DEF 14A 1 lspr2018_def14a.htm SPIRIT AEROSYSTEMS HOLDINGS, INC. - DEF 14A SPIRIT AEROSYSTEMS HOLDINGS, INC. - DEF 14A

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
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Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material under §240.14a-12

 

SPIRIT AEROSYSTEMS HOLDINGS, INC.

(Name of Registrant as Specified In Its Charter)

 

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

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Dear Fellow Stockholders:

On behalf of the Board of Directors, I am delighted to invite you to attend the 2018 Annual Meeting of Stockholders (the “Annual Meeting”) of Spirit AeroSystems Holdings, Inc. (the “Company” or “Spirit”). Details of the business to be conducted at the Annual Meeting are included in the attached Notice of Annual Meeting of Stockholders and accompanying Proxy Statement.

Financial and Operational Performance

2017 was another strong year for Spirit. Our strategic focus remains to be a leader in designing, developing, and manufacturing complex structures for the aerospace industry. We are a leader in this field for commercial aircraft and are rapidly expanding into military markets. As part of this focus, we identified three major growth priorities: growth with our largest customers – Airbus and Boeing, the fabrication of detailed parts, and growth of our defense business.

From a financial perspective, we exceeded target performance with respect to all Company performance metrics used in our short-term incentive program and with respect to long-term incentive awards vesting in 2017: revenue, adjusted annual earnings before interest and taxes, adjusted annual free cash flow, and total share holder return over a three-year period.

From an operational perspective, we delivered solid results. Perhaps our most significant achievement was the completion of negotiations and execution of definitive agreements with our largest customer, Boeing, resolving numerous open commercial issues through 2022. The agreements solidified our relationship with Boeing, reduced uncertainty, and gave us new opportunities to expand our work with Boeing on current and future platforms.

From a business development perspective, we were pleased to announce a major win with Airbus to supply the spoiler for the Airbus A320 family programs, which leverages our state of the art capability in resin transfer molding technology. To support future growth of Airbus programs at Spirit, we made capital investments in our Prestwick location and infrastructure for our Malaysia and North Carolina sites.

Additionally, we celebrated significant milestones on both commercial and defense development programs, executed rate increases on Airbus and Boeing programs, announced our strategic growth areas of fabrication and defense, and expanded our research and development efforts. We continued to focus on perfecting the quality of our products, improving our supply chain costs, preparing for upcoming rate increases, and expanding our research and development capabilities, all while holding firm on our delivery and other customer commitments.

Increasing Stockholder Value and Engagement

In 2017, we continued to focus on giving value back to our stockholders. We paid our first quarterly cash dividend on January 9, 2017, and, over the course of the full year, deployed $47 million of capital to stockholders in the form of quarterly cash dividends. In addition, we deployed $502 million of capital to stockholders in the form of stock repurchases. As of February 26, 2018, the Company has authorization to conduct an additional $1 billion in stock repurchases.

In 2017, we conducted a robust stockholder engagement program, culminating with our Investor Day on September 27, 2017. In addition, in order to further engage with and be responsive to our stockholders, we held over 620 in-person and telephonic meetings with investors in 2017. We traveled throughout the U.S., and to France, England, and Canada for the meetings.

Compensation and Governance Changes

In 2017, we made significant changes to our executive compensation program in an attempt to better align our executives’ interests with stockholders’ interests and update our programs to reflect stockholder and market expectations. Major changes included increasing the Company performance element of our short-term incentive program, increasing the performance-based portion of our long-term incentives, and adding a new performance metric to our long-term incentives — free cash flow as a percentage of revenue over a three-year period.

In addition, in February 2018, we welcomed Laura Wright to our Board, who brings us added diversity of perspective and a wealth of knowledge and experience from her previous role as Chief Financial Officer of Southwest Airlines.

We are proud of our 2017 performance and look forward to another successful year in 2018. We thank you for your continued support of Spirit and look forward to seeing you at the Annual Meeting.

Sincerely,

Thomas C. Gentile, III

President and Chief Executive Officer

Spirit AeroSystems Holdings, Inc.

March 12 , 2018


 

3801 S. Oliver St.
Wichita, KS 67210-2112

 

March 12 , 2018

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE STOCKHOLDER MEETING TO BE HELD ON APRIL 25, 2018

 

The Proxy Statement and Annual Report are available at http://www.proxyvote.com

 

The 2018 Annual Meeting of Stockholders (the “Annual Meeting”) of Spirit AeroSystems Holdings, Inc. (“Spirit” or the “Company”) will be held:

 

WEDNESDAY, APRIL 25, 2018

11: 00 a.m. Eastern Time

Fairmont Hotel, Dumbarton Room

2401 M Street NW

Washington, DC 20037

 

Items of business include:

1.

Election of nine nominees as directors;

2.

Advisory vote to approve the compensation of the Company’s named executive officers;

3.

Ratification of the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2018;

4.

Consideration of the Board of Directors’ proposal to lower the threshold of stockholders required to call a special meeting to 25%;

5.

The stockholder proposal regarding shareowner meeting improvement described in this Proxy Statement, if properly presented at the meeting; and

6.

The transaction of any other business that properly comes before the meeting.

 

Stockholders of record of our Class A Common Stock (the “Common Stock”) as of February 26, 2018, are entitled to receive notice of, and may vote at, the Annual Meeting. For the first time, we are furnishing proxy materials to our stockholders primarily over the Internet rather than mailing paper copies. On March 12, 2018, we commenced distributing to our stockholders a Notice Regarding the Availability of Proxy Materials (the “Notice”) or a paper copy of the proxy materials and our Annual Report along with a proxy card or voting information form. The Notice contains instructions on how to access and review the proxy materials, including this Proxy Statement and our Annual Report, on the Internet, and instructions on how to vote. Stockholders may vote in person at the Annual Meeting or by Internet pursuant to the instructions set forth in the Proxy Statement. In addition, if you received a paper copy of the proxy materials, you may vote by completing and returning a proxy card or voting information form, as applicable, pursuant to the instructions set forth in the Proxy Statement.

 

Whether or not you plan to attend the Annual Meeting, we hope you will vote as soon as possible.

 

By order of the Board of Directors.

Sincerely,

 

 

Stacy Cozad

Senior Vice President, General Counsel, Chief Compliance Officer , and Corporate Secretary


Table of Contents


Back to Contents

PROXY STATEMENT SUMMARY

This summary highlights certain information contained elsewhere in the accompanying Proxy Statement. This summary does not contain all the information you should consider before voting your shares. For more complete information regarding the proposals to be voted upon at the Annual Meeting and our 2017 performance, please review the entire Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

We use the terms “Spirit,” the “Company,” “we,” “us,” and “our” in this Proxy Statement to refer to Spirit AeroSystems Holdings, Inc. and its consolidated subsidiaries.

Matters to Be Voted on at the Annual Meeting

 

Election of directors Advisory vote to approve compensation of named executive officers Ratify selection of Ernst & Young LLP Consider Board’s proposal to lower special meeting ownership threshold to 25% Stockholder proposal: special shareowner meeting improvement Board Recommends FOR Each Nominee Board Recommends FOR Board Recommends FOR Board Recommends FOR Board Recommends AGAINST

 

Casting Your Vote

Stockholders of record of our Common Stock as of February 26, 2018, may vote their shares using any of the following methods:

BY INTERNET

VIA COMPUTER
Visit www.proxyvote.com

BY INTERNET

VIA TABLET OR SMARTPHONE

 

BY MAIL

If you received a paper copy
of the materials, complete
and return the enclosed
proxy card or voting
instruction form

IN PERSON

Vote in person at the
Annual Meeting; see
“General Information - How
to Attend the Annual
Meeting”

 

SPIRIT AEROSYSTEMS - 2018 Proxy Statement    6


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About Spirit


Quick Spirit Facts

 

HEADQUARTERS

Wichita, Kansas

PRODUCTS

Fuselages, wing structures, and propulsion systems for commercial and defense aircraft

WORLWIDE EMPLOYEES

15,550

LOCATIONS

Kansas, Oklahoma, North Carolina, Scotland, France, Malaysia

MAJOR CUSTOMERS

Airbus, Boeing, Bombardier, Lockheed Martin (Sikorsky), Northrop Grumman, Rolls-Royce


2017 Performance

 

 

$6.98$574$537$3.01$5.35billionREVENUEmillion CASH FROMOPERATIONSmillionADJUSTED FREECASH FLOW*EPSADJUSTED EPS*

 

* Represents a non-GAAP measure. Please see Appendix A for an explanation and reconciliation.



Business Overview

 

Spirit is a leading tier-one global aerostructures provider. We manufacture large aerostructures, including fuselages, wing structures, engine nacelles, pylons, fan cowls, thrust reversers, and systems integration for the world’s premier aircraft. Spirit’s capabilities include metal manufacturing and assembly, precision assembly, and composites manufacturing.

Our engineering capabilities, combined with our capacity for high-volume production, have positioned Spirit as a leading aerostructures supplier to both Airbus and Boeing. For Boeing, we manufacture the 737 fuselage, the front section of the 787 fuselage, and otherwise manufacture parts for every Boeing commercial aircraft currently in production. Further, for Airbus, we supply fuselage and wing aerostructures content on the A350 XWB and wing aerostructures content on the A320, A330, and A380. Spirit also supplies aerostructures for various regional and business jet programs, including pylons on the Bombardier C-Series and in-development Mitsubishi Regional Jet, as well as nacelles for Rolls-Royce engines used on Gulfstream aircraft.

In addition to producing aerostructures for commercial aircraft, Spirit designs, engineers, and manufactures structural components for military programs. We have been awarded a significant amount of work for Boeing’s P-8, C-40, and KC-46 tanker, all of which are commercial aircraft modified for military use. We are also involved in the development and production of various parts for the Sikorsky CH-53K heavy-lift helicopter and Bell V-280 tilt rotor aircraft. In addition, Spirit is proud to be a member of the B-21 Raider industry team. Spirit has invested heavily in research and development labs that enable us to deliver innovation and value on defense programs.

 

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2017 Business Highlights

 

The following table summarizes some of our business highlights from 2017:

Boeing

Executed definitive agreements with Boeing on September 22, 2017, resolving numerous commercial issues into 2022


Removed multi-year overhang with our largest customer allowing us to focus on executing production rate increases and growing our business


Delivered first Boeing 737 MAX


Delivered test hardware programs for Boeing 777X


Airbus

Awarded single-aisle spoiler work on Airbus A320 family programs


Surpassed 200 A350 Section 15 fuselage and fixed leading edge wing deliveries


Invested in Kinston and Malaysia locations to increase capacity to support additional work statement


Fabrication

Announced 5-axis machining center of excellence in Wichita, KS


Established 3- and 4-axis machining center of excellence in McAlester, OK


Expanded chemical processing center in Wichita, KS


Implemented plans for 3D/additive center of excellence


Collaborated with Norsk Titanium regarding metal additive technology

Defense

Built on strong foundation of current programs


Pursued opportunities for growth


Formally celebrated role as team member on the Northrop Grumman B-21 Raider


Celebrated the first flight of Bell V-280 Valor


Started production on Systems Demonstration Test Articles 5 and 6 for the CH-53K heavy-lift helicopter

Supply Chain

Followed a disciplined program to ensure that we are getting world-class prices for tens of thousands of parts we purchase


Reset contracts on more than 20,000 parts, for which we will realize the benefits over the next decade

Research and Development

Continued enhancing production techniques to support announced rate increases for the Boeing 737 and 787, and Airbus A320 and A350 XWB


Continued development and implementation of new manufacturing technologies (joule forming, cryo-machining, semi-automatic drilling, and automated sealing) to improve efficiencies


Continued implementing digital technologies (autoclave load optimization, factory simulation, and augmented reality exercises) and robotics to maximize productivity

Capital Deployment

Paid $47 million in quarterly cash dividends


Repurchased $502 million of shares of Common Stock

Community

More than $2 million donated by Spirit and $2.65 million by Spirit employees to non-profit organizations supporting education, arts and culture, civic engagement , and health and human services


15,600+ hours volunteered by Spirit employees across the globe to local community and charitable organizations



Operating Priorities

 

Our operating priorities are as follows:

 

 

 

Safety

Our employees are our greatest asset. We are committed to conducting our operations in a manner that prioritizes the safety and continued health of our employees and other workers. We are committed to continual assessment, training, and investments to execute on our safety goals and reduce injuries and incidents.

Quality

Without quality, performance is absent. We spent 2017 focusing on assessing and identifying opportunities for improving our quality and executing such improvements. We are committed to continual improvement of our quality and delivering and exceeding our customers’ quality expectations.

Delivery

Aside from safety and quality, successful, on-time delivery is our goal. The success of our customers depends on our ability to meet their delivery expectations consistently.

 

  Customer Focus Being a trusted partner to our customers is essential to our ability to win profitable new business. We focus on our customers by meeting our operational commitments and working alongside our customers to develop innovative solutions to their challenges. We are committed to continually inventing new technologies to improve quality, lower costs, and increase production capabilities, in a mutually-beneficial way.

 

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Values

 

At Spirit, we believe that culture and values play a determining role in the success of corporate strategy. Values are demonstrated in the way we think, act, and ultimately achieve results. We rolled out the following values in 2017:

 

 

Transparency

I am open, honest, and respectful with my communication. I speak up to share my ideas and build trust by making my intentions clear.

Collaboration

I align my actions with others, so we work together to achieve the best outcome in everything we do.

Inspiration

I encourage the best from others, and I lead by example to ensure innovation is a component of our success.



Commitments

 

Our values are demonstrated through the way we conduct our business and our commitments, which include the following:

 

 

Charitable Giving

We believe the opportunity to do business in a community comes with a responsibility to give back.

Community Involvement

Whether it’s serving on the board of a non-profit or serving meals to the hungry, Spirit leaders and employees give generously of their time and talents.

Global Diversity

We are committed to promoting diversity - not only because it is the right thing to do, but because it drives innovation and growth.

Environment, Health, and Safety

We conduct our business in a manner that protects the environment and promotes the health, safety, and well-being of our employees and our surrounding communities.

Ethics and Compliance

We uphold the highest ethical standards, and we are committed to complying with all laws and regulations applicable to our business.

 

SPIRIT AEROSYSTEMS - 2018 Proxy Statement    9


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About Spirit’s Director Nominees and Governance Practices

Director Nominees

 

Name

Age

Director

Since

Principal Occupation

Independent

Committee

Memberships

Charles Chadwell

77

2008

Retired VP/GM of Commercial Engine Operations, GE Aircraft Engines

Yes

Governance (Chair)

Compensation

Irene M. Esteves

59

2015

Retired CFO, Time Warner Cable Inc.

Yes

Audit (Chair)

Risk

Paul Fulchino

71

2006

Retired President and CEO, Aviall, Inc.

Yes

Compensation (Chair)

Governance

Thomas C. Gentile, III

53

2016

President and CEO, Spirit AeroSystems Holdings, Inc.

No

 

Richard Gephardt

77

2006

President and CEO, Gephardt Group

No

 

Robert Johnson, Chairman

70

2006

Retired CEO, Dubai Aerospace Enterprise Ltd.

Yes

Compensation

Governance

Ronald T. Kadish

69

2006

Senior Executive Advisor, Booz Allen Hamilton

Yes

Risk (Chair)

Governance*

John Plueger

63

2014

President and CEO, Air Lease Corporation

Yes

Audit

Risk

Laura Wright

58

2018

Retired SVP and CFO, Southwest Airlines

Yes

Risk

* Francis Raborn currently serves as the third member of the Audit Committee. Mr. Raborn has notified the Company that he will not be standing for re-election at the Annual Meeting. Mr. Raborn will remain on our Board and on the Audit Committee until the Annual Meeting. Effective immediately after the Annual Meeting, Mr. Kadish is expected to serve on the Audit Committee and come off of the Governance Committee.

