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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(3) Per unit price or other underlying value of the transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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(1)
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The election of the twelve nominees named in the attached Proxy Statement as directors to hold office until the 2014 Annual Meeting;
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(2)
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A proposal to approve, on an advisory basis, the compensation of our named executive officers;
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(3)
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A proposal to ratify the appointment of Deloitte & Touche LLP as our independent auditor for the year ending December 31, 2013;
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(4)
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Two shareholder proposals included and discussed in the accompanying Proxy Statement; and
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(5)
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Other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.
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BUSINESS HIGHLIGHTS
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2012 COMPENSATION HIGHLIGHTS
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▪
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The compensation earned in 2012 by our Chief Executive Officer ("CEO") and the other named executive officers ("NEOs"), as described in the Compensation Discussion and Analysis section of this Proxy Statement, reflect our Company's strong financial performance, which exceeded the performance targets established by the Compensation Committee of the Board of Directors.
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Annual Incentive Plan ("AIP") targets for 2012 were more difficult as compared to 2011. We continued to improve performance and achieved top quartile performance by exceeding all of our 2012 objectives. The AIP payouts reflect top quartile performance relative to our Performance Peer Group.
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2012 CEO total compensation, as reported in the Summary Compensation Table, was $
24,411,853
, which represents a 7% decrease from 2011. The Summary Compensation Table includes components of compensation in addition to the three elements of base salary, annual bonus and incentive awards (these three elements together are referred to as "total direct compensation"). The CEO's total direct compensation for 2012 was $13,617,631, as compared to the 2011 value of $18,476,443.
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The CEO received fewer long-term incentives than 2011; however, 70% of the 2012 grant is tied to performance with an upside opportunity if the Company outperforms its peers over the next three years.
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Consistent with our compensation philosophy, 89% of our CEO's 2012 total direct compensation was incentive-based pay.
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CORPORATE GOVERNANCE HIGHLIGHTS
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▪
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Election of Additional Director
– Retired Admiral Gary Roughead joined our Board, bringing strong leadership experience and an expertise in our business, our customers and the environment in which we operate.
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Ability of Shareholders to Act by Written Consent
– At the 2012 Annual Meeting, we took affirmative action to provide shareholders with an additional mechanism for influencing the direction of the Company and presented a management proposal to provide broader rights for our shareholders to act by written consent. Shareholders approved this proposal.
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▪
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Say-on-Pay Advisory Vote
– Our shareholders approved the compensation of our NEOs in 2012. We submit to shareholders a non-binding "say-on-pay" resolution on our executive compensation on an annual basis.
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Political Activities –
We enhanced further the transparency into our engagement in the political/policy-making process, expanding again the disclosures we provide on our website, especially regarding political contributions made by the Company and by our employees' political action committee.
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▪
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Lead Independent Director
–
We clarified the role of our Lead Independent Director, providing explicitly the authority to approve Board meeting agendas, Board schedules and information sent to the Board.
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Shareholder Outreach –
We continued our shareholder engagement program to foster strong communication with our shareholders.
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TABLE OF CONTENTS
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Board's Role in Risk Oversight
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PROPOSAL FOUR:
SHAREHOLDER PROPOSAL
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
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▪
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Election of twelve director nominees named in this Proxy Statement as directors (Proposal One);
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Approval, on an advisory basis, of the compensation of our named executive officers (Proposal Two);
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Ratification of the appointment of Deloitte & Touche LLP as our independent auditor for the year ending December 31, 2013 (Proposal Three);
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A shareholder proposal included and discussed in this Proxy Statement regarding additional disclosure of lobbying activities (Proposal Four); and
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A shareholder proposal included and discussed in this Proxy Statement requiring an independent chairperson of the Board of Directors (Proposal Five).
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"FOR" the election of the twelve nominees for director (Proposal One);
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"FOR" the approval, on an advisory basis, of the compensation of our named executive officers (Proposal Two);
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"FOR" the ratification of the appointment of Deloitte & Touche LLP as our independent auditor for the year ending December 31, 2013 (Proposal Three);
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"AGAINST" the shareholder proposal regarding additional disclosure of lobbying activities (Proposal Four); and
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"AGAINST" the shareholder proposal regarding an independent board chairman (Proposal Five).
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
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Proposal
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Vote Required
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Abstentions
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Broker
Non-Votes
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Unmarked
Proxy Cards
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Election of Directors
(Proposal One)
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Majority of votes cast
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No effect
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No effect
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Voted "FOR"
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Advisory Vote on Compensation of Named Executive Officers
(Proposal Two)
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Majority of votes cast
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No effect
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No effect
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Voted "FOR"
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Ratification of Appointment of Deloitte & Touche LLP
(Proposal Three)
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Majority of votes cast
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No effect
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No effect
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Voted "FOR"
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Shareholder Proposal - Regarding Additional Disclosure of Lobbying Activities
(Proposal Four)
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Majority of votes cast
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No effect
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No effect
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Voted "AGAINST"
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Shareholder Proposal – Regarding Independent Board Chairman
(Proposal Five)
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Majority of votes cast
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No effect
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No effect
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Voted "AGAINST"
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QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
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PROPOSAL ONE:
ELECTION OF DIRECTORS
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WESLEY G. BUSH, 52
Chairman, Chief Executive Officer and President, Northrop Grumman Corporation.
Director since 2009
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VICTOR H. FAZIO, 70
Senior Advisor, Akin Gump Strauss Hauer & Feld LLP, a law firm.
Director since 2000
Member of the Audit Committee and Policy Committee
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PROPOSAL ONE:
ELECTION OF DIRECTORS
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DONALD E. FELSINGER, 65
Lead Independent Director of the Board of Directors, Northrop Grumman Corporation.
Former Chairman and Chief Executive Officer, Sempra Energy, an energy services holding company.
Director since 2007
Member of the Compensation Committee and Governance Committee
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STEPHEN E. FRANK, 71
Former Chairman, President and Chief Executive Officer, Southern California Edison,
an electric utility company.
Director since 2005
Member of the Audit Committee (Chair) and Policy Committee
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PROPOSAL ONE:
ELECTION OF DIRECTORS
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BRUCE S. GORDON, 67
Former President & CEO, NAACP and Former President, Retail Markets Group, Verizon Communications Inc., a telecommunications company.
Director since 2008
Member of the Compensation Committee and Policy Committee (Chair)
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MADELEINE A. KLEINER, 61
Former Executive Vice President and General Counsel, Hilton Hotels Corporation, a hotel and resort company.
Director since 2008
Member of the Audit Committee and Governance Committee
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PROPOSAL ONE:
ELECTION OF DIRECTORS
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KARL J. KRAPEK, 64
Former President and Chief Operating Officer, United Technologies Corporation, an aerospace and building systems company.
Director since 2008
Member of the Compensation Committee and Governance Committee (Chair)
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RICHARD B. MYERS, 71
General, United States Air Force (Ret.) and Former Chairman of the Joint Chiefs of Staff.
Director since 2006
Member of the Compensation Committee and Policy Committee
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PROPOSAL ONE:
ELECTION OF DIRECTORS
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AULANA L. PETERS, 71
Former Partner, Gibson, Dunn & Crutcher, a law firm.
Director since 1992
Member of the Audit Committee and Governance Committee
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GARY ROUGHEAD, 61
Admiral, United States Navy (Ret.) and Former Chief of Naval Operations.
Director since 2012
Member of the Audit Committee and Policy Committee
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PROPOSAL ONE:
ELECTION OF DIRECTORS
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THOMAS M. SCHOEWE, 60
Former Executive Vice President and Chief Financial Officer, Wal-Mart Stores, Inc., an operator of retail stores.
Director since 2011
Member of the Audit Committee and Policy Committee
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KEVIN W. SHARER, 65
Former Chairman and Chief Executive Officer, Amgen Inc., a biotechnology company.
Director since 2003
Member of the Compensation Committee (Chair) and Governance Committee
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CORPORATE GOVERNANCE
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▪
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electing directors to fill vacant positions between Annual Meetings and evaluating offers of resignation from directors;
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selecting the Chief Executive Officer and electing officers of the Company;
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▪
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reviewing and approving executive compensation;
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reviewing and approving significant corporate actions;
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determining proposals for shareholder vote and responses to shareholder proposals; and
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approving revisions to our Bylaws.
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oversee our long-term business strategies;
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oversee
our operations and performance;
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oversee major risk factors and risk management activities;
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oversee senior executive succession planning;
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oversee and evaluate management and Board performance;
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oversee our ethics and compliance programs; and
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provide advice and counsel to management.
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CORPORATE GOVERNANCE
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▪
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presides at meetings of the Board of Directors at which the Chairperson of the Board of Directors is not present, including executive sessions of the independent directors, and advises the Chairperson of the Board and CEO on decisions reached;
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▪
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advises the Chairperson of the Board of Directors on and approves meeting agendas and the information sent to the Board of Directors;
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advises the Chairperson of the Board of Directors and approves the schedule of Board of Directors meetings to assure that there is sufficient time for discussion of all agenda items;
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provides the Chairperson of the Board of Directors with input as to the preparation of the agendas of the Board of Directors and committee meetings, taking into account the requests of the other committee and Board members;
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interviews, along with the Chairperson of the Board of Directors and the Chairperson of the Governance Committee, all candidates for the Board of Directors and makes recommendations to the Governance Committee and the Board of Directors;
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has the authority to call meetings of the independent directors;
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▪
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serves as liaison between the Chairperson of the Board of Directors and the independent directors; and
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▪
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if requested by major shareholders, ensures that he is available for consultation and direct communication.
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▪
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has not within the prior three years been a director, executive officer or trustee of a charitable organization that received annual contributions from our Company exceeding the greater of $1 million, or 2% of the charitable organization's annual gross revenues, where the gifts were not normal matching charitable gifts, did not go through normal corporate charitable donation approval processes or were made "on behalf of" a director;
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▪
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has not within the prior three years been employed by, a partner in or otherwise affiliated with any law firm or investment bank retained by the Company in which the director's compensation was contingent on the services performed for our Company or in which the director personally performed services for our
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CORPORATE GOVERNANCE
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▪
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has not within the prior three years owned, and has no immediate family member who owned, either directly or indirectly as a partner, shareholder or officer of another company, more than 5% of the equity of an organization that has a business relationship with (including significant purchasers of goods or services), or more than 5% ownership in, our Company.
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▪
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Mr. Felsinger's service as a member of the board of directors of Sempra Energy;
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▪
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Mr. Fazio's service as a member of the board of directors of the Center for Strategic Budgetary Assessments;
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▪
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General Myers' service as a member of the board of directors of Aon Corporation and United Technologies Corporation; and
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▪
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Ms. Peters' service as a member of the board of directors of 3M Company.
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CORPORATE GOVERNANCE
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CORPORATE GOVERNANCE
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▪
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annually to evaluate the Chief Executive Officer based on a specific set of performance objectives;
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▪
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for the Chief Executive Officer annually to provide an assessment of persons considered potential successors to certain senior management positions and discuss the results of these reviews with the Board of Directors; and
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▪
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to support continuity of top leadership and Chief Executive Officer succession, including through annual reports to the Board of Directors.
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▪
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Principles of Corporate Governance;
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▪
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Standards of Business Conduct;
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▪
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Policy and Procedure Regarding Company Transactions with Related Persons; and
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▪
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Board Committee Charters.
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CORPORATE GOVERNANCE
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Director
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Board
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Audit
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Compensation
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Governance
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Policy
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Wesley G. Bush
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Chair
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Victor H. Fazio
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Donald E. Felsinger
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Lead Independent Director
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Stephen E. Frank
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Chair
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Bruce S. Gordon
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Chair
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Madeleine A. Kleiner
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Karl J. Krapek
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Chair
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Richard B. Myers
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Aulana L. Peters
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Gary Roughead
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Thomas M. Schoewe
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Kevin W. Sharer
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Chair
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▪
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appoint, subject to shareholder ratification at each Annual Meeting, retain, oversee, evaluate and terminate, if necessary, our independent auditor;
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▪
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review and pre-approve services and related fees considered to be auditing services and permitted non-audit services to be provided by our independent auditor pursuant to pre-approval policies and procedures established by the Audit Committee;
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▪
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meet with the independent auditor to review, among other things, critical accounting policies, material alternative accounting treatments discussed with management, the ramifications of the use of such treatments and the independent auditor's preferred treatment and material written communications with management, including any reports or management letters on significant deficiencies and material weaknesses in internal control over financial reporting, any schedule of unadjusted differences, as well as the results of the audit or review and any opinion or report, which the independent auditor proposes to render in connection with our financial statements;
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▪
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review with our independent auditor the performance and conduct of the audit, any restrictions imposed on the scope of the audit or access to requested
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▪
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review with our independent auditor and internal auditors the scope and plan of their respective audits and degree of coordination of their plans and discuss with the independent auditor the responsibilities, budget and staffing of the internal audit function;
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▪
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approve the selection, removal and annual compensation of the Vice President, Internal Audit;
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▪
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oversee the internal audit program, including advising on leadership of the internal audit department and reviewing significant issues raised by the internal audit function and, as appropriate, management's actions for remediation as well as any other matters the Audit Committee may deem appropriate;
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▪
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establish and periodically review Company hiring policies for employees or former employees of our independent auditor;
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▪
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prior to filing with the SEC our annual report on Form 10-K and our quarterly reports on Form 10-Q, meet, review and discuss with management, the internal auditors and our independent auditor the financial statements included in such report, our disclosures under "Management's Discussion and Analysis of Financial Condition and Results of Operations," material issues regarding our critical accounting policies and financial statement presentations, and management's assessment of, and report on, the effectiveness of our internal control over financial reporting;
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▪
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determine whether the audited financial statements should be included in our annual report on Form 10-K;
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CORPORATE GOVERNANCE
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▪
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review and discuss with management and the independent auditor our earnings press releases and included financial information;
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▪
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review the disclosures by our Chief Executive Officer and Chief Financial Officer regarding the certifications required in each annual or quarterly report filed with the SEC;
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▪
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establish, periodically review and discuss with management procedures for the receipt, retention and treatment of complaints received regarding accounting, internal accounting controls or auditing matters and for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and
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▪
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receive periodic reports from the General Counsel on significant legal matters and from the Chief Compliance Officer on the Company's compliance program.
