30 TEXTRON 2025 PROXY STATEMENT 2024 INCENTIVE COMPENSATION TARGETS, PAYOUTS AND PERFORMANCE ANALYSIS Setting Targets for 2024 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. 2024 Annual Incentive Compensation Performance Metrics The performance metrics for the 2024 annual incentive compensation program focused on profitability, measured by enterprise net operating profit (weighted at 60%), manufacturing cash flow (weighted at 35%), and environmental, social and governance performance (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 2024 net operating profit target was approximately 8% higher than the 2023 target and 4.3% higher than the 2023 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 2024 was approximately 10% lower than the previous year’s target and 18% below last year’s actual performance, largely due to the projected slower increase in customer deposits compared to the previous year and a higher level of investment to support new development programs, including planned investments in the FLRAA program at Bell. Performance on environmental, social and governance (ESG) focused on the Company’s progress related to safety, sustainability, and an engaged, high-performing workforce. The Committee reviewed the Company’s progress related to these areas and determined the performance achieved based upon its qualitative assessment. 2024-2026 PSU Cycle Performance Metrics Performance metrics for the 2024-2026 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. Annual Incentive Compensation Payouts and Performance Analysis As described in Key 2024 Performance Highlights on page 22, Textron’s 2024 performance was below target for both the profitability and cash flow metrics, largely due to the impact of the strike at Textron Aviation as well as difficult end markets in our Industrial segment. The formula for determining 2024 annual incentive compensation payouts for executive officers and the resulting percentage earned are detailed below:
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