Nominee Qualifications

 

7 Directors with Commercial Aviation Experience 2 Directors with Military and Defense Experience 9 Directors with Public Company Board Experience 4 Directors with Executive Compensation and Benefits Experience 5 Directors with Operations Management Experience 4 Directors with Risk Management Experience 5 Directors with Public Company CEO/Senior Executive Experience 3 Directors with Audit/Tax/Accounting Experience 2 Directors with Senior U.S. Government Experience 4 Directors with Corporate Finance and M&A Experience

Corporate Governance Highlights

 

Independent Chairman of the Board

Proxy access right

7 out of 9 director nominees are independent

Stockholders have the right to call special meetings

Annual election of all directors

Active stockholder engagement

Majority voting standard in uncontested director elections

Ongoing director education program

Regular executive sessions of independent directors

Robust stock ownership requirements for directors and executives

Robust risk oversight process with Board and committee roles

Annual Board and committee evaluations

 

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About Spirit’s Executive Compensation Program and Practices

Overview of Spirit’s Executive Compensation Program

 

The objectives of the Company’s executive compensation program are to attract, retain, and motivate highly qualified executive officers, pay for performance, align the interests of executives with the interests of stockholders, and ensure incentives do not encourage inappropriate risk taking. The table below captures the main elements of our executive compensation program and describes how each element works to satisfy our objectives:

 

Compensation

Element

Description

Purpose

FIXED COMPENSATION

Base Salary

Cash compensation based on day-to-day responsibilities

Attracts and retains executive officers

Recognizes responsibilities, experience, and performance

VARIABLE, AT-RISK COMPENSATION

Short-Term Annual Cash Incentive

Annual cash incentive paid upon the achievement of Company performance goals relating to revenue, adjusted earnings before interest and taxes, adjusted free cash flow, and individual objectives, each over a one-year period; no guaranteed payout

Motivates and rewards executives with respect to short-term performance

Aligns executive interests with stockholder interests

Long-Term Incentives

Time-Based Restricted Stock Award (60%)

Time-based award vesting over three years

Aids in retention

Aligns executive interests with long-term stockholder value creation

Performance-Based Restricted Stock Awards (40%)

Awards vest on achievement of two equally represented goals: total shareholder return and free cash flow as a percentage of revenue, each over a three-year period; no guaranteed payout

Motivates and rewards executives with respect to long-term performance

Aligns executive interests with long-term stockholder value creation

Aids in retention

 

A substantial portion of our executive officers’ compensation is at-risk and varies based on individual and Company performance. Due to the named executive officers’ strong individual performance along with the Company’s strong financial performance in 2017, our short-term annual cash incentive and performance-based restricted stock awards paid out above predetermined targets.

Compensation Practices Checklist

 

Best Practices

What the Company Doesn’t Do

Align pay and performance - substantial portion of pay is delivered through variable, at-risk compensation

×

No ongoing new defined benefit Supplemental Executive Retirement Plan accruals

Implemented clawback policy in January 2017

×

No share recycling (other than in the context of forfeited shares)

Maintain robust stock ownership requirements

×

No tax gross-ups related to a change-in-control

Performance goals are relevant and tied to creation of stockholder value

×

No enhanced health and welfare benefit plans for executives

Implemented double-trigger change-in-control provisions in January 2017

×

No guaranteed payouts on performance-based compensation (except for upon death, disability, or retirement after the age of 62, beginning for equity awards granted in 2018)

Offer market-competitive benefits

×

No dividend payments on time-based restricted stock awards until they vest

Pay long-term incentives entirely in stock

×

No accumulation of dividends on unvested performance-based restricted stock awards beginning with the 2017 awards

 

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ELECTION OF DIRECTORS

Overview

The Board of Directors is elected each year at the Company’s annual meeting of stockholders. Spirit currently has ten directors. However, Francis Raborn, who currently serves on our Board, the Audit Committee, and Risk Committee, has notified the Company that he will not be standing for re-election at the Annual Meeting. We thank him for his 11 - year commitment to our Company and for his distinguished service. Effective upon Mr. Raborn’s retirement at the Annual Meeting, the Company’s Board will consist of nine directors. Each director elected at the Annual Meeting will serve until the 2019 A nnual M eeting of S tockholders and until the election and qualification of his or her respective successor, subject to such director’s earlier death or disability.

Based on the recommendations of the Company’s Corporate Governance and Nominating Committee (the “Governance Committee”), the Board has nominated each of the persons listed below for election as directors. Except for Ms. Wright, who was elected to the Board on February 20, 2018, all nominees have served as directors of the Company since the 2017 A nnual M eeting of S tockholders.

Each of the nominees has agreed to serve if elected and, as of the date of this Proxy Statement, the Company has no reason to believe that any nominee will be unavailable to serve. If any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxy holders’ intention is to vote the proxies for such other person as may be designated by the present Board to fill such vacancy.

The following information with respect to the nine nominees is based on information furnished to the Company by each nominee and highlights the specific experience, qualifications, attributes, and skills of the individual nominees that have led the Board to conclude that each should continue to serve on the Board.

Director Nominees

Charles Chadwell

Age 77

Director Since 2008

Independent Director

 

Professional Experience:

Former Public Company Directorships Held in the Past 7 Years:

 

Vice President and General Manager of Commercial Engine Operations, General Electric Aircraft Engines (“GE Aviation”)(1994-2002)

Vice President, Operations, GE Aviation (1990-1994)

B/E Aerospace (2007-2012)

 

Committee Assignments:

 

Governance (Chair)


Compensation

 

Qualifications, Experience, Key Attributes, and Skills: Mr. Chadwell has significant experience in supply chain and manufacturing operations within the commercial and defense aviation industry and has executive leadership experience. Mr. Chadwell also brings to the Board experience as a public company director.

 

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Irene M. Esteves

Age 59

Director Since 2015

Independent Director

 

Professional Experience:

Current Public Company Directorships:

 

Chief Financial Officer, Time Warner Cable Inc. (2011-2013)

Executive Vice President and Chief Financial Officer, XL Group plc (2010-2011)

Senior Vice President and Chief Financial Officer,
Regions Financial Corporation (2008-2010)

Senior Vice President and Chief Financial Officer, Wachovia Corp., Capital Management Group (2006-2008)

RR Donnelley (2017-present), Aramark (2014-present)

Former Public Company Directorships Held in Past 5 Years:

Level 3 Communications (2014-2017), TW Telecom Inc. (2014)

Committee Assignments:

Audit (Chair)


Risk

 

Qualifications, Experience, Key Attributes, and Skills: Ms. Esteves has significant experience in global finance, corporate strategy, human resources, treasury, accounting, tax, risk management, mergers and acquisitions, and investor relations across multiple industries. Ms. Esteves also brings to the Board experience as a public company director. In addition, Ms. Esteves qualifies as an audit committee financial expert under the rules of the Securities and Exchange Commission (the “SEC”).

 

Paul Fulchino

Age 71

Director Since 2006

Independent Director

 

Professional Experience:

Current Public Company Directorships:

 

Senior Advisor, The Boeing Company (“Boeing”) (2010-2014)

Chairman, President and Chief Executive Officer, Aviall, Inc. (2000-2010)
(Aviall became a wholly owned subsidiary of Boeing in September 2006)

President and Chief Operating Officer, B/E Aerospace, Inc. (1996-1999)

President and Vice Chairman, Mercer Management Consulting (1990-1996)

Wesco Aircraft Holdings, Inc. (2008-present)

 

Committee Assignments:

Compensation (Chair)


Governance

 

Qualifications, Experience, Key Attributes, and Skills: Mr. Fulchino provides the Board with executive leadership experience and extensive knowledge and expertise regarding the commercial aviation industry, the Company’s customers and supply base, and compensation and human resource matters. Mr. Fulchino also brings to the Board experience as a public company director.

 

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Thomas C. Gentile, III

Age 53

Director Since 2016

 

Professional Experience:

Former Public Company Directorships Held in Past 5 Years:

 

President and Chief Executive Officer, Spirit AeroSystems Holdings, Inc. (2016-present)

Executive Vice President and Chief Operating Officer, Spirit AeroSystems Holdings, Inc. (April 2016-August 2016)

President and Chief Operating Officer, General Electric Capital Corporation (2014-2016)

President and Chief Executive Officer, General Electric Healthcare Systems (2011-2014)

President and Chief Executive Officer, General Electric Aviation Services (2008-2011)

Synchrony Financial Bank (2015)

 

 

 

 

 

 

 

Qualifications, Experience, Key Attributes, and Skills: Mr. Gentile has demonstrated success in managing large, complex global technology businesses across multiple industries. He brings to the Board a deep understanding of aviation program management, product development, strategy, and business development.

 

Richard Gephardt

Age 77

Director Since 2006

 

Professional Experience:

Current Public Company Directorships:

 

President and Chief Executive Officer, Gephardt Consulting Group (2007-present)

President and Chief Executive Officer, Gephardt Governmental Affairs (2005-present)

Member, U.S. House of Representatives (1977-2005). During this time, he served as the House Minority Leader (1995-2003) and House Majority Leader (1989-1995)

Centene Corporation (2006-present)

Former Public Company Directorships Held in Past 5 Years:

Century Link, Inc. (2007-2016), Ford Motor Company (2009-2015), U.S. Steel Corporation (2005-2015)

 

 

 

Qualifications, Experience, Key Attributes, and Skills: Mr. Gephardt brings significant governmental affairs and public relations experience to the Board along with labor management and union expertise. He provides the Board with a diverse perspective on public policy, political affairs, and the regulatory environment. Mr. Gephardt also brings to the Board experience as a public company director.

 

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Robert Johnson, Chairman

Age 70

Director Since 2006

Independent Director

 

Professional Experience:

Current Public Company Directorships:

 

Chief Executive Officer, Dubai Aerospace Enterprise Ltd. (2006-2008)

Chairman, Honeywell Aerospace (2005-2006)


President and Chief Executive Officer, Honeywell Aerospace (2000-2005)

Roper Technologies, Inc. (2005-present), Spirit Airlines, Inc. (2010-present)

Former Public Company Directorships Held in Past 7 Years:

Ariba, Inc. (2003-2012)

Committee Assignments:

Compensation


Governance

 

Qualifications, Experience, Key Attributes, and Skills: Mr. Johnson, Chairman of the Board, has industry-specific executive leadership experience, experience in executive compensation and human resource matters, as well as expertise in marketing, sales, supply chain, and production operations. Mr. Johnson also brings to the Board experience as a public company director.

 

Ronald T. Kadish

Age 69

Director Since 2006

Independent Director

 

Professional Experience:

Current Public Company Directorships:

 

Senior Executive Advisor, Booz Allen Hamilton (“Booz”) (2015-present)


Executive Vice President, Booz (2005-2015)


Director, U.S. Missile Defense Agency (2002-2004)


Director, Ballistic Missile Defense Organization, Department of Defense (1999-2001)


Commander, Electronic Systems Center, Hanscom
Air Force Base (1996-1999)

Orbital ATK (2015-present)

Former Public Company Directorships Held in Past 5 Years:

Orbital Sciences Corp. (2005-2015)

Committee Assignments:

Risk (Chair)


Governance

 

Qualifications, Experience, Key Attributes, and Skills: Mr. Kadish provides the Board with unique expertise in military, program management, security, international, and governmental matters, including having served three decades in the U.S. Air Force, rising to the rank of Lieutenant General. He delivers critical insight to the Board with respect to enterprise risk management, global security, and our defense customers’ needs and expectations. Mr. Kadish also brings to the Board experience as a public company director.

 

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John Plueger

Age 63

Director Since 2014

Independent Director

 

Professional Experience:

Current Public Company Directorships:

 

Chief Executive Officer and President, Air Lease Corporation (“ALC”) (2016-present)

President and Chief Operating Officer, ALC (2010-2016)

Chief Executive Officer, International Lease Finance Corporation (“ILFC”) (2010)

President and Chief Operating Officer, ILFC (2002-2010)

ALC (2010-present)

Committee Assignments:

Audit


Risk

 

Qualifications, Experience, Key Attributes, and Skills: Mr. Plueger provides the Board with significant aviation industry experience, executive leadership expertise, and operational expertise. In addition, Mr. Plueger has significant experience in finance and accounting matters as a certified public accountant, having received his training as an auditor from PricewaterhouseCoopers. Mr. Plueger also brings to the Board experience as a public company director.

 

Laura Wright

Age 58

Director Since 2018

Independent Director

 

Professional Experience:

Current Public Company Directorships:

 

Sole Member and Founder, GSB Advisory, LLC (2013-present)

Senior Vice President and Chief Financial Officer, Southwest Airlines Co. (“SWA”) (2004-2012)

Vice President, Finance, and Treasurer, SWA (2001-2004)

Treasurer, SWA (1998-2001)

TE Connectivity (2014-present), CMS Energy Corp. (and its wholly-owned subsidiary, Consumers Energy Company) (2013-present), Pebblebrook Hotel Trust (2009-present)

Committee Assignments:

Risk

 

Qualifications, Experience, Key Attributes, and Skills: Ms. Wright has significant corporate finance and accounting experience as a result of her position as Senior Vice President and Chief Financial Officer of SWA, and various other financial roles during her 25 year career at SWA, including treasurer and director of corporate finance. Ms. Wright also brings to the Board experience as a public company director. Ms. Wright is a certified public accountant.

 

Voting Standard

The Company’s bylaws provide for simple majority voting in an uncontested election of directors. In order for a director nominee to be elected, the votes that stockholders cast “FOR” the director nominee must exceed the votes that stockholders cast “AGAINST” the director nominee. In the event that an incumbent nominee does not receive the requisite majority of votes cast in this election, the Company will follow the procedure described under “General Information Regarding the Meeting - What Happens if an Incumbent Director Nominee is Not Elected at the Annual Meeting?” on page 69 . Any shares not voted (whether by abstention, broker non-vote, or otherwise) will have no impact on the election of directors. Your broker may not vote your shares on this proposal unless you give voting instructions.

The Board recommends that you vote FOR each of the director nominees.

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BOARD AND GOVERNANCE MATTERS

The Board’s Role

The Company is governed by its Board of Directors. Other than with respect to matters reserved to stockholders, the Board is the ultimate decision-making body of the Company. The Board is responsible for overseeing the Company’s strategy and performance and protecting stockholder interests and value. Further, the Board is responsible for selecting and overseeing the Company’s executive officers, who set and execute the Company’s business strategy and handle the day-to-day operations of the Company.

In carrying out its responsibilities, the Board has created and delegated certain responsibilities to four standing committees: the Audit Committee, the Compensation Committee, the Governance Committee, and the Risk Committee. Additional information about these committees and their responsibilities is described under “Committees” on page 20.

The Board is committed to maintaining corporate governance practices that maximize stockholder value. To further its commitment, the Board has adopted the Company’s Corporate Governance Guidelines (the “Governance Guidelines”) to ensure that the Board has the necessary authority and practices in place to effectively review and evaluate the Company’s strategy and operations, to make decisions that are independent of the Company’s management, and to monitor adherence to the Company’s standards and policies. The Governance Guidelines are available at http://investor.spiritaero.com/govdocs.

 

Board Leadership

The Company separates the roles of Chief Executive Officer (“CEO”) and Chairman of the Board in recognition of the differences between the two roles and the value of independent leadership oversight. The Board believes that separation of the roles maximizes the ability of the CEO to focus on Company strategy and operations without distraction while benefiting from the Chairman’s perspective and insight. Because Mr. Johnson, the Chairman of the Board, is not an employee of the Company and qualifies as an independent director, the Board has not deemed it necessary to appoint a lead independent director.

While the CEO is responsible for setting the strategic direction of the Company and managing the day-to-day operations and performance of the Company, the Chairman of the Board performs the following duties:

sets the agenda for Board meetings;

presides over meetings of the full Board and executive sessions of independent directors;

presides over stockholder meetings;

serves as a liaison between the CEO and the independent directors;

provides feedback to the CEO on behalf of the independent directors regarding business issues and Board management; and

regularly speaks with the CEO between Board meetings to discuss Company performance and matters of significance.

 

Board Logistics

Size

 

Pursuant to our bylaws, the Board of Directors is required to consist of three or more directors and may be increased or decreased at any time by the Board of Directors. Currently, the Board of Directors consists of ten directors, including Mr. Raborn who is retiring at the Annual Meeting. Once Mr. Raborn retires, the Board will consist of nine directors. Pursuant to its charter, the Governance Committee is responsible for reviewing the size of the Board and recommending to the Board any changes it deems appropriate with respect to Board size.

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Composition and Director Nominations

 

The Governance Committee is responsible for identifying and evaluating qualified potential candidates to serve on the Board, and recommending to the Board for its selection nominees to stand for election as directors at the Company’s annual meeting of stockholders. In carrying out this responsibility, the Governance Committee considers the qualifications and expertise of director candidates individually and in the broader context of the Board’s overall composition. The Governance Committee continually evaluates the Board’s composition to ensure it is appropriate for the Company’s strategic needs. When a need for a new Board member arises, the Governance Committee conducts targeted recruiting through a retained search firm and receives suggestions from current directors and stockholders.

