2023 INCENTIVE COMPENSATION TARGETS, PAYOUTS AND PERFORMANCE ANALYSIS Setting Targets for 2023 Performance Metrics The Committee relies on Textron’s Annual Operating Plan (“AOP”) in setting financial performance targets for short and long-term incentive compensation. The AOP, which is prepared toward the end of each fiscal year for the following three fiscal years, includes financial plans and targets and key assumptions for each segment. At its December meeting, the Board of Directors reviews and approves the AOP, subject to adjustment for certain year-end items. The Committee approves targets for the performance metrics included in Textron’s incentive compensation programs in January based upon the finalized AOP. 2023 Annual Incentive Compensation Performance Metrics Consistent with the prior year, the performance metrics for the 2023 annual incentive compensation program focused on profitability, measured by enterprise net operating profit (weighted at 60%), manufacturing cash flow (weighted at 35%), and hiring diversity (weighted at 5%). The net operating profit metric focused executives on improving execution in order to increase profit margin consistent with our expectations of our end markets. The 2023 net operating profit target was approximately 12% higher than both the 2022 target and actual performance. The manufacturing cash flow metric focused executives on improving operational efficiency and sustaining the strength of the balance sheet. The cash flow target established by the Committee for 2023 was approximately 18% higher than the previous year’s target. However, the target was set approximately 29% below last year’s actual performance, largely due to expected higher working capital associated with increased revenue volume, a lower period-over-period increase in customer deposits and a higher level of investment to support new development programs and the higher volume. In 2023, Textron changed the segment profit measure for its manufacturing segments to exclude the non-service components of pension and post- retirement income, net; LIFO inventory provision; and intangible asset amortization. The Company believes the revised measure provides a more consistent method of measuring and evaluating business performance across its segments, while also aligning its reporting results more consistently with other companies within its industry. This change impacts the enterprise net operating profit metric included in our annual incentive compensation program because this metric is based on segment profit. For comparison purposes only, the net operating profit target and actual performance figures for 2022 that are included in this discussion of 2023 metrics have been adjusted to conform to the revised measure. The hiring diversity performance metric focused executives on increasing hiring of diverse employees (defined as employees who identify as female or diverse based on race or ethnicity). Annually, our executives review hiring plans for the coming year along with publicly available data on talent availability as a guide for setting diverse hiring targets. Change to the Annual Incentive Compensation Metric for 2024 Beginning in 2024, our annual incentive compensation program will use an environmental, social and governance (ESG) metric in place of the hiring diversity metric. Five percent (5%) of annual incentive compensation will be earned based upon a qualitative assessment that may incorporate quantitative and qualitative data with respect to our progress and achievement of environmental, social and governance goals, including diversity and inclusion. 2023-2025 PSU Cycle Performance Metrics Performance metrics for the 2023-2025 PSU cycle are unchanged from the prior year and consist of average Return on Invested Capital (ROIC) (weighted at 50%), Cumulative Manufacturing Cash Flow (weighted at 30%), and relative total shareholder return compared to the S&P 500 (weighted at 20%), all measured over the three-year performance period. The ROIC and cumulative manufacturing cash flow performance metrics were chosen by the Committee to align with key value drivers of our business and, together, are designed to incentivize our executives to make disciplined capital allocation decisions and to manage working capital, inventory and investments to generate returns and create value for our shareholders over the long term. The relative Total Shareholder Return metric maintains focus on stock performance as an important relative measure of Company performance. TEXTRON 2024 PROXY STATEMENT 31
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