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▪
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review at least annually with management our approach for our compensation and benefits program for our elected officers;
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▪
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establish annual and long-term performance objectives for our elected officers;
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▪
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evaluate the performance of elected officers against their respective goals and objectives;
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▪
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recommend the chief executive officer's compensation for approval (or in the case of equity incentive
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▪
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review and approve the compensation of our elected officers;
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▪
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establish stock ownership guidelines covering elected officers and review ownership levels relative to the guidelines on an annual basis;
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▪
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review and recommend to the independent members of the Board of Directors direct and indirect compensation for non-employee directors, including stock ownership guidelines;
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oversee strategic planning and design of our employee benefit plans; and
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▪
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review and discuss with management the proposed annual compensation discussion and analysis and recommend to the Board of Directors whether it should be included in the annual proxy statement or other applicable filing with the SEC.
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CORPORATE GOVERNANCE
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▪
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regularly review our corporate governance policies and practices and recommend proposed changes to the Board of Directors for approval;
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▪
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review and make recommendations to the Board of Directors with respect to: the criteria for board membership, including among other things, diversity, experience and integrity;
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review and make recommendations with respect to the the general responsibilities and functions of the Board of Directors and its members; and the organization, structure, size and composition of the Board of Directors and its committees;
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▪
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identify individuals who are qualified to serve as members of the Board of Directors pursuant to our corporate governance principles and provide an assessment of whether each such individual would be an independent director;
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review our charter and bylaws with management no less than annually and recommend any proposed changes to the Board of Directors for approval;
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review our corporate governance principles and recommend any proposed changes to the Board of Directors for approval;
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review ownership levels relative to the director stock ownership guidelines on an annual basis;
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review, at least annually, the standards to be applied by the Board of Directors in making the determinations as to whether a director shall be deemed an independent director and recommend to the Board of Directors any appropriate modifications;
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recommend to the Board of Directors nominees for election at each annual meeting or special meeting of shareholders where directors are to be elected;
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▪
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make recommendations to the Board of Directors regarding the results of shareholder proposals voted upon at the Annual Meeting of Shareholders;
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▪
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identify committee member qualifications and recommend to the Board of Directors appropriate committee member appointments; and
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develop and recommend to the Board of Directors an annual self-evaluation process for the Board of Directors and each of its committees.
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▪
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identify and evaluate issues relating to global security, corporate responsibility, political and social matters, environmental sustainability and various other issues and trends that could affect our business activities and performance;
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▪
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review, monitor and provide recommendations regarding our ethics and corporate responsibility programs and policies, including our Standards of Business Conduct;
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▪
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review our public relations and advertising strategy and the manner in which we conduct our public relations activities;
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▪
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review and monitor our government relations strategy and the manner in which we conduct our government relations activities, including the governance and compliance of the political action committees and the Company's policies and practices with respect to political contributions;
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▪
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approve of Company spending to advocate for or against the election of a specific political candidate; and
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▪
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review and monitor our policies and practices with respect to environmental matters, health and safety matters, community relations and charitable organizations (including contributions) and activities.
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COMPENSATION OF DIRECTORS
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Compensation Element
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Amount ($)
(1/1/12 – 5/14/12)
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Amount ($)
(5/15/12 – present)
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Annual Cash Retainer
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115,000
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115,000
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Annual Retainer for Lead Independent Director
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25,000
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25,000
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Audit Committee Retainer
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10,000
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10,000
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Audit Committee Chair Retainer
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15,000
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20,000
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Compensation Committee Chair Retainer
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15,000
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15,000
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Governance Committee Chair Retainer
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10,000
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10,000
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Policy Committee Chair Retainer
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7,500
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7,500
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Annual Equity Grant*
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130,000
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130,000
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*
|
The annual equity grant is deferred into a stock unit account pursuant to the 2011 Long-Term Incentive Stock Plan (the "2011 Plan") as described below. The Northrop Grumman Equity Grant Program for Non-Employee Directors sets forth the terms and conditions of the equity awards granted to non-employee directors under the 2011 Plan.
|
COMPENSATION OF DIRECTORS
|
Name
|
|
Fees Earned or Paid in Cash
($) (1)
|
|
|
|
Stock
Awards
($) (2)
|
|
All Other
Compensation
($) (3)
|
|
|
|
Total ($)
|
|||||||
Lewis W. Coleman (4)
|
|
114,584
|
|
|
(5
|
)
|
|
119,049
|
|
|
4,509,703
|
|
|
(6)
|
|
4,743,336
|
|
||
Victor H. Fazio
|
|
128,709
|
|
|
|
|
130,000
|
|
|
61,991
|
|
|
(7)(8)
|
|
320,700
|
|
|||
Donald E. Felsinger
|
|
136,291
|
|
|
(9
|
)
|
|
130,000
|
|
|
71,847
|
|
|
(8)
|
|
338,138
|
|
||
Stephen E. Frank
|
|
143,146
|
|
|
|
|
130,000
|
|
|
44,920
|
|
|
(8)
|
|
318,066
|
|
|||
Bruce S. Gordon
|
|
119,718
|
|
|
|
|
130,000
|
|
|
42,760
|
|
|
(8)
|
|
292,478
|
|
|||
Madeleine A. Kleiner
|
|
125,000
|
|
|
|
|
130,000
|
|
|
43,196
|
|
|
(7)(8)
|
|
298,196
|
|
|||
Karl J. Krapek
|
|
121,291
|
|
|
|
|
130,000
|
|
|
52,453
|
|
|
(7)(8)
|
|
303,744
|
|
|||
Richard B. Myers
|
|
117,782
|
|
|
|
|
130,000
|
|
|
53,553
|
|
|
(7)(8)
|
|
301,335
|
|
|||
Aulana L. Peters
|
|
125,000
|
|
|
|
|
130,000
|
|
|
59,893
|
|
|
(7)(8)
|
|
314,893
|
|
|||
Gary Roughead (10)
|
|
109,203
|
|
|
|
|
113,571
|
|
|
3,665
|
|
|
(8)
|
|
226,439
|
|
|||
Thomas M. Schoewe
|
|
125,000
|
|
|
|
|
130,000
|
|
|
53,157
|
|
|
(8)
|
|
308,157
|
|
|||
Kevin W. Sharer
|
|
124,437
|
|
|
|
|
130,000
|
|
|
65,697
|
|
|
(8)
|
|
320,134
|
|
|||
(1
|
)
|
Amounts shown in the "Fees Earned or Paid in Cash" column reflect the annual retainer paid to each director, including any applicable annual committee and committee chair retainers and any applicable Lead Independent Director or Chairperson retainers. As described above, a director may elect to defer all or a portion of his or her annual retainer into a stock unit account. Amounts deferred as Elective Stock Units are reflected in this column.
|
|||||||||||||||||
(2
|
)
|
Represents the target value of Automatic Stock Units awarded to each of our non-employee directors in 2012 under the 2011 Plan. The amount reported in this column for each director reflects the aggregate fair value on the date of grant, as determined under Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation, of the stock units for each director, excluding any assumed forfeitures.
Assumptions used to calculate these amounts are included in Note 14 of our consolidated financial statements included in our 2012 Form 10-K.
|
|||||||||||||||||
(3
|
)
|
Amounts reflected in the "All Other Compensation" column include the dollar value of additional stock units credited to each non-employee director as a result of dividend equivalents earned on their respective stock units as follows: Mr. Coleman, $80,191; Mr. Fazio, $40,011; Mr. Felsinger, $45,018; Mr. Frank, $30,963; Mr. Gordon, $18,884; Ms. Kleiner, $18,884; Mr. Krapek, $32,796; General Myers, $28,902; Ms. Peters, $32,942; Admiral Roughead, $1,270; Mr. Schoewe, $3,424; and Mr. Sharer, $65,629.
Amounts shown also include perquisites and other personal benefits provided to certain of the directors in 2012 for use of Company aircraft for personal travel, including travel and incidental expenses for family members accompanying the director while on travel, security and matching contributions made through our Matching Gifts Program for Education discussed above. The cost of any category of the listed perquisites and personal benefits did not exceed the greater of $25,000 or 10% of total perquisites and personal benefits for any director, except for (i) the residential and personal security provided to Mr. Coleman described in footnote 6 below, (ii) Mr. Felsinger's personal and spousal travel on Company aircraft ($26,036), and (iii) Mr. Schoewe's personal and spousal travel on Company aircraft ($49,068).
|
|||||||||||||||||
(4
|
)
|
Mr. Coleman resigned from the Board of Directors and its committees on November 30, 2012.
|
|||||||||||||||||
(5
|
)
|
Includes $9,272 retainer for service as the Lead Independent Director from January 1, 2012 to May 14, 2012.
|
|||||||||||||||||
(6
|
)
|
Amounts include expenses for residential and personal security required for Mr. Coleman under the Company's comprehensive security program. We calculate the cost of travel security coverage based on the hourly rates and overhead fees charged directly to the Company by the firms providing security personnel. If Company security personnel were used, their hourly rates were used to calculate the cost of coverage. During 2012, the Company incurred $4,429,512 in costs related to security protection related to Mr. Coleman. These costs include $1,770,486 attributable to personal and family member travel on Company aircraft consistent with our security program discussed above which required that Mr. Coleman travel on the Company aircraft, and $421,114 attributable to tax gross-ups as follows: $207,929 tax gross-up for temporary secure housing and $213,185 tax gross-up for costs related to security protection.
|
|||||||||||||||||
(7
|
)
|
Amounts include matching contributions made through our Matching Gifts Program for Education discussed above as follows: Mr. Fazio, $7,500; Ms. Kleiner, $10,000; Mr. Krapek, $5,000; General Myers, $10,000; and Ms. Peters, $10,000.
|
|||||||||||||||||
(8
|
)
|
Includes spousal travel on Company aircraft. To calculate the value of personal use of Company aircraft, we calculate the incremental cost of each element, which includes trip-related crew hotels and meals, in-flight food and beverages, landing and ground handling fees, hourly maintenance contract costs, hangar or aircraft parking costs, fuel costs based on the average annual cost of fuel per mile flown and other smaller variable costs. Fixed costs that would be incurred in any event to operate Company aircraft (e.g., aircraft purchase costs, maintenance not related to personal trips and flight crew salaries) are not included.
|
|||||||||||||||||
(9
|
)
|
Includes $15,728 retainer for service as the Lead Independent Director from May 15, 2012 to December 31, 2012.
|
|||||||||||||||||
(10
|
)
|
Admiral Roughead was elected to the Board of Directors on February 14, 2012. Amounts shown reflect the prorated amounts of Admiral Roughead's retainer fees and equity grant for 2012.
|
COMPENSATION OF DIRECTORS
|
Name
|
|
Automatic Stock
Units
|
|
Elective Stock
Units
|
|
Total
|
||||
Victor H. Fazio
|
|
12,105
|
|
|
8,283
|
|
|
20,388
|
|
|
Donald E. Felsinger
|
|
13,206
|
|
|
10,681
|
|
|
23,887
|
|
|
Stephen E. Frank
|
|
15,198
|
|
|
0
|
|
|
15,198
|
|
|
Bruce S. Gordon
|
|
10,186
|
|
|
0
|
|
|
10,186
|
|
|
Madeleine A. Kleiner
|
|
10,186
|
|
|
0
|
|
|
10,186
|
|
|
Karl J. Krapek
|
|
10,186
|
|
|
8,477
|
|
|
18,663
|
|
|
Richard B. Myers
|
|
14,940
|
|
|
0
|
|
|
14,940
|
|
|
Aulana L. Peters
|
|
14,601
|
|
|
2,229
|
|
|
16,830
|
|
|
Gary Roughead
|
|
1,762
|
|
|
0
|
|
|
1,762
|
|
|
Thomas M. Schoewe
|
|
2,847
|
|
|
0
|
|
|
2,847
|
|
|
Kevin W. Sharer
|
|
16,732
|
|
|
16,816
|
|
|
33,548
|
|
Name
|
# Shares Underlying
Outstanding Option Awards
|
|
Victor H. Fazio
|
3,281
|
|
Donald E. Felsinger
|
0
|
|
Stephen E. Frank
|
0
|
|
Bruce S. Gordon
|
0
|
|
Madeleine A. Kleiner
|
0
|
|
Karl J. Krapek
|
0
|
|
Richard B. Myers
|
0
|
|
Aulana L. Peters
|
3,281
|
|
Gary Roughead
|
0
|
|
Thomas M. Schoewe
|
0
|
|
Kevin W. Sharer
|
6,562
|
|
COMPENSATION OF DIRECTORS
|
TRANSACTIONS WITH RELATED PERSONS AND CONTROL PERSONS
|
▪
|
any of our directors or executive officers;
|
▪
|
any person who is known to be the beneficial owner of more than 5% of any class of our voting securities;
|
▪
|
an immediate family member of any such person; and
|
▪
|
any firm, corporation, or other entity controlled by any such person.
