiture occurred. 2013 Proxy Statement 38 Cash-Based LTIP Awards
As a general matter, LTIP As such, the formula (excluding rounding) for determining the value of LTI attributed to LTIP for each NEO was:
For the 2012-2014 LTIP Assessment of 2010-2012 Corporate Performance for LTIP Award The cash-based LTIP award for the 2010-2012 performance period measured corporate performance from January 1, 2010 through December 31, 2012, against financial goals established in January 2010. Since the award calculation is formulaic, neither the Compensation Committee nor management had any authority to adjust the final award. The final payout factor was calculated as follows:
2013 LTI Grants The following summary shows the breakdown for the CEO, the CFO, and the business area executive vice presidents of our 2013-2015 long-term incentive awards between equity-based RSUs and PSUs as well as cash-based LTIP and summarizes a number of the other principal terms of the awards.
2013 Proxy Statement 39 In making its determinations about the appropriate level of equity grants for 2013—including the determination to grant PSUs instead of stock options—the Compensation Committee took into consideration a variety of factors, including the number of awards outstanding and shares remaining available for issuance under the Corporation's equity incentive plans, the number of shares that would Setting Goals For LTI (LTIP and PSUs) We followed the same approach in setting the goals for adjusted cash from operations and ROIC for the LTIP and PSU grants as we used in developing our annual incentive performance goals. Our long-range planning process is used to establish the target, or 100% level of payment. In setting minimum and maximum levels of payment, we reviewed historical levels of performance against long-range plan commitments, and conducted sensitivity analyses on alternative outcomes focused on identifying likely maximum and minimum boundary performance levels. Levels between 100% and the minimum and maximum levels were derived using linear interpolation between the minimum and maximum levels. As with our annual incentive performance goals, LTIP and PSU payouts deteriorate more rapidly as we move from target level to the minimum payout level than they increase as we move from target level to maximum payout level. This asymmetry reflects the importance we place on meeting our financial commitments. The goals established by the Compensation Committee for ROIC and adjusted cash from operations for the 2012 RSUs and the 2012-2014 LTIP were lower than the corresponding goals for the 2011-2013 period. This reduction was not a lessening of the difficulty of achieving the targets but rather was intended to keep the level of difficulty constant in an increasingly challenging global economic environment where government spending levels are under pressure. The goals as approved were intended to take into account these economic and industry trends, appropriate opportunities for exceptional performance and minimize incentives for imprudent risk taking that could result from unrealistic goals. Because uncertainty existed at the time the goals were established and continues as to whether an agreement will be reached on sequestration or other budget cuts intended to replace sequestration, we did not forecast the specific effects of sequestration in our three-year, long-range plan or LTI goals. Depending upon the ultimate outcome of these initiatives, sequestration is likely to have the effect of making it more difficult for our executives to realize value from these arrangements for each of the open performance periods. The Compensation Committee does not have discretion to adjust LTIP and PSU targets or RSU performance requirements. Fixed Elements of Compensation Base Salary
Base salaries are reviewed annually and may be increased to reflect the executive’s individual contribution to business results and/or adjusted to align more appropriately with market. In establishing base salary for each NEO, we determined the market rate using comparator group company data and then evaluated whether the market value should be adjusted up or down based on differences in the scope of the NEO’s position as compared to the industry and the comparator group companies generally. The Compensation Committee positions an executive’s base salary relative to the market rate based upon years of service, experience, performance, and critical skills. For example, Mr. Stevens’ base salary has not changed since 2008—his base salary reflects our previous pay practices, time in position, and performance over the entire period during which he served as our CEO. In the case of Ms. Hewson, since it was anticipated in November 2012 when she was elected President and COO that she would hold that position only until January 1, 2013, the Compensation Committee and the Board established her base salary at the same level as her predecessor. See discussion of 2012 compensation decisions relating to Ms. Hewson on page 41. 2013 Proxy Statement 40 Indirect Elements of Executive Compensation In addition to base salary and annual and long-term incentive compensation, we offer a number of other compensatory arrangements to our executive officers. These indirect elements of executive compensation are not performance based and are offered as part of the overall compensation packages to ensure that the package is competitive with the other companies with which we compete for talent. The Compensation Committee also recommended and the Board approved a second increase in Ms. Hewson’s base salary to $1,375,000 and target annual incentive percentage to 175%. This increase was effective January 1, 2013, the date on which Ms. Hewson became CEO and President. The Compensation Committee based its decision for her 2013 compensation on its previously summarized pay philosophy that a newly promoted executive should be paid a base salary equal to 85% of the market-rate base salary for comparable positions with our comparator group of companies and an annual incentive target equal to 100% of the market-rate target percentage within the comparator group. Compensation for the Executive Chairman and Strategic Advisor to the CEO in 2013 During 2012, the Corporation disclosed that Mr. Stevens intended to step down at the end of the year as CEO, but had indicated a willingness, subject to election by the Board and our stockholders, to remain Chairman of the Board through December 31, 2013. Following the resignation of Mr. Kubasik, the Board elected Mr. Stevens to serve as Executive Chairman, effective January 1, 2013. In addition, Mr. Stevens agreed to remain an employee in the position of Strategic Advisor to the CEO through February 28, 2014, which represented an expansion of the transition role that originally was contemplated by the Board and Mr. Stevens. In November 2012, the Compensation Committee recommended and the Board approved a transition agreement with Mr. Stevens that specified, among other things, the services to be provided by Mr. Stevens as Strategic Advisor to the CEO and the compensation to be paid to him for those services. Pursuant to the transition agreement, as Strategic Advisor to the CEO, Mr. Stevens: • Assists in the transition of management responsibilities over the day-to-day operation of the Corporation to Ms. Hewson; • Provides counsel to Ms. Hewson on a variety of historical, strategic, and policy issues; • Supports the transition of responsibilities for the management of the Corporation to Ms. Hewson by facilitating introductions and establishing relationships with customers, members of Congress, investors, and other stakeholders; 2013 Proxy Statement 41 • Represents the Corporation in a number of forums regarding issues facing the aerospace and defense industry; and • Performs other duties at the request of the Board or Ms. Hewson, including customer and congressional outreach and strategic and talent development. Mr. Stevens will receive the following compensation for his services as Strategic Advisor to the CEO in 2013: • Annual base salary of $1.8 million; • Eligibility for an annual incentive bonus target of 150%; • Payment, if any, earned under his 2011-2013 LTIP grant; and • Continued participation in employee benefit plans such as 401(k), pension, For January and February 2014, as Strategic Advisor Mr. Stevens will receive: • Base salary of $100,000 per month or $200,000 in the aggregate; • Payment, if any, earned under the 2012-2014 LTIP (prorated to reflect service for only 26 months of the three-year cycle); and • Continued participation in employee benefit plans such as 401(k), pension, and insurance. The transition agreement provides for a Through December 31, 2014, Mr. Stevens will be eligible under the transition agreement for an executive physical, office and technical and administrative support, and business and professional subscriptions. The In determining the compensation for Mr. Stevens’ service as Strategic Advisor for 2013 and 2014 and approving the transition agreement, the Compensation Committee considered a variety of factors and input from its independent consultant and concluded that the level of compensation was appropriate. In particular, the Compensation Committee considered that: • The services to be performed by Mr. Stevens as Strategic Advisor will provide value to the Corporation in • Mr. Stevens’ role in the transition of management of the Corporation will require a time commitment significantly beyond that normally associated with service as Chairman of the Board; • Mr. Stevens is uniquely qualified to provide the services contemplated due to his knowledge of the Corporation and its customers, investors, and other stakeholders; • The compensation represents a reduction in compensation from • Based on a review by the Compensation Committee’s independent consultant of the proposed compensation relative to other publicly reported compensation levels, the compensation to be paid to Mr. Stevens is consistent with compensation publicly reported by other companies as paid in similar circumstances; and • Consistent with its policy of not providing board fees to employee directors, Mr. Stevens will not receive a director or chairman fee for his services as Executive Chairman of the Board. Separation Agreement for Christopher E. Kubasik In connection with his resignation, the Corporation and Mr. Kubasik entered into a separation agreement pursuant to which the Corporation agreed to pay Mr. Kubasik $3.5 million as a separation payment. As a result of his resignation, Mr. Kubasik did not receive a separate bonus for 2012 under the Corporation’s annual incentive plan. He forfeited all unvested RSUs, stock options, and LTIP awards. The Corporation entered into the separation agreement with Mr. Kubasik after reviewing actions taken by other companies in similar situations and concluding that it was in the best interest of the Corporation to reach a negotiated settlement with Mr. Kubasik concerning the terms of his exit from the Corporation. The principal factors supporting the conclusion reached by the Board were: • The elimination of the risk of protracted litigation over his exit; • The ability to secure a release of claims by Mr. Kubasik; • The reaffirmation of his non-competition, non-solicitation, proprietary information, non-disparagement, and cooperation obligations to the Corporation; • The fact that the amount paid was substantially less than amounts paid by other companies in similar situations (which in some instances was tens of millions of dollars and included accelerated vesting of LTI awards); and • The desire to reach a prompt and comprehensive settlement. 