Textron 2021 Proxy Statement

34 TEXTRON 2021 PROXY STATEMENT businesses, and all executives, including the NEOs, were subject to the same furloughs as most of our employees, which resulted in salary reductions of 12% for our CEO and, on average, approximately 5% for each of our other NEOs. By the third quarter, substantially all manufacturing activities had returned and by year end, while our commercial businesses generally experienced an increase in customer demand compared with the first half of 2020, demand had not resumed to pre-pandemic levels. With regard to his own annual incentive compensation, Mr. Donnelly asked the Committee not to make any adjustment to the formulaic payout. The Committee and the Board agreed to abide by Mr. Donnelly’s request, approving his payout at 40.1% of target. However, Mr. Donnelly recommended that the Committee consider exercising its judgment to increase annual incentive payouts above the formulaic amounts for his executive team. Textron’s Short-Term Incentive Plan provides that the Committee may adjust award opportunities if it determines that the occurrence of unanticipated business conditions have unduly influenced the Company’s ability to meet performance goals. The Committee determined that the pandemic presented exactly the type of situation contemplated by the Plan. In light of Mr. Donnelly’s recommendation, the Committee reviewed the performance of the executive team. Mr. Connor quickly took actions to preserve cash flow and balance sheet quality, improve the Company’s liquidity position through debt issuances and other actions, and control costs in alignment with unprecedented reductions in business levels. Ms. Duffy launched significant efforts to protect the health and well-being of our employees and otherwise manage the severe impacts of the pandemic on employees throughout our businesses. Mr. Lupone managed legal work in connection with all of these efforts, including compliance with COVID-related legal restrictions throughout the enterprise and the response and activities of the Environmental, Health and Safety team which reports to him. Mr. Connor, Ms. Duffy and Mr. Lupone exceled at managing the Company and their teams through this extremely challenging year, despite the numerous and unprecedented financial, operational, personnel, regulatory, logistical and marketplace challenges and negative impacts caused by the pandemic. To inform its decision-making, the Committee reviewed a detailed breakdown of COVID-19-related financial impacts on the Company’s businesses, noting the significant idle facility costs incurred at the Textron Aviation segment and, to a lesser degree, the Textron Specialized Vehicles business at the Industrial segment while manufacturing facilities at those businesses were operating at abnormally low production levels or were temporarily shut down. The Committee was also mindful of the views of its shareholders expressed during engagement calls which generally were that any adjustment to compensation made due to the impact of the pandemic would be highly scrutinized, as executives should not be held harmless from the impacts of the pandemic on the Company, but should share in them as have its employees, shareholders and other stakeholders. The Committee reviewed and considered various approaches to taking into account the effects of the COVID-19 pandemic on 2020 annual incentive payouts. Approaches the Committee considered were excluding idle facility costs from the formulaic results, applying judgment based on individual performance assessments or making other more significant financial adjustments. The Committee then determined that the exclusion of COVID-19-related idle facility costs when calculating Company performance against the 2020 annual incentive compensation financial goals was an appropriate method of viewing the operational performance of the Company for the unprecedented 2020 fiscal year. The Company also adjusted the 2020 annual incentive compensation payouts for non-NEO employees at each of the businesses severely impacted by the pandemic and at the corporate office above the formulaic amounts in recognition of their performance and efforts in this unprecedented circumstance. The Committee reasoned that the exclusion of COVID-19 related idle facility costs eliminates the calculable impact of the Company having to absorb manufacturing costs attributable to abnormally low production levels resulting from the pandemic and temporary manufacturing facility closures, while still measuring performance on the key financial goals of Enterprise NOP and Manufacturing Cash Flow with respect to the businesses to the extent they were operational. The following chart shows the impact of excluding idle facility costs on the financial goals: Idle Facility Costs Impacting Enterprise NOP Amount in $ millions Idle Facility Costs Impacting Manufacturing Cash Flow Amount in $ millions Enterprise NOP $751 Manufacturing Cash Flow $596 Adjustment for Idle Facility Costs $142 Adjustment for Idle Facility Costs $123 Adjusted Enterprise NOP $893 Adjusted Manufacturing Cash Flow $719