|
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
|
VOTING SECURITIES AND PRINCIPAL HOLDERS
|
Name and Address of Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership of Common Stock
|
|
|
Percent
of Class
|
|
State Street Corporation
|
|
26,428,624
|
(1)
|
|
11
|
%
|
One Lincoln Street, Boston, MA 02111
|
|
|
|
|
|
|
Capital World Investors
|
|
13,314,223
|
(2)
|
|
6
|
%
|
333 South Hope Street, Los Angeles, CA 90071
|
|
|
|
|
|
|
BlackRock, Inc.
|
|
20,469,117
|
(3)
|
|
9
|
%
|
40 East 52
nd
Street, New York, NY 10022
|
|
|
|
|
|
(1)
|
This
information was provided by State Street Corporation ("State Street") in a Schedule 13G filed with the SEC on February 12, 2013. According to State Street, as of December 31, 2012, State Street had shared voting power over 26,428,624 shares and shared dispositive power over 26,428,624 shares. This total includes 15,633,646 shares held in the Defined Contributions Master Trust for the Northrop Grumman Savings Plan and the Northrop Grumman Financial Security and Savings Program, for which State Street Bank and Trust Company acts as trustee and investment manager.
|
(2)
|
This
information was provided by Capital World Investors, a division of Capital Research and Management Company ("Capital World"), in a Schedule 13G/A filed with the SEC on February 13, 2013. According to Capital World, as of December 31, 2012, Capital World had sole voting and dispositive power over 13,314,223 shares.
|
(3)
|
This
information was provided by BlackRock, Inc. ("BlackRock") in a Schedule 13G/A filed with the SEC on February 1, 2013. According to BlackRock, as of December 31, 2012, BlackRock had sole voting and dispositive power over 20,469,117 shares.
|
VOTING SECURITIES AND PRINCIPAL HOLDERS
|
|
|
Shares of Common Stock
Beneficially Owned
|
|
|
|
Share
Equivalents (1)
|
|
Shares Subject To
Option (2)
|
|
Total
|
|
|
|||||
Non-Employee Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Victor H. Fazio
|
|
14,724
|
|
|
(3)
|
|
16,975
|
|
|
3,281
|
|
|
34,980
|
|
|
|
|
Donald E. Felsinger
|
|
4,640
|
|
|
(4)
|
|
23,887
|
|
|
0
|
|
|
28,527
|
|
|
|
|
Stephen E. Frank
|
|
1,000
|
|
|
|
|
15,918
|
|
|
0
|
|
|
16,918
|
|
|
|
|
Bruce S. Gordon
|
|
0
|
|
|
|
|
10,186
|
|
|
0
|
|
|
10,186
|
|
|
|
|
Madeleine A. Kleiner
|
|
0
|
|
|
|
|
10,186
|
|
|
0
|
|
|
10,186
|
|
|
|
|
Karl J. Krapek
|
|
0
|
|
|
|
|
18,663
|
|
|
0
|
|
|
18,663
|
|
|
|
|
Richard B. Myers
|
|
0
|
|
|
|
|
14,940
|
|
|
0
|
|
|
14,940
|
|
|
|
|
Aulana L. Peters
|
|
9,572
|
|
|
(5)
|
|
12,563
|
|
|
3,281
|
|
|
25,416
|
|
|
|
|
Gary Roughead
|
|
0
|
|
|
|
|
1,762
|
|
|
0
|
|
|
1,762
|
|
|
|
|
Thomas M. Schoewe
|
|
3,160
|
|
|
|
|
2,847
|
|
|
0
|
|
|
6,007
|
|
|
|
|
Kevin W. Sharer
|
|
2,995
|
|
|
|
|
33,548
|
|
|
6,562
|
|
|
43,105
|
|
|
|
|
Named Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Wesley G. Bush (6)
|
|
443,585
|
|
|
(7)
|
|
5,068
|
|
|
732,082
|
|
|
1,180,735
|
|
|
|
|
James F. Palmer
|
|
144,928
|
|
|
|
|
0
|
|
|
371,327
|
|
|
516,255
|
|
|
|
|
Gary W. Ervin (8)
|
|
28,854
|
|
|
|
|
0
|
|
|
267,327
|
|
|
296,181
|
|
|
|
|
James F. Pitts (8)
|
|
2,829
|
|
|
|
|
0
|
|
|
521,024
|
|
|
523,853
|
|
|
|
|
Linda A. Mills
|
|
70,415
|
|
|
(9)
|
|
12,180
|
|
|
317,937
|
|
|
400,532
|
|
|
|
|
Other Executive Officers
|
|
156,657
|
|
|
|
|
9,799
|
|
|
388,209
|
|
|
554,665
|
|
|
|
|
All Directors and Executive Officers as a Group (27 persons)
|
|
883,359
|
|
|
|
|
188,522
|
|
|
2,611,030
|
|
|
3,682,911
|
|
|
(10
|
)
|
(1)
|
Share equivalents for directors represent non-voting deferred stock units acquired under the 2011 Plan and the 1993 Directors Plan, some of which are paid out in shares of common stock at the conclusion of a director-specified deferral period, and others are paid out upon termination of the director's service on the Board of Directors. Certain of the NEOs hold share equivalents with pass-through voting rights in the Northrop Grumman Savings Plan or the Northrop Grumman Financial Security and Savings Program.
|
(2)
|
These shares subject to option are either currently exercisable or exercisable within 60 days of March 19, 2013.
|
(3)
|
Includes 846 shares held in our Dividend Reinvestment Plan.
|
(4)
|
Includes 770 shares each held in the Courtney Strickland and Stephanie Strickland trust, respectively, for which Mr. Felsinger's wife serves as trustee and 1,550 shares each held in the Gregory Felsinger and Michael Felsinger trust, respectively, for which Mr. Felsinger serves as trustee.
|
(5)
|
Includes 3,238 shares held in the Peters Family Trust of which Ms. Peters is the trustee.
|
(6)
|
Mr. Bush is also Chairman of the Board of Directors.
|
(7)
|
Includes the following shares: 323,585 shares are held in the W.G. and N.F. Bush Family Trust and 40,000 shares are held in each of the Bush Trust No 1 2012 Irrevocable Trust, the Bush Trust No 2 2012 Irrevocable Trust and the Bush Trust No 3 2012 Irrevocable Trust. Mr. Bush and his wife are trustees of each of the trusts.
|
(8)
|
Messrs. Ervin and Pitt ceased serving as executive officers effective December 31, 2012. Ownership information provided is as of December 31, 2012.
|
(9)
|
Includes 43,871 shares held in the Linda Anne Mills Living Trust.
|
(10)
|
Total represents 1.56% of the outstanding common stock as of March 19, 2013.
|
EQUITY COMPENSATION PLAN INFORMATION
|
Plan category
|
|
Number of shares of
common stock to be
issued upon exercise
of outstanding options and
payout of outstanding
awards (1)
|
|
Weighted-average
exercise price of
outstanding options (2) ($)
|
|
Number of shares of
common stock remaining available for future issuance under equity compensation plan (excluding shares reflected in the first column) (3)
|
|
|
|||
Equity compensation plans approved by shareholders
|
|
15,620,902
|
|
|
58
|
|
|
36,801,359
|
|
|
|
Equity compensation plans not approved by shareholders
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
Total
|
|
15,620,902
|
|
|
58
|
|
|
36,801,359
|
|
|
(4)
|
(1)
|
Of
these shares, 19,686 were subject to stock options then outstanding under the 1995 Directors Plan, 44,242 were subject to stock options then outstanding under the 2011 Plan and 6,207,436 were subject to stock options then outstanding under the 2001 Plan. In addition, this number includes 1,959,688 shares that were subject to outstanding stock awards granted under the 2011 Plan, 1,518,027 shares that were subject to outstanding stock awards granted under the 2001 Plan, and reflects 3,372,437 awards earned at year end but pending distribution subject to final performance adjustments, and 169,155 shares subject to outstanding stock units credited under the 1993 Directors Plan. Additional performance shares of 2,330,231 reflect the number of shares deliverable under payment of outstanding restricted performance stock rights, assuming maximum performance criteria have been achieved. Included in this number are 1,223,619 stock options that were out-of-the-money as of December 31, 2012.
|
(2)
|
This
number reflects the weighted-average exercise price of outstanding stock options and has been calculated exclusive of outstanding restricted performance stock right and restricted stock right awards and exclusive of stock units credited under the 2011 Plan and the 1993 Directors Plan.
|
(3)
|
Of
the aggregate number of shares that remained available for future issuance, 36,801,359 were available under the 2011 Plan as of December 31, 2012. No new awards may be granted under the 1993 Directors Plan or the 2001 Plan.
|
(4)
|
After
giving effect to our February 2013 awards, the number of shares of common stock remaining for future issuance would be 27,760,469 (assuming maximum payout of such awards).
|
COMPENSATION COMMITTEE REPORT
|
COMPENSATION DISCUSSION AND ANALYSIS
|
|
|
|
|
|
|
|
|
In this section, we provide an overview of our executive compensation programs and the underlying philosophy used to develop the programs. This section details the material components of our executive compensation programs for our 2012 "Named Executive Officers" or "NEOs" listed below and explains how and why the Compensation Committee of our Board (the "Compensation Committee") arrived at certain specific compensation policies and decisions involving the NEOs. On the following pages, the Executive Summary of the Compensation Discussion & Analysis ("CD&A") provides a brief overview of our business and 2012 performance and summarizes our executive compensation programs. We have included this summary to assist you in reviewing the 2012 compensation earned by our NEOs. The 2012 compensation of our NEOs is provided in the Summary Compensation Table and other compensation tables contained in this Proxy Statement.
|
|
||||
|
2012 Named Executive Officers
|
|||||
|
|
|
Name
|
|
Position
|
|
|
|
|
Wesley G. Bush
|
|
Chairman of the Board, Chief Executive Officer & President
|
|
|
|
|
James F. Palmer
|
|
Corporate Vice President & Chief Financial Officer
|
|
|
|
|
Gary W. Ervin
|
|
Corporate Vice President & President, Aerospace Systems
|
|
|
|
|
James F. Pitts
|
|
Corporate Vice President & President, Electronic Systems
|
|
|
|
|
Linda A. Mills
|
|
Corporate Vice President & President, Information Systems
|
|
|
|
|
|
|
|
|
|
SHAREHOLDER ENGAGEMENT
We welcome feedback from our shareholders regarding our executive compensation programs. Shareholders desiring to communicate with the Board or Compensation Committee may do so as described under "Communications with the Board of Directors" in this Proxy Statement.
|
COMPENSATION DISCUSSION AND ANALYSIS | E
XECUTIVE
S
UMMARY
|
COMPENSATION DISCUSSION AND ANALYSIS | E
XECUTIVE
S
UMMARY
|
Compensation
Component
|
Key Characteristics
|
Purpose
|
Base Salary
|
Fixed compensation component; reviewed annually and adjusted if and when appropriate.
|
Compensate an executive officer fairly for the responsibility level of the position and competitively within our industry.
|
Annual Incentive
|
Variable compensation component.
Performance-based award determined by annual corporate performance against objectives established based on the performance of our peer group and other objectives established by the Board. Payout range is from 0% of target to a maximum of 200%.
Financial metrics weighted as follows: New Business Awards (20%), subject to a negative backlog score adjustment, Pension-Adjusted Operating Margin Rate (40%), subject to a risk adjustment factor, and Free Cash Flow Conversion (40%).
Actual cash bonus earned is determined by our financial performance of the company, subject to a downward adjustment if the aggregate performance targets for the six non-financial metrics are not achieved. The non-financial metrics, with empirical values, are aligned to our stakeholders (Customer Satisfaction, Quality, Environmental Sustainability, Diversity, Employee Engagement and Safety). Each metric is designed to drive improvement over time.
|
Motivate and reward executive officers for achieving annual business objectives that drive overall performance.
|
Long-Term Incentive
|
Variable compensation component, generally granted annually.
70% of the annual long-term incentive ("LTI") grant to our NEOs is Restricted Performance Stock Rights ("RPSRs") and 30% is Restricted Stock Rights ("RSRs"). The actual number of RPSR shares earned is determined based on relative total shareholder return ("TSR"). RSRs have a three-year cliff vesting period. For 2012, no stock options were granted.
The relative TSR metric compares our share performance over a three-year period to the performance of the Performance Peer Group (as defined below) and the S&P Industrials.
Beginning with the 2012 grant, the payout range of RPSR grants is 0% to 150% of the original award granted, and the payout for a three-year performance period is capped at 100% of shares granted if absolute TSR performance over the performance period is negative, even if our performance relative to the other industry benchmarks would have resulted in a higher score. For the 2012 grant, dividends will accrue on both RPSR and RSR awards earned to be paid upon award payout.