2013 Proxy Statement 42 Compensation Philosophy Market-Rate Target Compensation with Compensation Earned Based on Performance and Increases in Equity Value As a starting point, for each of the principal elements of executive compensation we define the “market rate” as the size-adjusted 50th percentile of the comparator group of companies we have identified for compensation purposes. We then in limited circumstances may adjust this market rate of compensation to reflect differences in an How We Select the Comparator Group of Companies for Market-Rate Purposes and for Performance Purposes Companies for Market-Rate Determination To establish the market rate for each of the principal elements of compensation, we select a group of publicly-traded companies (our comparator group) to identify market values for all pay elements. Because the number of • Similarity in size (revenue), which is a high correlative factor in determining pay—generally between one-half and • Participation in the Aon Hewitt executive compensation survey (our primary source for data in making market comparison)—enables us to obtain reliable data for market comparisons. • Industrial companies and, to the extent possible, companies that compete in the aerospace and defense industry—enables comparison with companies that face similar overall labor costs. • Companies that are included in the executive talent pool we consider—competitive conditions and a limited universe of comparably sized aerospace and defense companies require us to recruit outside the core aerospace and defense companies and to recruit from a broad range of disciplines (for example, finance, human resources, supply chain management) to obtain individuals with a broad range of skills that are transferable across industries. • Companies with comparable executive officer positions or We do not consider market capitalization in selecting our comparator group because market capitalization can change quickly as industries and companies go in and out of favor as investments and as companies restructure. Furthermore, market capitalization may not reflect the complexity of the business and may be more reflective of future expectations about a particular company’s growth potential rather than its actual financial performance or complexity. The data presented to and considered by the Compensation Committee regarding the level of compensation at the Corporation's comparator group of peer companies was developed from the proprietary results of the Aon Hewitt executive compensation survey in which all of the comparator group companies participate. 2013 Proxy Statement 43 At the beginning of 2012, based on the objectives and criteria summarized above, we selected the following companies as our comparator group for purposes of establishing market-rate compensation for each of the principal elements of our compensation program:
Our 2011 revenue represented the 57th percentile of our comparator group. To further account for differences in the size of the companies making up our comparator group, management’s compensation consultant, Aon Hewitt, conducted a regression analysis (a statistical technique that adjusts the compensation data for differences in our comparator group company revenues) thereby allowing comparison of compensation levels to similarly sized companies. Valero Energy Corporation and Merck & Co., Inc. ceased participation in the executive compensation surveys available to us and will not be included in our comparator group for 2013 compensation decisions. 2013 Proxy Statement 44 Companies for TSR Performance Evaluation Because the comparator group of companies that we use for purposes of establishing a market rate for specific elements of compensation includes companies in different industries and TSR can vary significantly by industry sector, we use a different group of companies for purposes of determining our relative TSR for LTI performance measurement. At the beginning of 2012, for the 2012-2014 performance period under the Corporation’s LTIP, we selected the following companies which comprise the S&P Aerospace & Defense Index as our comparator group for purposes of relative TSR performance measurement. We will use the same group for the 2013-2015 LTIP and PSU awards.
How We Allocate Compensation Opportunities Policy for Allocating Between Fixed and Variable Compensation We believe that, to the maximum extent possible, the compensation opportunities of our executives should be variable and the variable elements of the compensation package should tie to the Corporation’s long-term success and the achievement of sustainable long-term total return to our stockholders. The following chart shows the allocation of the 2012 compensation of our CEO between variable and fixed compensation. Policy for Allocating Between Short- and Long-Term Compensation We believe that the mix between short-term and long-term compensation should be balanced and be derived from the market rate. Linking both our cash-based and our equity-based long-term incentives to three-year performance and vesting periods allows the Corporation indirectly to tie the value realized by our executives to longer-term sustained levels of performance and better aligns with stockholders’ interests. The following chart shows the allocation of the 2012 compensation of our CEO between long-term and short-term compensation. 2013 Proxy Statement 45 Policy for Allocating Between Cash Compensation and Equity Incentives Equity compensation creates an identity of interest between executives and our stockholders and we, therefore, seek to maximize the portion of our compensation opportunities that is available in the form of equity incentives. Since the base salary and
Consideration of Internal Pay Equity Consistent with its past practice, at its January 2012 and 2013 meetings, the
Compensation and Risk At the Compensation Committee’s request, Steven Hall & Partners (“Steven Hall”), its independent compensation consultant prior to June 2012, performed a compensation risk assessment and reported to the Compensation Committee
Our Decision-Making Process To implement the Corporation’s compensation philosophy and to ensure that all information relevant to individual compensation decisions is taken into account, the Compensation Committee seeks input from our CEO and other members of our management team as well as input and advice from the independent compensation consultant it has retained for this purpose. 2013 Proxy Statement 46 The following summary sets forth the responsibilities of various parties in connection with the implementation of our compensation program:
Our Use of Independent Compensation Consultants The Compensation Committee believes that an independent compensation consultant can provide important information about market practices, the types and amounts of compensation offered to executives generally, and the role of corporate governance considerations in making compensation decisions. The Compensation Committee’s charter authorizes it to retain any outside advisors that it believes are appropriate to assist in evaluating executive compensation. Prior to June 2012, Steven Hall had served as independent consultant to the Compensation Committee and reported directly to the Compensation Committee. In June 2012, the Compensation Committee decided not to continue its relationship with Steven Hall and instead retained Meridian. The change in compensation consultants was part of our broader effort to develop another perspective on the Corporation's compensation programs in light of the 68% favorable stockholder response to our 2011 and 2012 advisory Say-on-Pay votes which In connection with its retention of Meridian, the Compensation Committee considered the following factors in assessing Meridian’s independence: • Meridian was not performing other services for the Corporation. • The compensation paid to • Meridian has client information, business ethics, and insider trading and stock ownership policies, which are designed to avoid conflicts of interest. • Meridian employees supporting the engagement do not own Lockheed Martin stock. • Meridian employees supporting the engagement have no business In connection with its engagement of Meridian, the Compensation Committee also noted and considered the fact that, in early 2012 prior to its engagement by the
2013 Proxy Statement 47 At the time it hired Meridian, the Compensation Committee concluded that Meridian was independent. The Committee had previously received information on Steven Hall from which it had concluded that Steven Hall also was independent. The nature and scope of both Steven Hall’s and Meridian’s engagement were determined by the Compensation Committee and were not limited in Other Corporate Governance Considerations in Compensation Tax Deductibility of Executive Compensation
Policy Regarding Timing of We have a corporate policy statement concerning the grant of equity awards. Under that policy: •
The closing price of our stock on the NYSE on the date specified as the grant date is the exercise price for an option award. In addition,
Anti-Hedging and Pledging Policy In 2011, we amended our policy on compliance with U.S. securities laws to prohibit hedging of Lockheed Martin stock by all employees and directors. Effective January 1, 2012, our policies also prohibit pledging of Lockheed Martin stock by employees and directors. Stock Ownership Requirements for Key Employees
NEOs are required to achieve ownership levels within five years and must hold net shares from vested RSUs and PSUs and net shares from options exercised until the value of the shares equals the specified multiple of base salary. The
Post-Employment, Change in Control, and Severance Benefits Our NEOs do not have employment 2013 Proxy Statement 48 The benefit payable in a lump sum under the plan is one times the NEO’s base salary and the equivalent of one year’s target In addition, NEOs participating in the plan will receive a lump sum payment to cover the cost of medical benefits for one year
In the event of a change in control, our plans provide for the acceleration of the payment of the nonqualified portion of earned pension benefits and nonqualified deferred
Summary Compensation Table The following table shows annual and long-term compensation awarded, earned, or paid for services in all capacities to the NEOs for the fiscal year ended December 31,
2013 Proxy Statement 49 Name and Principal Position (Column (a))
Information is provided for 2012 only for
Mr. Kubasik resigned as Vice Chairman, President and Chief Operating Officer and as a member of the Board effective November 9, 2012. Salary (Column (c)) Salary is paid in arrears. The amount of salary reported may vary from the approved annual rate of pay because the salary reported in the table is based on the actual number of weekly pay periods in a year.
