DEF 14A 1 d299839ddef14a.htm DEF 14A DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.    )

Filed by the Registrant Filed by a Party other than the Registrant

Check the appropriate box:

 

Preliminary Proxy Statement

 

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

Definitive Proxy Statement

 

Definitive Additional Materials

 

Soliciting Material Pursuant to §240.14a-12

Raytheon Company

 

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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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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LOGO


Table of Contents

LOGO


Table of Contents

April 21, 2017

 

 

 

DEAR RAYTHEON SHAREHOLDER,

On behalf of Raytheon’s Board of Directors and management team, I cordially invite you to attend the Raytheon Company 2017 Annual Meeting of Shareholders on Thursday, May 25, 2017.

In 2016, we continued to effectively execute our long-term global growth strategy. Net sales of $24.1 billion were up 3.5 percent compared to 2015, and marked the company’s best sales growth rate since 2009. Our 2016 bookings were up more than 10 percent year-over-year and reached a new company record of $27.8 billion. This growth positions us well for the future, along with our $36.9 billion total backlog at the end of 2016 — a 6 percent increase from the end of 2015. In 2016, our total shareholder return outperformed the S&P 500 for the sixth consecutive year. By executing world-class operational performance in the delivery of our technologically advanced products and services, we believe we have not only created long-term value for our shareholders, but contributed to making the world a safer place.

A key to our success is the active role the Board plays in overseeing the formulation, planning and implementation of the strategy that drives our performance. In addition to an annual review of Raytheon’s long-term strategy and five-year financial plan, the Board regularly considers the progress of and challenges to Raytheon’s strategy and related risks throughout the year in light of developments in the business environment. Our Board’s focus over the past five years on its composition and refreshment have resulted in a Board composed of directors with an array of skills, attributes and experience well suited to support the company’s strategy and operations over the long term.

An essential complement to Raytheon’s operational and financial performance is our commitment to sound governance and corporate stewardship. Under the Board’s oversight, the company has continued its formal outreach twice each year to engage with shareholders on governance and executive compensation matters. In our latest effort to promote transparency and accountability, this newly revamped proxy statement for 2017 reflects a redesign initiative to make information more accessible and understandable for investors. With our shareholders and other stakeholders in mind, we also continue to approach corporate responsibility strategically by pursuing efforts that can really make a difference and have a lasting impact.

We encourage you to review this proxy statement, and to vote your proxy as soon as possible so that your shares will be represented at the meeting.

Thank you.

 

  LOGO    

 

Sincerely,

 

LOGO

THOMAS A. KENNEDY

Chairman and Chief Executive Officer


Table of Contents

TABLE OF CONTENTS

 

01  

Notice of Annual Meeting of Shareholders

02  

Proxy Summary

07  

Proposal 1: Election of Directors

07  

Nominees for Election

13  

Corporate Governance

13  

Board Leadership Structure

13   Board Role
15   Director Candidate Consideration and Board Refreshment
16   Director Independence
17   Board and Committee Evaluation Process
18   Shareholder Engagement
19   Governance Policies and Practices
20   Director Nominations by Shareholders
21   Director Development and Education
21   Communication with the Board
22   Political Contributions and Lobbying Expenditures Disclosure
22   Governance Documents
23   The Board of Directors and Board Committees
23   Audit Committee
24   Governance and Nominating Committee
24   Management Development and Compensation Committee
25   Public Affairs Committee
25   Special Activities Committee
25   Executive Committee
25   Compensation Committee Interlocks and Insider Participation
26   Proposal 2: Advisory Vote to Approve Named Executive Officer Compensation
27   Executive Compensation
27   Table of Contents
28   Compensation Discussion and Analysis
28   Executive Summary
47   Executive Compensation Tables
59   Proposal 3: Advisory Vote on Frequency of Future Advisory Votes on Executive Compensation
60   Proposal 4: Approval of the Raytheon 2017 Incentive Plan for Section 162(m) Purposes
62   Equity Compensation Plan Information
63   Proposal 5: Ratification of Appointment of PricewaterhouseCoopers LLP
64   Audit Committee Report
65   Independent Auditors: Audit and Non-Audit Fees
66   Director Compensation
66   Determination and Assessment of Director Compensation
66   Elements of Director Compensation
67   Non-Employee Director Total Compensation
68   Director Stock Ownership and Retention Guidelines
68   Policy Against Certain Raytheon Stock Transactions
69   Stock Ownership
69   Five Percent Shareholders
69   Management and Directors
70   Section 16(a) Beneficial Ownership Reporting Compliance
70   Shareholder Proposals
71   General Information
71   Proxies and Voting Procedures
71   Shareholders Entitled to Vote
72   Quorum and Required Vote
73   Tabulation of Votes
73   Multiple Copies of Annual Report to Shareholders
73   Householding Information
73   Important Notice Regarding the Availability of Proxy Materials
74   Electronic Delivery of Future Proxy Materials
74   Cost of Proxy Solicitation
74   Shareholder Account Maintenance
74   Other Matters
A-1   Appendix A: Raytheon 2017 Incentive Plan
 


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    RAYTHEON  |  2017 Proxy Statement     1

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

 

 

 

 

 

ANNUAL MEETING OF SHAREHOLDERS

  

 

The Board of Directors of Raytheon Company is soliciting your proxy for the 2017 Annual Meeting of Shareholders.

 

LIVE AUDIO WEBCAST:

A live audio webcast of the Annual Meeting will be available at www.raytheon.com/ir.

 

RECORD DATE:

Shareholders of record at the close of business on Tuesday, April 4, 2017, are entitled to notice of and to vote at the meeting.

 

PROXY VOTING:

You can vote your shares by completing and returning the proxy card or voting instruction form that you received. Most shareholders also can vote their shares over the Internet or by telephone. Please check your proxy card or the information forwarded by your broker, bank, trust or other holder of record to see which options are available to you. You can revoke a proxy at any time before it is exercised by following the instructions in this proxy statement.

 

LOGO

 

Time:

11:00 a.m.

Eastern Daylight Time

 

  

 

LOGO

 

Date:

Thursday,

May 25, 2017

 

  

 

LOGO

 

Place:

Westfields Marriott Washington Dulles, 14750 Conference Center Drive, Chantilly, Virginia 20151

  

 

 

 

 

LOGO

  In person: If you are a shareholder of record, you may attend the Annual Meeting and vote by ballot. Please bring a valid picture ID. If your shares are held through a broker, bank, trust or other holder of record, you must present an account statement demonstrating that you were a beneficial holder as of the record date, a proxy in your favor from the holder of record, and a valid picture ID.

 

LOGO

  Telephone: If you are a shareholder of record, call the telephone number and follow the instructions on your proxy card or in the email sent to you if you receive notification electronically. If your shares are held through a broker, bank, trust or other holder of record, follow the instructions provided to you by the holder of record if voting via telephone is made available to you.

 

LOGO

  Internet: If you are a shareholder of record, follow the Internet voting instructions on your proxy card or in the email sent to you if you receive notification electronically. If your shares are held through a broker, bank, trust or other holder of record, follow the instructions provided to you by the holder of record if Internet voting is made available to you.

 

LOGO

  Mail: Complete and sign the proxy card or voting instruction form and return it in the enclosed postage pre-paid envelope.

WE WILL BE VOTING ON THE FOLLOWING MATTERS:

 

AGENDA ITEM

  VOTING RECOMMENDATION   MORE INFORMATION

1. Election of ten directors nominated by Raytheon’s Board

  FOR EACH NOMINEE   Page 7  

2. Advisory vote to approve named executive officer compensation

  YES   Page 26

3. Advisory vote on the frequency of future say-on-pay votes

  AN ANNUAL VOTE   Page 59

4. Management proposal to approve incentive plan for Section 162(m) purposes

  YES   Page 60

5. Ratification of the independent auditors

  YES   Page 63


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2    RAYTHEON  |  2017 Proxy Statement    PROXY SUMMARY

 

PROXY SUMMARY

This summary highlights selected information contained in this proxy statement, but it does not contain all the information you should consider. We urge you to read the whole proxy statement before you vote. This proxy statement was first mailed to shareholders on or about April 21, 2017.

WE WILL BE VOTING ON THE FOLLOWING MATTERS:

 

AGENDA ITEM

  VOTING RECOMMENDATION   MORE INFORMATION

1. Election of ten directors nominated by Raytheon’s Board

  FOR EACH NOMINEE   Page 7  

2. Advisory vote to approve named executive officer compensation

  YES   Page 26

3. Advisory vote on the frequency of future say-on-pay votes

  AN ANNUAL VOTE   Page 59

4. Management proposal to approve incentive plan for Section 162(m) purposes

  YES   Page 60

5. Ratification of the independent auditors

  YES   Page 63

 

 

 

                CURRENT COMMITTEE MEMBERSHIPS
       
Independent Directors   Age     Director
Since
    Audit Committee   Governance
and Nominating
Committee
  Management
Development and
Compensation
Committee
  Public Affairs
Committee
  Special Activities
Committee

Tracy A. Atkinson

    52       2014     CHAIR              

Robert E. Beauchamp

    57       2015                  

Vernon E. Clark (Lead Director)

    72       2005                     CHAIR

Stephen J. Hadley

    70       2009         CHAIR        

Letitia A. Long

    58       2015               CHAIR  

George R. Oliver

    56       2013                

Dinesh C. Paliwal

    59       2016                  

Michael C. Ruettgers*

    74       2000                  

William R. Spivey

    70       1999           CHAIR        

James A. Winnefeld, Jr.

    61       2017                  

Inside Director

                                   

Thomas A. Kennedy

    61       2014                      

Number of Meetings in 2016

                  9   9   6   6   7

*Mr. Ruettgers will be retiring from the Board effective May 25, 2017.


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PROXY SUMMARY     RAYTHEON  |  2017 Proxy Statement     3

 

COMPOSITION OF THE BOARD

 

LOGO

*Mr. Ruettgers will be retiring from the Board effective May 25, 2017.

 

 

 

BOARD TENURE AND REFRESHMENT

Our Board represents a balance of long-term members

with in-depth knowledge of our business and new

members who bring valuable attributes, skills, and

experience. The Board has undergone significant

refreshment over the last five years.

Director Nominees

 

LOGO

 

 

DIVERSITY OF SKILLS AND EXPERIENCE

Our Board embodies a broad and diverse set of experiences, qualifications, attributes and skills.

Below are the attributes, skills and experience of our director nominees.

 

LOGO


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4    RAYTHEON  |  2017 Proxy Statement    PROXY SUMMARY

 

OUR 2016 PERFORMANCE

In 2016, Raytheon continued to execute our growth strategy and deliver strong program performance while also maintaining strong operating margins. Our global team built upon Raytheon’s return to growth in 2015, driven by increases in both domestic and international sales. Highlights of our 2016 performance include:

 

 

   

RECORD

BOOKINGS OF

$27.8 BILLION

FOR THE YEAR

  

 

LOGO

   

FULL-YEAR

NET SALES OF

$24.1 BILLION,

UP 3.5% FOR THE YEAR

  

 

LOGO

 

 

 

   

FULL-YEAR EPS FROM

CONTINUING OPERATIONS OF

$7.44

 

  

 

LOGO

   

STRONG OPERATING CASH FLOW

FROM CONTINUING OPERATIONS OF

$2.9 BILLION

FOR THE YEAR

  

 

LOGO

 

 

 

   

13TH

CONSECUTIVE YEAR OF

INTERNATIONAL SALES GROWTH

  

 

LOGO

   

2016 TOTAL SHAREHOLDER

RETURN OF

16.9%

  

 

LOGO

 

 

OUR EXECUTIVE COMPENSATION PROGRAM

Our Management Development and Compensation Committee (MDCC) designed our executive compensation program to attract and retain highly-qualified executives, motivate our executives to achieve our overall business objectives, reward individual performance, and align our executives’ interests with those of our shareholders. Our program’s primary direct compensation elements are base salary, annual cash incentives, and long-term equity incentives. The MDCC focuses on the appropriate mix between fixed and at-risk variable compensation, and short-term cash and long-term equity compensation to provide total direct compensation opportunities that meet our objectives. Our base salaries are competitive and reflect an executive’s experience and scope of responsibilities. Our annual cash incentives and long-term equity incentives motivate and reward Raytheon and individual performance. Our long-term equity incentives also align executives’ interests with those of our shareholders, and help retain highly-qualified executives.


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PROXY SUMMARY     RAYTHEON  |  2017 Proxy Statement     5

 

 

CEO Compensation

 

 

LOGO

Other NEOs (Named Executive Officers) Compensation

 

 

LOGO

 

 

Most of our executives’ compensation is at risk and varies based on performance. Due to Raytheon’s strong 2016 financial performance, our annual cash incentive (RBI) was funded and our long-term equity performance plan (LTPP) paid out above pre-determined targets. Our Named Executive Officers also achieved strong results against their individual performance goals in 2016.

Consistent with our compensation objectives, our Named Executive Officers, or NEOs, received the following compensation in 2016:

 

           Annual Cash Incentive      Long-Term Equity Incentives(1)         
NEO   Salary      RBI      LTPP      Restricted Stock      Total  

Thomas A. Kennedy

Chairman and Chief Executive Officer

  $ 1,299,979      $ 2,938,400      $ 5,000,028      $ 3,899,980      $ 13,138,387  

Anthony F. O’Brien

Vice President and Chief Financial Officer

  $ 608,510      $ 734,400      $ 1,199,945      $ 1,100,001      $ 3,642,856  

David C. Wajsgras

Vice President, and President of Intelligence, Information and Services (IIS)

  $ 971,943      $ 1,052,500      $ 1,250,007      $ 1,300,035      $ 4,574,485  

Richard R. Yuse

Vice President, and President of Space and Airborne Systems (SAS)

  $ 792,506      $ 997,900      $ 1,250,007      $ 1,300,035      $ 4,340,448  

Taylor W. Lawrence

Vice President, and President of Missile Systems (MS)

  $ 728,151      $ 817,900      $ 1,250,007      $ 1,300,035      $ 4,096,093  

 

(1) Reflects the NEO’s restricted stock/unit award and 2016-2018 LTPP award (at target) granted in 2016 based on the number of shares/units multiplied by the closing price of our common stock on the award determination date.

For a complete discussion of our executive compensation program, see the “Compensation Discussion and Analysis” section of this proxy statement.

SHAREHOLDER ENGAGEMENT AND ADVISORY SAY-ON-PAY VOTE

 

We communicate annually with a significant percentage of our shareholders (typically representing over 40% of our shares) on governance and compensation matters. Since 2011, the first year we offered a shareholder advisory say-on-pay vote, Raytheon’s shareholders have consistently voted overwhelmingly for our executive compensation program, with an average of 95.0% voting in favor.

We view this support as an indication of broad shareholder agreement with the philosophy and policies underpinning our executive compensation program.

 

        Votes Cast “FOR” Say-on-Pay Vote

 

LOGO

 

 

 


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6    RAYTHEON  |  2017 Proxy Statement    PROXY SUMMARY

 

GOVERNANCE HIGHLIGHTS

Major elements of our governance profile are summarized below. We discuss most of these matters in greater detail in this proxy statement.

RECENT DEVELOPMENTS

 

  Significant Board Refreshment.
     Two new directors added in the last twelve months; a total of seven added and six departed in the last five years

 

  Proactive Adoption of Proxy Access By-Law in March 2016.
     3% ownership/3-year holding period/cap of 20% of Board (but not less than two directors)

 

  Redesigned Proxy Statement in 2017.
     Proxy statement revamped to be more readable and useful for shareholders

 

INDEPENDENCE

 

•   All non-employee directors are independent

 

•   Independent directors regularly meet in executive session

 

•   Rigorous compensation consultant independence policy

 

     

ALIGNMENT WITH SHAREHOLDER INTERESTS

 

•   Pay-for-performance executive compensation program

 

•   Contemporary stock ownership and retention guidelines for directors and officers

 

•   Prohibition against director and officer hedging of Raytheon stock

 

SHAREHOLDER ACCESS

 

•   Active company outreach and engagement with shareholders throughout the year

 

•   Shareholders may include nominees in Raytheon proxy materials (Proxy Access)

 

•   Shareholders may call special shareholder meetings

 

•   Shareholders may act by written consent

 

     

TRANSPARENCY

 

•   Clear, understandable and detailed financial reporting and proxy statement disclosure

 

•   Extensive voluntary website disclosure regarding Raytheon’s political expenditures and lobbying activities

 

•   Annual Corporate Responsibility Report addressing sustainability, ethics and business conduct, safety and wellness, and community support

 

   

ACCOUNTABILITY

 

•   Annual election of all directors and majority voting in uncontested elections

 

•   Annual shareholder advisory vote to approve named executive officer compensation

 

•   Annual Board evaluation of CEO performance

 

•   Restatement Clawback Policy

 

•   No ‘poison pill’

     

BOARD PRACTICES

 

•   Robust annual Board and committee self-evaluation process, including a mid-year review and independent director discussions in executive session

 

•   Mandatory director retirement at age 74

 

•   Periodic Board review of management succession planning

 

•   Balanced and diverse Board composition

 

•   Limits on outside public company board service

 

   

INDEPENDENT LEAD DIRECTOR

 

•   Fully independent and empowered Lead Director with broadly defined authority and responsibilities

 

•   Position currently held by Vernon E. Clark, Retired Chief of Naval Operations for the U.S. Navy

     

RISK OVERSIGHT

 

•   Regular Board review of enterprise risk management and related policies, processes and controls

 

•   Board committees exercise oversight of risk matters under their purview

 

 

 


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PROPOSAL 1: ELECTION OF DIRECTORS     RAYTHEON  |  2017 Proxy Statement     7

 

PROPOSAL 1:

ELECTION OF DIRECTORS

(Item No. 1 on the Proxy Card)

Raytheon directors are elected annually by the shareholders. The Board has nominated Tracy A. Atkinson, Robert E. Beauchamp, Vernon E. Clark, Stephen J. Hadley, Thomas A. Kennedy, Letitia A. Long, George R. Oliver, Dinesh C. Paliwal, William R. Spivey and James A. Winnefeld, Jr. to serve one-year terms that will expire at the 2018 Annual Meeting of Shareholders. These individuals all currently serve on our Board. Messrs. Paliwal and Winnefeld were first elected by the Board since the last Annual Meeting upon the recommendation of the Governance and Nominating Committee, which was aided by a third-party director recruiting firm.

One of our current directors, Michael C. Ruettgers, will be retiring from the Board effective May 25, 2017, and is not a nominee for election at the forthcoming annual meeting. Mr. Ruettgers has served as a distinguished member of the Board for 17 years. We gratefully acknowledge his dedicated service and numerous contributions to Raytheon.

We introduce our nominees for director below, and explain the experience, qualifications, attributes and skills considered by the Governance and Nominating Committee in support of each individual’s nomination. If elected, the nominees will continue in office until their successors have been duly elected and qualified, or until the earlier of their death, resignation or retirement. We expect each of the nominees will serve if elected. If any nominee is unable or unwilling to serve, the proxies may be voted for a substitute nominee designated by the Board.

NOMINEES FOR ELECTION

 

 

  TRACY A. ATKINSON   EXECUTIVE VICE PRESIDENT, FINANCE, STATE STREET CORPORATION

LOGO

 

Director since 2014

 

Age: 52

 

Committees:

  Audit (Chair)

  Public Affairs

 

Ms. Atkinson provides the Board with significant experience in finance, risk management and related regulatory and compliance matters gained through numerous positions of significant responsibility with State Street and MFS Investment Management. In addition, she has valuable accounting expertise derived from her experience as a certified public accountant and a partner at PricewaterhouseCoopers LLP.

 

 

   Positions with State Street Corporation (financial services firm): Executive Vice President, Finance, since 2010; Treasurer from February 2016 to February 2017; Executive Vice President, Chief Compliance Officer, from 2009 to 2010; Executive Vice President, Chief Compliance Officer, of State Street Global Advisors from 2008 to 2009.

  

 

   Positions with MFS Investment Management (financial services firm): Senior Vice President, Treasurer and Chief Financial Officer, Mutual Funds from 2005 to 2008; Senior Vice President, Chief Risk and New Product Development Officer, from 2004 to 2005.

 

   Partner at PricewaterhouseCoopers LLP from 1999 to 2004.

 

   Affiliations: Director of The Arc of Massachusetts.

 

 

 

 

 

LOGO

 

 

 

FOR

 

  

 

The Board unanimously recommends that shareholders vote FOR each of the nominees for election.

Proxies solicited by the Board will be so voted unless shareholders specify otherwise in their proxies.

 


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8    RAYTHEON  |  2017 Proxy Statement    PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

  ROBERT E. BEAUCHAMP   CHAIRMAN, BMC SOFTWARE, INC.

LOGO

 

Director since 2015

 

Age: 57

 

Committees:

    Audit

    Management Development and Compensation

 

Mr. Beauchamp brings executive leadership experience and valuable commercial software, cybersecurity and information technology expertise to the Board, serving as the Chairman of BMC Software since 2008 and having served as its President and CEO for 15 years. He also has significant experience in strategic planning, global operations and sales, finance, mergers & acquisitions, and risk management gained through various roles of increasing responsibility at BMC Software.

 

 

   Positions at BMC Software, Inc. (provider of business service management software): Chairman since 2016; Chairman, President and CEO from 2008 to 2016; President, CEO and member of the board of directors since 2001.

 

   Variety of leadership roles of increasing responsibility at BMC Software, Inc. since 1988.

 

   Current Directorship: In addition to BMC Software, Inc., Forcepoint, LLC (cybersecurity joint venture company owned by Raytheon Company with Vista Equity Partners) since October 2016.

  

 

   Past Directorship: National Oilwell Varco, Inc. (provider of equipment and services for the oil and gas industry) from 2001 to 2015.

 

    Affiliations: Member, Board of Regents, Baylor University.

 

 

 

 

  VERNON E. CLARK   LEAD DIRECTOR / RETIRED CHIEF OF U.S. NAVAL OPERATIONS

LOGO

 

Director since 2005

 

Lead Director since 2013

 

Age: 72

 

Committees:

    Special Activities (Chair)

 

Admiral Clark delivers deep industry-specific expertise and senior leadership experience in strategic oversight and organizational management gained through his extensive and distinguished service in the U.S. military, including as Chief of Naval Operations and a member of the Joint Chiefs of Staff. He provides the Board with critical strategic and operational insights on the global security environment and the solutions used by and the needs of our core defense customers.

 

 

   Chief of Naval Operations, the senior uniformed executive of the United States Navy, and member of the Joint Chiefs of Staff, from 2000 until retirement in 2005.

 

   37-year career in the United States Navy, serving in various positions of increasing responsibility; assigned as the senior executive in ten different assignments, beginning as a lieutenant commanding a patrol gunboat and concluding as the Chief of
Naval Operations.

  

 

   Current Directorship: Rolls Royce North America (aerospace, marine and energy-related manufacturer) since 2006.

 

   Past Directorship: Horizon Lines, Inc. (ocean shipping and integrated logistics company) from 2007 to 2011.

