2020 Director Nominees
2017 Director Nominees.The following 1112 nominees are standing for election to the Board of Directors at the Annual Meeting. If any nominee withdraws or for any reason is unable to serve as a director, your proxy will be voted for any remaining nominees (except as otherwise indicated in your proxy) and any replacement nominee designated by the Nominating and Corporate Governance Committee of the Board of Directors.
 | | JAMES S. CROWNLead Director Independent Age:66
Director Since:May 1987
Committees:Audit, Compensation, Nominating and Corporate Governance (Chair) |
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NICHOLAS D. CHABRAJA | | • Chairman of General Dynamics, 1997 to 2010; Chief Executive Officer, 1997 to 2009; Vice Chairman, 1996 to 1997; Executive Vice President, 1994 to 1996
• Mr. Chabraja currently serves asnon-executive chairman of Tower International, Inc. He served as a director of Northern Trust Corporation within the past five years.
Key Attributes/Skills/Expertise:Mr. Chabraja’s 15 years of service as a senior executive officer and12-year tenure as chairman and chief executive officer of our company make him an experienced and trusted advisor. He hasin-depth knowledge of all aspects of General Dynamics and a deep understanding and appreciation of our customers, business operations and approach to risk management. His service at General Dynamics combined with his service on other public company boards provides him with a valuable perspective on finance, governance and management matters that face large public companies.
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COMMITTEES:BACKGROUND
Finance and Benefit Plans
DIRECTORSINCE〉MARCH1994AGE:74
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JAMES S. CROWN | | • Lead Director since May 2010
•〉Chairman and Chief Executive Officer of Henry Crown and Company since 2018; President of Henry Crown and Company, since 2002;2002 to 2018; Vice President of Henry Crown and Company, 1985 to 2002• 〉Mr. Crown currently serves as a director of J.P. Morgan Chase & Co. He served as a director of Sara Lee Corporation within the past five years.
KEY ATTRIBUTES/SKILLS/EXPERIENCE Key Attributes/Skills/Expertise:As the longest-serving member of our Board and a significant shareholder, Mr. Crown has an abundance of knowledge regarding General Dynamics and our history. As presidentchairman and chief executive officer of Henry Crown and Company, a private investment firm with diversified interests, Mr. Crown has broad experience in business management and capital deployment strategies. His many years of service as a director of our company and two other large public companies provide him with a deep understanding of the roles and responsibilities of a board of a public company.
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LEAD DIRECTOR
COMMITTEES:
Audit
Compensation
Nominating and Corporate Governance
DIRECTOR SINCEMAY1987
AGE:63
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General Dynamics 2017 Proxy Statement 7
RUDY F. DELEON Independent Age:67
Director Since:September 2014
Committees:Compensation, Finance and Benefit Plans (Chair)
| RUDY F.DELEONBACKGROUND
| | • 〉Senior Fellow with the Center for American Progress since 2007• 〉Senior Vice President of The Boeing Company, 2001 to 2006• 〉Deputy Secretary of Defense, 2000 to 2001; Undersecretary of Defense for Personnel and Readiness, 1997 to 2000• 〉Undersecretary of the U.S. Air Force, 1994 to 1997
KEY ATTRIBUTES/SKILLS/EXPERIENCE Key Attributes/Skills/Expertise:Mr. deLeon’s experience as the second-highest ranking civilian official in the U.S. Department of Defense and as a foreign policy and military advisor give him a keen understanding of the complexities of the U.S. military and the defense industry. His experience in government, combined with his leadership at The Boeing Company as a senior vice president leading all U.S. federal, state and local government liaison operations, provide him with a deep understanding of the aerospace and defense industry, enabling him to serve General Dynamics with valuable perspectives on the business.
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COMMITTEES:
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2020 Proxy Statement 15
Table of Contents Election of Directors Compensation
Finance
 | | CECIL D. HANEY Independent Age:64
Director Since:March 2019
Committees:Nominating and Benefit PlansDIRECTOR SINCECorporate Governance SEPTEMBER2014
AGE:64
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| JOHN M. KEANEBACKGROUND
| | • 〉Retired General,Admiral, U.S. Army; Vice Chief of Staff of the Army, 1999Navy; Commander, U.S. Strategic Command, 2013 to 20032016; Commander, U.S. Pacific Fleet, 2012 to 2013
KEY ATTRIBUTES/SKILLS/EXPERIENCE • Chairman of the Institute for the Study of War since 2007
• President of GSI, LLC (consulting) since 2004
• Senior Partner of SCP Partners (private equity), 2009 to 2012
• Managing Director of Keane Advisors, LLC (private equity), 2005 to 2009
• Mr. Keane served as a director of MetLife, Inc. within the past five years.
Key Attributes/Skills/Expertise:Prior to retiring from the U.S. ArmyNavy at the rank of General,Admiral, Mr. KeaneHaney served as Vice Chief of StaffCommander of the Army. As a senior officer,U.S. Strategic Command and Commander of the U.S. Pacific Fleet. His leadership positions, particularly with U.S. Strategic Command, required extensive knowledge about the role of advanced technologies and cybersecurity in the national security of the United States. During his service, Mr. Keane managed significant operating budgets and addressedHaney also gained broad global experience in managing complex operational and strategicbudgetary issues. Mr. Keane’s astute appreciation for the complexities ofHis nearly four-decade career with the U.S. military andNavy gives him valuable insight into key aspects of the defense industry combinedand national security priorities. Mr. Haney’s engineering and national security educational backgrounds, together with his demonstrated leadershipextensive experience with advanced technologies and strategic skills, makecyber matters, position him as a valuable advisor to our aerospace and defense businesses. Mr. Keane has gained a strong understanding of public company governance and operations through his service on three public company boards.
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C
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 | | OMMITTEES:MARK M. MALCOLMIndependent Age:66
Director Since:August 2015
Committees:Audit (Chair), Finance and Benefit PlansNominating and Corporate Governance
DIRECTOR SINCEFEBRUARY2004
AGE: 74
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8 General Dynamics 2017 Proxy Statement
LESTER L. LYLES | | • Retired General, U.S. Air Force; Commander, Air Force Materiel Command, 2000 to 2003; Vice Chief of Staff of the Air Force, 1999 to 2000
• Chairman of the Board of United States Automobile Association since November 2012 and Vice Chairman, 2008 to 2012
• Mr. Lyles currently serves as a director of KBR, Inc. He served as a director of Precision Castparts Corp., a former public company, within the past five years.
Key Attributes/Skills/Expertise:Prior to retiring from the U.S. Air Force at the rank of General, Mr. Lyles served as Commander of the Air Force Materiel Command and Vice Chief of Staff of the U.S. Air Force. In these positions, Mr. Lyles managed significant operating budgets and addressed complex operational issues. The broad knowledge of the U.S. military and the defense industry he attained through these experiences, combined with his engineering and aerospace educational background, enable Mr. Lyles to provide critical strategic and business advice to our aerospace and defense businesses. In addition, Mr. Lyles has gained a thorough understanding of challenges that face public companies through his service on public company boards.
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COMMITTEES:BACKGROUND
Audit
Nominating and Corporate Governance
DIRECTOR SINCE〉DECEMBER2003AGE: 70
| | | | | MARK M. MALCOLM | | • President and Chief Executive Officer of Tower International, Inc., 2007 to 2016
• 〉Senior Advisor, Cerberus Capital Management, 2006 to 2007• 〉Executive Vice President and Controller of Ford Motor Credit, 2004 to 2005; Director of Finance and Strategy, Global Purchasing, of Ford Motor Company, 2002 to 2004• 〉Mr. Malcolm currently servesserved as a director of Tower International, Inc., a former public company, within the past five years.
KEY ATTRIBUTES/SKILLS/EXPERIENCE Key Attributes/Skills/Expertise:Mr. Malcolm’s senior executive positions at Tower International and Ford provide him with critical knowledge of the management, financial and operational requirements of a large company. In these positions, Mr. Malcolm gained extensive experience in dealing with accounting principles and financial reporting, evaluating financial results and the financial reporting process of a public company. Mr. Malcolm brings to the Board a broad knowledge of the complex business issues facing a public company in areas such as risk management, global supply chain management and corporate governance. Based on his experience, the Board has determined that Mr. Malcolm is an Audit Committee Financial Expert.
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COMMITTEES:
Audit
Finance and Benefit Plans
DIRECTOR SINCEAUGUST 2015
AGE:63
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16General Dynamics 2017 Proxy Statement 9
Table of Contents
 | | JAMES N. MATTIS Independent Age:69
Director Since:August 2019
Committees:Audit, Nominating and Corporate Governance | | | | |
| PHEBE N. NOVAKOVICBACKGROUND
〉Senior Counselor, The Cohen Group since 2019 〉United States Secretary of Defense, 2017 to 2019 〉Retired General, U.S. Marine Corps. Commander, United States Central Command, 2010 to 2013; Commander, U.S. Joint Forces Command, 2007 to 2010; NATO Supreme Allied Commander Transformation, 2007 to 2009. 〉Mr. Mattis previously served as a director of the Company from August 2013 to January 2017. KEY ATTRIBUTES/SKILLS/EXPERIENCE Mr. Mattis had a distinguished career in the U.S. Marine Corps before retiring in 2013. He served as Commander, U.S. Central Command and Commander U.S. Joint Forces as well as NATO Supreme Allied Commander Transformation. Mr. Mattis’ unique perspective and experiences with U.S. and foreign military strategy and operations, including NATO operations, provide him with valuable insight into international and government affairs and the global defense industry. Mr. Mattis’ leadership positions also required extensive understanding of advanced technologies and cybersecurity. His demonstrated leadership and strategic skills make him well-equipped to advise on strategic opportunities and risks associated with our aerospace and defense businesses. Mr. Mattis, who previously served as a director of the Company, was known to many members of the Board, including the Nominating and Corporate Governance Committee, when being identified as a director candidate in August 2019. | |
 | | PHEBE N. NOVAKOVIC Age:62
Director Since:May 2012
Committees:None | | | |
| • BACKGROUND
〉Chairman and Chief Executive Officer of General Dynamics since January 2013; President and Chief Operating Officer, May 2012 through December 2012; Executive Vice President, Marine Systems, May 2010 to May 2012; Senior Vice President, Planning and Development, July 2005 to May 2010; Vice President, Strategic Planning, October 2002 to July 2005 • 〉Ms. Novakovic currently serves as a director of Abbott Laboratories.
KEY ATTRIBUTES/SKILLS/EXPERIENCE Key Attributes/Skills/Expertise:Ms. Novakovic’s service as a senior officer of General Dynamics since 2002 makes her a valuable and trusted advisor.leader. Through her roles as chairman and chief executive officer, president and chief operating officer, and executive vice president, Marine Systems, she has developed a deep understanding of the company’s business operations, growth opportunities, risks and challenges. As senior vice president, planning and development, she gained a strong understanding of our core customers and the global marketplace in which we operate. Ms. Novakovic’s current service as a public company director provides her with a valuable perspective on corporate governance matters and the roles and responsibilities of a public company board.