Double-trigger accelerated vesting provision upon a change in control.
|
Motivate and reward executive officers to achieve our business objectives. Ties incentives to the long-term performance of our stock and reinforces the link between the interests of our executive officers and our shareholders. Serves as key retention vehicle for executive officers.
|
Holding Requirement
|
NEOs are required to hold, for a period of three years, 50% of their net shares (after-tax) earned from RPSR and RSR grants and stock options granted in 2010 or subsequent years.
|
Further align management and shareholder interests and emphasize the importance of sustainable performance and appropriate risk-management behaviors.
|
COMPENSATION DISCUSSION AND ANALYSIS | E
XECUTIVE
S
UMMARY
|
Compensation
Component
|
Key Characteristics
|
Purpose
|
Stock Ownership Requirement
|
NEOs are required to own a multiple of their salary in Company stock (CEO - 7x, all other NEOs - 3x).
|
Align management and shareholder interests.
|
Hedging and Pledging of Company Stock
|
Company policy prohibits executive officers from engaging in hedging transactions with respect to Company stock or pledging Company stock.
|
Align management and shareholder interests.
|
Health and Welfare and Retirement Plans
|
Fixed compensation component.
|
Provide benefits that promote employee health, productivity and retention.
|
Perquisites and Other Benefits
|
Fixed compensation component.
|
Provide a business-related benefit to our Company and assist in attracting and retaining executive officers.
|
Severance Benefits
|
Fixed compensation component.
Benefit for NEOs (other than the CEO) is 1.5x base salary and payout of the target annual bonus. The CEO is not covered under our severance plans or policies.
|
Provide temporary income replacement following an executive officer's involuntary termination of employment.
|
Change in Control
|
Individual change in control agreements and change in control severance plans were terminated in 2010.
|
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
P
RINCIPLES
|
▪
|
Pay for Performance:
Our compensation structure is based on peer-benchmarked performance metrics for our incentive plans, designed to drive superior results relative to our defense industry peers. Compensation levels are variable based on performance compared to established goals. The variable compensation structure rewards superior performance, penalizes below-average performance and has a relatively flat reward for average performance. Our goal is to achieve and reward top quartile performance.
|
▪
|
Benchmarking:
We evaluate our compensation programs and financial objectives on an annual basis and modify them in accordance with industry and business conditions. When defining key operational (annual) and strategic (long-term) performance metrics, we seek to outperform our peers (a group of nine aerospace and defense companies we refer to as the "Performance Peer Group"). The Performance Peer Group includes companies that we believe most accurately reflect our business; however, some in our industry cannot be utilized for compensation benchmarking because comparable compensation data is not available for foreign exchange-registered companies. The Compensation Committee analyzes the broader market for executive compensation using a "Target Industry Peer Group" that includes the U.S.-based companies in the Performance Peer Group as well as additional companies based on a peer-of-peers analysis. The Compensation Committee also considers general industry data on Fortune 50 to Fortune 150 companies for an understanding of current executive compensation practices.
|
▪
|
Ensure Leadership Retention and Succession:
Compensation is designed to be competitive within our industry and retentive for key individuals who contribute to the achievement of our business goals. Our programs are designed to motivate and reward NEOs for delivering operational and strategic performance and maximizing shareholder returns, while continuing to uphold our values.
|
▪
|
Align Pay Programs with Shareholder Interests:
The Compensation Committee supports a compensation structure that places an appropriate level of compensation at risk, based on our financial and non-financial performance measures and relative TSR. The annual compensation incentive award is determined by our financial performance and is subject to a downward only adjustment for performance against non-financial goals. For NEOs, the value of LTI RPSR compensation is determined by relative TSR performance. Achievement of both annual incentive goals and increased shareholder value will result in individual awards commensurate with results; however, failure to deliver shareholder value will negatively affect compensation for all NEOs. Stock ownership guidelines and holding requirements for equity awards further align executive and shareholder interests.
|
▪
|
Ensure Sustained Performance:
Our annual incentive plan includes both financial and non-financial metrics to ensure that we are building a strong foundation for growth and sustainable customer relationships. We expect all employees to adhere to the Company's values and execute annual plans while improving quality, customer satisfaction, employee engagement, diversity, safety and environmental performance.
|
▪
|
Risk Management:
The Board of Directors evaluates the Company's risk profile on an ongoing basis to mitigate concerns of executives being overly incentivized to achieve near-term stock price growth. In addition to using long-term incentive awards as a significant portion of annual total direct compensation ("TDC"), design features such as overlapping three-year cliff-vested grants, three-year holding periods and ownership guidelines are designed to align management's long-term interests and mitigate risks. Both the Compensation Committee and its independent compensation consultant evaluate the mix of at-risk compensation linked to stock appreciation.
|
▪
|
reviews market data and other input from its independent compensation consultant;
|
▪
|
reviews and approves incentive goals and objectives relevant to elected officer compensation. For the CEO, the goals and objectives are set by the independent directors;
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
P
RINCIPLES
|
▪
|
evaluates and approves executive benefit programs and perquisites; and
|
▪
|
evaluates the competitiveness of each elected officer's total compensation package.
|
▪
|
review our total compensation philosophy, peer groups and target competitive positioning for reasonableness and appropriateness;
|
▪
|
identify and advise the Compensation Committee on market trends and practices;
|
▪
|
provide proactive advice to the Compensation Committee on best practices for Board governance of executive compensation, as well as any areas of concern or risk that may exist or be anticipated in the design of our executive compensation programs; and
|
▪
|
serve as a resource to the Compensation Committee Chairperson on setting agenda items for Compensation Committee meetings and undertaking special projects.
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
P
RINCIPLES
|
PERFORMANCE PEER GROUP
|
||||||||
BAE Systems
|
|
|
|
Finmeccanica
|
|
|
|
Lockheed Martin Corporation
|
The Boeing Company
|
|
|
|
General Dynamics Corporation
|
|
|
|
Raytheon Company
|
EADS
|
|
|
|
L-3 Communications Holdings, Inc.
|
|
|
|
SAIC, Inc.
|
▪
|
the company was identified as a peer by at least three of the six aerospace and defense peers;
|
▪
|
the company participates in the annual Aon Hewitt executive compensation study; and
|
▪
|
revenues and market capitalization of the company were approximately 1/3 to three times that of Northrop Grumman.
|
2012 TARGET INDUSTRY PEER GROUP
|
||||
3M Company
|
|
|
|
ITT Corp.
|
The Boeing Company
|
|
|
|
Johnson Controls, Inc.
|
Caterpillar, Inc.
|
|
|
|
L-3 Communications Holdings, Inc.
|
Emerson Electric Company
|
|
|
|
Lockheed Martin Corp.
|
General Dynamics Corporation
|
|
|
|
Raytheon Company
|
Goodrich, Corp.
|
|
|
|
SAIC, Inc.
|
Honeywell International, Inc.
|
|
|
|
United Technologies Corp.
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
▪
|
New Business Awards: focuses the Company on maintaining optimal market share and represents the total new program/contract authorizations awarded to the Company during the year. Recognizing the importance of keeping current programs sold, new business awards are subject to a negative backlog score adjustment for substantial program terminations.
|
▪
|
Pension-Adjusted Operating Margin Rate: establishes high performance expectations for the Company and is calculated as OM rate (OM divided by sales) adjusted for net FAS/CAS pension income or expense. The net FAS/CAS pension adjustment is the difference between pension expense determined in accordance with GAAP under Financial Accounting Standards ("FAS") and pension expense allocated to the business segments under U.S. Government Cost Accounting Standards ("CAS"). The Compensation Committee may increase the OM rate score by a maximum of five percentage points if the actual Pension-Adjusted OM rate is equal to or above target and minimal charges were recorded, or it can decrease the score by up to five percentage points if significant charges were recorded and the target Pension-Adjusted OM rate was not achieved.
|
▪
|
Free Cash Flow Conversion: focuses on the quality of net earnings and is calculated as free cash flow from continuing operations before the after-tax impact of discretionary pension contributions divided by net income from continuing operations.
|
▪
|
Customer Satisfaction: measured in terms of customer feedback, including customer-generated performance scores, award fees and verbal and written feedback.
|
▪
|
Quality: measured using program-specific objectives within each of our sectors, including defect rates, process quality, supplier quality, planning quality and other appropriate criteria for program type and phase.
|
▪
|
Engagement: measured in terms of progress (as reported by employees in a company-wide engagement survey) against engagement action plans and maintaining or improving the overall engagement score.
|
▪
|
Diversity: measured in terms of improving representation of females and People of Color in mid-level and senior-level management positions with respect to peer and broader industry benchmarks.
|
▪
|
Safety: measured by Total Case Rate, defined as the number of Occupational Safety & Health Administration recordable injuries as well as by Lost Work Day Rate associated with those injuries.
|
▪
|
Environmental Sustainability: measured in terms of the reduction, in metric tons, of greenhouse gases emissions and solid waste and water.
|
Name
|
|
Target Payout
% of Salary
|
|
Payout Range
% of Salary
|
Wesley G. Bush
|
|
150%
|
|
0% - 300%
|
James F. Palmer
|
|
100%
|
|
0% - 200%
|
Gary W. Ervin
|
|
100%
|
|
0% - 200%
|
James F. Pitts
|
|
100%
|
|
0% - 200%
|
Linda A. Mills
|
|
100%
|
|
0% - 200%
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
Metric/Goal
|
Weighting
|
|
Minimum Performance 0%
|
|
65%
|
|
90%
|
|
Target Performance 100%
|
|
135%
|
|
Maximum Performance 200%
|
|
2012 Actual
Performance
|
New Business Awards
|
20%
|
|
$18.0
|
|
$20.0
|
|
$22.0
|
|
$23.0
|
|
$25.0
|
|
$28.0
|
|
$26.5
|
Negative Backlog CPF Score Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0%
|
|
Pension-Adjusted OM Rate
|
40%
|
|
8.5%
|
|
9.0%
|
|
|
|
10.0%
|
|
10.5%
|
|
12.0%
|
|
11.9%
|
Risk Management CPF Score Adjustment
|
|
5%
|
|||||||||||||
FCF Conversion
|
40%
|
|
80%
|
|
90%
|
|
100%
|
|
105%
|
|
115%
|
|
140%
|
|
126%
|
Name
|
2012 Annual Incentive ($)*
|
||
James F. Palmer
|
$
|
1,560,000
|
|
Gary W. Ervin
|
$
|
1,556,000
|
|
James F. Pitts
|
$
|
1,556,000
|
|
Linda A. Mills
|
$
|
1,420,000
|
|
|
|
Weight
|
|
Relative TSR Percentile
|
||
RPSRs Earned
|
|
|
|
0%
|
100%
|
150%
|
S&P Industrials
|
|
50%
|
|
25
th
|
50
th
|
80
th
|
Target Performance Peer Group
|
|
50%
|
|
25
th
|
50
th
|
80
th
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
|
|
|
|
Percentile Required to Score
|
|
|
||||
Metric/Goal
|
|
Weighting
|
|
0%
|
|
100%
|
|
200%
|
|
2012 Actual
Performance
|
Relative TSR - Performance Peer Group
|
|
50%
|
|
25th
|
|
50th
|
|
80th
|
|
89th
|
Relative TSR - S&P Industrials
|
|
50%
|
|
25th
|
|
50th
|
|
80th
|
|
56th
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
Position
|
|
Stock Value as a Multiple of
Base Salary
|
Chairman, CEO and President
|
|
7x base salary
|
NEOs
|
|
3x base salary
|
▪
|
Company stock owned outright;
|
▪
|
RSRs, whether or not vested; and
|
▪
|
the value of equivalent shares held in the Northrop Grumman Savings Plan or Northrop Grumman Financial Security and Savings Program.
|
COMPENSATION DISCUSSION AND ANALYSIS | K
EY
C
OMPONENTS
OF OUR
P
ROGRAMS
|
▪
|
the amount or number of shares included in any such payment was calculated based on financial results that were subsequently restated due to noncompliance with any financial reporting requirement under the U.S. securities laws;
|
▪
|
a lesser payment of cash or shares would have been made based upon the restated financial results; and
|
▪
|
the payment of cash or shares was received prior to or during the 12-month period following the first public issuance or filing of the financial results that were subsequently restated.