 

 

 


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PROPOSAL 1: ELECTION OF DIRECTORS     RAYTHEON  |  2017 Proxy Statement     9

 

 

 

 

  STEPHEN J. HADLEY   PRINCIPAL, RICEHADLEYGATES LLC

LOGO

 

Director since 2009

 

Age: 70

 

Committees:

   Governance and Nominating (Chair)

   Management Development and Compensation

   Special Activities

 

Mr. Hadley has substantial national security, international affairs, public policy and legal experience through his extensive career in government, consulting and private legal practice. He provides the Board with unique and diverse perspectives on the global security environment and international affairs, and valuable leadership and experience in the areas of strategic oversight, public policy and regulatory compliance.

 

 

   Principal in RiceHadleyGates LLC (international strategic consulting firm) since 2009.

 

   Assistant to the President for National Security Affairs from 2005 to 2009.

 

   Assistant to the President and Deputy National Security Advisor from 2001 to 2005.

 

   Partner in the Washington, D.C. law firm of Shea & Gardner and a principal in The Scowcroft Group (international consulting firm) from 1993 to 2001.

 

   Current Directorships: The Bessemer Group, Incorporated (financial services holding company) (including service on its Compensation Committee since 2012 and its Audit Committee since 2013), Bessemer Securities Corporation (including service on its Audit Committee since 2011 and Asset Allocation Committee since 2010), and certain related entities (all privately-held financial services companies) since 2009.

 

  

 

   Affiliations: Director (and member of the Executive Committee) of the Atlantic Council of the United States since 2010, and Executive Vice Chair since 2015; Member of the Board of Managers of the Johns Hopkins University Applied Physics Laboratory since 2011; Member of the U.S. Secretary of State’s Foreign Affairs Policy Board since 2011; Chair of the Advisory Board of the RAND Center for Middle East Public Policy since 2011; Member of Yale University’s Kissinger Papers Advisory Board since 2011; Member, Board of Directors, U.S. Institute of Peace since 2013 and Chair since 2014; Member of the Board of Directors of the Council on Foreign Relations since 2015; and Member, International Advisory Board of Robert Bosch GmbH (a German industrial company)
since 2015.

 

 

 

 

 

  THOMAS A. KENNEDY   CHAIRMAN AND CHIEF EXECUTIVE OFFICER

LOGO

 

Director since January 2014

 

Chairman of the Board
since
October 2014

 

Age: 61

 

 

Mr. Kennedy has in-depth knowledge of Raytheon’s business, technology and capabilities, operations and global markets, as well as significant experience in strategic planning, operations, mergers and acquisitions, cybersecurity, engineering and technology, finance, and risk management. He also provides the Board with executive leadership and substantial business experience and deep industry-specific expertise developed while holding roles of increasing responsibility at Raytheon.

 

 

   Positions at Raytheon: Chief Executive Officer since 2014; Executive Vice President and Chief Operating Officer from April 2013 to March 2014; Vice President and President of the Integrated Defense Systems business unit from 2010 to 2013; Vice President of the Tactical Airborne Systems product line within the Space and Airborne Systems business unit from 2007 to 2010; and various other leadership positions during a 34-year career.

  

 

   Current Directorship: Forcepoint, LLC (cybersecurity joint venture company owned by Raytheon Company with Vista Equity Partners) since 2015.

 

   Affiliations: Rutgers University School of Engineering Industry Advisory Board; UCLA School of Engineering Advisory Board; Massachusetts Institute of Technology Industry Advisory Board; and Congressional Medal of Honor Foundation Board.

 

 


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10    RAYTHEON  |  2017 Proxy Statement    PROPOSAL 1: ELECTION OF DIRECTORS

 

 

 

  LETITIA A. LONG   RETIRED DIRECTOR, NATIONAL GEOSPATIAL-INTELLIGENCE AGENCY

LOGO

 

Director since 2015

 

Age: 58

 

Committees:

   Audit

   Public Affairs (Chair)

   Special Activities

 

Ms. Long brings to the Board substantial intelligence, national security and public policy experience developed through numerous roles of increasing responsibility in the U.S. government. Through this experience, combined with her roles on the boards of other companies and organizations, she provides critical insights on global intelligence and security matters and valuable leadership and experience in strategic planning and oversight, public policy, organizational management and technology.

 

 

   Director, National Geospatial-lntelligence Agency from 2010 to 2014.

 

   Deputy Director, Defense Intelligence Agency from 2006 to 2010.

 

   Deputy Under Secretary of Defense (Intelligence) for Policy, Requirements and Resources from 2003 to 2006.

 

   Deputy Director of Naval Intelligence from 2000 to 2003.

 

   32-year career with the United States government holding a series of leadership roles of increasing responsibility.

  

 

   Current Directorships: Urthecast Corporation (provider of video technology for Earth observation) since 2015; and Noblis, Inc. (not-for-profit science, technology and strategy services provider) since 2015.

 

   Affiliations: Member, Virginia Polytechnic Institute and State University School of Public and International Affairs Board of Advisors; Member, United States Geospatial Intelligence Foundation Board; and Board Chair, Intelligence and National Security Alliance.

 

 

 

 

  GEORGE R. OLIVER   PRESIDENT AND CHIEF OPERATING OFFICER, JOHNSON CONTROLS, INC.

LOGO

 

Director since 2013

 

Age: 56

 

Committees:

   Audit

   Management Development and Compensation

   Public Affairs

 

Mr. Oliver provides the Board with executive leadership and substantial global commercial, operational and management experience gained through his leadership roles at three global technology and industrial companies. He also has significant experience in strategic planning, mergers & acquisitions, finance, risk management, technology and governance.

 

 

   President and Chief Operating Officer, and a member of the Board of Directors, of Johnson Controls, Inc. (diversified technology and multi-industrial company), since its merger with Tyco International Ltd. in September 2016.

 

   Positions with Tyco International Ltd. (fire protection and security systems provider): CEO and member of the Board of Directors from 2012 to September 2016; President from 2011 to 2012.

 

  

 

   President of Tyco Electrical and Metal Products from 2007 to 2010; and President of Tyco Safety Products from 2006 to 2010.

 

   President of GE Water and Process Technologies until 2006; prior to this position, held a series of leadership roles of increasing responsibility at several General Electric divisions.

 

   Affiliations: Trustee of Worcester Polytechnic Institute.

 

 


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PROPOSAL 1: ELECTION OF DIRECTORS     RAYTHEON  |  2017 Proxy Statement     11

 

 

 

  DINESH C. PALIWAL   PRESIDENT AND CHIEF EXECUTIVE OFFICER, HARMAN INTERNATIONAL INDUSTRIES, INC.

LOGO

 

Director since September 2016

 

Age: 59

 

Committees:

   Governance and Nominating

   Public Affairs

 

Mr. Paliwal provides the Board with executive leadership experience and global commercial management and operational expertise developed through his CEO and other senior leadership roles at Harman International Industries and the ABB Group and his current and past director roles on the boards of other large, complex global commercial companies. He also has significant experience in strategic planning, finance, mergers & acquisitions, risk management, product development, and technology innovation.

 

 

   Positions with Harman International Industries (designer of connected products and solutions for automakers, consumers and enterprises): President, Chief Executive Officer and member of the Board of Directors since 2008; Chairman from 2008 to March 2017 when Harman was acquired by Samsung Electronics; Vice Chairman, President and Chief Executive Officer from 2007 to 2008.

 

   Positions with ABB Group (global industrial automation and power transmission systems enterprise): various positions of increasing responsibility from 1990 until 2007, departing with the dual role of President of ABB Ltd. and Chairman and CEO of ABB North America.

  

 

   Current Directorship: In addition to Harman International Industries, Bristol-Myers Squibb, since 2013.

 

   Past Directorships: ADT Corporation (fire protection and security systems provider) from 2011 to 2014; Tyco International Ltd. (fire protection and security systems provider) from 2011 to 2012.

 

   Affiliations: Member of the Business Roundtable, the US-India Business Council, US-India CEO Forum and Global Advisory Council of The Wilson Center.

 

 

 

 

  WILLIAM R. SPIVEY   RETIRED PRESIDENT AND CHIEF EXECUTIVE OFFICER, LUMINENT, INC.

LOGO

 

Director since September 1999

 

Age: 70

 

Committees:

   Governance and Nominating

   Management Development and Compensation (Chair)

 

Mr. Spivey has extensive business leadership experience through his roles as both a CEO and business unit leader at a number of public technology companies and a director of numerous U.S. and global technology and industrial companies. He also provides significant experience in strategic oversight, global operations and sales, finance, risk management, and technology.

 

 

   President and CEO of Luminent, Inc. (fiber-optic transmission products provider) from 2000 to 2001.

 

   Group President, Network Products Group, Lucent Technologies Inc. from 1997 to 2000.

 

   Vice President, Systems & Components Group, AT&T Corporation from 1994 to 1997.

 

   Group Vice President and President, Tektronix Development Company, Tektronix, Inc. from 1991 to 1994.

  

 

   Past Directorships: Cascade Microtech, Inc. (advanced wafer probing solutions provider) from 1998 to 2016; Lam Research Corporation (advanced process equipment provider) from 2012 to 2015; Laird PLC (electronics components and systems provider) from 2002 to 2012; Novellus Systems, Inc. (advanced process equipment provider) from 1998 to 2012; ADC Telecommunications, Inc. (supplier of network infrastructure products and services) from 2004 to 2010; Lyondell Chemical Company (manufacturer of basic chemicals and derivatives) from 2000 to 2007; and Luminent, Inc. (fiber-optic transmission products provider) from 2000 to 2001.

 

 


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  JAMES A. WINNEFELD, JR.   RETIRED VICE CHAIRMAN OF THE JOINT CHIEFS OF STAFF

LOGO

 

Director since January 2017

 

Age: 61

 

Committees:

    Audit

    Special Activities

 

Admiral Winnefeld brings extensive senior leadership, strategic planning and management experience developed through his various roles of increasing responsibility in the U.S. military, culminating in his service as the Vice Chairman of the Joint Chiefs of Staff. He provides the Board with deep industry-specific domain knowledge and expertise on the global security environment and our core defense customers.

 

 

   Ninth Vice Chairman of the Joint Chiefs of Staff from 2011 until retirement in 2015.

 

   37-year career in the United States Navy, serving in various positions of increasing responsibility, including Commander, U.S. Northern Command (USNORTHCOM); Commander, North American Aerospace Defense Command (NORAD); Commander, U.S. Sixth Fleet; and Commander, Allied Joint Command Lisbon.

  

 

   Current Directorship: Enterprise Holdings, Inc. (privately-held vehicle rental, fleet management and automobile sales company) since 2015; Alliance Laundry Systems LLC (privately-held laundry equipment manufacturer) since 2016.

 

   Affiliations: Member, U.S. Naval Institute Board of Directors; United States Naval Academy Board of Advisors; Member, Georgia Institute of Technology Board of Advisors; Senior Fellow, Belfer Center for Science and International Affairs, John F. Kennedy School of Government.

 

 

 

 

LOGO

 

 

 

FOR

 

  

 

The Board unanimously recommends that shareholders vote FOR each of the nominees for election.

Proxies solicited by the Board will be so voted unless shareholders specify otherwise in their proxies.

 


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CORPORATE GOVERNANCE     RAYTHEON  |  2017 Proxy Statement     13

 

CORPORATE GOVERNANCE

The Board of Directors is committed to being a leader in corporate governance. The Board believes that good governance enhances shareholder value and goes beyond simply complying with legal requirements. It means taking an integrated and collaborative approach to governance that promotes integrity, accountability, transparency, and the highest ethical standards. To that end, the Board has adopted a number of policies and practices to ensure effective governance, including our Governance Principles, which provide a framework for oversight of Raytheon’s governance. See “Governance Documents” on page 22 below for information on obtaining copies of the Governance Principles and related materials.

BOARD LEADERSHIP STRUCTURE

The Board believes the most effective leadership structure for Raytheon at this time is one with a combined Chairman and CEO, coupled with an independent Lead Director. Having a combined Chairman and CEO promotes a cohesive vision and strategy for Raytheon and enhances our ability to execute effectively. We have found that this structure is particularly advantageous for our international business because many of our foreign government customers value unified leadership and a single ultimate executive decision-maker.

The Board created the Lead Director role as an integral part of a leadership structure that promotes strong, independent oversight of Raytheon’s management and affairs. The Lead Director, who must be independent, has the following primary responsibilities:

 

 

Working with the Chairman to develop and approve Board agendas and meeting schedules;

 

 

Advising the Chairman as to the quality, quantity and timeliness of the information sent to the Board;

 

 

Developing agendas for and chairing executive sessions of the Board (in which the independent directors meet without management); and

 

 

Acting as a liaison between the independent directors and the Chairman and CEO.

 

 

Vernon E. Clark has served as the Lead Director since May 2013.

The Board annually reviews the role and function of the Lead Director. In March 2016, upon the recommendation of the Governance and Nominating Committee, the Board determined that the Lead Director should serve an initial two-year term, and may serve up to three additional one-year terms as determined by the Board. The Board believes restricting the Lead Director’s time in that role promotes leadership refreshment.

BOARD ROLE

Our Board is responsible for overseeing the management of the business and affairs of Raytheon. Among the Board’s most significant responsibilities is the oversight of Raytheon’s long-term strategy and management of risk, and the selection of the CEO and planning for the CEO’s succession.

THE BOARD’S ROLE IN STRATEGY

The Board recognizes the importance of ensuring that our overall business strategy is designed to create long-term value for Raytheon shareholders. As a result, the Board maintains an active oversight role in formulating, planning and implementing Raytheon’s strategy. We have a robust annual strategic planning process during which elements of our business, financial, and investor plans and strategies and near- and long-term initiatives are developed and reviewed. This annual process culminates with a full-day Board session to review Raytheon’s overall strategy with our Senior Leadership Team and other executives. In addition to our business strategy, the Board reviews Raytheon’s 5-year financial plan, which serves as the basis for the Annual Operating Plan for the upcoming year.

The Board regularly considers the progress of and challenges to Raytheon’s strategy and related risks throughout the year. At each regularly-scheduled Board meeting, the Chairman and CEO has an executive session with the Board to discuss strategic and other significant business developments since the last meeting.


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THE BOARD’S ROLE IN RISK MANAGEMENT

The Board oversees Raytheon’s risk management program and allocates certain oversight responsibilities to its committees. Our risk management program covers the full range of material risks to Raytheon, including strategic, operational, financial, and compliance and reputational risks. Management carries out the daily processes, controls and practices of our risk management program, many of which are embedded in our operations. In addition, as part of our enterprise risk management process (ERM), management identifies, assesses, prioritizes and develops mitigation plans for Raytheon’s top risks. These plans are reviewed annually with the full Board. The Board and the committees also regularly review and discuss significant risks with management, including through annual strategic discussions and reviews of annual operating plans, financial performance, merger and acquisition opportunities, market environment updates, international business activities, and presentations on specific risks. Each committee regularly reports to the Board on risk matters under its purview. The Board periodically reviews our risk management (including ERM) policies, processes and controls, and the Audit Committee from time to time separately reviews the Board’s approach to risk oversight.

 

 

 

BOARD OF DIRECTORS

oversees strategic and significant operational risks, such as operating and financial plan

risks; legal and regulatory compliance risks, including those related to litigation, government

investigations and enforcement actions, disputes, risk exposures and governance issues; and

risks related to prospective mergers and acquisitions.

 

                                                                          
         

Audit Committee

 

oversees risks related to financial reporting, internal controls, internal audit, auditor independence, and related areas of law and regulation.

    

Governance and Nominating Committee

 

oversees risks related to governance issues.

    

Management Development and Compensation Committee

 

oversees risks related to compensation policies and practices and talent acquisition, retention and development.

    

Public Affairs Committee

 

oversees various aspects of U.S. and international regulatory compliance, social responsibility, environmental matters, export/import controls and crisis management.

    

Special Activities Committee

 

oversees cybersecurity risks and risks related to our classified business.

 

 

THE BOARD’S ROLE IN MANAGEMENT SUCCESSION PLANNING

The Board’s Management Development and Compensation Committee (MDCC) and the full Board periodically review succession planning for the Chairman and CEO and other senior leadership positions. These reviews include consideration and assessment of key leadership talent throughout Raytheon, and roles for which it may be necessary to consider external candidates. The Board also reviews Raytheon’s talent strategy for critical roles, and has regular opportunities to observe key leadership and high potential talent through presentations, meetings and other events. The Board’s carefully considered planning is evident in the process by which Thomas Kennedy was ultimately elected as Chairman and CEO. Mr. Kennedy, who has had a 34-year career with Raytheon, previously served in a series of positions of increasing responsibility, including President of Raytheon’s Integrated Defense Systems business, Executive Vice President and Chief Operating Officer, and CEO.


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CORPORATE GOVERNANCE     RAYTHEON  |  2017 Proxy Statement     15

 

DIRECTOR CANDIDATE CONSIDERATION AND BOARD REFRESHMENT

The Board and its Governance and Nominating Committee seek to have an engaged and independent Board that upholds the highest ethical standards. Each Raytheon director is expected to:

 

  Have the highest character and integrity;

 

  Possess substantial experience and expertise of particular relevance and importance to Raytheon;

 

  Contribute to a balanced Board with the diverse set of attributes, skills and experience necessary to maximize shareholder value;

 

  Represent the interests of the shareholders as a whole, and not particular special interests; and

 

  Devote significant time to the duties of a director.

EVALUATING BOARD CAPABILITIES AND DETERMINING NEEDS

When evaluating each director nominee and the potential needs and composition of the Board as a whole, the Governance and Nominating Committee looks for nominees with the potential to make significant contributions that will enable the Board to continue to serve the long-term interests of Raytheon and its shareholders. To that end, the Governance and Nominating Committee has identified critical experiences, qualifications, attributes and skills, and created a matrix to ensure each is adequately represented among our directors. The Committee regularly reviews the director skills matrix to confirm that it appropriately reflects the attributes most needed to support Raytheon’s long-term growth strategy. From time to time, the Committee may engage a third party for a fee to assist it in identifying potential director candidates.

In light of Raytheon’s current emphasis on international growth, emerging customer needs, technological innovation, and cybersecurity, as well as our complex and evolving business and operations generally, including a national security focus and classified and other regulatory requirements, the Governance and Nominating Committee believes the following experiences, qualifications, attributes and skills must be adequately represented on the Board:

 

  Gender/Racial Diversity

 

  Public Company Board/Committee Leadership

 

  Public Company CEO

 

  Financial/Accounting Expertise

 

  Operating Expertise

 

  International Operations and Sales

 

  Engineering/Science/Information Technology

 

  Aerospace/Defense Industry Expertise

 

  Cyber/Software

 

  Risk Management

 

  U.S. Department of Defense/Government

 

  Corporate Governance/Legal/Regulatory

 

  M&A/Strategy Development

 

  Commercial Business
 

 

BOARD REFRESHMENT AND CURRENT COMPOSITION

In addition to ensuring the Board reflects an appropriate mix of experiences, qualifications, attributes and skills, the Governance and Nominating Committee also focuses on director succession and tenure. Over the last five years, the Board has undergone significant refreshment, resulting in lower average tenure, younger average age, and broadened diversity of background.

 

 

BOARD REFRESHMENT — LAST FIVE YEARS (2012–2017)

 

 

LOGO    LOGO    LOGO


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Through this refreshment, a number of directors joined the Board with key experiences and attributes, such as public company CEOs and individuals with experience in international sales and operations, commercial business, information technology, and cyber/software.

 

 

CURRENT DIRECTORS — KEY ATTRIBUTES (10 DIRECTOR NOMINEES)

 

 

LOGO

This graph also appears on page 3.

 

 

TENURE OF INDIVIDUAL DIRECTOR NOMINEES

 

 

The Board also has achieved a balance of directors who have served for a number of years and have a deep knowledge of Raytheon’s business and operations and newer directors who may lend fresh perspectives.

LOGO

 

 

This graph also appears on page 3.

 

 

In addition to refreshing the Board’s composition generally, the Board regularly refreshes its committee chairs and committee membership to promote strong committee leadership and independence as well as director development and succession planning. In 2016, Tracy A. Atkinson became the Chair of the Audit Committee, Stephen J. Hadley became the Chair of the Governance and Nominating Committee, and Letitia A. Long became the Chair of the Public Affairs Committee.

DIRECTOR INDEPENDENCE

The Board has adopted specific director independence criteria, consistent with the New York Stock Exchange (NYSE) listing standards, to assist it in making determinations regarding the independence of its members. These criteria, which are detailed in our Governance Principles, are available as described below under “Governance Documents.” To be considered independent, the Board must determine that a director does not have a material relationship, directly or indirectly, with Raytheon.


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The Board considers the independence of its members at least annually, in part by reviewing Raytheon’s relationships with organizations with which our directors are affiliated. The Board has determined that no director other than Mr. Kennedy, the Chairman and CEO, has, directly or indirectly, a material relationship with Raytheon, nor does any other director have a direct or indirect material interest in any transaction involving Raytheon. Every director other than Mr. Kennedy, including Mr. Ruettgers, who is retiring from the Board, satisfies our independence criteria.

In connection with its review and determination of director independence, the Board considered certain non-material relationships and transactions involving certain directors, including:

 

  Johnson Controls, Inc., where Mr. Oliver serves as President and Chief Operating Officer, provides products and services to Raytheon, including fire protection and security systems, industrial equipment and services;

 

  State Street Global Markets, LLC (SSGM), a subsidiary of State Street Corporation, where Ms. Atkinson serves as Executive Vice President, Finance, provides purely transactional processing services to Raytheon pension plans in the ordinary operation of the plans; and

 

  BMC Software, Inc. (BMC), where Mr. Beauchamp serves as Chairman, provides software and related services to Raytheon.

In all cases, the transactions were provided in the ordinary course of business; none of the directors had any direct or indirect material interest in, or received any special compensation in connection with, the transactions or relationships; and the amounts paid in those transactions were well below thresholds prescribed under the NYSE standards and the Governance Principles.

BOARD AND COMMITTEE EVALUATION PROCESS

The Governance and Nominating Committee leads an annual performance evaluation of the Board and each Board committee as described below.

 

 

LOGO

The Board views self-evaluation of Board and committee performance as an integral part of its commitment to continuous improvement. This process has prompted a number of changes to the Governance Principles, committee charters, and Board governance practices generally. By way of example, the self-evaluation exercise has led to enhancements to processes related to director candidate identification and recruitment, executive succession planning, and director education. The Governance and Nominating Committee periodically reviews the evaluation process and considers ways to enhance it.


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SHAREHOLDER ENGAGEMENT

Under the Board’s purview, we make a concerted effort to engage with shareholders to ensure we consider their views and address their interests. In addition to meeting with investors to discuss our performance, strategy and operations, we also regularly engage with our shareholders to solicit their views on governance and executive compensation matters, as discussed in more detail below.

KEY ELEMENTS OF GOVERNANCE AND COMPENSATION OUTREACH

We recognize the value of engaging with our shareholders on governance and compensation matters so we can better understand their views and interests and share our perspective on these important subjects. The hallmarks of our shareholder engagement program are described below.