Annual incentive bonuses
Stock Awards (Column (e)) Represents the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 (“ASC 718”) for RSUs granted Mr. Kubasik forfeited all outstanding, unvested RSU awards and accrued dividend equivalents on the unvested RSUs.
Non-Equity Incentive Plan Compensation (Column (g)) The amounts listed for LTIP awards were earned in the three-year period ending on December 31 of the year reported in column (b) of the table.
2013 Proxy Statement 50 Change in Pension Value and Nonqualified Deferred Compensation Earnings (Column (h)) Represents solely the aggregate change in the accumulated benefit under all defined benefit and actuarial pension plans (including tax-qualified and nonqualified defined benefit plans) for the year reported (from December 31 to December 31). The amounts were computed using the same assumptions we used to account for pension liabilities in our financial statements in accordance with ASC 715 and as described in Note Amounts paid under our plans are based on assumptions contained in the plans and may be different than the assumptions used for financial statement reporting purposes. The NEOs earn a pension based on a formula that applies a percentage of pay (salary plus
Perquisites and other personal benefits provided to the NEOs in The amounts reported for security include providing home security to our executives consistent with what is provided to corporate executives in public companies in our industry. Security is also provided in accordance with our corporate policy to provide any employee who is the subject of a credible and specific threat on account of his or her employment at Lockheed Martin with security that is appropriate to the nature and extent of the threat.
2013 Proxy Statement 51 Back to
Other Items of Compensation Included in “All Other Compensation” Column (i) Name Tax Assistance for Business-Related Items ($) Corporation Matching Contribution to 401(k) Plan ($) Corporation Matching Contribution to NQSSP (Nonqualified 401(k) Plan) ($) Group Life Insurance ($) Matching Gift Programs ($) Mr. Stevens 221,013 3,579 68,421 15,444 0 Mr. Tanner 4,952 3,579 26,899 3,974 10,000 Ms. Hewson 131,941 4,533 25,497 6,347 11,000 Ms. Gooden 0 10,000 0 6,502 0 Ms. Maguire 0 8,500 18,096 0 10,000 Mr. Kubasik 27,532 8,500 30,577 4,761 0
In 2012 Grants of Plan-Based Awards
2013 Proxy Statement 52 Estimated Future Payouts Under Equity Incentive Plan Awards (Columns (f), (g) and (h)) Shows the number of RSUs granted by the Compensation Committee on January All Other Option Awards: Number of Securities Underlying Options (Column (j))
The assumptions used for determining the grant date fair value are set forth in Note
2013 Proxy Statement 53 Outstanding Equity Awards at 2012 Fiscal Year-End
2013 Proxy Statement 54 Option Exercises and Stock Vested During 2012
2013 Proxy Statement 55
During The calculation of retirement benefits under the LMRP is determined by a formula that takes into account the participant’s years of credited service and average compensation for the highest three years of the last ten years of employment. Average compensation includes the NEO’s base salary, annual incentive bonuses, The calculation of retirement benefits under the Prior Plan is based on a number of formulas, some of which take into account the participant’s years of credited service and pay over the career of the NEO. Certain other formulas in the Prior Plan are based upon the final average compensation and credited service of the employee. Pay under certain formulas in the Prior Plan currently includes salary, commissions, overtime, shift differential, lump sum pay in lieu of a salary increase, Mr. Stevens,
2013 Proxy Statement 56 2012 Pension Benefits
Plan Name (Column (b)) The Supplemental Pension uses the same formula for benefits as the tax-qualified plan uses for calculating the NEO’s benefit. All service recognized under the tax-qualified plan is recognized under the Supplemental Pension although a benefit would be earned under the Supplemental Pension only in years when the employee’s total accrued benefit would exceed the benefit accrued under the tax-qualified plan. The Supplemental Pension benefits are payable in the same form as benefits are paid under the LMRP, except lump sum payments are available under the Supplemental Pension.
The amounts in column (d) were computed using the same assumptions we used to account for pension liabilities in our financial statements and as described in Note
Mr. Stevens and Mr. Tanner reflect the reduction for early commencement of the benefit. Amounts paid under our plans use assumptions contained in the plans and may be different than those used for financial statement reporting purposes.
2013 Proxy Statement 57 Nonqualified Deferred Compensation Participants in our tax-qualified 401(k) plan may contribute up to 25% of base salary. In addition, we make a matching contribution equal to 50% of up to the first 8% of compensation contributed by the participant. Employee and Corporation matching contributions in excess of the Internal Revenue Code limitations are contributed to the NQSSP. Employee and Corporation matching contributions are nonforfeitable at all times. NQSSP contributions are credited with earnings or losses, as appropriate, based on the investment option or options in which the account has been invested, as elected by the participant. The DMICP provides the opportunity to defer, until termination of employment or beyond, the receipt of all or a portion of annual incentive bonuses,
2013 Proxy Statement 58 2012 Nonqualified Deferred Compensation
•
Amounts paid in respect of the termination of the PRDB in 2008 could also be deferred into the DMICP. In the table above, deferrals of PRDB payments are included in the Aggregate Balance at Last FYE for the DMICP (Bonus) entry.
2013 Proxy Statement 59 Registrant Contributions in Last Fiscal Year (Column (c)) Includes mandatory deferrals of LTIP for
Includes distributions of mandatory LTIP deferral from the
The table below summarizes the benefits that become payable to a NEO at, following, or in connection with any termination, including without limitation resignation, severance, retirement, or a constructive termination of a NEO, or a change in control under the terms of our benefit plans. Our plans do not contain specific provisions regarding termination for cause. Provisions unique to the 2006 RSU grant to Mr. Stevens are described in In February 2013, the Corporation entered into a Retirement Transition Agreement with each of Ms. Maguire and Ms. Gooden, both of whom will retire from the Corporation in 2013. Under each of the agreements, provided the executive signs a release of claims no later than June 1, 2013, the executive will receive a payment of $1.2 million, less appropriate deductions for applicable taxes. In addition, the Corporation agreed to reimburse Ms. Maguire for costs, fines or penalties resulting from an audit of her 2010 tax return as a consequence of the early distribution of a portion of her 2005-2007 LTIP award. 2013 Proxy Statement 60 SUMMARY OF PAYMENT TRIGGERS
2013 Proxy Statement 61
2013 Proxy Statement 62
Contents The following table quantifies the payments under executive compensation plans as a result of a change in vesting provisions in stock options, RSUs, and LTIP awards and the lump sum payable under the Supplemental Pension that would be made assuming a termination event occurred on December 31, Potential Payments Upon Termination or Change in Control Termination/Resignation
2012; Mr. Stevens, 2013 Proxy Statement 63 Back to Supplemental Pension
The Supplemental Pension lump sum value was calculated using plan assumptions and age of executive as of December 31,
The
The value attributable to the vesting of stock options was based upon the number of unvested stock options multiplied by the difference between the closing price of our stock on December 31,
The value attributable to the vesting of RSUs was based upon the closing price of our stock on December 31, Executive Severance
The total amounts projected for severance payments due to layoff are based on the plan approved by the Board in 2008. It includes payment for salary and target bonus equivalent to one year’s payment (2.99 years for Mr. Stevens) and estimated costs for benefits continuation for one year, outplacement services, and relocation assistance (if required under the plan terms).
