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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant x
Filed by a party other than the registrant ¨
Check the appropriate box:
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¨ Preliminary Proxy Statement |
¨ Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e) (2)) | |
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x Definitive Proxy Statement |
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| ¨ Definitive Additional Materials |
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| ¨ Soliciting Material Pursuant to Section 240.14a-12 |
Lockheed Martin Corporation
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
| x | No fee required. |
| ¨ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 |
| (1) | Title of each class of securities to which transaction applies: |
| (2) | Aggregate number of securities to which transaction applies: |
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| (4) | Proposed maximum aggregate value of transaction: |
| (5) | Total fee paid: |
| ¨ | Fee paid previously with preliminary materials. |
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
| (1) | Amount Previously Paid: |
| (2) | Form, Schedule or Registration Statement No.: |
| (3) | Filing Party: |
| (4) | Date Filed: |
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Lockheed Martin Corporation
6801 Rockledge Drive Bethesda, MD 20817
Robert J. Stevens
Chairman and Chief Executive Officer
March 11, 2011
Dear Fellow Stockholders:
On behalf of the Board of Directors, I would like to invite you to attend our 2011 Annual Meeting of Stockholders. We will meet on Thursday, April 28, 2011, at 10:30 a.m. Eastern Daylight Saving Time, at the Southern Maryland Higher Education Center, 44219 Airport Road, Building II, City of California, State of Maryland 20619. Prior to the meeting, you are invited to join the Board and senior management at a reception at 10:00 a.m. If you cannot attend, you may listen to a live webcast of the Annual Meeting at our website, http://www.lockheedmartin.com/investor.
The accompanying Notice and Proxy Statement describe the matters on which stockholders may vote at the Annual Meeting. Whether or not you plan to attend, please be sure to vote your shares by returning the enclosed proxy card, or by following the instructions for Internet or telephone voting printed on the proxy card. If you plan to attend, please let us know by marking the appropriate box when you cast your vote.
E. C. “Pete” Aldridge, Jr. is not eligible to stand for re-election due to the mandatory age retirement provision in our Bylaws and will retire from the Board upon expiration of his term at the 2011 Annual Meeting of Stockholders. We are extremely grateful for his valuable contributions to our great Corporation and the Board of Directors.
If you plan to attend the Annual Meeting, please note that, for security reasons, before being admitted:
| • | You must present your admission ticket or proof of ownership and valid photo identification at the door. |
| • | All hand-carried items will be subject to inspection. |
| • | Any bags, briefcases, or packages must be checked at the registration desk prior to entering the meeting room. |
Thank you for your continued support of Lockheed Martin. I look forward to seeing you at the Annual Meeting.
Sincerely,
Robert J. Stevens
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LOCKHEED MARTIN CORPORATION
6801 Rockledge Drive
Bethesda, MD 20817
NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS
| DATE | Thursday, April 28, 2011 | |
| TIME | 10:30 a.m. Eastern Daylight Saving Time | |
| PLACE | Southern Maryland Higher Education Center | |
| 44219 Airport Road, Building II | ||
| City of California, State of Maryland 20619 | ||
| WEBCAST | You may listen to a live webcast of our Annual Meeting at http://www.lockheedmartin.com/investor. Listening to the live webcast will not represent attendance at the Annual Meeting, and you will not be able to cast your vote through the live webcast. | |
| ITEMS OF BUSINESS | (1) Election of 11 director-nominees to serve on the Board for a one-year term ending at next year’s Annual Meeting; | |
| (2) Ratification of the appointment of Ernst & Young LLP, an independent registered public accounting firm, as our independent auditors for the 2011 fiscal year; | ||
| (3) Management Proposal — Adoption of the Lockheed Martin Corporation 2011 Incentive Performance Award Plan; | ||
| (4) Proposal to approve the compensation of our named executive officers; | ||
| (5) Proposal on the frequency of holding future votes on the compensation of our named executive officers; | ||
| (6) Consideration of one stockholder proposal described in the accompanying Proxy Statement, if properly presented at the Annual Meeting; and | ||
| (7) Consideration of any other matters that may properly come before the meeting. | ||
| RECORD DATE | Stockholders of record at the close of business on March 1, 2011, are entitled to vote at the Annual Meeting. | |
| ANNUAL REPORT | We have enclosed our 2010 Annual Report to Stockholders. The report is not part of the proxy soliciting materials for the Annual Meeting. | |
| PROXY VOTING | It is important that you vote your shares so that they are counted at the Annual Meeting. Vote your shares by completing and returning the enclosed proxy card, or by following the instructions printed on the proxy card or contained in the Proxy Statement for Internet or telephone voting. | |
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| Maryanne R. Lavan | ||
| Senior Vice President, General Counsel | ||
| and Corporate Secretary | ||
March 11, 2011
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| SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS |
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| Proposal 2 – Ratification of Appointment of Independent Auditors |
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| APPENDIX A – PROPOSED LOCKHEED MARTIN CORPORATION 2011 INCENTIVE PERFORMANCE AWARD PLAN |
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On behalf of your Board of Directors (the “Board”), we are furnishing the Notice, Proxy Statement, and proxy card (“Proxy Materials”) in connection with the solicitation of proxies to be voted at our 2011 Annual Meeting of Stockholders (the “Annual Meeting”) and at any adjournment or postponement of the Annual Meeting. Lockheed Martin Corporation (the “Corporation”) is a Maryland corporation.
Our Annual Meeting will take place on April 28, 2011, at 10:30 a.m., Eastern Daylight Saving Time, at the Southern Maryland Higher Education Center, 44219 Airport Road, Building II, City of California, State of Maryland 20619. Directions to the meeting are provided in Appendix B.
We began mailing the Proxy Materials for the Annual Meeting and our 2010 Annual Report to Stockholders (“Annual Report”) on or about March 11, 2011.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on April 28, 2011: The Proxy Statement and Annual Report are available at http://www.lockheedmartin.com/investor.
Do I need an admission ticket to attend the Annual Meeting?
Yes. You must present both an admission ticket or proof of ownership and valid photo identification to attend the Annual Meeting.
| • | If you received these materials by mail, your admission ticket is attached to your proxy card. Please detach the ticket and bring it with you to the meeting. |
| • | If you vote electronically through the Internet, you can print an admission ticket from the online site. |
| • | If you hold shares through an account with a bank or broker, contact your bank or broker to request a legally valid proxy from the owner of record to vote your shares. This will serve as your admission ticket. |
| • | A recent brokerage statement or letter from your broker showing that you owned Lockheed Martin stock (referred to as “common stock” or “stock”) in your account as of March 1, 2011 (the “Record Date”), also serves as an admission ticket. |
If you do not have an admission ticket or proof of ownership and valid photo identification, you will not be admitted to the Annual Meeting.
If you plan to attend the Annual Meeting, please note that, for security reasons, before being admitted:
| • | You must present your admission ticket or proof of ownership and valid photo identification at the door. |
| • | All hand-carried items will be subject to inspection. |
| • | Any bags, briefcases, or packages must be checked at the registration desk prior to entering the meeting room. |
Will there be a webcast of the Annual Meeting?
Yes. We will webcast the Annual Meeting live on April 28, 2011. To access the webcast, go to http://www.lockheedmartin.com/investor at 10:30 a.m., Eastern Daylight Saving Time, on April 28, 2011. Stockholders who wish to access the webcast should pre-register on our website no later than 10:00 a.m., Eastern Daylight Saving Time. Listening to our Annual Meeting webcast will not represent attendance at the meeting, and you will not be able to cast your vote as part of the live webcast.
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GENERAL INFORMATION
Who is entitled to vote at the Annual Meeting?
Holders of our common stock at the close of business on March 1, 2011, are entitled to vote their shares at the Annual Meeting. As of the Record Date, there were 349,522,951 shares outstanding. Each share outstanding on the Record Date is entitled to one vote on each proposal presented at the Annual Meeting. This includes shares held through Direct Invest, our dividend reinvestment and stock purchase plan, or through our employee benefit plans. Your proxy card shows the number of shares held in your account(s).
What is the difference between holding shares as a registered stockholder and as a beneficial owner?
If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered the “registered stockholder” of those shares. We mail the Proxy Materials and our Annual Report to you directly.
If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the “beneficial owner” of the shares that are registered in street name. In this case, the Proxy Materials and our Annual Report were forwarded to you by your broker, bank, or other nominee, who is considered the registered stockholder. As the beneficial owner, you have the right to direct your broker, bank, or other nominee how to vote your shares by following the voting instructions included in the mailing.
Employees with shares allocated in an employee benefit plan account will not receive a paper mailing and should review the information on procedures for voting by employees on page 4.
What am I voting on and what are the Board’s voting recommendations?
Our stockholders will be voting on the following proposals, which are described in more detail beginning on page 70:
| Proposal | Description | Board’s Voting Recommendation | ||
| 1 | Election of 11 director-nominees | FOR all nominees | ||
| 2 | Ratification of appointment of Ernst & Young LLP, an independent registered public accounting firm, as independent auditors | FOR this proposal | ||
| 3 | Management Proposal – Adoption of the Lockheed Martin Corporation 2011 Incentive Performance Award Plan (Appendix A) | FOR this proposal | ||
| 4 | Proposal to approve the compensation of our named executive officers (“NEOs”) | FOR this proposal | ||
| 5 | Proposal on the frequency of holding future votes on executive compensation | FOR “ONE YEAR” | ||
| 6 | Stockholder Proposal to allow the Corporation’s stockholders to act by written consent in lieu of a stockholder meeting |
AGAINST this proposal |
Can other matters be decided at the Annual Meeting?
At the time this Proxy Statement went to press, we were not aware of any other matters to be presented at the Annual Meeting. If other matters are properly presented for consideration at the Annual Meeting, the proxy holders appointed by your Board (who are named on your proxy card if you are a registered stockholder) will have the discretion to vote on those matters in accordance with their best judgment on behalf of stockholders who sign the proxy card.
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What is the procedure for voting?
If your shares are registered in your name, you may vote using any of the methods described below. If your shares are held in the name of a broker, bank, or other nominee, your nominee will provide you with instructions on the procedure for voting your shares. Employees with shares allocated to an employee benefit plan account should review the information on procedures for voting by employees on page 4.
Internet or By Telephone
Our Internet and telephone voting procedures for registered stockholders are designed to authenticate your identity, allow you to give your voting instructions, and confirm that those instructions are properly recorded.
You may access the Internet voting site at http://www.investorvote.com. Please have your proxy card in hand when you go online. You will receive instructional screen prompts to guide you through the voting process. You also will have an opportunity to confirm your voting selections before your vote is recorded.
You can vote by calling toll free 1-800-652-8683 within the U.S., Canada, and Puerto Rico, or 1-781-575-2300 from outside the U.S. Please have your proxy card in hand when you call. You will receive voice prompts to guide you through the process. You also will have an opportunity to confirm your voting selections before your vote is recorded.
Internet and telephone voting facilities for registered stockholders will be available 24 hours a day until 1:00 a.m., Eastern Daylight Saving Time, on April 28, 2011. If you vote on the Internet or by telephone, you do not have to return your proxy card.
The availability of Internet and telephone voting for beneficial owners will depend on the voting processes of your broker, bank, or other nominee. We recommend that you follow the voting instructions in the materials that you receive from your nominee.
By Mail
Simply mark, date, and sign the proxy card and return it in the postage-paid envelope provided.
If you want to vote in accordance with the Board’s recommendations, simply sign, date, and return the proxy card. The named proxy holders will vote signed but unmarked proxy cards in accordance with the Board’s recommendations.
If you are a registered stockholder, and the postage-paid envelope is missing, please mail your completed proxy card to Lockheed Martin Corporation, c/o Computershare Investor Services, P.O. Box 43116, Providence, RI 02940.
In person at the Annual Meeting
All registered stockholders may vote in person at the Annual Meeting. Voting your proxy electronically through the Internet, by telephone, or by mail does not limit your right to vote at the Annual Meeting. You also may be represented by another person at the Annual Meeting by executing a legally valid proxy designating that person to vote on your behalf. If you are a beneficial owner of shares, you must obtain a legally valid proxy from your broker, bank, or other nominee and present it to the inspectors of election with your ballot to be able to vote at the Annual Meeting. A legally valid proxy is an authorization from your broker, bank, or other nominee to vote the shares held in the nominee’s name that satisfies Maryland law and Securities and Exchange Commission (“SEC”) requirements for proxies.
Your vote is important. You can save us the expense of a second mailing by voting promptly, even if you plan to attend the Annual Meeting.
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Yes. If you are a registered stockholder, you can change your proxy vote or revoke your proxy at any time before the Annual Meeting by:
| • | Returning a signed proxy card with a later date; |
| • | Authorizing a new vote electronically via the Internet or by telephone; |
| • | Delivering a written revocation of your proxy to the Corporate Secretary at 6801 Rockledge Drive, Bethesda, MD 20817 before your original proxy is voted at the Annual Meeting; or |
| • | Submitting a written ballot at the Annual Meeting. |
If you are a beneficial owner of shares, you may submit new voting instructions by contacting your bank, broker, or other nominee. You also may vote in person at the Annual Meeting if you obtain a legally valid proxy from the registered stockholder as described in the answer to the previous question.
Your personal attendance at the Annual Meeting does not revoke your proxy. Unless you vote at the Annual Meeting, your last valid proxy prior to or at the Annual Meeting will be used to cast your vote.
What if I return my proxy card but do not provide voting instructions?
Proxies that are signed and returned but do not contain voting instructions will be voted:
| • | FOR the election of 11 director-nominees listed in this Proxy Statement. |
| • | FOR the ratification of the appointment of Ernst & Young LLP, an independent registered public accounting firm, as independent auditors for the 2011 fiscal year. |
| • | FOR the adoption of the Lockheed Martin Corporation 2011 Incentive Performance Award Plan. |
| • | FOR the proposal to approve the compensation of our NEOs as described in this Proxy Statement. |
| • | FOR “ONE YEAR” for the proposal on the frequency of holding future votes on the compensation of our named executive officers. |
| • | AGAINST the stockholder proposal. |
| • | In the best judgment of the named proxy holders on other matters properly brought before the Annual Meeting. |
How do I vote if I participate in one of the Corporation’s 401(k) or defined contribution plans?
As a participant in one of the 401(k) or defined contribution plans, you may direct the plan trustees how to vote shares allocated to your account(s) on a proxy voting direction or instruction card, by telephone, or electronically by the Internet. Most active employees who participate in these benefit plans will receive an email notification announcing Internet availability of this Proxy Statement and how to submit voting directions.
If you do not provide timely directions to the plan trustee, shares allocated to your account will be voted by the plan trustee depending on the terms of your plan or other legal requirements.
Plan participants may attend the Annual Meeting, but may not vote plan shares at the Annual Meeting. If you wish to vote, whether you plan to attend the Annual Meeting or not, you should direct the trustee of your plan(s) how you wish to vote your plan shares no later than 11:59 p.m., Eastern Daylight Saving Time, on April 25, 2011.
How many shares must be present to hold the Annual Meeting?
In order for us to conduct our Annual Meeting, a majority of the shares outstanding and entitled to vote as of March 1, 2011, must be present in person or by proxy. This is referred to as a quorum. Your shares are counted as present at the Annual Meeting if you attend the Annual Meeting and vote in person or if you properly return a proxy by Internet or telephone, or by mail in advance of the Annual Meeting and do not revoke the proxy.
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Will my shares be voted if I don’t provide my proxy or instruction form?
Registered Stockholders: If your shares are registered in your name, your shares will not be voted unless you provide a proxy by Internet or telephone, by mail, or vote in person at the Annual Meeting.
Plan Participants: If you are a participant in one of the 401(k) or defined contribution plans and you do not provide timely directions to the plan trustee, shares allocated to your account will be voted by the plan trustee depending on the terms of your plan or other legal requirements.
Beneficial Owners: If you hold shares through an account with a bank, broker, or other nominee, and you do not provide voting instructions, under New York Stock Exchange (“NYSE”) rules your nominee can vote your shares on routine matters. The ratification of the appointment of Ernst & Young LLP (Proposal 2) is considered a routine matter, and your nominee can therefore vote your shares on that Proposal if you do not provide voting instructions. Proposal 1 and Proposals 3 through 6 are not considered routine matters, and your nominee cannot vote your shares on those Proposals unless you provide voting instructions. Votes withheld by brokers in the absence of voting instructions from a beneficial owner are referred to as “broker non-votes.”
What is the vote required for each proposal?
For Proposal 1, the votes that stockholders cast “FOR” must exceed the votes that stockholders cast “AGAINST” to approve the proposal. For Proposals 2, 3, and 6 the affirmative vote of a majority of the votes cast is required to approve each proposal; provided in the case of Proposal 3 that the votes cast represent over 50% of the votes entitled to be cast. Proposals 4 and 5 are advisory and non-binding. The Board will review the voting results on those proposals and take them into account when making future decisions regarding executive compensation. “Votes cast” excludes abstentions and broker non-votes.
What is the effect of an abstention?
A stockholder who abstains on some or all matters is considered present for purposes of determining if a quorum is present at the Annual Meeting, but an abstention is not counted as a vote cast. An abstention has no effect for the vote on any proposal, except in the case of Proposal 3, which requires votes to be cast totaling more than 50% of the votes entitled to be cast.
What is the effect of a broker non-vote?
Broker non-votes will be counted for purposes of calculating whether a quorum is present at the Annual Meeting, but will not be counted for purposes of determining the number of votes present in person or represented by proxy and entitled to vote with respect to a particular proposal. Thus, a broker non-vote will not impact our ability to obtain a quorum, will not affect the outcome with respect to the election of directors, and will not otherwise affect the outcome of the vote on a proposal that requires the affirmative vote of a majority of the votes cast on the proposal, except in the case of Proposal 3, which requires votes to be cast totaling more than 50% of the votes entitled to be cast.
Representatives of our transfer agent, Computershare Trust Company, N.A., will tabulate the votes and act as inspectors of election for the 2011 Annual Meeting.
Where can I find the voting results of the Annual Meeting?
The preliminary voting results will be announced at the Annual Meeting. The final voting results will be tallied by the inspectors of election and published in the Corporation’s Current Report on Form 8-K, which the Corporation is required to file with the SEC within four business days following the Annual Meeting.
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What is “householding” and how does it affect me?
We have adopted a procedure approved by the SEC called “householding.” Under this procedure, we send only one Annual Report and Proxy Statement to eligible stockholders who share a single address, unless we have received instructions to the contrary from any stockholder at that address. This practice is designed to reduce our printing and postage costs. Stockholders who participate in householding will continue to receive separate proxy cards. We do not use householding for any other stockholder mailings, such as dividend checks, Forms 1099, or account statements.
If you are eligible for householding, but receive multiple copies of the Annual Report and Proxy Statement and prefer to receive only a single copy of each of these documents for your household, please contact our transfer agent, Computershare Trust Company, N.A., Shareholder Relations, P.O. Box 43078, Providence, RI 02940-3078, or call 1-877-498-8861. If you are a registered stockholder residing at an address with other registered stockholders and wish to receive a separate Annual Report or Proxy Statement in the future, please contact Computershare Trust Company, N.A. as indicated above. If you own shares through a bank, broker, or other nominee, you should contact the nominee concerning householding procedures.
Can I receive a copy of the Annual Report?
Yes. We will provide a copy of our Annual Report without charge, upon written request, to any registered or beneficial owner of common stock entitled to vote at the Annual Meeting. Requests should be made in writing addressed to Investor Relations, Lockheed Martin Corporation, 6801 Rockledge Drive, Bethesda, MD 20817, by calling Lockheed Martin Shareholder Direct at 1-800-568-9758, or by accessing the Corporation’s website at http://www.lockheedmartin.com/investor. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy statements, and other information regarding Lockheed Martin.
Can I view the Proxy Statement and Annual Report on the Internet?
Yes. The Proxy Statement and Annual Report are available on the Internet at http://www.lockheedmartin.com/investor. Subject to the “householding” discussion above, all stockholders will receive paper copies of the Proxy Statement, proxy card, and Annual Report by mail unless the stockholder has consented to electronic delivery or is an employee with shares allocated in an employee benefit plan.