In evaluating individual candidates, the Governance Committee considers the personal ethics and values, experience, judgment, and diversity of the candidate, among other things. It is the policy of the Board that the Board reflect diversity of viewpoint, professional experience, education, skill, expertise, industry knowledge, and such other factors as the Governance Committee and Board believe would enhance the effectiveness of the Board. Nominees must have high standards of integrity and ethics and convey a commitment to act in the best interest of Spirit and its stockholders.

In addition, the Governance Committee considers the candidates’ employment and other involvements and evaluates whether the candidate has sufficient time available to efficiently and effectively carry out the duties of a director. For example, the Governance Guidelines limit the number of boards that any director may serve on to five (including the Company’s Board) or three (including the Company’s Board) boards in the case of a director that is an active chief executive officer at another public company.

It is the Governance Committee’s policy to consider candidates nominated by stockholders in compliance with applicable laws, regulations, and the procedures described in the Company’s bylaws and Proxy Statement. If a stockholder desires to recommend a director candidate for nomination by the Governance Committee, the stockholder should follow the procedures described under “Stockholder Proposals and Director Nominations for the 2019 Annual Meeting” on page 70. Director candidates recommended by stockholders will be considered and evaluated in the same manner as candidates discovered through other sources.

Director Tenure

 

While the Company has added four new directors to its Board in the past four years, five of the nominees have served on the Board for more than eight years. The Board is committed to routine Board and director refreshment as needed to enhance Board effectiveness. Through its annual evaluation process, the Board has determined that each of these five nominees provide diversity of experience and perspective and plays an integral and necessary role in the boardroom. The Board has evaluated age and term limits along with retirement policies and has determined that such limits and policies may arbitrarily restrict valuable Board members from service and, thus, reduce stockholder value. Instead, the Board has determined to continue evaluating its members on the merits based on the contributions they make in the boardroom and their ability to enhance overall Board effectiveness.

2017 Board Meetings

 

During 2017, there were four in-person meetings of the Board and five formal telephonic meetings. An executive session of the Company’s non-employee directors was held at each of the in-person meetings. Except for Ms. Wright, who was elected in February 2018, all of the Company’s directors attended 75% or more of the aggregate of all meetings of the Board and of committees on which they served in 2017. Our Governance Guidelines provide that attendance is expected at annual meetings of stockholders and all of our directors who were then-serving attended the 2017 A nnual M eeting of S tockholders.

In addition to scheduled Board meetings, the Board receives monthly reports from Mr. Gentile detailing financial results, operational highlights and challenges, and updates on strategic initiatives.

Board and Committee Evaluations

Each year, the Governance Committee oversees an evaluation of the Board and each committee. In 2017, the Chair of the Governance Committee conducted telephonic interviews with each Board member and asked a set of questions that had been pre-approved by the Governance Committee. The questions covered a range of topics including Board structure, leadership effectiveness, governance practices, and relationships with management and stockholders. After the interviews were completed, a written report summarizing the responses and matters discussed in the interviews was prepared and shared with the Governance Committee at its January 2018 meeting. The Governance Committee shared highlights of the written report with the Board during an executive session at the January 2018 meeting, and the Board discussed and determined next steps and opportunities for improvement.

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Director Independence

The Company’s Common Stock is listed on the New York Stock Exchange (the “NYSE”) and the Company uses the NYSE’s listing standards to determine director independence. Under the NYSE’s listing standards and the Governance Guidelines, the Board must consist of a majority of independent directors. For a director to qualify as independent, the Board must determine that the director has no material relationship with the Company (either directly, or as a partner, stockholder, or officer of an organization that has a relationship with the Company). The Board performs an independence assessment of each director annually and as circumstances may otherwise require.

In assessing the existence of a material relationship with the Company, the Board considers all relevant transactions, relationships, and arrangements required by the NYSE’s independence standards. The Board examined each director’s involvement, through directorships, employment, consulting relationships, or otherwise, with entities the Company does business with. In particular, the Board evaluated the following:

 

Topic

Transaction Evaluated

Outcome

Paul Fulchino

When considering the independence of Mr. Fulchino, the Board considered his role as an operating partner of AE Industrial Partners (“AEI”) , a private equity firm that has ownership interests in four of the Company’s suppliers. For three of such suppliers, all work with Spirit was won as a result of the suppliers submitting the most competitive proposal in competitive bidding situations. With respect to the fourth supplier, AEI is a minority owner and the percentage of the supplier’s revenue that is attributable to the Company is insignificant.

 

In his role at AEI, Mr. Fulchino assists with the acquisition, development, and value creation of portfolio companies. Mr. Fulchino receives a retainer from AEI and does not own any equity in AEI. Mr. Fulchino has no agreements with AEI, is not covered under AEI’s benefit plans or programs, receives a Form 1099 from AEI, and is free to be employed by other companies.

The Board affirmatively determined, based on available facts and circumstances, that Mr. Fulchino was not an employee of AEI (for purposes of the independence determination). Further, with respect to the Company’s transactions with three of the suppliers, each transaction arose as a result of the respective entity submitting the most competitive bid out of all bidding suppliers and, thus, the transactions were not reportable under Item 404 of Regulation S-K. Finally, with respect to fourth supplier, the Board determined that Mr. Fulchino’s relationship was AEI did not give rise to a material interest. For these and other reasons, the Board determined that Mr. Fulchino’s relationship with AEI does not give rise to a material relationship that impacts his independence or creates a related party transaction.

Richard Gephardt

When considering Mr. Gephardt’s independence, the Board considered his role as President and Chief Executive Officer of the Gephardt Consulting Group, a consulting firm that provides services to the Company in connection with labor matters (the “Gephardt Group”). Mr. Gephardt holds a 40% equity interest in the Gephardt Group, and Mr. Gephardt’s son, who is Chief Operating Officer of the Gephardt Group, holds a 10% equity interest. While the Company’s transactions with the Gephardt Group in 2017 were less than $ 75,000 , the Company entered into a contract with the Gephardt Group in January 2018 (after following the process set forth in its Related Person Transaction Policy) that provided for monthly payments of $20,000 to the Gephardt Group.

The Board affirmatively determined that, in light of Mr. Gephardt’s significant ownership and involvement in the Gephardt Group and the new contract entered into with the Company in January 2018 , Mr. Gephardt has a material relationship with the Company and is, therefore, not independent.

 

Based on this analysis, the Board has determined that all of the director nominees are independent under the NYSE’s criteria, with the exclusion of Messrs. Gentile and Gephardt. All of the committees of the Board are comprised solely of independent directors.

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Committees

The Board has four committees: the Audit Committee, Governance Committee, Compensation Committee, and Risk Committee. The Board has adopted a written charter for each committee, which is available at http://investor.spiritaero.com/govdocs. Information on each committee is set forth in the table below. Francis Raborn is a current director of the Company who has chosen not to stand for election at the Company’s Annual Meeting. His name is referenced below as he served as a member of the Audit Committee and Risk Committee for the full 2017 year and will continue to serve until the Annual Meeting.

Committee

Members

Primary Responsibilities

No. o f

Meetings

in 2017

Audit Committee*

Irene Esteves (Chair)**

John Plueger

Francis Raborn**

(1)

Assist the Board in its oversight of: the quality and integrity of the Company’s financial reporting; the Company’s compliance with legal and regulatory requirements; the qualifications, independence, and performance of the independent auditor; and the performance of Spirit’s internal audit function.

(2)

Pre-approve the terms and fees relating to the engagement of the independent auditor.

(3)

Consider the effectiveness of the Company’s internal controls over financial reporting.

(4)

Collaborate with the Risk Committee and oversee financial-related risk exposures and related policies and processes attempting to mitigate such risks.

(5)

Oversee the Company’s Code of Ethics and Business Conduct and the Company’s ethics and compliance program.

8

Compensation Committee

Paul Fulchino (Chair)

Robert Johnson

Charles Chadwell

(1)

Review and approve the compensation of the Company’s executive officers.

(2)

Oversee the administration of the Company’s compensation plans, policies, and programs.

(3)

Prepare the Compensation Committee Report in this Proxy Statement.

(4)

Collaborate with the Risk Committee and oversee compensation-related risk exposures and related policies and processes attempting to mitigate such risks.

(5)

Review and make recommendations to the Board with respect to non-employee director compensation.

5

Governance Committee

Charles Chadwell (Chair)

Robert Johnson

Paul Fulchino

Ronald Kadish

(1)

Assist the Board in identifying qualified individuals to become Board members.

(2)

Determine the composition of the Board and its committees.

(3)

Lead the Board in its annual review of the Board’s and management’s performance.

(4)

Develop and implement the Governance Guidelines and recommend to the Board any changes thereto.

(5)

Review and approve, deny, or ratify transactions under the Company’s Related Person Transaction Policy.

(6)

Collaborate with the Risk Committee and oversee risks related to the Company’s governance structure.

5

Risk Committee*

Ronald Kadish (Chair)

John Plueger

Irene Esteves

Francis Raborn

Laura Wright

(1)

Provide oversight of management’s guidelines, policies, and processes for assessing, monitoring, and mitigating the Company’s critical enterprise risks, including the major strategic, operational, financial, and compliance risks inherent in the Company’s business and core strategies, and collaborate with other committees regarding the same.

(2)

Oversee management’s review and assessment of key risks that have the potential to significantly affect the Company’s ability to execute its strategy and determine which risks should be included on the Board’s agenda for discussion.

5

*

Francis Raborn will serve on the Audit Committee and Risk Committee until the Annual Meeting. Effective immediately after the Annual Meeting, the Board expects to appoint Mr. Kadish to fill the vacancy on the Audit Committee and come off of the Governance Committee.

**

The Board has determined that Ms. Esteves and Mr. Raborn are “audit committee financial experts,” as such term is defined in Item 407(d)(5) of Regulation S-K.

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The Board of Directors’ Role in Risk Oversight

 

The Board is responsible for overseeing the Company’s risk exposure. The Board administers this responsibility through its review of corporate strategy and operations and by delegating certain oversight responsibilities to the appropriate committees for further consideration and evaluation. The Board receives briefings from members of management on key strategic and operational risks during the July Board meeting and as the other committees deem necessary in their Board reports. Risk Committee Has primary responsibility for overseeing the Company’s enterprise risk management framework and material risks facing the Company Reviews management’s guidelines, policies, and processes for assessing, monitoring, and mitigating the Company’s critical enterprise risks, including the major strategic, operational, financial, and compliance risks inherent in the Company’s business and core strategies Receives regular reports from senior management detailing areas of risk and management and mitigation strategies with respect to such risks Determines which risks need to be included on the Board’s agenda for discussion Audit Committee Collaborates with Risk Committee Oversees financial reporting and other risks relating to internal controls, disclosure issues, Ethics Hotline reports, and legal and regulatory issues, including compliance with SEC rules and regulations Annually reviews a comprehensive annual risk assessment report from the Company’s internal auditors Conducts annual assessment in October of most significant risks within Committee’s purview and reports findings to the Board Compensation Committee Collaborates with Risk Committee Oversees executive compensation risks Strives to create incentives that do not encourage inappropriate risk taking and align executives’ interests with stockholders’ interests Conducts annual assessment in October of most significant risks within Committee’s purview and reports findings to the Board Governance Committee Collaborates with Risk Committee Oversees governance risks relating to Board and Committee composition, regulatory compliance, and public company governance matters Conducts annual assessment in October of most significant risks within Committee’s purview and reports findings to the Board

 

Management’s Role in Risk Management

 

The Company’s management is responsible for the identification, assessment, mitigation, and management of risks relating to the Company’s strategy and operations. Apart from reporting to the Board, management engages in a robust enterprise risk management process that involves: (i) annual risk assessment surveys and interviews; (ii) reviewing, repositioning, and prioritizing identified risks by a risk council composed of executive leadership; (iii) assigning risks to risk owners based on responsibilities with respect to the Company’s strategic objectives; (iv) developing and reporting mitigation plans by the risk owners and risk management team to the risk council; and (v) oversight by the Company’s internal audit function. On a quarterly basis, the status of the top risks identified in management’s enterprise risk management process, along with their associated mitigation plans, are presented to the Risk Committee.

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Cybersecurity

 

One of the specific risks that the Board and Risk Committee reviewed in 2017 was cybersecurity. The Risk Committee received several presentations from management on the status of cybersecurity protections, and the Company hired a chief information security officer in early 2018 to assist with management of cybersecurity protections and procedures. The Board appreciates the threats presented by cybersecurity incidents and is committed to the prevention, timely detection, and mitigation of the effects of any such incidents on the Company.

Communications with the Board

Stockholders and other interested persons may communicate with the Board, the Chairman of the Board, individual members of the Board, members of any committee of the Board, or one or more non-employee directors through the following:

BY EMAIL

to CorporateSecretary@spiritaero.com

BY MAIL

to Corporate Secretary

Spirit AeroSystems Holdings, Inc.

3801 S . Oliver St .

Wichita, KS 67210-2112

IN PERSON

at the Annual Meeting

(we expect all of our directors to attend)

 

The Corporate Secretary will forward communications received to the appropriate party. Receipt of communications clearly not appropriate for consideration by members of the Board, such as unsolicited advertisements, inquiries concerning the Company’s products and services, and harassing communications, are not forwarded to members of the Board.

Stockholder Engagement

The Company’s management frequently meets with investors to discuss Company performance, strategy, operations, and other matters of importance to our stockholders. Occasionally, the Chairman of the Board has participated in meetings with investors. In 2017, members of the Company’s management held more than 620 in-person and telephonic meetings with investors and traveled through the continental U.S. and to Canada, France, and the U.K. to attend the meetings. On September 27, 2017, we held an investor day in New York, which was made available by webcast to all stockholders, and discussed our business strategy, innovation and technology efforts, and Company values. The Company is committed to maintaining a robust stockholder engagement program and welcomes stockholder feedback and constructive dialogue.

Code of Ethics and Business Conduct

Spirit is committed to the highest ethical standards and to complying with all laws and regulations applicable to our business. To support and articulate our commitment and personal responsibility in this regard, Spirit has adopted the Code of Ethics and Business Conduct (the “Code”). The Code addresses a number of topics, including the Foreign Corrupt Practices Act, conflicts of interest, safeguarding assets, insider trading, and general adherence to laws and regulations. All directors and employees, including executive officers, must comply with the Code. The Code is available on Spirit’s website at http://investor.spiritaero.com/govdocs.

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Compensation of Non-Employee Directors

Overview

 

Non-employee directors receive annual cash and equity compensation as further described below. Equity compensation is granted under the Director Stock Program adopted under the 2014 Omnibus Incentive Plan (the “OIP”). The Compensation Committee reviews and approves non-employee director compensation amounts and practices annually. As part of their review, the Compensation Committee evaluates peer company non-employee director compensation data, including data regarding the size of equity awards. In addition, the Compensation Committee confers with its independent compensation consultant on the magnitude and type of non-employee director compensation and reviews market data and benchmarking surveys provided by the consultant. Based upon that information, the Compensation Committee makes a recommendation to the Board. The Board determines the form and amount of compensation after considering the Compensation Committee’s recommendation.

In developing its recommendations, the Compensation Committee is guided by the following goals:

Compensation should be market-competitive;

Compensation should align directors’ interests with the long-term interests of the Company’s stockholders; and

The compensation structure should be simple, transparent, and easy for stockholders to understand.

Compensation Elements

 

The following table describes the elements of the 2017 non-employee director compensation program:

Element

Amount

Annual Board Cash Retainer

$105,000

Annual Board Equity Retainer

$105,000

Additional Retainer for Chairman of the Board

$100,000

Additional Retainer for Chairman of the Audit Committee

$25,000

Additional Retainer for Chairman of the Compensation Committee

$18,000

Additional Retainer for Chairman of Other Committees

$12,000

Board and Committee Meeting Fees

$1,000 per meeting

 

Cash Retainers

Each Board member receives an annual cash retainer, which is paid quarterly. Further, the Chairman of the Board and each Committee Chairman receives an additional cash retainer. Each director may elect to have their retainer received in shares of restricted stock, or restricted stock units (“RSUs”), in lieu of cash.