2013 Proxy Statement 64 DIRECTOR COMPENSATION 2012 Annual Directors’ Compensation (Non-Employee Directors)
The cash portion of the non-employee director retainer is paid quarterly. •
The Directors Equity Plan provides that a director eligible for retirement at the next Annual Meeting receives a prorated grant (one-third) for the four months of service prior to the Annual Meeting. Except in certain circumstances, options and stock units vest 50% on June 30 and 50% on December 31 following the grant date. Upon a change in control or a director’s retirement, death, or disability, the director’s stock units and outstanding options become fully vested, and the director has the right to exercise the options. Upon a director’s termination of service from our Board, we distribute the vested stock units, at the director’s election, in whole shares of stock or in cash, in a lump sum, or in annual installments over a period of up to 20 years. Prior to distribution, a director has no voting, dividend, or other rights with respect to the stock units held under the Directors Equity Plan, but is credited with additional stock units representing dividend equivalents (converted to stock units based on the closing The Directors Equity Plan provides that the grants are made with respect to a calendar year on the second business day following the later of (i) the date of the first regular meeting of the Board in each calendar year, or (ii) the date on which the Corporation publicly releases its financial results for the previous calendar year; provided that if the second business day is later than February 15, the award date is February 15 (or the next business day if February 15 is not a business day). The exercise price (in the case of option grants) is the closing price of our stock on the NYSE on the date of grant. The Lockheed Martin Corporation Directors’ Deferred Compensation Plan (“Directors’ Deferred Compensation Plan”) provides non-employee directors the opportunity to defer up to 100% of the cash portion of their fees. Deferred amounts earn interest at a rate that tracks the performance of (i) the interest rate under the CAS 415 rate; (ii) one of the investment options available under the employee deferred compensation plans; or (iii) our company stock (with dividends reinvested), at the director’s election. The CAS 415 rate option was closed to new deferrals on
July 1, 2009; amounts deferred before that date may continue to use the CAS 415 rate until such time as they are transferred to another available earnings option under the plan. Deferred fees are distributed in a lump sum or in up to 15 installments commencing at a designated time following termination. The following table provides information on the compensation of our directors for the fiscal year ended December 31, 2013 Proxy Statement 65 2012 Director Compensation
Fees Earned or Paid in Cash (Column (b))
Represents the aggregate dollar amount of Stock Awards (Column (c))
Represents the aggregate grant date fair value computed in accordance with ASC 718 for awards of stock units in
For
2013 Proxy Statement 66 All Other Compensation (Column (g)) Perquisites and other personal benefits provided to 2013 Proxy Statement 67 SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS Directors and Executive Officers
The following table shows Lockheed Martin common stock beneficially owned by and stock units credited to each NEO, director, nominee and all NEOs, directors, nominees, and other executive officers as a group as of February 1,
2013 Proxy Statement 68
Security Ownership of Certain Beneficial Owners The following table shows information regarding each person known to be a “beneficial owner” of more than 5% of our common stock. For purposes of this table, beneficial ownership of securities generally means the power to vote or dispose of securities, regardless of any economic interest in the securities. All information shown is based on information reported by the filer on a Schedule 13G filed with the SEC on the dates indicated in the footnotes to this table.
Name and Address Amount of Common Stock Percent of Outstanding Shares State Street Corporation1 State Street Financial Center One Lincoln Street Boston, MA 02111 61,075,638 18.9 Capital World Investors2 333 South Hope Street Los Angeles, CA 90071 39,721,556 12.3 Massachusetts Financial Services Company3 111 Huntington Avenue Boston, MA 02199 17,595,510 5.4 (1) As reported on a Schedule 13G filed on February 12, 2013, as amended by a Schedule 13G/A filed on February 19, 2013 by State Street Corporation (“State Street”), State Street and its direct and indirect subsidiaries, acting in various capacities, had beneficial ownership, in the form of sole voting power with respect to 2,155,922 shares, shared voting power with respect to 58,919,716 shares, and shared dispositive power with respect to 61,075,638 shares, of which 50,720,985 shares were held as trustee, independent fiduciary and/or investment manager for various Lockheed Martin employee benefit plans. (2) As reported on a Schedule 13G filed on February 13, 2013 by Capital World Investors, a division of Capital Research and Management Company (“CRMC”), Capital World Investors is deemed to be the beneficial owner of such shares, as a result of CRMC acting as an investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940. Capital World Investors has sole dispositive power over such shares and sole voting power over 27,881,556 shares. (3) As reported on a Schedule 13G filed on February 13, 2013 by Massachusetts Financial Services Company (“MFS”), MFS and/or certain other non-reporting entities had beneficial ownership with sole dispositive power and sole voting power over 15,547,754 shares. SECTION Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our executive officers and directors (and persons who own more than 10% of our equity securities) file reports of ownership and changes in ownership with the SEC, the NYSE, and with us. Based solely on our review of copies of forms and written representations from reporting persons, we believe that all ownership filing requirements were timely met during 2013 Proxy Statement 69 STOCKHOLDER PROPOSALS The stockholders identified below have submitted the following proposals to be voted upon at the Annual Meeting. In accordance with SEC rules, we are reprinting the proposals and supporting statements as they were submitted to us. The Corporation is not responsible for the contents thereof or any inaccuracies they may contain.
John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, California 90278, the beneficial owner of no less than 100 shares of common stock of the Corporation having a market value greater than $2,000, has notified the Corporation that he intends to present the following proposal at this year’s Annual Meeting: Proposal 4 – The shareholders of Wet Seal (WTSLA) successfully used written consent to replace certain underperforming directors in October 2012. This proposal topic could potentially receive our majority vote depending on one or two factors: If our directors are neutral on this topic and/or if our directors are willing to make it as easy to vote for this proposal as to vote against it. Had this proposal been on our 2012 ballot it could take only one-click to vote against this proposal – but 15-clicks to vote in favor of it due to our biased Internet voting system. This proposal should also be evaluated in the context of our Company’s overall corporate governance as reported in 2012: GMI/The Corporate Library, an independent investment research firm, rated our company “D” with “High Governance Risk.” Also “Very High Concern” in Executive Pay - $25 million for our Chairman Robert Stevens. Mr. Stevens was given $1.6 million for security and a $350,000 tax gross-up. Because such pay is not directly tied to performance, it is difficult to justify in terms of shareholder value. Annual incentive pay for our highest paid executives was largely subjective. More than 30% of voting shareholders rejected say on executive pay in 2012 and 2011. Only 154 Russell 3000 companies recorded lower approval rates for 2011 according to GMI. Our directors even spent extra money in promoting our yes-votes for the excessive executive pay that they approved. Directors James Loy and Joseph Ralston were potentially conflicted since they were employed by The Cohen Group, which billed Lockheed $700,000 for consulting. Director Gwendolyn King was negatively flagged by GMI for her tenure on the Marsh & McLennan board while Marsh was sued by the New York State Attorney General for alleged bid rigging, price fixing, and kickbacks. Ironically Ms. King chaired our Ethics Committee and was on our nomination committee as Lockheed ousted its incoming CEO, Christopher Kubasik, for having a “close personal relationship” with a Lockheed subordinate and selected Marillyn Hewson as our new CEO. Nolan Archibald and Douglas McCorkindale, who received our high negative votes, were also on this committee. Finally, our Chairman and Ms. King worked together on the Monsanto board, raising concerns about intra-board relationships that can compromise a director’s independence. Please encourage our board to respond positively to this proposal to protect shareholder value: Right to Act by Written Consent – Proposal 4 Board of Directors Statement in Opposition to Proposal 4 Your Board does not believe that the proposed stockholder written consent arrangement is an appropriate corporate governance model for a widely-held public company. This proposal has the potential to be cumbersome and time consuming, and may create confusion among our stockholders. Multiple groups of stockholders would be able to solicit written consents at any time and as frequently as they choose on a range of special or self-interested issues. It also is possible that consent solicitations may conflict with one another or be duplicative, or may be directed at the interests of a group of stockholders and not at the interests of the Corporation or the stockholders as a whole. Matters that are sufficiently important to require stockholder approval should be communicated in advance, so that they can be considered and voted upon by all stockholders based on appropriate and timely disclosure. This proposal would allow a group of stockholders to take action by written consent without prior communication to all stockholders of the proposed action or the reasons for the action. In that regard, this proposal disenfranchises stockholders who do not have the opportunity to participate in the process. Maryland law only permits stockholders to take action by less than unanimous written consent if it is expressly authorized in a corporation’s charter. Because Lockheed Martin’s Charter does not provide for stockholder action by less than unanimous written consent, all stockholders currently have an opportunity to consider any action subject to stockholder approval sufficiently in advance of the action being taken. Requiring that all stockholder business be acted upon at a meeting is an inherently more democratic and open process than this proposal and helps to ensure the accuracy and completeness of information presented to stockholders to obtain their approval. The Corporation’s Bylaws require minimum advance notice and disclosures regarding the matters to be presented and voted upon at meetings, as well as relevant information about the interests of the proponents of such actions. The Board believes that its members, as elected representatives charged with pursuing the best interests of the Corporation, should be provided the opportunity to consider stockholder proposals carefully, so that the Board may make appropriate recommendations to stockholders regarding the proposals. 