Can I choose to receive the Proxy Statement and Annual Report on the Internet instead of receiving them by mail?
Yes. If you are a registered stockholder or beneficial owner, you can elect to receive future Annual Reports and Proxy Statements on the Internet only and not receive copies in the mail by visiting Shareholder Services at http://www.lockheedmartin.com/investor and completing the online consent form. Your request for electronic transmission will remain in effect for all future Annual Reports and Proxy Statements, unless withdrawn. Withdrawal procedures also are located at this website.
Most active employees who participate in the Corporation’s savings plans will receive an email notification announcing Internet availability of the Annual Report and Proxy Statement. A paper copy will not be provided unless requested by the employee.
Who pays for the cost of this proxy solicitation?
The Corporation pays for the cost of soliciting proxies on behalf of the Board for the Annual Meeting. We may solicit proxies by Internet or telephone, by mail, or in person. We may make arrangements with brokerage houses and other custodians, nominees, and fiduciaries to send Proxy Materials to beneficial owners on our behalf. We reimburse them for their reasonable expenses. We have retained Morrow & Co., LLC, 470 West Avenue, Stamford, CT 06902 to aid in the solicitation of proxies and to verify related records at a fee of $45,000, plus expenses. To the extent necessary to ensure sufficient representation at the Annual Meeting, we may request the return of proxies by mail, express delivery,
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courier, telephone, Internet, or other means. Stockholders are requested to return their proxies without delay.
How do I submit a proposal for the Annual Meeting of Stockholders in 2012?
Any stockholder who wishes to submit a proposal for consideration at the 2012 Annual Meeting and for inclusion in the 2012 Proxy Statement should send their proposal to:
Lockheed Martin Corporation
Attention: Senior Vice President, General Counsel and Corporate Secretary
6801 Rockledge Drive
Bethesda, MD 20817.
Proposals must be received no later than November 12, 2011, and satisfy the requirements under applicable SEC Rules (including SEC Rule 14a-8) to be included in the Proxy Statement and on the proxy card that will be used for solicitation of proxies by the Board for the 2012 Annual Meeting.
Our Bylaws also require advance notice of any proposal by a stockholder to be presented at the 2012 Annual Meeting that is not included in our proxy statement and on the proxy card, including any proposal for the nomination of a director for election.
To be properly brought before the 2012 Annual Meeting, written nominations for directors or other business to be introduced by a stockholder must be received between the dates of October 13, 2011 and November 12, 2011, inclusive. A notice of a stockholder proposal must contain the information required by our Bylaws about the matter to be brought before the meeting and about the stockholder proponent and persons associated with the stockholder through control, ownership of the shares, agreement, or coordinated activity. Waiver of these requirements by us in a particular instance does not constitute a waiver applicable to any other stockholder proposal, nor does it obligate us to waive the requirements for future submissions. A list of the information which is required to be included in a stockholder proposal may be found in Section 1.10 of our Bylaws at http://www.lockheedmartin.com/investor.
How can I contact the Corporation’s non-management directors?
Stockholders may communicate confidentially with the Lead Director or with the non-management directors as a group. If you wish to raise a question or concern to the Lead Director or the non-management directors as a group, you may do so by writing to:
Lead Director
or
Non-Management Directors
c/o Senior Vice President, General Counsel and Corporate Secretary
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817.
Our Senior Vice President, General Counsel and Corporate Secretary or her delegate reviews all correspondence sent to the Board. The Board has authorized our Senior Vice President, General Counsel and Corporate Secretary or her delegate to respond to correspondence regarding routine stockholder matters and services (e.g., stock transfers, dividends, etc.). Correspondence from stockholders relating to accounting, internal controls, or auditing matters are brought to the attention of the Audit Committee. All other correspondence is forwarded to the Lead Director who determines whether distribution to the full Board for review is appropriate. Any director may, at any time, review a log of all correspondence addressed to the Board and request copies of such correspondence.
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Can I find additional information on the Corporation’s website?
Yes. Although the information contained on our website is not part of this Proxy Statement, you will find information about the Corporation and our corporate governance practices at http://www.lockheedmartin.com/investor. Our website contains information about our Board, Board committees, Charter and Bylaws, Code of Ethics and Business Conduct, Corporate Governance Guidelines, and information about insider transactions. Stockholders may obtain, without charge, hard copies of the above documents by writing to:
Investor Relations
Lockheed Martin Corporation
6801 Rockledge Drive
Bethesda, MD 20817.
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Code of Ethics and Business Conduct
At Lockheed Martin, ethics is part of our history and culture. We are committed to ethical behavior in all that we do. This commitment is reflected in our vision statement “Powered by Innovation, Guided by Integrity, We Help Our Customers Achieve Their Most Challenging Goals,” and our value statements: “Do What’s Right;” “Respect Others;” and “Perform with Excellence.”
We have had a code of conduct in place since the Corporation was formed in 1995, well before codes were required for stock exchange listing. We and our heritage companies were among the first in the aerospace and defense industry to adopt an ethics code.
Our Code of Ethics and Business Conduct, “Setting the Standard,” applies to all directors, officers, and employees. It sets forth our policies and expectations on a number of topics, including our commitment to good citizenship and integrity, promoting a positive and safe work environment, transparency in our public disclosures, avoiding conflicts of interest, confidentiality, preservation and use of company assets, compliance with laws (including insider trading laws), and business ethics.
We maintain a toll-free ethics help line for employees as a means of raising concerns or seeking advice. The help line is available to all employees worldwide, 7 days a week, 24 hours a day. Employees using the help line may choose to remain anonymous. All help line inquiries are forwarded to the Corporation’s Office of Ethics and Business Conduct. Our Ethics Office is headed by our Vice President – Ethics and Business Conduct who reports directly to the Chief Executive Officer (“CEO”) and the Ethics and Corporate Responsibility Committee. Any matters reported to our Ethics Office, whether through the help line or otherwise, involving accounting, internal control or audit matters, or any allegations of fraud involving management or persons who have a significant role in the Corporation’s internal controls, are reported directly to the Audit Committee.
Our directors and employees participate in annual ethics training, which consists of a live training session. We devote significant resources to our business conduct compliance training program. In 2010, our employees completed in excess of 585,000 on-line business conduct compliance training modules.
“Setting the Standard” is posted on our website at http://www.lockheedmartin.com/investor. Printed copies of our Code may be obtained, without charge, by writing to Investor Relations, Lockheed Martin Corporation, 6801 Rockledge Drive, Bethesda, MD 20817. In 2010, there were no waivers from any provisions of our Code or amendments applicable to any director or executive officer. We intend to disclose any such waivers or amendments promptly to our stockholders by posting on our website.
Corporate Governance Guidelines
Lockheed Martin is committed to maintaining and practicing the highest standards of ethics and corporate governance. The Board has adopted Corporate Governance Guidelines that describe the framework within which the Board and its committees oversee the governance of the Corporation. The current Corporate Governance Guidelines are posted at http://www.lockheedmartin.com/investor.
The Corporate Governance Guidelines contain the Board’s views on a number of governance topics that reflect our commitment to, and appreciation of, the importance of good governance in protecting and enhancing stockholder value. The Nominating and Corporate Governance Committee (“Governance Committee”) regularly assesses our governance practices in light of new or emerging trends and practices.
Our Corporate Governance Guidelines cover a wide range of subjects, including: the role of the Board and director responsibilities; the role and responsibilities of the Lead Director; a comprehensive Code of Ethics and Business Conduct; director nomination procedures and qualifications; director independence standards; a policy for the review, approval, and ratification of related person transactions; procedures for annual evaluations of the Board, its committees, and directors; director stock ownership; a prohibition on hedging transactions; and a clawback policy for executive incentive compensation.
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The Corporate Governance Guidelines set forth the Board’s expectation that any director-nominee who fails to receive more votes for his or her election than against his or her election would submit a resignation letter to the Board and set forth the procedures to be followed by the Board in considering whether to accept or reject the resignation.
Described below are some of the significant corporate governance practices that have been instituted by the Board.
Role of the Board of Directors
The Board plays an active role in overseeing management and representing the interests of stockholders. Directors are expected to attend Board meetings, the committee meetings on which they serve, and the Annual Meeting. Directors are regularly consulted by management for advice and counsel between formal meetings.
In 2010, the Board met a total of eight times. All directors attended at least 75 percent of the total board and committee meetings to which they were assigned. All incumbent directors attended the 2010 Annual Meeting.
The Board regularly reviews its leadership structure in light of the Corporation’s then current needs, governance trends, internal assessments of Board effectiveness, and other factors. In accordance with our Bylaws and Corporate Governance Guidelines, the Board elects one of the independent directors to serve as the Lead Director by the affirmative vote of the directors who have been determined to be “independent” for purposes of the NYSE listing standards. Mr. McCorkindale serves as the elected Lead Director. The responsibilities of the Lead Director are to:
| • | Preside as Chair at executive sessions of the non-management members of the Board or executive sessions of the independent directors, or when the Chairman of the Board is ill, absent, incapacitated or otherwise unable to carry out the duties of Chairman of the Board; |
| • | Determine the frequency and timing of executive sessions of non-management directors and report to the Chairman and CEO on all relevant matters arising from those sessions, and invite the Chairman and CEO to join the executive session for further discussion as appropriate; |
| • | Consult with the Chairman and CEO and committee chairs regarding the topics and schedules of the meetings of the Board and committees; |
| • | Review all Board and committee agendas and provide input to management on the scope and quality of information sent to the Board; |
| • | Assist with recruitment of director candidates and, along with the Chairman and CEO, extend the invitation to a potential candidate for a director to join the Board; |
| • | Act as liaison between the Board and management and among the directors and the committees of the Board; |
| • | Serve as ex-officio member of each committee if not otherwise a member of the committee; |
| • | Serve as the point of contact for stockholders and others to communicate with the Board; |
| • | Recommend to the Board and committees the retention of advisors and consultants who report directly to the Board; and |
| • | Perform all other duties as assigned by the Board from time to time. |
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Positions of Chairman and Chief Executive Officer
The Board periodically reviews and considers whether the positions of Chairman and CEO should be combined or separated as part of its regular review of the effectiveness of the Corporation’s governance structure. The positions of Chairman and CEO currently are combined at Lockheed Martin. The Corporation’s policy as to whether the roles of the Chairman and CEO should be separate is to adopt the practice which best serves the Corporation’s needs at any particular time. The Board believes that no single, one-size fits all, board-leadership model is universally or permanently appropriate. In the past, the positions have been separated when deemed appropriate by the Board. This structure has proven especially useful to facilitate executive succession and orderly transitions. At present, the Board believes that its current structure effectively maintains independent oversight of management.
The Audit Committee reviews our policies and practices with respect to risk assessment and risk management, including discussing with management the Corporation’s major risk exposures and the steps that have been taken to monitor and control such exposures. The Audit Committee reports the results of its review to the Board.
Matters of risk management are brought to the attention of the Audit Committee by the Executive Vice President and Chief Financial Officer (“CFO”), who serves as the Corporation’s Chief Risk Officer, or by the Vice President, Internal Audit, who regularly reviews and assesses internal processes and controls for ongoing compliance with internal policies and legal and regulatory requirements, as well as for potential weaknesses that could result in a failure of an internal control process. Management reviews and reports on potential areas of risk at the request of the Audit Committee or other members of the Board.
We have a number of risk identification and mitigation strategies. A panel of executives reviews all major proposals to ensure the technical and pricing structures are consistent with our tolerance for risk. Corporate management conducts reviews of ongoing business performance and financial results and future opportunities through the long- range planning process, executive management meetings, and staff meetings. In addition, in order to ensure integration and dissemination of information about identified risks to management and throughout the Corporation, we have established an “umbrella” risk identification and mitigation committee (the “Risk and Compliance Committee”), composed of representatives of the direct reports to the Chairman and CEO and to the President and Chief Operating Officer (“COO”). This committee met 14 times in 2010 and reports to a risk council made up of the Executive Vice President and CFO; Senior Vice President, General Counsel and Corporate Secretary; Vice President, Ethics and Business Conduct; and the Vice President of Internal Audit. At the request of the Audit Committee, the Risk and Compliance Committee has undertaken to survey our businesses to identify risks, analyze the probability of occurrence and impact to our business of those risks, and assess mitigation efforts.
Identifying and Evaluating Nominees for Directors
Each year, the Governance Committee recommends to the Board the slate of directors to propose as nominees for election by the stockholders at the Annual Meeting. The process for identifying and evaluating candidates to be nominated to the Board starts with an evaluation of a candidate by the Chairman of the Governance Committee followed by the entire Governance Committee and the Chairman and CEO. Director candidates may also be identified by stockholders and will be evaluated and considered by the Governance Committee in the same manner as other director candidates. The Corporation retained Korn/Ferry International to assist in the identification and evaluation of potential director candidates.
Stockholder proposals for nominations to the Board should be submitted to the Nominating and Corporate Governance Committee, c/o the Senior Vice President, General Counsel and Corporate Secretary, at Lockheed Martin Corporation, 6801 Rockledge Drive, Bethesda, MD 20817. To be considered by the Board for nomination at the 2012 Annual Meeting, written notice of nominations by a stockholder must be received between the dates of October 13, 2011 and November 12, 2011, inclusive.
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The information requirements for any stockholder proposal or nomination can be found in Section 1.10 of our Bylaws, at http://www.lockheedmartin.com/investor. A summary of the requirements can be found in the “General Information” section of this Proxy Statement on page 7. Self-nominations will not be considered. Proposed stockholder nominees are presented to the Chairman of the Governance Committee, who decides if further consideration should be given to the nomination by the Board.
Director Qualifications and Board Diversity
The Board seeks a diverse group of candidates who at a minimum possess the background, skills, expertise, and time to make a significant contribution to the Board, the Corporation, and its stockholders. The Governance Committee makes recommendations to the Board concerning the composition of the Board and its committees including size and qualifications for membership. The Governance Committee evaluates prospective nominees against the standards and qualifications set forth in the Corporation’s Corporate Governance Guidelines, as well as other relevant factors as it deems appropriate, including: the need for the Board, as a whole, to be diverse and consist of individuals with varied and relevant career experience, relevant technical skills, industry knowledge and experience, financial expertise, local or community ties and minimum individual qualifications, including strength of character, mature judgment, familiarity with the Corporation’s business and industry, independence of thought and an ability to work collegially. The Governance Committee also may consider the extent to which the candidate would fill a present need on the Board. The Governance Committee annually reviews and establishes the criteria for selection of director-nominees. The criteria used by the Governance Committee in nominating the current slate of director-nominees included the following:
| • | Meets Bylaw age requirement; |
| • | Reflects highest personal and professional integrity; |
| • | Meets NYSE independence criteria; |
| • | Has relevant educational background; |
| • | Has exemplary professional background; |
| • | Has relevant past and current employment affiliation(s), Board affiliations, and experience; |
| • | Is free from conflicts of interest; |
| • | Is technology-proficient; |
| • | Has demonstrated effectiveness; |
| • | Possesses sound judgment; |
| • | Brings a diverse background; |
| • | Has adequate time to devote to Board responsibilities; and |
| • | Represents the best interests of all stockholders. |
As part of its annual assessment of Board effectiveness, the Board is asked to evaluate whether it has the appropriate mix of general business expertise, skills, and specific expertise in areas vital to our success. Under our Bylaws, unless exempted by the Board, an individual is not eligible to be elected as a director for a term that expires at the Annual Meeting following the individual’s 72nd birthday.
Director-Nominees for Election at the Annual Meeting
There are 11 director-nominees for election to the Board at the Annual Meeting. Their biographical information starts on page 70. Each director-nominee currently serves as a director, with the exception of Rosalind G. Brewer. Each director-nominee was recommended for nomination by the Governance Committee. The Governance Committee has determined that all the current director-nominees, except for Robert J. Stevens, our CEO, are independent under the listing standards of the NYSE and our Corporate Governance Guidelines. The background and specific qualifications of each director-nominee is discussed under the caption “Election of Directors” commencing on page 70.
The Board ratified the slate of director-nominees and recommends that our stockholders vote for the election of all the individuals nominated by the Board.
Although fewer director-nominees are named than the number fixed by the Charter and Bylaws, proxies cannot be voted for a greater number of persons than the number of nominees named. Eleven individuals rather than twelve
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have been nominated because the process of identifying qualified candidates is ongoing. Candidates identified after the 2011 Annual Meeting will be considered by the Board as nominees to serve until the 2012 Annual Meeting.
We have no agreements obligating the Corporation to nominate a particular candidate as a director, and none of our directors represent a special interest or a particular stockholder or group of stockholders. In addition to the criteria listed above, which the Board believes should be met by all director candidates, the Board believes it operates best when its membership reflects a diverse range of experiences and areas of expertise. To this end, the Board seeks to identify in each candidate areas of knowledge or experience that would expand or complement the Board’s existing expertise in overseeing a technologically advanced global security company. There is no set list of qualities or areas of expertise used by the Board in its analysis because the inquiry assesses what the particular candidate could bring to the Board in light of the then-current make-up of the Board. The traits identified with respect to the current director-nominees as qualifications to serve on the Board include:
| Mr. Archibald | • Familiarity with the demands of the global marketplace as a result of his prior positions as COO and CEO of The Black & Decker Corporation, a company that sells products in more than 100 countries. • Insight into challenges associated with managing a global organization with a focus on innovation from experience as Executive Chairman of the Board of Stanley Black & Decker, Inc. and prior experience as Chairman and CEO of The Black & Decker Corporation. | |
| Ms. Brewer | • Insight into international marketing and sales operations based on her position as Executive Vice President for Walmart Stores, Inc. and more than two decades of experience as an executive with Kimberly-Clark Corporation. • Experience in creating global supply chain alliances, product management, manufacturing, large scale operations, and leading change management initiatives. | |
| Mr. Burritt | • Expertise in public company accounting, disclosure and financial system management due to roles as CFO and Controller at Caterpillar Inc. • Familiarity with the demands of the global marketplace due to his positions at Caterpillar Inc., a company that manufactures equipment in 23 countries and sells products in more than 180 countries. | |
| Mr. Ellis | • Knowledge of core customer based on his service in senior positions with the military, including Admiral and Commander, United States Strategic Command, Commander in Chief, United States Strategic Command and Commander in Chief, U.S. Naval Forces, Europe. • Expertise in aeronautical and aerospace engineering and emerging energy issues. | |
| Mr. Falk | • Insight into challenges associated with managing global organizations based on experience as Chairman and CEO of Kimberly-Clark Corporation. • Expertise in financial system management, public company accounting, disclosure and financial markets due to role as Chairman and CEO of Kimberly-Clark Corporation and prior positions. | |
| Mrs. King | • Insight into challenges associated with managing large organizations and regulated industries from experience as Senior Vice President at PECO Energy Company and Commissioner of the Social Security Administration. • Expertise in governance trends as a director of the National Association of Corporate Directors. | |
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| Mr. Loy | • Insight into challenges associated with managing large organizations based on experience as Commandant of the Coast Guard. • Familiarity with core customer including requirements for acquisition of products and services based on senior management positions with the Department of Homeland Security, Transportation Security Administration, and the Coast Guard. | |
| Mr. McCorkindale | • Insight into challenges associated with managing global organizations based on experience as Chairman, CEO, and President of Gannett Co., Inc. • Expertise in financial system management, public company accounting, disclosure and financial markets due to roles as CFO at Gannett Co., Inc. and as trustee of mutual funds. | |
| Mr. Ralston | • Insight into core customer of the Corporation, including requirements for acquisition of products and services, based on service in senior positions as Commander, U.S. European Command and Supreme Allied Commander Europe, NATO and Vice Chairman, Joint Chiefs of Staff. • Experience in managing 65,000 troops from 23 countries as Supreme Allied Commander provides insight into management of large and complex organizations. | |
| Ms. Stevens | • Insight into challenges associated with managing global organizations based on positions at Ford Motor Company. • Experience as Chairman, President, and CEO of Carpenter Technology Corporation and Executive Vice President, Ford Motor Company. • Engineering and manufacturing expertise derived from educational training and experience managing production lines at Ford Motor Company. | |
| Mr. Stevens | • Insight into the complexities of operating a global, technology-driven business, based on more than two decades of experience in executive and operational roles with the Corporation and in our industry. • Substantial experience in program management, finance and manufacturing. • Corporate governance and risk management experience gained through position of Chairman and CEO of the Corporation. | |
Majority Voting Policy for Uncontested Director Elections
The Corporation’s Charter and Bylaws provide for simple majority voting. Pursuant to the Corporate Governance Guidelines, in any uncontested election of directors, any incumbent director who fails to receive more “FOR” votes than “AGAINST” votes is required to offer his or her resignation for Board consideration.