Equity Retainer

Each Board member receives an annual equity retainer, which may be paid in the form of restricted stock or RSUs. Both types of awards vest if the non-employee director remains continuously in service for the entire term to which the grant relates. If the non-employee director incurs a termination for any reason before the end of the term (before the annual meeting of stockholders following the grant), the awards are forfeited without any payment therefor. The Board may, in its discretion, waive this one-year service condition (in whole or in part) if it deems it to be appropriate and in the best interests of the Company to do so. Upon vesting, shares of restricted stock are delivered to the directors; however, vested RSUs are not paid to the director until the date that the director leaves the Board. Restricted stock confers voting and dividend rights; dividends accrue during the restricted period and are paid out upon vesting. RSUs confer dividend equivalent rights; dividend equivalents accrue during the restricted period and thereafter , and are paid out upon settlement. If the awards are forfeited, dividends or dividend equivalents, as applicable, are also forfeited.

Board and Committee Meeting Fees

Board and Committee meeting fees are paid for attendance at formal meetings where notice is duly given, a quorum is present, a matter is presented for consideration, the Board or Committee takes action on the matter, and minutes are taken. Meeting fees are paid in cash in arrears at the end of the quarter for which the fees were earned. Directors can choose to receive fees in the form of cash, restricted stock, or RSUs. A director must attend a majority of his or her required Board and committee meetings to receive any meeting fees. The Compensation Committee and Board plan to perform a market analysis of meeting fees (along with other non-employee director compensation features) in April 2018 to ensure we are aligned with market and best practices.

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Other Compensation

Directors are reimbursed for out-of-pocket expenses incurred in connection with their Board services. The Company does not provide perquisite allowances to non-employee directors.

Non-Employee Director Stock Ownership Requirements

 

Non-employee directors are required to own the greater of (i) $400,000 in shares of Common Stock, or (ii) 12,500 shares of Common Stock. To attain the minimum stockholding requirements, non-employee directors have until the later of: (i) four years after the adoption of the most recent increased minimum stockholding requirement; or (ii) four years of Board service. RSUs held by directors are counted in determining whether the minimum stockholding requirements are satisfied. Information regarding the current stock ownership of the Company’s non-employee directors can be found below under “Stock Ownership - Beneficial Ownership of Executive Officers and Directors.”

As of February 26, 2018, all non-employee directors other than Ms. Wright were in compliance with the stock ownership requirements. Ms. Wright has until February 20, 2022, to meet the requirements.

2017 Director Compensation

The following table sets forth non-employee director compensation for the fiscal year ended December 31, 2017. Ms. Wright is excluded from the table as she was not elected to the Board until February 20, 2018.

Name

Fees Earned or Paid

in Cash

($)

Stock

Awards(1)

($)

All Other

Compensation(2)

($)

Total

($)

Charles Chadwell

126,000

105,015

231,015

Irene M. Esteves

260,025(3)

260,025

Paul Fulchino

246,015(4)

246,015

Richard Gephardt

113,000

105,015

70,673(6)

288,688

Robert Johnson

192,500

105,015

297,515

Ronald T. Kadish

126,000

105,015

231,015

John Plueger

233,022(5)

233,022

Francis Raborn

128,500

105,015

233,515

 
(1)

Represents the aggregate grant date fair value of the stock awards computed in accordance with authoritative guidance on stock-based compensation accounting issued by the Financial Accounting Standards Board (the “FASB”). On May 8, 2017, each non-employee director received an annual grant of restricted stock or RSUs with an aggregate value of $105,000 based on $53.47 per share, the average of the opening and closing prices of Common Stock on the grant date. As a result of rounding up fractional share amounts, the grants were valued at $105,015. As of February 26, 2018, the balance of each non-employee director’s unvested restricted stock or unvested RSUs was as follows: Mr. Chadwell - 1,964 shares of restricted stock; Ms. Esteves - 4,863 RSUs (includes 2,899 RSUs for deferred retainer, Committee chair, and meeting fees); Mr. Fulchino - 4,601 shares of restricted stock (includes 2,637 shares of restricted stock for deferred retainer, Committee chair, and meeting fees); Mr. Gephardt - 1,964 shares of restricted stock; Mr. Johnson - 1,964 shares of restricted stock; Mr. Kadish - 1,964 shares of restricted stock; Mr. Plueger - 4,358 shares of restricted stock (includes 2,394 shares of restricted stock for deferred retainer and meeting fees); Mr. Raborn - 1,964 shares of restricted stock.

(2)

The amount of perquisites and other personal benefits has been excluded for all non-employee directors as the total value of each director’s perquisites and other personal benefits was less than $10,000.

(3)

Includes $155,010 in deferred cash retainer, Committee chair, and meeting fees per Ms. Esteves’ election to receive her cash retainers and meeting fees in RSUs.

(4)

Includes $141,000 in deferred cash retainer, Committee chair, and meeting fees per Mr. Fulchino’s election to receive his cash retainers and meeting fees in restricted stock.

(5)

Includes $128,007 in deferred cash retainer and meeting fees per Mr. Plueger’s election to receive his cash retainer and meeting fees in restricted stock.

(6)

Reflects consulting fees paid to the Gephardt Group for labor consulting services rendered in 2017, as further described under “Director Independence” on page 19.

 

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Related Person Transactions

Related Person Transaction Policy and Process

 

The Board has adopted a written Related Person Transaction Policy (the “RPT Policy”) that can be found on the Company’s website at http://www.investor.spiritaero.com/govdocs. The purpose of the RPT Policy is to ensure the proper evaluation, approval (or ratification), and reporting of related person transactions. Such transactions are only appropriate if they are fair to, and in the best interests of, the Company.

Under the RPT Policy, a related person transaction is any transaction in which the Company was, is, or will be a participant, where the amount involved exceeds $120,000 and in which a Related Person has, had, or will have a direct or indirect material interest. A Related Person is a director, director nominee, officer, or 5% stockholder, or any of their immediate family members. The existence of a direct or indirect material interest depends upon individual facts and circumstances and is determined by our General Counsel or Governance Committee.

The Governance Committee is responsible for reviewing these transactions and determining whether they are fair to, and in the best interests of, the Company. After review of the relevant facts and circumstances, if the Governance Committee concludes the related person transaction is fair to, and in the best interests of, the Company, it may approve or ratify the transaction.

If the Governance Committee declines to approve or ratify any related person transaction, the Company’s General Counsel will review the transaction, determine whether it should be terminated or amended in a manner that is acceptable to the Governance Committee, and advise the Governance Committee of her recommendation. The Governance Committee will then consider the recommendation at its next meeting. If the General Counsel does not ultimately recommend the transaction to the Governance Committee or if the Governance Committee does not approve the transaction, the proposed transaction will not be pursued; or, if the transaction has already been entered into, the Governance Committee will determine an appropriate course of action with respect to the transaction.

Certain Related Person Transactions

 

Below are the transactions that occurred between January 1, 2017, and February 26, 2018, and fall within the definition of related person transaction in the RPT Policy or under Item 404 of Regulation S-K. With respect to each transaction, the Governance Committee reviewed the transaction in accordance with the RPT Policy and approved it on the basis that it was fair to, and in the best interests of, the Company.

Related Person

Facts

Anthony Kondrotis, husband of Krisstie Kondrotis (SVP, Defense Programs & Business Development)

Mr. Kondrotis was employed by the Company as Vice President, Unclassified Defense Programs, for a portion of 2017. He left the Company on June 30, 2017. In 2017, Mr. Kondrotis received $1,155,444 in compensation from Spirit, which included salary, severance pay, a short-term incentive attributable to 2016 performance, and the value of vesting long-term incentives that were granted in prior years. Mr. Kondrotis was granted equity awards in January 2017, but all such awards were forfeited upon his departure from the Company.

Richard Gephardt

As described under “Board and Governance Matters - Director Independence” on page 19, above, the Company entered into an agreement with the Gephardt Group for labor consulting services in 2018, which provides for the payment of a total of $240,000 in consulting fees to the Gephardt Group in 2018.

 

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STOCK OWNERSHIP

Beneficial Ownership of Directors and Executive Officers

The following table sets forth, as of February 26, 2018, the shares of Common Stock beneficially owned by each director and named executive officer, individually, and by all the Company’s directors and executive officers as a group. Individually and together, they own less than 1% of our Common Stock. The table also includes information about RSUs credited to the accounts of certain non-employee directors. For purposes of the table, shares are considered to be beneficially owned if the person, directly or indirectly, has sole or shared voting or investment power with respect to the shares. In addition, a person is deemed to beneficially own shares if that person has the right to acquire such shares within 60 days after February 26, 2018.

Name

Common Stock

Beneficially

Owned

 

Shares Vesting

in 60 Days of

Record Date

Time-Based and

Performance-

Based Restricted

Stock(1)

Total Common

Stock

Beneficially

Owned

RSUs(2)

Total Common

Stock

Beneficially

Owned

Including

RSUs

DIRECTORS

Charles Chadwell

 

21,864

 

 

1,964

 

23,828

 

4,884

 

28,712

Irene M. Esteves

 

 

 

 

 

12,228

12,228

Paul Fulchino

54,504

 

 

4,601

59,105

 

59,105

Richard Gephardt

7,287

 

 

1,964

9,251

5,790

15,041

Robert Johnson

12,278

 

 

1,964

14,242

 

14,242

Ronald T. Kadish

26,170

 

 

1,964

28,134

 

28,134

John Plueger

2,000

 

 

4,358

6,358

13,026

19,384

Francis Raborn

29,644

 

 

1,964

31,608

 

31,608

Laura Wright

 

 

 

243(3)

243

 

243

EXECUTIVE OFFICERS

Thomas C. Gentile, III

 

27,856

 

 

32,666

 

141,491

 

202,013

 

 

202,013

Sanjay Kapoor

64,411

 

 

74,919

139,330

 

139,330

Samantha Marnick

30,976

 

 

39,052

70,028

 

70,028

Duane F. Hawkins

22,501

 

 

40,023

62,524

 

62,524

Michelle J. Lohmeier

19,998

 

 

29,643

49,641

 

49,641

All directors and executive officers as a group (19 persons)

473,064

 

32,666

455,836

961,56 6

35,928

997,49 4

 
(1)

With respect to executive officers, includes unvested time-based and performance-based restricted stock awards that are forfeitable until the vesting date or performance certification date, as applicable. Performance-based restricted stock awards are included in the table at target amounts. With respect to directors, includes unvested restricted stock awards that are forfeitable until the vesting date. Such awards are included herein as they confer voting rights and, therefore, are deemed to be beneficially owned under Rule 13d-3(a)(1) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

(2)

RSUs vest after one year of service as a director. However, RSUs are not payable until the director’s termination of service. At such time, the RSUs will be paid at the Board’s option in cash or shares of Common Stock based on the market value of Common Stock upon termination of service. All RSUS reflected are currently vested except for 4,863 RSUs held by Ms. Esteves.

(3)

Representing a grant of 243 shares of restricted stock to Mr. Wright on February 20, 2018, in connection with her election to the Board.

 

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Beneficial Ownership of Major Stockholders

The following table sets forth information with respect to beneficial owners of more than 5% of our outstanding securities as of February 26, 2018. The information set forth below is based on ownership statements filed with the SEC pursuant to Section 15(d) or 13(g) of the Exchange Act.

Name

Amount of

Shares

Beneficially

Owned

Percentage of

Common

Stock

Sole
Voting
Shares

Shared
Voting
Shares

Sole

Investment

Shares

Shared

Investment

Shares

5% Stockholders

 

 

 

 

 

 

The Vanguard Group(1)

100 Vanguard Blvd.

Malvern, PA 19355

10,790,865

9.53%

86,917

22,934

10,690,472

100,393

Blackrock, Inc.(2)

55 E. 52nd St.

New York, NY 10005

7,616,743

6.73%

6,840,882

 

7,616,743

 

Scopia Capital Management LP(3)

Scopia Management, Inc.

Matthew Sirovich

Jeremy Mindich

152 W. 57th St., 33rd Floor
New York, NY 10019

5,885,181

5.20%

 

5,885,181

 

5,885,181

(1)

Information is based on an amended Schedule 13G filed with the SEC on February 12, 2018.

(2)

Information is based on a Schedule 13G filed with the SEC on February 1, 2018.

(3)

Information is based on an amended Schedule 13G filed with the SEC on February 14, 2018.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires directors, executive officers, and persons who own more than 10% of any registered class of a company’s equity securities to file beneficial ownership reports with the SEC. Such reports are filed on Form 3, Form 4, and Form 5 under the Exchange Act, as appropriate. To the Company’s knowledge, based solely on a review of these reports and the reporting persons’ written representations, the Company believes that all filings required to be made by reporting persons holding the Company’s stock were timely filed in accordance with Section 16(a) in 2017, except for two Form 4s for Mr. Johnson (the “Late Forms”). The Late Forms regarded a sale of 500 shares on June 1, 2017, and a sale of 500 shares on September 1, 2017. The Late Forms were not filed on a timely basis because the appropriate staff of the Company did not receive information about the sales until several months after they occurred. The Late Forms were filed on December 5, 2017.

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ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS

Overview

Stockholders are being asked to approve, on an advisory basis, the compensation of the named executive officers, or NEOs, as set forth under the heading “Compensation Discussion and Analysis.” This vote, which is referred to as the “say-on-pay” vote, is not intended to address any specific item of compensation, but rather the overall compensation of the Company’s NEOs and the objectives, policies, and practices described in this Proxy Statement. We conduct a say-on-pay vote annually. The Board believes that executive compensation, as disclosed in this Proxy Statement, aligns with the Company’s peer group pay practices and furthers the Company’s compensation objectives.

Accordingly, the Board asks the Company’s stockholders to vote “FOR” the following resolution at the Annual Meeting:

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed by the Company pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Summary Compensation Table, and other related tables and disclosures.”

The Board will review the voting results of Proposal 2 and take them into consideration when making future decisions regarding executive compensation.



Voting Standard

The affirmative vote of a majority of stockholders present, in person or by proxy, will constitute the stockholders’ non-binding approval with respect to Proposal 2.

With respect to Proposal 2, a stockholder may vote “FOR,” “AGAINST,” or “ABSTAIN.” Abstentions and broker non-votes will not be counted as votes “FOR” or “AGAINST” Proposal 2. However, because abstentions and broker non-votes will be counted as present at the Annual Meeting, they will have the effect of votes “AGAINST” Proposal 2.

Under the rules of the NYSE, brokers are prohibited from giving proxies to vote on executive compensation matters unless the beneficial owner of such shares has given voting instructions on the matter. This means that if your broker is the record holder of your shares, you must give voting instructions to your broker with respect to Proposal 2 if you want your broker to vote your shares on the matter.

The Board recommends you vote FOR the approval of compensation of our named executive officers.

 

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COMPENSATION DISCUSSION & ANALYSIS

 

TABLE OF CONTENTS

 

Our 2017 Named Executive Officers

The following Compensation Discussion and Analysis describes the 2017 compensation for our NEOs. Our 2017 NEOs are:

THOMAS C. GENTILE, III

President and Chief Executive Officer

SANJAY KAPOOR

Executive Vice President and Chief Financial Officer

SAMANTHA MARNICK

Executive Vice President and Chief Administration Officer

DUANE F. HAWKINS

Senior Vice President/General Manager, Boeing, Defense, Business/Regional Jet Programs, and Global Customer Support

MICHELLE J. LOHMEIER

Senior Vice President/General Manager, Airbus Programs

 

 

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Compensation Overview

Our executive compensation program is designed to enable us to attract, retain, and incentivize executive officers who are able to deliver short-term performance results and longer-term stockholder value. The following highlights the key items the Compensation Committee considers in the development, review, and approval of the NEOs’ compensation.

Our Compensation Objectives

 

The Company’s executive compensation program is designed to:

1.

Attract, retain, and motivate highly qualified executive officers. The Company aims to deliver compensation that is market-competitive and designed to retain qualified, experienced, and passionate executives in the competitive aerospace and defense industry.

2.

Reward/pay-for-performance. A substantial portion of total compensation for executive officers should be variable and deliver rewards based on Company and individual performance. Variable compensation motivates executives to perform. Company performance is measured against established metrics. Individual performance is measured against pre-established objectives and contributions to Company successes.

3.

Align interests of executive officers with those of the Company’s stockholders. In order to align interests of executive officers with stockholders, metrics for determining Company performance should be aligned to the Company’s financial results and the creation of stockholder value. The Company’s variable compensation should focus on the achievement of financial targets such as revenue, earnings, free cash flow, and total shareholder return.