2013 Proxy Statement 70 The Board believes that an open and candid dialogue between the Board, management and stockholders is in the Corporation’s best interests. To foster that dialogue, the Board has an established mechanism for stockholders to raise important matters outside the annual meeting cycle. Stockholders may communicate confidentially at any time with the Lead Director or with the non-management directors as a group (see details on page 79). The Board also encourages management, consistent with the Corporation’s obligations under the securities laws, to disseminate information about the business broadly. Members of senior management regularly participate in conferences and other forums with stockholders and the investment community where there are opportunities to provide updates about the Corporation’s plans and progress toward achievement of our objectives. Management also regularly seeks input from stockholders on governance issues. As part of the Board’s continuous review of, and commitment to, best corporate governance practices and as a result of management’s ongoing dialogue with stockholders, in recent years the Corporation has adopted a number of governance changes. In recent years, the Board has amended the Corporation’s Bylaws to reduce the percentage of shares that an individual stockholder or group of stockholders must own to cause the Corporate Secretary to call a special meeting of stockholders (see further discussion on page 13). These changes have been implemented by the Board with a view toward balancing stockholders’ rights to call a special meeting between annual meetings and the desire to enable the Board and management to focus their energies and attention on the business of the Corporation. The Corporation also adopted a majority vote standard for uncontested director elections and eliminated certain supermajority vote provisions in the Corporation’s Charter. In addition, each member of the Board is elected annually, all of the current directors (except for two management directors) are independent, and the Corporation does not have a “Poison Pill.” Finally, our current practice of not authorizing action by less than unanimous written consent is consistent with the approach taken by the majority of widely-held public companies. As has been its practice, the Board will continue to review best corporate governance practices and adopt those it believes, in light of specific circumstances, serve the best interests of the Corporation.
Proposal 5: Stockholder Proposal by the American Federation of State, County and Municipal Employees, AFL-CIO Employees Pension Plan The American Federation of State, County and Municipal Employees (AFSCME) Employees Pension Plan, 1625 L Street, N.W., Washington, D.C. 20036-5687, the RESOLVED: SUPPORTING STATEMENT
In our view, shareholder value is enhanced by having an independent board An independent board chair has been found in academic studies to improve the financial performance of public companies. A 2007 Booz & Co. study found that in 2006, all of the underperforming North American companies 2013 Proxy Statement 71 We believe that independent board leadership would be particularly constructive at Lockheed, We urge stockholders to vote for this proposal.
Your Board believes that no single, one-size fits all, board-leadership model is universally or permanently appropriate. The Board believes that Lockheed Martin and its stockholders are best served by having the flexibility to choose the best and most appropriate structure at any particular time. Adopting a policy to restrict that discretion would deprive the Board of the ability to select the most qualified and appropriate individual to lead the Board as Chairman and/or
The positions of Chairman and CEO The Board believes that its independence and oversight of management are effectively maintained through alternative means. In 2009, the Board created the position of Lead Director and structured the role to ensure In January 2012, the Board amended the Corporation’s Bylaws to enhance further the There is no established consensus that separating the roles of the Chairman and CEO Your Board believes that adopting the policy advocated by this proposal would reduce the Corporation’s flexibility and would not provide any corresponding benefit, particularly in light of At the 2012 Annual Meeting of Stockholders, stockholders rejected by a wide margin a similar proposal by the same proponent. There were 169,576,894 votes cast against the proposal, 99,352,425 votes for the proposal, 5,664,073 abstentions, and 24,652,023 broker non-votes.
Proposal 6: Stockholder Proposal by the Sisters of St. Francis of Philadelphia and other religious groups The Sisters of St. Francis of Philadelphia, 609 South Convent Road, Aston, Pennsylvania 19014-1207; the School Sisters of Notre Dame Cooperative Investment Fund, 345 Belden Hill Road, Wilton, CT 06897; and the Congregation of Sister of St. Agnes, 320 County Road K, Fond du Lac, WI 54935; each, as the beneficial owner of shares of common stock of the Corporation having a market value greater than $2,000, have notified the Corporation that they intend to present the following proposal at this year’s Annual Meeting: Lobbying 2013 Whereas, corporate lobbying exposes our company to risks that could affect the company’s stated goals, objectives, and ultimately shareholder value, and Whereas, we rely on the information provided by our company to evaluate goals and objectives, and we, therefore, have a strong interest in full disclosure of our company’s lobbying to assess whether our company’s lobbying is consistent with its expressed goals and in the best interests of shareholders and long-term value. Resolved, the shareholders of Lockheed Martin Corporation (“Lockheed”) request that the Board authorize the preparation of a report, updated annually, disclosing: 1. Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications. 2. Payments by Lockheed used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient. 2013 Proxy Statement 72 3. Lockheed’s membership in and payments to any tax-exempt organization that writes and endorses model legislation. 4. Description of the decision making process and oversight by management and the Board for making payments described in section 2 above. For purposes of this proposal, a “grassroots lobbying communication” is a communication directed to the general public that (a) refers to specific legislation or regulation, (b) reflects a view on the legislation or regulation and (c) encourages the recipient of the communication to take action with respect to the legislation or regulation. “Indirect lobbying” is lobbying engaged in by a trade association or other organization of which Lockheed is a member. Both “direct and indirect lobbying” and “grassroots lobbying communications” include efforts at the local, state and federal levels. The report shall be presented to the Audit Committee or other relevant oversight committees of the Board and posted on the company’s website. Supporting Statement As shareholders, we encourage transparency and accountability in the use of staff time and corporate funds to influence legislation and regulation both directly and indirectly. We believe such disclosure is in shareholders’ best interests. Lockheed’s lobbying efforts have garnered negative press (“Lockheed Martin goes to bat for oppressive regime,” Salon, January 4, 2012 and “Lockheed Martin’s Creative Lobbying,” The American Prospect, June 26, 2012). Lockheed is a member of the Chamber of Commerce, characterized as “by far the most muscular business lobby group in Washington” (“Chamber of Secrets,” Economist, April 21, 2012). Absent a system of accountability, company assets could be used for objectives contrary to Lockheed’s long-term interests. While Lockheed discloses some trade association dues, it does not disclose all payments to trade associations which often far exceed dues. Lockheed spent over $15 million in 2011 on direct federal lobbying activities (opensecrets.org). Lockheed has employed 85 lobbyists in eight states since 2003 (followthemoney.org). These figures may not include grassroots lobbying to directly influence legislation by mobilizing public support or opposition and do not include lobbying expenditures in states that do not require disclosure. Lockheed does not disclose membership in or payments to tax-exempt organizations that write and endorse model legislation, such as ALEC. Board of Directors Statement in Opposition to Proposal 6 Your Board has carefully considered this stockholder proposal and has concluded that the proposal is unnecessary, not in the best interests of the Corporation, and is substantially redundant to our existing public disclosures and corporate practices. We are committed to participating in the political process in a responsible way that serves the bests interests of the Corporation. The Corporation operates in the highly regulated global security industry, and our operations are affected by the actions of elected and appointed officials at many levels of government. We believe the Corporation’s best interests are served by engaging with policymakers on an ongoing basis and presenting a single, consistent message to the U.S. government and our other customers. We are actively involved in the legislative and regulatory processes affecting defense and global security matters. Our activities include advocacy efforts at the federal and state levels, thought leadership regarding global security trends and other important issues impacting the Corporation and our customers, educational outreach and promotion, and other related activities. We disclose extensive information about our advocacy efforts and associated expenditures, and we subject our activities to comprehensive Board oversight. We provide a Political Disclosure report on our website (at www.lockheedmartin.com/us/who-we-are/corporate-governance/political-disclosures.html) and comply fully with all state and federal laws concerning the disclosure of our lobbying expenses. Our federal and state lobbying disclosure reports are publicly available and provide extensive detail regarding the Corporation’s lobbying expenses and the nature of its lobbying activities. As described in the Political Disclosure report provided on our website, the Ethics and Sustainability Committee of our Board, which is composed entirely of independent directors, monitors our advocacy efforts, government affairs activities and political spending, receives reports from management on these matters, supervises the policies and reviews the purposes and benefits of these activities. Furthermore, our Code of Ethics and Business Conduct stresses the value we place on our reputation and our commitment to upholding the spirit of the laws relating to the legislative process, and highlights the Corporation’s internal policies and procedures that all employees are required to follow to ensure that our actions are consistent with these values. We believe that it is in the best interest of our Corporation to belong to trade associations and industry groups, where we benefit from the general business, technical and industry standard-setting expertise these organizations provide. We include on our website and in our quarterly federal lobbying disclosure report (available at: http://disclosures.house.gov/ld/ ldsearch.aspx (Search Field: “Registrant Name” Criteria: “Lockheed”)), the amount of dues we pay to national trade associations, which are non-deductible as federal lobbying expenses, as well as any amounts spent on grass roots lobbying. Trade associations also are required to disclose their lobbying expenditures under the Lobbying Disclosure Act of 1995, and they report their lobbying expenditures to the United States Senate. We do not believe that additional detailed disclosure of these amounts as contemplated by this proposal would be beneficial to our stockholders and potential investors. Adoption of this proposal would result in additional administrative burdens and cause us to expend resources in creating additional reports disclosing lobbying expenditures, duplicating many that are already publicly available.