|
COMPENSATION DISCUSSION AND ANALYSIS | S
UMMARY
C
OMPENSATION
T
ABLE
|
Name & Principal Position
|
|
Year
|
|
Salary (1)
($)
|
|
Bonus (2)
($)
|
|
Stock
Awards (3)
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
Compensation (4)
($)
|
|
Change in
Pension
Value and
Non-
Qualified
Deferred
Compensation
Earnings (5)
($)
|
|
All Other
Compensation (6)
($)
|
|
Total
($)
|
Wesley G. Bush
|
|
2012
|
|
1,500,120
|
|
0
|
|
8,000,011
|
|
0
|
|
4,117,500
|
|
8,939,532
|
|
1,854,690
|
|
24,411,853
|
Chairman, Chief Executive Officer and President
|
2011
|
|
1,471,251
|
|
0
|
|
9,400,723
|
|
3,576,969
|
|
4,027,500
|
|
5,276,169
|
|
2,489,832
|
|
26,242,444
|
|
2010
|
|
1,334,615
|
|
0
|
|
8,349,848
|
|
7,155,165
|
|
3,037,500
|
|
699,987
|
|
2,272,297
|
|
22,849,412
|
||
James F. Palmer
|
|
2012
|
|
850,081
|
|
0
|
|
3,500,023
|
|
0
|
|
1,560,000
|
|
1,707,827
|
|
183,098
|
|
7,801,029
|
Corporate Vice President and Chief Financial Officer
|
2011
|
|
845,258
|
|
250,000
|
|
2,350,181
|
|
894,246
|
|
1,250,000
|
|
1,190,384
|
|
918,134
|
|
7,698,203
|
|
2010
|
|
820,194
|
|
0
|
|
4,907,860
|
|
4,477,369
|
|
1,000,000
|
|
994,044
|
|
151,137
|
|
12,350,604
|
||
Gary W. Ervin
|
|
2012
|
|
850,080
|
|
0
|
|
6,608,383
|
|
0
|
|
1,556,000
|
|
1,786,657
|
|
153,883
|
|
10,955,003
|
Corporate Vice President and
President, Aerospace Systems |
2011
|
|
845,257
|
|
0
|
|
3,628,648
|
|
894,246
|
|
1,250,000
|
|
1,146,473
|
|
202,873
|
|
7,967,497
|
|
2010
|
|
781,731
|
|
0
|
|
2,406,340
|
|
1,524,405
|
|
1,000,000
|
|
483,435
|
|
195,386
|
|
6,391,297
|
||
James F. Pitts
|
|
2012
|
|
850,081
|
|
0
|
|
6,488,349
|
|
0
|
|
1,556,000
|
|
2,979,127
|
|
164,923
|
|
12,038,480
|
Corporate Vice President and
President, Electronic Systems
|
2011
|
|
845,258
|
|
0
|
|
2,350,181
|
|
894,246
|
|
1,200,000
|
|
2,354,970
|
|
164,830
|
|
7,809,485
|
|
2010
|
|
781,731
|
|
0
|
|
2,406,340
|
|
1,524,405
|
|
1,000,000
|
|
1,793,114
|
|
122,898
|
|
7,628,488
|
||
Linda A. Mills
|
|
2012
|
|
775,050
|
|
0
|
|
4,000,009
|
|
0
|
|
1,420,000
|
|
3,321,233
|
|
138,917
|
|
9,655,209
|
Corporate Vice President and
President, Information Systems
|
|
2011
|
|
770,233
|
|
0
|
|
2,115,147
|
|
804,818
|
|
1,150,000
|
|
2,434,630
|
|
230,588
|
|
7,505,416
|
|
2010
|
|
721,154
|
|
0
|
|
2,208,350
|
|
1,400,034
|
|
900,000
|
|
1,551,922
|
|
265,335
|
|
7,046,795
|
(1)
|
This column includes amounts that were deferred under the qualified savings and nonqualified deferred compensation plans.
|
(2)
|
In 2011, Mr. Palmer received a recognition bonus for the spin-off of our former shipbuilding business.
|
(3)
|
The dollar value shown in this column is equal to the total grant date fair value of RPSRs and RSRs granted during 2012, as adjusted for Messrs. Ervin and Pitts to provide for vesting following retirement, subject to compliance with a non-compete agreement. The Company did not grant stock options in 2012. For assumptions used in calculating the grant date fair value, see the discussion in Note 14 of the Company's 2012 Form 10-K, adjusted to exclude forfeitures. The maximum grant date value of the 2012 RPSRs (which awards represent 70% of the total grant) for each NEO, assuming a 150% maximum payout, is as follows: Wesley G. Bush - $9,175,303; James F. Palmer - $4,014,206; Gary W. Ervin - $4,587,652 (excluding the 2012 modification); James F. Pitts - $4,300,884 (excluding the 2012 modification); and Linda A. Mills - $4,014,206. The maximum grant date value of 2012 RPSRs for Messrs. Ervin and Pitts, after giving effect to the modifications noted above is $4,844,747 and $4,563,822, respectively.
|
(4)
|
These amounts were paid pursuant to the Company's annual incentive plan. This column includes amounts that were deferred under the qualified savings and nonqualified deferred compensation plans.
|
(5)
|
The amounts in this column relate solely to the increased present value of the executive's pension plan benefits using mandatory SEC assumptions (see the descriptions of these plans under the Pension Benefits table). There were no above-market earnings in the nonqualified deferred compensation plans (see the descriptions of these plans under the Nonqualified Deferred Compensation table). The amount accrued in each year differs from the amount accrued in prior years due to an
|
COMPENSATION DISCUSSION AND ANALYSIS | S
UMMARY
C
OMPENSATION
T
ABLE
|
(6)
|
All Other Compensation amounts include, as applicable, (a) the value of perquisites and personal benefits, (b) the amount of tax gross-ups and (c) the amount of Company contributions to defined contribution plans.
|
COMPENSATION DISCUSSION AND ANALYSIS | G
RANTS
O
F
P
LAN
-B
ASED
A
WARDS
T
ABLE
|
|
|
|
Estimated Future Payouts Under
Non-Equity Incentive
Plan Awards (1)
|
|
Estimated Future Payouts
Under Equity Incentive
Plan Awards (2)(3)
|
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(4)
(#)
|
All Other
Option
Awards:
Number of
Securities
Underlying
Options
(2)
(#)
|
Exercise or
Base Price
of Option
Awards
($/Sh)
|
Grant
Date Fair
Value of
Stock and
Option
Awards
(2)(5)
|
||||||||||||
Name & Principal
Position
|
Grant Type
|
Grant Date
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
||||||||||||
Wesley G. Bush
|
Incentive Plan
|
|
0
|
|
2,250,180
|
|
4,500,360
|
|
|
|
|
|
|
|
|
|
|||||
Chairman, Chief
Executive Officer and President
|
RPSR
|
2/15/2012
|
|
|
|
|
0
|
|
102,546
|
|
153,819
|
|
|
|
|
5,599,993
|
|
||||
RSR
|
2/15/2012
|
|
|
|
|
|
|
|
40,235
|
|
|
|
2,400,018
|
|
|||||||
James F. Palmer
|
Incentive Plan
|
|
0
|
|
850,081
|
|
1,700,163
|
|
|
|
|
|
|
|
|
|
|||||
Corporate Vice
President and Chief
Financial Officer
|
RPSR
|
2/15/2012
|
|
|
|
|
0
|
|
44,864
|
|
67,296
|
|
|
|
|
2,450,004
|
|
||||
RSR
|
2/15/2012
|
|
|
|
|
|
|
|
17,603
|
|
|
|
1,050,019
|
|
|||||||
Gary W. Ervin
|
Incentive Plan
|
|
0
|
|
850,080
|
|
1,700,160
|
|
|
|
|
|
|
|
|
|
|||||
Corporate Vice
President and
President, Aerospace Systems
|
2012 RPSR (modification) (6)
|
7/19/2012
|
|
|
|
|
0
|
|
31,334
|
|
47,001
|
|
|
|
|
2,209,407
|
|
||||
2011 RPSR (modification) (6)
|
7/19/2012
|
|
|
|
|
0
|
|
4,682
|
|
9,364
|
|
|
|
|
399,000
|
|
|||||
RPSR
|
2/15/2012
|
|
|
|
|
0
|
|
51,273
|
|
76,910
|
|
|
|
|
2,799,997
|
|
|||||
RSR
|
2/15/2012
|
|
|
|
|
|
|
|
20,117
|
|
|
|
1,199,979
|
|
|||||||
James F. Pitts
|
Incentive Plan
|
|
0
|
|
850,081
|
|
1,700,162
|
|
|
|
|
|
|
|
|
|
|||||
Corporate Vice
President and
President, Electronic Systems
|
2012 RPSR (modification) (6)
|
7/19/2012
|
|
|
|
|
0
|
|
32,046
|
|
48,069
|
|
|
|
|
2,259,611
|
|
||||
2011 RPSR (modification) (6)
|
7/19/2012
|
|
|
|
|
0
|
|
5,618
|
|
11,236
|
|
|
|
|
478,766
|
|
|||||
RPSR
|
2/15/2012
|
|
|
|
|
0
|
|
48,068
|
|
72,102
|
|
|
|
|
2,624,973
|
|
|||||
RSR
|
2/15/2012
|
|
|
|
|
|
|
|
18,860
|
|
|
|
1,124,999
|
|
|||||||
Linda A. Mills
|
Incentive Plan
|
|
0
|
|
775,050
|
|
1,550,100
|
|
|
|
|
|
|
|
|
|
|||||
Corporate Vice
President and
President, Information Systems
|
RSR
|
12/18/2012
|
|
|
|
|
|
|
|
7,298
|
|
|
|
499,986
|
|
||||||
RPSR
|
2/15/2012
|
|
|
|
|
0
|
|
44,864
|
|
67,296
|
|
|
|
|
2,450,004
|
|
|||||
RSR
|
2/15/2012
|
|
|
|
|
|
|
|
17,603
|
|
|
|
1,050,019
|
|
(1)
|
Amounts in these columns show the range of payouts that were possible under the Company's annual incentive plan. The actual bonuses are shown in the Summary Compensation Table column entitled "Non-Equity Incentive Plan Compensation."
|
COMPENSATION DISCUSSION AND ANALYSIS | G
RANTS
O
F
P
LAN
-B
ASED
A
WARDS
T
ABLE
|
(2)
|
The Company did not grant stock options in 2012.
|
(3)
|
These amounts relate to RPSRs granted in 2012 under the 2011 Long-Term Incentive Stock Plan. Each RPSR represents the right to receive a share of the Company's common stock upon vesting of the RPSR. The RPSRs are earned based on relative TSR over a three-year performance period commencing January 1, 2012 and ending December 31, 2014. The payout will occur in early 2015 and will range from 0% to 150% of the rights awarded. Earned RPSRs may be paid in shares, cash or a combination of shares and cash. An executive must remain employed through the performance period to earn an award, although pro-rata vesting results if employment terminates earlier due to retirement, death or disability. See the Severance Program section for treatment of RPSRs in these situations and upon a change in control. The values reflect the grant value resulting from the modification of the RPSR grants for Messrs. Ervin and Pitts relating to continued vesting of the RPSRs following their retirement from the Company.
|
(4)
|
These amounts relate to RSRs granted in 2012 under the 2011 Long-Term Incentive Stock Plan. Each RSR represents the right to receive a share of the Company's common stock upon vesting of the RSR. An executive must remain employed through a vesting period to earn an award, although full vesting results from death, disability, qualifying termination or mandatory retirement. The award is prorated if the executive terminates due to early retirement. Earned RSRs may be paid in either shares, cash or a combination of shares and cash. See the Severance Program section for treatment of RSRs in these situations and upon a change in control.
|
(5)
|
For assumptions used in calculating the grant date fair value per share, see the discussion in Note 14 of the Company's 2012 Form 10-K, adjusted to exclude forfeitures.
|
(6)
|
These amounts relate to the modification of RPSRs that were granted in 2011 and 2012 to provide for vesting following retirement, subject to compliance with a non-compete agreement. Pursuant to SEC rules, these are reported as new grants of the awards. The grant date fair value reported reflects the incremental value of the award immediately after the modification over the fair value immediately before the modification. The fair value of the 2012 RPSRs at their date of grant is reported on a separate line in the table.