Upon receipt of a resignation of a director tendered as a result of the foregoing, the Governance Committee will make a recommendation to the Board as to whether to accept or reject the resignation, or whether other action is recommended. In considering the tendered resignation, the Board will consider the Governance Committee’s recommendation as well as any other factors it deems relevant, which may include:
| • | The qualifications of the director whose resignation has been tendered. |
| • | The director’s past and expected future contributions to the Corporation. |
| • | The overall composition of the Board and its committees. |
| • | Whether accepting the tendered resignation would cause the Corporation to fail to meet any applicable rule or regulation (including NYSE listing standards and the federal securities laws). |
| • | The percentage of outstanding shares represented by the votes cast at the Annual Meeting. |
Any director whose resignation has been tendered will not participate in the deliberations of the Governance Committee or in the Board’s consideration of the Governance Committee’s recommendation with respect to such director. In the event that a majority of the members of the Governance Committee have offered to resign as a result of their failure to receive the required vote for their election by the stockholders, then the independent members of the Board who have not offered to resign, without further action by the Board, will constitute a committee of the
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Board for the purpose of considering the offered resignation(s), and will recommend to the Board whether to accept or reject those offers and, if appropriate, make a recommendation to take other actions. If there are no such independent directors, then all of the independent directors, excluding the director whose offer to resign is being considered, without further action of the Board, will constitute a committee of the Board to consider each offer to resign, make a recommendation to the Board to accept or reject that offer and, if appropriate, make a recommendation to take other actions.
The Board will act on a tendered resignation within 90 days following certification of the stockholder vote for the meeting and will promptly disclose its decision and rationale as to whether to accept the resignation (or the reasons for rejecting the resignation, if applicable) in a press release, in a filing with the SEC or by other public announcement, including a posting on the Corporation’s website.
If a director’s resignation is accepted by the Board, or if a nominee for director who is not an incumbent director is not elected, the Board may fill the resulting vacancy or may decrease the size of the Board pursuant to the Corporation’s Bylaws. The Board may not fill any vacancy so created with a director who was not elected at the meeting by the vote required under the Corporation’s Bylaws.
Under applicable NYSE listing standards, a majority of the Board and each member of the Audit Committee, Governance Committee, and Management Development and Compensation Committee (“Compensation Committee”) must be independent.
Under the NYSE rules and our Corporate Governance Guidelines, a director is not independent if the director has a direct or indirect material relationship with the Corporation. The Governance Committee annually reviews the independence of all directors and reports its findings to the full Board. To assist in this review, the Board has adopted director independence guidelines that are included in our Corporate Governance Guidelines available on our website at http://www.lockheedmartin.com/investor under the heading “Corporate Governance.”
Our director independence guidelines set forth certain relationships between the Corporation and directors and their immediate family members, or affiliated entities, that the Board, in its judgment, has deemed to be material or immaterial for purposes of assessing a director’s independence. In the event a director has a relationship with the Corporation that is not addressed in the independence guidelines, the independent members of the Board determine whether such relationship is material.
The Board has determined that the following directors or nominees are independent: E. C. “Pete” Aldridge, Jr., Nolan D. Archibald, Rosalind G. Brewer, David B. Burritt, James O. Ellis, Jr., Thomas J. Falk, Gwendolyn S. King, James M. Loy, Douglas H. McCorkindale, Joseph W. Ralston, and Anne Stevens. As Chairman and CEO, Robert J. Stevens is an employee of the Corporation and is not independent under the NYSE listing standards or our Corporate Governance Guidelines.
In determining that each of the non-management director-nominees is independent, the Board considered the relationships described under “Certain Relationships and Related Person Transactions of Directors, Executive Officers, and 5 Percent Stockholders,” on page 16, which it determined were immaterial to the individual’s independence.
The Governance Committee and Board considered that the Corporation in the ordinary course of business purchases products and services from, or sells products and services to, companies at which some of our director-nominees are or have been directors. These relationships included: Mr. Aldridge, a director of Alion Science and Technology Corporation; Mr. Ellis, a director of Inmarsat plc. and Level 3 Communications, Inc.; Mrs. King, a director of Marsh & McLennan Companies, Inc.; Mr. Loy, a director of L-1 Identity Solutions, Inc.; and Mr. Ralston, a director of Lynden Incorporated, The Timken Company and URS Corporation. In determining that these relationships did not affect the independence of those directors, the Board considered that none of the director-nominees serving as directors of other companies had any direct material interest in, or received any special compensation in connection with, the Corporation’s business relationships with those companies.
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Related Person Transaction Policy
The Board has approved a written policy and procedures for the review, approval, and ratification of transactions among the Corporation and its directors, executive officers, and their related interests. A copy of the policy is available at http://www.lockheedmartin.com/investor. Under the policy, all related person transactions (as defined in the policy) are to be reviewed by the Governance Committee of the Board. The Governance Committee may approve or ratify related person transactions at its discretion if deemed fair and reasonable to the Corporation. This may include situations where the Corporation provides products or services to related persons on an arm’s length basis on terms comparable to those provided to unrelated third parties. Any director who participates in or is the subject of an existing or potential related person transaction may not participate in the decision-making process of the Governance Committee with respect to that transaction.
Under the policy, and consistent with SEC regulations and NYSE listing standards, a related person transaction is any transaction in which the Corporation was, is, or will be a participant, where the amount involved exceeds $120,000, and in which a related person had, has, or will have a direct or indirect material interest. A related person includes any director or executive officer of the company, any person who is known to be the beneficial owner of more than 5% of any class of the company’s voting securities, an immediate family member of any person described above, and any firm, corporation, or other entity controlled by any person described above.
The policy requires each director and executive officer to complete an annual questionnaire to identify their related interests and persons, and to notify the Corporation of changes in that information. Based on that information, the Corporation maintains a master list of related persons for purposes of tracking and reporting related person transactions.
The policy contemplates that the Governance Committee may ratify transactions after they commence or pre-approve categories of transactions or relationships, because it may not be possible or practical to pre-approve all related person transactions. If the Governance Committee declines to approve or ratify, the related person transaction is referred to management to make a recommendation to the Governance Committee concerning whether the transaction should be terminated or amended in a manner that is acceptable to the Governance Committee.
Certain Relationships and Related Person Transactions of Directors, Executive Officers, and 5 Percent Stockholders
The following transactions or relationships are considered to be “related person” transactions under our corporate policy and applicable SEC regulations and NYSE listing standards. Each of these transactions was reviewed, approved, or ratified by the Governance Committee of the Board in February 2011.
Two of our directors, Mr. Loy and Mr. Ralston, are employed as Senior Counselor and Vice Chairman, respectively, of The Cohen Group, a consulting business that performs services for the Corporation. In 2010, we paid The Cohen Group approximately $695,000 for consulting services and expenses.
In 2010, we paid Greenburg Traurig, LLP approximately $158,000 for legal services and expenses. The husband of Maryanne R. Lavan, the Corporation’s Senior Vice President, General Counsel and Corporate Secretary, is a partner with Greenburg Traurig, LLP, but did not perform any legal services for the Corporation. The Corporation’s relationship with the firm predates Ms. Lavan being elected as an executive officer in June 2010.
We currently employ approximately 132,000 employees and have an active recruitment program for soliciting job applications from qualified candidates. We seek to hire the most qualified candidates and consequently do not preclude the hiring of family members.
Mr. Ralston’s brother-in-law, Mark E. Dougherty, Business Development Analyst ($151,415 in base salary) is an employee of the Corporation. Mr. Dougherty may participate in other employee benefit plans and arrangements which are generally made available to other employees at the same level (including health, welfare, vacation, and retirement plans). His compensation was established in accordance with the Corporation’s employment and
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compensation practices applicable to employees with equivalent qualifications, experience, and responsibilities. Mr. Dougherty did not serve as an executive officer of the Corporation during 2010.
From time to time, the Corporation has purchased services in the ordinary course of business from financial institutions that beneficially own 5% or more of Lockheed Martin’s common stock. In 2010, the Corporation paid fees of approximately $4,347,000 to State Street Bank and Trust Company for credit facility and benefit plan administration.
Board Performance Self-Assessment
Each year the Board evaluates its performance and effectiveness. Each director completes an evaluation form developed by the Governance Committee to solicit feedback on specific aspects of the Board’s role, organization, and meetings. The collective ratings and comments are compiled by the Senior Vice President, General Counsel and Corporate Secretary or her delegate and presented to the full Board. Each Board committee conducts an annual performance self-assessment through a similar process.
The Corporation does not have a Shareholder Rights Plan, or so called “Poison Pill.” As part of our Corporate Governance Guidelines, the Board has communicated that it has no intention of adopting one at this time. If the Board does choose to adopt a Shareholder Rights Plan, the Board has indicated that it would seek stockholder ratification within 12 months from the date of adoption.
The Board believes that directors and management should hold meaningful equity ownership positions in the Corporation. To further encourage a link between director and stockholder interests, the Board has adopted stock ownership guidelines for directors. Similar guidelines apply to our management as described under the “Stock Ownership Guidelines for Key Employees” beginning on page 48. Directors receive half their compensation in the form of Lockheed Martin common stock units or stock options (with the potential to defer the cash portion of director compensation in stock units). Directors are expected to own shares or stock units equal to two times the annual retainer within five years of joining the Board. As of February 1, 2011, each of the directors satisfied the stock ownership guidelines. The securities counted toward their target threshold include common stock and vested and unvested stock units held under all the director plans.
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COMMITTEES OF THE BOARD OF DIRECTORS
* Committee Chairman.
The Board has seven standing committees as prescribed by our Bylaws:
| • | Audit |
| • | Classified Business and Security |
| • | Ethics and Corporate Responsibility |
| • | Executive |
| • | Management Development and Compensation |
| • | Nominating and Corporate Governance |
| • | Strategic Affairs and Finance |
Our Bylaws contain the charter for each of the standing committees. Our Bylaws are posted at http://www.lockheedmartin.com/investor under the heading “Corporate Governance.”
Audit Committee
The Audit Committee oversees our financial reporting process on behalf of the Board. It is directly responsible for the appointment, compensation, and oversight of the Corporation’s independent auditors. The functions of the Audit Committee are further described under the heading “Audit Committee Report” on page 20.
All the members of the Audit Committee are independent within the meaning of the NYSE listing standards, our Corporate Governance Guidelines, and applicable SEC regulations. In order to be considered independent under SEC regulations, a member of the Audit Committee cannot accept any consulting, advisory, or other compensatory fee from the Corporation, or be an affiliated person of the Corporation or its subsidiaries.
The Board has determined that Mr. Burritt, Chairman of the Audit Committee, Mr. Falk, and Mr. McCorkindale are qualified audit committee financial experts within the meaning of SEC regulations, and they have accounting and related financial management expertise sufficient to be considered financially literate within the meaning of the NYSE listing standards.
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Classified Business and Security Committee
The Classified Business and Security Committee assists the Board in fulfilling its oversight responsibilities relating to the Corporation’s security (including personnel, data, and facilities matters) and classified business activities.
Ethics and Corporate Responsibility Committee
The Ethics and Corporate Responsibility Committee monitors compliance and recommends changes to our Code of Ethics and Business Conduct. It reviews our policies, procedures, and compliance in the areas of environmental, safety and health, Equal Employment Opportunity, and diversity. It oversees matters pertaining to community and public relations, including government relations and charitable contributions.
Executive Committee
The Executive Committee primarily serves as a means for taking action requiring Board approval between regularly scheduled meetings of the Board. The Executive Committee is authorized to act for the full Board on matters other than those specifically reserved by Maryland law to the Board.
Management Development and Compensation Committee
The Compensation Committee is responsible for reviewing and approving corporate goals and objectives relevant to the compensation of the CEO, evaluating the performance of the CEO and, either as a committee or together with the other independent members of the Board, determining and approving the compensation levels of the CEO and senior management. The Compensation Committee has not delegated to employees of the Corporation, or any other persons, the authority to make decisions on the amount paid as salary, bonus, long-term incentives, or equity awards to the CEO or the other NEOs listed in the “Summary Compensation Table” on page 50.
Additional information regarding the role of the Compensation Committee and our compensation practices and procedures is provided under the captions “Compensation Committee Report” on page 28, “Compensation Discussion and Analysis” beginning on page 29, and specifically to the discussion on “Other Corporate Governance Considerations in Compensation” beginning on page 46. All members of the Compensation Committee are independent within the meaning of the NYSE listing standards and our Corporate Governance Guidelines.
Nominating and Corporate Governance Committee
The Governance Committee is responsible for developing and implementing policies and practices relating to corporate governance, including our Corporate Governance Guidelines. The Governance Committee assists the Board by selecting and recommending Board nominees, making recommendations concerning the composition of Board committees, and by overseeing the Board and committee evaluation process.
The Governance Committee reviews and recommends to the Board the compensation of directors. Our executive officers do not play a role in determining director pay, although the Chairman of the Board is consulted regarding the impact of any change in director pay on the Corporation as a whole. In 2010, the Governance Committee engaged Meridian Partners, LLC (“Meridian”), an outside compensation consultant, to provide data on director pay at other companies. The data gathered was based on publicly available information. Meridian did not perform any other services for us in 2010.
The functions of the Governance Committee are further described under the caption “Corporate Governance.” All members of the Governance Committee are independent within the meaning of the NYSE listing standards and our Corporate Governance Guidelines.
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Strategic Affairs and Finance Committee
The Strategic Affairs and Finance Committee (“Finance Committee”) reviews and recommends to the Board management’s long-term strategy including allocation of corporate resources. The Finance Committee reviews the financial condition of the Corporation, the status of all benefit plans, and proposed changes to capital structure.
We oversee Lockheed Martin’s financial reporting process on behalf of the Board. Lockheed Martin’s management is responsible for the financial reporting process and preparation of the quarterly and annual consolidated financial statements, including maintaining a system of internal control over financial reporting. In addition to our oversight of the Corporation’s internal audit organization, we are directly responsible for the appointment, compensation, retention, oversight, and termination of the Corporation’s independent auditors, Ernst & Young LLP, an independent registered public accounting firm. The independent auditors are responsible for auditing the annual consolidated financial statements and expressing an opinion on the conformity of those financial statements with U.S. generally accepted accounting principles, and for expressing an opinion on the effectiveness of internal control over financial reporting.
In connection with the December 31, 2010, audited consolidated financial statements, we have:
| 1. | Reviewed and discussed with management and the independent auditors the Corporation’s audited consolidated financial statements, including discussions regarding critical accounting policies, other financial accounting and reporting principles and practices appropriate for the Corporation, the quality of such principles and practices, the reasonableness of significant judgments and estimates, and the effectiveness of internal control over financial reporting; |
| 2. | Discussed with the independent auditors the quality of the financial statements, the clarity of the related disclosures, and other items required to be discussed under applicable auditing standards, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T; and |
| 3. | Reviewed and discussed with the independent auditors the written disclosures in the letter received from the independent auditors required by applicable requirements of the PCAOB regarding the independent auditors’ communications with the audit committee concerning independence. |
Based on the reviews and discussions above, we recommended to the Board of Directors that the audited consolidated financial statements for 2010 be included in Lockheed Martin’s Annual Report on Form 10-K for the year ended December 31, 2010, for filing with the SEC. The Board approved our recommendation.
Submitted on February 24, 2011, by the Audit Committee:
| David B. Burritt, Chairman |
Douglas H. McCorkindale | |||
| E. C. “Pete” Aldridge, Jr. |
Anne Stevens | |||
| Thomas J. Falk |
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DIRECTORS’ COMPENSATION
|
2010 ANNUAL DIRECTORS’ COMPENSATION (Non-Employee Directors)
| ||
| Cash retainer |
$110,000 | |
| Stock retainer |
$110,000 payable under the Lockheed Martin Corporation 2009 Directors Equity Plan (“Directors Equity Plan”) | |
| Committee Chairman retainer |
$12,500 (other than Audit Committee Chairman) | |
| Audit Committee Chairman retainer |
$20,000 | |
| Lead Director retainer |
$25,000 | |
| Deferred compensation plan |
Deferral plan for cash retainer | |
| Travel accident insurance |
$1,000,000 | |
| Matching Gift Program for Colleges and Universities |
Match of $1 per $1 of director contributions, up to $10,000 per director, to eligible educational institutions in accordance with matching program generally available to employees | |
| Director education institutes/activities |
Reimbursed for costs and expenses | |
We did not increase or make any changes to director compensation in 2010. Director retainers are paid quarterly.
Under the Directors Equity Plan, each non-employee director had the opportunity in 2010 to elect to receive:
| • | A number of stock units with an aggregate grant date fair value of $110,000 on February 1, 2010; or |
| • | Options to purchase a number of shares of Lockheed Martin common stock, which options had an aggregate grant date fair value equal to $110,000 on February 1, 2010; or |
| • | A combination of stock units with an aggregate grant date fair value equal to $55,000 and options to purchase a number of shares of Lockheed Martin common stock which options had an aggregate grant date fair value equal to $55,000 on February 1, 2010. |
The Directors Equity Plan provides that a director eligible for retirement at the next Annual Meeting receives a prorated grant ( 1/3) for the four months of service prior to the Annual Meeting. Except in certain circumstances, options and stock units vest 50% on June 30 and 50% on December 31 following the grant date. Upon a change in control or a director’s retirement, death, or disability, the director’s stock units and outstanding options become fully vested, and the director has the right to exercise the options. Upon a director’s termination of service from our Board, we distribute the vested stock units, at the director’s election, in whole shares of stock or in cash, in a lump sum, or in annual installments over a period of up to 20 years. Prior to distribution, a director has no voting, dividend, or other rights with respect to the stock units held under the Directors Equity Plan, but is credited with additional stock units representing dividend equivalents (converted to stock units based on the closing market price of our common stock on the dividend payment dates). The options have a term of ten years.
The Directors Equity Plan provides that the grants are made with respect to a calendar year on the second business day following the later of (i) the date of the first regular meeting of the Board in each calendar year, or (ii) the date on which the Corporation publicly releases its financial results for the previous calendar year; provided, that if the second business day is later than February 15, the award date is February 15 (or the next business day if February 15 is not a business day). The exercise price (in the case of option grants) is the closing price of our stock on the NYSE on the date of grant.
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DIRECTORS’ COMPENSATION
The Lockheed Martin Corporation Directors’ Deferred Compensation Plan (“Directors’ Deferred Compensation Plan”) provides non-employee directors the opportunity to defer up to 100% of the cash portion of their fees. Deferred amounts earn interest at a rate that tracks the performance of (i) the interest rate under Cost Accounting Standards 415, Deferred Compensation (“CAS 415 rate”); (ii) one of the investment options available under the employee deferred compensation plans; or (iii) our company stock (with dividends reinvested), at the director’s election. The CAS 415 rate option was closed to new deferrals on July 1, 2009; amounts deferred before that date may continue to use the CAS 415 rate until such time as they are transferred to another available earnings option under the plan. Deferred fees are distributed in a lump sum or in up to 15 installments commencing at a designated time following termination.