2013 Proxy Statement 73 QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING Do I need an admission ticket to attend the Annual Meeting? Yes. You must present both an admission ticket or proof of ownership and valid photo identification to attend the Annual Meeting. • If you received these materials by mail, your admission ticket is attached to your proxy card. Please detach the ticket and bring it with you to the meeting. • If you vote electronically through the Internet, you can print an admission ticket from the online site. • If you hold shares through an account with a bank or broker, contact your bank or broker to request a legally valid proxy from the owner of record to vote your shares in person. This will serve as your admission ticket. • A recent brokerage statement or letter from your broker showing that you owned Lockheed Martin common stock (referred to as “common stock” or “stock”) in your account as of March 1, 2013 (the “Record Date”), also serves as an admission ticket. If you do not have an admission ticket or proof of ownership and valid photo identification, you will not be admitted into the Annual Meeting. Will there be a webcast of the Annual Meeting? Yes. We will webcast the Annual Meeting live on April 25, 2013. To access the webcast, go to http://www.lockheedmartin.com/investor at 10:30 a.m. Central Daylight Time, on April 25, 2013. Stockholders who wish to access the webcast should pre-register on our website no later than 10:00 a.m., Central Daylight Time. Listening to our Annual Meeting webcast will not represent attendance at the meeting, and you will not be able to cast your vote as part of the live webcast. Who is entitled to vote at the Annual Meeting? Holders of our common stock at the close of business on March 1, 2013 are entitled to vote their shares at the Annual Meeting. As of the Record Date, there were 321,866,749 shares outstanding. Each share outstanding on the Record Date is entitled to one vote on each proposal presented at the Annual Meeting. This includes shares held through Direct Invest, our dividend reinvestment and stock purchase plan, or through our employee benefit plans. Your proxy card shows the number of shares held in your account(s). What is the difference between holding shares as a registered stockholder and as a beneficial owner? If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A. (“Computershare”), you are considered the “registered stockholder” of those shares. We mail the Proxy Materials and our Annual Report to you directly. If your shares are held in a stock brokerage account or by a bank or other nominee (“street name”), you are considered the “beneficial owner” of the shares that are registered in street name. In this case, the Proxy Materials and our Annual Report were forwarded to you by your broker, bank, or other nominee. As the beneficial owner, you have the right to direct your broker, bank, or other nominee how to vote your shares by following the voting instructions included in the mailing. Employees with shares allocated in an employee benefit plan account will vote electronically and will not receive a paper mailing. Employees should review the information on procedures for voting by employees on page 76. 2013 Proxy Statement 74 What am I voting on and what are the Board’s voting recommendations? Our stockholders will be voting on the following proposals:
Can other matters be decided at the Annual Meeting? At the time this Proxy Statement went to press, we were not aware of any other matters to be presented at the Annual Meeting. If other matters are properly presented for consideration at the Annual Meeting, the proxy holders appointed by your Board (who are named on your proxy card if you are a registered stockholder) will have the discretion to vote on those matters in accordance with their best judgment on behalf of stockholders who provide a valid proxy by Internet, by telephone, or by mail. What is the procedure for voting? • If your shares are registered in your name, you may vote using any of the methods described below. • If your shares are held in the name of a broker, bank, or other nominee, your nominee will provide you with instructions on the procedure for voting your shares. Employees with shares allocated in an employee benefit plan account should review the information on procedures for voting by employees on page 76. • If you hold shares in multiple accounts, you may receive multiple proxy material packages (electronically and/or by mail). Please be sure to vote all of your Lockheed Martin shares in each of your accounts in accordance with the voting instructions you receive. By Internet or Telephone You may vote your shares via the Internet at http://www.investorvote.com. Please have your proxy card in hand when you go online. You will have an opportunity to confirm your voting selections before your vote is recorded. You can vote your shares by telephone by calling toll free 1-800-652-8683 within the U.S., Canada, and Puerto Rico, or 1-781-575-2300 from outside the U.S. Please have your proxy card in hand when you call. You will have an opportunity to confirm your voting selections before your vote is recorded. Internet and telephone voting facilities for registered stockholders will be available 24 hours a day until 1:00 a.m., Eastern Daylight Time, on April 25, 2013. If you vote your shares on the Internet or by telephone, you do not have to return your proxy card. The availability of Internet and telephone voting for beneficial owners will depend on the voting processes of your broker, bank, or other nominee. You should follow the voting instructions in the materials that you received from your nominee. By Mail Mark, date, and sign the proxy card and return it in the postage-paid envelope provided. If voting instructions are provided, shares represented by the proxy card will be voted in accordance with the voting instructions. If you want to vote in accordance with the Board’s recommendations, sign, date, and return the proxy card. The named proxy holders will vote signed but unmarked proxy cards in accordance with the Board’s recommendations. If you are a registered stockholder, and the postage-paid envelope is missing, please mail your completed proxy card to Lockheed Martin Corporation, c/o Computershare Investor Services, P.O. Box 43116, Providence, RI 02940. QR Code Scan the QR code to vote with your mobile device. In Person at the Annual Meeting All registered stockholders may vote in person at the Annual Meeting. Voting your proxy electronically via the Internet, by telephone, or by mail does not limit your right to vote at the Annual Meeting. You also may choose to be represented by another person at the Annual Meeting by executing a legally valid proxy designating that person to vote on your behalf. If you are a beneficial owner of shares, you must obtain a legally valid proxy from your broker, bank, or other nominee and present it to the inspectors of election with your ballot to be able to vote at the Annual Meeting. A legally valid proxy is an authorization from your broker, bank, or other nominee to vote the shares held in the nominee’s name that satisfies Maryland law and the SEC requirements for proxies. 2013 Proxy Statement 75 Can I change my proxy vote? Yes. If you are a registered stockholder, you can change your proxy vote or revoke your proxy at any time before the Annual Meeting by: • Returning a signed proxy card with a later date. • Authorizing a new vote electronically via the Internet or by telephone. • Delivering a written revocation of your proxy to the Senior Vice President, General Counsel and Corporate Secretary at Lockheed Martin Corporation, 6801 Rockledge Drive, Bethesda, MD 20817 before your original proxy is voted at the Annual Meeting. • Submitting a written ballot at the Annual Meeting. If you are a beneficial owner of shares, you may submit new voting instructions by contacting your broker, bank, or other nominee. You also may vote in person at the Annual Meeting if you obtain a legally valid proxy from the registered stockholder as described in the answer to the previous question. Your personal attendance at the Annual Meeting does not revoke your proxy. Unless you vote at the Annual Meeting, your last valid proxy prior to or at the Annual Meeting will be used to cast your vote. What if I return my proxy card but do not provide voting instructions? Proxies that are signed and returned but do not contain voting instructions will be voted: • FOR the election of 12 director-nominees listed in Proposal 1. • FOR the ratification of the appointment of Ernst & Young LLP, an independent registered public accounting firm, as independent auditors for the 2013 fiscal year in Proposal 2. • FOR the advisory vote to approve the compensation of our NEOs in Proposal 3. • AGAINST the stockholder proposals in Proposals 4, 5 and 6. • In the best judgment of the named proxy holders if any other matters are properly brought before the Annual Meeting. How do I vote if I participate in one of the Corporation’s 401(k) or defined contribution plans? As a participant in one of our employee 401(k) or defined contribution plans, you may direct the plan trustees how to vote shares allocated to your account(s) on a proxy voting direction or instruction card, by telephone, or electronically by the Internet. Most active employees who participate in these benefit plans will receive an email notification