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COMMITTEES:
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2020 Proxy Statement 17
Table of Contents Election of Directors None
DIRECTOR SINCEMAY2012
AGE: 59
 | | C. HOWARD NYE Independent Age:57
Director Since:May 2018
Committees:Audit, Compensation | | | | |
| WILLIAM A. OSBORNBACKGROUND
〉Chairman of Martin Marietta Materials, Inc. since 2014 and President and CEO since 2010; President and Chief Operating Officer, 2006 to 2009 〉Executive Vice President of Hanson PLC’s North American building materials business, 2003 to 2006 〉Mr. Nye currently serves as Chairman of the Martin Marietta Materials, Inc. Board of Directors. He served as a director of Cree, Inc. within the past five years. KEY ATTRIBUTES/SKILLS/EXPERIENCE Mr. Nye’s roles with Martin Marietta Materials, a leading supplier of aggregates and heavy building materials, position him well to advise our businesses on a range of matters in the areas of engineering, manufacturing, merger and acquisitions, regulatory matters and governance matters. Mr. Nye also brings extensive risk management experience, particularly in the area of employee safety. His strong business background and service on public company boards provide him with a deep understanding of the challenges and risks facing large public companies and their boards. Based on Mr. Nye’s experience with public company financial statements and reporting, the Board has determined that Mr. Nye is an Audit Committee Financial Expert. | |
 | | WILLIAM A. OSBORN Independent Age:72
Director Since:December 2009
Committees:Audit, Compensation (Chair), Finance and Benefit Plans | | | |
| • BACKGROUND
〉Chairman of Northern Trust Corporation, 1995 to 2009; Chief Executive Officer of Northern Trust Corporation, 1995 through 2007 and President of Northern Trust Corporation and The Northern Trust Company, , 2003 to 2006 • 〉Mr. Osborn currently serves as a director of Abbott Laboratories and Caterpillar, Inc.
KEY ATTRIBUTES/SKILLS/EXPERIENCE Key Attributes/Skills/Expertise:Mr. Osborn’s prior service as a senior executive of Northern Trust Corporation, including as chairman and chief executive officer, and president, provides him with extensive knowledge of the complex financial, operational and governance issues of a large public company. He brings to our Board a well-developed awareness of financial strategy, asset management and risk management and a strong understanding of public company governance. The Board has determined that Mr. Osborn’s extensive experience with accounting principles, financial reporting and evaluation of financial results qualifies him as an Audit Committee Financial Expert.
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COMMITTEES:
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18 General Dynamics
Table of Contents Election of Directors  | | CATHERINE B. REYNOLDS Independent Age:62
Director Since:May 2017
Committees:Audit,Compensation
Finance and Benefit Plans DIRECTOR SINCEDECEMBER2009
AGE: 69
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10 General Dynamics 2017 Proxy Statement
| CATHERINE B. REYNOLDSBACKGROUND
| | • 〉Chairman and Chief Executive Officer of EduCap, Inc. since 19881989• 〉Chairman and Chief Executive Officer of The Catherine B. Reynolds Foundation since 2000• 〉Founder and Chairman of Servus Financial Corporation, 1993 to 2000• 〉Ms. Reynolds currently serves as a director of Lindblad Expeditions Holdings, Inc.
KEY ATTRIBUTES/SKILLS/EXPERIENCE Key Attributes/Skills/Expertise:Ms. Reynolds’ sound business experience and financial background, including her innovative development of the first asset-backed securitization structure for consumer education loans, enables her to provide valuable financial and business advice to the company. Ms. Reynolds is a certified public accountant and has served on the audit and compensation committees of a public company. Through her senior executive and board positions with EduCap and Servus Financial, she has developed critical knowledge of the financial and risk management challenges that companies face. Ms. Reynolds also has gained valuable insight into public company governance and operations through her prior and current service on public company boards.
The Board has determined that Ms. Reynolds was identifiedReynolds’ extensive financial and accounting background qualifies her as a director nominee by the chairman and chief executive officer.an Audit Committee Financial Expert. | 
COMMITTEES:
N/A
NEW DIRECTOR NOMINEE
AGE: 59
|
 | | LAURA J. SCHUMACHER Independent Age:56
Director Since:February 2014
Committees:Compensation, Nominating and Corporate Governance | | | | |
| LAURA J. SCHUMACHERBACKGROUND
| | •〉Vice Chairman, External Affairs and Chief Legal Counsel of Abbvie Inc. since December 2018; Executive Vice President, External Affairs and General Counsel of Abbvie Inc. since January, 2013 to December 2018• 〉Executive Vice President, General Counsel and Secretary of Abbott Laboratories, 2007 to 2012
KEY ATTRIBUTES/SKILLS/EXPERIENCE Key Attributes/Skills/Expertise:Ms. Schumacher’s positions as chief legal officer of two large public companies provide her with extensive experience with respect to risk management and a deep knowledge of the types of legal and regulatory risks facing public companies. Her experience as a senior executive in the healthcare industry has provided her with a keen awareness of strategic considerations and challenges associated with a complex, highly-regulatedhighly regulated industry. Additionally, through her key role in the strategic consideration and execution of the separation of Abbvie from Abbott Laboratories, Ms. Schumacher brings an important understanding of and insight into corporate governance matters and complex corporate transactions.
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2020 Proxy Statement 19
Table of Contents Election of Directors 
 | | JOHN G. STRATTON Independent Age:59
Director Since:February 2020
Committees:Finance and Benefit Plans | | | |
| COMMITTEES:BACKGROUND
〉Executive Vice President and President of Global Operations, Verizon Communications, Inc. from 2015 to 2018 〉Mr. Stratton currently serves as a director of Abbott Laboratories KEY ATTRIBUTES/SKILLS/EXPERIENCE CompensationThrough his executive leadership positions at Verizon Communications, most recently serving as Executive Vice President and President of Global Operations, Mr. Stratton gained extensive business and management experience operating a global public company, including business strategy and risk management. Mr. Stratton also gained extensive insight into the importance and role of technology, including opportunities and risks associated with rapidly developing new technologies and cybersecurity. His experience in the telecommunications industry also provides him with an understanding of business operations in a highly regulated industry.
Nominated and elected to the Board in February 2020, Mr. Stratton was initially identified as a director candidate by the chairman. | |
 | | PETER A. WALL Independent Age:64
Director Since:August 2016
Committees:Finance and Benefit Plans, Nominating and Corporate GovernanceDIRECTOR SINCE FEBRUARY2014
AGE: 53
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General Dynamics 2017 Proxy Statement 11
| PETER A. WALLBACKGROUND
| | • 〉Retired General, British Army;Army, Chief of the General Staff, 2010 to 2014; Commander in Chief, Land Command, 2009 to 2010• 〉Director of Operations, United Kingdom Ministry of Defence, 2007 to 2009• 〉Director, Amicus (strategic leadership advisory firm) since 2014
KEY ATTRIBUTES/SKILLS/EXPERIENCE Key Attributes/Skills/Expertise:Mr. Wall had a distinguished career in the British Army before retiring at the rank of General in 2014. He also served as Director of Operations for the United Kingdom Ministry of Defence.Defence, directing operations worldwide. As Chief of the General Staff of the British Army, Mr. Wall managed significant operating budgets and led a major transformation of the British Army, through significant transformationincluding capital investment to ensure its relevance forharness the future.latest military technology. Mr. Wall’s service in the United KingdomU.K. Ministry of Defence and in the British Army give him anin-depth understanding and appreciation of the complexities of the U.K. military, its allies and the overall defense industry. Mr. Wall brings to the Board important insight into the operational requirements of our customers, as well asthe application of technology and a deep understanding of global security issues.
Nominated to the Board in August 2016, Mr. Wall was initially identified by a formernon-management director and the chief executive officer together with the Nominating and Corporate Governance Committee and was recommended as a director nominee by the Nominating and Corporate Governance Committee.
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COMMITTEES:
Nominating and Corporate Governance
DIRECTOR SINCEAUGUST2016
AGE: 61
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20 General Dynamics
Table of Contents Election of Directors Director Retirement. William Fricks willIndependence Independence Standards Our Board of Directors assesses the independence of our directors and examines the nature and extent of any relationships between General Dynamics and our directors, their families and their affiliates. Our Board has established an objective that at least two-thirds of the directors be independent. For a director to be considered independent, the Board must determine that a director does not standhave any direct or indirect material relationship with General Dynamics. Our Board has established director independence guidelines (the Director Independence Guidelines) as part of the Corporate Governance Guidelines to assist in determining director independence in accordance with the rules of the New York Stock Exchange. The Corporate Governance Guidelines are available at www.gd.com/CorporateGovernance. Independence Determinations The Board has determined that each current non-management director - Ms. Reynolds, Ms. Schumacher and Messrs. Crown, deLeon, Haney, Lyles, Malcolm, Mattis, Nye, Osborn, Stratton and Wall - qualifies as an independent director. In March of each year and at other times during the year for re-election atdirector nominations or appointments occurring outside of the Annual Meeting.annual meeting, the Board of Directors considers whether each director and nominee to the Board meets the definition of an “independent director” in accordance with the rules of the New York Stock Exchange and the Company’s Director Independence Guidelines. To make these independence determinations, the Board reviewed all relationships between General Dynamics and the Board appreciate his many yearsdirectors and affirmatively determined that none of dedicated service and valuable counselthe individuals qualifying as independent has a material business, financial or other type of relationship with General Dynamics, other than as a memberdirector or shareholder of the Board. YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE FORALLDIRECTORNOMINEESLISTEDABOVE.
Director Retirement Policy.Undercompany. Specifically, the company’s Bylaws, no director shall stand for election beyondBoard considered the agerelationships listed below and the related person transactions listed on page 32 of 75. Additionally, the Bylaws provide that under circumstances of significant benefitthis Proxy Statement and found them to the company, an individual over the age of 72 years may stand for election as director only with the approvalbe immaterial. For each of the Nominatingrelationships that the Board considered for 2017, 2018 and Corporate Governance Committee2019, the payments made or received by General Dynamics, and atwo-thirds votethe charitable contributions made by General Dynamics, fell below the thresholds in our Director Independence Guidelines (the greater of $1 million or 2% of the directors thenconsolidated gross revenues of the other company). Listed below are the relationships that existed in office. In February 2017, the committee recommended and in March 20172019 that were considered by the Board unanimously requested that Messrs. Chabraja and Keane each be nominated to stand forre-election. The Board took this action in recognitionas part of the continued valuable counsel and insight that each of these directors provides to the Board.their independence determinations.