|
COMPENSATION DISCUSSION AND ANALYSIS | O
UTSTANDING
E
QUITY
A
WARDS
T
ABLE
|
|
|
Option Awards
|
|
Stock Awards
|
|||||||||||||||||
Name & Principal
Position
|
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(1)
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(1)
|
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
(#)
|
Grant
Date
|
Option
Exercise
Price
($)
|
Options
Expiration
Date
|
|
Number of
Shares or
Units of
Stock that
Have Not
Vested
(#) (2)
|
Market
Value of
Shares or
Units of
Stock that
Have Not
Vested
($) (3)
|
Equity
Incentive
Plan Awards:
Number of
Unearned Shares,
Units, or
Other
Rights that Have
Not Vested (#) (4)
|
Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares, Units, or
Other Rights that
Have Not
Vested
($) (3)
|
|||||||||
Wesley G. Bush
|
|
0
|
|
0
|
|
0
|
|
2/15/2012
|
|
|
|
40,235
|
|
2,719,081
|
|
102,546
|
|
6,930,059
|
|
||
Chairman, Chief
Executive
Officer
and President
|
|
95,620
|
|
191,242
|
|
0
|
|
2/15/2011
|
63.22
|
|
2/15/2018
|
|
67,415
|
|
4,555,906
|
|
67,415
|
|
4,555,906
|
|
|
0
|
|
228,628
|
|
0
|
|
2/16/2010
|
54.46
|
|
2/16/2017
|
|
0
|
|
0
|
|
119,931
|
|
8,104,937
|
|
|||
183,150
|
|
0
|
|
0
|
|
2/27/2008
|
73.90
|
|
2/27/2015
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
70,000
|
|
0
|
|
0
|
|
2/28/2007
|
65.70
|
|
2/28/2017
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
59,063
|
|
0
|
|
0
|
|
2/15/2006
|
59.52
|
|
2/15/2016
|
59,063
|
|
0
|
|
0
|
|
0
|
|
0
|
|
||
James F. Palmer
|
|
0
|
|
0
|
|
0
|
|
2/15/2012
|
|
|
|
17,603
|
|
1,189,611
|
|
44,864
|
|
3,031,909
|
|
||
Corporate Vice
President and
Chief
Financial
Officer
|
|
23,905
|
|
47,810
|
|
0
|
|
2/15/2011
|
63.22
|
|
2/15/2018
|
|
16,853
|
|
1,138,926
|
|
16,853
|
|
1,138,926
|
|
|
0
|
|
283,066
|
|
0
|
|
2/16/2010
|
54.46
|
|
2/16/2017
|
|
45,938
|
|
3,104,490
|
|
34,562
|
|
2,335,700
|
|
|||
0
|
|
48,710
|
|
0
|
|
2/16/2010
|
54.46
|
|
2/16/2017
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
89,524
|
|
0
|
|
0
|
|
2/27/2008
|
73.90
|
|
2/27/2015
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
43,750
|
|
0
|
|
0
|
|
3/12/2007
|
67.50
|
|
3/12/2017
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
Gary W. Ervin
|
|
0
|
|
0
|
|
0
|
|
2/15/2012
|
|
|
|
20,117
|
|
1,359,507
|
|
51,273
|
|
3,465,029
|
|
||
Corporate Vice
President and President,
Aerospace Systems
|
|
23,905
|
|
47,810
|
|
0
|
|
2/15/2011
|
63.22
|
|
2/15/2018
|
|
16,853
|
|
1,138,926
|
|
16,853
|
|
1,138,926
|
|
|
0
|
|
0
|
|
0
|
|
2/15/2011
|
63.22
|
|
2/15/2018
|
|
20,224
|
|
1,366,738
|
|
0
|
|
0
|
|
|||
97,416
|
|
48,710
|
|
0
|
|
2/16/2010
|
54.46
|
|
2/16/2017
|
|
0
|
|
0
|
|
34,562
|
|
2,335,700
|
|
|||
56,985
|
|
0
|
|
0
|
|
2/27/2008
|
73.90
|
|
2/27/2015
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
16,406
|
|
0
|
|
0
|
|
9/19/2007
|
73.02
|
|
9/19/2017
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
James F. Pitts
|
|
0
|
|
0
|
|
0
|
|
2/15/2012
|
|
|
|
18,860
|
|
1,274,559
|
|
48,068
|
|
3,248,435
|
|
||
Corporate Vice President
and President,
Electronic Systems
|
|
23,905
|
|
47,810
|
|
0
|
|
2/15/2011
|
63.22
|
|
2/15/2018
|
|
16,853
|
|
1,138,926
|
|
16,853
|
|
1,138,926
|
|
|
|
97,416
|
|
48,710
|
|
0
|
|
2/16/2010
|
54.46
|
|
2/16/2017
|
|
0
|
|
0
|
|
34,562
|
|
2,335,700
|
|
||
137,869
|
|
0
|
|
0
|
|
2/17/2009
|
41.14
|
|
2/17/2016
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
73,282
|
|
0
|
|
0
|
|
2/27/2008
|
73.90
|
|
2/27/2015
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
39,375
|
|
0
|
|
0
|
|
2/28/2007
|
65.70
|
|
2/28/2017
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
43,750
|
|
0
|
|
0
|
|
2/15/2006
|
59.52
|
|
2/15/2016
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
13,125
|
|
0
|
|
0
|
|
10/1/2005
|
49.70
|
|
10/1/2015
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
19,687
|
|
0
|
|
0
|
|
6/14/2004
|
47.99
|
|
6/14/2014
|
|
0
|
|
0
|
|
0
|
|
0
|
|
|||
Linda A. Mills
|
|
0
|
|
0
|
|
0
|
|
12/18/2012
|
|
|
|
7,298
|
|
493,199
|
|
0
|
|
0
|
|
||
Corporate Vice President and President, Information Systems
|
|
0
|
|
0
|
|
0
|
|
2/15/2012
|
|
|
|
17,603
|
|
1,189,611
|
|
44,864
|
|
3,031,909
|
|
||
|
21,514
|
|
43,030
|
|
0
|
|
2/15/2011
|
63.22
|
|
2/15/2018
|
|
15,168
|
|
1,025,053
|
|
15,168
|
|
1,025,053
|
|
||
|
89,468
|
|
44,736
|
|
0
|
|
2/16/2010
|
54.46
|
|
2/16/2017
|
|
0
|
|
0
|
|
31,719
|
|
2,143,570
|
|
||
|
91,869
|
|
0
|
|
0
|
|
2/17/2009
|
41.14
|
|
2/17/2016
|
|
0
|
|
0
|
|
0
|
|
0
|
|
||
|
48,836
|
|
0
|
|
0
|
|
2/27/2008
|
73.90
|
|
2/27/2015
|
|
0
|
|
0
|
|
0
|
|
0
|
|
(1)
|
Stock option vesting and terms - The Company did not grant stock options in 2012. Options awarded through 2007 vested at a rate of 25% per year on the grant's anniversary date over the first four years of the ten-year option term. Options awarded after 2007 vest at a rate of 33 1/3% per year on the grant's anniversary date over the first three years of the seven-year option term. In 2010, Mr. Palmer received a retention award of 283,066 options that vest 50% three years from date of grant and 50% four years from date of grant. The options have a seven-year term.
|
(2)
|
Restricted Stock Rights - Outstanding RSRs vest as follows: Mr. Palmer's outstanding retention grant of 45,938 shares will vest on February 16, 2014. RSRs granted in 2011 will fully vest from date of grant on February 15, 2015.
|
(3)
|
Market Value or Payout Value - The value listed is based on the closing price of the Company's stock of $67.58 on December 31, 2012, the last trading day of the year.
|
COMPENSATION DISCUSSION AND ANALYSIS | O
UTSTANDING
E
QUITY
A
WARDS
T
ABLE
|
(4)
|
Restricted Performance Stock Rights - The 2012 RPSR award for each NEO vests based on performance for the three-year performance period ending on December 31, 2014. The 2011 RPSR award vests based on performance for the three-year performance period ending on December 31, 2013. The 2010 RPSR award vested based on performance for the three-year performance period ended on December 31, 2012. In each case, settlement of the award is subject to certification by the Compensation Committee.
|
COMPENSATION DISCUSSION AND ANALYSIS | O
PTION
E
XERCISES
AND
S
TOCK
V
ESTED
T
ABLE
|
|
|
Option Awards (1)
|
|
Stock Awards (1)
|
||||||||
Name & Principal Position
|
|
Number of
Shares Acquired
on Exercise
(#)
|
|
Value
Realized on
Exercise
($)
|
|
Number of
Shares Acquired
on Vesting
(#)
|
|
Value
Realized on
Vesting
($)
|
||||
Wesley G. Bush
|
|
910,181
|
|
|
14,802,707
|
|
|
100,188
|
|
|
6,032,368
|
|
Chairman, Chief Executive Officer and President
|
|
|
|
|
|
|
|
|
||||
James F. Palmer
|
|
273,566
|
|
|
4,697,182
|
|
|
49,000
|
|
|
2,950,290
|
|
Corporate Vice President and
Chief Financial Officer
|
|
|
|
|
|
|
|
|
||||
Gary W. Ervin
|
|
119,119
|
|
|
2,394,210
|
|
|
38,324
|
|
|
2,307,536
|
|
Corporate Vice President and
President, Aerospace Systems
|
|
|
|
|
|
|
|
|
||||
James F. Pitts
|
|
16,406
|
|
|
126,873
|
|
|
38,324
|
|
|
2,307,536
|
|
Corporate Vice President and
President, Electronic Systems
|
|
|
|
|
|
|
|
|
||||
Linda A. Mills
|
|
46,000
|
|
|
783,260
|
|
|
38,324
|
|
|
2,307,536
|
|
Corporate Vice President and
President, Information Systems
|
|
|
|
|
|
|
|
|
(1)
|
Number of shares and amounts reflected in the table are reported on an aggregate basis and do not reflect shares that were sold or withheld to pay withholding taxes and/or the option exercise price.
|
COMPENSATION DISCUSSION AND ANALYSIS | P
ENSION
B
ENEFITS
|
Name & Principal Position
|
|
Plan Name
|
|
Number of
Years
Credited
Service (#)
|
|
|
|
Present Value of
Accumulated
Benefit (1)
($)
|
|
Payments
During Last
Fiscal Year
($)
|
|||
Wesley G. Bush
|
|
Pension Plan (3)
|
|
10.00
|
|
|
|
|
482,285
|
|
|
|
|
Chairman, Chief Executive Officer and
|
|
S&MS Pension Plan (2)
|
|
15.67
|
|
|
|
|
526,092
|
|
|
|
|
President
|
|
ERISA 2 (3)
|
|
10.00
|
|
|
|
|
7,642,245
|
|
|
|
|
|
|
SRIP (2)
|
|
15.67
|
|
|
|
|
7,666,292
|
|
|
|
|
|
|
OSERP (4)(5)
|
|
25.67
|
|
|
|
|
6,015,020
|
|
|
|
|
James F. Palmer
|
|
Pension Plan (3)
|
|
5.83
|
|
|
|
|
191,848
|
|
|
|
|
Corporate Vice President and
|
|
ERISA 2 (3)
|
|
5.83
|
|
|
|
|
1,242,820
|
|
|
|
|
Chief Financial Officer
|
|
CPC SERP (5)
|
|
5.83
|
|
|
|
|
2,873,089
|
|
|
|
|
|
|
SRRP (5)
|
|
N/A
|
|
|
|
|
1,717,994
|
|
|
103,584
|
|
Gary W. Ervin
|
|
Pension Plan (3)
|
|
11.33
|
|
|
|
|
375,983
|
|
|
|
|
Corporate Vice President and
|
|
ERISA 2 (3)
|
|
11.33
|
|
|
|
|
2,235,645
|
|
|
|
|
President, Aerospace Systems
|
|
CPC SERP (5)
|
|
5.33
|
|
|
|
|
1,687,917
|
|
|
|
|
James F. Pitts
|
|
Pension Plan (3)
|
|
39.54
|
|
|
|
|
1,342,778
|
|
|
|
|
Corporate Vice President and
|
|
ERISA 2 (3)
|
|
9.50
|
|
|
|
|
2,405,457
|
|
|
|
|
President, Electronic Systems
|
|
CPC SERP (5)
|
|
7.25
|
|
|
|
|
2,074,188
|
|
|
|
|
|
|
ESEPP (5)
|
|
39.54
|
|
|
|
|
8,931,122
|
|
|
|
|
Linda A. Mills
|
|
S&MS Pension Plan (3)
|
|
33.58
|
|
|
|
|
1,573,481
|
|
|
|
|
Corporate Vice President and
|
|
SRIP (3)
|
|
33.58
|
|
|
|
|
7,963,858
|
|
|
|
|
President, Information Systems
|
|
CPC SERP (5)
|
|
4.92
|
|
|
|
|
2,206,839
|
|
|
|
(1)
|
Amounts are calculated using the following assumptions:
|
▪
|
The NEO retired on the earliest date he/she could receive an unreduced benefit under each plan;
|
▪
|
The form of payment is single life annuity; and
|
▪
|
The discount rate is 4.10% for the Pension Plan, 4.21% for the S&MS Pension Plan and 4.12% for all others; the mortality table is the RP-2000 projected 18 years without collar adjustment (the same assumptions used for the Company's financial statements).
|
(2)
|
Service is frozen and all pay updates cease December 31, 2014.
|
(3)
|
Final average pay updates cease December 31, 2014.
|
(4)
|
Mr. Bush relinquished his CPC SERP benefit and instead participates in the OSERP.
|
(5)
|
Plan benefit is frozen on or before December 31, 2014 (depending on the plan).
|
COMPENSATION DISCUSSION AND ANALYSIS | P
ENSION
B
ENEFITS
|
Feature
|
|
NGR Subplan
|
|
ES Subplan
|
|
S&MS Pension
Plan
|
|
|
|
|
|||
Benefit Formula
|
|
Final Average Pay x 1.6667% times Pre-July 1, 2003 service
|
|
Eligible Pay since
1995 x 2% plus the prior Westinghouse Pension Plan benefit
|
|
(Final Average Pay x 1.5% minus Covered Compensation x
0.4%) times Pre- January 1, 2005 service
|
Final Average Pay
|
|
Average of highest 3 years of Eligible Pay
|
|
Not applicable
|
|
Average of the highest 5
consecutive years of Eligible Pay Covered Compensation is
specified by the IRS
|
Eligible Pay (limited by Code section 401(a)(17))
|
|
Salary plus bonus
|
|
Salary plus bonus (50% of bonus
through 2001)
|
|
Salary plus bonus
|
Normal Retirement
|
|
Age 65
|
|
Age 65
|
|
Age 65
|
Early Retirement
|
|
Age 55 with 10 years of service
|
|
Age 58 with 30 years of service
or age 60 with 10 years of service
|
|
Age 55 with 10 years of service
|
Early Retirement Reduction (for retirements occurring between Early Retirement and Normal Retirement)
|
|
Benefits are reduced for commencement prior to the earlier of age 65 and 85 points (age + service)
|
|
Benefits are reduced for
commencement prior to age 60
|
|
Benefits are reduced for
commencement prior to age 60
|
COMPENSATION DISCUSSION AND ANALYSIS | P
ENSION
B
ENEFITS
|
▪
|
Pay credits are a percentage of pay that vary based on an employee's "points" (age plus service). The range of percentages applicable to the NEOs on December 31, 2012 was: 6.5% – 9%. Employees, including the NEOs, also received an additional 4% pay credit for pay above the social security wage base through December 31, 2012. Beginning January 1, 2013, the additional 4% pay credit for pay above the social security wage base was eliminated.