announcing Internet availability of this Proxy Statement and how to submit voting directions. If you do not provide timely directions to the plan trustee, shares allocated to your account(s) will be voted by the plan trustee depending on the terms of your plan or other legal requirements. Plan participants may attend the Annual Meeting, but may not vote plan shares at the Annual Meeting. If you wish to vote, whether you plan to attend the Annual Meeting or not, you should direct the trustee of your plan(s) how you wish to vote your plan shares no later than 11:59 p.m., Eastern Daylight Time, on April 22, 2013. How many shares must be present to hold the Annual Meeting? In order for us to conduct our Annual Meeting, a majority of the shares outstanding and entitled to vote as of March 1, 2013 must be present in person or by proxy. This is referred to as a quorum. Your shares are counted as present at the Annual Meeting if you attend the Annual Meeting and vote in person or if you properly return a proxy by Internet, by telephone, or by mail in advance of the Annual Meeting and do not revoke the proxy. Will my shares be voted if I don’t provide my proxy or instruction form? Registered Stockholders If your shares are registered in your name, your shares will not be voted unless you provide a proxy by Internet, by telephone, by mail, or vote in person at the Annual Meeting. Plan Participants If you are a participant in one of our employee 401(k) or defined contribution plans and you do not provide timely directions to the plan trustee, shares allocated to your account(s) will be voted by the plan trustee depending on the terms of your plan or other legal requirements. 2013 Proxy Statement 76 Beneficial Owners If you hold shares through an account with a broker and you do not provide voting instructions, under NYSE rules, your broker may vote your shares on routine matters only. The ratification of the appointment of Ernst & Young LLP (Proposal 2) is considered a routine matter, and your nominee can therefore vote your shares on that Proposal even if you do not provide voting instructions. Proposals 1, 3, 4, 5 and 6 are not considered routine matters, and your nominee cannot vote your shares on those Proposals unless you provide voting instructions. Votes withheld by brokers in the absence of voting instructions from a beneficial owner are referred to as “broker non-votes.” What is the vote required for each proposal? For Proposal 1, the votes that stockholders cast “FOR” a director-nominee must exceed the votes that stockholders cast “AGAINST” a director-nominee to approve the election of each director-nominee. For each of Proposals 2, 3, 4, 5 and 6, the affirmative vote of a majority of the votes cast is required to approve the proposal. Proposals 2, 3, 4, 5, and 6 are advisory and non-binding. The Board What is the effect of an abstention? A stockholder who abstains on some or all matters is considered present for purposes of determining if a quorum is present at the Annual Meeting, but an abstention is not counted as a vote cast. An abstention has no effect for the vote on any proposal. What is the effect of a broker non-vote? Broker non-votes will be counted for purposes of calculating whether a quorum is present at the Annual Meeting, but will not be counted for purposes of determining the number of votes present in person or represented by proxy and entitled to vote with respect to a particular proposal. Thus, a broker non-vote will not impact our ability to obtain a quorum, will not affect the outcome with respect to the election of directors, and will not otherwise affect the outcome of the vote on a proposal that requires the affirmative vote of a majority of the votes cast on the proposal. Who will count the votes? Representatives of Computershare will tabulate the votes and act as inspectors of election for the Annual Meeting. Where can I find the voting results of the Annual Meeting? The preliminary voting results will be announced at the Annual Meeting. The final voting results will be tallied by the inspectors of election and disclosed by the Corporation in a Current Report on Form 8-K filed with the SEC within four business days following the Annual Meeting. What is “householding” and how does it affect me? We have adopted a procedure approved by the SEC called “householding.” Under this procedure, we send only one Annual Report and Proxy Statement to eligible stockholders who share a single address, unless we have received instructions to the contrary from any stockholder at that address. This practice is designed to reduce our printing and postage costs. Stockholders who participate in householding will continue to receive separate proxy cards. We do not use householding for any other stockholder mailings, such as dividend checks, Forms 1099, or account statements. 2013 Proxy Statement 77 If you are eligible for householding, but received multiple copies of the Annual Report and Proxy Statement and prefer to receive only a single copy of each of these documents for your household, please contact Computershare, Shareholder Relations, P.O. Box 43078, Providence, RI 02940-3078, or call 1-877-498-8861. If you are a registered stockholder residing at an address with other registered stockholders and wish to receive a separate Annual Report or Proxy Statement at this time or in the future, we will provide you with a separate copy. To obtain this copy, please contact Computershare as indicated above. If you own shares through a broker, bank, or other nominee, you should contact the nominee concerning householding procedures. Shares held in an employee benefit plan cannot be combined with other shares. Accordingly, you will receive a separate solicitation and proxy for each employee benefit plan in which shares are held. Can I receive a copy of the Annual Report? Yes. We will provide a copy of our Annual Report without charge, upon written request, to any registered or beneficial owner of common stock entitled to vote
Yes. The Proxy Statement and Annual Report are available on the Internet at http://www.lockheedmartin.com/investor. Subject to the “householding” discussion above, all stockholders will receive paper copies of the Proxy Statement, proxy card, and Annual Report by mail unless the stockholder has consented to electronic delivery or is an employee with shares allocated in an employee benefit plan. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy statements, and other information regarding Lockheed Martin. Can I choose to receive the Proxy Statement and Annual Report on the Internet instead of receiving them by mail? Yes. If you are a registered stockholder or beneficial owner, you can elect to receive future Annual Reports and Proxy Statements on the Internet only and not receive copies in the mail by visiting Shareholder Services at http://www.lockheedmartin.com/investor and completing the online consent form. Your request for electronic transmission will remain in effect for all future Annual Reports and Proxy Statements, unless withdrawn. Withdrawal procedures also are located at this website. Most active employees who participate in the Corporation’s savings plans will receive an email notification announcing Internet availability of the Annual Report and Proxy Statement. A paper copy will not be provided unless requested by the employee. Who pays for the cost of this proxy solicitation? The Corporation pays for the cost of soliciting proxies on behalf of the Board for the Annual Meeting. We may solicit proxies by Internet, by telephone, by mail, or in person. We may make arrangements with brokerage houses and other custodians, nominees, and fiduciaries to send Proxy Materials to beneficial owners on our behalf. We reimburse them for their reasonable expenses. We have retained Morrow & Co., LLC, 470 West Avenue, Stamford, CT 06902 to aid in the solicitation of proxies and to verify related records at a fee of $45,000, plus expenses. To the extent necessary to ensure sufficient representation at the Annual Meeting, we may request the return of proxies by mail, express delivery, courier, telephone, Internet, or other means. Stockholders are requested to return their proxies without delay. How do I submit a proposal for the Annual Meeting of Stockholders in 2014? Any stockholder who wishes to submit a proposal or nominate a director for consideration at the 2014 Annual Meeting and for inclusion in the 2014 Proxy Statement should send their proposal to Lockheed Martin Corporation, Attention: Senior Vice President, General Counsel and Corporate Secretary, 6801 Rockledge Drive, Bethesda, MD 20817. Proposals must be received no later than November 8, 2013 and satisfy the requirements under applicable SEC Rules (including SEC Rule 14a-8) to be included in the Proxy Statement and on the proxy card that will be used for solicitation of proxies by the Board for the 2014 Annual Meeting. 