4.

Ensure compensation does not encourage inappropriate risk taking. We mitigate risk taking by balancing short- and long-term incentives, placing caps on potential payments, incorporating challenging performance goals, diversifying the metrics we use to measure performance, enforcing our stock ownership requirements, and maintaining our clawback policy.

Setting Target Pay

 

The Compensation Committee reviews and approves the target pay levels for our NEOs with respect to salary, our annual cash incentive, and our long-term incentives. In setting these levels, the Compensation Committee reviews peer group compensation levels and broad survey samples provided by the Compensation Committee’s independent compensation consultant. In addition, the Compensation Committee reviews the individual responsibilities, goals, and challenges with respect to the position in question, along with the experience, prior performance, and potential of the individual in question. Additional information about the Company’s peer group and compensation setting process can be found under “The Compensation Decision-Making Process,” and “Benchmarking” sections below.

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Aligning Pay with Performance

The Company’s success depends largely on the contributions of its executives and their efforts to deliver strong business results and increase stockholder value. The Company uses a balance of short- and long-term incentives as well as cash and non-cash compensation to reward NEOs for their roles in meeting Company objectives. For either short- or long-term incentives, executive officers have the opportunity to earn in excess of market median levels when performance exceeds expectations. Conversely, if performance falls below expectations, the incentives pay below target levels, if at all.

In 2017, we linked pay with performance through the following variable pay:

Annual Cash Incentive: a short-term incentive, which is paid in cash annually based on Company and individual performance. Company performance goals include revenue, earnings before interest and taxes, adjusted for certain items (“Annual EBIT”), and annual free cash flow, adjusted for certain items (“Annual FCF”), each over a one-year period.

Time-Based Restricted Stock: a long-term incentive consisting of an award of restricted Common Stock vesting ratably over three years. While vesting is not tied to performance, the increase or decrease in value that the executive receives between the award’s grant date and vesting date is tied to stock performance.

Performance-Based Restricted Stock: a long-term incentive consisting of an award of restricted Common Stock that will be earned at the end of a three-year performance period based on the Company’s total shareholder return relative to its peer group (“TSR”) and free cash flow as a percentage of revenue (“FCF Percentage”) over such period.

Additional information on our incentives can be found under “2017 Compensation Program Elements” below.

2017 Target Pay Mix

 

A substantial portion of our 2017 pay mix for our NEOs was at-risk, variable compensation. As the charts below demonstrate, 85% of our CEO’s direct compensation was variable, while 76% of the o ther NEOs’ direct compensation was variable. Generally, the portion of target annual compensation that is variable increases with the NEOs’ position level and impact on the Company’s performance, providing significantly more upside potential and downside risk for more senior positions as these executives have greater influence on the Company’s performance as a whole.

 

CEO PAY MIX15%Salary39% Time-Based Restricted Stock20% Annual Cash Incentive26% Performance-Based Restricted Stock85% At-Risk/VariableOTHER NEO PAY MIX31% Time-Based Restricted Stock24% Salary24% Annual Cash Incentive21% Performance-Based Restricted Stock24% Annual Cash Incentive76% At-Risk/Variable

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Our Pay Metrics

The table below explains the metrics we use to measure performance with respect to the Company’s compensation.

Program

Metric

Percentage of

Component /

Opportunity

How Performance is Calculated

Reason for Using Metric

Annual Cash Incentive (Company Performance Component)

Revenue

20%

Top-line revenue in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), measured over a one-year period

Aligns with the Company’s strategy to grow the top line through winning new business with existing and new customers, and the Company provides earnings guidance on this metric

Annual EBIT*

30%

Annual EBIT consists of earnings before interest and taxes, adjusted for non-core earnings impact, measured over a one-year period

Annual EBIT is a common short-term measure of earnings, demonstrating growth in revenue and ability to control costs

Annual FCF*

50%

Annual FCF is calculated by subtracting capital expenditures from GAAP cash flow from operations, measured over a one-year period and adjusted for certain items

Annual FCF aligns with the Company’s goal to produce positive cash flow after investing in capital to maintain and grow our base, and the Company also provides earnings guidance on this metric

Long-Term Incentive Program (Total Award Opportunity)

Stock Price

60%

This portion of the long-term incentive is calculated using a dollar amount, which results in a number of shares based on the price of Common Stock on the third trading day following the earnings call immediately after the grant is approved. Accordingly, the value received upon vesting is directly related to the change in the stock price between the grant date and the vesting date

This metric ties performance of executives’ restricted stock awards directly to stock price performance, thus aligning the interests of executives and stockholders

TSR

20%

Performance is measured based on the ranking of the Company’s TSR, expressed as a percentile, relative to the TSR of the Company’s peer group over a three-year performance period as compared to threshold, target, and maximum performance goals

This metric ties executive interests to stockholder interests and aligns with proxy advisory policies and market trends

FCF Percentage*

20%

Performance is measured based on the Company’s free cash flow as a percentage of revenue over a three-year performance period as compared to threshold, target, and maximum performance goals

FCF Percentage is used to measure the Company’s conversion of sales to cash

* Please see Appendix A for an explanation and reconciliation of these non-GAAP metrics.

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The Company’s Performance

The Company’s one-and three-year total shareholder return compared to its peer group, the Russell 3000 index, and S&P 500 index is set forth below.

1 AND 3 YEAR TSR VERSUS MARKET BENCHMARKS120%104%0% 20% 40% 60% 80% 100%50% 30% 21% 22% 104% 47% 37% 38%2017 2015-17SPRPeersRussell 3000S&500

 

Notes: TSR was calculated using adjusted close prices. Peer TSR is market-cap weighted at the beginning of each annual period. For additional information on the companies within our peer group, see “2017 Proxy Peer Group” on page 43. Source: S&P’s Capital IQ

CEO Target Pay Compared to Peers

The target pay for our CEO as compared to the target pay of other CEOs in our peer group is set forth below:

TARGET CEO PAY VS. PEERS160 2 4 6 8 10 12 14Peer pay rangeTarget CEO pay ($mms)Spirit 2017 target CEO pay $7.9mm

 

Notes: Represents 2016 target CEO pay for peer companies and 2017 target CEO pay for the Company; excludes one peer company that does not have a target annual incentive plan.

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Significant Program-Wide Compensation Decisions in 2017

The Company made several significant decisions with respect to its compensation program in 2017 to align with changes in the Company’s strategy, market trends and stockholder expectations, among other things. A brief overview of the changes is set forth below.

What Changed

Why

Changed Annual Cash Incentive components for all NEOs other than the CEO (the “Other NEOs”):

In 2016, the Other NEOs’ Annual Cash Incentive was scored as follows: 20% individual performance; 40% program/functional performance, and 40% Company performance. In January 2017, the Compensation Committee changed the Annual Cash Incentive scoring for Other NEOs to the following: 25% individual performance and 75% Company performance.

 

To further incentivize NEOs to improve Company performance by tying more of their pay metrics to the Company’s strategic execution requirements

Recalibrated weighting of metrics for Company performance with respect to the Annual Cash Incentive:

In 2016, the weighting of the metrics was as follows: 10% revenue, 40% Annual EBIT, and 50% Annual FCF. In January 2017, the Compensation Committee changed the weighting to the following: 20% revenue, 30% Annual EBIT, and 50% Annual FCF.

 

The Company’s growth strategy shifted, in part, to be more focused on growing top-line revenue; accordingly, we changed Company performance metrics to align with the new strategy

Increased percentage of long-term incentive consisting of Performance-Based Restricted Stock:

In 2016, the long-term incentives consisted of 75% Time-Based Restricted Stock and 25% Performance-Based Restricted Stock. In 2017, the Compensation Committee changed the long-term incentives to consist of 60% Time-Based Restricted Stock and 40% Performance-Based Restricted Stock.

 

To increase the percentage of long-term incentives based on Company performance metrics in light of market trends and stockholder expectations

Added second metric to Performance-Based Restricted Stock:

In 2016, the Performance-Based Restricted Stock was based on one metric - TSR. In 2017, the Compensation Committee added FCF Percentage as a second metric equally weighted with relative TSR.

 

To better align long-term incentives with the Company’s strategic execution requirements, market trends, and stockholder expectations

Implemented double-trigger change-in-control provisions:

Prior to 2017, the Annual Cash Incentive and long-term incentives became fully vested upon a change-in-control. In January 2017, the Compensation Committee implemented a double-trigger provision for both the Annual Cash Incentive and long-term incentives such that the incentives will vest only if (i) there is a change of control, and (ii) the employee is terminated without cause or departs for good reason in anticipation of the change-in-control or during the period beginning 30 days before the change-in-control and ending two years after the change-in-control.

 

To better align with market trends and stockholder expectations

Changed dividend policies:

The Company paid its first quarterly cash dividend in January 2017 and, as a result, in January 2017, the Compensation Committee adopted policies providing the following with respect to awards granted in 2017 and thereafter: (i) with respect to Time-Based Restricted Stock awards, dividends accrue during the restricted period and are paid out upon vesting, and (ii) with respect to Performance-Based Restricted Stock awards, dividends do not accrue prior to vesting.

 

To ensure that no financial benefits are received until vesting, which is more aligned with market trends and stockholder expectations

Adopted clawback policy:

In January 2017, the Compensation Committee adopted a clawback policy. The policy is designed to ensure that compensation paid to covered employees is appropriately adjusted in the event of a material financial restatement due to material non-compliance with financial reporting requirements (a “Triggering Event”). Upon a Triggering Event, if the Compensation Committee determines that certain compensation paid to a Covered Executive during the three-year period preceding the Triggering Event would have been lower taking into account the Triggering Event, the Committee will, with some exceptions, seek to recover the difference between the awarded and actual compensation. Covered Executives include all Section 16 officers of the Company.

To discourage excessive risk taking

 

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2017 Compensation Program Elements

There are three major components to the Company’s compensation program for NEOs:

Base Salary

 

Base salary is a fixed cash amount designed to attract, retain, and motivate executive officers. In determining base salary, the Compensation Committee considers market data for comparable roles, experience and expertise, prior positions held, performance, and responsibility level. Generally, we set base salary at a competitive level commensurate with the market median. The Company reviews each NEO’s base salary annually in February and makes appropriate adjustments to account for performance, additional responsibilities, and market movement.

Annual Cash Incentive

 

The Annual Cash Incentive award is an annual cash award granted under the Company’s Short-Term Incentive Plan (the “STIP”) under the OIP. Each individual receives a total target Annual Cash Incentive award that is equal to a percentage of his or her total base salary. This target amount is equal to 140% of our Chief Executive Officer’s base salary, and 100% of the Other NEOs’ base salaries. We set target pay at set forth under “Setting Target Pay” on pg 30. The Company generally targets Annual Cash Incentive awards at a level that, when combined with base salaries, results in total annual compensation that is at or around the market median when target performance is met, above the market median when the Company performs well, and below the market median when the Company misses its goals, subject to individual circumstances and exceptions.

Payout of the Annual Cash Incentive depends on the attainment of individual and Company performance goals. Depending on the level of performance achieved, payout can be between 0-200% of target. The objectives of the Annual Cash Incentive are to support our pay-for-performance philosophy, align the awards with stockholder interests, and motivate executives to achieve the Company’s near-term focus on safety, quality, delivery , and customer focus that drives the Company’s long-term performance.

The performance weighting for the NEOs’ Annual Cash Incentives is as follows:

CEO: 20% individual performance; 80% Company performance

Other NEOs: 25% individual performance; 75% Company performance

With respect to the measurement of the performance components, the Compensation Committee used a scoring scale of 0.0 to 2.0, with 0.0 for unacceptable performance and 2.0 for exceptional performance.

Individual Performance

The Individual Performance component of each NEO’s 2017 Annual Cash Incentive is evaluated based on the achievement of individual performance goals. To determine the score for the CEO, the Compensation Committee reviews his annual performance and personal contributions to the Company’s financial and operational results. With respect to the Other NEOs, the Compensation Committee first considers the report and recommendation of the CEO with respect to each person’s performance and score and, subsequently, the Compensation Committee conducts a subjective review of each NEO’s contributions to the Company during the fiscal year. The individual performance component is intended to further align executive compensation with performance in the Company’s focus areas in any given year by establishing relevant individual performance metrics that relate to each NEO’s assignments. With respect to 2017 performance, the NEOs received the following individual performance scores: Gentile: 1.640, Kapoor: 1.640, Marnick: 1.636, Hawkins: 1.621, and Lohmeier: 1.621.

For additional payout information, please see “2017 Annual Cash Incentive Payouts;” for descriptions of the NEOs’ 2017 individual performance contributions, please see “NEO Performance and Compensation Decisions.”

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Company Performance

The Company Performance component of each NEO’s 2017 Annual Cash Incentive is scored based on the performance of the Company with respect to three quantitative metrics, each over a one-year period:

Revenue - representing 20% of total Company performance

Annual EBIT - representing 30% of total Company performance

Annual FCF - representing 50% of total Company performance

We make certain adjustments to Annual EBIT and Annual FCF when calculating results to exclude certain non-operating or non-recurring items, all of which are described in Appendix A.

In 2017, the Company exceeded its target performance goal with respect to all three metrics, as displayed in the table below. As a result, the Compensation Committee determined a 1.60 score had been achieved with respect to Company performance, representing a weighted score of 1.28 for the CEO (representing 80% of his total Annual Cash Incentive score) and 1.20 for each of the Other NEOs (representing 75% of their total Annual Cash Incentive scores). The following table summarizes the Company’s actual performance relative to the Company’s threshold, target, and maximum performance goals for 2017:

Measure

2017 Annual Cash Incentive Company Metrics Performance

Weighting

Threshold

Target

Maximum

Actual Result

Assessment

Revenue

20%

$6.80 billion

$6.90 billion

$7.00 billion

$6.98 billion

Exceeded Target

Annual EBIT

30%

$850 million

$875 million

$925 million

$916 million

Exceeded Target

Annual FCF

50%

$425 million

$500 million

$600 million

$537 million

Exceeded Target

 

2017 Annual Cash Incentive Payouts

The formula for determining the 2017 Annual Cash Incentive payout and the resulting payout is reflected in the table below:

NEO

Base Salary

($)

×

Target

(Percentage

of Base

Salary) %

=

Target

Award

($)

×

Company

Performance (80%

weighting for CEO;

75% weighting for

Other NEOs)(2)

+

Individual

Performance (20%

weighting for CEO;

25% weighting for

Other NEOs)(3)

 

=

2017 Total

Payout

($)

Mr. Gentile

1,145,479(1)

 

140

 

1,603,671

 

1.28

 

0.328

 

 

2,578,703

Mr. Kapoor

650,000

 

100

 

650,000

 

1.20

 

0.410

 

 

1,046,500

Ms. Marnick

490,000

 

100

 

490,000

 

1.20

 

0.409

 

 

788,410

Mr. Hawkins

518,192(1)

 

100

 

518,192

 

1.20

 

0.405(4) 

 

 

831,827

Ms. Lohmeier

475,000

 

100

 

475,000

 

1.20

 

0.405(4) 

 

 

762,494

 
(1)

Messrs. Gentile’s and Hawkins’ Annual Cash Incentive payout was calculated using a weighted average base salary that takes into account, on a weighted basis, their 2017 salary change.

(2)

Reflects a Company score of 1.60 multiplied by the weighting percentage.

(3)

Reflects the following individual performance scores multiplied by the weighting percentage: Gentile - 1.640; Kapoor - 1.640; Marnick - 1.636;

Hawkins - 1.621; Lohmeier - 1.621.

(4)

Mr. Hawkins’ and Ms. Lohmeier’s individual performance scores were 0.40525 (and the resulting total payout is based on such number). However, we have elected to round their scores for purposes of uniformity with the other NEO scores.

 

Based on Company and individual performance results, the Compensation Committee believes the 2017 NEO Annual Cash Incentives were appropriate and achieved the objectives of the executive compensation program. While the Annual Cash Incentives were earned based on performance in 2017, they were paid out in February 2018. The Annual Cash Incentives are reported as 2017 compensation in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.”