 

Two formal governance/compensation outreach efforts annually   

In addition to communicating with shareholders during our proxy season in the spring, we also formally engage with our shareholders in the fall to promote a constructive dialogue and provide opportunities to discuss governance and executive compensation matters during a less hectic time period.

Engagement with significant portion of shareholder base

 

  

Historically, we have communicated each year with shareholders typically representing over 40% of Raytheon shares.

Board/Committee review of outreach

 

  

We review our outreach efforts and the shareholder input we receive with our Governance and Nominating Committee semi-annually.

Consideration of shareholder views on governance/compensation

 

  

Shareholder input is a key consideration for the Board and for Raytheon in reviewing the executive compensation program and governance initiatives.

GOVERNANCE INITIATIVES

Over the past several years, shareholder input solicited during our outreach efforts has contributed greatly to shaping a number of our governance initiatives. For example, as part of our fall 2015 outreach, we communicated extensively with our shareholders regarding their views on shareholder proxy access, including key terms such as the minimum shareholder ownership percentage, the maximum number of shareholders, and the number of board nominees. As a result, in March 2016, the Board proactively adopted a proxy access by-law amendment. Other key governance initiatives on which we solicited input from our shareholders include:

 

  Shareholder right to act by written consent;

 

  Enhanced executive compensation and governance disclosures in our proxy statement;

 

  Exclusive forum by-law;

 

  Shareholder right to call a special meeting; and

 

  Enhanced political contributions and lobbying expenditures disclosure.

COMPENSATION PROGRAM

In regular outreach discussions, we also request shareholder input on Raytheon’s executive compensation program, including design elements and metrics, to ensure that the program reflects shareholders’ interests and objectives. We believe the results of Raytheon’s annual say-on-pay vote, which has averaged 95.0% support in the last six years, confirm the value of this endeavor.


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CORPORATE GOVERNANCE     RAYTHEON  |  2017 Proxy Statement     19

 

GOVERNANCE POLICIES AND PRACTICES

MAJORITY VOTING FOR DIRECTORS

Our by-laws contain a “majority of votes cast” standard for uncontested elections of directors, meaning that a director nominee is elected if the number of votes cast for the nominee exceeds the number of votes cast against the nominee. In contested elections (that is, those in which the number of nominees exceeds the number of directors to be elected), the voting standard is a plurality of votes cast.

Our Governance Principles provide that any incumbent director in an uncontested election who fails to receive the requisite majority of votes cast “for” his or her election must tender a resignation to the Governance and Nominating Committee. The Committee will make a recommendation to the Board as to whether to accept or reject that resignation. The Board will act on the resignation and publicly disclose its decision and the rationale behind it within 90 days from the date results are certified. The director whose resignation is under consideration will abstain from participating in both the Governance and Nominating Committee’s recommendation and the Board’s ultimate decision. If a resignation is not accepted by the Board, the director may continue to serve.

SERVICE ON OTHER BOARDS

Our Governance Principles limit the number of for-profit company boards on which a director may serve to four (including Raytheon), or two in the case of a director who currently serves as CEO of a company (not counting the board of the company where the director is employed). This latter limitation applies to our CEO. A director who is considering joining the board of another for-profit company must notify the Chairman of the Board and the Chair of the Governance and Nominating Committee regarding the proposed board service, and may not accept the position until advised that service on the other board would not conflict with a Raytheon policy or service on the Raytheon Board. Additionally, we have established a policy requiring all officers and employees to obtain written approval before joining the board of another business entity to ensure that such service is not contrary to the interests of Raytheon.

CODE OF CONDUCT AND CONFLICT OF INTEREST POLICY

We have adopted a Code of Conduct and Conflict of Interest Policy that serve as the foundation of our ethics and compliance program and cover a wide range of areas. The Code of Conduct provides guidance on conflicts of interest, insider trading, discrimination and harassment, confidentiality, and compliance with laws and regulations applicable to the conduct of our business. All officers, directors, employees and representatives are required to comply with the Code of Conduct and are subject to disciplinary action, including termination, for failure to do so. We provide ethics education for directors, officers and employees. Any amendments to the Code of Conduct or the grant of a waiver from a provision of the Code of Conduct requiring disclosure under applicable Securities and Exchange Commission (SEC) rules will be disclosed on our website.

Under our Conflict of Interest Policy, directors, officers and employees are expected to bring to the attention of the Vice President, General Counsel and Secretary or the Vice President – Ethics and Business Conduct any actual or potential conflict of interest. Anyone may report matters of concern to Raytheon’s Ethics Office through our anonymous, confidential toll-free EthicsLine at 1-800-423-0210, by writing to the Ethics Office, Raytheon Company, 870 Winter Street, Waltham, Massachusetts 02451, or by submitting comments on our website at www.raytheon.com in the section entitled, “Contact the Ethics Office,” under the heading “Investor Relations/Corporate Governance/Contact the Company.”

TRANSACTIONS WITH RELATED PERSONS

Our Board has adopted a written Related Party Transactions Policy. Related party transactions include all transactions and relationships involving amounts in excess of $120,000 between Raytheon (including subsidiaries), on the one hand, and any director, executive officer, 5% shareholder, or an immediate family member of any of the foregoing (“interested person”) and certain entities in which an interested person has a significant interest, on the other. Under the policy, the Governance and Nominating Committee reviews the material facts of all related party transactions identified by the Vice President, General Counsel and Secretary and determines whether to approve, disapprove or ratify the transaction or relationship involved. Certain transactions and relationships have been pre-approved for purposes of the policy, including (a) executive officer compensation approved by the Board, (b) director compensation, (c) certain relatively small transactions between Raytheon and other companies and (d) certain charitable contributions made by Raytheon.


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Ms. Atkinson and Messrs. Hadley, Oliver, Paliwal, Winnefeld, Kennedy, Wajsgras and Yuse served as members of boards of, or were otherwise affiliated with, charitable or other non-profit organizations to which Raytheon made contributions in 2016 (other than through a trade association membership or our matching gift and charitable awards program). These contributions were consistent with all company policies, and no organization received, in the aggregate, more than $200,000.

In a Schedule 13G filing made with the SEC, BlackRock, Inc., including its subsidiaries, reported beneficial ownership of 7.60% of our outstanding common stock as of December 31, 2016. Under a previously established business relationship, BlackRock has provided investment management services for the benefit of the Raytheon Master Benefit Pension Trust. For providing such investment management services, BlackRock received fees of $4.4 million in 2016. The Governance and Nominating Committee has reviewed this relationship and approved it on the basis that BlackRock’s ownership of Raytheon stock plays no role in the business relationship between the two companies and the engagement of BlackRock has been on terms no more favorable to it than terms that would be available to unaffiliated third parties under the same or similar circumstances.

POLICY ON SHAREHOLDER RIGHTS PLANS

We do not have a shareholder rights plan. The Board will obtain shareholder approval prior to adopting a shareholder rights plan unless the Board, in the exercise of its fiduciary duties, determines that, under the circumstances then existing, it would be in the best interests of Raytheon and our shareholders to adopt a rights plan without prior shareholder approval. If a rights plan is adopted by the Board without prior shareholder approval, the plan must provide that it will expire within one year of adoption unless ratified by shareholders.

RESTATEMENT CLAWBACK POLICY

Our Governance Principles contain a Restatement Clawback Policy that gives the Board the right to recover Results-Based Incentive Plan payments, Long-Term Performance Plan awards, and restricted stock awards made on or after January 1, 2009, to any elected officer, to the extent that such payments or awards were inflated due to erroneous financial statements substantially caused by the executive’s knowing or intentionally fraudulent or illegal conduct. The policy is designed to increase the likelihood that Raytheon will be successful if it seeks to recover the portion of an executive’s incentive compensation attributable to inflated financial results caused by the executive’s malfeasance.

DIRECTOR NOMINATIONS BY SHAREHOLDERS

Nominations for director may be made only by the Board or a Board committee, or by a shareholder or shareholders entitled to vote who comply with the relevant provisions in Raytheon’s by-laws.

SHAREHOLDER NOMINATIONS VIA PROXY ACCESS BY-LAW (SECTION 2.11)

The proxy access by-law sets forth conditions under which shareholders may include nominees in Raytheon’s Annual Meeting proxy materials. The proxy access by-law provides that:

 

  It is available to shareholders who have beneficially owned 3% or more of Raytheon’s outstanding stock continuously for at least three years;

 

  Loaned stock is counted as owned, subject to certain provisions related to power to recall;

 

  The 3% ownership threshold can be satisfied by no more than 20 shareholders acting in concert;

 

  There is a cap on the number of nominees, equal to the greater of 20% (rounded down) of all directors or 2 (“20% or 2”);

 

  The 20% or 2 cap is not reduced by the number of previous proxy access nominees elected and re-nominated by the Board, but is reduced by the number of other nominees nominated under the standard advance notice by-law;

 

  Nominating shareholders need not continue to hold their shares after the Annual Meeting for which nominees are submitted;

 

  A proxy access nominee will not be disqualified because he or she receives third-party compensation, subject to disclosure requirements;


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  A proxy access nominee cannot be re-nominated for two years if such nominee was not supported by at least 25% of the shares voting; and

 

  Notice of nominees that satisfies the proxy access by-law must be received by Raytheon during a prescribed time period, which, for the 2018 Annual Meeting, will be between November 22, 2017, and December 22, 2017.

 

SHAREHOLDER NOMINATIONS OTHER THAN VIA PROXY ACCESS BY-LAW (SECTION 2.7)

Shareholders also may nominate people for election to the Board at an annual or special meeting of shareholders in accordance with the standard advance notice by-law provisions. For our 2018 Annual Meeting of Shareholders, we must receive this notice between January 25, 2018, and February 24, 2018. We are not obligated to include any such nomination in our proxy materials.

Shareholders wishing to propose a director candidate for consideration by the Governance and Nominating Committee may do so by sending the candidate’s name, biographical information, and qualifications to the Committee Chair, in care of the Corporate Secretary, Raytheon Company, 870 Winter Street, Waltham, Massachusetts 02451. The Committee reviews each candidate’s qualifications in accordance with the director qualification criteria contained in our Governance Principles and determines whether the candidate should be nominated for election to the Board.

DIRECTOR DEVELOPMENT AND EDUCATION

Our director education program consists of visits to Raytheon facilities and education regarding our Code of Conduct and other policies and practices relevant to our business and operations. Periodically, we provide updates on topics of interest to the Board. We also encourage directors to attend external director education programs at Raytheon’s expense. We make available to the Board, on an ongoing basis, descriptions of a variety of upcoming director education programs that may be of interest, and provide the Board with program assessments from directors who have participated in such programs.

COMMUNICATION WITH THE BOARD

Interested parties may communicate with our Board through our Lead Director in writing, care of the Corporate Secretary, Raytheon Company, 870 Winter Street, Waltham, Massachusetts 02451, or by submitting comments on our website at www.raytheon.com in the section entitled “Contact the Board” under the heading “Investor Relations/Corporate Governance/Contact the Company.” Communications are referred to the Lead Director and tracked by the Office of the General Counsel.

Anyone who has a concern regarding our accounting, internal controls over financial reporting, or auditing matters may communicate that concern to the Audit Committee. You may contact the Raytheon Audit Committee by writing to the address above, or by submitting comments on our website at www.raytheon.com in the section entitled “Contact the Audit Committee Regarding Accounting, Internal Controls or Auditing Matters” under the heading “Investor Relations/Corporate Governance/Contact the Company.” Communications are referred to the Audit Committee and tracked and investigated in the ordinary course by our Ethics Office with the assistance of the Office of the General Counsel unless otherwise instructed by the Audit Committee.


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22    RAYTHEON  |  2017 Proxy Statement    CORPORATE GOVERNANCE

 

POLITICAL CONTRIBUTIONS AND LOBBYING EXPENDITURES DISCLOSURE

Raytheon has for a number of years voluntarily included disclosure on its website relating to political contributions and lobbying expenditures. In March 2016, we significantly expanded this website disclosure to include the following:

 

  A description of Raytheon policies relating to political expenditure and lobbying practices;

 

  The titles of decision-makers involved in approvals pertaining to political action committee (PAC) and direct political activities, as well as lobbying activities;

 

  A discussion of the types of reports we file with regulators relating to lobbying;

 

  Direct links to reports, as filed with government agencies, specifying Raytheon’s federal PAC and lobbying activities;

 

  Detailed information regarding direct political contributions from Raytheon funds (which were $0 for 2016), including a statement that Raytheon has no plans to make direct political contributions from company funds in the future but, in the event of any such contributions, would disclose them;

 

  A statement confirming that Raytheon does not spend company funds on communications to the general public in support of political campaigns or ballot initiatives;

 

  A list of trade associations to which Raytheon has paid annual dues of $50,000 or more and the dollar amount, if any, used by the association for lobbying as reported by the association, as well as a statement that no other separate payment at this level was made to a trade association in 2016 with the purpose that such payment be used for lobbying; and

 

  Reference to the oversight role of the Board’s Public Affairs Committee, pursuant to its charter, with respect to political and lobbying activities.

This disclosure is available on our website at www.raytheon.com under the heading “Investor Relations/Corporate Governance/Political Contributions and Lobbying Expenditures.”

GOVERNANCE DOCUMENTS

Our key governance documents are available on our website at www.raytheon.com under the heading “Investor Relations/Corporate Governance.” These include:

 

  Governance Principles, including the director independence criteria

 

  Code of Conduct

 

  By-Laws

 

  Charters for each of the Board’s standing committees (except the Executive Committee)

These documents are also available in print to any shareholder who requests them by writing to Raytheon Company, Investor Relations (or Corporate Secretary for the by-laws), 870 Winter Street, Waltham, Massachusetts 02451, or by emailing invest@raytheon.com.


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THE BOARD OF DIRECTORS AND BOARD COMMITTEES     RAYTHEON  |  2017 Proxy Statement     23

 

THE BOARD OF DIRECTORS AND

BOARD COMMITTEES

The Board has six standing committees: Audit, Governance and Nominating, Management Development and Compensation, Public Affairs, Special Activities, and Executive. The charter of each committee (other than the Executive Committee) is published on our website. See “Corporate Governance — Governance Documents” on page 22 for information on obtaining a copy.

During 2016, the Board met formally six times, and engaged in other discussions and actions apart from these meetings. The non-management directors, all of whom are independent, meet in executive session chaired by the Lead Director at the conclusion of each regularly scheduled Board meeting. In addition, committee members generally meet in executive session, without management present, at the conclusion of regularly scheduled committee meetings.

 

 

Average attendance for    
directors at Board and
committee meetings

 

96.9%

  No director attended less than 75% of the total of all Board and applicable committee meetings, except for Mr. Paliwal. Mr. Paliwal, who was elected at the September 2016 meeting, was unable to attend the November 2016 Board and committee meetings (the only meetings held in 2016 after his election) due to unforeseen schedule conflicts. All directors standing for election are expected to attend the 2017 Annual Meeting of Shareholders. In 2016, all of the directors who were members of the Board at that time (other than one who had an illness in the family) attended the Annual Meeting.

The Board’s six standing committees are described below. Each committee, other than the Executive Committee, is composed entirely of independent directors.

 

 

AUDIT COMMITTEE

 

  

 

NUMBER OF 2016 MEETINGS: 9

 

 

COMMITTEE MEMBERS:

  

Tracy A. Atkinson, Chair  |  Robert E. Beauchamp  |  Letitia A. Long  |  George R. Oliver  |  James A. Winnefeld, Jr.

 

 

KEY RESPONSIBILITIES:

 

  Appoint and evaluate the performance and independence of Raytheon’s independent auditors;

 

  Oversee the integrity of our financial statements;

 

  Oversee our internal audit function;

 

  Consider the adequacy of our internal controls and the objectivity of financial reporting;

 

  Review the independent auditors’ audit of the effectiveness of Raytheon’s internal controls;

 

  Pre-approve all audit fees and terms for, as well as all non-audit engagements with, the independent auditors;

 

  Review annual and periodic reports and earnings press releases and recommend to the Board whether the annual audited financial statements should be included in Raytheon’s Form 10-K;

 

  Review and discuss with management Raytheon’s risk-assessment and risk management policies, including enterprise risk management and major financial risk exposures, and steps to monitor and control such exposures;

 

  Review the performance of Raytheon’s pension plans and risks related to those plans;

 

  Establish and review procedures for employees and others to report concerns or complaints confidentially and anonymously regarding accounting, internal control or auditing matters; and

 

  Review compliance with our Code of Conduct with respect to certain financial reporting, controls and allegations of financial misconduct.
 

 

 

The Board has determined that each member is independent in accordance with NYSE and SEC rules applicable to audit committee members. The Board also has determined that each of Ms. Atkinson and Messrs. Beauchamp and Oliver is an “audit committee financial expert,” as defined by SEC rules, and that all members are “financially literate” under the NYSE standards.

The Audit Committee Report is included on page 64.

 

 


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24    RAYTHEON  |  2017 Proxy Statement    THE BOARD OF DIRECTORS AND BOARD COMMITTEES

 

 

 

GOVERNANCE AND NOMINATING COMMITTEE

 

  

 

NUMBER OF 2016 MEETINGS: 9

 

 

COMMITTEE MEMBERS:

  

Stephen J. Hadley, Chair  |  Dinesh C. Paliwal  |  Michael C. Ruettgers*  |  William R. Spivey

 

 

KEY RESPONSIBILITIES:

 

  Review and report to the Board with regard to matters of corporate governance;

 

  Make recommendations to the Board regarding the size and composition of the Board;

 

  Establish procedures for nominating directors and recommend candidates for election to the Board;

 

  Consider director nominees proposed by shareholders;

 

  Review our Governance Principles and recommend revisions to the Board;
  Review and approve or ratify transactions and relationships under our Related Party Transactions Policy;

 

  Review shareholder proposals in connection with our Annual Meetings and recommend actions to the Board regarding such proposals;

 

  Oversee the orientation program for new directors and the continuing education program for existing directors; and

 

  Review and recommend to the Board the compensation of non-employee directors.
 

 

 

The Board has determined that each member is independent in accordance with NYSE rules.

 

*Mr. Ruettgers will be retiring from the Board effective May 25, 2017.

 

 

 

 

MANAGEMENT DEVELOPMENT AND

COMPENSATION COMMITTEE (MDCC)

 

  

 

NUMBER OF 2016 MEETINGS: 6

 

 

COMMITTEE MEMBERS:

  

William R. Spivey, Chair  |  Robert E. Beauchamp  |  Stephen J. Hadley  |  George R. Oliver

 

 

KEY RESPONSIBILITIES:

 

  Review and oversee compensation and benefits, as well as personnel plans, policies and programs;

 

  Review and recommend to the Board the compensation of the CEO and the other four most highly compensated executive officers (the “NEOs”);

 

  Review and approve the compensation of other officers and key employees;

 

  Periodically review succession plans for the CEO and other executive officers and elected officers as well as career development plans for elected officers and other key employees;

 

  Administer and make awards, other than to directors, under our equity compensation plans;
  Review and discuss with management the “Compensation Discussion and Analysis” section of this proxy statement;

 

  Review Raytheon’s incentive compensation arrangements to ensure they are not reasonably likely to encourage inappropriate risk-taking;

 

  Appoint, compensate and oversee any outside compensation consultant, outside legal counsel or other committee adviser; and

 

  Annually assess the independence of its outside compensation consultants or advisers, and pre-approve any services proposed to be provided by such consultants or advisers to Raytheon.
 

 

 

The Board has determined that each member is independent in accordance with NYSE rules.

The MDCC Report is included on page 46.

 

 


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THE BOARD OF DIRECTORS AND BOARD COMMITTEES     RAYTHEON  |  2017 Proxy Statement     25

 

 

 

 

PUBLIC AFFAIRS COMMITTEE

 

  

 

NUMBER OF 2016 MEETINGS: 6

 

 

COMMITTEE MEMBERS:

  

Letitia A. Long, Chair  |  Tracy A. Atkinson  |  George R. Oliver  |  Dinesh C. Paliwal

 

 

KEY RESPONSIBILITIES:

 

  Review political, social and legal trends and issues that may affect Raytheon’s business, operations, financial performance or public image;

 

  Review our policies and practices in the areas of legal, regulatory and social responsibility, including those involving:

 

    environmental protection;

 

    health and safety of employees;

 

    ethics;

 

    export control;
    regulatory compliance (except financial matters);

 

    charitable contributions and community relations;

 

    government relations and legislative policy;

 

    political contributions and lobbying;

 

    anticorruption and use of foreign and domestic consultants and representatives; and

 

    government contracting and defense procurement policies; and

 

  Review and monitor corporate policies and practices that relate to public policy.
 

 

 

The Board has determined that each member is independent in accordance with NYSE rules.

 

 

 

 

 

SPECIAL ACTIVITIES COMMITTEE

 

  

 

NUMBER OF 2016 MEETINGS: 7

 

 

COMMITTEE MEMBERS:

  

Vernon E. Clark, Chair  |  Stephen J. Hadley  |  Letitia A. Long  |  Michael C. Ruettgers*  |  James A. Winnefeld, Jr.

 

 

KEY RESPONSIBILITIES:

 

  Review Raytheon’s programs, activities and potential acquisitions involving classified business activities;

 

  Review policies, processes, practices, procedures, risk management and internal controls applicable to Raytheon’s classified business;

 

  Review Raytheon cybersecurity, including with respect to our internal IT systems, products, programs and factories;
  Review any critical technology gaps and how Raytheon is addressing such gaps; and

 

  Support the MDCC, as required, in the review of talent development/succession planning for key technology positions.
 

 

 

The Board has determined that each member is independent in accordance with NYSE rules.

 

*Mr. Ruettgers will be retiring from the Board effective May 25, 2017.

 

 

 

EXECUTIVE COMMITTEE

The Executive Committee is empowered to act for the full Board during intervals between Board meetings, with the exception of certain matters that by law may not be delegated. The Executive Committee did not meet in 2016.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Directors who served as members of our MDCC during fiscal year 2016 were Robert E. Beauchamp, Stephen J. Hadley, George R. Oliver, and William R. Spivey. None of these members is or has ever been an officer or employee of Raytheon. To our knowledge, there were no relationships involving members of the MDCC or our other directors that would constitute a compensation committee interlock.


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26    RAYTHEON  |  2017 Proxy Statement    PROPOSAL 2: ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

 

PROPOSAL 2:

ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION

(Item No. 2 on the Proxy Card)

The Board is proposing an advisory vote for our shareholders to approve the compensation program for our named executive officers as described on pages 27 to 58 in this proxy statement under the heading “Executive Compensation.” While this vote is non-binding, the Board and the MDCC will review the results and consider shareholder views. Raytheon also will continue to engage with shareholders to address any concerns relating to executive compensation or other matters. The Board is asking you to vote “yes” on the following resolution:

“Resolved, that the shareholders approve the compensation of the named executive officers described in this proxy statement under ‘Executive Compensation,’ which section includes the Compensation Discussion and Analysis, the compensation tables, and accompanying narrative disclosure.”