| 〉 | Ms. Reynolds and Messrs. Crown, deLeon, Lyles and Osborn serve as members of the boards of trustees or boards of directors of charitable and other non-profit organizations to which General Dynamics (i) has made payments for memberships, sponsorships, tradeshow exhibit space or tuition in the usual course of our business, (ii) made and received payments for products and services in the usual course of our business or (iii) made contributions as part of our annual giving program. The 2019 payments fell below the greater of $1 million or 2% of the consolidated gross revenues of the organizations. | | 〉 | Mr. Mattis’ brother is an employee (and not an executive officer) of a subsidiary of General Dynamics. The compensation paid to Mr. Mattis’ brother in 2019 did not exceed $120,000. | | 〉 | Messrs. Crown, Haney, Nye, Osborn and Stratton serve as directors of companies, and Messrs. Crown, Mattis, Nye and Ms. Schumacher are employees or executive officers of companies to which General Dynamics has sold products and services, or from which General Dynamics has purchased products and services, in the ordinary course of business. None of the directors had any material interest in, or received any compensation in connection with, these ordinary-course business relationships. Each of the payments made or received by General Dynamics fell below the greater of $1 million or 2% of the other company’s revenues. |
Nominees to the Board Submitted by Shareholders.Shareholders The committee will consider director nominees recommended by shareholders in the same manner as it considers and evaluates potential directors identified by the company. Additionally, our bylawsBylaws permit a shareholder or a group of up to 20 shareholders who have owned 3 percent3% or more of our outstanding shares of capital stock continuously for 3three years to submit director nominees for inclusion in our proxy statement if the shareholder(s) and the nominee(s) satisfy the requirements specified in our bylawsBylaws (a process known as proxy access). The requirements for director nominations, including requirements for proxy access, can be found in Article II, Section 10 of our Amended and Restated Bylaws available on our website at www.gd.com/CorporateGovernance, or in print upon request.CorporateGovernance. 12 General Dynamics 20172020 Proxy Statement21
Table of ContentsGOVERNANCEOFTHE COMPANY OUR COMMITMENTTO STRONG CORPORATE GOVERNANCE Governance of the Company
Our Commitment to Strong Corporate Governance The General Dynamics Board of Directors believes that a commitment to good corporate governance enhances shareholder value. To that end, General Dynamics is committed to employing strong corporate governance practices to promote a culture of ethics and integrity that defines how we do business. At the core, we are in business to earn a fair return for our shareholders. On the recommendation of the Nominating and Corporate Governance Committee, the Board has adopted the General Dynamics Corporate Governance Guidelines to provide a framework for effective governance of the Board and the company. The guidelines establish policies and practices with respect to Board operations and responsibilities, including board structure and composition, director independence, executive and director compensation, succession planning and the receipt of concerns and complaints by the Board. The Board regularly reviews these guidelines and updates them periodically in response to changing regulatory requirements, feedback from shareholders on governance matters and evolving best practices in corporate governance. The Board believes that its commitment to good governance is demonstrated by key corporate governance practices, including: ✓ | | a majority voting standard for the election of directors coupled with a director resignation policy;
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✓ | | an independent Lead Director;
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✓ | | a market-leading executive stock ownership policy;
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✓ | | a policy prohibiting hedging and pledging by directors and officers;
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✓ | | an executive compensation recoupment (clawback) policy;
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✓ | | disclosure of corporate political contributions and trade association dues;
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✓ | | shareholders’ right to call a special meeting; and
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✓ | | shareholders’ ability to nominate director candidates and have those nominees included in the company’s proxy statement.
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These and other practices are highlightedsummarized under Corporate Governance Highlights on page 3.9 and described in more detail in the pages that follow.
OUR CULTUREOF ETHICSOur Culture of Ethics
As part of our commitment to strong corporate governance practices, we maintain an active and robust ethics program. Our ethics program is rooted in our ethos – our distinguishing moral nature. Our ethos is defined by fivefour values: Alignment, Honesty, Transparency and Trust. These values: | 〉 | | drive how we operate our business | THE GENERAL DYNAMICS ETHOS〉 | govern how we interact with each other and our customers, partners and suppliers | Honesty
〉 | | We tellguide the truth to ourselves and to others. Honesty breeds transparency.way we treat our workforce | Trust
〉 | | We trust each other to do the right thing. | Humanity
| | We are compassionate and empathetic. We respect the dignity, rights and autonomy of others. | Alignment
| | We are united indetermine how we connect with our commitment to our values. | Value Creation
| | We create value by doing the right thing for our shareholders, our customers, our employees and our communities.communities |
As a community of people dedicatedAdherence to our ethos, we stand against those who betray others, trod upon others’ rights or disrespect the rule of law. Each of us has an obligation to behave according to our values. In that way, we can ensureEthos ensures that we continue to be good stewards of the investments in us byfor our shareholders, customers, employees, suppliers and communities, now and in the future.communities.
We have a Standards of Business Ethics and Conduct Handbook that applies to all employees. This handbook, known as the Blue Book, has been updated and improved as we have grown and changed over the years. Our ethics program also includes periodic training on ethics and compliance topics for all employees and a24-hour ethics helpline, which employees can access via telephone or online to communicate any business-related ethics concerns. General Dynamics 2017 Proxy Statement 13
Governance of the Company
We have adopted ethics codes specifically applicable to our Board of Directors and our financial professionals. The Code of Conduct for Members of the Board of Directors embodies our Board’s commitment to manage our business in accordance with the highest standards of ethical conduct. The Code of Ethics for Financial Professionals, which supplements the Blue Book, applies to our chief executive officer, chief financial officer, controller and persons performing similar financial functions. Any amendments to or waivers from the Standards of Business Ethics and Conduct, Code of Ethics for Financial Professionals or Code of Conduct for Members of the Board of Directors on behalf of any of our executive officers, financial professionals or directors will be disclosed on our website. The current Standards of Business Ethics and Conduct are available on our website at www.gd.com/Responsibility. 22 General Dynamics
Table of Contents Governance of the Company BOARD LEADERSHIP STRUCTUREBoard Leadership Structure
Our Board comprises independent, accomplished and experienced directors who provide advice and oversight to further the interests of our company and our shareholders. The Board evaluates regularly its leadership structure, including whether to combine the positions of chairman and chief executive officer. Our Board currently believes that its organizational structurethe combination of the chairman and chief executive roles while employing a strong Lead Director position provides a framework for it to provide independent leadership and engagement while ensuring appropriate insight into the operations and strategic issues of the company. Chairman – Strong and Effective Leadership.Leadership. Our Board elects a Chairmanchairman annually from among the directors and determines whether to separate or combine the roles of Chairman and Chief Executive Officer based on what it believes best serves the needs of the company and its shareholders at any particular time.directors. The Board believes that Ms. Novakovic’s deep understanding of the company’s business,day-to-day operations, growth opportunities, challenges and risk management practices gained through several leadership positions, including seven years as chief executive officer enable her to provide strong and effective leadership to the Board and to ensure the Board is informed of important issues facing the company. The Board also believes that having a combined role promotes a cohesive, strong and consistent vision and strategy for the company. Independent Lead Director – Additional Independent Oversight.Oversight. The Board has created the position of a Lead Director, elected annually by the Board from among the independent directors. Mr. Crown currently serves as Lead Director. The Board believes the Lead Director position provides additional independent oversight of senior management and boardBoard matters. The selection of a Lead Director facilitates communication among the directors or between any of them and the chairman. Directors frequently communicate among themselves and directly with the chairman. The Lead Director’s authority and responsibilities are as follows: Lead Director Authority and Responsibilities | | | LEAD DIRECTOR AUTHORITYAND RESPONSIBILITIES | (1) | | acts as chair at Board meetings when the chairman is not present, including meetings of thenon-management directors; | (2) | | has the authority to call meetings of thenon-management directors; | (3) | | coordinates activities of thenon-management directors and serves as a liaison between the chairman and thenon-management directors; | (4) | | works with the chairman to develop and agree to meeting schedules and agendas, and agree to the nature of the information that will be provided to directors in advance of meetings; | (5) | | is available for consultation and communication with significant shareholders, when appropriate; and | (6) | | performs such other duties as the Board may determine from time to time. |
14 General Dynamics 20172020 Proxy Statement23
Table of Contents
Governance of the Company DIRECTOR INDEPENDENCE
Independence Standards.Our Board of Directors assesses the independence of our directors and examines the nature and extent of any relationships between General Dynamics and our directors, their families and their affiliates. Our Board has established an objective that at leasttwo-thirds of the directors be independent directors. For a director to be considered independent, the Board must determine that a director does not have any direct or indirect material relationship with General Dynamics. Our Board has established director independence guidelines (the Director Independence Guidelines) as part of the Corporate Governance Guidelines to assist in determining director independence in accordance with the rules of the New York Stock Exchange.
| | | AN INDEPENDENT DIRECTORUNDEROUR DIRECTOR INDEPENDENCE GUIDELINES: | (1) | | is not a current employee, nor has an immediate family member who is a current executive officer, of General Dynamics; | (2) | | has not received, nor has an immediate family member who has received, during the immediately preceding fiscal year, more than $120,000 in direct compensation from General Dynamics, other than director and committee fees and pension or other forms of deferred compensation; | (3) | | is not, nor has an immediate family member who is, currently employed as an executive officer of another company where any executive officer of General Dynamics currently serves on that company’s compensation committee; | (4) | | is not a current partner of, or employee of, a present internal or external auditor of General Dynamics; | (5) | | does not have an immediate family member who is a current partner of, or an employee assigned to work personally on General Dynamics’ audit by, a present internal or external auditor of General Dynamics; | (6) | | except as otherwise provided in (7) below, is not a current executive officer or an employee, nor has an immediate family member who is a current executive officer, of a company that made payments to, or received payments from, General Dynamics for property or services in an amount that, in the immediately preceding fiscal year, exceeded the greater of $1 million or 2 percent of the consolidated gross revenues of that company; and | (7) | | is not an executive officer of a charitable organization that, in the immediately preceding fiscal year, received contributions from General Dynamics in an amount that exceeded the greater of $1 million or 2 percent of the consolidated gross revenues of that organization. |
Independence Determinations.In March of each year and at other times during the year for director nominations or appointments occurring outside of the annual meeting,the Board of Directors considers whether each director and nominee to the Board meets the definition of an “independent director” in accordance with the rules of the New York Stock Exchange and the Director Independence Guidelines. The Board has determined that Ms. Barra, Ms. Reynolds, Ms. Schumacher and Messrs. Crown, deLeon, Fricks, Keane, Lyles, Malcolm, Osborn and Wall each qualifies as an independent director. The Board had previously determined that James Mattis, who resigned from the Board in January 2017, qualified as an independent director. The Board has also determined that Mr. Chabraja and Ms. Novakovic are not independent directors. To make these independence determinations, the Board reviewed all relationships between General Dynamics and the directors or nominees and affirmatively determined that none of the individuals qualifying as independent has a material business, financial or other type of relationship with General Dynamics, other than as a director or shareholder of the company. Specifically, the Board considered the relationships listed below and the related person transactions listed on page 20 of this Proxy Statement and found them to be immaterial. For each of the relationships that the Board considered for 2014, 2015 and 2016, the payments made or received by General Dynamics, and the charitable contributions made by General Dynamics, fell below the thresholds in our Director Independence Guidelines (the greater of $1 million or 2 percent of the consolidated gross revenues of the other company). Listed below are the relationships that existed in 2016 that were considered by the Board as part of their independence determinations.
Ms. Barra and Ms. Reynolds and Messrs. Crown, deLeon, Keane, Lyles and Osborn serve as members of the boards of trustees or boards of directors of charitable and othernon-profit organizations to which General Dynamics (i) has made payments for memberships, sponsorships, tradeshow exhibit space or tuition in the usual course of our business, (ii) made and received payments for products and services in the usual course of our business or (iii) made contributions as part of our annual giving program. The 2016 payments fell below the greater of $1 million or 2 percent of the consolidated gross revenues of the organizations. None of the 2016 charitable contributions to these organizations exceeded $110,000.