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Long-Term Incentives

 

Long-term incentives are an important component of compensation, as they provide long-term, equity-based variable incentive compensation in keeping with the Company’s pay-for-performance philosophy for the entire executive group. Long-term incentives are delivered under the Company’s Long-Term Incentive Plan (the “LTIP”) under the OIP. For 2017, each NEO received a n annual target LTIP award equal to the percentage of his or her total base salary as provided in the table below:

NEO

Salary

x

Target (% of Base Salary)

=

Target

Award

($)

Mr. Gentile

1,150,000

 

450

 

5,175,000

Mr. Kapoor

650,000

 

280

 

1,820,000

Ms. Marnick

490,000

 

190

 

931,000

Mr. Hawkins

520,000

 

220

 

1,144,000

Ms. Lohmeier

475,000

 

170

 

807,500

 

The total annual target LTIP award consists of three components:

Time-Based Restricted Stock, representing 60% of the total target award amount;

Performance-Based Restricted Stock tied to TSR over a three-year performance period, representing 20% of the total target award amount; and

Performance-Based Restricted Stock tied to FCF Percentage over a three-year performance period, representing 20% of the total target award amount.

Time-Based Restricted Stock

In 2017, 60% of the target award amount was delivered in the form of a Time-Based Restricted Stock award vesting in three equal installments on each of the first, second, and third anniversaries of the grant date, subject to the recipient being employed by the Company upon the vesting date. The Compensation Committee grants Time-Based Restricted Stock awards to assist in retaining our NEOs and also to increase their stock ownership, which further aligns our NEOs’ interests with those of stockholders. Awards are granted in February of each year. The number of shares granted is determined based on the average of the opening and closing Common Stock prices on the third trading day after the Company’s earnings release immediately following the date the award is approved by the Compensation Committee.

Dividends on Time-Based Restricted Stock awards accrue from the grant date and are paid out upon vesting. If the underlying award is forfeited, the accrued dividends are forfeited too.

Performance-Based Restricted Stock Tied to Total Shareholder Return

In 2017, 20% of the target award amount was delivered in the form of a Performance-Based Restricted Stock award tied to TSR. Payout of the award is based on the ranking of the Company’s TSR, expressed as a percentile, relative to the TSR of a group of the Company’s peers over a three-year tracking period as compared to threshold, target, and maximum performance goals. Participants are initially granted a number of unvested shares equal to the number of vested shares to which the participant would be entitled upon achievement of the target performance goal. The table below sets forth these performance goals and vesting percentages:

 

 

Threshold*

Target

Maximum

Performance Goal

(Percentile Ranking in Peer Group)

25th

50th

90th

Vesting Percentage

(% of Target Award)

25%

100%

200%

*

If performance is below threshold, payout is zero.

For grants made in 2017, the performance period runs from January 1, 2017, to December 31, 2019, and the vesting of the awards is dependent upon the Compensation Committee’s certification of the performance goal being achieved. An individual must be continuously performing services (or deemed to be continuously performing services) throughout the entire performance period, or none of the award will be earned.

For grants made in 2017, the TSR for the Company and each member of its peer group for the tracking period will be determined by calculating the percentage increase in the dividend-adjusted average closing share price for the 20 trading days ending December 31, 2019, and the 20 trading days ending December 31, 2016. If the Company’s TSR percentile ranking falls between the threshold and the target performance goals or the target and the maximum performance goals, the percentage of the award that a participant will receive is interpolated on a straight-line basis. If the

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Company’s TSR percentile ranking is below the threshold performance goal, the participant will not be entitled to any vested shares, and if the Company’s TSR percentile ranking is equal to or higher than the maximum performance goal, the participant will be entitled to a number of vested shares equal to 200% of the target award. Dividends on Performance-Based Restricted Stock awards tied to TSR do not accrue until the award vests.

Performance-Based Restricted Stock Tied to FCF Percentage

In 2017, 20% of the target award amount was delivered in the form of a Performance-Based Restricted Stock award tied to FCF Percentage. Payout of the award is based on the Company’s free cash flow as a percentage of revenue over a three-year tracking period as compared to threshold, target, and maximum performance goals. FCF Percentage is a measure of long-term cash generation driven by increasing revenue, reducing costs, improving productivity, and efficiently using capital. Participants are initially granted a number of unvested shares equal to the number of vested shares to which the participant would be entitled upon the target performance goal. The table below sets forth these performance goals and vesting percentages:

 

 

Threshold*

Target

Maximum

Performance Goal

FCF Percentage

6.0%

6.7%

7.4%

Vesting Percentage

(% of Target Award)

25%

100%

200%

* If performance is below threshold, payout is zero.

For grants made in 2017, the performance period runs from January 1, 2017, to December 31, 2019, and the vesting of the awards is dependent upon the Compensation Committee’s certification of the performance goal being achieved. An individual must be continuously performing services through the entire performance period, or none of the award will be earned.

FCF Percentage will be calculated on a cumulative basis over a three-year period (total free cash flow over three years divided by total revenue over three years). If the calculated percentage falls between the threshold and the target performance goals or the target and the maximum performance goals, the percentage of the award that a participant will receive is interpolated on a straight-line basis. If the Company’s percentage is below the threshold performance goal, the participant will not be entitled to any vested shares, and if the Company’s percentage is equal to or higher than the maximum performance goal, the participant will be entitled to a number of vested shares equal to 200% of the target award. Dividends on Peformance-Based Restricted Stock awards tied to FCF Percentage do not accrue until the award vests.

For an explanation and reconciliation of FCF Percentage, please see Appendix A.

2017 NEO Performance and Compensation Decisions

Mr. Gentile, President and Chief Executive Officer

 

2017 Performance: Mr. Gentile’s 2017 individual performance exceeded expectations. He led the Company to strong financial results, continued to raise market confidence by resolving long outstanding contractual and pricing negotiations with Boeing and Airbus, significantly improved supply chain costs, executed on strategic work packages, secured new work packages, and established a new growth strategy for Spirit. In addition, he continued to strengthen leadership through realignment, led quality initiatives, and initiated new stakeholder relationships, while improving existing relationships.

2017 Compensation Decisions:

Salary: In January 2017, the Compensation Committee approved an increase from $1,100,000 to $1,150,000 effective February 3, 2017. The increase was based on an evaluation of Mr. Gentile’s performance, level of responsibility, and target compensation as compared to the Company’s peer group.

Annual Cash Incentives: No changes were made to Mr. Gentile’s target during 2017. Mr. Gentile’s target was 140% of salary and in January 2018, based on a review of Mr. Gentile’s and the Company’s performance during 2017, the Compensation Committee approved an Annual Cash Incentive of $2,578,703.

Long-Term Incentives: The Compensation Committee approved an increase of Mr. Gentile’s target amount from 400% to 450% effective February 3, 2017. The increase was based on an evaluation of Mr. Gentile’s performance, level of responsibility, and target compensation as compared to the Company’s peer group. In February 2017, Mr. Gentile was granted an award with an aggregate grant date fair value of $5,175,087. Aggregate grant date fair value was determined as set forth in footnote (5) to the “ Summary Compensation Table ” on page 47.

 

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Mr. Kapoor, Executive Vice President and Chief Financial Officer

 

2017 Performance: Mr. Kapoor’s 2017 individual performance exceeded expectations as evidenced by the Company exceeding financial targets, meeting cost targets, continuing the quarterly cash dividend, and aggressively repurchasing shares. In addition, Mr. Kapoor was instrumental in resolving contractual and pricing negotiations with Boeing, leading the Company’s inorganic growth strategy, and improving stakeholder relationships.

2017 Compensation Decisions:

Salary: Mr. Kapoor’s salary remained at $650,000.

Annual Cash Incentive: No changes were made to Mr. Kapoor’s target during 2017. Mr. Kapoor’s target was 100% of salary. In January 2018, based on a review of Mr. Kapoor’s and the Company’s performance during 2017, the Compensation Committee approved an Annual Cash Incentive of $1,046,500.

Long-Term Incentives: No changes were made to Mr. Kapoor’s target amount during 2017. Mr. Kapoor’s target amount was 280% of salary and in February 2017, Mr. Kapoor was granted an award with a grant date fair value of $1,820,067. Aggregate grant date fair value was determined as set forth in footnote (5) to the “ Summary Compensation Table ” on page 47.

Ms. Marnick, Executive Vice President and Chief Administration Officer

 

2017 Performance: Ms. Marnick’s 2017 individual performance exceeded expectations. She successfully realigned and developed senior executive talent, significantly improved fringe costs, secured critical government incentives for growth, executed significant union contract extensions, initiated a structured program for interns and new hires, led Company culture change, and improved key stakeholder relationships.

2017 Compensation Decisions:

Salary: Ms. Marnick’s salary remained at $490,000.

Annual Cash Incentive: No changes were made to Ms. Marnick’s target during 2017. Ms. Marnick’s target was 100% of salary and, in January 2018, based on a review of Ms. Marnick’s and the Company’s performance during 2017, the Compensation Committee approved an Annual Cash Incentive of $788,410.

Long-Term Incentives: No changes were made to Ms. Marnick’s target amount during 2017. Ms. Marnick’s target amount was 190% of salary. In February 2017, Ms. Marnick was granted an award with a grant date fair value of $931,048. Aggregate grant date fair value was determined as set forth in footnote (5) to the “ Summary Compensation Table ” on page 47.

Mr. Hawkins, Senior Vice President and General Manager - Boeing, Defense, Business/Regional Jet Programs and Global Customer Support

 

2017 Performance: Mr. Hawkins’ 2017 individual performance exceeded expectations with respect to closing contractual and pricing negotiations with Boeing, establishing relationships with new OEMs, securing new defense projects, and developing new centers of excellence to support the Company’s growth strategy.

2017 Compensation Decisions:

Salary: In January 2017, the Compensation Committee approved an increase from $500,000 to $520,000, effective February 3, 2017. The increase was based on an evaluation of Mr. Hawkins’ performance, level of responsibility, and target compensation as compared to the peer group.

Annual Cash Incentive: No changes were made to Mr. Hawkin’s target during 2017. Mr. Hawkins’ target was 100% of salary and in January 2018, based on a review of Mr. Hawkins’ and the Company’s performance during 2017, the Compensation Committee approved an Annual Cash Incentive of $831,827.

Long-Term Incentives: No changes were made to Mr. Hawkins’ target during 2017. Mr. Hawkins’ target amount was 220% of salary. In February 2017, Mr. Hawkins was granted an award with a grant date fair value of $1,144,036. Aggregate grant date fair value was determined as set forth in footnote (5) to the “ Summary Compensation Table ” on page 47.

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Ms. Lohmeier, Senior Vice President and General Manager - Airbus Programs

 

2017 Performance: Ms. Lohmeier’s 2017 individual performance exceeded expectations with respect to executing key transfers of work, expanding Malaysian operations, winning new work, and achieving cost reduction targets.

2017 Compensation Decisions:

Salary: Ms. Lohmeier’s salary remained at $475,000.

Annual Cash Incentive: No changes were made to Ms. Lohmeier’s target during 2017. Ms. Lohmeier’s target amount was 100% of salary. In January 2018, based on a review of Ms. Lohmeier’s and the Company’s performance during 2017, the Compensation Committee approved an Annual Cash Incentive of $762,494.

Long-Term Incentives: No changes were made to Ms. Lohmeier’s target during 2017. Ms. Lohmeier’s target amount was 170% of salary. In February 2017, Ms. Lohmeier was granted an award with a grant date fair value of $807,636. Aggregate grant date fair value was determined as set forth in footnote (5) to the “ Summary Compensation Table ” on page 47.

Preview of 2018 Compensation Decisions

2018 Program-Wide Compensation Decisions

 

The Compensation Committee met in January 2018 to discuss and implement changes to the Company’s compensation program for 2018. In large part, from a programmatic standpoint, the 2018 executive compensation program remains the same as the 2017 program except for the following:

 

What Changed

Why

Updated v esting t erms for Time-Based Restricted Stock a wards u pon r etirement, d eath, and d isability:

On death, disability, or retirement, the grantee will fully vest in his or her outstanding restricted stock. Retirement means termination on or after the date when the grantee has attained age 62.

 

To be competitive with market practices

Updated v esting t erms for Performance-Based Restricted Stock a wards u pon r etirement, d eath, and d isability:

On death or disability, the grantee will vest in a prorated portion of his or her target award, which will be prorated based on the number of days continuously employed during the performance period. On retirement, the grantee will vest in a prorated portion of his or her award, as calculated and certified by the Compensation Committee at the end of the applicable performance period, which will be prorated based on the number of days continuously employed during the performance period. Retirement means termination on or after the date when the grantee has attained age 62.

 

To be competitive with market practices

Increased t hreshold, t arget, and m aximum g oals on Performance-Based Restricted Stock a wards t ied to FCF p ercentage:

In 2017, the threshold, target, and maximum goals with respect to FCF Percentage were 6.0%, 6.7%, and 7.4%, respectively. The Compensation Committee increased the threshold, target, and maximum goals with respect to the 2018 FCF Percentage to 7.0%, 7.75%, and 9.0%, respectively.

 

Incentivize higher levels of performance; better align with market expectations; better align with Company performance targets

 

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2018 NEO Compensation Decisions

 

At its January 2018 meeting, the Compensation Committee modified the compensation arrangements of the NEOs, effective for 2018 compensation, as follows:

Mr. Gentile will be entitled to receive an annual award under the LTIP with a value equal to 500% of his annual base salary (increased from 450%). In addition, his annual base salary increased from $1,150,000 to $1,250,000, effective as of February 2, 2018.

Mr. Kapoor will be entitled to receive an annual award under the LTIP with a value equal to 300% of his annual base salary (increased from 280%).

Ms. Marnick will be entitled to receive an annual award under the LTIP with a value equal to 200% of her annual base salary (increased from 190%). In addition, her annual base salary increased from $490,000 to $520,000, effective as of February 2, 2018.

Mr. Hawkins will be entitled to receive an annual award under the LTIP with a value equal to 230% of his annual base salary (increased from 220%). In addition, his annual base salary increased from $520,000 to $535,000, effective as of February 2, 2018.

Ms. Lohmeier will be entitled to receive an annual award under the LTIP with a value equal to 180% of her annual base salary (increased from 170%). In addition, Ms. Lohmeier’s annual base salary increased from $475,000 to $500,000, effective as of February 2, 2018.

As previously disclosed in the Current Report on Form 8-K filed with the SEC on January 29, 2018, each NEO was granted the following: (i) a Time-Based Restricted Stock award equal to 60% of his or her total annual target LTIP award; (ii) a Performance-Based Restricted Stock award tied to TSR equal to 20% of his or her total annual target LTIP award and (iii) a Performance-Based Restricted Stock award tied to FCF Percentage equal to 20% of his or her total annual target LTIP award . Except as described under “ 2018 Program-Wide Compensation Decisions,” terms of the awards remain consistent with the 2017 compensation program.

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The Compensation Decision-Making Process

The Compensation Committee is responsible for establishing, implementing, and monitoring compliance with the Company’s compensation objectives, and setting compensation for, and reviewing performance of, the Company’s executive officers. Pursuant to its charter, the Compensation Committee has the authority to delegate its responsibilities to such subcommittees as it deems appropriate, so long as the subcommittee is solely comprised of one or more members of the Compensation Committee. In setting executive officer compensation, the Compensation Committee takes into consideration the following:

The CEO’s self assessment and performance review of the Other NEOs;

The Compensation Committee’s and Board’s views of the NEOs’ performance;

The counsel and recommendations of the Company’s CEO and Chief Administration Officer;

Recommendations of other members of the Compensation Committee;

Results from benchmarking against the Company’s peer group and survey data; and

The analysis and consulting advice of its compensation consultant.

Generally, the Compensation Committee strives for internal equity among the Company’s NEOs and accordingly, the types of compensation and benefits offered to the Company’s NEOs are consistent among the group. The Compensation Committee continues to examine existing and new compensation programs and practices to ensure that the Company’s compensation programs remain appropriate and consistent with the Company’s overall objectives.

The chart below reflects the annual compensation-setting process by regularly scheduled quarterly meeting of the Compensation Committee. In addition to the following, the CEO’s performance along with revenue, Annual EBIT, Annual FCF, TSR, and FCF Percentage performance are monitored and discussed at each meeting.