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The following table provides information on the compensation of our directors for the fiscal year ended December 31, 2010. Mr. Stevens did not receive separate compensation for his service as a director of the Corporation. For information regarding Mr. Stevens’ compensation as an executive officer of the Corporation, see the section titled “Executive Compensation” beginning on page 28.
|
2010 DIRECTORS’ COMPENSATION
|
||||||||||||||||||
| Name | Fees Earned or Paid in Cash 1 |
Stock Awards 2 |
Option Awards 3 |
Change in Pension Value and Nonqualified Deferred Compensation Earnings 4 |
All Other Compensation 5,6,7 |
Total | ||||||||||||
| ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||
| (a) | (b) | (c) | (d) | (f) | (g) | (h) | ||||||||||||
| E. C. “Pete” Aldridge, Jr. | 110,000 | 110,000 | 0 | 0 | 1,642 | 221,642 | ||||||||||||
| Nolan D. Archibald | 122,500 | 110,000 | 0 | 0 | 12,363 | 244,863 | ||||||||||||
| David B. Burritt | 130,000 | 55,000 | 55,000 | 0 | 15,528 | 255,528 | ||||||||||||
| James O. Ellis, Jr. | 122,500 | 110,000 | 0 | 0 | 8,834 | 241,334 | ||||||||||||
| Thomas J. Falk | 57,115 | 55,000 | 0 | 0 | 12,441 | 124,556 | ||||||||||||
| Gwendolyn S. King | 122,500 | 110,000 | 0 | 0 | 3,231 | 235,731 | ||||||||||||
| James M. Loy | 110,000 | 110,000 | 0 | 0 | 130 | 220,130 | ||||||||||||
| Douglas H. McCorkindale | 139,808 | 55,000 | 55,000 | 0 | 9,000 | 258,808 | ||||||||||||
| Joseph W. Ralston | 110,000 | 110,000 | 0 | 0 | 2,847 | 222,847 | ||||||||||||
| Frank Savage | 35,962 | 110,000 | 0 | 0 | 1,575 | 147,537 | ||||||||||||
| James M. Schneider | 67,692 | 55,000 | 55,000 | 0 | 5,481 | 183,173 | ||||||||||||
| Anne Stevens | 118,654 | 110,000 | 0 | 0 | 4,838 | 233,492 | ||||||||||||
| James R. Ukropina | 48,221 | 36,667 | 0 | 0 | 1,551 | 86,439 | ||||||||||||
NOTES TO TABLE:
(1) Represents the aggregate dollar amount of 2010 fees earned or paid in cash for services as a director, including annual retainer fees, committee chairman fees, and Lead Director fee. Messrs. Savage and Ukropina retired in April 2010; Mr. Schneider resigned in August 2010; and Mr. Falk joined the Board in June 2010.
(2) Represents the aggregate grant date fair value computed in accordance with Financial Accounting Statements Board Accounting Standards Codification (ASC) Topic 718 “Compensation-Stock Compensation” (“ASC 718”) for awards of stock units in 2010 under the Directors Equity Plan. The grant date fair value is the closing price of our stock on the date of grant (February 1, 2010) ($74.89). For 2010, each of Mr. Aldridge, Mr. Archibald, Mr. Ellis, Mrs. King, Mr. Loy, Mr. Ralston, Mr. Savage, and Ms. Stevens was credited with 1,469 stock units with an aggregate grant date fair value of $110,000; each of Mr. Burritt, Mr. McCorkindale, and Mr. Schneider was credited with 734 stock units with an aggregate grant date fair value of $55,000; and Mr. Ukropina was credited with 490 stock units with an aggregate grant date fair value of $36,667. Following his election, Mr. Falk was credited with 739 stock units with a aggregate grant date fair value of $55,000, based on the closing price of our stock on July 1, 2010 ($74.46). The outstanding number of stock units credited to each director under the Directors Equity Plan (and the comparable plan in place prior to January 1, 2009), as of December 31, 2010, were Mr. Aldridge 10,968; Mr. Archibald 12,638; Mr. Burritt 1,841; Mr. Ellis 8,481; Mr. Falk 753; Mrs. King 19,632; Mr. Loy 7,414; Mr. McCorkindale 7,727; Mr. Ralston 11,261; Mr. Savage 8,015; and Ms. Stevens 10,064. Mr. Savage forfeited two-thirds of his 2010 award following his retirement in April 2010 and Mr. Schneider forfeited half of his 2010 award following his resignation in August 2010. The outstanding number of stock units credited under the Lockheed Martin Corporation Directors’ Deferred Stock Plan (“Directors’ Deferred Stock Plan”)
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DIRECTORS’ COMPENSATION
as of December 31, 2010, was 1,267 for Mrs. King. Effective May 1, 1999, no additional shares may be awarded under the Directors’ Deferred Stock Plan.
(3) Represents the aggregate grant date fair value computed in accordance with ASC 718 for awards of stock options in 2010 to Mr. Burritt, Mr. McCorkindale, and Mr. Schneider. The assumptions used in determining the grant date fair value of the options granted in 2010 are set forth in Note 13 to our financial statements contained in our Annual Report. For 2010, we awarded each of Mr. Burritt, Mr. McCorkindale, and Mr. Schneider 3,917 options with an aggregate grant date fair value of $55,000. Following his resignation, Mr. Schneider forfeited half of his options from his 2010 award. The grant date fair value for options granted in 2010 ($14.04 per share) is based on the closing price of our stock on February 1, 2010 ($74.89). The outstanding number of stock options held by each director as of December 31, 2010, was Mr. Burritt 9,504; Mr. McCorkindale 27,036; and Mr. Schneider 14,036. The grant date fair value for options remains the same through the vesting period and no adjustment is made to reflect an increase or decrease in our stock price.
(4) For 2010, there were no above-market earnings on deferred compensation (above 120% of the applicable federal rate published by the IRS). Column (e) was deleted because we did not have a Non-Equity Incentive Plan in 2010.
(5) Includes the cost to the Corporation of providing the following perquisites to some of our directors: home computer and technical assistance, spousal and incidental travel expenses, retirement gifts, company-logo items and other memorabilia, and tax gross-ups.
(6) Includes contributions made by the Lockheed Martin Foundation (“LM Foundation”) to eligible educational institutions in an amount matching the contribution of the director to that institution. The LM Foundation matching contribution includes the following charitable contributions made in 2010 or to be made by the LM Foundation in 2011 to match a contribution made by the director in a prior year: Mr. Archibald $10,000; Mr. Burritt $10,000; Mr. Ellis $5,000; Mr. Falk $10,000; and Mr. McCorkindale $9,000. The matching gift program is the same as the program generally available to employees.
(7) Neither Mr. Loy’s nor Mr. Ralston’s compensation includes fees paid to The Cohen Group for consulting services. These fees are described in the section on “Certain Relationships and Related Person Transactions of Directors, Executive Officers, and 5 Percent Stockholders” on page 16.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Security Ownership of Management
The following table shows Lockheed Martin common stock beneficially owned by and stock units credited to each NEO, director, nominee and all NEOs, directors, nominees and other executive officers as a group as of February 1, 2011. Ms. Brewer was nominated by the Board on February 24, 2011, subject to approval by our stockholders at the 2011 Annual Meeting. Except as otherwise noted, the named individuals had sole voting and investment power with respect to such securities. The common stock beneficially owned by each NEO, director, nominee, and all NEOs, directors, nominees and other executive officers as a group represented less than one percent of our outstanding common stock on February 1, 2011 (349,869,257). All amounts are rounded to the nearest whole share. No shares have been pledged. The address of each director, nominee and executive officer is 6801 Rockledge Drive, Bethesda, MD 20817.
| Name of Individual or Identity of Group |
Common Stock Beneficially Owned 1,2 |
Stock Units | Total | ||||||||||||
| E. C. “Pete” Aldridge, Jr. |
0 | 11,429 | 7 | 11,429 | |||||||||||
| Nolan D. Archibald |
12,638 | 1,382 | 7 | 14,020 | |||||||||||
| Rosalind G. Brewer |
0 | 0 | 0 | ||||||||||||
| David B. Burritt |
9,504 | 6,865 | 7,8 | 16,369 | |||||||||||
| James O. Ellis, Jr. |
8,681 | 1,382 | 7 | 10,063 | |||||||||||
| Thomas J. Falk |
5,250 | 3 | 2,135 | 7 | 7,385 | ||||||||||
| Ralph D. Heath |
231,460 | 84,791 | 9,10,11 | 316,251 | |||||||||||
| Marillyn A. Hewson |
83,052 | 31,304 | 9,10,11 | 114,356 | |||||||||||
| Gwendolyn S. King |
619 | 4 | 22,280 | 7,12 | 22,899 | ||||||||||
| Christopher E. Kubasik |
335,765 | 5 | 131,321 | 9,10,11 | 467,086 | ||||||||||
| James M. Loy |
0 | 8,796 | 7 | 8,796 | |||||||||||
| Douglas H. McCorkindale |
34,763 | 12,911 | 7,8 | 47,674 | |||||||||||
| Joseph W. Ralston |
11,261 | 1,382 | 7 | 12,643 | |||||||||||
| Anne Stevens |
10,064 | 1,382 | 7 | 11,446 | |||||||||||
| Robert J. Stevens |
1,434,297 | 6 | 281,489 | 9,10,11 | 1,715,786 | ||||||||||
| Bruce L. Tanner |
162,592 | 64,144 | 9,10,11 | 226,736 | |||||||||||
| All NEOs, directors, nominees and other executive officers as a group (21 individuals including those named above) |
2,847,851 | 822,560 | 3,670,411 | ||||||||||||
NOTES TO TABLE:
(1) Includes common stock not currently owned but which could be acquired within 60 days following February 1, 2011, through the exercise of stock options for Mr. Burritt 9,504; Mr. Heath 211,000; Ms. Hewson 75,532; Mr. Kubasik 292,432; Mr. McCorkindale 27,036; Mr. Stevens 1,314,998; and Mr. Tanner 157,199. Includes shares payable at termination with respect to vested stock units credited under the Directors Equity Plan for which a director has elected payment in stock for Mr. Archibald 12,638; Mr. Ellis 8,481; Mr. McCorkindale 7,727; Mr. Ralston 11,261; and Ms. Stevens 10,064. Units for which a director has elected payment in cash are reported in the “Stock Units” column. There are no voting rights associated with stock units.
(2) Includes shares attributable to the participant’s account in the Lockheed Martin Salaried Savings Plan (“SSP”) for Mr. Heath 1,856; Ms. Hewson 126; Mr. Kubasik 387; Mr. Stevens 148; and Mr. Tanner 1,797. Participants have voting power and investment power over the shares.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
(3) Includes 250 shares beneficially owned by Mr. Falk and his spouse through a family limited partnership.
(4) Represents 619 shares for Mrs. King held jointly with her spouse with shared voting or investment power.
(5) Includes 39,742 shares for Mr. Kubasik held jointly with his spouse with shared voting or investment power.
(6) Includes 5,000 shares for Mr. Stevens held jointly with his spouse with shared voting or investment power.
(7) Includes stock units under the Directors Equity Plan for Mr. Aldridge 11,429; Mr. Burritt 2,532; Mr. Falk 2,135; Mrs. King 21,014; and Mr. Loy 8,796 for which directors have elected to receive distributions of units in the form of cash. Includes shares payable at termination with respect to unvested stock units credited under the Directors Equity Plan for which a director has elected payment in stock for Mr. Archibald 1,382; Mr. Ellis 1,382; Mr. McCorkindale 691; Mr. Ralston 1,382; and Ms. Stevens 1,382. There are no voting rights associated with stock units.
(8) Includes stock units under the Directors’ Deferred Compensation Plan representing deferred cash compensation for Mr. Burritt 4,334 and Mr. McCorkindale 12,219. The stock units (including dividend equivalents credited as stock units) are distributed in the form of cash. There are no voting rights associated with stock units.
(9) Includes stock units attributable to the participant’s account under the Lockheed Martin Corporation Deferred Management Incentive Compensation Plan (“DMICP”) (including units credited under the Long-Term Incentive Performance (“LTIP”) awards under the Lockheed Martin 1995 Omnibus Performance Award Plan (“Award Plan”) and the Lockheed Martin Corporation Amended and Restated 2003 Incentive Performance Award Plan (“IPA Plan”) for Mr. Heath 30,006; Ms. Hewson 12,055; Mr. Kubasik 50,105; Mr. Stevens 68,167; and Mr. Tanner 10,669. Although most of the units will be distributed following termination or retirement in shares of stock, none of the units are convertible into shares of stock within 60 days of February 1, 2011. There are no voting rights associated with stock units.
(10) Includes stock units attributable to the participant’s account under the Lockheed Martin Corporation Supplemental Savings Plan (“NQSSP”) for Mr. Heath 2,742; Ms. Hewson 679; Mr. Kubasik 1,929; Mr. Stevens 3,113; and Mr. Tanner 1,916. Amounts credited to a participant’s account in the NQSSP are distributed in cash following termination of employment. There are no voting rights associated with stock units.
(11) Includes unvested restricted stock units (“RSUs”) for Mr. Heath 52,043; Ms. Hewson 18,571; Mr. Kubasik 79,287; Mr. Stevens 210,209; and Mr. Tanner 51,559. The RSUs represent a contingent right to receive one share of common stock. There are no voting rights associated with RSUs.
(12) Includes 1,267 stock units under the Directors’ Deferred Stock Plan for Mrs. King. There are no voting rights associated with stock units.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Security Ownership of Certain Beneficial Owners
The following table shows information regarding each person known to be a “beneficial owner” of more than 5% of our common stock. For purposes of this table, beneficial ownership of securities generally means the power to vote or dispose of securities, regardless of any economic interest in the securities. All information shown is based on information reported by the filer on a Schedule 13G filed with the SEC on the dates indicated in the footnotes to this table.
| Name and Address of Beneficial Owner | Class of Stock | Amount and Nature of Beneficial Ownership |
Percent of Class Owned | |||
| State Street Corporation State Street Financial Center One Lincoln Street Boston, MA 02111 |
Common | 74,195,064 1 | 20.6% | |||
| Capital World Investors 333 South Hope Street Los Angeles, CA 90071 |
Common | 36,003,000 2 | 9.9% | |||
| Massachusetts Financial Services Company 500 Boylston Street Boston, MA 02116 |
Common | 21,587,576 3 | 6.0% |
NOTES TO TABLE:
(1) As reported on a Schedule 13G filed on February 11, 2011, by State Street Corporation (“State Street”), State Street and its direct and indirect subsidiaries, acting in various capacities, had beneficial ownership, in the form of shared voting power, with respect to 71,695,774 shares of common stock, and shared dispositive power, with respect to 74,195,064 shares of common stock, of which 63,271,356 shares of common stock were held as trustee, independent fiduciary and/or investment manager for various Lockheed Martin employee benefit plans. State Street and its subsidiaries have expressly disclaimed beneficial ownership of the shares reported on its Schedule 13G, except in their fiduciary capacity under ERISA.
(2) As reported on a Schedule 13G filed on February 14, 2011, by Capital World Investors, a division of Capital Research and Management Company (“Capital World”), Capital World was deemed to be the beneficial owner of 36,003,000 shares of common stock, as a result of having dispositive power over those shares and acting or having an affiliate act as an investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940, and sole voting power over 26,913,000 shares.
(3) As reported on a Schedule 13G filed on February 1, 2011, by Massachusetts Financial Services Company (“MFS”), MFS and/or certain non-reporting entities had beneficial ownership of 21,587,576 shares of common stock, consisting of sole dispositive power over 21,587,576 shares and voting power over 18,206,126 shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that our executive officers and directors (and persons who own more than 10% of our equity securities) file reports of ownership and changes in ownership with the SEC, the NYSE, and with us. Based solely on our review of copies of forms and written representations from reporting persons, we believe that all ownership filing requirements were timely met during 2010, with the exception of an amended Form 3 filed on behalf of Mr. Falk on August 9, 2010, to report an indirect holding of 250 shares of the Corporation’s common stock beneficially owned by Mr. Falk and his spouse through a family limited partnership.
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The Management Development and Compensation Committee makes recommendations to the Board of Directors concerning the compensation of the Corporation’s executives. We have reviewed and discussed with management the Compensation Discussion and Analysis included in the Corporation’s Schedule 14A Proxy Statement, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended. Based on that review and discussion, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Proxy Statement and incorporated by reference in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2010. The Board approved our recommendation.
Submitted on February 23, 2011, by the Management Development
and Compensation Committee:
| Anne Stevens, Chairman | David B. Burritt | |
| E. C. “Pete” Aldridge, Jr. | Douglas H. McCorkindale |
Compensation Committee Interlocks and Insider Participation
None of our executive officers served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board or our Compensation Committee. Accordingly, there were no interlocks with other companies within the meaning of the SEC’s proxy rules during 2010.
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EXECUTIVE COMPENSATION
Compensation Discussion and Analysis (CD&A)
This CD&A explains 2010 compensation and summarizes our executive compensation program. To facilitate review and understanding of these programs, key information is highlighted in the Executive Summary below; information on specific topics can be found as follows:
Explanation of 2010 Compensation Decisions
Executive Compensation Philosophy
The Compensation Decision-Making Process
Elements of Executive Direct Compensation
Compensation Program Descriptions
Other Corporate Governance Considerations in Compensation
2010 Performance Overview
Despite the demanding environment, we achieved or exceeded the financial goals we set in January 2010 and set new records for earnings per share (“EPS”), sales and orders. We continued to return cash to our stockholders, repurchasing 33 million shares at a cost of $2.5 billion and paying $969 million in dividends. The September 2010 dividend declaration represents our eighth consecutive year of double-digit percentage increase in our dividend. Anticipating that the new reality in which we operate would involve significant constraints on U.S. Government spending, we took aggressive action to become more agile and to make our products and services more affordable. These actions included internal reorganizations and a reduction in the number of executives on our management team.
Although many industries began to recover in 2010, our government customers shifted attention from economic stimulus to concern over deficit spending and affordability. While some companies benefitted from stimulus programs and began to recover, our industry was a focal point of the call for reduced government spending and has been slower to recover. With several large and visible programs, our year-over-year stock performance declined, even when compared to industry peers.
Additional information on our business performance in 2010 can be found in 2010 Performance Assessment For Incentive Compensation and our Annual Report.
Linking Pay to Performance
Our approach to executive compensation is to pay for performance – that is, an executive’s total compensation should rise or fall based on company and individual performance. By making equity a substantial component of executive compensation, we tie our executives’ long-term interests to that of stockholders.
For 2010, this pay for performance link is summarized below:
| • | the decline in stock price led to a decrease in the value of the executives’ equity compensation; |
| • | our achievement of record financial results and attainment of pre-set business objectives resulted in an increase in cash compensation from annual bonuses; and |
| • | heightened concerns about product and service affordability led to no merit increases to salary. |
The strong link between pay and performance is highlighted by the trends in the CEO’s compensation.
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EXECUTIVE COMPENSATION
| • In 2010, nearly 90% of our CEO’s compensation was tied to company and individual performance.
• Our CEO’s total actual and potential compensation (sum of Base, Bonus, LTIP, and Equity as defined below) over the past five years has aligned to our stock price. The following table depicts this alignment to our stock price for the past five years. |
| |||
|
|
Ø “Base” means the base salary in effect at year-end.
Ø “Bonus” means the total short-term incentive award earned during the plan year and paid the following year. For example, the 2006 Management Incentive Compensation Plan (“MICP”) award is included in the 2006 column; the award was paid in 2007.