As discussed in greater detail in the Executive Compensation section of this proxy statement, Raytheon’s compensation program rests on certain key principles, including:

 

PRINCIPLE

  MORE INFORMATION

Pay-for-performance: Executive compensation is tied to Raytheon and individual performance over both
the near- and long-term.

  Pages 4-5 and
28-42

Shareholder alignment: We ensure that the interests of executives are closely aligned with those of shareholders by making stock-based incentives a central component of compensation and enforcing meaningful stock
ownership and retention requirements.

  Pages 4-5, 40-41
and 45

Balanced incentives: Our awards have both significant upside opportunity for exceptional performance and downside risk for underperformance.

  Pages 4-5 and
28-41

Substantial variable component: A substantial portion of each executive’s compensation opportunity is variable, based upon Raytheon’s financial performance and stock price.

  Pages 5 and 35

Short-term versus long-term: The compensation program carefully balances short- and long-term incentives.

  Pages 5 and 35

Use of key financial metrics: Short- and long-term incentive awards are based on pre-established financial measures that drive optimum performance.

  Pages 29-30 and
36-41

Market focus: The MDCC considers both the practices of peer companies and broader market survey data in setting executive compensation.

  Pages 32-34

Competitiveness: Our executive compensation program addresses the need to retain and attract highly-qualified executives essential to Raytheon’s success in a highly competitive environment.

  Pages 4, 28 and
31-34

Managing risk: The compensation program is designed to avoid encouraging excessive risk-taking.

  Page 43

Consultant independence: The MDCC adheres to a stringent Compensation Consultant Independence Policy when retaining outside advisors.

  Page 42

Clawback rights: Our clawback policy provides for recovery of compensation in certain circumstances where restatement of financial results is required.

  Page 45

As reflected in the Executive Compensation disclosure, the Board believes that the MDCC has established a compensation program for the NEOs soundly grounded in the above principles that is appropriate and warrants shareholder support.

 

     
LOGO     FOR   

The Board unanimously recommends an advisory vote FOR this proposal. Proxies solicited by the Board

will be so voted unless shareholders specify otherwise in their proxies.

 


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    RAYTHEON  |  2017 Proxy Statement     27

 

EXECUTIVE COMPENSATION

 

 

 

TABLE OF CONTENTS

 

28  

Compensation Discussion and Analysis

28  

Executive Summary

31   Our Compensation Philosophy and Principles
31   Management of Our Executive Compensation Program
32   How We Determine and Assess Executive Compensation
35   Executive Compensation in 2016
42   Perquisites and Other Executive Benefits
42   Say-on-Pay and Shareholder Outreach
42   Independent Compensation Consultant
43   Management of Compensation-Related Risk
43   Retirement Benefits and Deferred Compensation
44   Severance Pay Arrangements
45   Compensation Policies
46   Tax Considerations
46   Management Development and Compensation Committee Report
47   Executive Compensation Tables
47   Summary Compensation Table
49   Grants of Plan-Based Awards
50   Outstanding Equity Awards at Fiscal Year-End
51   Stock Vested
52   Pension Benefits
54   Nonqualified Deferred Compensation
55   Potential Payments Upon Termination or Change in Control

 


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28    RAYTHEON  |  2017 Proxy Statement    COMPENSATION DISCUSSION AND ANALYSIS  |  EXECUTIVE SUMMARY

 

COMPENSATION DISCUSSION AND ANALYSIS

EXECUTIVE SUMMARY

2016 NAMED EXECUTIVE OFFICERS (NEOS)

 

 

THOMAS A. KENNEDY

Chairman and Chief Executive Officer

 

ANTHONY F. O’BRIEN

Vice President and Chief Financial Officer

 

DAVID C. WAJSGRAS

Vice President, and President of our Intelligence, Information and Services (IIS) business

 

RICHARD R. YUSE

Vice President, and President of our Space and Airborne Systems (SAS) business

 

TAYLOR W. LAWRENCE

Vice President, and President of our Missile Systems (MS) business

 

 

OUR COMPENSATION OBJECTIVES

Our executive compensation program is designed to:

 

  Retain and attract highly-qualified executives

 

  Motivate our executives to achieve our overall business objectives

 

  Reward individual performance

 

  Align our executives’ interests with those of our shareholders

ELEMENTS OF OUR COMPENSATION PROGRAM

Our program consists primarily of the following three direct compensation elements:

 

COMPENSATION ELEMENT AND TYPE OF COMPENSATION    KEY OBJECTIVES

Base Salary

Fixed

Annual cash

 

•  To provide a base level of cash compensation that is competitive and reflects an executive’s experience and scope of responsibilities

Annual Incentive Awards

 

Results-Based Incentive (RBI)

Variable, at risk

Annual cash

 

•  To motivate and reward executives based on their performance in achieving annual Raytheon and individual goals and to align short-term executive pay with performance

Long-Term Incentive Equity Awards

 

Restricted Stock

Variable, equity (typically 4-year vesting)

 

Long-Term Performance Plan (LTPP) units

Variable, equity (3-year performance)

 

•  To motivate and reward executives based on Raytheon performance and value delivered to Raytheon shareholders through stock price appreciation

 

•  To retain highly-qualified executives

 

•  To align long-term executive pay with performance

 

•  To align executives’ interests with those of Raytheon shareholders

Our executives’ total direct compensation reflects a mix of these three elements that meets our compensation objectives. These direct compensation elements are rounded out with certain perquisites and other executive benefits. See “Perquisites and Other Executive Benefits” on page 42. To reinforce the link with shareholders’ interests, we require our executives to own a meaningful amount of stock.


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COMPENSATION DISCUSSION AND ANALYSIS  |  EXECUTIVE SUMMARY     RAYTHEON  |  2017 Proxy Statement     29

 

 

OUR 2016 PERFORMANCE

In 2016, Raytheon continued to execute its growth strategy and deliver strong program performance while also maintaining strong operating margins. Our global team built upon Raytheon’s return to growth in 2015, driven by increases in both domestic and international sales. 2016 was the 13th consecutive year of international sales growth, which reflects the continued successful evolution and execution of our international strategy. Highlights of our 2016 performance include:

 

Record bookings of $27.8 billion

for the year; book-to-bill ratio

of 1.16 for the year

     

Full-year net sales of $24.1 billion,

up 3.5% for the year, Raytheon’s

best growth rate since 2009

 

Full-year EPS from continuing

operations of $7.44

     

Strong operating cash flow from continuing operations of $2.9 billion for the year, after a $500 million pretax discretionary pension plan contribution in the fourth quarter

 

   

Continued strong growth in Raytheon’s

bookings, which increased by

10% over the prior year

     

Particularly strong and broad-based

domestic bookings, rising 18%

over the prior year

 

 

2016 total shareholder

return of 16.9%

     

These achievements led us to exceed our 2016 targets on three out of four RBI metrics and all LTPP metrics, resulting in the funding levels shown below.

2016 RBI

 

Dials show results as a percentage of target.

 

LOGO

 

 

We exceeded our 2016 targets on three out of four RBI metrics, resulting in an overall funding level of 105.6% of target.

 

 

For complete information, see “Executive Compensation in 2016 — Annual Cash Incentives — RBI” on page 36.


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30    RAYTHEON  |  2017 Proxy Statement    COMPENSATION DISCUSSION AND ANALYSIS  |  EXECUTIVE SUMMARY

 

2014 – 2016 LTPP

 

Dials show LTPP Funding.

 

LOGO

 

We exceeded our three-year targets on all LTPP metrics, resulting in a payout equal to 145.8% of target.

 

 

For complete information, see “Executive Compensation in 2016 — Long-Term Equity Incentives — LTPP and Restricted Stock” on page 40.

 

2016 TOTAL DIRECT COMPENSATION

The table below shows the base salary earned, annual cash incentive paid, and equity awards granted to our NEOs for 2014-2016 for Messrs. Kennedy, Wajsgras and Yuse; and for 2015-2016 for Messrs. O’Brien and Lawrence, who became NEOs in 2015. This supplemental information is not a substitute for the information appearing in the Summary Compensation Table on page 47.

 

                   Annual Cash Incentive      Long-Term Equity Incentives*         
NEO    Year      Salary      RBI      LTPP      Restricted Stock      Total  

Thomas A. Kennedy

     2016      $ 1,299,979      $ 2,938,400      $ 5,000,028      $ 3,899,980      $ 13,138,387  
     2015        1,196,467        3,046,500        4,500,016        3,400,004        12,142,987  
     2014        1,057,698        2,500,000        4,000,034        2,999,961        10,557,693  

Anthony F. O’Brien

     2016      $ 608,510      $ 734,400      $ 1,199,945      $ 1,100,001      $ 3,642,856  
     2015        485,686        608,400        1,000,027        800,033        2,894,146  

David C. Wajsgras

     2016      $ 971,943      $ 1,052,500      $ 1,250,007      $ 1,300,035      $ 4,574,485  
     2015        952,887        1,114,400        1,250,034        1,300,040        4,617,361  
     2014        929,694        1,100,000        1,300,032        1,549,968        4,879,694  

Richard R. Yuse

     2016      $ 792,506      $ 997,900      $ 1,250,007      $ 1,300,035      $ 4,340,448  
     2015        747,763        887,100        1,250,034        1,300,040        4,184,937  
     2014        678,268        800,000        1,250,016        1,600,006        4,328,290  

Taylor W. Lawrence

     2016      $ 728,151      $ 817,900      $ 1,250,007      $ 1,300,035      $ 4,096,093  
     2015        693,474        810,900        1,250,034        1,300,040        4,054,448  

 

* The amounts set forth under the Restricted Stock and LTPP Award columns represent the full intrinsic values of such awards on the date the Board or MDCC made the formal determination for such grant (e.g., target number of shares times the closing price of our common stock on the determination date), since that is the basis upon which the MDCC considers these awards in proposing, recommending and approving annual compensation. In contrast, the Stock Awards column in the Summary Compensation Table represents the grant date fair value of such awards for financial statement reporting purposes.


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COMPENSATION DISCUSSION AND ANALYSIS     RAYTHEON  |  2017 Proxy Statement     31

 

OUR COMPENSATION PHILOSOPHY AND PRINCIPLES

Our executive compensation program is designed to attract and retain highly-qualified executives, motivate our executives to achieve our overall business objectives, reward individual performance, and align our executives’ interests with those of our shareholders. Our executives must be of a caliber and level of experience necessary to manage our complex, global businesses effectively. Given the duration of our programs, contracts and business cycles, and the competitive nature of our industry, it is especially important for us to retain our executive talent for a number of years to ensure continuity of management.

Several features of our compensation program reflect our compensation objectives:

 

 

 

We use variable, at-risk short- and long-term incentive opportunities to tie a significant portion of each executive’s compensation to Raytheon’s performance and to individual performance against pre-established financial, operational and other goals.

 

     

 

 

Our stock-based incentives, coupled with meaningful stock ownership and retention requirements, ensure that executives’ interests are aligned closely with those of our shareholders.

 

 

Our balanced incentives program provides awards with both significant upside opportunity for exceptional performance and downside risk for underperformance.

     

 

 

Our clawback policy authorizes recovery of cash and equity-based incentive compensation in certain circumstances following a restatement of our financial results.

 

 

 

Our executives have the opportunity to earn compensation that is competitive with compensation earned by executives in comparable positions at companies with which we compete for talent.

     

 

 

The MDCC designs and monitors the executive compensation program to ensure it does not foster risk-taking that would be reasonably likely to have a material adverse effect on Raytheon.

 

 

 

The MDCC receives advice from a compensation consulting firm that satisfies stringent independence criteria.

     

MANAGEMENT OF OUR EXECUTIVE COMPENSATION PROGRAM

The MDCC establishes, oversees and assesses the effectiveness of our executive compensation program in relation to our compensation philosophy and the market. To do so, the MDCC considers input from its independent compensation consultant, shareholders and management, and considers factors such as market data, risk considerations, executives’ experience levels, and macroeconomic and organizational considerations. The MDCC considers internal pay equity, but does not establish a fixed relationship between the compensation of our CEO and that of any other NEO.

The MDCC retains an independent compensation consultant to help with designing and evaluating our executive compensation program. In November 2016, the MDCC engaged Frederic W. Cook & Co. (FW Cook) to serve as its compensation consultant, replacing Pearl Meyer & Partners (Pearl Meyer), our independent consultant since 2010. See “Independent Compensation Consultant” on page 42 below. References to the MDCC’s consultant in this Compensation Discussion & Analysis mean Pearl Meyer, the firm that served it in that capacity for most of 2016, unless otherwise noted.


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32    RAYTHEON  |  2017 Proxy Statement    COMPENSATION DISCUSSION AND ANALYSIS

 

HOW WE DETERMINE AND ASSESS EXECUTIVE COMPENSATION

Our determinations and assessments of executive compensation are primarily driven by Raytheon and individual performance and market competitiveness. The chart below shows how we distribute the various responsibilities related to establishing compensation.

 

 

 

INDEPENDENT MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE (MDCC)

 

  Reviews and recommends CEO and other NEO compensation to the independent Board members

 

  Recommends to the independent Board members annual corporate goals relevant to CEO and other NEO compensation; considers CEO input on other NEO goals and performance

 

  Evaluates CEO individual performance and reviews other NEOs’ individual performance

 

  Establishes, oversees and assesses executive compensation programs and practices

 

  Approves short- and long-term incentive plan funding based on Raytheon performance

 

INDEPENDENT BOARD MEMBERS

 

  Determine CEO and other NEO compensation

 

  Determine annual corporate goals relevant to CEO and other NEO compensation

 

 

INDEPENDENT COMPENSATION CONSULTANT

 

  Provides advice on executive compensation programs and practices

 

  Provides market data and information about peer compensation trends

 

  Assesses prior year pay-performance alignment

 

  Provides peer company data for setting and amending the peer groups

 

 

SHAREHOLDERS

 

  Provide input to the MDCC via say-on-pay advisory votes and Raytheon outreach efforts
 

 

 

Information about the composition and responsibilities of the MDCC can be found on page 24 under the heading “The Board of Directors and Board Committees — Management Development and Compensation Committee.”

MARKET DATA

We use two peer groups to assist us in assessing the competitiveness of our executive compensation relative to market and weighing Raytheon’s performance. Our “core” peer group consists of nine companies that are either aerospace and defense companies or have substantial aerospace or defense businesses. These companies are the most comparable to us based on complexity, operations, revenues, net income, and market capitalization. Our “broader” peer group includes the core peer group plus seven additional companies from other industries that have similar complexity, operations, revenues, net income, and market capitalization to ours.

We primarily use the broader peer group as a representation of the market against which we evaluate and set compensation for our executive officers. Accordingly, references to “market,” “market competitive,” or similar references throughout this Compensation Discussion and Analysis generally refer to analyses of the broader peer group, unless otherwise indicated. We use the core peer group to measure Raytheon’s total shareholder return (TSR) performance because these companies are the most similar to Raytheon in their business and operations and we compete with them for contracts and talent. The MDCC also uses the core peer group as a reference point for certain compensation practices in the aerospace and defense industry.


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COMPENSATION DISCUSSION AND ANALYSIS     RAYTHEON  |  2017 Proxy Statement     33

 

The following are the companies that made up the peer groups for purposes of 2016 compensation:

 

 

“Broader” Peer Group

 

 

“Core Peers”

  

•  General Dynamics Corporation

 

•  Harris Corporation

 

•  Honeywell International, Inc.

 

•  L-3 Communications Holdings, Inc.

 

•  Lockheed Martin Corporation

  

•  Northrop Grumman Corporation

 

•  Textron Inc.

 

•  The Boeing Company

 

•  United Technologies Corporation

 

Additional Peers

  

•  3M Company

 

•  EMC Corporation

 

•  Eaton Corporation plc

 

•  Emerson Electric Co.

 

•  Illinois Tool Works Inc.

  

•  Johnson Controls International plc

 

•  Parker-Hannifin Corporation

The following chart shows how Raytheon compares to the core peer group and the broader peer group on several fundamental metrics.

 

COMPANY

 

 

INDUSTRY

 

  FY 2016
REVENUE ($M)
    MARKET CAP
AS OF 12/31/16 ($M)
    EMPLOYEES
AS OF 12/31/16
 

Raytheon

 

Aerospace and Defense

    24,100       41,600       63,000  

Core Peers

       

•   General Dynamics Corporation

  Aerospace and Defense     31,400       52,200       98,800  

•   Harris Corporation

  Aerospace and Defense     7,500       10,300       21,000  

•   Honeywell International Inc.

  Aerospace and Defense/Electrical Equipment     39,300       88,100       131,000  

•   L-3 Communications Holdings, Inc.

  Aerospace and Defense     10,500       11,800       38,000  

•   Lockheed Martin Corporation

  Aerospace and Defense     47,200       72,200       97,000  

•   Northrop Grumman Corporation

  Aerospace and Defense     24,500       40,700       67,000  

•   Textron Inc.

  Aerospace and Defense     13,800       13,100       36,000  

•   The Boeing Company

  Aerospace and Defense     94,600       96,100       150,500  

•   United Technologies Corporation

  Aerospace and Defense/Electrical Equipment     57,200       88,700       201,600  

Additional Peers

       

•   3M Company

  Consumer Discretionary/Containers and Packaging     30,100       106,600       90,000  

•   Eaton Corporation plc

  Electrical Equipment     19,700       30,300       95,000  

•   EMC Corporation(1)

  Technology     24,600       53,200    

•   Emerson Electric Co.

  Electrical Equipment     14,500       35,000       103,500  

•   Illinois Tool Works Inc.

  Industrials     13,600       42,500       50,000  

•   Johnson Controls International plc

  Automotive/Electrical Equipment     37,700       43,500       135,000  

•   Parker-Hannifin Corporation

  Machinery     11,400       14,500       48,950  

Source: Bloomberg

 

(1) EMC revenues are for trailing twelve months ended June 30, 2016, and market capitalization is as of June 30, 2016. EMC was acquired by Dell Technologies in September 2016.


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34    RAYTHEON  |  2017 Proxy Statement    COMPENSATION DISCUSSION AND ANALYSIS

 

The MDCC reviews both peer groups annually. From time to time, with input from the independent compensation consultant, we adjust the composition of the peer groups to reflect changes in our strategy and markets or changes in the peer group companies themselves. Effective for 2017, we removed EMC Corporation from the broader peer group (because it was acquired by Dell Technologies) and added Deere & Company.

The MDCC obtains information from its independent compensation consultant on the compensation levels, programs and practices of the companies in the core and broader peer groups. Statistical techniques, such as regression analysis, typically are used to adjust the data to account for differences in company size. The MDCC also considers market survey data published by third parties regarding companies outside of our peer groups as a general indicator of relevant market conditions and pay practices and as a broader reference point. The MDCC also considers information on market and peer compensation trends (levels, mix, vehicles and metrics) from its consultant.

Market data — primarily for our broader peer group — is an important consideration when the MDCC establishes and evaluates compensation levels for our NEOs. In setting our NEOs’ target total direct compensation, the MDCC uses the market median for comparable positions as a reference in order to ensure such compensation opportunities are market-competitive and meet the other objectives of our executive compensation program. The MDCC also considers other factors in setting individual executive compensation, including:

 

  The executive’s compensation history and experience in the position;

 

  The executive’s performance against individual goals and contribution to Raytheon’s financial and operational performance; and

 

  The executive’s relative level of responsibility with Raytheon and the impact of his or her position on Raytheon.

As a result of individual and Raytheon performance and the foregoing considerations in setting our NEOs’ target total direct compensation, the actual compensation for any individual NEO can vary from the market median.

As shown in this graphic, our NEOs’ 2016 total direct compensation was competitively positioned in comparison to compensation for their counterparts in our broader peer group, according to a market assessment prepared by the MDCC’s compensation consultant.

Raytheon Compensation Compared to Peer Group

 

 

LOGO

To confirm that actual pay is aligned with Raytheon’s performance, the independent compensation consultant analyzes prior year pay-for-performance alignment when peer group performance data becomes available. Most recently, in mid-2016, Pearl Meyer used 2015 peer performance data to analyze compensation for our 2015 NEOs. The analysis assessed the correlation between our short-term pay (annual incentive award) and short-term performance and our long-term pay (long-term incentive awards and restricted stock) and long-term performance relative to the peer group over a three-year period. Pearl Meyer considered reported financial results and total shareholder return in making these comparisons. For 2015, Pearl Meyer concluded that short-term pay was generally aligned with short-term performance, and that realizable long-term pay was closely aligned with long-term performance.


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COMPENSATION DISCUSSION AND ANALYSIS     RAYTHEON  |  2017 Proxy Statement     35

 

EXECUTIVE COMPENSATION IN 2016

This section describes the three types of total direct compensation that make up our executive compensation program, as well as the decisions made and compensation awarded in 2016.

TOTAL DIRECT COMPENSATION MIX

The MDCC annually reviews the relative mix of our compensation elements against market data regarding the compensation mix awarded to people in comparable positions at other companies. In particular, we look at how the total direct compensation opportunity (i.e., the sum of base salary, target annual incentive, and target long-term incentives) is distributed in the following categories:

 

  Fixed versus variable

 

  Short-term versus long-term

 

  Cash versus equity-based

As shown in the charts below, our 2016 executive compensation was heavily weighted toward variable, performance-based elements, and toward long-term and equity-based elements.

 

CEO Compensation

 

 

LOGO

 

Other NEOs Compensation

 

 

LOGO

 

 

This graph also appears on page 5.

 

 

According to an analysis performed by Pearl Meyer, these weightings were in line with those of our peer groups for executives holding comparable positions.

BASE SALARY

The MDCC reviews the base salaries of our executive officers annually and whenever an executive changes position. Our CEO makes salary recommendations with respect to his direct reports. To maintain competitive levels, we refer to the median of base salaries for comparable positions in our broader peer group in setting our NEOs’ base salaries and annual salary changes. However, the MDCC also considers individual factors as discussed above under “Market Data,” including scope of responsibilities and years of experience, so individual executive salaries can vary from the market median.

In 2016, Mr. Kennedy’s base salary was increased by 7.5%, bringing his base salary closer to the 50th market percentile for his position as CEO. Mr. O’Brien’s base salary was increased by 31% to reflect his additional experience and strong individual performance as CFO in 2016, and to bring his base salary closer to the 50th market percentile for his position. Base salaries for the three other NEOs increased by an average of 3.7%.


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ANNUAL CASH INCENTIVES — RBI

In 2016, each NEO participated in our annual Results-Based Incentive (RBI) Plan. RBI awards were determined through the process described below.

 

NEO target RBI

payouts are

established

  At the beginning of the year, each NEO is assigned a target payout expressed as a percentage of base salary.
 

• CEO – 200%

  

• Other NEOs – 100%

Raytheon

performance goals

are set for RBI

funding pool

  At the beginning of the year, Raytheon performance metrics are selected and goals are set based on Raytheon’s annual operating plan. The metrics for 2016 were:
 

• Bookings

  

• Net Sales

 

• Free Cash Flow

  

• Operating Income from Continuing Operations

Raytheon

performance is

assessed and RBI

funding is determined

 

At the end of the year, the MDCC assesses Raytheon’s performance against the goals and determines the funding of the RBI pool.