October Meeting: Discuss compensation design for upcoming year and anticipated changes; conduct risk analysis of compensation programs; update compensation risk registerJuly Meeting: Conduct a mid-year performance review of executive officers, review talent strategy and proposed changes to executive officers, and review peer group compositionJanuary Meeting: Review best practices, market trends, and benchmarking results; evaluate NEOs’ performance and review and approve NEO annual compensation including salary, short- and long-term incentives and other similar arrangementsApril Meeting: Review ISS and Glass Lewis reports on executive compensation and discuss resulting action steps; review regulatory matters; review stock ownership requirements

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Benchmarking

Each year, the Compensation Committee, with the assistance of management and the independent compensation consultant, reviews external market data in order to determine the competitiveness of our compensation packages, highlight trends and regulatory implications, and develop incentive plan design alternatives. The market data reviewed is from the Company’s peer group and nationally recognized published survey data.

2017 Proxy Peer Group

 

The Company uses its peer group as a reference point for its compensation design and award decisions. The Company’s peer group consists of companies similar to Spirit in size and operations (emphasizing aerospace, defense, and auto component manufacturers) and/or companies that compete with Spirit for executive talent. For 2017, the Company’s peer group was as follows (the companies are ranked by revenue and all ticker symbols are for the NYSE):

Company Name

2016 Revenue

($ in billions)

Market Cap as of 12/31/2016

($ in billions)

Textron (TXT)

13.8

13.1

Ingersoll-Rand (IR)

13.5

19.4

L3 Technologies (LLL)

10.5

11.8

Borg Warner (BWA)

9.1

8.4

Tenneco (TEN)

8.6

3.4

Huntington Ingalls (HII)

7.1

8.5

Spirit AeroSystems Holdings (SPR)

6.8

7.1

Rockwell Collins (COL)

5.3

12.1

Orbital ATK (OA)

4.5

5.1

Terex (TEX)

4.4

3.3

Triumph Group (TGI)

3.9

1.3

B/E Aerospace (BEAV)

2.9

6.1

Moog (MOG-B)

2.4

2.4

Curtiss-Wright (CW)

2.1

4.4

Teledyne Technologies (TDY)

2.1

4.3

Changes to Proxy Peer Group for 2018

 

Each year, the Compensation Committee, working with its independent compensation consultant, reviews the composition of the peer group and determines whether any changes should be made. In April 2017, after most 2017 compensation decisions had been made, the Company removed B/E Aerospace as a result of its acquisition by Rockwell Collins, and added Arconic (ARNC) to its peer group.

In January 2018, as a result of the announced acquisitions of Orbital ATK and Rockwell Collins, the Compensation Committee evaluated the Company’s peer group and removed Orbital ATK and Rockwell Collins from the peer group. In addition, the Compensation Committee added Parker-Hannifin Corporation (PH), Harris Corporation (HRS), and Esterline Technologies Corporation (ESL) as of January 2018.

Survey Data

 

In addition to benchmarking using the peer group, the Company also uses a broad survey sample from the independent compensation consultant’s executive compensation survey. The survey analysis considers companies in relevant industries (aerospace and defense, machinery, auto components, and electrical equipment) as well as companies in other industries, when necessary, to complement data limitations. Survey data was size-adjusted to approximate the Company’s revenue either through regression or by limiting the survey sample to comparably sized companies. This information was used by the Compensation Committee in establishing the base salaries and target goals for the NEOs.

 

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Independent Compensation Consultant

The Compensation Committee’s Charter allows the committee to engage an independent compensation consultant to advise on executive compensation matters. For 2017, the Compensation Committee engaged Willis Towers Watson directly for the purpose of providing analysis and advice with respect to compensation matters. The Compensation Committee has determined, after considering criteria from the SEC and NYSE, that Willis Towers Watson does not have any conflicts of interest that would prevent objectivity.

Consideration of Advisory Stockholder Vote on Executive Compensation

The Company believes it is appropriate to seek and reflect the views of its stockholders on the design and effectiveness of the Company’s executive compensation program. Accordingly, consistent with the Company’s most recent say-on-pay frequency vote in April 2017, the Company holds an annual say-on-pay vote. At the Company’s 2017 A nnual M eeting of S tockholders, approximately 91% of stockholders voted in favor of the Company’s executive compensation programs. The Compensation Committee takes the annual say-on-pay proposal voting results into consideration when making future decisions regarding executive compensation.

Compensation Risk Assessment

In October each year, and as otherwise deemed necessary, the Compensation Committee assesses risks presented by our compensation program and award structures. This assessment is used to determine whether any of our compensation components incentivize executives to take risks that are not in the Company’s or stockholders’ best interests. In 2017, our Compensation Committee reviewed the following risk factors relative to our current compensation programs:

Senior talent acquisition and the ability to recruit and retain talent at market-based compensation.

Senior talent loss due to misalignment of strategic decisions and incentives, including balancing long-term incentives with the investment requirement for long-term objectives.

Matching compensation to Company performance in relation to meeting stockholder expectations to balance short- and long-term incentives to achieve growth strategies.

Potential for material restatement of earnings to impact incentive plan calculations.

Clawback policy requirements aligned with market in regard to talent recruitment and retention.

Potential for unforeseen one-time events beyond management’s control that affect incentive plan calculations.

Potential for management decisions based on short-term objectives unbalanced with long-term Company performance.

Potential for unrealized talent investment due to underperforming individuals.

After reviewing our current compensation program and award structures, the Compensation Committee determined that our program does not incentivize executives to take such risks in light of the following features:

We diversify the compensation delivered to executives - the individual components and performance goals each incentivize different behaviors (short-term focus, long-term focus, etc.) in an attempt to balance our executives’ interests;

We have maximum payouts, or caps, on our performance-based compensation - the highest amount that can be paid with respect to our Annual Cash Incentive or performance-based long-term incentives is 200%;

The Compensation Committee reserves the right to exercise negative discretion over performance-based awards;

We deliver compensation using several vehicles, including cash, stock, and perquisites;

We maintain a clawback policy that allows us to recover compensation awarded based on certain improper conduct by executives;

Our NEOs and other executives must comply with stringent stock ownership requirements; and

We have engaged an independent compensation consultant to advise us on compensation practices.

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Other Compensation Elements and Information

Benefits and Perquisites

 

In addition to the four basic compensation elements, we provide our NEOs with the additional benefits and perquisites described below. Benefits and perquisites received by NEOs are included in the “All Other Compensation” column of the “ Summary Compensation Table. ” These benefits are based on an assessment of benefits offered by our peers and competitors and are important for retaining the Company’s executive officers.

Benefit/Perquisite

Explanation

Retirement & Savings Plan (the “RSP”)

The RSP is a tax-qualified defined contribution plan for certain eligible salaried employees. The Company makes both matching and non-matching contributions under the RSP.

Matching: The Company matches 75% of the employee’s contributions up to a maximum of 6% of the employee’s base pay (provided the employee contributes 8%). The matching contributions are immediately 100% vested.

Non-Matching: The Company makes an additional, non-matching contribution following the end of each calendar year based on an employee’s age and vesting service, provided that the employee is employed by the Company on December 31 of the applicable year and has earned a year of vesting service. If age plus vesting service totals less than 60, employees receive a contribution equal to 1.5% of base salary; if age plus vesting service totals at least 60 but less than 80, employees receive a contribution equal to 3% of base salary; and if age plus vesting service totals 80 or more, employees receive a contribution equal to 4.5% of base salary. These contributions are 25% vested at two years, 50% vested at three years, 75% vested at four years, and 100% vested at five years of vesting service.

Transition Contribution: An additional contribution is available to employees who were previously Boeing employees and meet certain other requirements. None of the NEOs are eligible for this additional contribution.

Deferred Compensation Plan (the “DCP”)

This non-qualified plan allows eligible Spirit employees, including each of our NEOs, to defer receipt of a portion of their base salary or Annual Cash Incentive. In addition, the DCP allows for discretionary contributions by the Company into a separate account in the DCP. Deferred amounts and discretionary Company contributions are credited with a rate of return equal to 120% of the applicable federal long-term rate for October of the prior fiscal year. For 2017, the interest crediting rate was 2.34%.

Perquisite Allowance Plan

Under the Company’s Perquisite Allowance Plan, the CEO receives an annual allowance of $25,000, while the Other NEOs receive an annual allowance of $13,000. Any portion of a participant’s annual allowance that is not used by the end of the applicable calendar year is forfeited except upon a qualifying termination in a change-in-control. See “Potential Payments Upon Termination or Change-in-Control” on page 55.

Executive Security

Some of our NEOs receive personal or home security provisions. These provisions are based on business-related security concerns and have been assessed by an independent security consulting firm and deemed necessary and appropriate for the protection of the Company’s NEOs.

Personal Corporate Aircraft Use

For security reasons, the Company’s CEO, CFO, and CAO are authorized to use the corporate aircraft for a limited amount of personal travel. Other NEOs do not use the corporate aircraft for personal travel, unless approved by the CEO. No tax gross-ups are provided for this benefit, unless the benefit is incurred pursuant to the terms of a relocation assistance package.

Relocation Benefits

We provide relocation assistance to employees, including our NEOs. In 2017, the Company provided Mr. Gentile and Ms. Lohmeier relocation assistance for certain qualified relocation expenses. Where appropriate, the Company provides a gross-up to these employees to cover tax liabilities associated with relocation assistance.

Post-Retirement
Medical and Dental Coverage

The Company makes post-retirement medical and dental coverage available to all employees who retire from the Company at age 55 or later, provided they have at least 10 years of service and participated in the Company’s medical and dental plans prior to retirement. None of our NEOs are currently eligible for this coverage.

Discontinued and Frozen Benefit Plans and Arrangements

 

The Company pays certain benefits through discontinued and frozen benefit plans and arrangements, which include the Supplemental Executive Retirement Plan and the Pension Value Plan. No new employees are eligible to participate in these plans. None of the NEOs received benefits under these plans in 2017 or are eligible to participate in such plans.

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Post-Termination Payments and Change-in-Control Compensation

 

The Company believes competitive severance protection is an appropriate incentive in attracting and retaining talent. The Company has provided for post-termination severance compensation through certain individual employment agreements and has also agreed to individual severance arrangements at the time of termination of employment, taking into account the specific facts and circumstances of termination. Certain of our employment agreements provide benefits upon a change-in-control.

Further, certain of the Company’s benefit plans provide for compensation upon termination or in connection with a change-in-control. Beginning in 2017, the Annual Cash Incentive , long-term incentives , and Perquisite Allowance Plan are subject to a double trigger.

You can find additional information regarding the Company’s practices in providing compensation in connection with termination of employment under the heading “Potential Payments Upon Termination or Change-in-Control” on page 55.

 

Stock Ownership Requirements

 

The Company maintains stock ownership requirements for its NEOs and other senior executives to further promote alignment of management and stockholder interests. The ownership requirements (measured by the value of the Company’s stock required to be held) are based on a multiple of base salary tied to pay grade. The stock ownership requirements establish the following target levels for Company stock ownership:

Officer Level

Target Level

(Multiple of Annual Base Salary)

Chief Executive Officer

5x

Executive Vice Presidents/Senior Vice Presidents

3x

Vice Presidents

1x

 

The stock ownership requirements mandate that the CEO and other senior officers accumulate their required positions within the later of : (i) five years after the adoption of the guidelines, or (ii) five years after being hired or promoted into the officer position. The Company believes that five years provides a reasonable goal for executives to accumulate shares through earned incentive awards.

During the five-year accumulation period, all NEOs are expected to continuously accumulate qualifying equity until they meet the minimum stock ownership guideline.

The Company reviews ownership positions on an annual basis. Based on the review conducted in 2017, the Company determined that the NEOs own appropriate amounts of Company stock in light of the minimum stock ownership requirements and the portions of their respective accumulation periods that have passed. The Company may restrict any officer from liquidating any of his or her then-current holdings in Company stock, except for those shares which are sold to meet Company tax withholding requirements. The Company may modify or waive the requirements of the guidelines at its discretion if it determines that compliance would result in severe hardship for an officer.

Accounting and Tax Treatment of Compensation

 

When evaluating the Company’s compensation programs, the Company takes into account the various accounting, tax, and disclosure rules associated with such matters, including Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) and Section 409A of the Code. The Compensation Committee generally seeks to award compensation that would allow it to preserve tax deductions; however, the Compensation Committee reserves the right to set compensation at the levels and in the manner (tax-deductible or not) that it determines to be in the best interests of the Company and its stockholders.

Section 162(m) generally imposes a $1 million limit on the amount that a public company may deduct for compensation paid to “covered employees” each year. Prior to federal tax reform legislation enacted in December 2017, the Tax Cuts and Jobs Act (the “TCJA”), Section 162(m) included an exception to the $1 million limit for “qualifying performance-based” compensation. As in prior years, for 2017, the Company intends to deduct, with respect to covered executive officers, salary and non-performance-based compensation up to $1 million, and performance-based compensation earned or vesting in 2017 pursuant to the “qualifying performance-based” compensation exception.

Effective for the 2018 tax year, the TCJA eliminates the exemption from Section 162(m)’s deduction limit for performance-based compensation. Accordingly, compensation paid to covered executive officers in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to written binding contracts in effect as of November 2017.

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Summary Compensation Table

The following table summarizes the compensation of the NEOs for the last three fiscal years.

Name and

Principal Position

Year

Salary

($)

(3) 

Bonus

($)

(4) 

Stock

Awards

($)

(5) 

Non-Equity

Incentive Plan

Compensation

($)

(6) 

All Other

Compensation

($)

(7) 

Total

($)

Thomas C. Gentile, III,

President and CEO(1)

2017

1,144,223

 

 

 

5,175,087

 

2,578,703

 

1,009,385

 

9,907,398

2016

770,773

 

 

 

3,000,045

 

2,234,460

 

169,476

 

6,174,754

Sanjay Kapoor,

EVP and CFO

2017

650,000

 

 

 

1,820,067

 

1,046,500

 

39,148

 

3,555,715

2016

624,229

 

 

 

2,696,650

 

973,882

 

127,208

 

4,421,969

2015

561,144

 

 

 

1,130,068

 

592,160

 

28,701

 

2,312,073

Samantha Marnick,

EVP and CAO(2)

2017

490,006

 

 

 

931,048

 

788,410

 

141,475

 

2,350,939

2016

460,465

 

 

 

1,405,583

 

719,204

 

213,332

 

2,798,584

Duane F. Hawkins,

SVP/GM - Boeing and Defense Programs

2017

517,691

 

 

 

1,144,036

 

831,827

 

33,657

 

2,527,211

2016

497,684

 

 

 

1,000,076

 

756,097

 

57,905

 

2,311,762

2015

450,384

 

 

 

630,079

 

462,396

 

22,899

 

1,565,758

Michelle J. Lohmeier,

SVP/GM - Airbus Programs

2017

475,010

 

 

 

807,636

 

762,494

 

83,955

 

2,129,095

2016

472,125

 

 

 

807,552

 

661,653

 

135,198

 

2,076,528

2015

245,774

 

250,000

 

1,165,055

 

450,000

 

222,820

 

2,333,649

 
(1)

Mr. Gentile was appointed Executive Vice President and Chief Operating Officer of the Company effective April 1, 2016, and President and CEO of the Company effective August 1, 2016. Accordingly, no information is displayed for 2015.

(2)

Ms. Marnick was not a NEO in the fiscal year ended December 31, 2015. Accordingly, no information is displayed for 2015.

(3)

For NEOs who received salary increases during the fiscal year, these numbers reflect a prorated amount based on the portions of the years for which their new compensation arrangements applied.

(4)

Because the Annual Cash Incentive (“ACI”) has mandatory performance measures that must be achieved for any payout, the ACI is shown in the “Non-Equity Incentive Plan Compensation” column of the table. The amount stated for Ms. Lohmeier in 2015 represents the cash signing bonus paid under her employment agreement.