Ø “LTIP”
means our three-year | |||
| Ø | “Equity” means the value of equity awards outstanding at year-end. For RSUs, it is the value of unvested RSUs outstanding at year-end. For stock options (vested and unvested), it is the difference between an option’s strike price and the stock price at year-end; for options the strike price of which is below the year-end stock price, the value is $0. Mr. Stevens realized $19 million by exercising options in 2008 which explains part of the steep decline in total equity holdings from 2007 and 2008. Had he not exercised the options, his compensation as measured by this chart would still have declined between 2007 and 2008 due to a decline in the value of his options, but the decline would not have been as steep. |
| • | The CEO’s “Total Compensation,” as reflected in the “Summary Compensation Table” on page 50, has declined each year since 2008: |
Key Elements of Compensation Plan Design
Our executive compensation program is based on best practices, including:
| • | Our Compensation Committee oversees all elements of compensation for the NEOs (or the independent members of the Board in the case of the CEO). |
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EXECUTIVE COMPENSATION
| • | Our compensation plans are competitive with those of comparable companies, and we annually monitor and evaluate our plans against trends in executive compensation. |
| • | Our executives do not have employment or change in control agreements; they are “at will” employees. |
| • | Changes to the program are made only after careful study. Our finance, accounting, tax, legal and human resources departments collaborate on plan design changes so that risk may be identified from a broad range of perspectives. |
| • | Our Compensation Committee has retained an independent compensation consultant that performs no work for management. |
| • | Our equity-based incentive plans prohibit backdating and repricing of options. |
| • | We use several different metrics to measure performance over different timeframes. |
| • | Performance metrics are counter-balanced so that achieving one metric at the cost of another does not result in a higher payout. |
| • | We use performance metrics that are important measures of performance to stockholders, including financial results based on the guidance we provide publicly, total stockholder return (“TSR”), cash generation, and return on invested capital (“ROIC”). |
| • | The performance criteria for our short and long-term incentives emphasize overall business results and stockholder value over individual performance; for example, our long-term cash incentive program is based solely on corporate results, and corporate performance is weighted more heavily than individual performance in our annual bonus program. |
| • | Our LTIP plan is based on objective, measurable results with no discretion allowed by management or the Board in calculating the awards. |
| • | Our cash incentive programs (long and short-term) have maximum payout caps. Award calculations are linear; there are no disproportionate increases in payout thresholds that might create incentives to take increasing levels of risk for greater rewards. |
| • | Our long-term incentive programs require executives to sign a “clawback” agreement entitling us to recover compensation when certain misconduct adversely impacts our financial position or reputation. |
| • | Our Compensation Committee receives periodic assessments of the extent, if any, to which our executive compensation plans create incentives for taking undue risk. |
| • | Our executives are expected to maintain an investment in our stock equal to a multiple of annual salary, ensuring an alignment with stockholder interests. |
| • | We have a policy prohibiting all employees from engaging in hedging our stock. |
Compensation Actions
In 2010, the Compensation Committee took the following actions:
| • | Held the current salary levels for the NEOs. This was the second consecutive year the CEO did not receive a merit increase. Mr. Kubasik did not receive a merit increase in 2010 and did not receive a salary increase for his promotion to President and COO. |
| • | Approved payouts under our annual incentive bonus plan that were higher for 2010 performance than for 2009 based upon meeting or exceeding most of our financial, strategic, and operational goals. |
| • | Approved a lower level of payout under our three-year long-term incentive program for the 2008-2010 cycle, reflecting a drop in TSR relative to other companies in the S&P Industrials Index. |
| • | Changed the mix of long-term incentive compensation among options, RSUs, and cash long-term awards to align with market practice and comply with plan limitations. |
| • | Retained an independent compensation consultant that performs no work for management. |
| • | Approved the voluntary executive separation program as a proactive step in order to reduce the size of our executive team, become more agile and make our programs more affordable. |
| • | Amended the vesting schedule for a portion of a retention grant of RSUs for the CEO. |
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EXECUTIVE COMPENSATION
Additionally, first quarter 2011 compensation actions included:
| • | The CEO did not receive a merit increase for the third consecutive year; the other NEOs did not receive merit increases for the second consecutive year. |
| • | Amendment by the Compensation Committee of the annual incentive plan to increase the percentage of base salary that can be earned by selected executives (other than the CEO and COO) for our annual cash bonus (i.e. short-term incentive targets). This change was made to bring the individual targets closer to market. |
| • | Changed the form of the award agreements for the 2011 equity grants to: |
| Ø | Defer payment of dividends on RSUs until the RSUs vest; |
| Ø | Expand the group subject to post-employment restrictions; and |
| Ø | Limit vesting at retirement under the 2011 stock option agreements to only a pro rata portion of the grant based on whole years of service since the grant date. |
| • | Changed the LTIP grants beginning with the 2011-2013 cycle: |
| Ø | Revised the performance measures for cash and ROIC to increase the level of performance required to achieve the maximum payout; |
| Ø | Changed the measurement of TSR from a single measurement from the beginning of the period to the end of the period to an average of the cumulative TSR measured monthly for each corporation in the peer group; and |
| Ø | Eliminated the two-year mandatory deferral after completion of the three-year performance cycle, because it was not a competitive design feature. A one-year deferral into phantom stock was retained for the CEO for the amount of any award exceeding $5 million. |
Explanation of 2010 Compensation Decisions
2010 Target Compensation
At the beginning of each year, the Compensation Committee establishes the Total Target Compensation for each NEO. These targets include base pay, short-term incentives, and long-term incentives. All elements of target compensation are determined relative to the market, which we define as the 50th percentile (median) of our Comparator Group (additional information on our Comparator Group can be found in this Proxy Statement under the section titled “Determining Market Compensation – Use of Benchmarking”).
The compensation that an executive actually receives will differ from that executive’s target compensation. Base salary increases, annual bonus awards and LTIP awards (the cash-based element of our long-term incentive program) received are based on the achievement of individual and business objectives. Compensation realized from stock options and RSUs depends on our stock price.
In 2010, the Total Target Compensation set at the beginning of the year was:
| Base Salary | Bonus | LTI | Total Target Compensation | |||||||||||||
| NEO | Amount ($) |
Percentage of Market |
Target % |
Target % as a Percentage of Market* |
Total LTI Target Economic Value (EV) ($) |
LTI Target EV as a |
Total Compensation ($) |
Total Compensation as a Percentage of Market | ||||||||
| Mr. Stevens |
1,800,000 | 111% | 150% | 97% | 11,852,200 | 136% | 16,352,200 | 127% | ||||||||
| Mr. Tanner |
745,000 | 98% | 75% | 77% | 2,207,508 | 99% | 3,511,258 | 94% | ||||||||
| Mr. Kubasik |
1,000,000 | 94% | 125% | 104% | 4,428,397 | 98% | 6,678,397 | 98% | ||||||||
| Ms. Hewson |
640,000 | 96% | 75% | 83% | 1,819,235 | 98% | 2,939,235 | 94% | ||||||||
| Mr. Heath |
760,000 | 113% | 75% | 83% | 2,002,842 | 108% | 3,332,842 | 107% | ||||||||
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* Based on 2010 MICP target as a percent of base salary and using the 50th percentile of 2009 Comparator Group data, which was used to make 2010 compensation decisions.
Pay may be above or below the 50th percentile based on a variety of factors including performance. Mr. Stevens’ Total Target Compensation exceeds the 50th percentile due to sustained high performance, experience and time in position, critical skills and generation of stockholder value. Mr. Heath’s Total Target Compensation is currently above market, primarily reflecting his historical high performance and leadership of our Aeronautics unit.
In 2010, the long-term incentive compensation target was generally allocated to executives as 35% to options, 25% to restricted stock and 40% to performance-based cash. This allocation was based on the allocation of long-term incentive compensation in our Comparator Group.
2010 Compensation Decisions – Base Salary
In 2010, there were no changes to base salary for any of the NEOs. We decided to not give merit increases after considering a number of factors, including overall economic conditions, a limited budget for merit increases for the Corporation overall, trends at other public companies with regard to executive salary increases, and management’s view that it should set an example of leadership in our initiatives to contain costs.
2010 Performance Assessment For Incentive Compensation
In January 2011, the Compensation Committee assessed our business performance against the goals and targets set at the beginning of 2010 for the annual bonus and in 2008 for the 2008-2010 long-term incentive performance awards. For the annual bonus, the goals included both quantitative and qualitative goals and focused on the strategic, operational, and financial aspects of business performance. In making its assessment, the Compensation Committee considered:
Strategic Performance
| • | Record year for new orders, including the award of a fixed-price incentive fee contract to construct up to ten Littoral Combat Ships (“LCS”) for the U.S. Navy. |
| • | Won key contracts to extend production on current programs, including the C-130J, F-16 and Aegis. |
| • | Successfully completed the divestiture of the Enterprise Integration Group. |
| • | Successfully implemented key affordability initiatives. |
| • | Continued external recognition of the Corporation as a desirable employer. |
Operational Performance
| • | Deployed the USS Freedom (LCS) two years ahead of plan. |
| • | Delivered 1,000th production round of the Joint Air-to-Surface Standoff Missile (JASSM). |
| • | Delivered 10,000th round of the Patriot Advanced Capability-3 (“PAC-3”) air defense system. |
| • | Achieved delivery plan for the F-22 and F-16 fighter jet programs. |
| • | Achieved significant increase in delivery of aircraft with zero defects. |
Financial Performance
| • | Achieved 2010 sales goal. |
| • | Exceeded 2010 goals for segment operating profit, cash from operations, EPS, ROIC and segment operating margin. |
| • | Increased our dividend by a double digit percent for the eighth consecutive year. |
| • | Contributed more than $2 billion of discretionary funding to our defined benefit pension plans. |
| • | Achieved year-end backlog of over $78 billion. |
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| 2010 Performance Objectives ** |
2010 Results |
Assessment | ||||||||
| Sales |
$44,900 - $45,900M | $45,803M | Achieved goal | |||||||
| Segment Operating Profit * |
$4,935 - $5,035M | $5,076M | Exceeded goal | |||||||
| Cash from Operations |
³$3,200M | $3,547M | Exceeded goal | |||||||
| EPS |
$7.15 - $7.35 | $7.94 | Exceeded goal | |||||||
| ROIC * |
³16.0% | 17.9% | Exceeded goal | |||||||
| Segment Operating Margin * |
11.0% | 11.1% | Exceeded goal | |||||||
* See “Information on Business Segments” in Note 5 to our financial statements contained in our Annual Report for reconciliation of operating profit to segment operating profit and “Capital Structure, Resources, and Other” in Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) to our financial statements contained in our Annual Report for the definition of ROIC.
** Based on Corporation’s outlook disclosed publicly at the beginning of 2010 and after adjusting for discontinued operations.
Based on these results, the Compensation Committee characterized 2010 as a year in which the Corporation’s performance had exceeded expectations in many respects but had not met expectations with regard to the F-35. The Compensation Committee recommended, and the Board approved, a corporate performance factor of 1.25.
Performance Assessment For LTIP Awards for the 2008-2010 Cycle (Column (g) of the “Summary Compensation Table”)
The 2008-2010 LTIP measured corporate performance over a three-year cycle from January 1, 2008 through December 31, 2010. The Compensation Committee had assigned LTIP targets for each of the NEOs at the beginning of 2008. The Compensation Committee reviewed and certified performance for the 2008-2010 LTIP at its January 2011 meeting.
The following table outlines the calculation of the performance factor for the 2008-2010 LTIP award:
| Element | Measurement | Performance Result |
Performance Factor |
Weight | Weighted Performance Factor | |||||
| TSR | The ranking of our TSR during the performance period relative to the TSR of companies in the S&P Industrials Index | <35th Percentile | 0% | 50% | 0% | |||||
| ROIC | 100% of target was 17.5% | >40 basis points above plan | 200% | 25% | 50% | |||||
| Cash Flow | 100% of target was $11.5B |
>$1B above plan | 200% | 25% | 50% | |||||
| Total Performance Payout Factor | 100% |
Neither the Compensation Committee nor management had any authority to adjust the 2008-2010 LTIP payouts. Additional information on LTIP can be found in LTIP Awards.
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2010 Compensation Awards Based on Performance
The organizational performance, combined with each NEO’s individual performance resulted in the following realized cash compensation:
Mr. Stevens
The Board noted the following individual performance highlights:
| • | Led the Corporation in meeting or exceeding all of its financial goals. |
| • | Led industry in responding to customer affordability concerns by initiating voluntary reduction in executive ranks and other cost-cutting measures. |
| • | Led talent and succession-planning initiatives to address changes in the executive ranks. |
| Compensation Element | Time Period Covered |
Amount of Compensation |
Change from Prior Year |
Comments | ||||
| Base Salary |
2010 | $1,800,000 | 0% | |||||
| Annual Incentive Award Amount |
2010 | $4,050,000 | 4% | Reflects Compensation Committee’s assessment of corporate performance as well as the Board’s assessment of individual performance. | ||||
| % of Target* |
150% | |||||||
| % of Base |
225% | |||||||
| Long-Term Incentive Performance Award Amount** |
2008-2010 | $4,600,000 | (12%) | Decline due to the Corporation’s TSR ranking relative to the TSR of companies in the S&P Industrials Index. | ||||
| % of Target |
100% |
* Maximum 195%.
**50% of the award is subject to a two-year deferral period.
Mr. Tanner
The Board noted the following individual performance highlights:
| • | Led achievement of $3,547 million of cash generation after making discretionary pension contributions of $2,240 million in 2010. |
| • | Executed balanced cash deployment strategy. |
| • | Completed favorable debt exchange. |
| • | Oversaw strong internal control environment and transparent financial disclosures. |
| Compensation Element | Time Period Covered |
Amount of Compensation |
Change from Prior Year |
Comments | ||||
| Base Salary |
2010 | $745,000 | 0% | |||||
| Annual Incentive Award Amount |
2010 | $838,100 | 0% | Reflects Compensation Committee’s assessment of corporate performance and individual contribution. | ||||
| % of Target* |
150% | |||||||
| % of Base |
113% | |||||||
| Long-Term Incentive Performance Award Amount** |
2008-2010 | $640,000 | 250% | Increase reflects first year as CFO at higher target level. | ||||
| % of Target |
100% |
* Maximum 195%.
**50% of the award is subject to a two-year deferral period.
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Mr. Kubasik
The Board noted the following individual performance highlights:
| • | Led strategic review of non-core business units. |
| • | Led several affordability initiatives. |
| • | Led F-35 turnaround plan. |
| • | Created operational improvements to promote transparency and improved support from key functions. |
| Compensation Element | Time Period Covered |
Amount of Compensation |
Change from Prior Year |
Comments | ||||
| Base Salary |
2010 | $1,000,000 | 0% | |||||
| Annual Incentive Award Amount |
2010 | $1,875,000 | 67% | Increase reflects first year as President and COO at higher target level. Also reflects Compensation Committee’s assessment of corporate performance and individual contribution. | ||||
| % of Target* |
150% | |||||||
| % of Base |
188% | |||||||
| Long-Term Incentive Performance Award Amount** |
2008-2010 | $1,000,000 | (11%) | Decline due to the Corporation’s TSR ranking relative to the TSR of companies in the S&P Industrials Index. | ||||
| % of Target |
100% |
* Maximum 195%.
**50% of the award is subject to a two-year deferral period.
Ms. Hewson
The Board noted the following individual performance highlights:
| • | Achieved strong financial performance; growth in orders, sales, EBIT, cash and ROIC. |
| • | Achieved significant program wins, including LCS contract. |
| • | Led organizational realignments. |
| • | Led strong performance on key programs. |
| Compensation Element | Time Period Covered |
Amount of Compensation |
Change from Prior Year |
Comments | ||||
| Base Salary |
2010 | $640,000 | 0% | |||||
| Annual Incentive Award Amount |
2010 | $750,000 | 59% | Increase reflects first year as EVP at higher target level. Also reflects Compensation Committee’s assessment of corporate performance and individual contribution. | ||||
| % of Target* |
156% | |||||||
| % of Base |
117% | |||||||
| Long-Term Incentive Performance Award Amount** |
2008-2010 | $350,000 | (18%) | Decline due to the Corporation’s TSR ranking relative to the TSR of companies in the S&P Industrials Index. | ||||
| % of Target |
100% |
* Maximum 195%.
**50% of the award is subject to a two-year deferral period.
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Mr. Heath
The Board noted the following individual performance highlights:
| • | Achieved solid 2010 financial performance; revenue growth despite challenges. |
| • | Led successful ramp-up of C-130J. |
| • | Supported strong presence in key emerging international markets. |
| • | F-35 Nunn-McCurdy breach and related impacts. |
| Compensation Element | Time Period Covered |
Amount of Compensation |
Change from Prior Year |
Comments | ||||
| Base Salary |
2010 | $760,000 | 0% | |||||
| Annual Incentive Award Amount |
2010 | $498,800 | (42%) | Reflects Compensation Committee’s assessment of corporate performance and individual contribution, including impact of F-35 performance. | ||||
| % of Target* |
88% | |||||||
| % of Base |
66% | |||||||
| Long-Term Incentive Performance Award Amount** |
2008-2010 | $740,000 | (13%) | Decline due to the Corporation’s TSR ranking relative to the TSR of companies in the S&P Industrials Index. | ||||
| % of Target |
100% |
* Maximum 195%.
**50% of the award is subject to a two-year deferral period.
Payout of Deferred Portion of LTIP Awards for the 2006-2008 Cycle
Fifty percent of the payment from the 2006-2008 LTIP was mandatorily deferred for two years following the end of the performance cycle in 2008. The deferred amount was treated during the deferral period as though it was invested in our stock and the value paid (or further deferred at the election of the NEO) at the end of the deferral period based on the closing stock price on December 31, 2010 ($69.91). At the time of the deferral, the price per share of our stock was $84.08. The year-end 2010 value represents an 11.2% decrease in value (after taking into account reinvestment of cash dividend equivalents). A similar drop in value has occurred with respect to the still-deferred portion of the 2007-2009 LTIP. The December 31, 2009, closing stock price used for deferral was $75.35; the December 31, 2010, closing stock price was $69.91. This represents a 3.9% decrease in value (after taking into account the reinvestment of cash dividend equivalents).
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The following charts show the application of these principles in 2010 for our CEO:
Determining Market Compensation – Use of Benchmarking
Ensuring that our executive compensation is competitive with other companies is critical to attracting and retaining key talent. Our business depends on maintaining a work force with highly sophisticated skills and familiarity with the customer. The pool of people with these skills is limited and we must attract and retain the best of this group to succeed.
We select a group of publicly traded companies (our Comparator Group) to identify market values for all pay elements. Because the number of comparable companies with our level of revenue is not extensive, we include companies in our Comparator Group based on many factors:
| • | Similarity to the Corporation in terms of size (i.e., revenue, market capitalization), industry, and/or global presence. |
| • | Comparable executive officer positions in terms of breadth, complexity, and scope of responsibilities. |
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| • | Potential to compete with us for talent. |
| • | Participation in executive compensation surveys. |
In 2010, our Comparator Group companies were:
| • 3M Company |
• International Paper Company | |
| • Alcoa Inc. |
• Johnson & Johnson | |
| • Altria Group, Inc. |
• Johnson Controls Inc. | |
| • AT&T Inc. |
• Merck & Co Inc. | |
| • The Boeing Company |
• Northrop Grumman Corporation | |
| • Bristol Myers Squibb Company (Inc.) |
• Pepsico, Inc. | |
| • Caterpillar Inc. |
• The Procter & Gamble Company | |
| • The Dow Chemical Company |
• The Raytheon Company | |
| • E.I. duPont de Nemours & Company |
• Textron Inc. | |
| • Emerson Electric Co. |
• United Technologies Corporation | |
| • Fedex Corporation |
• Valero Energy Corporation | |
| • General Dynamics Corporation |
• Verizon Communications Inc. | |
| • Honeywell International Inc. |
The Senior Vice President, Human Resources (“SVP, HR”) reviews the make-up of the Comparator Group with the Compensation Committee annually. Hewitt Associates LLC (“Hewitt”), the Corporation’s compensation consultant, compiles Comparator Group compensation information and determines market values for base salary, short-term incentives, and long-term incentives. Hewitt also prepares information on other compensation practices such as mix of compensation, use of equity, benefits, and perquisites. For each compensation element, we use the 50th percentile (median) of the Comparator Group data to identify market value.
Hewitt provides compensation data for each position based on job responsibilities and revenue scope. Consistent with industry practice, the market data is “aged” to adjust for the timeliness of the data and set our lead-lag position. “Lead-lag” is a standard practice that sets the organization’s salary structure at the beginning of the plan year to anticipate the level the market will reach by the middle of the plan year. The aged data “leads” the market during the first six months, matches the market at the middle of the year, and “lags” the market during the last six months.