 

All NEO RBI awards are funded through the total-company RBI pool, not the business unit funding pools.

Individual NEO performance

is evaluated

 

The MDCC considers each NEO’s performance against the NEO’s individual quantitative and qualitative goals.

 

This individual performance assessment is used to differentiate RBI payouts and motivate and reward extraordinary performance.

Final RBI awards

are determined

and approved

 

The RBI funding (as a percentage of target) is applied against each NEO’s target RBI payout; that funded amount is then adjusted based on the NEO’s individual performance assessment.

 

The MDCC recommends the NEO RBI awards to the Board for its approval.

TOTAL-COMPANY PERFORMANCE GOALS

The MDCC sets Raytheon performance goals for selected financial metrics. Raytheon’s total-company results against those metrics drive the funding of the total-company RBI pool. In order to promote alignment and collaboration across the enterprise, all executive officer RBI awards (including those of individual business presidents) are based on total-company results. Our businesses also have separate financial metrics and RBI pools for their employees (other than the business presidents).

For 2016, consistent with past practice, the MDCC selected the following financial metrics for determining funding levels of the RBI pools.

 

 

   

 

 

 

LOGO

 

 

 

BOOKINGS

 

Forward-looking metric that measures the value of new contracts awarded to us during the year; indicator of potential future growth.

   

 

 

 

LOGO

 

 

 

NET SALES

 

Growth metric that measures our revenue for the current year.

 

 

   

 

 

 

LOGO

 

 

 

FREE CASH FLOW (FCF) (1)

 

Measure of cash generated in a given year available for use in strategic investments to grow our businesses or otherwise generate return to our shareholders.

   

 

 

 

LOGO

 

 

 

OPERATING INCOME FROM CONTINUING OPERATIONS(1)

 

Measure of our profit from continuing operations for the year, before interest and taxes, and after certain non-operational adjustments.

 
(1) FCF and Operating Income from Continuing Operations are non-GAAP financial measures. FCF is operating cash flow from continuing operations less capital spending and internal use software spending, excluding the impact of changes to cash flow from pension and post-retirement benefits-related items and other similar non-operational items. Operating Income from Continuing Operations is operating income from continuing operations, excluding the FAS/CAS pension and postretirement benefits expense/income and, from time to time, certain other items.


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These metrics, considered in the aggregate, are strong indicators of our overall performance and our ability to create shareholder value. They are balanced among long- and short-term performance and growth and efficiency, and are aligned with our business strategies. For example, we continue to focus on growing our business in core defense and new markets, both domestic and international. We expect our success in this area to be reflected in our bookings in the shorter term and net sales in the longer term. In addition to growing our business, we maintain a strong focus on program execution in order to maximize operating income and cash.

At the end of each year, Raytheon’s total-company RBI pool is funded (or not funded) based on Raytheon’s performance against these targets. In assessing performance against each financial metric, the MDCC considers both quantitative results and qualitative factors. Qualitative factors may include the impact of unanticipated events or events outside of our control, such as acquisitions and divestitures, delays in the timing of contract awards, changes in accounting standards, and certain non-operational items. Following this assessment, the MDCC may adjust performance results to more accurately reflect Raytheon’s overall operational performance. Funding for each individual metric is based on the threshold, target and maximum goals. If we do not achieve the threshold for a metric, the MDCC allocates no funds to the RBI pool for that metric.

The following table summarizes, for the 2016 total-company RBI pool, the pre-established performance target, the MDCC’s assessment of results against each target, and the resulting funding percentage for each target.

 

Financial Metric (Weighting)    Performance Target        MDCC Assessment of
Total-Company Results
as a Percentage  of Target
       RBI Funding  
Bookings (20%)    $ 25.91B          111.4%          22.3%  
Net Sales (30%)    $ 24.33B          98.6%          29.6%  
Free Cash Flow (FCF) (20%)    $ 2.30B          112.2%          22.4%  
Operating Income from Continuing Operations (30%)    $ 2.68B          104.5%          31.3%  
Total-Company Funding Level                            105.6%  

The 2016 results across all RBI metrics, leading to our total-company RBI funding level of 105.6% of target, are indicative of our strong growth, particularly in domestic and domestic classified programs, as well as our solid margins and strong cash flow for the year.

INDIVIDUAL PERFORMANCE GOALS

Each NEO has quantitative and qualitative individual performance goals that are established annually. We believe individualized goals promote personal accountability and help differentiate our executives’ compensation based on performance. Each NEO’s RBI award is therefore subject to both Raytheon performance (via total-company funding results, as described above) and individual performance. In order to motivate and reward extraordinary performance, individual RBI awards are structured so that payouts can be significantly higher than target. Alternatively, an executive who underperforms in relation to individual goals would receive an RBI award that is below target.

RBI individual performance goals for the CEO. The MDCC recommends, and the full Board (excluding the CEO) approves, our CEO’s goals. In connection with his annual performance evaluation, our CEO prepares a written self-assessment of his performance against these goals. The MDCC discusses our CEO’s performance and develops a preliminary performance evaluation, which is then discussed by all of the independent directors in an executive session of the Board. Based on this evaluation, the MDCC recommends, and the full Board (excluding the CEO) approves, the CEO’s RBI award and other compensation.


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RBI individual performance goals for the other NEOs. For our other NEOs, our CEO provides input to the MDCC with regard to appropriate performance goals and provides his assessments and recommendations regarding individual performance.

Examples of individual performance goals for our NEOs for 2016 include:

 

  Achieving specified goals relating to the implementation of Raytheon’s strategy to drive profitable growth and create shareholder value;

 

  Achieving financial goals within the individual’s business or functional area;

 

  Establishing and maintaining strong customer relationships by providing excellent program performance and innovative solutions;

 

  Successfully managing the individual’s business or functional organization, including improvement in employee engagement and retention;

 

  Successfully implementing exemplary regulatory and compliance initiatives;

 

  Achieving sustainability and health and safety goals by increasing energy efficiency and successfully implementing workplace safety initiatives; and

 

  Leveraging diversity and inclusion to achieve global growth, enterprise collaboration and competitive advantage.

Achievement of individual performance goals. A summary of each NEO’s 2016 individual performance follows.

 

 

  THOMAS A. KENNEDY   CHAIRMAN AND CHIEF EXECUTIVE OFFICER

 

  Continued to drive revenue growth, leading to a 3.5% increase from 2015.

 

  Led Raytheon to strong share price performance and strong performance against its business plan, resulting in a 16.9% total shareholder return.

 

  Continued Raytheon’s return of capital to shareholders via dividends and share repurchases, while maintaining a strong balance sheet.

 

  Executed our growth strategy, resulting in global demand across Raytheon’s missile defense; electronic warfare; cybersecurity; command, control, communications, computers, cyber, intelligence, surveillance and reconnaissance; and training portfolios, as well as a
   

Raytheon record level of bookings in 2016. Key 2016 international awards include Patriot Air and Missile Defense Systems contracts for several countries.

 

  Enhanced our commercial cyber growth by closing the acquisition of Intel’s Next Generation Firewall business.

 

  Promoted continued excellence in corporate governance and responsibility, diversity and inclusion, health and safety, and sustainability. In 2016, Raytheon was named one of Forbes’ Top 10 Employers for Veterans, received the Energy Star Partner Award from the U.S. Environmental Protection Agency for the 10th year, and was recognized as one of America’s Most Admired Corporations for Supplier Diversity by Minority News USA.
 

 

 

  ANTHONY F. O’BRIEN   VICE PRESIDENT AND CHIEF FINANCIAL OFFICER

 

  Contributed significantly to the delivery of strong financial performance against Raytheon’s business plan and to strong share price performance, demonstrated by a total shareholder return of 16.9%.

 

  Led Raytheon’s investor outreach efforts to enhance investors’ understanding of our strategy and value creation.
  Promoted initiatives to simplify processes and gain efficiencies in key strategic areas.

 

  Drove the integration of Forcepoint, including the acquisition of Intel’s Next Generation Firewall business, as well as the implementation of systems and controls, and provided ongoing support.

 

  Led Raytheon’s ongoing initiative to embed export/import monitoring and controls into business processes.
 


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COMPENSATION DISCUSSION AND ANALYSIS     RAYTHEON  |  2017 Proxy Statement     39

 

 

 

 

  DAVID C. WAJSGRAS   VICE PRESIDENT, AND PRESIDENT OF INTELLIGENCE, INFORMATION AND SERVICES (IIS)

 

  Led Raytheon’s Intelligence, Information and Services (IIS) business and exceeded that business’ global bookings and free cash flow objectives in 2016, with qualified new business opportunities increasing by 50%.

 

  Improved alignment for investments in growth opportunities, increasing resource allocation toward the transformational capabilities of cyber, analytics and automation, and created significant competitive
   

discriminators for Raytheon that address both cyber vulnerabilities and cyber-hardening.

 

  Successfully directed the GPS-OCX program through a Nunn-McCurdy certification process and positioned the program to achieve critical requirements and meet key milestones going forward.

 

  Drove final implementation of a highly-advanced major international nation-state level cybersecurity program.
 

 

 

  RICHARD R. YUSE   VICE PRESIDENT, AND PRESIDENT OF SPACE AND AIRBORNE SYSTEMS (SAS)

 

  Led Raytheon’s Space and Airborne Systems (SAS) business to meet or exceed its 2016 goals with respect to sales, operating profit and record backlog, while achieving strong international bookings.

 

  Strategically addressed changing market dynamics by effectively focusing SAS on key technology investments that position the business for future growth, as reflected
   

in new awards in Space programs and large follow-on awards in the Electronic Warfare segment.

 

  Achieved nearly 100% win rate in strategic customer R&D awards and successful Electro-Optical/Infrared demonstrations.

 

  Created a program and technology portfolio with synergies across the Department of Defense, Intelligence Community and international markets.
 

 

 

  TAYLOR W. LAWRENCE   VICE PRESIDENT, AND PRESIDENT OF MISSILE SYSTEMS (MS)

 

  Led Raytheon’s Missile Systems (MS) business unit to solid performance in 2016, resulting in a new record for sales.

 

  Directed efforts to capitalize on global demand for MS products, highlighted by the ramp to record production rates for Paveway laser-guided bombs.

 

  Drove a business focus on customer satisfaction and mission assurance, as demonstrated by the Standard
   

Missile-6’s first-ever engagement of a surface target, adding to the missile’s multi-mission capability.

 

  Led the continued development and investment by MS in innovative technologies with the goal of providing rapid, high-quality, affordable mission solutions to its customers, as shown through MS’ selection for the development of the Hypersonic Air-breathing Weapon Concept (HAWC).
 

 

RBI PAYOUTS

The following table depicts each NEO’s target RBI award (the amount each would receive assuming achievement of target Raytheon and individual performance), the target RBI award amount as adjusted for total-company funding of 105.6% (described above), and each NEO’s actual RBI award (target 2016 RBI award amount as adjusted based on both Raytheon and individual performance).

 

NEO    Target 2016 RBI Award        Target 2016 RBI Award As Adjusted for
Total-Company Funding of 105.6%
       Actual 2016 RBI Award  

Thomas A. Kennedy

   $ 2,650,044        $ 2,798,447        $ 2,938,400  

Anthony F. O’Brien

     649,917          686,312          734,400  

David C. Wajsgras

     977,101          1,031,819          1,052,500  

Richard R. Yuse

     800,800          845,645          997,900  

Taylor W. Lawrence

     737,610          778,916          817,900  


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40    RAYTHEON  |  2017 Proxy Statement    COMPENSATION DISCUSSION AND ANALYSIS

 

LONG-TERM EQUITY INCENTIVES — LTPP AND RESTRICTED STOCK

Our NEOs receive long-term equity incentive awards in two forms: performance-based restricted stock units pursuant to our Long-Term Performance Plan (LTPP), and time-based restricted stock. In setting our NEOs’ aggregate long-term incentive award opportunities, the MDCC references the market median for total direct compensation, and considers the NEOs’ target cash compensation (base salary and RBI) and the individual factors discussed above under “Market Data.”

In 2016, the aggregate value of Mr. Kennedy’s long-term incentive award opportunities increased by 12.7% compared to 2015, and the aggregate value of Mr. O’Brien’s long-term incentive award opportunities increased by 27.8% compared to 2015, in each case to bring the NEO’s target total direct compensation closer to the 50th market percentile.

LONG-TERM PERFORMANCE PLAN

The LTPP awards performance-based restricted stock units that vest at the end of a three-year performance cycle based on Raytheon performance against pre-established financial goals set by the MDCC. The MDCC has elected to make the LTPP award payouts in common stock, but it could elect to settle these awards in cash. LTPP awards are granted annually to provide continuity of opportunity and marketplace consistency. Financial results for any single year will affect the payouts for each of three overlapping three-year performance periods.

Target LTPP payout opportunities. The MDCC sets, for each executive, a target LTPP payout opportunity for each performance cycle. Depending on Raytheon’s performance, an executive can receive a payout ranging from zero to 200% plus accrued dividend equivalents.

Raytheon performance goals. The performance goals for the 2016-2018, 2015-2017, and 2014-2016 performance periods are based on return on invested capital (ROIC), cumulative free cash flow (CFCF), and total shareholder return (TSR). The table below explains these metrics and the weighting assigned to each.

 

 

   

 

LOGO

 

ROIC(1)

 

Measure of how efficiently and effectively we use capital to generate returns, including through investments and acquisitions. Our ability to generate returns efficiently and effectively is critical to our growth and the funding of our operations.

 

 

   

 

LOGO

 

CFCF(1)

 

Measure of cash generated over the three-year performance period that is available for use in strategic investments to grow our businesses or otherwise generate return to our shareholders. Our ability to generate cash is critical to our growth and the funding of our operations.

 

 

   

 

LOGO

 

TSR(1)

 

Measure of our stock price appreciation, including reinvested dividends, over the three-year performance period in comparison to our core peers’ stock performance over the same period. Investors recognize TSR as an appropriate measure to motivate executives and to achieve alignment with our shareholders’ interests.

 

(1) ROIC, CFCF and TSR are non-GAAP financial measures. The calculation of CFCF is the FCF calculation described above under the RBI plan over a three-year performance cycle. TSR is calculated using 30-trading-day average stock prices at the beginning of the performance cycle and following the end of the cycle. The calculation of ROIC is (a) the sum of (i) income from continuing operations, excluding the after-tax effect of the FAS/CAS pension and postretirement benefits expense/income and, from time to time, certain other items, (ii) after-tax net interest expense, and (iii) one-third of operating lease expense after-tax (estimate of interest portion of operating lease expense), divided by (b) the sum of (i) average invested capital after capitalizing operating leases (operating lease expense times a multiplier of 8), (ii) financial guarantees, less net investment in discontinued operations, and (iii) the liability for defined benefit pension and other postretirement benefit plans, net of tax, less other similar non-operational items. Such calculation also includes certain variations due to averaging the metric over the three-year performance cycle.


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The MDCC believes these three metrics, considered in the aggregate, fairly represent Raytheon’s overall performance, and Raytheon performance in these areas leads to the creation of long-term value for our shareholders. For comparative TSR performance, we use our core peer group companies because their businesses and operations are similar to ours.

At the beginning of each performance cycle, the MDCC sets target, threshold and maximum Raytheon performance levels over the three-year period for each metric based on the first three years of our five-year financial plan. The MDCC does not change the LTPP targets, even if there are subsequent revisions to our business projections and plans. However, from time to time, including for the 2014-2016 performance cycle, the MDCC specifically establishes potential adjustments to performance in LTPP awards. These potential adjustments reflect the economic and industry uncertainty and conditions over the past several years and the attendant challenges of setting three-year performance targets. Specifically, potential adjustments account for differences between the conditions reasonably assumed when metrics are established and the actual conditions that might develop over the course of three years. The conditions, which the MDCC views as largely outside Raytheon’s control, generally relate to U.S. Department of Defense (DoD) budget levels and contract award uncertainties and, for certain performance cycles, the timing of international contract awards. Potential adjustments are predetermined by the MDCC using clearly articulated objective criteria. Performance metrics and goals are not subject to further adjustment, although the MDCC retains negative discretion to adjust awards lower in compliance with Section 162(m) of the Internal Revenue Code (IRC). See “Tax Considerations” on page 46. Based on management’s recommendation and the MDCC’s assessment of overall economic conditions and the DoD budget and contracting environment, the MDCC did not provide for adjustments for the 2015-2017 and 2016-2018 LTPP performance cycles.

LTPP awards are paid out at the end of their three-year cycles based on Raytheon performance against these predetermined goals. In each case, the goals are independent and additive, which means that if we miss the threshold performance as to one measure, no credit would apply to that element, but above-target performance on another metric could make up for part or all of the shortfall.

Achievement of performance goals. The following table summarizes, for the 2014-2016 LTPP award cycle, our performance in the three metrics and the corresponding funding. As discussed above, the 2014-2016 LTPP awards were subject to adjustment for lower DoD budgets and the timing of international contract awards during the cycle. Ultimately, the MDCC adjusted the final ROIC and CFCF performance measurements due to delays in international contract awards in 2016, but not for the DoD budget, which was higher than expected.

 

Financial Metric (Weighting)    Target Performance      Maximum Performance      MDCC-Determined Performance      Final LTPP Funding

ROIC (50%)

   12.12%      13.67%      13.42%      87.5%(1)

CFCF (25%)

   $5,864 M      $7,364 M      $6,163 M      25%(1)

TSR (25%)

   Ranking 5th      Ranking 2nd      Ranked 4th      33.3%

Overall Payout Factor %

                        145.8%

 

(1) ROIC was adjusted by 0.44% and CFCF was adjusted by $212 million, in each case for timing of international contract awards.

The overall payout factor of 145.8% of target reflects strong Raytheon performance during the performance cycle. The results across all 2014-2016 LTPP metrics are indicative of our return to growth ahead of schedule, our stronger than expected growth rate (particularly in domestic and domestic classified programs), and our consistently solid margins and strong cash flow.

RESTRICTED STOCK AWARDS

In 2016, we granted time-based restricted stock awards to Messrs. O’Brien, Wajsgras and Lawrence. These awards vest in three equal tranches on each of the second, third and fourth anniversaries of the grant date provided the employee remains employed with Raytheon on the scheduled vesting dates.

Since 2014, we have granted, in lieu of restricted stock awards, restricted stock units (called “60/10 RSUs”) to certain employees who have attained the age of 60 with at least ten years of service with Raytheon. Unlike our restricted stock, 60/10 RSUs continue to vest (but do not accelerate) as scheduled, even if the recipient retires. As a condition of continued post-retirement vesting, an employee must comply with certain covenants, including non-competition, non-solicitation of employees, non-interference with contractual arrangements, confidentiality, and cooperation in certain specified instances. In 2016, we granted 60/10 RSUs to Messrs. Kennedy and Yuse.


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42    RAYTHEON  |  2017 Proxy Statement    COMPENSATION DISCUSSION AND ANALYSIS

 

PERQUISITES AND OTHER EXECUTIVE BENEFITS

While they are a relatively small portion of our executives’ total direct compensation opportunities, perquisites and other executive benefits are important to ensure competitiveness at the senior leadership level. Under our executive perquisite policy, we provide our executive officers a car allowance, financial planning services, executive physicals, and life insurance coverage. We also provide other perquisites (such as home security and use of corporate aircraft) to certain executives in limited circumstances due to our security and personal safety requirements. Individually and in the aggregate, the perquisites we provide to our NEOs are comparable in scope to those provided by the companies in our peer groups, particularly in the core peer group of aerospace and defense companies.

SAY-ON-PAY AND SHAREHOLDER OUTREACH

Since 2011, we have asked our shareholders to vote annually, on an advisory basis, on executive compensation. We have consistently received strong shareholder support — most recently garnering a 94.9% affirmative vote in 2016. This year, in addition to voting on our executive compensation, shareholders will have the opportunity to vote on the frequency of future say-on-pay votes.

In 2016 we continued to solicit input from many of our shareholders on various executive compensation and governance matters, resulting in discussions with representatives of institutional shareholders owning approximately 36% of Raytheon’s outstanding shares. We also communicated with a number of other investors, as well as proxy advisory and corporate governance organizations. For this proxy season we have enhanced our executive compensation disclosures, among other changes, as a result of these discussions. Other key initiatives are discussed under “Shareholder Engagement” on page 18. We will continue our shareholder outreach efforts in 2017.

In light of the strong support conveyed by the say-on-pay voting results and other input received from shareholders, as well as the factors discussed in this Compensation Discussion and Analysis, the MDCC continues to believe our existing compensation approach is appropriate for Raytheon and its business in the current market environment. The MDCC will continue to monitor shareholder advisory votes and to seek shareholder input on compensation matters, and, in consultation with its independent compensation consultant, will consider changes to the executive compensation program as appropriate.

INDEPENDENT COMPENSATION CONSULTANT

Since 2010, the MDCC had retained Pearl Meyer, an independent compensation consulting firm, to provide a variety of services. Effective November 1, 2016, the MDCC engaged FW Cook to serve as its independent compensation consulting firm, replacing Pearl Meyer. Pearl Meyer will continue to provide certain limited services to the MDCC during a transition period.

Among other things, the MDCC’s compensation consultant provides information on compensation levels, programs and practices within certain peer groups and the broader market; reports on compensation trends among our peers and the broader market; and performs a pay-for-performance assessment. The MDCC’s compensation decision-making process relies on this work product, together with MDCC members’ judgment and experience, and information, analyses and recommendations provided by management.

The MDCC has a formal Compensation Consultant Independence Policy to ensure the committee receives independent and unbiased advice and analysis. The policy prohibits the consultant from providing services of any nature to Raytheon officers and directors personally, and prohibits the consultant from providing to Raytheon advice related to executive and director compensation, employee compensation and employee benefits, other than the advice provided to the MDCC and to the Governance and Nominating Committee with respect to director compensation. In addition, when selecting a compensation committee advisor, the policy and the MDCC’s charter require the MDCC to consider all relevant factors specified by NYSE standards. In connection with retaining FW Cook, the MDCC assessed FW Cook’s independence in light of these requirements and determined that the firm is independent and that the firm’s work does not raise any conflicts of interest. The MDCC had previously assessed Pearl Meyer’s independence in March 2016 and determined that Pearl Meyer continues to be independent and that Pearl Meyer’s work for the MDCC did not raise any conflicts of interest.

The MDCC is required to pre-approve any services that its compensation consultant proposes to provide to Raytheon. As a guideline to avoid any actual or perceived conflict of interest or bias, MDCC policy limits the fees paid by Raytheon for such non-MDCC services to no more than 1% of the consulting firm’s annual gross revenues. In 2016, the MDCC pre-approved a transaction in which Raytheon acquired from Pearl Meyer certain industry compensation surveys. The fees paid for these surveys were less than $10,000 — well below the threshold. FW Cook did not provide any services to Raytheon in 2016.