General Dynamics 2017 Proxy Statement 15
Governance of the Company
Messrs. Crown, Keane and Osborn serve as directors of companies, and Ms. Barra and Ms. Schumacher are executive officers of companies to which General Dynamics has sold products and services, or from which General Dynamics has purchased products and services, in the ordinary course of business. None of the directors had any material interest in, or received any compensation in connection with, these ordinary-course business relationships. Each of the payments made or received by General Dynamics fell below the greater of $1 million or 2 percent of the other company’s revenues.
Mr. Mattis’ brother is an employee (and not an executive officer) of a subsidiary of General Dynamics. The compensation paid to Mr. Mattis’ brother in 2016 did not exceed $120,000. Mr. Mattis resigned from the Board in January 2017.
BOARD MEETINGS, BUSINESS UNIT VISITSAND ATTENDANCE
During 2016, the Board of Directors held eight meetings. This included athree-day meeting in February to review our 2016 operating plan, including the operating plans of each of our business groups. In August 2016, the Board visited the San Diego facility of our General Dynamics NASSCO business unit and met with that business unit’s management team. Each of our directors attended at least 86% percent of the meetings of the Board and committees on which they served in 2016, with 9 of our current 12 directors attending 100 percent of the Board and committee meetings. We encourage directors to attend each annual meeting of shareholders, and in 2016 all of our directors attended the annual meeting.
EXECUTIVE SESSIONSOFTHE BOARD
Our Board holds executive sessions of thenon-management directors following all regularly scheduled Board meetings. Thenon-management directors may also meet without management present at other times as requested by anynon-management director. The independent Lead Director serves as chair at the executive sessions.
BOARD COMMITTEESCommittees
The Board of Directors has established the following four standing committees to assist in executing its duties: Audit, Compensation, Finance and Benefit Plans and Nominating and Corporate Governance. The primary responsibilities of each of the committees are described below, together with the current membership and number of meetings held in 2016.2019. Currently, threeall of the fourour Board committees are composed entirely of independent,non-management directors, including those committees that are required by the rules of the New York Stock Exchange to be composed solely of independent directors. Each of the Board committees has a written charter. Copies of these charters are available on our website at www.gd.com/CorporateGovernance, or in print upon request. CorporateGovernance. Committee Members.Members Listed below are the members of each of the four standing committees as of March 6, 2017.9, 2020. | | Audit
Committee | | Compensation
Committee | | Finance and
Benefit Plans
Committee | | Nominating and
Corporate Governance
Committee | James S. Crown | |  | | | | | |  | | Rudy F. deLeon | | | | | | | | | | Cecil D. Haney | | | | | | | | | | | AUDIT
COMMITTEE
| | COMPENSATION
COMMITTEE
| | FINANCEAND
BENEFIT PLANS
COMMITTEE
| | NOMINATINGAND
CORPORATE
GOVERNANCE
COMMITTEE
| Mary T. Barra
| | | | 
| | 
| | | Nicholas D. Chabraja
| | | | | |
| | | James S. Crown 
| |
| |
| | | |
| Rudy F. deLeon
| | | |
| |
| | | William P. Fricks 
| |
| |
| | | | | John M. Keane
| | | | | |
| |
| Lester L. Lyles | |
| | | | | |
| Mark M. Malcolm
| |
| | | |
| | | William A. Osborn
| |
| |
| |
| | | Laura J. Schumacher
| | | |
| | | |
| Peter A. Wall
| | | | | | | |
|
Committee Responsibilities 16 General Dynamics 2017 Proxy Statement
Governance of the Company
Committee Responsibilities.Following are descriptions of the primary areas of responsibility for each of the four committees.
| | | | | AUDIT
COMMITTEE AUDIT COMMITTEEMembers:
Mark M. Malcolm
(Chair)
James S. Crown
Lester L. Lyles
James N. Mattis
C. Howard Nye
William A. Osborn
Catherine B. Reynolds
| | NUMBEROF MEETINGSIN 2016:Meetings in 2019: 8 | RESPONSIBILITIES: 〉Provides oversight for accounting, financial reporting, internal control, auditing and regulatory compliance activities 〉Selects and oversees the independent auditor 〉Approves audit and non-audit services provided by the independent auditor, including a review of the scope of the audit 〉Reviews our consolidated financial statements with management and the independent auditor 〉Evaluates the performance, responsibilities, budget and staffing of internal audit 〉Evaluates the scope of the internal audit plan 〉Monitors management’s implementation of the policies, practices and programs of the company with respect to business ethics and conduct |
Provides oversight for accounting, financial reporting, internal control, auditing and regulatory compliance activities
Selects and oversees the independent auditor
Approves audit andnon-audit24 services provided by the independent auditor
Reviews the scope of the audit to be conducted by the independent auditor
Reviews our audited consolidated financial statements with management and the independent auditor
Evaluates the performance, responsibilities, budget and staffing of the internal audit function
Evaluates the scope of the internal audit plan
Monitors management’s implementation of the policies, practices and programs of the company with respect to business ethics and conduct, and environmental matters
| | | | | COMPENSATION COMMITTEE | | NUMBEROF MEETINGSIN 2016: 4 |
Evaluates the performance of the chief executive officer and other officers and reviews and approves their compensation
Recommends to the Board the level and form of compensation and benefits for directors
Reviews and approves incentive compensation and equity-based compensation plans
Reviews and monitors succession plans for the chief executive officer and other officers
Has authority to retain and terminate external advisors in connection with the discharge of its duties
Has sole authority to approve compensation consultant fees (to be funded by the company) and the terms of the consultant’s retention
| | | | | FINANCEAND BENEFIT PLANS COMMITTEE | | NUMBEROF MEETINGSIN 2016: 3 |
Oversees the management of the company’s finance policies to ensure the policies are in keeping with the company’s overall business objectives
With respect to employee benefit plans that name the company or one of its subsidiaries as the investment fiduciary (and for which the company or one of its subsidiaries has not appointed the management investment committee as investment fiduciary):
provides strategic oversight of the management of the assets
reviews and approves investment policy recommendations made by management
reviews and approves the retention of third parties for administration and management services related to trust assets
| | | | | NOMINATINGAND CORPORATE GOVERNANCE COMMITTEE | | NUMBEROF MEETINGSIN 2016: 3 |
Evaluates Board and management effectiveness
Advises the Board on the appropriate size, composition, structure and operations of the Board and its committees
Reviews and recommends to the Board committee assignments for directors
Advises the Board on corporate governance matters and monitors developments, trends and best practices in corporate governance
Recommends to the Board corporate governance guidelines that comply with legal and regulatory requirements
Identifies qualified individuals to serve as directors and recommends director nominees
General Dynamics 2017 Proxy Statement 17
Table of Contents
Governance of the Company COMPENSATION
COMMITTEE Members:
William A. Osborn
(Chair)
James S. Crown
Rudy F. deLeon
C. Howard Nye
Laura J. Schumacher
Meetings in 2019: 4 | RESPONSIBILITIES: 〉Evaluates the performance of the chief executive officer and other officers and reviews and approves their compensation 〉Recommends to the Board the level and form of director compensation and benefits 〉Reviews and approves incentive compensation and equity-based compensation plans 〉Reviews and monitors succession plans for officers, including the chief executive officer 〉Has authority to retain and terminate external advisors in connection with the discharge of its duties 〉Has sole authority to approve compensation consultant fees (to be funded by the company) and the terms of the consultant’s retention |
FINANCE AND
BENEFIT PLANS
COMMITTEE Members:
Rudy F. deLeon
(Chair)
Mark M. Malcolm
William A. Osborn
Catherine B. Reynolds
John G. Stratton
Peter A. Wall
Meetings in 2019: 3 | RESPONSIBILITIES: 〉Oversees the management of the company’s finance policies to ensure the policies are in keeping with the company’s overall business objectives 〉For employee benefit plans that name the company or one of its subsidiaries as the investment fiduciary (and for which the company or one of its subsidiaries has not appointed the management investment committee as investment fiduciary): 〉provides strategic oversight of the management of the assets 〉reviews and approves investment policy recommendations made by management 〉reviews and approves the retention of third parties for administration and management services related to trust assets |
NOMINATING
AND CORPORATE
GOVERNANCE
COMMITTEE Members:
James S. Crown
(Chair)
Cecil D. Haney
Lester L. Lyles
James N. Mattis
Laura J. Schumacher
Peter A. Wall
Meetings in 2019: 3 | RESPONSIBILITIES: 〉Evaluates Board and management effectiveness 〉Advises the Board on the appropriate size, composition, structure and operations of the Board and its committees 〉Reviews and recommends to the Board committee assignments for directors 〉Advises the Board on corporate governance matters and monitors developments, trends and best practices in corporate governance 〉Recommends to the Board corporate governance guidelines that comply with legal and regulatory requirements 〉Identifies qualified individuals as director candidates |
2020 Proxy Statement 25
Table of ContentsRISK OVERSIGHT General Dynamics has aGovernance of the Company
Risk Oversight Our comprehensive risk management program is conducted by senior management and overseen by the Board of Directors. In particular, the Board oversees management’s identification and prioritization of risks.risks that are material to our business. We believe that our risk management processes are well supported by the current board leadership structure. How We Manage Risk.ROLES IN RISK MANAGEMENTThe following summarizes the key elements
BOARD OF DIRECTORS 〉The Board oversees risk management, focusing on the most significant risks facing the company, including strategic, operational, financial, legal, cyber and reputational risks. 〉The Board assesses the company’s strategic and operational risks throughout the year, with particular focus on these risks at an annual multi-day Board meeting in early February. 〉Risk management is a standing agenda item at two Board meetings annually. Specific topics vary based on key risks facing the company at the time. 〉The Board receives briefings from senior management concerning a variety of topics and related risks should they arise between the dedicated risk-focused Board meetings. 〉The Board reviews, adjusts where appropriate, and approves the annual business unit and business segment goals presented by management and adopts our company operating plan for the year. These plans and related risks are monitored throughout the year as part of periodic financial and performance reports given to the Board by the chief financial officer and executive vice presidents of each business segment. 〉The Board considers senior management succession planning a core part of the company’s risk management program. At least annually, the Board reviews with the chief executive officer succession planning for senior leadership positions and the timing and development required to ensure continuity and diversity of leadership over the short and long term. 〉Risk topics discussed in 2019 include: defense budget and acquisition matters; cybersecurity; human capital management, including workforce diversity; environmental, health and safety matters; and specific customer and program developments. | AUDIT COMMITTEE 〉Oversees the company’s policies and practices concerning overall risk assessment and risk management. 〉Reviews and takes appropriate action regarding the company’s annual and quarterly financial statements, the internal audit program, the ethics program and internal control over financial reporting. 〉Receives regular briefings from members of senior management on accounting matters; the internal audit plan; internal control over financial reporting matters; significant litigation and other legal matters; and ethics program matters. 〉Holds separate, regular executive sessions with internal audit and the partners of the KPMG LLP audit team. | FINANCE AND BENEFIT PLANS COMMITTEE 〉Oversees the management of the company’s finance policies and the assets of the company’s defined benefit plans for employees. 〉Oversees market risk exposure with respect to assets within the company’s defined benefit plans and related to the capital structure of the company, including borrowing, liquidity, allocation of capital and funding of benefit plans. 〉To assess risks in its areas, receives regular briefings from our senior management or external advisors on finance policies, pension plan liabilities and funding and asset performance. |
26 General Dynamics
Table of Contents Governance of the Board’s, senior management’s and external advisors’ roles in our risk management program.Company The Board oversees risk management, focusing on the most significant risks facing the company, including strategic, operational, financial, legal and reputational risks.