In 2010, consistent with historical practices, we did not “benchmark” or designate a specific percentile as a target for any individual component of compensation or for the total compensation paid to the NEOs. Information on market percentiles was provided by Hewitt as a reference point and for informational purposes to the Compensation Committee rather than as a target. While the Compensation Committee uses the 50th percentile as the starting reference point as a market comparison for the job performed, individual compensation decisions are based primarily on the review and assessment by the Compensation Committee and Mr. Stevens (with respect to each NEO other than himself) using subjective factors. Discretion is used to adjust an executive’s pay above market in certain circumstances, including:
| • | Sustained high level of performance. |
| • | Demonstrated success in meeting or exceeding key financial and other business objectives. |
| • | Proven ability to create stockholder value. |
| • | Highly-developed skills and abilities critical to our success. |
| • | Experience and time in the position (typically the compensation for individuals who are new to a position is relatively low to market; as they gain experience and increase their ability to perform, standard practice indicates that their pay should move closer to the market and may exceed market). |
| • | Consideration of compensation paid to other executives in the Corporation with comparable responsibilities. |
As a result, total compensation (or any particular element of it) was based on a combination of subjective factors and may differ materially from the 50th percentile reference point derived from the Comparator Group.
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The Compensation Decision-Making Process
Compensation Consultant
The SVP, HR retained Hewitt as the Corporation’s executive compensation consultant to gather, among other things, Comparator Group data. In 2010, Hewitt prepared reports using Comparator Group data on positions in addition to the NEOs.
In 2010, the Compensation Committee performed a search for a new Committee consultant and selected Steven Hall & Partners, with whom it reviewed selected matters using data from our Comparator Group. Steven Hall & Partners is considered independent because it does not perform any work for Lockheed Martin management.
At the Compensation Committee’s request, Steven Hall & Partners performed a compensation risk assessment and reported to the Compensation Committee in January 2011 that our compensation programs do not create risks that are reasonably likely to have a material adverse effect on the Corporation.
Management
For NEOs other than the CEO:
| • | Our Chairman and CEO, with input from our SVP, HR and data from Hewitt, provides the Compensation Committee with information and recommendations on: |
| Ø | Base salary. |
| Ø | Annual bonuses. |
| Ø | Long-term incentive grants. |
| Ø | Fiftieth percentile of the Comparator Group data. |
| Ø | Historical data for each NEO. |
| • | The SVP, HR calculates for the NEOs (other than the CEO) the resulting percentage above or below the market for varying levels of compensation and estimates the market percentile for levels of compensation proposed by the CEO. |
For the CEO:
| • | The SVP, HR presents a schedule with a range of possible payments to the CEO for each element of compensation in relation to the 50th and 75th percentiles. The purpose of this schedule is to estimate what percentile of pay would result from different levels of payments. The SVP, HR does not recommend a specific amount of compensation. |
| • | The CFO develops internal financial goals for our long-term incentive program. The goals serve as the financial portion of the corporate performance goals and the CEO’s personal goals for annual bonuses. |
Management Development and Compensation Committee
The Compensation Committee makes recommendations to the Board regarding the compensation of the CEO and each NEO and is responsible for:
| • | Reviewing and approving corporate goals and objectives. |
| • | Evaluating the CEO’s and each NEO’s performance against their objectives. |
| • | Recommending to the Board the CEO’s and each NEO’s compensation level based on their evaluation. |
| • | Reviewing proposed candidates for senior executive positions and recommending their compensation to the Board. |
| • | Approving equity and other long-term incentive grants. |
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Board of Directors
| • | Reviews and approves the compensation of the CEO and each of his direct reports, including the NEOs. |
Elements of Executive Direct Compensation
The following table outlines elements of direct compensation and how it aligns with our objectives and guiding principles.
| What it Rewards |
How it Aligns With Our Objectives |
Performance Measured |
Fixed or Variable/ Performance- Related |
Cash or Equity | ||||||
| Base Salary |
• Sustained high level of performance • Demonstrated success in meeting or exceeding key financial and other business objectives • Highly developed skills and abilities critical to success of the business • Experience and time in position |
• Competitive base salaries enable us to attract and retain top talent • Merit-based salary increases align pay to performance philosophy |
Individual | Merit Increases are Performance- Related / Fixed | Cash | |||||
| Short-Term Incentive (Annual Bonus) |
• Organizational performance during the year against our publicly-disclosed guidance and other performance criteria • Individual performance during the year measured against identified goals |
• Competitive targets enable us to attract and retain top talent • Payout of award depends on individual and organizational performance and aligns pay to performance |
Individual and Organization | Performance- Related / Variable | Cash | |||||
| Long-Term Incentives |
Ø Stock Options • Increase in stock price • Retention |
• Value dependent on price of our stock; no value unless the stock price increases • Three-year graded vesting supports retention |
Organization | Performance- Related / Variable | Equity | |||||
| Ø RSUs • Retention • Increase in stock price |
• Although RSUs always have value, the value increases or decreases as stock price increases or decreases • Three-year cliff vesting supports retention |
Organization | Performance- Related / Variable | Equity | ||||||
|
Ø LTIP Award • Performance relative to other companies as measured by TSR • Meeting or exceeding ROIC goal • Meeting or exceeding cash generation goal |
• Payout is based on metrics important to our stockholders • Three-year performance period, cliff vesting, and mandatory two-year deferral of 50% of payout supports retention |
Organization | Performance- Related / Variable | Cash |
Indirect Elements of Executive Compensation
| • | Benefits – Our NEOs are eligible for savings, pension, medical, and life insurance benefits under the plans available to salaried, non-union employees. We also make available supplemental pension and savings plans to employees (including the NEOs) to make up benefits that otherwise would be unavailable due to |
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| IRS limits on qualified plans. We also have a plan for the deferral of short-term and long-term incentive compensation. All NEOs are eligible for four weeks of vacation. |
| • | Perquisites – We provide limited perquisites as a recruiting and retention tool and to ensure the health and safety of our key executives. The perquisites provided to NEOs for 2010 are described in footnote (8) on page 51. |
| • | Use of Corporate Aircraft – Our NEOs may use corporate aircraft for business travel. For security reasons, our Board has directed Mr. Stevens and Mr. Kubasik to use the corporate aircraft for personal travel. |
| • | Relocation – We provide relocation assistance to executives that we ask to move to a new work location. This is a widely-accepted benefit that benefits the Corporation by facilitating placement of the right person in the job and helping to develop talent. |
| • | Tax Assistance – We do not have any agreements or severance arrangements that provide tax assistance for excise taxes imposed as a result of a change in control. We provided tax assistance in 2010 for business association expenses, relocation assistance, security expenses, use of corporate aircraft for personal travel, and travel expenses for a family member accompanying a NEO while on business travel. The IRS requires that the executive pay income tax for the items even though the executive receives no cash in connection with the item. The items for which we provide tax assistance serve a business purpose and the associated tax liability imposed on the executive would not have been incurred had they not been required for business reasons. In 2010, the aggregate amount of tax assistance provided to all five NEOs was approximately $650,000. |
Compensation Program Descriptions
Short-Term Opportunities (Annual Bonus)
Our annual bonus program is the MICP.
Market-Based Targets – We assign a percentage of salary as a target amount for the bonus, expressed as a percentage of the NEO’s base salary. The target percentages are established using Comparator Group data from Hewitt for comparable positions. We set targets at the beginning of the year (see “2010 Grants of Plan-Based Awards” table) but may adjust a target if the executive is reassigned or a target change is approved by the Compensation Committee for other reasons. Survey information revealed that our NEO targets lag the market.
The target award amount is calculated as:
* Using executive’s base salary as of the first pay period in December 2010.
Role of Performance – Individual performance ratings range from 0 (performance fails to meet job requirements) to 1.30 (performance superior to expectations and peers within the organization). Organizational performance ratings range from 0 (did not achieve sufficient overall performance level) to 1.50 (far exceeded organizational objectives in all categories). The potential higher ratings for organizational performance reflect the importance we place on team performance and organizational results.
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The target award is adjusted for both individual and organizational performance as illustrated in the examples below:
* Award amounts are rounded to the nearest hundred dollar.
No MICP bonus is paid if there is a rating below .60 on the individual performance factor or below .50 on the organizational performance factor.
Under the MICP terms, the CEO’s bonus cannot exceed 0.3% of cash flow and the bonus for each of the other NEOs cannot exceed 0.2% of cash flow, as defined in the MICP.
Results-Based Measurements – At its February 2010 meeting, the Compensation Committee approved corporate objectives for 2010 reflecting strategic, operational, and financial goals. These objectives serve as the corporate organizational goals and the individual goals for the CEO.
| • | Strategic – Typically reflect growth in our portfolio, including program capture, positioning our businesses for future success, and growth in people, including leadership effectiveness, succession, and transition. |
| • | Operational – Typically include successful performance of programs, award fees, performance recovery on troubled programs, continuing efforts on our diversity and inclusion initiative, differentiating our Corporation from competitors, progress in staffing for strategic talent, and cost savings. |
| • | Financial – Typically include targets for sales, cash from operations, segment operating profit, EPS, and ROIC in ranges consistent with our annual outlook as publicly disclosed in January of the year of performance with our release of earnings for the prior year. We believe that setting objectives consistent with the ranges contained in our public forecast ties compensation to our effectiveness in meeting our public commitments to our stockholders. |
The strategic, operational, and financial goals discussed above serve as the organizational and individual goals for Mr. Stevens. Each of the NEOs (other than the CEO) establishes individual performance objectives in the first quarter of each year. For the business area Executive Vice Presidents, these objectives largely reflect the organizational goals for the business area. For functional area NEOs, individual objectives represent achievements important for the functional area and which contribute to the success of the business areas.
Performance objectives are both quantitative and qualitative and provide a framework for reviewing performance. Meeting, exceeding, or falling short of an identified objective does not mandate a particular organizational or individual rating, but is considered as one factor among many for evaluating the year’s performance. The weight given to each objective and the overall organizational rating are at the discretion of the Compensation Committee, which also has the discretion to consider other factors.
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This mix is reviewed annually in light of Comparator Group practice and plan limitations. It was changed for grants in 2011 to 30% stock options, 30% RSUs, and 40% LTIP.
The SVP, HR, using data provided by Hewitt, presented the Compensation Committee with the estimated economic value of total LTI and the allocation of that value among the elements of LTI for each NEO. The data provided by the SVP, HR showed Comparator Group data at the 50th percentile for all NEOs and additionally at the 75th percentile for the CEO. Hewitt uses the Black-Scholes methodology for the options portion, the grant date fair value for RSUs, and valuation methodologies for LTIP to determine the economic value of LTI. For individual grants, adjustments from the median may be made based on individual performance.
Stock Option Grants
Grant sizes are calculated generally by multiplying the target LTI economic value by the weighting assigned to the options element (35% in 2010) and dividing it by the value of a single option, determined under the Black-Scholes methodology and based on assumptions used for recognizing expense in our financial statements contained in our Annual Report in accordance with Generally Accepted Accounting Principles (“GAAP”) (ASC 718). These assumptions are set out in Note 13 to our financial statements contained in our Annual Report. For the 2010 option grant, the grant date fair value was $14.04. The exercise price for the grants was $74.89. These options, along with the options granted in January 2009, January 2008 and January 2007 at an exercise price of $82.52, $106.87 and $96.06, respectively, have no value as of December 31, 2010, and will provide no value to a NEO unless, within ten years of the grant date, our stock price exceeds the exercise price.
| RSU Grants
RSU grant sizes are calculated generally by multiplying the target LTI economic value by the weighting assigned to the RSU element (25% in 2010) and dividing it by the value of a single RSU, determined using the estimated grant date fair value. The 2010 RSU fair value on the date of grant was $74.89. Using our December 31, 2010 closing stock price of $69.91, these RSUs, along with the RSUs granted in 2009, 2008 and 2007 at a grant date fair value of $82.52, $106.87 and $96.06, respectively, have declined in value since their grant. This decline is illustrated by the chart. |
|
We use RSU grants from time-to-time for retention purposes. These grants may have different vesting schedules than our normal grants. The February 1, 2006, RSU award to Mr. Stevens included extended vesting as an incentive to Mr. Stevens to remain with the Corporation to age 60 and beyond. Prior to amendment by the Compensation Committee on January 27, 2010, 55,200 RSUs vested on September 8, 2011 and tranches consisting of 7,360 RSUs vested on September 8, 2012, 2013, 2014, 2015, and 2016, respectively. As amended by the Compensation
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Committee on January 27, 2010, the grant vests gradually as he reaches specified ages ranging from 60 to 62 as shown in the following table.
| Vesting Date | Number of RSUs Vesting |
|||
| September 8, 2011 |
55,200 | |||
| September 8, 2012 |
25,000 | |||
| September 8, 2013 |
11,800 | |||
| Total |
92,000 | |||
The Committee revised the schedule in 2010 to increase the retention aspect of the grant through age 62.
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Following is an example of how the total performance payout factor is calculated:
The total award for each NEO is calculated by multiplying their target award by the performance payout factor.
As a further incentive for performance and retention, 50% of the award payout must be deferred for two years. This mandatorily-deferred portion of the award is treated during the deferral period as though it were invested in our stock and is subject to a continuing employment requirement. The amount paid at the end of the two-year deferral period will be based on the price of our stock at that time.
Other Corporate Governance Considerations in Compensation
Limited Government Reimbursement of Compensation
As a government contractor, we are subject to the Federal Acquisition Regulation, which limits the reimbursement of costs by our government customers for senior executive compensation to a benchmark compensation cap established each year. The benchmark cap applies to the five most highly-compensated executives assigned to our headquarters, intermediate home offices, and business segments. When comparing senior executive compensation to the benchmark cap, wages, salary, bonuses, and deferred compensation for the year, whether paid, earned, or otherwise accrued, must be included. For 2010, the benchmark compensation cap published in the Federal Register was $693,951. Any amounts over the cap were considered unallowable and, therefore, not recoverable under our government contracts.
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We also have contracts that require that we provide a summary of contract performance to the Board or person having responsibility for setting the compensation of senior management annually so that performance can be considered in setting the compensation of the contractor’s senior executives – defined as the five most highly-compensated employees at the corporate level, including the CEO.
Tax Deductibility of Executive Compensation
Under section 162(m) of the Internal Revenue Code, the Corporation’s tax deduction for compensation paid to each of the NEOs (excluding the CFO) is capped at $1 million. Section 162(m) provides an exception from the $1 million cap for compensation qualifying as “performance-based.” We have designed our MICP, LTIP, RSUs and stock options to qualify as “performance-based” compensation exempt from the $1 million cap on deductibility.
Policy Regarding Timing of Option and Other Equity Grants
The Corporation has a corporate policy statement concerning the grant of equity awards which states that:
| • | The Compensation Committee is responsible for determining the grant date of all equity awards. |
| • | No equity award may be backdated. |
| • | The grant date will not be earlier than the date the Compensation Committee approves the equity award. A future date may be used. If the Compensation Committee’s action occurs in proximity to the release of earnings or during a trading blackout period, the Compensation Committee’s practice has been to designate as the date of grant a future date at least 48 hours following the release of earnings or other material information. |
| • | Proposed equity awards are presented to the Compensation Committee in January of each year. Off-cycle awards may be considered in the Compensation Committee’s discretion in special circumstances, which may include hiring, retention, or acquisition transactions. |
The closing price of our stock on the NYSE on the date specified as the grant date is the exercise price for an option award. In addition, the IPA Plan prohibits re-pricing of stock options.
Clawback and Other Protective Provisions
In January 2008, the Board amended its Corporate Governance Guidelines to include what is commonly referred to as a clawback policy. Under the policy, if the Board determines that:
| • | an officer’s intentional misconduct or gross negligence, or failure to report such acts by another person was a contributing factor in requiring us to restate all or a portion of our financial statements; or |
| • | an officer engaged in fraud, bribery, or other illegal act, or the officer’s intentional misconduct or gross negligence contributed to another person’s fraud, bribery or other illegal act (including a failure to report such an act), that, in either case, adversely impacted our financial position or reputation; |
the Board shall take such action as it deems in the best interests of the Corporation and necessary to remedy the misconduct and prevent its recurrence. Among other actions, the Board may seek to recover or require reimbursement of any amount awarded to the officer after January 1, 2008, in the form of an MICP bonus or long-term incentive award.
In order to implement the policy on clawbacks, to ensure that proprietary information is protected, and to facilitate retention of key employees, the Compensation Committee amended the MICP and included provisions in the award agreements for the RSUs, stock options, and LTIP beginning with the January 2008 grants and setting forth our right to recapture amounts covered by the policy. The award agreements for the NEOs also contain post-employment restrictive covenants. The post-employment restrictions were incorporated into all executive level award agreements beginning in 2011.
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In 2011, we amended our policy on compliance with U.S. securities laws to prohibit hedging of Lockheed Martin stock by all employees and directors.
Stock Ownership Guidelines for Key Employees
We expect the NEOs to maintain an ownership interest in the Corporation and have established Stock Ownership Guidelines for Key Employees, as follows:
| Title | Annual Base Pay Multiple |
|||
| Chief Executive Officer |
5 times | |||
| Chief Operating Officer |
4 times | |||
| Executive Vice President |
3 times | |||
| Senior Vice President |
2 times | |||
The following chart reflects the status of each NEO’s achievement of these guidelines, as of February 1, 2011. The securities counted toward their respective target threshold include common stock, unvested RSUs, and stock units under the SSP, NQSSP, and DMICP.
Post-Employment, Change in Control, and Severance Benefits
Our NEOs do not have employment agreements. In January 2008, the Board approved the Lockheed Martin Corporation Severance Benefit Plan For Certain Management Employees (“Executive Severance Plan”). Benefits are payable under this plan in the event of a company-initiated termination of employment other than for cause. All of the NEOs are eligible to participate in the plan.
The benefit payable under the plan is one times the NEO’s base salary and the equivalent of one year’s target MICP bonus. For the CEO, the multiplier is 2.99 instead of 1. The Compensation Committee believes the CEO’s higher multiplier is competitive with market practices.
In addition, NEOs participating in the plan will receive a lump sum payment to cover the cost of medical benefits for one year and outplacement and relocation services. In order to receive the full severance benefit, the NEO must execute a release of claims and an agreement containing post-employment non-compete and non-solicitation covenants comparable to those included in our 2010 stock option, RSU, and LTIP award agreements.
Upon certain terminations of employment, including death, disability, retirement, layoff, divestiture, or a change in control, the NEOs may be eligible for continued vesting on the normal schedule, immediate payment of benefits previously earned, or accelerated vesting of long-term incentives in full or on a pro rata basis. The type of event and the nature of the benefit determine which of these approaches will apply. The purpose of these provisions is to
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protect previously earned or granted benefits by making them available following the specified event. We view the vesting (or continued vesting) to be an important retention feature for senior-level employees. Our long-term incentive plans do not provide for additional benefits or tax gross-ups. Because termination benefits consist of previously granted or earned benefits, we do not consider termination benefits as a separate item in compensation decisions.
In the event of a change in control, our plans provide for the acceleration of the payment of the nonqualified portion of earned pension benefits and nonqualified deferred compensation and the vesting of previously granted long-term incentive awards. In the case of stock options and LTIP, vesting following a change in control is a “single trigger” and occurs upon the change in control. In the case of RSUs, for vesting to accelerate, the award agreements impose a “double trigger” both a change in control and termination of employment must occur.
RSUs generally have been used to address retention issues. The double trigger is a retention tool. Stock options have a retention feature but also reward common stock appreciation and enable recipients to share in both the risk and rewards of stock ownership through stock depreciation or appreciation. Given the compensatory nature of the awards tied to stock appreciation, immediate vesting upon a change in control permits participants to participate in any price appreciation associated with a change in control or control premium, on a basis similar to that available to stockholders as a whole.