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COMPENSATION DISCUSSION AND ANALYSIS     RAYTHEON  |  2017 Proxy Statement     43

 

MANAGEMENT OF COMPENSATION-RELATED RISK

While risk is inherent in many aspects of our business operations, we believe the following features of our compensation program help us appropriately manage compensation-related risk:

 

  We rely on an assortment of vehicles for delivering compensation, both fixed and variable, including cash and equity-based measures with different time horizons, to focus our executives on specific objectives that help us achieve our business plans and create an alignment with long-term shareholder interests.

 

  Compensation is based on a combination of appropriately weighted performance measures so that executives focus on the business as a whole rather than individual metrics.

 

  Performance-based awards are capped to prevent undue efforts to surpass the target for any particular measure.

 

  Incentive compensation for the NEOs is based on individual performance and Raytheon’s overall performance, not the performance of specific business units only.

 

  The MDCC adheres to stringent guidelines when retaining a compensation consultant.

 

  Our clawback policy provides a means to recover certain cash and equity incentive compensation awarded in reliance on erroneous financial statements substantially caused by the executive’s knowing or intentionally fraudulent or illegal conduct.

 

  Our equity grant policies ensure that equity awards are granted only on the dates of regularly scheduled Board meetings, and not on dates that are tied to the release of material information.

 

  The NEOs (as well as our directors and many other executive officers) must comply with rigorous stock ownership and retention guidelines.

The MDCC has reviewed with management the design and operation of our incentive compensation arrangements for all employees, including executive officers, for the purpose of determining whether such programs might encourage inappropriate risk-taking that would be reasonably likely to have a material adverse effect on Raytheon. The MDCC concluded that Raytheon’s compensation plans, programs and policies, considered as a whole, including applicable risk mitigation features, are not reasonably likely to have a material adverse effect on Raytheon.

RETIREMENT BENEFITS AND DEFERRED COMPENSATION

RETIREMENT BENEFITS

Retirement benefits fulfill an important role within our overall executive compensation program because they provide an element of financial security that promotes retention. Our retirement program, including the amount of benefit, is comparable to those offered by the companies in our peer groups and, as a result, ensures that our executive compensation remains competitive.

We maintain the following broad-based retirement plans:

 

  the Raytheon Savings and Investment Plan (RAYSIP), a tax-qualified defined contribution retirement plan (401(k) plan) in which all of our executive officers are eligible to participate in the same manner as substantially all other employees;

 

  tax-qualified, defined benefit pension plans in which all executive officers who joined us before December 31, 2006, are eligible to participate; and

 

  the Retirement Income Savings Program (RISP) within RAYSIP, a tax-qualified defined contribution plan for employees who joined us after December 31, 2006.

We also sponsor certain other non-qualified retirement plans, including:

 

  the Raytheon Excess Pension Plan, a nonqualified excess pension plan that provides benefits that would have been provided to a participant under the tax-qualified pension plan but for compensation and benefit limits imposed under the U.S. Internal Revenue Code (IRC); and

 

  the Raytheon Company Supplemental Executive Retirement Plan (SERP), a nonqualified plan for eligible senior executives, including our NEOs, designed to replicate, but not exceed, the retirement benefit that a mid-career person joining Raytheon would have achieved under the qualified and excess pension plans had such person begun his or her career with Raytheon.


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44    RAYTHEON  |  2017 Proxy Statement    COMPENSATION DISCUSSION AND ANALYSIS

 

Messrs. Kennedy and Yuse will not receive a payment under the SERP because each of their pension benefits under the formula in our qualified and excess pension plans exceeds the maximum 50% of final average earnings that the SERP would provide in connection with a retirement. Our other NEOs could be eligible for SERP benefits, depending on when they retire.

Each of our retirement plans is described in more detail under the heading “Pension Benefits” beginning on page 52.

DEFERRED COMPENSATION PLAN

We maintain the Raytheon Deferred Compensation Plan under which employees, including our NEOs, who are projected to reach the IRC compensation limit may elect to defer 3% to 50% of their salary in excess of the limit and 3% to 90% of their annual RBI plan awards, and receive tax-deferred returns on those deferrals. We make a matching contribution of up to 4% of deferred compensation. For more information on our Deferred Compensation Plan, see “Nonqualified Deferred Compensation” on page 54.

SEVERANCE PAY ARRANGEMENTS

EXECUTIVE SEVERANCE GUIDELINES AND OFFER LETTERS

Our employees, including our NEOs, are employees at-will; they do not have long-term employment contracts with Raytheon. The at-will employment status of our employees affords us the necessary flexibility to remove employees when appropriate under the circumstances. However, in order to retain and attract highly-qualified executives who may otherwise desire the protection of long-term employment contracts, we offer specified benefits under our executive severance guidelines and under certain NEO offer letters. These benefits provide for the continuation of base salary and health and welfare benefits for two years, and a payment equal to two times target annual incentive award, for our CEO and our executive officers who were first elected prior to January 1, 2010. New officers first elected on or after January 1, 2010 (other than an officer in the CEO role) would receive continuation of base salary and health and welfare benefits for one year and a payment equal to the target annual incentive award. In addition, certain Raytheon pension plans provide for continued pension benefits following severance. For more information, see “Potential Payments Upon Termination or Change in Control” beginning on page 55.

CHANGE-IN-CONTROL AGREEMENTS

Separate from our executive severance guidelines, we have change-in-control agreements with all of our executive officers. Changes in corporate control are often accompanied by changes in the corporate culture and job losses, especially at executive levels. If a transaction affecting corporate control of Raytheon were under consideration, we expect that our executives would naturally be faced with personal uncertainties and distractions about how the transaction might affect their continued employment. By entering into change-in-control agreements before any specific transaction is contemplated, we hope to focus our executives’ full attention and dedication on our shareholders’ best interests, despite any threatened or pending change in control, and to encourage our executives to stay with Raytheon until any such transaction is completed.

Our change-in-control agreements provide a meaningful severance benefit in the event that a change in control occurs and, within the following 24 months, the executive is either terminated without cause or resigns due to a material reduction in compensation or a material change in job duties without the executive’s consent. These agreements are not intended to provide a windfall to our executives occasioned by a change in control. The agreements provide for a “double trigger” such that an executive would only receive benefits upon a qualifying termination, and not simply upon a change in control. Our executive severance guidelines and offer letters described above do not apply to a qualifying termination following a change in control, so there would be no duplication of benefits. Our change-in-control agreements provide for post-termination benefits as a multiple of the executive’s most recent base salary. That multiple depends upon the executive’s position with Raytheon and date of hire.

Our change-in-control and severance arrangements, including benefit amounts and the conditions under which they are triggered, are comparable to those provided by the companies in our peer groups. For more information on our executive severance guidelines and the terms of our change-in-control agreements, see “Potential Payments Upon Termination or Change-in-Control” beginning on page 55.


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COMPENSATION DISCUSSION AND ANALYSIS     RAYTHEON  |  2017 Proxy Statement     45

 

COMPENSATION POLICIES

STOCK OWNERSHIP AND RETENTION GUIDELINES

To reinforce our culture and expectation of long-term share ownership, we have implemented the stock ownership guidelines set out below for our elected officers. These guidelines are designed to ensure sustained, meaningful executive share ownership, align executive long-term interests with shareholder interests, and demonstrate our officers’ commitment to enhancing long-term shareholder value. The MDCC and the Governance and Nominating Committee regularly review the requisite ownership levels, as well as attainment of these ownership levels, by our elected officers. Executives have five years from the date on which they became subject to the guidelines to attain the requisite level of ownership, and may not dispose of Raytheon stock until the ownership guideline is satisfied. As of December 31, 2016, each of our NEOs had met or exceeded the applicable stock ownership requirements.

 

LOGO

POLICY AGAINST CERTAIN RAYTHEON STOCK TRANSACTIONS

To ensure alignment with the long-term interests of our other shareholders, Raytheon’s Insider Trading Policy provides that our officers, as well as other employees and non-employee directors, may not engage in:

 

  Short sales of Raytheon stock or transactions in any derivative of a Raytheon security, including puts, calls and options (other than the receipt and exercise of options that might be granted pursuant to a Raytheon compensation plan);

 

  Any type of hedging or similar monetization transaction involving Raytheon securities, including financial instruments such as prepaid variable forwards, equity swaps, collars and exchange funds; or

 

  Other transactions that would permit the holder to own Raytheon securities without the full risks and rewards of ownership.

In addition, Raytheon’s Insider Trading Policy provides that our officers, certain other employees and directors are prohibited from purchasing any Raytheon securities on margin, making any investments on margin in any account in which they hold Raytheon securities, or otherwise pledging Raytheon securities as collateral for a loan.

RESTATEMENT CLAWBACK POLICY

Our executives’ compensation is subject to a Restatement Clawback Policy, which gives the Board the right to recover RBI payments, LTPP awards and restricted stock awards made on or after January 1, 2009, to any elected officer to the extent such payments or awards were inflated due to erroneous financial statements substantially caused by the executive’s knowing or intentionally fraudulent or illegal conduct.


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46    RAYTHEON  |  2017 Proxy Statement    COMPENSATION DISCUSSION AND ANALYSIS

 

TAX CONSIDERATIONS

Under Section 162(m) of the IRC, there is a limit of $1,000,000 on the amount of compensation that we may deduct in any one year with respect to compensation paid to certain of our NEOs. However, qualified performance-based compensation is exempt from the deduction limit if specified requirements are met. Historically, the MDCC has determined that compensation paid pursuant to LTPP awards should generally be structured to be tax deductible, but that other incentive compensation awards should not necessarily be structured to ensure tax deductibility in order to provide the MDCC with the flexibility and discretion to exercise judgment with respect to these awards. Accordingly, we operate the LTPP intending to comply with the Section 162(m) exemption and have obtained the requisite shareholder approval since 2006.

In early 2017, the MDCC considered the tax deductibility under Section 162(m) of our incentive compensation, including those elements that do not currently qualify as performance-based compensation. In March 2017, the Board, on the recommendation of the MDCC and subject to shareholder approval, adopted the Raytheon 2017 Incentive Plan. The Incentive Plan is designed so that payments of RBI and restricted stock and restricted stock unit awards under the plan may be tax deductible. If the Incentive Plan is approved by shareholders, the MDCC would generally seek to qualify our incentive compensation payments and awards to our NEOs, but may authorize compensation payments that may be subject to the IRC limit when the MDCC believes such payments are appropriate. For more information, see “Proposal 4: Approval of the Raytheon 2017 Incentive Plan for Section 162(m) Purposes” on page 60.

MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE REPORT

The Management Development and Compensation Committee is composed entirely of independent directors. The Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on such review and discussions, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

Submitted by the Management Development and Compensation Committee

William R. Spivey, Chairman,

Robert E. Beauchamp, Stephen J. Hadley and George R. Oliver

The above report of the Management Development and Compensation Committee does not constitute soliciting material and shall not be deemed to be incorporated by reference into any other filing under the Securities Act of 1933 or under the Securities Exchange Act of 1934, including by any general statement incorporating this proxy statement, except to the extent we specifically incorporate this information by reference, and shall not otherwise be deemed filed under such Acts.


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EXECUTIVE COMPENSATION TABLES     RAYTHEON  |  2017 Proxy Statement     47

 

EXECUTIVE

COMPENSATION TABLES

SUMMARY COMPENSATION TABLE

The following table shows the total compensation, calculated in accordance with SEC requirements, for Messrs. Kennedy, Wajsgras and Yuse for the fiscal years ended December 31, 2016, 2015, and 2014, and for Messrs. O’Brien and Lawrence, who became NEOs in 2015, for the fiscal years ended December 31, 2016, and 2015. For the NEOs’ 2016 total direct compensation as reviewed by the Management Development and Compensation Committee, see our supplemental table in the “Compensation Discussion and Analysis” section on page 30. The supplemental table is not a substitute for the required table below.

 

Name and Principal Position    Year     

Salary

($)

    

Stock

Awards(1)

($)

    

Non-Equity

Incentive Plan

Compensation(2)

($)

    

Change in

Pension Value

and Non-

Qualified

Deferred

Compensation

Earnings(3)

($)

    

All Other

Compensation(4)

($)

     Total
($)
 

 

Thomas A. Kennedy

Chairman and

Chief Executive Officer

  

 

 

 

2016

 

 

  

 

 

 

$1,299,979

 

 

  

 

$

 

9,117,783

 

 

  

 

 

 

$2,938,400

 

 

  

 

 

 

$6,687,942

 

(5) 

  

 

 

 

$416,692

 

 

  

 

 

 

$20,460,796

 

 

     2015        1,196,467        8,146,724        3,046,500        7,581,207 (5)       406,917        20,377,815  
    

 

2014

 

 

 

    

 

1,057,698

 

 

 

    

 

7,222,279

 

 

 

    

 

2,500,000

 

 

 

    

 

2,630,251

 

 

 

    

 

323,136

 

 

 

    

 

13,733,364

 

 

 

 

Anthony F. O’Brien

Vice President and

Chief Financial Officer

  

 

 

 

2016

 

 

  

 

 

 

$   608,510

 

 

  

 

$

 

2,352,210

 

 

  

 

 

 

$   734,400

 

 

  

 

 

 

$   913,757

 

 

  

 

 

 

$  88,424

 

 

  

 

 

 

$  4,697,301

 

 

     2015        485,686        1,854,885        608,400        200,462        84,692        3,234,125  
                                                              

 

David C. Wajsgras

Vice President, and President,

Intelligence, Information and Services

  

 

 

 

2016

 

 

  

 

 

 

$   971,943

 

 

  

 

$

 

2,604,486

 

 

  

 

 

 

$1,052,500

 

 

  

 

 

 

$7,648,078

 

(6) 

  

 

 

 

$192,304

 

 

  

 

 

 

$12,469,311

 

 

     2015        952,887        2,618,605        1,114,400        470,348        361,838        5,518,078  
    

 

2014

 

 

 

    

 

929,694

 

 

 

    

 

2,922,243

 

 

 

    

 

1,100,000

 

 

 

    

 

1,055,542

 

 

 

    

 

152,328

 

 

 

    

 

6,159,807

 

 

 

 

Richard R. Yuse

Vice President, and President,

Space and Airborne Systems

  

 

 

 

2016

 

 

  

 

 

 

$   792,506

 

 

  

 

$

 

2,604,486

 

 

  

 

 

 

$   997,900

 

 

  

 

 

 

$1,079,815

 

 

  

 

 

 

$450,404

 

 

  

 

 

 

$  5,925,111

 

 

     2015        747,763        2,618,605        887,100        597,130        360,598        5,211,196  
    

 

2014

 

 

 

    

 

678,268

 

 

 

    

 

2,919,487

 

 

 

    

 

800,000

 

 

 

    

 

1,653,168

 

 

 

    

 

158,850

 

 

 

    

 

6,209,773

 

 

 

 

Taylor W. Lawrence

Vice President, and President,

Missile Systems

 

  

 

 

 

2016

 

 

  

 

 

 

$   728,151

 

 

  

 

$

 

2,604,486

 

 

  

 

 

 

$   817,900

 

 

  

 

 

 

$   597,976

 

 

  

 

 

 

$112,023

 

 

  

 

 

 

$  4,860,536

 

 

     2015        693,474        2,618,605        810,900        315,460        112,853        4,551,292  
                                                              

 

(1) Amounts represent the aggregate grant date fair values of long-term equity incentive awards under the Long-Term Performance Plan (LTPP), awarded in the form of restricted stock units (RSUs) and either time-based restricted stock or, for retirement-eligible NEOs, time-based 60/10 RSUs. Our 2016 NEO stock awards were as follows:

 

Name

 

  

2016-2018 LTPP Award

 

    

2016 Time-Based
Restricted Stock Award

 

    

2016 Time-Based
60/10 RSU Award

 

    

Total

 

 

 

Mr. Kennedy

 

  

 

 

 

 

$5,217,803

 

 

 

 

  

 

 

 

 

$             –

 

 

 

 

  

 

 

 

 

$3,899,980

 

 

 

 

  

 

 

 

 

$9,117,783

 

 

 

 

 

Mr. O’Brien

 

  

 

 

 

 

1,252,209

 

 

 

 

  

 

 

 

 

1,100,001

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

2,352,210

 

 

 

 

 

Mr. Wajsgras

 

  

 

 

 

 

1,304,451

 

 

 

 

  

 

 

 

 

1,300,035

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

2,604,486

 

 

 

 

 

Mr. Yuse

 

  

 

 

 

 

1,304,451

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

1,300,035

 

 

 

 

  

 

 

 

 

2,604,486

 

 

 

 

 

Mr. Lawrence

 

  

 

 

 

 

1,304,451

 

 

 

 

  

 

 

 

 

1,300,035

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

2,604,486

 

 

 

 

 

   The grant date fair values are calculated in accordance with the accounting standard for share-based payments. Performance-based RSUs under our LTPP are subject to both internal performance metrics (CFCF and ROIC) and market-based performance conditions (TSR). Values for the CFCF and ROIC portions of the awards are computed based upon the intrinsic value method on the date of grant, adjusted for the probability of achievement. Values for the TSR portion of the awards are based upon the Monte Carlo simulation method. Values for time-based restricted stock awards and time-based RSUs are based on the stock price on the date of grant and the number of shares (the intrinsic value method). For more information on the assumptions we used to calculate the grant date fair values for restricted stock, RSUs and LTPP awards, see “Note 14: Stock-based Compensation Plans” to our financial statements in our annual report on Form 10-K for the year ended December 31, 2016 (2016 Form 10-K).

 

   The values of the 2016-2018 LTPP awards on the grant date, assuming the highest level of performance conditions will be achieved during the three-year performance cycle, are as follows: Mr. Kennedy–$8,967,825; Mr. O’Brien–$2,152,168; Mr. Wajsgras–$2,241,956; Mr. Yuse–$2,241,956; and Mr. Lawrence–$2,241,956.


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48    RAYTHEON  |  2017 Proxy Statement    EXECUTIVE COMPENSATION TABLES

 

 

(2) Represents amounts earned pursuant to annual cash incentive awards under our Results-Based Incentive (RBI) plan for 2016, 2015, and 2014 but which were paid in 2017, 2016, and 2015, respectively.

 

(3) Amounts represent the aggregate change in the actuarial present value of the NEO’s accumulated benefit under all defined benefit and pension plans (including supplemental plans) from the end of the preceding year to the end of the reported year. Generally, these amounts represent the change in value of the NEO’s benefit due to an additional year of service, changes in compensation, and changes in the discount rate. The amounts were computed using the same assumptions we used for financial reporting purposes under the accounting standard for employers’ accounting for pensions. Actual amounts paid under our plans are based on assumptions contained in the plans, which may be different from the assumptions used for financial statement reporting purposes. None of the NEOs received any earnings on their deferred compensation based on above-market or preferential rates.

 

(4) All Other Compensation amounts include the following items that exceeded $10,000 in a particular category for an NEO in 2016. Items in a particular category for an NEO that were $10,000 or less have not been included.

 

Name

 

  

Perquisites and
Personal Benefits(a)

 

    

Tax Gross-Ups(b)

 

    

Company Contributions to
Defined Contribution  Plans(c)

 

    

Insurance Premiums(d)

 

 

 

Mr. Kennedy

 

  

 

 

 

 

$195,160

 

 

 

 

  

 

 

 

 

$           –

 

 

 

 

  

 

 

 

 

$170,051

 

 

 

 

  

 

 

 

 

$33,045

 

 

 

 

 

Mr. O’Brien

 

  

 

 

 

 

22,536

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

54,699

 

 

 

 

  

 

 

 

 

 

 

 

 

 

Mr. Wajsgras

 

  

 

 

 

 

57,892

 

 

 

 

  

 

 

 

 

29,083

 

 

 

 

  

 

 

 

 

80,925

 

 

 

 

  

 

 

 

 

19,405

 

 

 

 

 

Mr. Yuse

 

  

 

 

 

 

214,791

 

 

 

 

  

 

 

 

 

117,130

 

 

 

 

  

 

 

 

 

71,653

 

 

 

 

  

 

 

 

 

46,829

 

 

 

 

 

Mr. Lawrence

 

  

 

 

 

 

27,345

 

 

 

 

  

 

 

 

 

 

 

 

 

  

 

 

 

 

61,912

 

 

 

 

  

 

 

 

 

11,853

 

 

 

 

 

  (a) Each NEO is entitled to receive certain limited perquisites. For 2016, each NEO’s amount includes a car allowance, financial planning services, certain items related to his attendance at employee events, and certain travel and incidental expenses relating to his spouse or family attending Raytheon-related events at our request. The amounts for Messrs. Kennedy and Wajsgras also include personal use of Raytheon aircraft ($148,214 and $6,526, respectively) and the cost of an executive physical. Mr. Kennedy’s amount also includes personal use of a company-provided car and driver and home security system expenses. The amounts for Messrs. Wajsgras and Yuse also include the value of relocation benefits ($14,201 and $170,259, respectively) under our key employee relocation policy.

 

     We require Mr. Kennedy generally to use Raytheon aircraft for all air travel, including for personal purposes, for security and personal safety reasons. Our incremental cost for the personal use of corporate aircraft was calculated by multiplying the number of personal travel hours for an aircraft by that aircraft’s average variable hourly operating cost (including fuel, aircraft maintenance, landing, parking, catering and certain taxes and other miscellaneous fees and costs, but excluding fixed costs such as pilots’ and other employees’ salaries, aircraft purchase price and certain hangar expenses). In determining the number of personal travel hours, we did not include the flight time of any “deadhead” flight (e.g., a return flight on which no passenger was aboard). For trips that involved mixed personal and business usage, we determined the total variable cost attributable to personal use by subtracting the total variable cost of a “business-only” trip from the total variable cost of the whole trip (both personal and business). Based on our average variable operating cost per hour (as derived above), deadhead flights (not included in the foregoing amounts) would have amounted to an additional $55,969 for Mr. Kennedy and $3,043 for Mr. Wajsgras.

 

     Mr. Kennedy frequently travels in Raytheon-provided vehicles operated by Raytheon drivers for business and personal (primarily commuting) purposes for security and personal safety reasons. To determine our incremental cost for Mr. Kennedy’s personal use of a company-provided car and driver, we allocated our total annual costs for the vehicle and driver based on the total vehicle miles in the year and the miles driven for personal purposes, and the total driver hours worked and the hours of driving for personal purposes.

 

  (b) Amounts represent tax gross-up payments relating to imputed income as a result of the NEO’s spouse attending Raytheon-related events at our request, and, in certain instances, relocation benefits. Consistent with prior years, neither Mr. Kennedy nor Mr. Wajsgras received any tax gross-ups for individual personal use of Raytheon aircraft.

 

  (c) Amounts represent the total amount of Raytheon contributions to qualified and nonqualified defined contribution plans. We make a 4% matching contribution to compensation deferred under our qualified Raytheon Savings and Investment Plan (RAYSIP) 401(k) Plan and under our nonqualified, unfunded Deferred Compensation Plan. The Deferred Compensation Plan matching contributions include our matching contribution for deferred 2016 RBI compensation earned in 2016 but made in March 2017.