2013 Proxy Statement 78 Our Bylaws also require advance notice of any proposal by a stockholder to be presented at the 2014 Annual Meeting that is not included in our Proxy Statement and on the proxy card, including any proposal for the nomination of a director for election. To be properly brought before the 2014 Annual Meeting, written nominations for directors or other business to be introduced by a stockholder must be received between the dates of October 9, 2013 and November 8, 2013, inclusive. A notice of a stockholder proposal must contain the information required by our Bylaws about the matter to be brought before the annual meeting and about the stockholder proponent and persons associated with the stockholder through control, ownership of the shares, agreement, or coordinated activity. We reserve the right to reject proposals that do not comply with these requirements. A list of the information which is required to be included in a stockholder proposal may be found in Section 1.10 of our Bylaws at http://www.lockheedmartin. com/corporate-governance. How can I contact the Corporation’s non-management directors? Stockholders and all interested parties may communicate confidentially with the Lead Director or with the non-management directors as a group. If you wish to raise a question or concern to the Lead Director or the non-management directors as a group, you may do so by writing to Lead Director or Non-Management Directors, c/o Senior Vice President, General Counsel and Corporate Secretary, Lockheed Martin Corporation, 6801 Rockledge Drive, Bethesda, MD 20817. Our Senior Vice President, General Counsel and Corporate Secretary or her delegate reviews all correspondence sent to the Board. The Board has authorized our Senior Vice President, General Counsel and Corporate Secretary or her delegate to respond to correspondence regarding routine stockholder matters and services (e.g., stock transfers, dividends, etc.). Correspondence from stockholders relating to accounting, internal controls, or auditing matters are brought to the attention of the Audit Committee. All other correspondence is forwarded to the Lead Director who determines whether distribution to the full Board for review is appropriate. Any director may, at any time, review a log of all correspondence addressed to the Board and request copies of such correspondence. Can I find additional information on the Corporation’s website? Yes. Although the information contained on our website is not part of this Proxy Statement, you will find information about the Corporation and our corporate governance practices at http://www.lockheedmartin.com/ corporate-governance. Our website contains information about our Board, Board committees, Charter and Bylaws, Code of Ethics and Business Conduct, Corporate Governance Guidelines, and information about insider transactions. Stockholders may obtain, without charge, hard copies of the above documents by writing to Investor Relations, Lockheed Martin Corporation, 6801 Rockledge Drive, Bethesda, MD 20817. 2013 Proxy Statement 79 ADDITIONAL INFORMATION AND OTHER MATTERS Appendix A Definition of Non-GAAP (Generally Accepted Accounting Principles) Measures This Segment Operating Profit / Margin Segment Operating Profit represents the total earnings from our business segments before unallocated
Return on Invested Capital ROIC is defined as
2013 Proxy Statement 80
Adjusted Cash from Operations Adjusted Cash from Operations represents the Corporation’s Cash from Operations adjusted to exclude:
Statements in this Proxy Statement concerning future performance or goals for future performance may be considered “forward-looking statements” and are based on our current expectations and assumptions. Forward-looking statements in this Proxy Statement include estimates of future sales, orders, segment operating profit, and cash from operations. These statements are not guarantees of future performance and are subject to risks and uncertainties. Actual results could differ materially due to factors such as: • the availability of funding for the Corporation’s products and services both domestically and internationally due to general economic conditions, performance, cost, or other factors; • changes in domestic and international customer priorities and requirements (including declining budgets resulting from general economic conditions, affordability initiatives, the potential for deferral or termination of awards, automatic sequestration under the Budget Control Act of 2011 or Congressional actions intended to replace sequestration); • quantity revisions to the F-35 program; • the accuracy of the Corporation’s estimates and assumptions including those as to schedule, cost, technical and performance issues under its contracts, cash flow, actual returns (or losses) on pension plan assets, movements in interest rates, and other changes that may affect pension plan assumptions; • the effect of capitalization changes (such as share repurchase activity, accelerated pension funding, stock option exercises, or debt levels); • difficulties in developing and producing operationally advanced technology systems, cyber security, other security threats, information technology failures, natural disasters, public health crises or other disruptions; • the timing and customer acceptance of product deliveries; • materials availability and the performance of key suppliers, teammates, joint venture partners, subcontractors, and customers; • charges from any future impairment reviews that may result in the recognition of losses and a reduction in the book value of goodwill or other long-term assets; • the future effect of legislation, rulemaking, and changes in accounting, tax, defense procurement, changes in policy, interpretations, or challenges to the allowability and recovery of costs incurred under government cost accounting standards (including potential costs associated with sequestration or other budgetary cuts to replace sequestration, such as severance payments made to employees and facility closure expenses), export policy, changes in contracting policy and contract mix; • the future impact of acquisitions or divestitures, joint ventures, teaming arrangements, or internal reorganizations; • compliance with law and regulation and the outcome of legal proceedings and other contingencies (including lawsuits, government investigations or audits, and the cost of completing environmental remediation efforts); • the competitive environment for the Corporation’s products and services, export policies, and potential for delays in procurement due to bid protests; • the ability to attract and retain key personnel and suppliers (including the potential for disruption associated with sequestration and related employee severance or supplier termination costs) and to provide for the orderly transition of management as the Corporation reduces the size of its workforce; and • economic, business and political conditions domestically and internationally and the Corporation’s increased reliance on securing international and adjacent business. These are only some of the factors that may affect the forward-looking statements contained in this Proxy Statement. For further information regarding risks and uncertainties associated with Lockheed Martin’s business, please refer to the Corporation’s U.S. Securities and Exchange Commission filings, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” and “Legal Proceedings” sections of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012 which may be obtained at the Corporation’s website: http://www.lockheedmartin.com/investor. 2013 Proxy Statement 81 Appendix B Directions to Annual Meeting Location Lockheed Martin Space Systems Company 4800 Bradford Drive, Building 406 Huntsville, AL 35807 Directions to Lockheed Martin from Huntsville Airport • From airport take I-565 East to Huntsville (7 miles) to Sparkman Drive exit. • Take Sparkman Drive North (left) to Bradford Drive. The Lockheed Martin campus is visible on the hill to the left (NW corner of intersection). • Turn left (West) on Bradford Drive.
Building 406 entry is the third driveway on the right. 2013 Proxy Statement 82
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Voting deadline: •
Please note that you may receive multiple proxy packages and voting instructions (electronically and/or by mail). These materials may not be duplicates as you may hold shares of Lockheed Martin stock in multiple accounts. Please be sure to voteall of your shares in each of your accounts in accordance with the directions on the proxy card(s) and/or voting instruction form(s) you receive. Please cast your vote today! Computershare Trust Company, N.A. Independent Registrar and Transfer Agent for
[[company_logo]] Lockheed Martin Corporation Annual Meeting of Stockholders April Lockheed Martin Space Systems Company 4800 Bradford Drive, Building 406 Huntsville, Alabama 35807
Lockheed Martin Corporation’s
http: To view the Annual Report visit: http: To cast your vote, please visit www.investorvote.com and follow the on-screen instructions. You will be prompted to enter the proxy voting details provided above in this e-mail to access this voting site. Note that votes submitted through this site must be received by 1:00 a.m. Eastern Daylight Time, April You may also vote your shares by telephone by calling (800) 652-8683 within the U.S., Canada and Puerto Rico and (781) 575-2300 from other countries. Follow the instructions provided by the recorded message. You will need the Proxy Login Control Number above in this e-mail for voting identification purposes. Thank you for submitting your very important vote. Questions? For additional assistance regarding your account please visit www.computershare.com/ContactUs where you will find useful FAQs, phone numbers and our secure online contact form. Please do not reply to this email. This mailbox is not monitored and you will not receive a response. |