The section of this Proxy Statement titled “Potential Payments Upon Termination or Change In Control” on page 64 provides further information on post-employment payments.
In July of 2010, we offered a voluntary employee severance program for vice president and director level employees; no 2010 NEO was eligible for the program. Ms. Hewson was eligible but did not participate.
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The following table shows annual and long-term compensation awarded, earned, or paid for services in all capacities to the NEOs for the fiscal year ended December 31, 2010. Numbers have been rounded to the nearest dollar.
|
|
||||||||||||||||||||||||||||||||||||
| Name and Principal Position |
Year 1 | Salary 2 | Bonus 3 | Stock Awards 4 |
Option Awards 5 |
Non-Equity Incentive Plan Compensation 6 |
Change in Pension Value Compensation |
All Other Compensation 8,9 |
Total | |||||||||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
| Robert J. Stevens Chairman & Chief Executive Officer |
2010 | 1,800,000 | 4,050,000 | 2,995,600 | 4,071,600 | 4,600,000 | 2,779,208 | 1,601,412 | 21,897,820 | |||||||||||||||||||||||||||
| 2009 | 1,834,615 | 3,900,000 | 2,558,120 | 6,564,800 | 5,246,000 | 2,523,312 | 369,916 | 22,996,763 | ||||||||||||||||||||||||||||
| 2008 | 1,774,038 | 4,250,000 | 2,992,360 | 4,827,500 | 8,567,750 | 2,688,524 | 451,414 | 25,551,586 | ||||||||||||||||||||||||||||
| Bruce L. Tanner Executive Vice President & Chief Financial Officer |
2010 | 745,000 | 838,100 | 539,208 | 772,200 | 640,000 | 1,240,885 | 41,512 | 4,816,905 | |||||||||||||||||||||||||||
| 2009 | 742,019 | 835,300 | 2,785,050 | 1,218,964 | 183,000 | 1,157,958 | 75,963 | 6,998,254 | ||||||||||||||||||||||||||||
| 2008 | 619,904 | 911,900 | 309,923 | 762,745 | – | 924,755 | 208,534 | 3,737,761 | ||||||||||||||||||||||||||||
| Christopher E. Kubasik President & Chief Operating Officer |
2010 | 1,000,000 | 1,875,000 | 1,085,905 | 1,541,592 | 1,000,000 | 876,462 | 500,975 | 7,879,934 | |||||||||||||||||||||||||||
| 2009 | 1,007,115 | 1,121,300 | 3,849,558 | 1,359,212 | 1,128,500 | 456,646 | 131,256 | 9,053,587 | ||||||||||||||||||||||||||||
| 2008 | 916,154 | 1,314,800 | 534,350 | 1,177,910 | 1,394,750 | 461,159 | 185,189 | 5,984,312 | ||||||||||||||||||||||||||||
| Marillyn A. Hewson Executive Vice President Electronic Systems |
2010 | 639,038 | 750,000 | 438,107 | 641,628 | 350,000 | 1,278,904 | 745,765 | 4,843,442 | |||||||||||||||||||||||||||
| – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||
| – | – | – | – | – | – | – | – | – | ||||||||||||||||||||||||||||
| Ralph D. Heath Executive Vice President Aeronautics |
2010 | 760,000 | 498,800 | 494,274 | 690,768 | 740,000 | 497,356 | 56,043 | 3,737,241 | |||||||||||||||||||||||||||
| 2009 | 765,961 | 852,200 | 2,983,098 | 1,159,284 | 854,000 | 989,485 | 94,162 | 7,698,190 | ||||||||||||||||||||||||||||
| 2008 | 700,481 | 1,003,800 | 363,358 | 882,467 | 1,295,125 | 1,114,226 | 150,335 | 5,509,792 | ||||||||||||||||||||||||||||
NOTES TO TABLE:
(1) Information is provided for 2010 only for Marillyn A. Hewson. Ms. Hewson was not a NEO in 2009 or 2008.
(2) Salary is paid in arrears. The amount of salary reported may vary from the approved annual rate of pay because the salary reported in the table is based on the actual number of weekly pay periods in a year.
(3) The annual bonuses paid to each NEO for performance under the MICP are listed in column (d) for the year the bonus is earned. MICP awards are based on both quantitative and subjective assessments of performance over a one-year period.
(4) Represents the aggregate grant date fair value for RSUs granted to each of the listed NEOs in 2010. The grant date fair value of one RSU was equal to the closing price of our stock ($74.89) on the date of grant (February 1, 2010). The grant date fair value does not change to reflect changes in our stock price after the grant date. The grant date fair value of RSUs granted in 2010 takes into account the right to receive cash payments equal to the dividends declared on our stock prior to the time the RSUs are vested. Equity grants (including RSUs) are typically made to the NEOs in January of a particular year. The amounts associated with each RSU grant are shown in the “2010 Grants of Plan-Based Awards” table on page 53. Values reported for 2008 and 2009 are based on grant date fair value $106.87 and $82.52, respectively.
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(5) Represents the aggregate grant date fair value of the options granted to each of the listed NEOs in 2010 ($14.04). The grant date fair value of the options is determined using the Black-Scholes methodology and is based on the closing price of our stock ($74.89) on the date of grant (February 1, 2010). Values reported for 2008 and 2009 are based on grant date fair value of $19.31 (closing price of $106.87) and $14.92 (closing price of $82.52), respectively. The assumptions used in determining the grant date fair value of the option grants are set forth in Note 13 to our financial statements contained in our Annual Report.
(6) The amounts listed for LTIP awards were earned in the three-year cycle ending on December 31 of the year reported in column (b) of the table. Fifty percent of the amount shown is deferred by the Corporation for two years and treated during that period as if it were invested in our common stock. Deferred amounts (whether mandatory deferrals by the Corporation or deferrals by the executive) are reported for the year earned and not when paid to the executive. Mr. Tanner was not eligible for the 2006-2008 LTIP awards. See footnote (6) to the “2010 Nonqualified Deferred Compensation” table on page 62.
(7) Represents solely the aggregate change in the accumulated benefit under all defined benefit and actuarial pension plans (including tax-qualified and nonqualified defined benefit plans) for the year reported (from December 31 to December 31). The amounts were computed using the same assumptions we used to account for retirement benefits under ASC 715 “Compensation Retirement Benefits” and described in Note 11 to our financial statements contained in our Annual Report, except that the amounts were calculated based on benefits commencing at age 60 for each of the NEOs. We used age 60 rather than the plans’ normal retirement age of 65 because an employee may commence receiving pension benefits at age 60 without any reduction for early commencement. The amounts shown for Mr. Stevens and Mr. Tanner reflect grandfathered plan provisions that apply a reduction for early commencement on a portion of their benefits at age 60. Amounts paid under our plans are based on assumptions contained in the plans and may be different than the assumptions used for financial statement reporting purposes. For 2010, there were no earnings on deferred compensation above 120% of the applicable federal rate published by the IRS.
(8) Perquisites and other personal benefits provided to the NEOs in 2010 included: use of corporate aircraft for personal travel; security; relocation assistance; annual executive physicals; business association expenses; commemorative items; and travel expenses for a family member accompanying the NEO while on business travel. Not all of the listed perquisites or personal benefits were provided to each NEO. In addition, the Corporation made available event tickets and a company-provided car and driver for personal commuting to some of the NEOs, but required the NEOs to reimburse the Corporation for the incremental cost of such items. The cost of any category of the listed perquisites and personal benefits did not exceed the greater of $25,000 or 10% of total perquisites and personal benefits for any NEO, except for (i) security for Mr. Stevens ($1,295,466) and Mr. Kubasik ($188,955); (ii) use of the corporate aircraft for Mr. Kubasik ($121,026); and (iii) relocation assistance for Ms. Hewson ($412,279). The incremental cost for use of corporate aircraft for personal travel was calculated based on the total personal travel flight hours multiplied by the estimated hourly aircraft operating costs for 2010 (including fuel, maintenance, and other variable costs, but excluding fixed capital costs for the aircraft, hangar facilities, and staff salaries).
(9) In addition to the perquisites described in footnote (8) for 2010, column (i) contains other items of compensation listed in the following table.* All items in the following table are paid under broad-based programs for U.S. salaried employees except the tax gross-ups and the NQSSP match. The LM Foundation matching contribution includes charitable contributions made in 2010 or to be made by the LM Foundation in 2011 to match a contribution made by the NEO in a prior year.
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* Table for footnote (9)
Other Items of Compensation Included in “All Other Compensation” Column (i)
| Name | Tax Gross-Ups for Business- Items ($) |
Corporation Matching Contribution to SSP (401(k) Plan) ($) |
Corporation Matching Contribution to NQSSP (Nonqualified 401(k) Plan) ($) |
Group Life Insurance |
LM Foundation Matching Gift Colleges and ($) |
|||||||||||||||
| Mr. Stevens |
206,317 | 3,882 | 69,502 | 10,062 | 0 | |||||||||||||||
| Mr. Tanner |
3,051 | 3,882 | 26,491 | 3,974 | 0 | |||||||||||||||
| Mr. Kubasik |
134,191 | 5,500 | 35,269 | 3,510 | 10,000 | |||||||||||||||
| Ms. Hewson |
290,032 | 5,500 | 20,477 | 5,831 | 6,500 | |||||||||||||||
| Mr. Heath |
13,263 | 9,334 | 1,169 | 11,642 | 10,000 | |||||||||||||||
In 2010, the Corporation provided tax gross-ups on business-related items associated with business association expenses, relocation assistance, security expenses, use of corporate aircraft for personal travel, and travel expenses for a family member accompanying the NEO while on business travel.
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NOTES TO TABLE:
(1) Includes LTIP grants for the 2010-2012 cycle ending December 31, 2012. At the end of a three-year performance period, 50% of the combined amount earned under the LTIP performance measures is payable in cash. Payment of the remaining portion of the award is deferred for two years, subject to continued employment, and treated during that period as if it were invested in our common stock. Amounts deferred become payable in cash on the second anniversary date of the end of the performance period. Awards are subject to forfeiture upon termination of employment prior to the end of the performance period (or second anniversary of the end of the performance period in the case of the mandatorily deferred portion) except in the event of retirement, death, disability, divestiture, or change in control. If the event occurs prior to the end of the performance cycle, LTIP awards are prorated. If the event occurs during the two-year mandatory deferral period, LTIP awards are paid out immediately.
(2) Shows the number of RSUs granted under the IPA Plan by the Compensation Committee on February 1, 2010. The RSU grant made to Mr. Stevens was subject to forfeiture to the extent the value of the RSUs on February 1, 2010, was greater than .2% of 2010 cash from operations. The RSU grants made to Mr. Tanner (7,200 RSUs); Mr. Kubasik (14,500 RSUs); Ms. Hewson (5,850 RSUs); and Mr. Heath (6,600 RSUs) were subject to forfeiture to the extent the value of the incentive grant for a recipient on February 1, 2010, was greater than .04% of 2010 cash from operations. Based on 2010 cash from operations, none of the RSUs were forfeited. The RSUs vest on the third anniversary of the date of grant or upon death, disability, divestiture, or termination following change in control. If the employee retires or is laid off after February 1, 2011, but prior to the third anniversary of the grant, a pro rata portion of the RSUs becomes nonforfeitable. RSU recipients receive cash dividend equivalents during the vesting period. We showed the RSUs in columns (f) through (h) because of the potential for forfeiture based on the metric using 2010 cash from operations. Column (i) is omitted because there were no other incentive stock awards in 2010.
(3) The threshold is the minimum amount payable for a certain level of performance stated in the LTIP award agreement. LTIP awards measure performance against three separate metrics described under “LTIP Awards” beginning on page 45, the results of which are added together for the payout (if any). If performance falls below the stated level of performance for a metric, no amount would be paid with respect to that metric. Assuming any payment is earned, the minimum amount payable under the LTIP is 6.25% of the target.
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(4) The maximum award payable under the LTIP is 200% of the target.
(5) Shows the number of stock options granted under the IPA Plan by the Compensation Committee on February 1, 2010. Under the 2010 award agreements, options have a ten-year term and vest in three equal installments on the first, second, and third anniversary of the date of grant. Options expire 30 days following termination of employment, except in the case of death, disability, divestiture, layoff, or retirement. In the event of death or disability, all outstanding options vest immediately and expire ten years after the date of grant (i.e., the normal expiration date of the award). In the event of layoff, the term of any outstanding options remains ten years and the options become exercisable on the date the options would have otherwise vested had the NEO remained our employee. In the event of divestiture, the options become exercisable on the date the options would have otherwise vested and any outstanding options terminate five years from the effective date of the divestiture or on the option’s normal expiration date, whichever occurs first. In the event of retirement on or after the first vesting date, the term of any outstanding options does not change and the options become exercisable on the date the options would have otherwise vested. Retirement before the first vesting date results in forfeiture of the options. Upon a change in control, all options vest immediately.
(6) The assumptions used for determining the grant date fair value are set forth in Note 13 to our financial statements contained in our Annual Report. The grant date fair value for the February 1, 2010, equity awards was $14.04 for each option and $74.89 for each RSU granted on February 1, 2010. The grant date fair value does not change to reflect changes in our stock price after the grant date.
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NOTES TO TABLE:
(1) Column (d) omitted because none of the NEOs held options that qualified as equity incentive plan awards at 2010 year-end.
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(2) We reported RSUs granted in February 2010 as equity incentive awards in columns (f) through (h) of the “2010 Grants of Plan-Based Awards” table because there was the potential for forfeiture based on failure to achieve the cash flow levels specified in the award agreements. This feature of the RSU grants was satisfied at the end of 2010. Columns (i) and (j) omitted because none of the NEOs held stock awards that qualified as equity incentive plan awards at 2010 year-end.
(3) The market value shown in column (h) is calculated by multiplying the number of RSUs by the December 31, 2010, closing price of our common stock ($69.91). The aggregate market value of the RSUs as of December 31, 2010, has declined from the aggregate grant date fair value for each of the NEOs as shown in the table on page 44.
(4) Represents stock options granted on February 1, 2010, which vest in three equal annual installments on February 1, 2011, February 1, 2012, and February 1, 2013, except that vesting may occur earlier as described in footnote (5) to the “2010 Grants of Plan-Based Awards” table.
(5) Represents RSUs granted on February 1, 2010, which vest February 1, 2013, except that vesting may occur earlier as described in footnote (2) to the “2010 Grants of Plan-Based Awards” table.
(6) Represents stock options granted on January 26, 2009, which vest in three equal annual installments on January 26, 2010, January 26, 2011, and January 26, 2012, except that vesting may occur earlier as described in footnote (5) to the “2010 Grants of Plan-Based Awards” table.
(7) Represents RSUs granted on January 26, 2009, which vest on January 26, 2012, except that vesting may occur earlier as described in footnote (2) to the “2010 Grants of Plan-Based Awards” table.
(8) Represents stock options granted on January 28, 2008, which vest in three equal annual installments on January 28, 2009, January 28, 2010, and January 28, 2011, except that vesting may occur earlier as described in footnote (5) to the “2010 Grants of Plan-Based Awards” table.
(9) Represents RSUs granted on January 28, 2008, which vested on January 28, 2011, except that vesting may occur earlier as described in footnote (2) to the “2010 Grants of Plan-Based Awards” table.
(10) The February 1, 2006, RSU award to Mr. Stevens vests as follows: 55,200 RSUs on September 8, 2011; 25,000 RSUs on September 8, 2012; and 11,800 RSUs on September 8, 2013.
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NOTES TO TABLE:
(1) Vesting on January 29, 2010, of RSUs granted on January 29, 2007. Number of shares shown as vesting is prior to reduction in shares to satisfy income tax withholding requirements.
(2) Value realized calculated based on the number of shares multiplied by the closing market price of our common stock on the date of vesting ($74.52).
(3) Ms. Hewson received an award of 1,800 RSUs on January 29, 2007, which vested on January 29, 2010, and an award of 3,000 RSUs on February 28, 2007, which vested on February 28, 2010. Number of shares shown as vesting is prior to reduction in shares to satisfy income tax withholding requirements.
(4) Value realized calculated based on the number of shares multiplied by the closing market price of our common stock on the date of vesting on January 29, 2010 ($74.52) and February 28, 2010 ($77.76).
(5) Value realized calculated based on the difference between the aggregate exercise price of the option ($57.81) and the weighted average sale price per share on the date of sale ($84.64).
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During 2010, the NEOs participated in the Lockheed Martin Corporation Salaried Employee Retirement Program (“LMRP”), which is a combination of the following prior plans for salaried employees with some protected benefits: Lockheed Martin Corporation Retirement Income Plan which covered former Martin Marietta employees; Lockheed Martin Corporation Retirement Income Plan III which covered former Loral Corporation employees; and Lockheed Martin Corporation Retirement Plan for Certain Salaried Employees which covered former Lockheed employees (collectively, the “Prior Plan”).
The calculation of retirement benefits under the LMRP is determined by a formula that takes into account the participant’s years of credited service and average compensation for the highest three years of the last ten years of employment. Average compensation includes the NEO’s base salary, bonuses earned under the MICP, and lump sum payments in lieu of a salary increase. NEOs must have either five years of service or be actively employed by the Corporation at age 65 to vest in the LMRP. Normal retirement age is 65; however, benefits are payable as early as age 55 (with five years of service) at a reduced amount or without reduction at age 60. Benefits are payable as a monthly annuity for the lifetime of the employee, as a joint and survivor annuity, as a life annuity with a five or ten year guarantee, or as a level income annuity. In addition, a NEO who retires on or before January 1, 2011, between ages 60 and 62 with at least ten years of service is eligible for temporary supplemental payments ending at age 62 when eligibility for social security commences.
The calculation of retirement benefits under the Prior Plan is based on a number of formulas, some of which take into account the participant’s years of credited service and pay over the career of the NEO. Certain other formulas in the Prior Plan are based upon the final average compensation and credited service of the employee. Pay under certain formulas in the Prior Plan currently includes salary, commissions, overtime, shift differential, lump sum pay in lieu of a salary increase, MICP bonuses awarded that year, and 401(k) and pre-tax contributions. The Prior Plan also contains a Personal Retirement Provision which is an account balance based on past allocations. This account balance is available as a lump sum at termination or can be converted to an annuity. A portion of the pension benefits for Mr. Stevens, Mr. Tanner, and Mr. Heath was earned under the Prior Plan.
Mr. Stevens, Ms. Hewson, and Mr. Heath were eligible for early retirement as of December 31, 2010. As of December 31, 2010, all of the NEOs were vested in the LMRP.
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|
| ||||||||
| Name | Plan Name 1 | Number of Years Credited Service |
Present Value of Accumulated Benefit 2,3 |
Payments During Last Fiscal Year | ||||
| (#) | ($) | ($) | ||||||
| (a) | (b) | (c) | (d) | (e) | ||||
| Robert J. Stevens |
Lockheed Martin Corporation Salaried Employee Retirement Program | 23.6 | 753,989 | 0 | ||||
| Lockheed Martin Corporation Supplemental Retirement Plan | – | 16,852,417 | 0 | |||||
| Bruce L. Tanner |
Lockheed Martin Corporation Salaried Employee Retirement Program | 28.1 | 741,124 | 0 | ||||
| Lockheed Martin Corporation Supplemental Retirement Plan | – | 3,994,071 | 0 | |||||
| Christopher E. Kubasik |
Lockheed Martin Corporation Salaried Employee Retirement Program | 11.2 | 274,161 | 0 | ||||
| Lockheed Martin Corporation Supplemental Retirement Plan | – | 2,691,371 | 0 | |||||
| Marillyn A. Hewson |
Lockheed Martin Corporation Salaried Employee Retirement Program | 28.1 | 1,073,144 | 0 | ||||
| Lockheed Martin Corporation Supplemental Retirement Plan | – | 4,573,954 | 0 | |||||
| Ralph D. Heath |
Lockheed Martin Corporation Salaried Employee Retirement Program | 34.6 | 1,319,787 | 0 | ||||
| Lockheed Martin Corporation Supplemental Retirement Plan | – | 7,859,987 | 0 | |||||
NOTES TO TABLE:
(1) The Lockheed Martin Corporation Supplemental Retirement Plan (“Supplemental Pension” or “Supp Pension”) is a restorative plan and provides benefits in excess of the benefit payable under our IRS rules through the LMRP, our tax-qualified plan. The Supplemental Pension uses the same formula for benefits as the tax-qualified plan uses for calculating the NEO’s benefit. All service recognized under the tax-qualified plan is recognized under the Supplemental Pension although a benefit would be earned under the Supplemental Pension only in years when the employee’s total accrued benefit would exceed the benefit accrued under the tax-qualified plan. The Supplemental Pension benefits are payable in the same form as benefits are paid under the LMRP although lump sum payments are available under the Supplemental Pension.