Each Board committee is integral to risk management and reports specific risk-management matters as necessary to the full Board.
Senior management is responsible
COMPENSATION COMMITTEE 〉Oversees our executive compensation program to ensure that the program creates incentives for strong operational performance and for the long-term benefit of the company and its shareholders without encouraging excessive risk-taking. 〉Receives briefings from the chairman and chief executive officer, human resources senior management and outside consultants and advisors on compensation matters. | NOMINATING AND CORPORATE GOVERNANCE COMMITTEE 〉Oversees risks related to the company’s governance structure and processes and risks arising from related person transactions. 〉Receives briefings from the senior vice president, general counsel and secretary. | Senior Management 〉Responsible for day-to-day risk management; conducts a thorough assessment of the company’s risk profile through internal management processes and controls. 〉day-to-day risk management and conducts a thorough assessment through internal management processes and controls. The chief executive officer and senior management team provide to the Board a dedicated and comprehensive briefing of material risks at least twice per year, and the Board is briefed throughout the year as needed on specific risks facing the company. 〉At an annual multi-day Board meeting in early February, senior management reports on opportunities and risks in the markets in which the company conducts business. Additionally, each business unit president and each business segment executive vice president presents the unit’s and segment’s respective operating plan and strategic initiatives for the year, including notable business opportunities and risks. 〉The chief financial officer and executive vice presidents of each business segment give periodic financial and performance reports to the Board. | External Advisors 〉Provide independent advice on specific risks and review and comment on risk management processes and procedures as necessary. 〉Support the program by auditing our financial statements. 〉Review and suggest updates and improvements to our risk management processes and procedures. 〉Assist in the implementation of Board and senior management responsibilities regarding risk management. 〉Support and assist with public disclosure regarding risk management and company risks. | HIGHLIGHT ON TECHNOLOGY AND CYBERSECURITY Technology and cybersecurity pose a critical risk for nearly all companies. However, the defense industry faces heightened risks simply due to the nature of its work, and our company is no exception. Our Board approaches its risk management role in this area comprehensively, including: 〉Dedicated briefings on our company-wide cyber risk program as part of its overall risk assessment reports, led by our chief information officer and other members of management; 〉In-depth discussions about the role of advanced technologies in our businesses, including cybersecurity capabilities and offerings of our businesses; and 〉Calling upon the extensive experience of directors with unique perspectives given their military and national security backgrounds. |
2020 Proxy Statement 27
Table of Contents Governance of the Company Board Meetings, Attendance, Business Unit Visits and Executive Sessions | Engaged and Active Board of Directors | | | 8 | | | | Board of Director meetings in 2019 | 〉 | 2019 Board meetings included a multi-day meeting in February to review our 2019 operating plan, including the operating plans of each of our business segments. In August 2019, the Board visited facilities of our Electric Boat business unit and met with that business unit’s management team. | | 100% | | | | Director attendance at 2019 Board meetings | 〉 | When also considering committee meetings, Board members attended in the aggregate at least 86% of the meetings of the Board and committees on which they served in 2019, with 10 of 12 directors attending 100% of their meetings. | | 100% | | | | Director attendance at the 2019 annual meeting | 〉 | We encourage directors to attend each annual meeting of shareholders. | | 100% | | | | Each 2019 Board meeting was followed by a non-management director executive session | 〉 | Executive sessions of the non-management directors are held following all regularly scheduled Board meetings. The non-management directors may also meet without management present at other times as requested by any non-management director. The independent Lead Director chairs the executive sessions. |
Shareholder Outreach and Engagement Our Board is committed to robust shareholder engagement. Shareholder engagement has become an embedded part of our investor relations and governance programs. Conversations throughout the year led by our Investor Relations team are supplemented by an annual outreach dedicated to corporate governance, executive compensation and corporate responsibility topics. In each of the past several years, we have targeted shareholders representing approximately 65% of our outstanding shares to receive their feedback on these topics. Our core shareholder engagement team comprises senior members of our investor relations, corporate governance and human resources (including executive compensation) groups, supplemented by our Lead Director as needed on specific risks facingappropriate. Additionally, an ad hoc group of directors, anchored by the company.chairman and the independent Lead Director, is in place to liaise with significant shareholders. Our Board remains committed to soliciting and understanding shareholder views and responding as appropriate. 28 General Dynamics
Table of Contents Governance of the Company OUR SHAREHOLDER ENGAGEMENT PROGRAM External advisors provide independent advice on specific risks and review and comment on risk management processes and procedures as necessary.
 | FALL ENGAGEMENT 〉We receive feedback and updates on shareholders’ governance, executive compensation and corporate responsibility priorities 〉We provide updates to shareholders on the company’s programs in these areas |  | | | | Annual Meeting
(May) 〉Voting results help us calibrate our governance, executive compensation and corporate responsibility programs to our shareholders’ priorities | We target and have engaged annually with holders of
over 65%
of our Common Stock | Proxy Statement Mailed
(March) 〉We make changes, when appropriate, to our corporate governance and executive compensation programs, and discuss those changes in our proxy statement | | | |  | SPRING ENGAGEMENT 〉We offer additional engagement to address proxy statement matters or questions |  |
TheKEY ITEMS DISCUSSED WITH SHAREHOLDERS IN 2019
Board of Directors and
Corporate Governance | Risk Management
Oversight | Executive
Compensation | Corporate
Responsibility | 〉Board Leadership 〉Tenure and Refreshment 〉Director Skills and Experience 〉Self-Assessment Process 〉Board’s Role in Succession Planning 〉Shareholder Rights | 〉Supply Chain Management 〉Cyber Risk Management 〉Human Capital Management | 〉Strong 2019 Shareholder Vote on Executive Compensation 〉Program Structure, including Role of Equity Compensation 〉Pay-for-Performance Alignment 〉Enhanced Disclosure on Annual Incentive Determinations | 〉Workforce Development, Diversity and Sustainability 〉Environmental Initiatives 〉Other Sustainability Initiatives |
2020 Proxy Statement 29
Table of Contents Governance of the Company Director Orientation and Continuing Education  | Orientation 〉Each new director receives an orientation that consists of in-person briefings provided by corporate officers on our business operations; significant financial, accounting and risk-management matters; corporate governance; ethics; and key policies and practices. 〉Each new director receives briefings on the responsibilities, duties and activities of the committees on which the director will initially serve. | Management Briefings 〉The general counsel and chief financial officer periodically provide materials and briefing sessions on subjects that assist directors in fulfilling their duties. | Site Visits 〉New directors also have the opportunity to visit business units within each of our segments and receive briefings from the respective executive vice president and members of business unit management teams. 〉All directors also visit our business units periodically. These visits allow the directors to interact with the business unit management teams and employees and gain a firsthand view of our operations. | Operating Plan Review 〉Annually, the Board holds a multi-day meeting with our senior management to review and approve the operating plans of each of our business units and business segments and the company as a whole. This review involves an in-depth strategic and financial review of each business unit and business segment. |
30 General Dynamics
Table of Contents Governance of the Company Board and Committee Performance Assessments Our Board of Directors in Risk Management.The full Board reviews and approves annually a corporate policy addressing the delegation of authority and assignment of management responsibility to ensure that the responsibilities and authority delegated to senior management are appropriate from an operational and risk-management perspective.promotes continuous improvement throughout our company. In addition,this spirit, the Board continually assesses the company’s strategic and operational risks throughout the year,itself for areas of potential improvement. 
| Non-Management Directors Executive Sessions 〉At each in-person Board meeting, adedicated session led by our independent lead directorprovides our non-management directors an opportunity to discuss Board and company-related matters freely and without management present. 〉Our non-management directors alsofrequently communicatedirectly with our lead director and our chairman between Board meetings. | Annual Self-Assessment Process 〉The Nominating and Corporate Governance Committee leads aformal self-assessment processannually. During this process, each director assesses the Board and committees on which the director serves. Questions address the Board’s overall role, oversight of the company’s strategy, relations with management, Board composition, individual director participation and contribution, succession planning, director compensation and the number and conduct of meetings. 〉Each committeealso considers its role and the responsibilities contained in the committee charter, the composition of the committee and the committee’s operation. 〉Feedback from the self-assessment is discussed at the Board and committee levels.Overall feedback from the directors has been very positive, with directors expressing a view that the Board operates effectively. Recent changes made in response to feedback received from directors have been minor in nature and related to the volume and content of read-ahead materials, committee composition and the balance between presentations and discussion in meetings. |
Communications with particular focus on these risks at an annualthree-day Board meeting in early February. At this meeting, senior management reports on opportunities and risks in the markets in which the company conducts business. Additionally, each business unit president and each business group executive vice president presents the unit’s and group’s respective operating plan and strategic initiatives for the year, including notable business opportunities and risks. The Board reviews, adjusts where appropriate, and approves the business unit and business group goals and adopts our company operating plan for the year. These plans and related risks are monitored throughout the year as part of periodic financial and performance reports given to the Board by the chief financial officer and executive vice presidents of each business group. The Board also receives briefings from senior management concerning a variety of matters and related risks to the company, including defense budget and acquisition matters and specific customer or program developments. In addition, each of the Board committees considers risk as it relates to its particular areas of responsibility.
Audit Committee. The Audit Committee has responsibility for oversight of the company’s policies and practices concerning overall risk assessment and risk management. The committee reviews and takes appropriate action with respect to the company’s annual and quarterly financial statements, the internal audit program, the ethics program and internal controls over financial reporting. To facilitate these risk oversight responsibilities, the committee receives regular briefings from members of senior management on accounting matters; the internal audit plan; internal control over financial reporting matters; significant litigation and other legal matters; ethics program matters; and environmental matters. The committee also holds regular executive sessions with internal audit and regular executive sessions with the partners of the KPMG LLP audit team.
Compensation Committee. The Compensation Committee oversees our executive compensation program to ensure that the program creates incentives for strong operational performance and for the long-term benefit of the company and its shareholders without encouraging excessive risk-taking. The committee receives briefings from the chairman and chief executive officer, human resources senior management and outside consultants and advisors on compensation matters.
Finance and Benefit Plans Committee. The Finance and Benefit Plans Committee oversees the management of the company’s finance policies and the assets of the company’s defined benefit plans for employees. The committee oversees market risk exposure with respect to its assets within the company’s defined benefit plans and related to the capital structure of the company, including borrowing, liquidity, allocation of capital and funding of benefit plans. To assess risks in these areas, the committee receives regular briefings from our senior management or external advisors on finance policies, pension plan liabilities and funding, and asset performance.