 

  (d) Amounts represent the total value of Raytheon-paid insurance premiums, including for basic life, senior executive life, executive liability and business travel and accident insurance policies.

 

(5) Mr. Kennedy’s change in pension value in 2015 and 2016 is primarily driven by his increased average compensation for the most recent five-year period as defined in the Raytheon Non-Bargaining Retirement Plan. The 2016 change is due to the replacement of his 2011 compensation with his CEO-level 2016 compensation.

 

(6) Mr. Wajsgras’ change in pension value in 2016 is primarily driven by his satisfaction of the age and service requirements to commence Supplemental Executive Retirement Plan benefits.


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GRANTS OF PLAN-BASED AWARDS

The following table reports the awards granted to each of our NEOs under any plan during the fiscal year ended December 31, 2016.

 

Name

 

  

Grant
Date

 

    

 

Estimated Future Payouts

Under Non-Equity Incentive Plan
Awards(1)

    

 

Estimated Future Payouts

Under Equity Incentive Plan
Awards(2)

    

All
Other
Stock

Awards:

Number of
Shares
of Stock
or Units
(#)(3)

 

   

Grant
Date Fair
Value of
Stock and
Option
Awards
($)(4)

 

 
     

Threshold
($)

 

 

    

Target
($)

 

    

Maximum
($)

 

    

Threshold
(#)

 

    

Target
(#)

 

    

Maximum
(#)

 

      
                   

Thomas A. Kennedy

     1/27/2016                             1,355        42,348        84,696            $ 5,217,803  
     3/23/2016                                                  31,487 (5)      3,899,980  
            $ 397,507      $ 2,650,045      $ 5,300,090                                    

Anthony F. O’Brien

     1/27/2016                             325        10,163        20,326            $ 1,252,209  
     3/23/2016                                                  8,881       1,100,001  
            $ 97,488      $ 649,917      $ 1,299,834                                    

David C. Wajsgras

     1/27/2016                             339        10,587        21,174            $ 1,304,451  
     3/23/2016                                                  10,496       1,300,035  
            $ 146,565      $ 977,101      $ 1,954,202                                    

Richard R. Yuse

     1/27/2016                             339        10,587        21,174            $ 1,304,451  
     3/23/2016                                                  10,496 (5)      1,300,035  
            $ 120,120      $ 800,800      $ 1,601,600                                    

Taylor W. Lawrence

     1/27/2016                             339        10,587        21,174            $ 1,304,451  
     3/23/2016                                                  10,496       1,300,035  
            $ 110,641      $ 737,610      $ 1,475,219                                    

 

(1) Amounts represent the threshold, target and maximum payout opportunities under the 2016 RBI Plan, Raytheon’s annual cash incentive plan.

 

(2) Amounts represent the threshold, target and maximum payout opportunities pursuant to 2016-2018 LTPP performance-based RSU awards. LTPP payout opportunities range from zero to 200% of target. Amounts do not include accrued dividend equivalents.

 

(3) Amounts represent time-based restricted stock awards and/or time-based RSU awards.

 

(4) Amounts represent the grant date fair value of awards of restricted stock and RSUs granted to the NEO in 2016 in accordance with the accounting standard for share-based payments. Values for awards of time-based restricted stock and RSUs are based on the stock price on the date of grant and the number of shares (the intrinsic value method). Performance-based RSUs under our LTPP are subject to both internal performance metrics (CFCF and ROIC) and market-based performance conditions (TSR). Values for the CFCF and ROIC portions of the awards are computed based upon the intrinsic value method on the date of grant, adjusted for probability of achievement, while the values for the TSR portion of the awards are based upon the Monte Carlo simulation method. Values of time-based restricted stock awards and performance-based LTPP RSU awards are generally expensed over the NEO’s requisite service period–generally the vesting period of the awards. 60/10 RSUs that continue to vest into retirement are generally expensed in the period in which they are granted rather than over the vesting period of the awards.

 

(5) Amounts represent awards of 60/10 RSUs to a retirement-eligible employee. These 60/10 RSUs continue to vest (but do not accelerate) on the scheduled vesting dates even after the employee retires, so long as the employee complies with certain post-employment covenants.


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50    RAYTHEON  |  2017 Proxy Statement    EXECUTIVE COMPENSATION TABLES

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table reports information regarding unvested stock and unvested equity incentive plan awards for each of our NEOs outstanding as of December 31, 2016. None of our NEOs held any outstanding options as of December 31, 2016.

 

Name   

Number
of Shares or
Units of
Stock That
Have Not
Vested(1)

(#)

   

Market Value
of Shares or
Units of Stock
That Have Not
Vested(2)

($)

    

Equity Incentive
Plan Awards:

Number of Unearned
Shares, Units or
Other Rights That
Have Not Vested(3)

(#)

   

Equity Incentive
Plan Awards:

Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have  Not Vested(2)

($)

 

Thomas A. Kennedy

     91,397 (4)    $ 12,978,374        87,100 (5)    $ 12,368,200  

Anthony F. O’Brien

     18,500 (6)      2,627,000        20,121 (7)      2,857,182  

David C. Wajsgras

     38,840 (8)      5,515,280        23,001 (9)      3,266,142  

Richard R. Yuse

     32,430 (10)      4,605,060        23,001 (9)      3,266,142  

Taylor W. Lawrence

     37,122 (11)      5,271,324        23,001 (9)      3,266,142  

 

(1) Amounts represent time-based restricted stock awards and, for retirement-eligible NEOs, time-based restricted stock units (60/10 RSUs). Restricted stock awards and 60/10 RSUs vest in three equal tranches on each of the second, third and fourth anniversaries of the grant date. Restricted stock awards vest only if the employee remains employed with Raytheon on the scheduled vesting dates. 60/10 RSUs continue to vest (but do not accelerate) as scheduled, even after the employee retires, so long as the employee complies with certain post-employment covenants.

 

(2) Amounts are equal to $142.00, the closing price of our common stock on the NYSE on December 30, 2016, times the number of unvested shares or units.

 

(3) Amounts assume 2015-2017 LTPP and 2016-2018 LTPP payouts, plus dividend equivalents, at target performance paid in shares of stock. LTPP awards vest at the end of the applicable three-year performance cycle if certain performance goals are attained and the executive remains employed by Raytheon. These awards may be settled in shares of our common stock or cash. The actual number of shares issued or cash paid upon settlement will depend on the extent to which we attained or exceeded the performance goals, and include dividend equivalents accrued over the three-year performance cycle. Amounts exclude 2014-2016 LTPP awards, the cycle for which ended on December 31, 2016; these are included in the “Stock Vested” table.

 

(4) Amount represents the following unvested restricted stock and 60/10 RSU awards for Mr. Kennedy:

 

Grant Date    Unvested Shares   Vesting

May 30, 2013

   9,902   Remaining shares vest on May 30, 2017

May 29, 2014

   20,625   Remaining shares vest ratably on May 29, 2017, and 2018

March 18, 2015

   30,722   Shares vest ratably on March 18, 2017, 2018, and 2019

March 23, 2016

   30,148 RSUs   RSUs vest ratably on March 23, 2018, 2019, and 2020

 

(5) Amount represents the following unvested LTPP awards for Mr. Kennedy:

 

LTPP Cycle    Target Shares      Accrued Dividend     Vesting

2015-2017

     42,389        1,693     End of 3-year cycle on December 31, 2017

2016-2018

     42,348        670     End of 3-year cycle on December 31, 2018

 

(6) Amount represents the following unvested restricted stock awards for Mr. O’Brien:

 

Grant Date    Unvested Shares   Vesting

May 30, 2013

   1,015   Remaining shares vest on May 30, 2017

May 29, 2014

   1,375   Remaining shares vest ratably on May 29, 2017, and 2018

March 18, 2015

   7,229   Shares vest ratably on March 18, 2017, 2018, and 2019

March 23, 2016

   8,881   Shares vest ratably on March 23, 2018, 2019, and 2020

 

(7) Amount represents the following unvested LTPP awards for Mr. O’Brien:

 

LTPP Cycle    Target Shares      Accrued Dividend     Vesting

2015-2017

     9,420        377     End of 3-year cycle on December 31, 2017

2016-2018

     10,163        161     End of 3-year cycle on December 31, 2018

 

(8) Amount represents the following unvested restricted stock awards for Mr. Wajsgras:

 

Grant Date    Unvested Shares   Vesting

May 30, 2013

   5,941   Remaining shares vest on May 30, 2017

May 29, 2014

   10,656   Remaining shares vest ratably on May 29, 2017, and 2018

March 18, 2015

   11,747   Shares vest ratably on March 18, 2017, 2018, and 2019

March 23, 2016

   10,496   Shares vest ratably on March 23, 2018, 2019, and 2020


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(9) Amount represents the following unvested LTPP awards for Messrs. Wajsgras, Yuse and Lawrence:

 

LTPP Cycle    Target Shares      Accrued Dividend     Vesting

2015-2017

     11,775        471     End of 3-year cycle on December 31, 2017

2016-2018

     10,587        168     End of 3-year cycle on December 31, 2018

 

(10) Amount represents the following unvested restricted stock and 60/10 RSU awards for Mr. Yuse:

 

Grant Date    Unvested Shares   Vesting

May 30, 2013

   5,941   Remaining shares vest on May 30, 2017

May 29, 2014

   5,113 RSUs   Remaining RSUs vest ratably on May 29, 2017, and 2018

March 18, 2015

   11,289 RSUs   RSUs vest ratably on March 18, 2017, 2018, and 2019

March 23, 2016

   10,087 RSUs   RSUs vest ratably on March 23, 2018, 2019, and 2020

 

(11) Amount represents the following unvested restricted stock awards for Mr. Lawrence:

 

Grant Date    Unvested Shares   Vesting

May 30, 2013

   5,941   Remaining shares vest on May 30, 2017

May 29, 2014

   8,938   Remaining shares vest ratably on May 29, 2017, and 2018

March 18, 2015

   11,747   Shares vest ratably on March 18, 2017, 2018, and 2019

March 23, 2016

   10,496   Shares vest ratably on March 23, 2018, 2019, and 2020

STOCK VESTED

The following table reports stock vested for each of our NEOs during the fiscal year ended December 31, 2016. None of our NEOs held or exercised any options during the fiscal year ended December 31, 2016.

 

Name   

Number of

Shares

Acquired on

Vesting(1)

(#)

      

Value

Realized on

Vesting(2)

($)

 

Thomas A. Kennedy

     95,086        $ 13,188,713  

Anthony F. O’Brien

     7,250          992,177  

David C. Wajsgras

     40,517          5,524,619  

Richard R. Yuse

     44,429          6,157,634  

Taylor W. Lawrence

     37,488          5,121,442  

 

(1) Includes the following shares (including accrued dividend equivalents) that were issued in February 2017 under the 2014-2016 LTPP upon the MDCC’s determination of performance: Mr. Kennedy (67,572), Mr. O’Brien (4,223), Mr. Wajsgras (21,961), Mr. Yuse (21,117), and Mr. Lawrence (21,117). The 2014-2016 LTPP awards vested as of December 31, 2016, at the end of the three-year performance period.

 

(2) Amounts are equal to the closing price of our common stock on the NYSE on the vesting date multiplied by the number of shares vested.


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52    RAYTHEON  |  2017 Proxy Statement    EXECUTIVE COMPENSATION TABLES

 

PENSION BENEFITS

The following table reports the pension plans in which our NEOs participated in 2016 and the present value of accumulated benefits payable to each of our NEOs, as well as the number of years of credited service, as of December 31, 2016. No pension benefit payments were made to any of our NEOs in 2016.

 

Name    Plan Name   

Number of

Years of

Credited

Service

(#)

      

Present

Value of

Accumulated

Benefit

($)

 

Thomas A. Kennedy

   Non-Bargaining Retirement Plan (contributory part)      26.42        $ 2,419,704  
   Excess Pension Plan      26.42          23,988,006  
     Supplemental Executive Retirement Plan      33.58           

Anthony F. O’Brien

   Pension Plan for Salaried Employees      29.42        $ 1,105,721  
   Excess Pension Plan      29.42          2,882,306  
     Supplemental Executive Retirement Plan      30.42           

David C. Wajsgras

   Pension Plan for Salaried Employees      9.75        $ 474,218  
   Excess Pension Plan      9.75          3,689,651  
     Supplemental Executive Retirement Plan      10.75          7,048,636  

Richard R. Yuse

   Pension Plan for Salaried Employees      36.08        $ 1,610,470  
   Excess Pension Plan      36.08          8,389,223  
     Supplemental Executive Retirement Plan      40.42           

Taylor W. Lawrence

   Pension Plan for Salaried Employees      9.67        $ 424,279  
   Excess Pension Plan      9.67          2,102,740  
     Supplemental Executive Retirement Plan      10.67           

VALUATION AND MATERIAL ASSUMPTIONS — PENSION BENEFITS

Benefits are valued at the age of the NEO when he is first eligible for unreduced benefits, discounted to the NEO’s current age with interest, and are based upon current levels of compensation. In addition, we have assumed no pre-retirement mortality, disability or termination. All other assumptions, including the discount rate for 2016 of 4.45% for the Raytheon Company Pension Plan for Salaried Employees (Salaried Pension Plan) and the 4.20% discount rate for the Raytheon Non-Bargaining Retirement Plan and Raytheon Excess Pension Plan, are consistent with those used to determine our pension obligations under the accounting standard for employers’ accounting for pensions in our 2016 Form 10-K. For a discussion of our discount rate assumption, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates — Pension and Other Postretirement Benefits Costs — FAS Expense” in our 2016 Form 10-K. An executive’s benefit under the Raytheon Supplemental Executive Retirement Plan is assumed to be zero until he first becomes eligible for such benefit.

PENSION PLANS

Qualified Plans

 

PLAN AND NEO

PARTICIPANT(S)

  DESCRIPTION AND MATERIAL TERMS AND CONDITIONS

 

SALARIED PENSION PLAN

 

 

Messrs. O’Brien, Wajsgras, Yuse

and Lawrence

 

 

The Salaried Pension Plan is a non-contributory pension plan in which most of our executive officers who joined us before January 1, 2007, are eligible to participate. The plan is Raytheon-funded and since 1981 has not permitted employee contributions. Benefits under the plan are a percentage of final average compensation based on the following formula, reduced by the same percentage of the employee’s estimated primary Social Security benefit: 1.8% for each of the first 20 years of credited service; and 1.2% for each year of credited service thereafter. Final average compensation is the average of the 60 highest consecutive months of compensation in the final 120 months of employment, and includes base salary and annual cash incentive awards. The normal retirement age under the plan is age 65. Employees who are at least age 55 with at least 10 years of service can retire with reduced


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PLAN AND NEO

PARTICIPANT(S)

  DESCRIPTION AND MATERIAL TERMS AND CONDITIONS

 

SALARIED PENSION PLAN (cont’d.)

 

 

benefits. There is no reduction for employees who retire at age 60 or older with at least 10 years of service. The standard form of benefit for married participants is a 50% joint and survivor annuity. The standard form of benefit for single participants is a single-life annuity. Both married and single participants can elect actuarially equivalent alternative forms of payment, including a 10-year certain and continuous benefit and joint and survivor annuities of 50%, 66-2/3%, 75% and 100%.

 

 

NON-BARGAINING RETIREMENT PLAN

 

 

Mr. Kennedy

 

 

The Non-Bargaining Retirement Plan covers most of the people who became Raytheon employees when Raytheon merged with Hughes Aircraft in 1997. The contributory part of the Non-Bargaining Retirement Plan requires employee contributions of 3% of covered earnings. Except for these employee contributions, the Non-Bargaining Retirement Plan is Raytheon-funded. For each year of credited service, the pension under the contributory part of the Non-Bargaining Retirement Plan is 1.75% of the employee’s final average compensation for each year of credited service, reduced by 1.5% of the employee’s Social Security benefit estimated to be payable at age 65. The offset under the second part of that formula is limited to 50% of the Social Security benefit. Final average compensation under the Non-Bargaining Retirement Plan is the average of compensation in the highest five 12-month periods out of the last ten 12-month periods of employment, and includes base salary and annual cash incentive awards. If both of the following requirements are satisfied, an employee will be entitled immediately to 100% of the pension otherwise payable at age 65: (1) the employee’s age at termination of Raytheon employment is at least 55; and (2) the employee’s age plus continuous service (both measured in full years) is at least 75. If both of these requirements are not satisfied, a pension beginning before the employee reaches age 65 will be reduced for early commencement. The standard form of benefit for married participants is a 50% joint and survivor annuity. The standard form of benefit for single participants is a single-life annuity. Both married and single participants can elect actuarially equivalent alternative forms of payment, including a 5-, 10- or 15-year certain and continuous benefit, joint and survivor annuities of 50%, 66-2/3%, 75% and 100%, and payments over a specified period of 5, 10 or 15 years. The retiree benefit from the contributory part of the Non-Bargaining Retirement Plan is subject to an annual cost-of-living adjustment.

Nonqualified Plans

 

PLAN AND NEO

PARTICIPANT(S)

 

 

DESCRIPTION AND MATERIAL TERMS AND CONDITIONS

 

 

EXCESS PENSION PLAN

 

 

All NEOs

 

 

The Excess Pension Plan is a separate unfunded plan that provides to participants in our qualified pension plans the benefits that would have been provided by the qualified plan but for the U.S. Internal Revenue Code (IRC) limit on the amount of annual compensation that may be taken into account by qualified plans in determining benefits ($265,000 for 2016) and the IRC limit on annual benefits from a qualified plan ($210,000 for 2016). The principal features of the Excess Pension Plan for any particular employee are generally the same as the features of the qualified plan in which that employee participates, except that the Excess Pension Plan is not subject to the IRC compensation and benefit limits, the gross Excess Pension Plan benefit is offset by the qualified plan benefit, and the forms of payment under the Excess Pension Plan are subject to certain IRC restrictions.

 

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

 

 

All NEOs

 

 

The Supplemental Executive Retirement Plan (SERP) is a separate unfunded plan available to our NEOs and certain other senior executives. The plan provides a pension of 35% of final average compensation after ten years of service and age 55, increasing by 3% of final average compensation for every additional year of service up to a maximum of 50% of final average compensation. Amounts payable under this plan will be offset by amounts payable under our other pension plans, any prior employer plan, and Social Security.


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54    RAYTHEON  |  2017 Proxy Statement    EXECUTIVE COMPENSATION TABLES

 

YEARS OF CREDITED SERVICE

The number of years of credited service for each NEO, as reported in the above table, is less than his actual service. Mr. Kennedy (actual service of 33.58 years) did not contribute to the Non-Bargaining Retirement Plan for a period of time. Mr. Yuse (actual service of 40.42 years) did not contribute to the Salaried Pension Plan for a period of time when it was a contributory plan. Messrs. O’Brien, Wajsgras and Lawrence (actual service of 30.42, 10.75, and 10.67 years, respectively) were subject to a required period of employment before service credit accrual began under the Salaried Pension Plan. In addition, the years of credited service do not include any additional service credit under change-in-control agreements.

NONQUALIFIED DEFERRED COMPENSATION

The following table provides information regarding contributions, earnings, and account balances under the Deferred Compensation Plan — a nonqualified, unfunded plan that provides for pre-tax deferrals. Eligible employees may elect to defer 3-50% of their salary over the IRC compensation limit applicable to qualified plans ($265,000 in 2016), and to defer 3-90% of their RBI compensation earned in the current year but paid in the following year. Raytheon makes a matching contribution of up to 4% of deferrable compensation. Each employee determines how his plan account is invested among the plan’s investment options (subject to applicable trading restrictions on investments in the plan’s Raytheon stock fund). Distribution of an employee’s plan account is made in a lump sum or annual installments following termination of employment.

 

Name    Executive
Contributions
in Last Fiscal
Year(1)
($)
       Registrant
Contributions
in Last Fiscal
Year(2)
($)
       Aggregate
Earnings in
Last Fiscal
Year(3)
($)
      

Aggregate
Balance at Last
Fiscal Year-
End(4)

($)

 

Thomas A. Kennedy

   $ 400,146        $ 159,451        $ 282,733        $ 2,856,452  

Anthony F. O’Brien

     49,900          44,099          55,737          941,634  

David C. Wajsgras

     368,045          70,325          456,784          6,252,362  

Richard R. Yuse

     132,012          61,053          157,768          2,768,848  

Taylor W. Lawrence

     282,192          51,312          275,911          5,684,995  

 

(1) Includes deferrals to the Deferred Compensation Plan of 2016 salary and RBI compensation earned in 2016 but paid and deferred in March 2017. Deferred salary and 2016 RBI compensation are included in the amounts under the “Salary” column and the “Non-Equity Incentive Plan Compensation” column, respectively, for 2016 in the Summary Compensation Table on page 47.

 

(2) Includes Raytheon’s matching contributions on deferrals to the Deferred Compensation Plan of 2016 salary and RBI compensation earned in 2016 but made in March 2017 at the time RBI awards were paid. Matching contributions are included in the “All Other Compensation” column for 2016 in the Summary Compensation Table on page 47.

 

(3) Amounts in this column reflect actual earnings in each NEO’s Deferred Compensation Plan investment account in 2016. Accordingly, unlike the other columns in this table, amounts in this column do not reflect RBI compensation earned in 2016 but paid and deferred in March 2017. Earnings on deferred compensation are not included in the Summary Compensation Table for 2016 because such earnings are not based on above-market or preferential rates. Amounts in this column do not reflect administrative fees paid.

 

(4) Amounts shown are hypothetical aggregate account balances calculated in accordance with SEC requirements by adding (a) deferred 2016 RBI compensation (see Note 1 above), and (b) Raytheon matching contributions on such deferred 2016 RBI compensation (see Note 2 above), to actual aggregate account balances as of December 31, 2016, which amounts were not actually deferred until March 2017. The aggregate balances set forth in the table above include the following executive contributions and Raytheon matching contributions reported as compensation earned in 2015 and 2014 in the Summary Compensation Table:

 

Year    Contribution    Mr. Kennedy        Mr. O’Brien      Mr. Wajsgras        Mr. Yuse        Mr. Lawrence

2015

   Executive    $ 403,143        $40,364      $ 377,336        $ 119,488        $275,143
     Raytheon Matching      160,134        32,818        72,236          55,430        49,832

2014

   Executive      337,308        N/A        370,869          118,581        N/A
     Raytheon Matching      132,216        N/A        70,788          48,731        N/A


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EXECUTIVE COMPENSATION TABLES     RAYTHEON  |  2017 Proxy Statement     55

 

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

The following is a summary of the potential incremental payments and benefits that the NEOs would receive upon termination of their employment under certain circumstances pursuant to our cash severance guidelines, pension, benefit and stock plans, and certain NEO offer letters.