|
▪
|
Interest is credited at the 30-year U.S. Treasury bond rate. The December 31, 2012 interest credit rate was 2.77%.
|
▪
|
Eligible pay is salary plus bonus, as limited by Code section 401(a)(17).
|
▪
|
Eligibility for early retirement occurs at age 55 with 10 years of service. Benefits may be reduced if commenced prior to Normal Retirement Age (65).
|
Feature
|
|
CPC SERP
|
|
OSERP
|
|
ESEPP
|
|
|
|
|
|||
Benefit Formula
|
|
Greater of CPC Formula and OSERP Formula
CPC Formula is:
Final Average Pay times 3.3334% for each year that the NEO has served on the CPC up to 10 years, 1.5% for each subsequent year up to 20 years and 1% for each additional year over 20
|
|
Final Average Pay times 2% for each year of service up to 10 years, 1.5% for each subsequent year up to 20 years, and 1% for each additional year over 20 and less than 45
|
|
Final Average Pay times 1.47% for each year that the NEO made maximum contributions to the ES Subplan
|
Final Average Pay
|
|
Average of highest 3 years of Eligible Pay
|
|
Average of highest
3 years of Eligible Pay
|
|
Average of highest
5 years of Eligible Pay
|
Eligible Pay
|
|
Salary and bonus (including amounts above Code limits and amounts deferred)
|
|
Salary and bonus (including amounts above Code limits
and amounts deferred)
|
|
Salary and bonus averaged separately (including amounts above Code limits and amounts
deferred)
|
Normal Retirement
|
|
Age 65
|
|
Age 65
|
|
Age 65
|
Early Retirement
|
|
Age 55 with 10 years of service
|
|
Age 55 with 10 years of service
|
|
Age 58 with 30 years of service or
Age 60 with 10 years of service
|
Early Retirement
Reduction
|
|
Benefits are reduced for commencement prior to the earlier of age 65 and 85 points (age + service)
|
|
Benefits are reduced for commencement prior to the earlier
of age 65 and 85 points (age + service)
|
|
Benefits are reduced for
commencement prior to age 60
|
Reductions From Other Plans
|
|
Reduced by any other Company pension benefits accrued during period of CPC service
|
|
Reduced by any other Company
pension benefits
|
|
Reduced by ES Subplan and ERISA 2 benefits
|
▪
|
If Mr. Palmer had retired on December 31, 2012, his annual CPC SERP and ERISA 2 benefits are estimated to be $299,647 (commencing January 1, 2013). His qualified plan benefits payable from the Pension Plan could not commence until Mr. Palmer attains age 65.
|
▪
|
Mr. Pitts retired on December 31, 2012. His total annual benefit amount as of December 31, 2012 (commencing January 1, 2013), combined for all pension plans, is $1,062,500 plus a supplemental benefit payable from retirement to age 62 of $4,326.
|
COMPENSATION DISCUSSION AND ANALYSIS | P
ENSION
B
ENEFITS
|
▪
|
If Ms. Mills had retired on December 31, 2012, her total annual benefit amount as of December 31, 2012 (commencing January 1, 2013), combined for all pension plans, is estimated to be $833,451.
|
▪
|
If Mr. Ervin had retired on December 31, 2012, his total annual benefit amount as of December 31, 2012 (commencing January 1, 2013), combined for all pension plans, is estimated to be $372,015.
|
COMPENSATION DISCUSSION AND ANALYSIS | N
ONQUALIFIED
D
EFERRED
C
OMPENSATION
|
Name & Principal Position
|
|
Plan Name
|
|
Executive
Contributions
in Last FY (1)
($)
|
|
Registrant
Contributions
in Last FY (2)
($)
|
|
Aggregate
Earnings
in Last FY (3)
($)
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
Aggregate
Balance at
Last FYE (4)
($)
|
|||||
Wesley G. Bush
|
|
Deferred Compensation
|
|
0
|
|
|
0
|
|
|
249,877
|
|
|
0
|
|
|
1,765,423
|
|
Chairman, Chief
Executive Officer and
President
|
|
Savings Excess
|
|
422,210
|
|
|
211,105
|
|
|
420,758
|
|
|
0
|
|
|
4,134,499
|
|
James F. Palmer
|
|
Deferred Compensation
|
|
0
|
|
|
0
|
|
|
95,880
|
|
|
0
|
|
|
662,171
|
|
Corporate Vice President
and Chief Financial
Officer
|
|
Savings Excess
|
|
185,008
|
|
|
74,325
|
|
|
319,066
|
|
|
0
|
|
|
2,370,710
|
|
Gary W. Ervin
|
|
Deferred Compensation
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Corporate Vice President
and President,
Aerospace Systems
|
|
Savings Excess
|
|
148,006
|
|
|
74,003
|
|
|
188,462
|
|
|
0
|
|
|
2,240,540
|
|
James F. Pitts
|
|
Deferred Compensation
|
|
0
|
|
|
0
|
|
|
41,695
|
|
|
0
|
|
|
564,807
|
|
Corporate Vice President
and President, Electronic
Systems
|
|
Savings Excess
|
|
360,016
|
|
|
72,003
|
|
|
82,420
|
|
|
0
|
|
|
1,161,740
|
|
Linda A. Mills
|
|
Deferred Compensation
|
|
0
|
|
|
0
|
|
|
135,298
|
|
|
0
|
|
|
1,144,502
|
|
Corporate Vice President
and President,
Information Systems
|
|
Savings Excess
|
|
586,268
|
|
|
69,285
|
|
|
267,296
|
|
|
0
|
|
|
2,600,973
|
|
(1)
|
NEO contributions in this column are also included in the 2012 Summary Compensation Table, under the columns entitled "Salary" and "Non-Equity Incentive Plan Compensation."
|
(2)
|
Company contributions in this column are included in the 2012 Summary Compensation Table, under the column entitled "All Other Compensation."
|
(3)
|
Aggregate earnings in the last fiscal year are not included in the 2012 Summary Compensation Table, because they are not above market or preferential.
|
(4)
|
NEO and Company contributions in this column are also included in the Summary Compensation Table. Aggregate earnings in this column are not included in the 2012 Summary Compensation Table, as they are not above market. Employee contributions for each of the NEOs as of December 31, 2012 were as follows:
|
▪
|
Mr. Bush's Savings Excess Plan account balance consists of $3,072,652 in employee contributions, as adjusted for investment returns.
|
▪
|
Mr. Palmer's SEP account balance consists of $1,995,155 in employee contributions, as adjusted for investment returns.
|
▪
|
Mr. Ervin's SEP account balance consists of $1,850,405 in employee contributions, as adjusted for investment returns.
|
▪
|
Mr. Pitts' SEP account balance consists of $918,033 in employee contributions, as adjusted for investment returns.
|
▪
|
Ms. Mills' SEP account balance consists of $2,272,258 in employee contributions, as adjusted for investment returns.
|
▪
|
"Deferred Compensation" is the Northrop Grumman Deferred Compensation Plan. This plan was closed to future contributions at the end of 2010. Before 2011, eligible executives were allowed to defer a portion of their salary and bonus. No Company contributions were made to the plan.
|
▪
|
"Savings Excess" or "SEP" is the Northrop Grumman Savings Excess Plan. This plan allows the NEOs and other eligible employees to defer up to 75% of their salary and bonus beyond the compensation limits of the tax qualified plans and receive a Company matching contribution of up to 4%. The lifetime maximum amount of combined NEO and Company contributions under this plan is limited to $5,000,000 per NEO.
|
COMPENSATION DISCUSSION AND ANALYSIS | S
EVERANCE
P
ROGRAM
|
▪
|
involuntary termination, other than for cause or mandatory retirement; or
|
▪
|
election to terminate in lieu of accepting a downgrade to a non-officer position.
|
▪
|
the Severance Plan;
|
▪
|
the 2001 Long-Term Incentive Stock Plan, 2011 Long-Term Incentive Stock Plan and the terms and conditions of equity awards made pursuant to such plans; and
|
▪
|
the Special Officer Retiree Medical Plan.
|
COMPENSATION DISCUSSION AND ANALYSIS | S
EVERANCE
P
ROGRAM
|
|
|
Stock Options
|
|
RSRs
|
|
RPSRs
|
|
|
||||
Name and Principal Position
|
|
Acceleration
of Vesting
($)
|
|
Acceleration
of Vesting
($)
|
|
Prorated
Payment
($)
|
|
Total
($)
|
||||
Wesley G. Bush
Chairman, Chief Executive Officer and President
|
|
3,833,414
|
|
|
7,274,987
|
|
|
5,347,268
|
|
|
16,455,669
|
|
James F. Palmer (1)
Corporate Vice President and Chief Financial Officer
|
|
4,561,340
|
|
|
5,433,027
|
|
|
1,769,853
|
|
|
11,764,220
|
|
Gary W. Ervin
Corporate Vice President and President, Aerospace Systems
|
|
847,514
|
|
|
3,865,171
|
|
|
1,914,271
|
|
|
6,626,956
|
|
James F. Pitts
Corporate Vice President and President, Electronic Systems
|
|
847,514
|
|
|
2,413,485
|
|
|
1,842,028
|
|
|
5,103,027
|
|
Linda A. Mills
Corporate Vice President and President, Information Systems
|
|
774,534
|
|
|
2,707,863
|
|
|
1,693,960
|
|
|
5,176,357
|
|
(1)
|
Under the terms of his offer letter, Mr. Palmer would also receive a lump-sum payment of approximately $1,722,200 for the present value of his monthly benefit under the Supplemental Retirement Replacement Plan.
|
COMPENSATION DISCUSSION AND ANALYSIS | S
EVERANCE
P
ROGRAM
|
Executive Benefits
|
|
Voluntary
Termination
($)
|
|
Involuntary
Termination
Not For Cause (2)
($)
|
|
Post-CIC
Involuntary
or Good Reason
Termination
($)
|
|
Death or
Disability (3)
($)
|
||||
Salary
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Short-term Incentives
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Long-term Incentives (1)
|
|
0
|
|
|
0
|
|
|
16,455,669
|
|
|
16,038,761
|
|
Benefits and Perquisites
|
|
|
|
|
|
|
|
|
||||
Retiree Medical and Life Insurance (2)
|
|
462,053
|
|
|
462,053
|
|
|
462,053
|
|
|
462,053
|
|
Medical/Dental Continuation (3)
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
(1)
|
Long-term Incentives include grants of RPSRs, stock options and RSRs. Results in a benefit under Voluntary Termination only if eligible for retirement treatment under the terms and conditions of the grants (age 55 with 10 years of service).
|
(2)
|
Similar treatment provided for certain "good reason" terminations, as described above. However, there would be no termination payment in the event of an involuntary termination for cause.
|
(3)
|
Retiree medical value reflects cost associated with disability. If termination results from death, the retiree medical insurance expense would be less than the disability amount indicated.
|
Executive Benefits
|
|
Voluntary
Termination
($)
|
|
Involuntary
Termination
Not For Cause (2)
($)
|
|
Post-CIC
Involuntary
or Good Reason
Termination
($)
|
|
Death or
Disability (3)
($)
|
||||
Salary
|
|
0
|
|
|
1,275,122
|
|
|
0
|
|
|
0
|
|
Short-term Incentives
|
|
0
|
|
|
1,275,122
|
|
|
0
|
|
|
0
|
|
Long-term Incentives (1)
|
|
0
|
|
|
0
|
|
|
11,764,219
|
|
|
9,803,080
|
|
Benefits and Perquisites
|
|
|
|
|
|
|
|
|
||||
Retiree Medical and Life Insurance (3)
|
|
229,699
|
|
|
229,699
|
|
|
229,699
|
|
|
229,699
|
|
Medical/Dental Continuation
|
|
0
|
|
|
29,975
|
|
|
0
|
|
|
0
|
|
Financial Planning/Income Tax
|
|
0
|
|
|
15,000
|
|
|
0
|
|
|
0
|
|
Outplacement Services
|
|
0
|
|
|
127,512
|
|
|
0
|
|
|
0
|
|
(1)
|
Long-term Incentives include grants of RPSRs, stock options and RSRs. Results in a benefit under Voluntary Termination only if eligible for retirement treatment under the terms and conditions of the grants (age 55 with 10 years of service).
|
(2)
|
Similar treatment provided for certain "good reason" terminations, as described above. However, there would be no termination payment in the event of an involuntary termination for cause.
|
(3)
|
Retiree medical value reflects cost associated with disability. If termination results from death, the retiree medical insurance expense would be less than the disability amount indicated.