18 General Dynamics 2017 Proxy Statement
Governance of the Company
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee oversees risks related to the company’s governance structure and processes and risks arising from related person transactions. The committee receives briefings from the senior vice president, general counsel and secretary.
The Role of External Advisors in Risk Management. The company’s external advisors support the risk management program in a number of ways. Specifically, external advisors support the program by: (1) auditing our financial statements; (2) reviewing and suggesting updates and improvements of our risk management processes and procedures; (3) assisting in the implementation of Board and senior management responsibilities regarding risk management; and (4) supporting and assisting with public disclosure regarding risk management and company risks.
Succession Planning and Risk Management. The Board considers senior management succession planning a core part of the company’s risk management program. At least annually, the Board reviews with the chief executive officer succession planning for senior leadership positions, and the timing and development required to ensure continuity of leadership over the short term and long term.
DIRECTOR ORIENTATIONAND CONTINUING EDUCATION
Within six months of election to the Board, each new director receives an orientation that consists of a series ofin-person briefings provided by corporate officers on our business operations; significant financial, accounting and risk-management matters; corporate governance; ethics; and key policies and practices. The new director receives briefings on the responsibilities, duties and activities of the committees on which the director will initially serve. The new director is also provided the opportunity to visit business units within each of the four business groups and receive briefings from the respective group executive vice president and members of the business unit management team.
In addition, to further support directors, the general counsel and chief financial officer periodically provide materials and briefing sessions on subjects that assist directors in fulfilling their duties. Annually, the Board holds athree-day meeting with our senior management to review and approve the operating plan of each of our business units and business groups and the company as a whole. Directors also visit our business units periodically. These visits allow the directors to interact with the business unit management teams and employees and gain a firsthand view of our operations.
BOARDAND COMMITTEE PERFORMANCE SELF-ASSESSMENTS
Each year, the directors undertake a self-assessment for the Board and each committee on which they serve that elicits feedback on the performance and effectiveness of the Board and its committees. As part of this self-assessment, the directors are asked to consider the Board’s role, relations with management, composition and meetings. Each committee is asked to consider its role and the responsibilities articulated in the committee charter, the composition of the committee and the committee meetings. The self-assessment responses and comments are compiled by the Corporate Secretary and presented to the Nominating and Corporate Governance Committee for initial review. The responses and comments are presented to each committee and the full Board.
COMMUNICATIONSWITHTHE BOARD
Any shareholder or other interested party who has a concern or question about the conduct of General Dynamics may communicate directly with ournon-management directors, the Chairmanchairman or the full Board. Communications may be confidential or anonymous. Communications should be submitted in writing to the chair of the Nominating and Corporate Governance Committee in care of the Corporate Secretary, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church,11011 Sunset Hills Road, Reston, Virginia 22042.20190. The Corporate Secretary will receive and process all written communications and will refer all substantive communications to the chair of the Nominating and Corporate Governance Committee in accordance with guidelines approved by the independent members of the Board. The chair of the Nominating and Corporate Governance Committee will review and, if necessary, investigate and address all such communications and will report the status of these communications to thenon-management directors as a group or the full Board on a quarterly basis. Our employees and other interested parties may also communicate concerns or complaints about our accounting, internal control over financial reporting or auditing matters directly to the Audit Committee. Communications may be confidential or anonymous and can be submitted in writing or reported by telephone. Written communications should be submitted to the chair of the Audit Committee in care of our ethics officer at the address in the preceding paragraph or at the address in the Standards of Business Ethics and Conduct Handbook provided to all employees. Our employees can call a toll-free helpline number or access the helpline online, each of which is provided to all employees. The ethics officer will review, investigate and address any concerns or complaints unless the Audit Committee instructs otherwise. The ethics officer will report the status of all concerns and complaints to the Audit Committee. The Audit Committee may also direct that matters be presented to the full Board and may direct special treatment of any concern or complaint addressed to it, including the retention of outside advisors or counsel. General Dynamics 20172020 Proxy Statement 1931
Table of Contents
Governance of the Company RELATED PERSON TRANSACTIONS POLICYRelated Person Transactions Policy
Our Board of Directors has adopted a written policy on the review and approval of related person transactions. Related persons covered by the policy are: | (1) | | | (1)
| | executive officers, directors and director nominees; | (2) | | any person who is known to be a beneficial owner of more than 5 percent5% of our voting securities; | (3) | | any immediate family member of any of the foregoing persons; or | (4) | | any entity in which any of the foregoing persons has or will have a direct or indirect material interest. |
A related person transaction is defined by this policy as a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which: General Dynamics will be a participant; the amount involved exceeds $120,000; and any related person will have a direct or indirect material interest. The following interests and transactions are not subject to the policy: | (1) | | | (1)
| | director compensation that has been approved by the Board; | (2) | | a transaction where the rates or charges are determined by competitive bid; or | (3) | | a compensatory arrangement solely related to employment with General Dynamics (or a subsidiary) that has been approved by the Compensation Committee or recommended by the Compensation Committee to the Board. |
The Nominating and Corporate Governance Committee is responsible for reviewing, approving and, where applicable, ratifying related person transactions. If a member of the committee has an interest in a related person transaction, then he or she will not be part of the review process. In considering the appropriate action to be taken regarding a related person transaction, the committee or the Board will consider the best interests of General Dynamics and whether the transaction is fair to the company, is on terms that would be obtainable in anarm’s-length transaction or is pursuant to a company discount program for which the related person is eligible, serves a compelling business reason and any other factors it deems relevant. As a condition to approving or ratifying any related person transaction, the committee or the Board may impose whatever conditions and standards it deems appropriate, including periodic monitoring of ongoing transactions. The following transactions with a related person were determined to pose no actual conflict of interest and were reviewed and approved by the committee or the Board pursuant to our related person transactions policy: Based upon Schedule 13G filings made with the SEC,
| 〉 | Based upon Schedule 13G filings made with the Securities and Exchange Commission (SEC), BlackRock, Inc., a global provider of investment, advisory and risk management solutions, has reported beneficial ownership of more than 5% of our outstanding Common Stock. An affiliate of BlackRock provides investment management services for certain of our defined benefit plans. The agreements with BlackRock were negotiated in arm’s-length transactions and the ownership of General Dynamics stock plays no role in the business relationship between General Dynamics and BlackRock. In addition, we believe the agreements represent standard terms and conditions for investment management services. For providing the services, BlackRock received fees in 2019 totaling approximately $2.8 million. In accordance with the related person transactions policy, the Nominating and Corporate Governance Committee reviewed and approved the services for 2019 and approved the continuation of the services in 2020. | | 〉 | Henry Crown and Company and one of its affiliated entities made payments of approximately $830,000 to the company in 2019 for the purchase of business jet spare parts and aircraft maintenance and services from our subsidiary, Gulfstream Aerospace. Additionally, these companies purchased aircraft services from our subsidiary, Jet Aviation. The amount of payments made to Jet Aviation in 2019 was approximately $456,000. The purchases from Gulfstream and Jet Aviation were in the ordinary course of business and on arm’s-length terms. Henry Crown and Company is an affiliated entity of Mr. Crown. |
32 General Dynamics
Table of investment, advisory and risk management solutions, has reported beneficial ownership of more than 5 percent of our outstanding common stock. An affiliate of BlackRock provides investment management services for certain of our defined benefit plans. The agreements with BlackRock were negotiated inarm’s-lengthContents transactions and the ownership of General Dynamics stock plays no role in the business relationship between General Dynamics and BlackRock. In addition, we believe the agreements represent standard terms and conditions for investment management services. For providing the services, BlackRock received fees in 2016 totaling approximately $1.1 million. In accordance with the related person transactions policy, the Nominating and Corporate Governance Committee reviewed and approved the services for 2016 and approved the continuation of the services in 2017. Henry Crown and Company and one of its affiliated entities made payments of approximately $178,000 to the company in 2016 for the purchase of business jet spare parts and aircraft maintenance from our subsidiary, Gulfstream Aerospace Corporation. Additionally, these companies purchased aircraft charter services from our subsidiary, Jet Aviation. The amount of payments made to Jet Aviation in 2016 was approximately $212,000. The purchases from Gulfstream and Jet Aviation were in the ordinary course of business and on arm’s-length terms. Henry Crown and Company is an affiliated entity of Mr. Crown.
Dean Roualet, the late brother of Mark Roualet, an executive officer of the company, served as an employee of one of our subsidiaries in 2016. During the year, he received cash compensation of approximately $234,000, and benefits generally available to other employees with equivalent qualifications, experience and responsibilities.
20 General Dynamics 2017 Proxy Statement
Governance of the Company DIRECTOR COMPENSATIONDirector Compensation
We compensate eachnon-management director for service on the Board of Directors. The Compensation Committee reviews director compensation on an annual basis. 2016 Compensation. Director2019 Compensation
Non-management director compensation for 20162019 was: | Compensation Element | | Amount | COMPENSATION ELEMENTAnnual Retainer | | AMOUNT$85,000 | Annual Retainer
| | $70,000 | Lead Director Retainer | | $25,000 | Committee Chair Annual Retainer | | $10,000 | Attendance Fees | | $3,000 for each meeting of the Board of Directors; $2,000 | | $2,000 for each meeting of any committee; and $3,000 | | $3,000 per day for attending strategic or financial planning meetings sponsored by General Dynamics | Annual Equity Award | | Approximately $142,000$150,000 on the date of award | Per Diem Fee forNon-Employee Directors Performing Specific Projects for the Company | | $10,000 |
As part of the Compensation Committee’s annual review in early 20162019 and at its request, management engaged Aon Hewitt to conduct a director compensation survey. Aon Hewitt provided director compensation data for the peer group that we used to benchmark executive compensation whichcompensation. This information showed General Dynamics slightly abovethat the directors’ pay program was approximate to the median for equity compensation and slightly belowof the median for cash compensation. Followingpeer group. Based on this review, the Compensation Committeecommittee recommended no changes to director compensation. Non-management directors haveEach non-management director has the option of receiving all or part of theirthe annual retainersretainer in the form of Common Stock. The annual retainer, additional committee chair retainer (if any) and attendance fees paid to each director during 20162019 are reflected in the Fees Earned or Paid in Cash column of the Director Compensation for Fiscal Year 20162019 table, irrespective of whether a director took the annual retainer in shares of Common Stock. The annual equity award consists of restricted stock and stock options granted pursuant to our shareholder-approved equity compensation plan and on the same terms, limits and schedule as awards to other plan participants.