(5)

Amounts shown represent the aggregate grant date fair value of awards granted to NEOs during the applicable year, as determined in accordance with FASB ASC Topic 718. These grant date fair values represent the accounting expense to be recorded for the award and are not reflective of the actual value that may be recognized by a NEO with respect to the award. In 2017, each NEO received Time-Based Restricted Stock (“RS”), Performance-Based Restricted Stock tied to TSR (“PB-TSR”), and Performance-Based Restricted Stock tied to FCF Percentage (“PB-FCF”). The assumptions made by the Company in calculating these amounts are incorporated herein by reference to Note 15 to the Company’s consolidated financial statements in the Company’s Annual Report on Form 10-K for 2017. The grant date fair value of the RS awards is equal to the number of shares granted multiplied by $56.075, the average of the opening and closing prices of Common Stock on February 7, 2017, the grant date. The grant date fair value of the PB-TSR awards is equal to the number of shares granted at target multiplied by $55.55, which was determined using a Monte Carlo simulation model based on the probable ranking of the Company’s TSR relative to the TSR of a group of the Company’s peers. If we assume that the maximum level of performance is achieved with respect to the PB-TSR awards (and thus the maximum number of shares are awarded to the NEOs), using the average of the opening and closing prices of Common Stock on the grant date, the value of the PB-TSR awards would be as follows: Mr. Gentile - $2,089,579; Mr. Kapoor - $734,919; Ms. Marnick - $375,927; Mr. Hawkins - $461,946; and Ms. Lohmeier - $326,132. The grant date fair value of the PB-FCF awards is equal to the number of shares granted at target multiplied by $54.95, the average of the opening and closing of Common Stock on the grant date, adjusted for dividends (as dividends do not accrue on PB-FCF awards until vesting). If we assume that the maximum level of performance is achieved with respect to the PB-FCF awards (and thus the maximum number of shares are awarded to the NEOs), using the average of the opening and closing prices of Common Stock on the grant date, the value of the PB-FCF awards would be as follows: Mr. Gentile - $2,112,457; Mr. Kapoor - $742,994; Ms. Marnick - $380,076; Mr. Hawkins - $466,993; and Ms. Lohmeier - $329,721. For additional information on the awards, see “2017 Compensation Program Elements” on page 35.

(6)

Represents ACIs earned by each NEO.

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(7)

The following table shows “All Other Compensation” amounts for our NEOs for 2017:

Name

Life

Insurance(a)

($)

Financial and

Tax Services(b)

($)

Personal

Aircraft

Usage(c)

($)

Personal

Travel

Expenses (d)

($)

Personal

Security(e)

($)

Relocation

Expenses,

Aircraft

Usage, and

Gross-Ups(f)

($)

Deferred

Compensation Plan

Contributions(g)

($)

Company

Contributions

Under Tax

Qualified

Contribution

Plan(h)

($)

Other

($)

Total

($)

Thomas C. Gentile, III

816

 

97,259

 

 

256,430

600,000

17,476

37,403(i)

1,009,385

Sanjay Kapoor

816

 

5,876

13,000

1,091

 

 

17,475

889(j)

39,148

Samantha Marnick

800

975

 

 

10,200

 

100,000

17,475

12,025(k)

141,475

Duane F. Hawkins

816

12,868

 

 

1,091

 

 

18,784

98(l)

33,657

Michelle J. Lohmeier

775

8,740

 

4,260

 

2,367

47,500

20,215

98(l)

83,955

 
(a)

Amounts shown reflect Company contributions toward executive group life insurance.

(b)

Amounts shown reflect financial, tax preparation, and other related services paid for by the Company.

(c)

Amounts shown reflect the incremental cost to the Company of personal usage of its corporate aircraft. The incremental cost to the Company for personal aircraft usage is determined by dividing direct operating costs per aircraft by the total number of flight hours per aircraft, resulting in a cost per hour, and multiplying the cost per hour by the hours of personal usage. Direct operating costs include variable costs less revenue derived from charter flights. Variable costs include fuel, maintenance expenses, parts and supplies, landing fees, ground services, catering, and crew expenses associated with such use, including those associated with “deadhead” flights related to such use. Because corporate aircraft is used primarily for business travel, the methodology excludes fixed costs that do not change based on usage. Fixed costs include pilot salaries, the purchase or lease costs of the aircraft, and the cost of maintenance not related to personal travel. Executives, their families, and invited guests occasionally fly on the corporate aircraft as additional passengers on business flights. In those cases, the aggregate incremental cost to the Company is a de minimis amount, and as a result, no amount is reflected in the Summary Compensation Table. Executives, directors, their families, and invited guests also occasionally fly on the corporate aircraft as additional passengers on personal flights that are attributed to another executive, in which case the entire incremental cost is allocated to the executive who arranged for the personal flight. The Company generally does not grant bonuses to cover, reimburse, or otherwise “gross-up” any income tax owed for personal travel on corporate aircraft; however, in the event that personal aircraft usage is incorporated in a relocation package, the Company may gross-up income tax on such amount.

(d)

Amounts shown reflect the NEOs’ personal travel expenses (or travel expenses of their spouses) and personal commercial flights paid for by the Company.

(e)

Amounts shown reflect the incremental cost of personal or home security services for the NEOs that were deemed to be necessary and appropriate based on risk assessments performed by an independent security firm.

(f)

Amounts shown reflect relocation expenses reimbursed by the Company. For Mr. Gentile, the amount reflects $80,859, the net incremental cost to the Company of Mr. Gentile’s relocation flights between his home in Connecticut and Wichita, KS (computed as described under footnote (c), above), $88,929 for lodging and related expenses, and $88,642 for gross-ups to cover Mr. Gentile’s tax liability with respect to qualified relocation expenses ($29,938 of this gross-up amount related to personal aircraft usage for relocation flights).

(g)

Amounts shown reflect Company contributions to the accounts of its eligible NEOs under the DCP . See “Other Compensation Elements and Information - Benefits and Perquisites” on page 45.

(h)

Amounts shown reflect matching and non-matching contributions made by the Company under the RSP. See “Other Compensation Elements and Information - Benefits and Perquisites” on page 45.

(i)

Amounts shown reflect a $25,000 charitable contribution to a non-profit organization, personal driving costs, executive physical costs, and costs relating to personal use of a country club membership.

(j)

Amounts shown reflect costs relating to personal use of a country club membership and spousal travel expenses.

(k)

Amounts shown reflect vehicle lease fees.

(l)

Amounts shown reflect spousal travel expenses.

 

 

Employment Agreements

 

Spirit has employment agreements with all of its NEOs. A brief description of certain material terms is below.

Mr. Gentile’s Employment Agreement

On February 13, 2016, we entered into an employment agreement, effective April 1, 2016, with Mr. Gentile with respect to his position as Executive Vice President and Chief Operating Officer. Pursuant to the employment agreement, Mr. Gentile received a base salary of $1,000,000 per year, which could be changed based on performance. In addition, Mr. Gentile was eligible for an ACI equal to 140% of his base salary, and an annual target LTIP award equal to 300% of his base salary. Mr. Gentile was also entitled to participate in the executive relocation program and receive an annual DCP Company contribution of $500,000.

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The Company granted Mr. Gentile a sign-on award of $3,000,000 in shares of restricted stock. Half of the award vested on April 1, 2017, and the other half will vest on April 1, 2018.

On July 27, 2016, to be effective on August 1, 2016 (in recognition of Mr. Gentile’s appointment as President and CEO), the Board approved an increase in Mr. Gentile’s salary to $1,100,000, annual DCP contribution to $600,000, and annual target LTIP award to 400% of his base salary. Effective February 3, 2017, Mr. Gentile’s base salary was increased to $1,150,000, and his annual target LTIP award was increased to 450% of his base salary. In January 2018, Mr. Gentile’s salary was increased to $1,250,000 and his annual target LTIP award was increased to 500%.

Potential payments and termination events under Mr. Gentile’s employment agreement are described under “Potential Payments Upon Termination or Change-in-Control - Employment Agreements.”

Mr. Kapoor’s Employment Agreement

On August 23, 2013, we entered into an employment agreement, effective September 23, 2013, with Mr. Kapoor with respect to his position as Senior Vice President and CFO. The agreement provided for a three-year initial term and would be automatically extended for successive one-year periods thereafter. Pursuant to the employment agreement, Mr. Kapoor was entitled to a base salary of $525,000, which could be changed based on performance. In addition, Mr. Kapoor was eligible for an ACI equal to 100% of his base salary, an annual target LTIP award of 200% of his base salary, and, from time to time, a target discretionary bonus in the form of cash or equity of 10% of earned base salary. Mr. Kapoor was also entitled to participate in the executive relocation program.

The Company granted Mr. Kapoor $2,000,000 in restricted stock as a sign-on award. The first $1,000,000 vested in equal portions annually over a three-year period, while the second $1,000,000 vested in equal portions annually over a four-year period (the final tranche of the second $1,000,000 vested in 2017). In addition, Mr. Kapoor received a cash signing bonus of $150,000 to be paid within thirty days of the effective date, and an additional cash signing bonus of $100,000 to be paid on the first pay period following the first anniversary of the effective date.

Effective January 30, 2015, Mr. Kapoor’s base salary was increased to $565,000. Effective February 5, 2016, Mr. Kapoor’s base salary was increased to $600,000, and his annual target LTIP award was increased to 220% of his base salary. In May 2016, the Board increased Mr. Kapoor’s base salary to $650,000 and his annual target LTIP award to 280% of his base salary. In January 2018, Mr. Kapoor’s annual target LTIP award was increased to 300% of his base salary.

Potential payments and termination events under Mr. Kapoor’s employment agreement are described under “Potential Payments Upon Termination or Change-in-Control - Employment Agreements.”

Ms. Lohmeier’s Employment Agreement

On June 10, 2015, we entered into an employment agreement with Ms. Lohmeier with respect to her position as Senior Vice President of Airbus Programs. The agreement provided for a two-year initial term with automatic extensions for one-year periods thereafter. Pursuant to the employment agreement, Ms. Lohmeier was entitled to a base salary of $450,000, which could be changed based on performance. In addition, Ms. Lohmeier was eligible for an ACI equal to 100% of her base salary, a n annual target LTIP award of 170% of her base salary, and an annual DCP Company contribution of 10% of her base salary. Ms. Lohmeier was also entitled to receive executive relocation benefits. Ms. Lohmeier received a cash signing bonus of $250,000, along with a gross-up amount to cover her tax liability on the bonus. In addition, Ms. Lohmeier was granted restricted stock in the amount of $1,165,000, vesting in equal portions on February 7, 2016, February 7, 2017, and February 8, 2018.

Effective February 5, 2016, Ms. Lohmeier’s base salary was increased to $475,000. In January 2018, Ms. Lohmeier’s base salary was increased to $500,000, and her annual target LTIP award was increased to 180% of her base salary.

During the two-year initial term of her agreement, Ms. Lohmeier was entitled to certain benefits that provided for compensation past her date of termination. However, those benefits expired on June 10, 2017.

Other Employment Agreements

Both Ms. Marnick and Mr. Hawkins have employment agreements with the Company. However, both of their roles have changed significantly since the employment agreements were entered into and all termination benefits expressly provide d by the agreements have expired. Accordingly, the Company does not believe a description of the terms of such agreements is necessary to understand the information disclosed in the “ Summary Compensation Table .”

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Grants of Plan-Based Awards in 2017

The following table presents information regarding grants of plan-based awards to the NEOs during the fiscal year ended December 31, 2017. For more information on the terms applicable to the awards reflected below, please see “2017 Compensation Program Elements” on page 35.

 

   

Estimated Future Payouts Under

Non-Equity Incentive Plan Awards

 

Estimated Future Payouts

Under Equity Incentive Plan

Awards

 

All Other Stock

Awards

Name

Grant

Date

Date

Award

Approved

by

Board

 

Threshold

($)

Target

($)

Maximum

($)

 

Threshold

(#)

Target

(#)

Maximum

(#)

 

Number

of Shares

of Stock

(#)

Grant Date

Fair Value

of Stock

Awards

($)

Thomas C. Gentile, III

                       

ACI(1)

 

 

 

400,918

1,603,671

3,207,342

 

 

 

 

 

 

 

RS(2)

2/7/2017

1/25/2017

 

 

 

 

 

 

 

 

 

55,373

3,105,041

PB-TSR(3)

2/7/2017

1/25/2017

 

 

 

 

 

4,658

18,632

37,264

 

 

1,035,008

PB-FCF(4)

2/7/2017

1/25/2017

 

 

 

 

 

4,709

18,836

37,672

 

 

1,035,038

Sanjay Kapoor

                         

ACI(1)

 

 

 

162,500

650,000

1,300,000

 

 

 

 

 

 

 

RS(2)

2/7/2017

1/25/2017

 

 

 

 

 

 

 

 

 

19,474

1,092,005

PB-TSR(3)

2/7/2017

1/25/2017

 

 

 

 

 

1,63 8

6,553

13,106

 

 

364,019

PB-FCF(4)

2/7/2017

1/25/2017

 

 

 

 

 

1,65 6

6,625

13,250

 

 

364,044

Samantha Marnick

     

 

 

 

 

 

 

 

 

ACI(1)

 

 

 

122,500

490,000

980,000

 

 

 

 

 

 

 

RS(2)

2/7/2017

1/25/2017

 

 

 

 

 

 

 

 

 

9,962

558,619

PB-TSR(3)

2/7/2017

1/25/2017

 

 

 

 

 

838

3,352

6,704

 

 

186,204

PB-FCF(4)

2/7/2017

1/25/2017

 

 

 

 

 

84 7

3,389

6,778

 

 

186,226

Duane F. Hawkins

 

 

 

 

 

 

 

 

 

 

 

 

ACI(1)

 

 

 

129,548

518,192

1,036,384

 

 

 

 

 

 

 

RS(2)

2/7/2017

1/25/2017

 

 

 

 

 

 

 

 

 

12,241

686,414

PB-TSR(3)

2/7/2017

1/25/2017

 

 

 

 

 

1,030

4,119

8,238

 

 

228,810

PB-FCF(4)

2/7/2017

1/25/2017

 

 

 

 

 

1,041

4,164

8,328

 

 

228,812

Michelle J. Lohmeier

 

 

 

 

 

 

 

 

 

 

 

 

ACI(1)

 

 

 

118,750

475,000

950,000

 

 

 

 

 

 

 

RS(2)

2/7/2017

1/25/2017

 

 

 

 

 

 

 

 

 

8,641

484,544

PB-TSR(3)

2/7/2017

1/25/2017

 

 

 

 

 

727

2,908

5,816

 

 

161,539

PB-FCF(4)

2/7/2017

1/25/2017

 

 

 

 

 

735

2,940

5,880

 

 

161,553

 
(1)

Represents ACIs that were paid in February 2018 but granted and earned in 2017. The actual ACI amounts are reported in the “Non-Equity Incentive Plan Compensation” column of the “Summary Compensation Table.” The threshold, target, and maximum figures were calculated on a weighted average basis, giving effect to any changes made to the applicable NEO’s base salary or ACI target during 2017.

(2)

Represents RS awards that vest annually over three years, beginning February 7, 2018, if such NEO remains employed by the Company on each annual vesting date. The grant date fair value of the award, which is reported in the “Stock Awards” column of the “Summary Compensation Table,” is equal to the number of shares multiplied by $56.075, the average of the opening and closing prices of Common Stock on the grant date.

(3)

Represents PB-TSR awards that vest at the end of the three-year performance period based on the ranking of the Company’s TSR relative to the TSR of each of the companies in the Company’s peer group. The grant date fair value of the award, which is reported in the “Stock Awards” column of the “Summary Compensation Table,” is equal to the number of shares granted at target multiplied by $55.55, which was determined using a Monte Carlo simulation based on the probable ranking of the Company’s TSR relative to a group of the Company’s peers. Actual payout may be zero or a range from 25% to 200% of the target shares granted.

(4)

Represents PB-FCF awards that vest at the end of the three-year performance period based upon the achievement of a certain percentage of free cash flow as a percentage of revenue on a cumulative basis over the period. The grant date fair value of the award, which is reported in the “Stock Awards” column of the “Summary Compensation Table,” is equal to the number of shares multiplied by $54.95, the average of the opening and closing prices of Common Stock on the grant date, adjusted for dividends. Actual payout may be zero or a range from 25% to 200% of the target shares granted.

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Outstanding Equity Awards at Fiscal Year End

The following table presents the outstanding equity awards held by the NEOs as of December 31, 2017. The Company has not granted any options or option-like awards. The market value of the awards is determined by multiplying the number of shares shown in the applicable columns below by $87.25, the closing price of Common Stock on December 29, 2017.

Name

Stock Awards

Grant Date

Number of

Shares or Units

of Stock That

Have Not

Vested

(#)

Market Value of

Shares or Units of

Stock That Have

Not Vested

($)

Equity Incentive Plan

Awards: Number of

Unearned Shares,

Units, or Other Rights

That Have Not Vested

(#)

Equity Incentive Plan

Awards: Market or Payout

Value of Unearned Shares,

Units, or Other Rights That

Have Not Vested

($)