General Dynamics (GD) DEFA14A Additional proxy soliciting materials

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

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General Dynamics Corporation

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April 2014

Shareholder Outreach on Executive Compensation

April 2014

April 2014

Executive Summary

Focused Strategy Under New CEO in 2013

Strong Company Performance and Return of Capital to

Shareholders

Shareholder Outreach and Response to 2013 Say on Pay Vote

Compensation Structure Linking Pay to Performance

Strong, Independent Compensation Governance and Practices

Balanced Board Tenure and Sound Governance Practices

2

April 2014

Focused Strategy Under New CEO

New

Leadership

with

a

Refined

Focus.

Phebe

Novakovic

became

Chair

and CEO on January 1, 2013, articulating a focus on getting Back to Basics

Strong,

Improving

Performance.

By

highlighting

operational

effectiveness

and

cost

management,

each

of

the

four

business

groups

–

Aerospace,

Information Systems and Technology, Combat Systems and Marine

Systems

–

demonstrated strong and improving performance in 2013

Driving

Growth

and

Value.

The

company

achieved

a

direct,

positive

result

on shareholder value by driving performance in three key areas:

Increasing Return

on Invested Capital

Expanding Margins

Managing for Cash

Flow

3

April 2014

Focus

on

Driving

Shareholder

Value.

Strong

long-term

stock

performance

combined

with

a

history of increasing dividends and share buybacks

2013

Operating

Performance.

Significant

improvement

through

a

renewed

focus

on

margin

expansion, cash generation and ROIC

With no acquisitions in 2013, free cash flow was returned to shareholders in the form of dividends

and share repurchases

Announced in January 2014 an accelerated share repurchase program to repurchase 11.4 million

shares

Solid Performance and Return of Capital

to Shareholders

Strong Total Shareholder Return in 2013

Increase in Dividend Payments

4

$50

$60

$70

$80

$90

$100

$0.38

$0.42

$0.47

$0.51

$0.56

$0.62

2009

2010

2011

2012

2013

2014

April 2014

Shareholder Outreach and Response to

2013 Say on Pay Vote

In response to our say on pay vote, our Compensation Committee Chair

and

members

of

the

management

team

engaged

directly

with

several

of

our

largest shareholders and took action in response to address feedback

Shareholder Feedback

Company Response

Lengthen

the performance measurement period for the

performance-based long-term incentives to more than one

year

Performance Restricted Stock Units (PRSUs) will be subject to a three-

year performance period, instead of a one-year period starting with 2015

grants

Focus

on the alignment of compensation with company

performance and shareholder value drivers

Implemented and disclosed scorecards for each NEO with specific,

measurable goals used to drive compensation

Demonstrate

a link between executive compensation and

performance, and how performance metrics relate to total

shareholder return

Enhanced CD&A disclosure to show the connection between the

program’s structure and performance (primarily through the use of equity),

and by disclosing realizable pay relative to company stock performance

Disclose

realizable

pay

to

help

shareholders

better

understand the alignment of compensation with company

performance

Added new disclosure showing 3-year realizable pay for the CEO,

demonstrating that the program closely aligns executive compensation

with company performance

Clarify

disclosure

regarding

specific

components

of

the

program

New CD&A disclosure that more clearly discusses each component of

compensation and the well-disciplined process used to set and grant

compensation

Carefully

consider

shareholder

dilution

and

annual

burn

rate

when granting equity compensation

Given the company’s higher use of equity based compensation relative to

other companies, the dilution and burn rate is generally slightly higher on a

relative basis.  The Committee believes this use of equity more closely

links executive and shareholder interests

5

April 2014

Compensation Structure Linking Pay to

Performance

Annual Incentives

Long-Term Incentives

Short Term Pay

Long Term Pay

Cash

Performance RSUs (25%)

Restricted Stock (25%)

Stock Options (50%)

Base Salary

Cash

Key

Elements of

Pay

Performance

Metrics

Affecting

Ultimate Value

Fixed

compensation

to attract and

retain NEOs

Earnings from Continuing

Operations

Sales

Business Group

Performance

Free Cash Flow from

Operations

Stock Price

Indexed to Total Cash

Compensation

Return on Invested Capital

(Moving to 3-Year Measurement)

6

April 2014

Aligning Pay with Performance During

Our Senior Leadership Transition

Phebe Novakovic became CEO in 2013 and began building her management team; SVP and CFO

L. Hugh Redd retired on Dec. 31, 2013 as part of this transition

Mr. Redd served through all of 2013 but was not employed by the company in March 2014, which is

when 2013 long-term incentive awards were granted in recognition of 2013 and prior years’

performance

Executives

not

employed

at

the

company

at

the

time

equity

grants

are

made

are

not

entitled

to

such

grants

To compensate Mr. Redd for agreeing to retire on Dec. 31, precluding his receipt of an equity grant

in 2014, the company agreed to provide a pension service credit

The $2 million incremental value of the service credit approximately correlates to the estimated

amount of the grant date value of the equity compensation that Mr. Redd would have been entitled

to had he remained with the company, given his bonus and salary

The Compensation Committee believes this form of compensation links Mr. Redd’s pay with

performance, while recognizing his willingness to support the leadership transition

The company has not provided service credits to any other current executive officers.  In

light of concerns raised about the use of pension service credits, the company will not

provide service credits to any named executive officers going forward

7

April 2014

Strong, Independent Compensation

Governance and Practices

100% independent Compensation Committee

Independent compensation consultant reporting to the Compensation

Committee

Strong link between pay and performance with 92% of CEO and 81% of

NEO compensation variable

Market-leading stock ownership requirements of 15x base salary for CEO

and 10x for the other NEOs

No employment agreements with NEOs

Double-trigger change-in-control arrangements

Adopted a clawback policy

Anti-hedging policy in place and adopted anti-pledging policy

Limited perquisites

Eliminated excise tax gross-ups

8

April 2014

Balanced Board Tenure and Sound

Governance Practices

Director Tenure

We have a well-balanced board with

a mix of long-term experience and

fresh perspective, each with a

diverse range of backgrounds, talent,

skill and expertise that are valuable

in the board’s responsibility and

oversight role

100% committee independence

Right to call special meetings (10%

individual; 25% group of

shareholders)

Action by written consent

Robust independent lead director

role

Majority voting

Annual elections

No poison pill in place

Qualified directors with a deep

understanding of the company’s core

business areas and complex issues

and risks facing public company

boards

Governance Practices

5

Directors

4

Directors

9

3

Directors