In light of the travel required by service on the Board, we also provide each director with accidental death and dismemberment insurance coverage. Payments by General Dynamics for director accidental death and dismemberment insurance premiums are reflected in the All Other Compensation column of the Director Compensation for Fiscal Year 20162019 table. 2017 Compensation. 2020 Compensation
In early 2017,2020, as part of its annual review of director compensation, the Compensation Committee requested that management update its director compensation analysis. Management again engaged Aon Hewitt to provide survey data for the peer group used to benchmark executive compensation. The committee reviewed the survey data regarding director compensation provided by Aon Hewitt.Aon. This information showed that the annual retainer andcompany’s director compensation was below the value of the annual equity award were below thepeer median. Based on this review, the committee increasedrecommended, and the Board approved, an increase of $10,000 for the annual retainer to $85,000 and increased the valuean increase of $10,000 for the annual equity award to approximately $150,000. Although the program is reviewed annually, this is the first change to cash compensation since 2011 and the first change to equity compensation since 2015.award. General Dynamics 20172020 Proxy Statement 2133
Table of Contents
Governance of the Company Director Compensation Table The table below provides total compensation for 2019 for each non-management director serving during the year. DIRECTOR STOCK OWNERSHIP GUIDELINESDIRECTOR COMPENSATION FOR FISCAL YEAR 2019
| Name | | Fees Earned
or Paid in
Cash(a) | | Stock
Awards(b) | | Option
Awards(c) | | All Other
Compensation(d) | | Total | | James S. Crown | | | $ | 186,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 337,888 | | Rudy F. deLeon | | | $ | 155,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 306,888 | | Cecil D. Haney(e) | | | $ | 114,111 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,504 | | | $ | 266,363 | | Lester L. Lyles | | | $ | 151,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 4,080 | | | $ | 304,828 | | Mark M. Malcolm | | | $ | 153,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 304,888 | | James N. Mattis(e) | | | $ | 61,489 | | | $ | 31,184 | | $ | 31,135 | | | $ | 3,650 | | | $ | 127,458 | | C. Howard Nye | | | $ | 135,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 286,888 | | William A. Osborn | | | $ | 161,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 4,180 | | | $ | 314,928 | | Catherine B. Reynolds | | | $ | 163,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 314,888 | | Laura J. Schumacher | | | $ | 135,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 286,888 | | Peter A. Wall | | | $ | 163,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 314,888 |
| (a) | Messrs. Malcolm and Nye, Ms. Reynolds and Ms. Schumacher elected to receive 100% of their annual retainer in Common Stock; Messrs. deLeon, Lyles and Wall elected to receive 50% of their annual retainer in Common Stock; and Mr. Haney elected to receive 10% of his annual retainer, in Common Stock. Based upon these elections and each director’s length of service for the year, they received the following number of shares of Common Stock with the associated approximate grant date fair value: Mr. deLeon – 237 shares ($42,046); Mr. Haney – 34 shares ($6,125); Mr. Lyles – 237 shares ($42,046); Mr. Malcolm – 477 shares ($84,623); Mr. Nye – 477 shares ($84,623); Ms. Reynolds – 477 shares ($84,623); Ms. Schumacher – 477 shares ($84,623); and Mr. Wall – 166 shares ($29,457). | | (b) | The amounts reported in the Stock Awards column reflect the aggregate grant date fair value computed in accordance with ASC Topic 718, Compensation — Stock Compensation. Assumptions used in the calculation of these amounts are included in Note Q to our audited financial statements for the fiscal year ended December 31, 2019, included in our Annual Report on Form 10-K filed with the SEC on February 10, 2020. Restricted stock awards outstanding as of December 31, 2019, for each director were as follows: 1,690 for Messrs. Crown, deLeon, Lyles, Malcolm, Osborn and Ms. Schumacher; 445 for Mr. Haney; 165 for Mr. Mattis; 695 for Mr. Nye; 1,025 for Ms. Reynolds; and 1,370 for Mr. Wall. | | (c) | The amounts reported in the Option Awards column reflect the aggregate grant date fair value computed in accordance with ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note Q to our audited financial statements for the fiscal year ended December 31, 2019, included in our Annual Report on Form 10-K filed with the SEC on February 10, 2020. Option awards outstanding as of December 31, 2019, for each director were as follows: 17,040 for Messrs. Crown, Osborn and Ms. Schumacher; 12,640 for Mr. deLeon; 23,940 for Mr. Lyles; 2,590 for Mr. Haney; 11,280 for Mr. Malcolm; 980 for Mr. Mattis; 4,040 for Mr. Nye; 6,050 for Ms. Reynolds; and 8,170 for Mr. Wall. | | (d) | Amounts reflect payments for accidental death and dismemberment (AD&D) insurance. | | (e) | Mr. Haney joined the Board in March 2019 and Mr. Mattis joined the Board in August 2019. |
Director Stock Ownership Guidelines The Board of Directors believes that each director should develop a meaningful ownership position in General Dynamics. Therefore, the Board of Directors adopted stock ownership guidelines fornon-management directors. Pursuant to these guidelines, eachnon-management director is expected to own shares of our Common Stock having a value equal to at least 8eight times the then-current annual retainer.Non-management directors are subject to the same holding requirements as our named executive officersNEOs and are expected to retain shares received upon the vesting of restricted stock or exercise of options until the ownership guidelines are met. Management directors are subject to the ownership requirements discussed under “CompensationCompensation Discussion and Analysis – Stock Ownership Guidelines.”Guidelines and Holding Requirements. DIRECTOR COMPENSATION TABLE34
The table below provides total compensation for 2016 for each of General Dynamics’non-management directors serving during the year. The number of shares of restricted stock and stock options awarded to the directors annually are the same for each director.
| | | | | | | | | | | | | | | | | | | | | | DIRECTOR COMPENSATIONFOR FISCAL YEAR 2016 | | | NAME | | FEES EARNED OR PAID IN CASH (a) | | | STOCK AWARDS (b) | | | OPTION AWARDS (c) | | | ALL OTHER
COMPENSATION (d) | | | TOTAL | | Mary T. Barra | | $ | 126,000 | | | $ | 70,642 | | | $ | 71,162 | | | $ | 2,140 | | | $ | 269,944 | | Nicholas D. Chabraja | | $ | 509,000 | | | $ | 70,642 | | | $ | 71,162 | | | $ | 4,080 | | | $ | 654,884 | | James S. Crown | | $ | 170,000 | | | $ | 70,642 | | | $ | 71,162 | | | $ | 2,140 | | | $ | 313,944 | | Rudy F. deLeon | | $ | 149,000 | | | $ | 70,642 | | | $ | 71,162 | | | $ | 2,140 | | | $ | 292,944 | | William P. Fricks | | $ | 137,000 | | | $ | 70,642 | | | $ | 71,162 | | | $ | 4,080 | | | $ | 282,884 | | John M. Keane | | $ | 112,000 | | | $ | 70,642 | | | $ | 71,162 | | | $ | 4,080 | | | $ | 257,884 | | Lester L. Lyles | | $ | 127,000 | | | $ | 70,642 | | | $ | 71,162 | | | $ | 4,080 | | | $ | 272,884 | | Mark M. Malcolm | | $ | 123,000 | | | $ | 70,642 | | | $ | 71,162 | | | $ | 2,140 | | | $ | 266,944 | | James N. Mattis (e) | | $ | 122,000 | | | $ | 70,642 | | | $ | 71,162 | | | $ | 2,140 | | | $ | 265,944 | | William A. Osborn | | $ | 141,000 | | | $ | 70,642 | | | $ | 71,162 | | | $ | 4,080 | | | $ | 286,884 | | Laura J. Schumacher | | $ | 117,000 | | | $ | 70,642 | | | $ | 71,162 | | | $ | 2,140 | | | $ | 260,944 | | Peter A. Wall (f) | | $ | 34,870 | | | $ | 29,564 | | | $ | 29,396 | | | $ | 1,858 | | | $ | 95,688 | |
(a) | Ms. Barra, Ms. Schumacher and Messrs. Crown, Fricks and Keane elected to receive 100 percent of their annual retainer in Common Stock. As a result, they each received 470 shares of Common Stock with a grant date fair value of approximately $70,000. Mr. deLeon elected to receive 50 percent of his annual retainer in Common Stock. As a result, Mr. deLeon received 234 shares of Common Stock with a grant date fair value of approximately $35,000.
|
(b) | The amounts reported in the Stock Awards column reflect the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board (FASB) ASC Topic 718,Compensation — Stock Compensation.Assumptions used in the calculation of these amounts are included in Note O to our audited financial statements for the fiscal year ended December 31, 2016, included in our Annual Report onForm 10-K filed with the SEC on February 6, 2017. Restricted stock awards outstanding as of December 31, 2016, for each director were as follows: 2,480 for Ms. Barra and Messrs. Chabraja, Crown, Fricks, Keane, Lyles and Osborn; 1,860 for Mr. Mattis; 1,580 for Ms. Schumacher; 1,040 for Mr. deLeon; 730 for Mr. Malcolm; and 200 for Mr. Wall.
|
(c) | The amounts reported in the Option Awards column reflect the aggregate grant date fair value computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note O to our audited financial statements for the fiscal year ended December 31, 2016, included in our Annual Report on Form10-K filed with the SEC on February 6, 2017.Option awards outstanding as of December 31, 2016, for each director were as follows: 26,950 for Ms. Barra; 26,880 for Messrs. Chabraja, Crown, Fricks, Keane and Lyles; 21,670 for Mr. Osborn; 12,690 for Mr. Mattis; 10,190 for Ms. Schumacher; 5,790 for Mr. deLeon; 4,430 for Mr. Malcolm; and 1,320 for Mr. Wall.
|
(d) | Amounts reflect payments by General Dynamics for accidental death and dismemberment (AD&D) insurance.
|
(e) | Mr. Mattis resigned from the Board in January 2017.
|
(f) | Mr. Wall joined the Board in August 2016.