 

 
     TERMINATION EVENT

ELEMENT

  INVOLUNTARY WITHOUT CAUSE   DISABILITY OR DEATH   RETIREMENT

Cash Severance

 

One year base salary continuation and target RBI award for Mr. O’Brien;

Two years base salary continuation and target RBI award for Messrs. Kennedy, Wajsgras, Yuse and Lawrence

  None   None

RBI Award

  None unless termination occurs after July 1 of the performance year, in which case the NEO would receive a prorated RBI award after the performance year based on actual performance   None unless termination occurs after July 1 of the performance year, in which case the NEO would receive a prorated RBI award after the performance year based on actual performance   None unless retirement occurs after July 1 of the performance year, in which case the NEO would receive a prorated RBI award after the performance year based on actual performance

Pension

  Continuation of service credit while collecting severance benefits plus one year for Messrs. O’Brien, Wajsgras, Yuse and Lawrence; No incremental benefit for Mr. Kennedy   No incremental benefit   No incremental benefit

Health and Welfare

  One year of benefits continuation for Mr. O’Brien; Two years of benefits continuation for Messrs. Kennedy, Wajsgras, Yuse and Lawrence   None   None

Unvested Restricted Stock

  Forfeit all unvested RSAs; 60/10 RSUs would continue to vest subject to compliance with post-employment covenants   100% accelerated vesting upon death and continuation of vesting upon disability   Forfeit all unvested RSAs; 60/10 RSUs would continue to vest subject to compliance with post-employment covenants

Unvested LTPP

  None   Prorated payment based on service completed through the termination date and Raytheon’s actual performance   Prorated payment based on service completed through the retirement date and Raytheon’s actual performance

Cash Severance and Health and Welfare Benefits: We have Executive Severance Guidelines and certain of our NEOs have offer letters that provide for cash severance payments and health and welfare benefits continuation in the event of an involuntary termination without cause. We amended these guidelines effective January 1, 2010, to reduce such payments and benefits for new executives on a prospective basis. Messrs. Wajsgras, Yuse and Lawrence are grandfathered under our prior Executive Severance Guidelines. Mr. Kennedy receives a higher payment under the Executive Severance Guidelines because he is the CEO.

Pension Benefits: In the event of an involuntary termination without cause, NEOs participating in the Salaried Pension Plan (Messrs. O’Brien, Wajsgras, Yuse and Lawrence) would receive continuation of service credit while collecting severance benefits plus one year. These benefits do not apply to Mr. Kennedy, who participates in the Non-Bargaining Retirement Plan.


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56    RAYTHEON  |  2017 Proxy Statement    EXECUTIVE COMPENSATION TABLES

 

Long-Term Incentives: Upon a change in control or termination due to death, each NEO’s restricted stock awards would vest. Upon termination due to disability, each NEO’s restricted stock awards would continue to vest on the scheduled vesting dates. In addition, upon a change in control, each NEO would receive a prorated LTPP payment based on service completed through the change-in-control date and assuming target performance. In the event of termination due to death, disability or retirement, each NEO would receive a prorated LTPP payment based on service completed through the termination date and based on Raytheon’s actual performance. In all other termination scenarios, the NEO would forfeit all unvested long-term equity incentive awards, except that 60/10 RSUs (which are granted to retirement-eligible employees and held by Messrs. Kennedy and Yuse) would continue to vest on the scheduled vesting dates into retirement so long as the NEO complies with certain covenants. Amounts in the tables below for Messrs. Kennedy and Yuse reflect this continued vesting.

Change-in-Control Agreements: We have entered into change-in-control agreements with our executive officers. Pursuant to these agreements, upon a qualifying termination after a change in control, each of our NEOs except Mr. O’Brien would receive a cash payment of three times the NEO’s base salary, a cash payment of three times the NEO’s targeted RBI cash award (or, if greater, the actual RBI cash award for the prior year), special supplemental retirement benefits determined as if the NEO had three years of additional credited service as of the date of termination, and three years of health, welfare and retirement plan benefits. We revised our change-in-control agreement guidelines in 2013. Mr. O’Brien, who was elected to his role after this revision, would receive the same benefits in a multiple of one instead of three. The following is a summary of the potential incremental payments and benefits that the NEOs may receive under certain circumstances in connection with a change in control pursuant to their change-in-control agreements and other plans and agreements.

 

 
    

CHANGE-IN-CONTROL EVENT

ELEMENT

  PLAN OR ARRANGEMENT   TREATMENT OR BENEFIT

Cash

  Change-in-Control Agreement   Upon a qualifying termination* within 24 months after a change in control, each NEO would receive a cash payment of three times base salary plus three times target RBI award (or, if greater, the actual RBI cash award for the prior year), except for Mr. O’Brien, who would receive an amount equal to one times his base salary and RBI; each executive also would receive an amount equal to the prorated unpaid target RBI award for the year in which the change in control occurs

Pension

  Change-in-Control Agreement   Upon a qualifying termination within 24 months after a change in control, each NEO would receive special supplemental retirement benefits based on three more years of credited service, except for Mr. O’Brien, whose benefits would be based on one more year of service

Health and Welfare

  Change-in-Control Agreement   Upon a qualifying termination within 24 months after a change in control, each NEO would receive three years of benefits continuation, except for Mr. O’Brien, who would receive one year

Unvested Restricted Stock

  2010 Stock Plan and applicable restricted stock and 60/10 RSU award agreements   Upon a change in control, each NEO’s unvested restricted stock and 60/10 RSUs would vest

Unvested LTPP

  LTPP award agreements   Upon a change in control, each NEO would receive a prorated LTPP payment based on service completed through the change-in-control date and assuming target performance

 

* A qualifying termination is either an involuntary termination without cause or voluntary termination for good reason (i.e., a material reduction in compensation or a material change in the executive’s job duties without his consent), in each case within 24 months after a change in control.


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EXECUTIVE COMPENSATION TABLES     RAYTHEON  |  2017 Proxy Statement     57

 

The tables below report compensation payable to each NEO upon a hypothetical involuntary not-for-cause termination, a qualifying termination following a change in control, and termination due to disability, death and retirement, in each case as if the event happened on December 31, 2016. For a qualifying termination following a change in control, no pro-rata RBI would be payable, given that the NEO would be entitled to an RBI award for the completed year. We do not describe or report amounts for plans or arrangements that do not discriminate in scope, terms or operation in favor of our executive officers and that are generally available to all salaried employees. No NEO is entitled to receive compensation reportable in these tables upon a voluntary resignation or involuntary for-cause termination.

 

Thomas A. Kennedy                                       
Element   Involuntary
Without Cause
     Change-in-Control      Disability      Death      Retirement  

Cash Severance

             

Base Salary + Target RBI

  $ 7,950,134      $ 13,114,567      $      $      $  

Benefits

             

Pension(1)

                                 

Health and Welfare Benefit Continuation(2)

    84,106        126,159                       

Long-Term Incentives(3)

             

Value of Accelerated/Continued Vesting of Restricted Stock or RSUs

    4,281,016        12,978,374        12,978,374        12,978,374        4,281,016  

Value of Accelerated LTPP (pro-rata)

           6,352,843        6,352,843        6,352,843        6,352,843  

Total

  $ 12,315,256      $ 32,571,943      $ 19,331,217      $ 19,331,217      $ 10,633,859  
Anthony F. O’Brien                                       
Element   Involuntary
Without Cause
     Change-in-Control      Disability      Death      Retirement  

Cash Severance

             

Base Salary + Target RBI

  $ 1,299,834      $ 1,299,834      $      $      $  

Benefits

             

Pension(1)

    274,410                              

Health and Welfare Benefit Continuation(2)

    27,643        27,643                       

Long-Term Incentives(3)

             

Value of Accelerated Restricted Stock

           2,627,000        2,627,000        2,627,000         

Value of Accelerated LTPP (pro-rata)

           1,449,205        1,449,205        1,449,205        1,449,205  

Total

  $ 1,601,887      $ 5,403,682      $ 4,076,205      $ 4,076,205      $ 1,449,205  
David C. Wajsgras                                       
Element   Involuntary
Without Cause
     Change-in-Control      Disability      Death      Retirement  

Cash Severance

             

Base Salary + Target RBI

  $ 3,908,403      $ 6,274,502      $      $      $  

Benefits

             

Pension(1)

    307,251        2,779,180                       

Health and Welfare Benefit Continuation(2)

    48,068        72,102                       

Long-Term Incentives(3)

             

Value of Accelerated Restricted Stock

           5,515,280        5,515,280        5,515,280         

Value of Accelerated LTPP (pro-rata)

           1,706,556        1,706,556        1,706,556        1,706,556  

Total

  $ 4,263,722      $ 16,347,620      $ 7,221,836      $ 7,221,836      $ 1,706,556  


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58    RAYTHEON  |  2017 Proxy Statement    EXECUTIVE COMPENSATION TABLES

 

 

Richard R. Yuse                                                
Element    Involuntary
Without Cause
       Change-in-Control        Disability        Death        Retirement  

Cash Severance

                      

Base Salary + Target RBI

   $ 3,203,200        $ 5,063,700        $        $        $  

Benefits

                      

Pension(1)

     1,465,236                                      

Health and Welfare Benefit Continuation(2)

     102,955          154,433                             

Long-Term Incentives(3)

                      

Value of Accelerated/Continued Vesting of Restricted Stock or RSUs

     3,761,438          4,605,060          4,605,060          4,605,060          3,761,438  

Value of Accelerated LTPP (pro-rata)

              1,706,556          1,706,556          1,706,556          1,706,556  

Total

   $ 8,532,829        $ 11,529,749        $ 6,311,616        $ 6,311,616        $ 5,467,994  

 

Taylor W. Lawrence                                                
Element    Involuntary
Without Cause
       Change-in-Control        Disability        Death        Retirement  

Cash Severance

                      

Base Salary + Target RBI

   $ 2,950,438        $ 4,645,529        $        $        $  

Benefits

                      

Pension(1)

     651,196          4,944,815                             

Health and Welfare Benefit Continuation(2)

     25,814          38,721                             

Long-Term Incentives(3)

                      

Value of Accelerated Restricted Stock

              5,271,324          5,271,324          5,271,324           

Value of Accelerated LTPP (pro-rata)

              1,706,556          1,706,556          1,706,556          1,706,556  

Total

   $ 3,627,448        $ 16,606,945        $ 6,977,880        $ 6,977,880        $ 1,706,556  

 

(1) Pension benefits are calculated assuming a 4.45% discount rate for the Raytheon Company Pension Plan for Salaried Employees and a 4.20% discount rate for the Raytheon Non-Bargaining Retirement Plan and Raytheon Excess Pension Plan, as of 2016 fiscal year-end assuming the executive commenced the benefit as soon as possible following separation from service.

 

(2) Health and Welfare Benefit calculations are based on the estimated annual company cost of the benefits programs in which the executive was enrolled as of December 31, 2016.

 

(3) Equity values are determined based on the closing price of our common stock on December 30, 2016 ($142.00) and equity holdings as of December 31, 2016. Amounts representing LTPP payments assume target performance.


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PROPOSAL 3: ADVISORY VOTE ON FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION     RAYTHEON  |  2017 Proxy Statement     59

 

PROPOSAL 3:

ADVISORY VOTE ON FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION

(Item No. 3 on the Proxy Card)

The Board is asking for an advisory vote by our shareholders on whether an advisory vote on executive compensation of the type set forth on page 26, which has been included in Raytheon’s annual meeting proxy each year since 2011, should in the future be presented for a shareholder vote every one, two or three years. In the only previous shareholder vote on frequency in 2011, 86.19% of voting shareholders supported an advisory vote on executive compensation every year, as recommended by the Board.

The Board continues to believe that an advisory vote on executive compensation every year would be in the best interests of Raytheon and its shareholders for a number of reasons. First, we have learned during Raytheon’s extensive annual investor outreach efforts that our shareholders continue to support and appreciate the annual advisory vote. Second, the annual vote, together with Raytheon’s shareholder outreach activities, provides the MDCC and the Board with timely valuable insight into whether shareholders generally believe the compensation program is structured properly or needs adjustment. Third, the annual vote prompts shareholders to review and evaluate Raytheon’s compensation philosophy, policies and practices each year, and provides a mechanism to voice their reaction. It will also help guide communications with shareholders in Raytheon’s ongoing efforts to identify and address concerns — whether on executive compensation or otherwise. An advisory vote that is less frequent could mean delay in identifying and addressing shareholder concerns.

We believe an annual vote would be most consistent with the Board’s approach to corporate governance. Raytheon has in recent years taken a number of steps that promote access and accountability. The Board has proactively established mechanisms by which shareholders may include nominees in the annual meeting proxy materials (proxy access), call special meetings of shareholders, and act by written consent. An advisory vote on executive compensation annually, as opposed to every two to three years, will most effectively complement these measures in line with the Board’s philosophy.

Finally, an advisory vote on executive compensation each year is consistent with Raytheon’s practice of placing all directors up for election annually and the annual ratification of the independent outside auditor.

 

     
LOGO     FOR   

The Board unanimously recommends an ANNUAL advisory vote on executive compensation.

Proxies solicited by the Board will be voted for an annual advisory vote unless shareholders specify

otherwise in their proxies.

 


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60    RAYTHEON  |  2017 Proxy Statement    PROPOSAL 4: APPROVAL OF THE RAYTHEON 2017 INCENTIVE PLAN FOR SECTION 162(M) PURPOSES

 

PROPOSAL 4:

APPROVAL OF THE RAYTHEON 2017 INCENTIVE PLAN FOR SECTION 162(m) PURPOSES

(Item No. 4 on the Proxy Card)

On March 29, 2017, our Board, on the recommendation of the MDCC and subject to shareholder approval, adopted the Raytheon 2017 Incentive Plan (Incentive Plan) so that the payment of certain incentive awards may be deductible as “qualified performance-based compensation” under Section 162(m) of the Internal Revenue Code (Section 162(m)).

IRC Section 162(m). In general, Section 162(m) places a limit on the deductibility for federal income tax purposes of the compensation paid to a company’s Chief Executive Officer or any of its three other most highly compensated executive officers (other than its Chief Financial Officer). Under Section 162(m), compensation paid to such individuals in excess of $1 million in a taxable year generally is not tax deductible. However, compensation that qualifies as “performance-based” under Section 162(m) does not count against the $1 million limitation and is tax deductible. One of the requirements of “performance-based” compensation is that the company must disclose the material terms of the plan under which compensation may be paid, and those terms must be approved by the company’s shareholders. For purposes of Section 162(m), the material terms include (a) the employees eligible to receive compensation, (b) a description of the business criteria on which the performance goal is based, and (c) the maximum amount of compensation that can be paid to an employee under the performance goal. Each of these aspects of the Incentive Plan is discussed below. Shareholder approval of this proposal will be deemed to constitute approval of each of these aspects of the Incentive Plan for purposes of the approval requirements of Section 162(m).

Currently, payments of our RBI annual cash incentive awards and certain restricted stock and restricted stock unit awards may be subject to the limitations of Section 162(m). We are submitting the Incentive Plan for shareholder approval with the intent to permit deductibility of compensation without unduly restricting the MDCC’s flexibility and discretion to administer Raytheon’s executive compensation program in a manner designed to meet the objectives of the program. Subject to the terms and conditions of the Incentive Plan, at this time the MDCC intends to structure RBI awards and restricted stock and restricted stock unit awards in substantially the same manner as it currently does under our executive compensation program. If approved by our shareholders, the Incentive Plan will be implemented for fiscal year 2018.

The principal features of the Incentive Plan are summarized below. This summary does not contain all information about the Incentive Plan. A copy of the complete text of the Incentive Plan is attached as Appendix A, and the following description is qualified in its entirety by reference to that text.

SUMMARY OF THE INCENTIVE PLAN

Purpose. The primary purpose of the Incentive Plan is to promote the interests of Raytheon and our shareholders by establishing a compensation program to provide selected employees with the opportunity to earn incentive awards that are tied to the achievement of specific performance objectives and that are intended to qualify as performance-based compensation for purposes of Section 162(m).

Administration. The MDCC is responsible for administering the Incentive Plan. Each member of the MDCC is an “outside director” as defined for purposes of Section 162(m).


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PROPOSAL 4: APPROVAL OF THE RAYTHEON 2017 INCENTIVE PLAN FOR SECTION 162(M) PURPOSES     RAYTHEON  |  2017 Proxy Statement     61

 

Eligibility and Participation. Executive officers and other key executives of Raytheon or its affiliates who, in the opinion of the MDCC, are responsible for the continued growth and development and future financial success of the business will be eligible to participate in the Incentive Plan. The approximate number of employees who are currently eligible to participate in the Incentive Plan is 14.

Performance-Based Compensation. The performance goal for each performance period requires positive Adjusted Operating Income. The maximum award that a participant may be paid under the Incentive Plan for the performance period is expressed as a percentage of Adjusted Operating Income. This percentage is 0.75% for our Chief Executive Officer and 0.35% for each of the other participants. The performance period is the period of time established by the MDCC during which performance is measured to determine the level of attainment of an award.

For purposes of the Incentive Plan, Adjusted Operating Income means Raytheon’s operating income as reported in its income statement for the applicable performance period, adjusted to eliminate the effects of (a) the FAS/CAS Adjustment (as defined below), (b) changes in law applicable to Raytheon or any of its affiliates measured based on the effect of the changes on revenue, income, assets and liabilities demonstrably caused by such changes in law, (c) changes in accounting principles, including any related accounting restatements, and (d) amounts related to (i) exit or disposal of a business, (ii) losses or expenses of any acquisition or divestiture, including charges related to transition, integration and alignment costs and employee equity-based or other employee retention awards granted in connection with an acquisition, (iii) losses or expenses of any sale, disposal or similar transaction relating to the interest of Raytheon or its affiliates in a joint venture, partnership, portfolio company or similar arrangement, (iv) the impairment or disposal of long-lived assets or the impairment of goodwill and other intangible assets, (v) litigation and regulatory judgments, charges or settlements and any accruals or reserves relating to litigation or regulatory matters, (vi) the impact of charges relating to pre-payment or other early retirement of borrowings, and (vii) other items that are categorized as unusual in nature or infrequently occurring, each as determined in accordance with generally accepted accounting principles and identified in the financial statements, notes to the financial statements, or management’s discussion and analysis. Despite the foregoing, an adjustment will be made for items (b) through (d) above only if the net effect of such items, in the aggregate, would change operating income by at least 5%. The FAS/CAS Adjustment is the difference between pension expense or income under Financial Accounting Standards (FAS) requirements and pension costs under the Cost Accounting Standards (CAS).

After the end of each performance period, the MDCC will determine and certify in writing the amount to be awarded to each covered employee in accordance with the limitations established by the Incentive Plan. The MDCC may determine it is appropriate to pay less than the maximum award amount to a participant, but not more. Subject to the maximum award described above, actual award amounts will be based on Raytheon and individual performance and competitive pay levels as determined by the MDCC.

Payment of Awards. All awards will be paid (i) in cash, (ii) in the form of an award of Raytheon common stock, restricted common stock or restricted stock units covering shares of Raytheon common stock, or (iii) in any combination of cash, stock, restricted stock, or restricted stock units as determined by the MDCC in its sole discretion, at such times and on such terms as are determined by the MDCC. Any stock or stock-based awards will be issued or granted under the Raytheon 2010 Stock Plan and any successor stock plan adopted by Raytheon. Where an award is to be paid in the form of equity, the amount of compensation payable under such award will be equal to the grant date fair value of the award as determined for financial reporting purposes.

Participants will be permitted to defer payment of all or a portion of their awards in accordance with the terms of any deferred compensation plan of Raytheon.

Termination and Amendment. The Incentive Plan will remain in effect until it is terminated by the MDCC. Before that date, the MDCC may amend the Incentive Plan at any time, subject to shareholder approval (if any) required under applicable law, including the rules of any stock exchange on which Raytheon’s common stock is listed.


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62    RAYTHEON  |  2017 Proxy Statement    PROPOSAL 4: APPROVAL OF THE RAYTHEON 2017 INCENTIVE PLAN FOR SECTION 162(M) PURPOSES

 

Award Amounts. The benefits or amounts that will be received in the future under the Incentive Plan by or allocated to each of the officers listed in the Summary Compensation Table or all executive officers of Raytheon as a group or any other employees are not determinable. The MDCC has the discretion to determine amounts payable to participants in the Incentive Plan. Non-employee directors will not participate in the Incentive Plan.

Clawback Policy. Awards under the Incentive Plan will be subject to the Company’s Clawback Policy.

 

     
LOGO    FOR   

The Board unanimously recommends a vote “FOR” the approval of the Raytheon 2017
Incentive Plan for

IRC Section 162(m) purposes. Proxies solicited by the Board will be
so voted unless shareholders specify

otherwise in their proxies.

 

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information about our equity compensation plans that authorize the issuance of shares of our common stock. This information is provided as of December 31, 2016.

 

Plan Category   

(A)

Number of securities

to be issued upon

exercise of

outstanding options,

warrants and rights(1)

    

(B)

Weighted average

exercise price of

outstanding options,

warrants and rights(2)

    

(C)

Number of securities

remaining available

for future issuance

under equity

compensation plans

(excluding securities

reflected in

column A)

 

Equity compensation plans approved by stockholders

     1,566,115      $   –        6,728,759  

Equity compensation plans not approved by stockholders

                    

Total

     1,566,115      $   –        6,728,759  

 

(1) This amount includes 1,008,946 shares, which is the aggregate of the actual number of shares that will be issued pursuant to the 2014-2016 LTPP awards and the maximum number of shares that may be issued upon settlement of outstanding 2015-2017 and 2016-2018 LTPP awards, including estimated dividend equivalent amounts. The shares to be issued pursuant to the 2014-2016, 2015-2017 and 2016-2018 LTPP awards will be issued under the Raytheon 2010 Stock Plan. These awards, which are granted as RSUs, may be settled in cash or in stock at the discretion of the MDCC.

 

     This amount also includes 557,169 shares that may be issued upon settlement of other RSUs, generally issued to retirement-eligible and non-U.S. employees. The shares to be issued in settlement of these RSUs will be issued under the 2010 Stock Plan. The RSUs generally vest one-third per year on the second, third and fourth anniversaries of the date of grant.

 

(2) Since RSU awards do not have an exercise price, and there are no other options, warrants or rights outstanding at December 31, 2016, the weighted-average exercise price is zero.


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PROPOSAL 5: RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP     RAYTHEON  |  2017 Proxy Statement     63

 

PROPOSAL 5:

RATIFICATION OF APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP

(Item No. 5 on the Proxy Card)

The Audit Committee of the Board of Directors has reappointed PricewaterhouseCoopers LLP (PwC) as the independent registered public accounting firm to audit our financial statements for the fiscal year beginning January 1, 2017. We are asking shareholders to ratify this appointment. Representatives of PwC are expected to be present at the Annual Meeting. They may make a statement, and they will be available to respond to appropriate questions.

In the event that shareholders fail to ratify the appointment of PwC, the Audit Committee may reconsider the appointment. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of Raytheon and its shareholders.

 

     

LOGO

 

 

 

FOR

 

  

The Board unanimously recommends that shareholders vote FOR ratification of the appointment of

PricewaterhouseCoopers LLP as Raytheon’s independent auditors. Proxies solicited by the Board
will be

so voted unless shareholders specify otherwise in their proxies.


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