|
COMPENSATION DISCUSSION AND ANALYSIS | S
EVERANCE
P
ROGRAM
|
Executive Benefits
|
|
Early
Retirement
($)
|
|
Involuntary
Termination
Not For Cause (2)
($)
|
|
Post-CIC
Involuntary
or Good Reason
Termination
($)
|
|
Death or
Disability
($)
|
||||
Salary
|
|
0
|
|
|
1,275,120
|
|
|
0
|
|
|
0
|
|
Short-term Incentives
|
|
0
|
|
|
1,275,120
|
|
|
0
|
|
|
0
|
|
Long-term Incentives (1)
|
|
3,589,690
|
|
|
3,589,690
|
|
|
6,626,955
|
|
|
6,522,729
|
|
Benefits and Perquisites
|
|
|
|
|
|
|
|
|
||||
Retiree Medical and Life Insurance
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Medical/Dental Continuation
|
|
0
|
|
|
29,975
|
|
|
0
|
|
|
0
|
|
Financial Planning/Income Tax
|
|
0
|
|
|
15,000
|
|
|
0
|
|
|
0
|
|
Outplacement Services
|
|
0
|
|
|
127,512
|
|
|
0
|
|
|
0
|
|
(1)
|
Long-term Incentives include grants of RPSRs and stock options. Results in a benefit under Voluntary Termination only if eligible for retirement treatment under the terms and conditions of the grants (age 55 with 10 years of service).
|
(2)
|
Similar treatment provided for certain "good reason" terminations, as described above. However, there would be no termination payment in the event of an involuntary termination for cause.
|
Executive Benefits
|
Early
Retirement
($)
|
|
Long-term Incentives (1)
|
6,037,911
|
|
Benefits and Perquisites
|
|
|
Retiree Medical and Life Insurance
|
295,775
|
|
(1)
|
Long-term Incentives include grants of RPSRs, stock options and RSRs. Includes amounts related to the modification of RPSRs that were granted in 2011 and 2012 to provide for vesting following retirement, subject to compliance with a non-compete agreement.
|
COMPENSATION DISCUSSION AND ANALYSIS | S
EVERANCE
P
ROGRAM
|
Executive Benefits
|
|
Early
Retirement
($)
|
|
Involuntary
Termination
Not For Cause (2)
($)
|
|
Post-CIC
Involuntary
or Good Reason
Termination
($)
|
|
Death or
Disability
($)
|
||||
Salary
|
|
0
|
|
|
1,162,575
|
|
|
0
|
|
|
0
|
|
Short-term Incentives
|
|
0
|
|
|
1,162,575
|
|
|
0
|
|
|
0
|
|
Long-term Incentives (1)
|
|
3,203,688
|
|
|
3,203,688
|
|
|
5,176,357
|
|
|
5,082,548
|
|
Benefits and Perquisites
|
|
|
|
|
|
|
|
|
||||
Retiree Medical
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
Medical/Dental Continuation
|
|
0
|
|
|
29,975
|
|
|
0
|
|
|
0
|
|
Financial Planning/Income Tax
|
|
0
|
|
|
15,000
|
|
|
0
|
|
|
0
|
|
Outplacement Services
|
|
0
|
|
|
116,258
|
|
|
0
|
|
|
0
|
|
(1)
|
Long-term Incentives include grants of RPSRs, Stock Options and RSRs. Results in a benefit under Voluntary Termination only if eligible for retirement treatment under the terms and conditions of the grants (age 55 with 10 years of service).
|
(2)
|
Similar treatment provided for certain "good reason" terminations, as described above. However, there would be no termination payment in the event of an involuntary termination for cause.
|
PROPOSAL TWO:
ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
|
▪
|
Earnings per share from continuing operations increased 5% to
$7.81
. Adjusting 2012 and 2011 earnings per share for net FAS/CAS pension income, earnings per share from continuing operations increased 15%.
|
▪
|
Growth in pension-adjusted earnings per share principally reflects the improved performance of our businesses and a lower weighted average share count. These positive trends more than offset the impact of lower revenue and a higher effective tax rate.
|
▪
|
Our businesses generated $121 million more segment operating income, and as a percent of sales, our Segment OM rate expanded 100 basis points to
12.6%
. Our pension-adjusted OM rate also increased 100 basis points to
11.9%
, which represents top-quartile performance in our industry as measured against our Performance Peer Group.
|
▪
|
Before discretionary pension contributions, we generated approximately $2.8 billion of cash from operations and FCF totaled $2.5 billion, or 126% of net income from continuing operations, which represents top-quartile performance as measured against our Performance Peer Group.
|
▪
|
We returned more than $1.8 billion, or 80% of reported free cash flow, to shareholders. We repurchased 20.9 million shares for $1.3 billion and paid $535 million in dividends, which included a 10% increase in our dividend to an annualized rate of $2.20 per share, our ninth consecutive annual dividend increase.
|
▪
|
Our new business awards totaled $26.5 billion, or 1.05 times sales, and our total backlog increased 3% to $40.8 billion.
|
▪
|
Three years ago, we established peer-based financial goals. In 2012, we increased the difficulty of achieving target performance for our financial goals.
|
▪
|
For a second consecutive year, we did not increase the base salaries of our NEOs.
|
▪
|
In response to shareholder preference for full-value equity grants, we did not grant stock options to our executives in 2012. Annual equity grants for NEOs are a mix of RPSRs (performance awards) (70%) measured on relative TSR performance over a three-year period and RSRs (time-vested restricted stock) (30%), which vest at the end of a three-year period.
|
▪
|
Beginning with the 2012 equity grants, we reduced the maximum payout of the RPSR award from 200% to 150% of the RPSR award value granted. These RPSR awards are based on relative TSR performance over the performance period. Even if our relative TSR performance is above peer benchmarks, our payout is capped at 100% if our absolute TSR is negative.
|
▪
|
We established stock ownership guidelines for all officers. The CEO must hold equity value equal to at least seven times his base salary, and the other NEOs must hold equity value equal to at least three times their base salary.
|
▪
|
In addition to individual stock ownership requirements, any grant that was issued in 2010 or after is subject to a mandatory holding period requiring 50% of net shares (after-tax) acquired to be held for three years after the vesting date.
|
▪
|
We have no change in control agreements or tax gross-ups in connection with a change in control.
|
PROPOSAL TWO:
ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
|
PROPOSAL THREE:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR
|
|
|
2012
|
|
2011
|
||||
Audit Fees (a)
|
|
$
|
13,345,000
|
|
|
$
|
13,394,000
|
|
Audit-Related Fees (b)
|
|
770,000
|
|
|
738,500
|
|
||
Tax-Related Fees (c)
|
|
730,000
|
|
|
1,055,000
|
|
||
All Other Fees
|
|
—
|
|
|
—
|
|
||
Total Fees
|
|
$
|
14,845,000
|
|
|
$
|
15,187,500
|
|
(a)
|
Audit fees for 2012 and 2011 each reflect fees of $11,900,000 for the consolidated financial statement audits and include the audit of internal controls pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. Audit fees for 2012 and 2011 also include $1,445,000 and $1,321,000, respectively, for foreign statutory audits. Fees for foreign statutory audits are reported in the year in which the audits are performed. For example, foreign statutory audit fees reported in 2012 relate to audits of the Company's foreign entities for the fiscal year ended 2011. The remaining 2011 audit fees relate to audit services associated with our Form 8-K filing in connection with our presentation of our former shipbuilding business as discontinued operations and our Form S-3 and Form S-8 registration statements.
|
(b)
|
Audit-related fees reflect fees for services that are reasonably related to the performance of the audit or review of the Company's financial statements, including fees related to independent assessment of controls concerning outsourcing activities of $770,000 for 2012 and $690,500 for 2011. The remaining fees for 2011 relate to attestations that are not required by statute or regulations. Audit-related fees exclude fees that totaled $1,346,000 for 2012 and $1,267,000 for 2011 related to benefit plan audits which are paid for by the plans.
|
(c)
|
Tax-related fees during 2012 and 2011 reflect fees of $730,000 and $1,055,000, respectively, for services concerning foreign income tax compliance, foreign Value Added Tax compliance and other tax compliance matters.
|
AUDIT COMMITTEE REPORT
|
PROPOSAL FOUR: SHAREHOLDER PROPOSAL
|
1.
|
Company policy and procedures governing lobbying, both direct and indirect, and grassroots lobbying communications.
|
2.
|
Payments by Northrop Grumman used for (a) direct or indirect lobbying or (b) grassroots lobbying communications, in each case including the amount of the payment and the recipient.
|
3.
|
Northrop Grumman's membership in and payments to any tax-exempt organization that writes and endorses model legislation.
|
4.
|
Description of the decision making process and oversight by management and the Board for making payments described in sections 2 and 3 above.
|
PROPOSAL FOUR: SHAREHOLDER PROPOSAL
|
▪
|
Adding a list of specific ENGPAC contributions for the prior calendar year;
|
▪
|
Adding a list of specific direct political contributions to national level gubernatorial associations for the prior calendar; and
|
▪
|
Adding a list of trade associations to which the Company paid $25,000 or more in annual dues in the prior year, including the portion of the Company's dues that the association has estimated is used for lobbying.
|
PROPOSAL FOUR: SHAREHOLDER PROPOSAL
|
PROPOSAL FIVE: SHAREHOLDER PROPOSAL
|
PROPOSAL FIVE: SHAREHOLDER PROPOSAL
|
▪
|
preside at all meetings of the Board at which the Chair is not present, including executive sessions of the independent directors;
|
▪
|
serve as liaison between the Chair and the independent directors;
|
▪
|
approve meeting agendas and information sent to the Board and advise the Chair on these matters;
|
▪
|
approve the schedule of Board meetings to assure that there is sufficient time for discussion of all agenda items and advise the Chair on these matters;
|
▪
|
call meetings of the independent directors;
|
▪
|
interview, along with the Chair of the Board and the Chair of the Governance Committee, Board candidates and make recommendations to the Committee and the Board; and
|
▪
|
if requested by major shareholders, ensure that he or she is available for consultation and direct communication. Any shareholder can communicate with the Lead Independent Director (or any of the directors) as described on page 14 of this Proxy Statement and on the Company
'
s website.
|
MISCELLANEOUS
|
▪
|
not later than December 6, 2013, if the proposal is submitted for inclusion in the Company's proxy materials for that meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934.
|
▪
|
not earlier than December 6, 2013 and not later than January 5, 2014, if the proposal is submitted pursuant to the Bylaws, but not pursuant to Rule 14a-8, in which case we are not required to include the proposal in our proxy materials.
|
MISCELLANEOUS
|
|
|
Total Year
|
||||||
($M)
|
|
2012
|
|
2011
|
||||
Cash provided by continuing operations before discretionary pension contributions
|
|
$
|
2,833
|
|
|
$
|
2,995
|
|
After-tax discretionary pension pre-funding impact
|
|
(193
|
)
|
|
(648
|
)
|
||
Cash provided by continuing operations
|
|
2,640
|
|
|
2,347
|
|
||
Less:
|
|
|
|
|
||||
Capital expenditures
|
|
(331
|
)
|
|
(492
|
)
|
||
Free cash flow provided by continuing operations
|
|
2,309
|
|
|
1,855
|
|
||
After-tax discretionary pension pre-funding impact
|
|
193
|
|
|
648
|
|
||
Free cash flow provided by continuing operations before discretionary pension contributions
|
|
$
|
2,502
|
|
|
$
|
2,503
|
|
MISCELLANEOUS
|
|
|
Total Year
|
||||||
($M)
|
|
2012
|
|
2011
|
||||
Segment Operating Income
|
|
$
|
3,176
|
|
|
$
|
3,055
|
|
Segment operating margin rate
|
|
12.6
|
%
|
|
11.6
|
%
|
||
Reconciliation to operating income
|
|
|
|
|
||||
Unallocated corporate expenses
|
|
$
|
(168
|
)
|
|
$
|
(166
|
)
|
Net FAS/CAS pension income
|
|
132
|
|
|
400
|
|
||
Other
|
|
(10
|
)
|
|
(13
|
)
|
||
Operating income
|
|
$
|
3,130
|
|
|
$
|
3,276
|
|
Operating margin rate
|
|
12.4
|
%
|
|
12.4
|
%
|
||
|
|
Total Year
|
||||||
($M)
|
|
2012
|
|
2011
|
||||
Pension-adjusted Operating Highlights
|
|
|
|
|
||||
Operating income
|
|
$
|
3,130
|
|
|
$
|
3,276
|
|
Net FAS/CAS pension income
|
|
(132
|
)
|
|
(400
|
)
|
||
Pension-adjusted operating income
|
|
$
|
2,998
|
|
|
$
|
2,876
|
|
Pension-adjusted operating martin rate
|
|
11.9
|
%
|
|
10.9
|
%
|
||
|
|
Total Year
|
||||||
|
|
2012
|
|
2011
|
||||
Pension-adjusted Per Share Data
|
|
|
|
|
||||
Diluted EPS from continuing operations
|
|
$
|
7.81
|
|
|
$
|
7.41
|
|
After-tax net pension adjustment per share
|
|
(0.34
|
)
|
|
(0.92
|
)
|
||
Pension-adjusted diluted EPS from continuing operations
|
|
$
|
7.47
|
|
|
$
|
6.49
|
|
No information found
* THE VALUE IS THE MARKET VALUE AS OF THE LAST DAY OF THE QUARTER FOR WHICH THE 13F WAS FILED.
FUND | NUMBER OF SHARES | VALUE ($) | PUT OR CALL |
---|
DIRECTORS | AGE | BIO | OTHER DIRECTOR MEMBERSHIPS |
---|
No information found
Customers
Customer name | Ticker |
---|---|
Aerojet Rocketdyne Holdings, Inc. | AJRD |
General Dynamics Corporation | GD |
ITT Inc. | ITT |
Lockheed Martin Corporation | LMT |
Raytheon Technologies Corporation | RTX |
Price
Yield
Owner | Position | Direct Shares | Indirect Shares |
---|