(2) The amounts in column (d) were computed using the same assumptions we used for financial statement reporting purposes under ASC 715 and described in Note 11 to our financial statements contained in our Annual Report, except that the amounts were calculated based on benefits commencing at age 60. We used age 60 rather than the plan’s normal retirement age of 65 because an employee may commence receiving pension benefits at age 60 without any reduction for early commencement. A portion of Mr. Stevens’ and Mr. Tanner’s benefit was earned under grandfathered plans that apply a reduction for early commencement at age 60. The amounts shown for Mr. Stevens and Mr. Tanner reflect the reduction for early commencement of the benefit. Amounts paid under our plans use assumptions contained in the plans and may be different than those used for financial statement reporting purposes.
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(3) Only the benefit payable under the Supplemental Pension is payable in the form of a lump sum. If an executive elected a lump sum payment, the amount of the lump sum would be based on plan assumptions and not the assumptions used for financial statement reporting purposes. As a result, the actual lump sum payment would be an amount different than what is reported in this table. Because the discount rate used for financial statement purposes (5.50%) was higher than the plan rate of 3.25% on December 31, 2010, (Pension Benefit Guaranty Corporation (or PBGC) rate for terminating pension plans plus 1%), the lump sum payment would be larger than the amount shown in this table. The age of the executive at retirement would also impact the size of the lump sum payment. The amount using plan assumptions is shown on the “Potential Payments Upon Termination or Change in Control” table.
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Nonqualified Deferred Compensation
Participants in our tax-qualified 401(k) plan may contribute up to 25% of base salary. In addition, we make a matching contribution equal to 50% of up to the first 8% of compensation contributed by the participant. Employee and Corporation matching contributions in excess of the Internal Revenue Code limitations are contributed to the NQSSP. Employee and Corporation matching contributions are nonforfeitable at all times. NQSSP contributions are credited with earnings (losses) based on the investment option or options in which the account has been invested, as elected by the participant. Each of the NQSSP investment options is available under our tax-qualified 401(k) plan for salaried employees. The NQSSP provides for payment following termination of employment in a lump sum or up to 20 annual installments at the participant’s election. All amounts accumulated and unpaid under the NQSSP must be paid in a lump sum within 15 calendar days following a change in control.
The DMICP provides the opportunity to defer, until termination of employment or beyond, the receipt of all or a portion of bonuses earned under the MICP, LTIP awards, and amounts paid in respect of the termination of the Lockheed Martin Post-Retirement Death Benefit (“PRDB”) Plan. Previously, employees were offered only two alternatives under the DMICP for crediting earnings (losses), but the DMICP was amended to add any of the investment funds available in the NQSSP (with the exception of the Company Stock Fund). Employees may elect any of the investment funds available in the NQSSP (with the exception of the Company Stock Fund) or two investment alternatives available only under the DMICP for crediting earnings (losses). Under the DMICP Stock Investment Option, earnings (losses) on deferred amounts will accrue at a rate that tracks the performance of our common stock, including reinvestment of dividends. Under the DMICP Interest Investment Option, earnings accrue at a rate equivalent to the then published rate for computing the present value of future benefits under CAS 415. The Interest Investment Option was closed to new deferrals and transfers in from other investment options effective July 1, 2009. Amounts credited to the Stock Investment Option may not be reallocated to other options. In addition, Stock Investment Option voluntary deferrals will be paid in shares of our common stock. Fifty percent of any LTIP award is mandatorily deferred for two years to the Stock Investment Option and remains subject to the continued employment requirements of the award. Mandatory LTIP deferrals are paid in cash at the end of two years or further deferred at the election of the executive. The DMICP provides for payment in January or July following termination of employment in a lump sum or up to 25 annual installments at the NEO’s election. All amounts accumulated under the DMICP must be paid in a lump sum within 15 days following a change in control.
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|
2010 NONQUALIFIED DEFERRED COMPENSATION 1
|
||||||||||||||||||||||
| Name | Executive Contributions in Last FY 2 |
Registrant Contributions in Last FY 3 |
Aggregate Earnings in Last FY |
Aggregate Withdrawals/ Distributions 4 |
Aggregate Balance at Last FYE 5,6 |
|||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||
| (a) | (b) | (c) | (d) | (e) | (f) | |||||||||||||||||
| Robert J. Stevens | NQSSP | 434,389 | 69,502 | 353,036 | 0 | 3,879,702 | ||||||||||||||||
| DMICP (Bonus) | 3,843,450 | 0 | 964,859 | 0 | 15,787,816 | |||||||||||||||||
| DMICP (LTIP1 Mandatory) | 0 | 2,584,967 | (255,540 | ) | 3,151,177 | 6,230,393 | ||||||||||||||||
| DMICP (LTIP2 Voluntary) | 5,736,144 | 0 | 470,736 | 0 | 15,259,104 | |||||||||||||||||
| TOTAL | 10,013,983 | 2,654,469 | 1,533,091 | 3,151,177 | 41,157,015 | |||||||||||||||||
| Bruce L. Tanner | NQSSP | 165,567 | 26,491 | 101,740 | 0 | 1,000,567 | ||||||||||||||||
| DMICP (Bonus) | 0 | 0 | (5,162 | ) | 0 | 615,673 | ||||||||||||||||
| DMICP (LTIP1 Mandatory) | 0 | 91,500 | (3,605 | ) | 0 | 87,895 | ||||||||||||||||
| DMICP (LTIP2 Voluntary) | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||
| TOTAL | 165,567 | 117,991 | 92,973 | 0 | 1,704,135 | |||||||||||||||||
| Christopher E. Kubasik | NQSSP | 106,577 | 35,269 | 87,861 | 0 | 1,015,781 | ||||||||||||||||
| DMICP (Bonus) | 221,048 | 0 | 149,511 | 0 | 2,988,964 | |||||||||||||||||
| DMICP (LTIP1 Mandatory) | 0 | 564,250 | (47,619 | ) | 500,481 | 1,161,016 | ||||||||||||||||
| DMICP (LTIP2 Voluntary) | 472,668 | 0 | 559 | 0 | 1,713,295 | |||||||||||||||||
| TOTAL | 800,293 | 599,519 | 190,312 | 500,481 | 6,879,056 | |||||||||||||||||
| Marillyn A. Hewson | NQSSP | 64,381 | 20,477 | 129,666 | 0 | 1,153,297 | ||||||||||||||||
| DMICP (Bonus) | 461,829 | 0 | 311,444 | 0 | 4,568,430 | |||||||||||||||||
| DMICP (LTIP1 Mandatory) | 0 | 210,404 | (20,800 | ) | 259,509 | 507,125 | ||||||||||||||||
| DMICP (LTIP2 Voluntary) | 469,913 | 0 | 38,298 | 0 | 1,926,627 | |||||||||||||||||
| TOTAL | 996,123 | 230,881 | 458,608 | 259,509 | 8,155,479 | |||||||||||||||||
| Ralph D. Heath | NQSSP | 7,308 | 1,169 | 121,604 | 0 | 1,233,706 | ||||||||||||||||
| DMICP (Bonus) | 41,982 | 0 | 68,165 | 0 | 2,380,749 | |||||||||||||||||
| DMICP (LTIP1 Mandatory) | 0 | 420,809 | (39,812 | ) | 481,945 | 970,677 | ||||||||||||||||
| DMICP (LTIP2 Voluntary) | 0 | 0 | (9,915 | ) | 0 | 241,739 | ||||||||||||||||
| TOTAL | 49,290 | 421,978 | 140,042 | 481,945 | 4,826,871 | |||||||||||||||||
NOTES TO TABLE:
(1) This table reports compensation earned by NEOs and deferred under our NQSSP and DMICP. The NQSSP is a nonqualified 401(k) plan with an employer match on a portion of the salary deferral. Three types of compensation may be deferred into the DMICP:
| • | Bonuses payable under our MICP Plan (“DMICP (Bonus)”). |
| • | Amounts earned under our LTIP program but mandatorily deferred into company stock for two years (and subject to forfeiture) (“DMICP (LTIP1 Mandatory)”). |
| • | Amounts payable under our LTIP program and voluntarily deferred (“DMICP (LTIP2 Voluntary)”). |
Amounts paid in respect of the termination of the PRDB in 2008 could also be deferred into the DMICP. In the table above, deferrals of PRDB payments are included in the Aggregate Balance at Last FYE for “DMICP (Bonus)” entry.
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(2) Includes 2010 salary deferrals to NQSSP, MICP bonus paid in 2010 for 2009 performance deferred to DMICP, and voluntary deferrals of LTIP for the 2007-2009 cycle to the DMICP. The table reflects the year in which the deferral is credited to the NEO’s account (2010) and not the year in which it was earned (2009).
(3) Includes mandatory deferrals of LTIP for 2007-2009 and 2010 Corporation matching contributions to NQSSP. The NQSSP match is also included in column (i) of the “Summary Compensation Table.” The table reflects the year in which the deferral is credited to the NEO’s account (2010) and not the year in which it was earned (2009).
(4) Includes distributions of mandatory LTIP deferral from the 2005-2007 cycle in January 2010 following end of two-year deferral period. The table reflects the year in which the deferral is credited to the NEO’s account (2010) and not the year in which it was earned (2009).
(5) Of the aggregate balances shown in column (f), the following table* lists the aggregate contributions made by the NEO since commencement of participation in the respective plan (including deferrals of PRDB which are included in “DMICP (Bonus)”). These amounts were earned by the NEO and voluntarily deferred to a company plan.
* Table for footnote (5)
| Name | Amount Reported in Column (f) |
NQSSP | DMICP (Bonus) |
DMICP (LTIP2 |
Total by Executive) |
|||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ||||||||||||||||
| Mr. Stevens |
41,157,015 | 2,847,521 | 12,908,079 | 10,995,100 | 26,750,700 | |||||||||||||||
| Mr. Tanner |
1,704,135 | 731,930 | 458,031 | 0 | 1,189,961 | |||||||||||||||
| Mr. Kubasik |
6,879,056 | 590,230 | 2,466,312 | 1,053,911 | 4,110,453 | |||||||||||||||
| Ms. Hewson |
8,155,479 | 744,949 | 3,029,622 | 1,113,003 | 4,887,574 | |||||||||||||||
| Mr. Heath |
4,826,871 | 862,731 | 1,791,804 | 0 | 2,654,535 | |||||||||||||||
(6) The following table** lists the amounts reported as executive or registrant contributions in columns (b) and (c) of the “2010 Nonqualified Deferred Compensation” table that are also reported as compensation in the “Summary Compensation Table” for 2010. These contributions consist of NEO and Corporation contributions made to the NQSSP for service in 2010. Contributions with respect to 2010 performance deferred in 2011 (MICP and LTIP) are not included as these amounts are not credited until 2011, and are not included in column (f). The following table also lists the amounts reported in column (f) as part of the Aggregate Balance at Last FYE (2010) that is reported as compensation for prior years in the “Summary Compensation Table” for years beginning with 2006. For 2010, there were no earnings in excess of 120% of the applicable federal rate.
** Table for footnote (6)
| Of Amount Reported in Column (f) | ||||||
| Name | Aggregate Balance at December 31, |
NEO and Corporation Reported in Table” for 2010 |
Amount Reported in Table” for Prior Years (Beginning with 2006) | |||
| ($) | ($) | ($) | ||||
| Mr. Stevens |
41,157,015 | 503,892 | 41,678,454 | |||
| Mr. Tanner |
1,704,135 | 192,058 | 541,193 | |||
| Mr. Kubasik |
6,879,056 | 141,846 | 5,728,592 | |||
| Ms. Hewson |
8,155,479 | 84,858 | 0 | |||
| Mr. Heath |
4,826,871 | 8,477 | 3,022,070 | |||
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POTENTIAL PAYMENTS UPON TERMINATION OR
CHANGE IN CONTROL
The table below summarizes the benefits that become payable to a NEO at, following, or in connection with any termination, including without limitation resignation, severance, retirement, or a constructive termination of a NEO, or a change in control under the terms of our benefit plans. Our plans do not contain specific provisions regarding termination for cause. Provisions unique to the 2006 RSU grant to Mr. Stevens are described in footnote (5) to the “Potential Payments Upon Termination or Change In Control” table on page 67.
| SUMMARY OF PAYMENT TRIGGERS | ||||||||||
| Plan | Retirement | Change In Control |
Death/Disability/ Layoff |
Divestiture 1 | Termination/ Resignation | |||||
| Pension 2 | Payable on a reduced basis at age 55; payable on a non-reduced basis at age 60; steeper reduction for early commencement at age 55 for terminations prior to age 55 than for terminations after age 55. | None for qualified; see below for Supp Pension. | Spousal benefit as required by law in event of death unless waived by participant; no provision for disability. Layoff between age 53 and 55 or before age 55 with 25 years of service is eligible for the more favorable actuarial reductions for participants terminating at age 55. | No provisions; absent a negotiated transfer of liability to buyer, treated as retirement or termination. | Payable on a reduced basis at age 55; payable on a non-reduced basis at age 60; steeper reduction for early commencement at age 55 for terminations prior to age 55 than for terminations after age 55. | |||||
| •LMRP |
Annuity form only. | No acceleration. | Annuity form only. | No acceleration. | Annuity form only. | |||||
| •Supp Pension 2 |
Annuity or lump sum. | Lump sum. | Annuity or lump sum. | No provisions; absent a negotiated transfer of liability to buyer, treated as retirement or termination. | Annuity or lump sum. | |||||
| LTIP | Prorated payment at the end of the three-year performance period for retirement during that period. Immediate payment for retirement during two-year mandatory deferral period based on closing price for our stock on date of triggering event. | Immediate prorated payment following change in control for event occurring during performance period. Immediate payment for change in control during two-year mandatory deferral period based on closing price for our stock on date of triggering event. | Prorated payment at the end of the three-year performance period for death, disability, or layoff during that period. Immediate payment in event of death, disability, or layoff during two-year mandatory deferral period based on closing price for our stock on date of triggering event. | Prorated payment at the end of the three-year performance period for divestiture during that period. Immediate payment for divestiture during two-year mandatory deferral period based on closing price for our stock on date of triggering event. | Forfeit if termination occurs prior to age 55; termination on or after age 55 treated as retirement. | |||||
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| SUMMARY OF PAYMENT TRIGGERS | ||||||||||
| Plan | Retirement | Change In Control |
Death/Disability/ Layoff |
Divestiture 1 | Termination/ Resignation | |||||
| Options | Forfeit unvested options if retirement occurs prior to one year anniversary of date of grant. If retirement occurs after one year anniversary, ten-year term of options unaffected and unvested options become exercisable on date the options would have otherwise vested. | Immediate vesting. | Immediate vesting in event of death/ disability. In the event of layoff, unvested options become exercisable on date the options would have otherwise vested. Ten-year term of options unaffected. | Term of options limited to five years; options become exercisable on date the options would have otherwise vested. | Vested options expire 30 days after termination or resignation. Forfeit unvested options if termination occurs prior to age 55; resignation on or after age 55 treated as retirement. | |||||
| RSUs | Forfeit RSUs if retirement occurs prior to one year anniversary of date of grant; otherwise vest in one-third increments for each full year of service following date of grant. | Immediate vesting following termination in the event of a change in control. | Immediate vesting, following death or disability. Forfeit RSUs if layoff occurs prior to one year anniversary of date of grant; otherwise vest in one-third increments for each full year of service following date of grant. | Immediate vesting. | Forfeit unvested RSUs if termination occurs prior to age 55; termination on or after age 55 treated as retirement. | |||||
| MICP 3 | May prorate for retirement with six months of participation in the year. Full payment if retirement occurs on December 31. |
No provision. | May prorate for death, disability or layoff with six months of participation in the year. Full payment if death or disability occurs on December 31. | No provision. | Eligible for prorated award if termination/ resignation occurs after December 1. | |||||
| DMICP 4 | Lump sum or installment payment in accordance with NEO elections. | Immediate lump sum payment. | Lump sum or installment payment in accordance with NEO elections, except lump sum only for layoff prior to age 55. | Follows termination provisions. | Lump sum if termination is prior to age 55; after age 55, lump sum or installment payment in accordance with NEO elections. | |||||
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| SUMMARY OF PAYMENT TRIGGERS | ||||||||||
| Plan | Retirement | Change In Control |
Death/Disability/ Layoff |
Divestiture 1 | Termination/ Resignation | |||||
| NQSSP 4 | Lump sum or installment payment in accordance with NEO elections. | Immediate lump sum payment. | Lump sum for death; for disability or layoff, lump sum or installment payment in accordance with NEO elections. | Lump sum or installment payment in accordance with NEO elections. | Lump sum or installment payment in accordance with NEO elections. | |||||
| Executive Severance Plan | No payment. | No payment unless terminated. | No payment for death or disability. Payment of a lump sum amount equal to a multiple of salary, MICP, and health care continuation coverage
cost. The multiple of salary and MICP for the CEO is 2.99; for all other NEOs it is 1.0. |
No payment. | No payment. | |||||
NOTES TO TABLE:
(1) Divestiture is defined as a transaction which results in the transfer of control of a business operation to any person, corporation, association, partnership, joint venture, or other business entity of which less than 50% of the voting stock or other equity interests (in the case of entities other than corporations) is owned or controlled directly or indirectly, by us, one or more of our subsidiaries or by a combination thereof following the transaction.
(2) See “2010 Pension Benefits” table on page 59 for present value of accumulated benefit.
(3) See “Compensation Discussion & Analysis” commencing on page 29 for discussion of MICP payment calculation.
(4) See “Aggregate Balance at Last FYE” column in “2010 Nonqualified Deferred Compensation” table on page 62 for amount payable.
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The following table quantifies the payments under executive compensation plans as a result of a change in vesting provisions in stock options, RSUs, and LTIP awards and the lump sum payable under the Supplemental Pension that would be made assuming a termination event occurred on December 31, 2010. Payments under other plans do not change as a result of the termination event and quantification of those payments are found elsewhere in this Proxy Statement or are paid under plans available generally to salaried employees. In the table below, a dash (—) indicates no provision covers the event or the NEO is ineligible for a payment.
| POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL |
||||||||||||||||||||||||||
| Name | Retirement | Change In Control |
Death/ Disability |
Layoff | Divestiture | Termination/ Resignation 1 |
||||||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||||
| Robert J. Stevens | Supplemental Pension 2 | 20,243,349 | 20,243,349 | 20,243,349 | 20,243,349 | 20,243,349 | 20,243,349 | |||||||||||||||||||
| LTIP 3 | 4,783,121 | 4,783,121 | 4,783,121 | 4,783,121 | 4,783,121 | 4,783,121 | ||||||||||||||||||||
| Options 4 | 0 | 0 | 0 | 0 | 0 | 0 | ||||||||||||||||||||
| RSUs 5 | 2,027,390 | 13,352,810 | 13,352,810 | 2,027,390 | 6,921,090 | 2,027,390 | ||||||||||||||||||||
| Executive Severance 6 | 0 | 0 | 0 | 13,544,118 | 0 | 0 | ||||||||||||||||||||
| TOTAL | 27,053,860 | 38,379,280 | 38,379,280 | 40,597,978 | 31,947,560 | 27,053,860 | ||||||||||||||||||||
| Bruce L. Tanner | Supplemental Pension | |||||||||||||||||||||||||