Textron 2021 Proxy Statement

TEXTRON 2021 PROXY STATEMENT 33 2020 PAYOUTS AND PERFORMANCE ANALYSIS Annual Incentive Compensation Payouts and Per formance Analysis Pre-established performance goals for the 2020 annual incentive compensation program focused on profitability, cash flow and hiring diversity. The profitability target focused executives on delivery of segment profit in each of our segments. The cash flow target focused executives on improving operational efficiency and sustaining the strength of the balance sheet. Workforce diversity has been a performance goal representing a 5% weighting in our annual incentive compensation program for many years. For 2020 annual incentive compensation, the Committee approved redefining this goal to focus on hiring diversity. To improve our outreach to diverse candidates, we have increased our recruiting efforts at historically black colleges and universities, enhanced our partnerships with diverse professional organizations and participated in diverse STEM conferences. In addition, we provide inclusion and unconscious bias training to our employees and recruiters to improve diversity in recruiting. The diversity goal has been renamed “hiring diversity performance” and will measure the percentage during the fiscal year of all newly-hired U.S. salaried employees who are diverse (defined as employees who identify as female or diverse based on race or ethnicity) against an annual goal set by the Committee. The Committee established the weighting for the 2020 annual incentive compensation performance goals as 60% tied to profitability, 35% tied to cash flow and 5% tied to hiring diversity. The net operating profit goal set by the Committee for 2020 was established at a level slightly lower than the previous year’s performance, due to higher expected pension costs as well as lower anticipated margin associated with our mix of military revenues and higher inventory costs and learning curve associated with increased deliveries of a new aircraft model. The cash flow goal for 2020 was approximately flat with the previous year’s goal, reflecting anticipated higher taxes, restructuring costs, and capital requirements associated with our 2020 operating plan. Both targets were challenging in light of uncertain global economic and market conditions. Payouts for each individual could range from 0% to 200% of target based on performance. The formula for determining 2020 annual incentive compensation for executive officers, and the resulting percentage earned, prior to the Committee’s exercise of its judgment, are detailed below: 2020 Annual Incentive Compensation Calculation ($ in millions) 60% 0.0% 35% 34.3% 5% 5.8% Threshold 0% Payout Target 100% Payout Actual: $751 $806 $1,534 $928 $276 52.7% 32.7% Maximum 200% Payout Component Weighting Component Payout 40.1% Total Earned Enterprise NOP (1) Manufacturing Cash Flow (2) Hiring Diversity Performance (3) Actual: $596 Actual: 44.2% $1,246 $602 42.7% (1) “ Enterprise NOP” means our total “Segment profit” as reported in our annual report on Form 10-K. For 2020, segment profit for the manufacturing segments excludes interest expense, certain corporate expenses, special charges and an inventory charge related to the COVID-19 restructuring plan. The measurement for the Finance segment includes interest income and expense along with intercompany interest income and expense. (2) “ Manufacturing Cash Flow” means “Manufacturing cash flow before pension contributions” as reported in our quarterly earnings releases. For 2020, net cash from operating activities of continuing operations has been adjusted for capital expenditures, proceeds from an insurance recovery and the sale of property, plant and equipment, and contributions to our pension plans. (3) “ Hiring Diversity Performance” represents the percentage of full-time U.S. salaried newly-hired employees who identify as female or diverse based on race or ethnicity. Committee’s Judgment Applied for NEOs other than CEO The COVID-19 pandemic had a significant and unforeseen impact on Textron’s financial results for fiscal year 2020. The Company’s operations experienced various degrees of disruption due to the unprecedented conditions surrounding the pandemic, with certain commercial manufacturing facilities temporarily closed during the first quarter through the latter part of the second quarter due to reduced product demand. These disruptions resulted in furloughs for employees at many of our