|
22 General Dynamics 2017 Proxy Statement
Table of ContentsADVISORY VOTEONTHE SELECTIONOF INDEPENDENT AUDITORS (PROPOSAL 2) Advisory Vote on The Selection of Independent Auditors
PROPOSAL 2 ADVISORY VOTE ON THE SELECTION OF INDEPENDENT AUDITORS |
The Audit Committee of the Board of Directors has the sole authority to retain the company’s independent auditors and is responsible for the compensation and oversight of the work of the independent auditors for the purpose of preparing or issuing an audit report or related work. The Audit Committee has selected KPMG LLP (KPMG), an independent registered public accounting firm, as our independent auditors for 2017.2020. KPMG has been retained as the company’s independent auditors since 2002. In order to assure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent audit firm. The members of the Audit Committee believe that the continued retention of KPMG to serve as the company’s independent auditors is in the best interests of the company and its shareholders. Your Board of Directors is submitting this selection of KPMG as the independent auditors for 20172020 to an advisory vote of the shareholders. The Sarbanes-Oxley Act of 2002 requires that the Audit Committee be directly responsible for the appointment, compensation and oversight of the audit work of the independent auditors. Nevertheless, as a good corporate governance practice, your Board has determined to solicit the vote of the shareholders on an advisory basis in making this appointment. If the shareholders do not vote on an advisory basis in favor of the selection of KPMG as our independent auditors, the Audit Committee will reconsider whether to engage KPMG and may ultimately determine to engage that firm or another audit firm without resubmitting the matter to shareholders. Even if the shareholders vote in favor of the selection of KPMG, the Audit Committee may in its sole discretion terminate the engagement of KPMG and direct the appointment of another independent audit firm at any time during the year.  | Your Board of Directors unanimously recommends a voteFOR this proposal. |
2020 Proxy Statement 35
Table of Contents Advisory Vote on The Selection of Independent Auditors Audit andNon-Audit Fees Fees. The following table shows aggregate fees for professional services rendered by KPMG for the audit of our annual consolidated financial statements for the years 20162019 and 2015,2018, and fees billed for other services rendered by KPMG during those years. | | | | | | | | | | | | 2016 | | | 2015 | | Audit Fees (a) | | $ | 18,333,000 | | | $ | 17,900,000 | | Audit-related Fees (b) | | | 4,731,000 | | | | 3,036,000 | | Tax Fees (c) | | | 1,063,000 | | | | 1,250,000 | | All Other Fees (d) | | | 51,000 | | | | 70,000 | | Total Fees | | $ | 24,178,000 | | | $ | 22,256,000 | |
| | 2019 | | 2018 | | Audit Fees(a) | | $25,471,100 | | $23,415,000 | | Audit-related Fees(b) | | 1,809,000 | | 3,149,000 | | Tax Fees(c) | | 1,602,000 | | 1,107,000 | | All Other Fees(d) | | 229,000 | | 76,000 | | Total Fees | | $29,111,000 | | $27,747,000 |
| (a) | Audit fees are fees for professional services performed by KPMG for the audit of our consolidated annual financial statements (including the audit of internal control over financial reporting) and review of our consolidated quarterly financial statements. These fees also include fees for services that are normally provided in connection with statutory and regulatory filings. |
| (b) | Audit-related fees are fees for assurance and related services performed by KPMG that are reasonably related to the performance of the audit or review of our consolidated financial statements. These fees consist primarily of fees for professional services for benefit plan audits and evaluation of new accounting standards. |
| (c) | Tax fees are fees for professional services performed by KPMG for tax compliance, tax advice and tax planning. These fees consist primarily of fees for tax return preparation and review, tax compliance services for expatriates and advice regarding tax implications of certain transactions. |
| (d) | All other fees are primarily related to professional services performed by KPMG for information technology contract compliance,assessment and advisory services. |
Auditor Independence. The Audit Committee has considered whether the services rendered by KPMG are compatible with maintaining KPMG’s independence. Representatives of KPMG are expected to attend the Annual Meeting, may make a statement if they desire to do so and will be available to respond to questions. Policy onPre-Approval. Pre-Approval The company and the Audit Committee are committed to ensuring the independence of the externalindependent auditors, both in fact and in appearance. Therefore, in accordance with the applicable rules of the Securities and Exchange Commission,SEC, the Audit Committee has established policies and procedures forpre-approval of all audit and permittednon-audit services provided by the independent auditors. The Audit Committee determines annually whether to approve all audit and permittednon-audit services proposed to be performed by the independent auditors (including an estimate of fees). If other audit or permittednon-audit services not included in thepre-approved services are required during the year, such services must be approved in advance by the Audit Committee. The Audit Committee may delegate authority to grantpre-approvals to its chair or a subcommittee as it deems appropriate, subject to a reporting obligation to the Audit Committee. All audit and permittednon-audit services listed above were pre-approved. pre-approved.36 General Dynamics
Table of Contents Advisory Vote on The Selection of Independent Auditors Audit Committee Report YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE FORTHISPROPOSAL.
General Dynamics 2017 Proxy Statement 23
The following Audit Committee Report shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement or any portion hereof into any filing under the Securities Act of 1933, as amended (Securities Act) or the Securities Exchange Act of 1934, as amended (Exchange Act), and shall not otherwise be deemed filed under such acts. AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors has furnished the following report. The following fiveseven directors serve on the Audit Committee: William P. FricksMark M. Malcolm (Chair), James S. Crown, Lester L. Lyles, Mark M. Malcolm andJames N. Mattis, C. Howard Nye, William A. Osborn.Osborn and Catherine B. Reynolds. None of these directors is an officer or employee of General Dynamics. They all meet the independence requirements of the New York Stock Exchange and Rule10A-3 of the Exchange Act. The Board has determined that Mr. Fricks, Mr.Messrs. Malcolm, Nye and Mr. Osborn and Ms. Reynolds each qualifies as an “audit committee financial expert” as defined by the Securities and Exchange Commission (SEC)SEC in Item 407(d) of RegulationS-K. The Audit Committee is governed by a written charter approved by the Board. In accordance with that charter, the Committeecommittee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of General Dynamics. The Committeecommittee held eight meetings in 2016.2019. The Audit Committee has reviewed and discussed with management and the company’s independent auditors for 2016,2019, KPMG LLP, an independent registered public accounting firm, the company’s audited consolidated financial statements as of December 31, 2016,2019, and for the year ended on that date. Management is responsible for the company’s financial reporting process, including maintaining a system of internal controls, and for preparing the consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). KPMG is responsible for auditing those consolidated financial statements and for expressing an opinion on the conformity of the consolidated financial statements with GAAP. In addition, in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the Audit Committee reviewed and discussed with management the company’s internal auditors and KPMG management’s report on the operating effectiveness of internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act includingand KPMG’s relatedattestation report and attestation.on the company’s internal control over financial reporting. The Audit Committee has discussed with KPMG the matters required under applicable professional auditing standards and regulations adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee has received and reviewed the written disclosures and letter from KPMG required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG’s communications with the Audit Committee concerning independence, and has discussed with KPMG its independence, including the compatibility ofnon-audit services with maintaining KPMG’s independence. Based on the foregoing discussions and reviews, the Audit Committee has satisfied itself as to the independence of KPMG. In reliance on the reviews and discussions described above, the Audit Committee recommended to the Board, and the Board approved, the inclusion of the audited consolidated financial statements in the company’s Annual Report on Form10-K as of and for the year ended December 31, 2016,2019, for filing with the SEC.Securities and Exchange Commission. This report is submitted by the Audit Committee. | Mark M. Malcolm | | | William P. Fricks (Chair)
James S. Crown | James N. Mattis | William A. Osborn | | (Chair) | Lester L. Lyles | C. Howard Nye | Mark M. Malcolm
William A. Osborn
Catherine B. Reynolds |
February 4, 20176, 2020 24 General Dynamics 20172020 Proxy Statement37
Table of ContentsADVISORY VOTETO APPROVE EXECUTIVE COMPENSATION (PROPOSAL 3) Advisory Vote to Approve Executive Compensation
PROPOSAL 3 ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION |
As required by Section 14A of the Exchange Act, we are seeking shareholder input on our executive compensation as disclosed in this Proxy Statement. The Board and the Compensation Committee actively monitor our executive compensation practices in light of the industry in which we operate and the marketplace for talent in which we compete. We remain focused on compensating our executive officers fairly and in a manner that emphasizes performance while providing the tools necessary to attract and retain the best talent. As described in the Compensation Discussion and Analysis section, our executive compensation program is designed to create incentives both for strong operational performance in the current year and for the long-term benefit of the company, thereby closely aligning the interests of management with the interests of our shareholders. For these reasons, the Board recommends shareholders vote in favor of the following resolution: “Resolved, that the compensation paid to the company’s named executive officers, as disclosed pursuant to Item 402 of RegulationS-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.” The vote is advisory and is not binding on the Board. However, the Compensation Committee of the Board expects to take into account the outcome of the vote as it continues to consider the company’s executive compensation program.  | Your Board of Directors unanimously recommends a voteFOR this proposal. |
YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE FORTHISPROPOSAL.38 General Dynamics
ADVISORY VOTEONTHE FREQUENCYOF FUTURE EXECUTIVE COMPENSATION ADVISORY VOTES
(PROPOSAL 4)
As required by Section 14A of the Exchange Act, we are seeking shareholder input on how often we will seeknon-binding advisory votes regarding the compensation of our named executive officers as disclosed in future proxy statements, similar to Proposal 3 in this Proxy Statement (we refer to those future votes as “Future Advisory Compensation Votes”). We are required to hold Future Advisory Compensation Votes at least once every three years. Accordingly, shareholders may indicate their preference on the frequency of Future Advisory Compensation Votes by voting for one of the following options:
That Future Advisory Compensation Votes be held every year;
That Future Advisory Compensation Votes be held every two years; or
That Future Advisory Compensation Votes be held every three years.
The Board recommends that shareholders vote in favor of holding Future Advisory Compensation Votes every year. Please note that you are being asked to indicate your preference on the above choices, and you are not voting to approve or disapprove the Board’s recommendation.
The Board believes that the optimal frequency for holding Future Advisory Compensation Votes is every year. The Board believes an annual vote, together with the company’s shareholder engagement program, will allow the company to stay aligned with shareholders’ views on our executive compensation program.
YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE
INFAVOROFHOLDING FUTURE ADVISORY COMPENSATION VOTES EVERY YEAR.
General Dynamics 2017 Proxy Statement 25
COMPENSATION DISCUSSIONAND ANALYSIS
In the Compensation Discussion and Analysis, we describe the details of our named executive officer executive compensation program.
The section is organized as follows:
Table of Contents Compensation Discussion & Analysis Table of Contents 26 General Dynamics 20172020 Proxy Statement39
Table of Contents
Compensation Discussion and& Analysis Executive Summary This Compensation Discussion and Analysis (CD&A) describes the 2019 compensation of our Named Executive Officers (NEOs) for 2016 and includes the following individuals: who are identified below: | | | | Name | | Title | | Tenure in Role | Phebe N. Novakovic | | Chairman and Chief Executive Officer | | 7 years | Jason W. Aiken | | Senior Vice President and Chief Financial Officer | John P. Casey
| | Executive Vice President, Marine Systems6 years | Mark C. Roualet | | Executive Vice President, Combat Systems | | 7 years | S. Daniel Johnson
Mark L. Burns | | Executive Vice President Information Systemsof the Company and Technology | | 4 years | | | President, Gulfstream Aerospace | | | | Gregory S. Gallopoulos | | Senior Vice President and General Counsel | | 10 years |
BUSINESS OVERVIEWBusiness Overview
General Dynamics is a global aerospace and defense company that offers a broad portfolio of products and services in: Combat vehicles, weapons systems and munitions;
Information technology services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions; and
Shipbuilding and ship repair.
| 〉 | Business aviation; | | 〉 | Combat vehicles, weapons systems and munitions; | | 〉 | Information technology services; | | 〉 | C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions; and | | 〉 | Shipbuilding and ship repair. |
We operate and manage our ten business units through fourfive business groups,segments as shown below: 
40 General Dynamics
Table of Contents Compensation Discussion & Analysis 2019 Performance Highlights In 2019, our focused commitment to operating performance drove each of our five business segments to deliver higher revenues and earnings from continuing operations. Earnings per share rose to $11.98, increasing by 6.8%, on a record-high revenue of $39.4 billion. Our backlog also reached an all-time high of $86.9 billion on strong order intake, driven in part by a $22.2 billion award from the U.S. Navy for the advanced-capability Block V Virginia-class submarine. Our Aerospace business expanded its portfolio of products and its backlog rose by nearly $2 billion due in part to the launch of the Gulfstream G700. To support our growing businesses, we continued to invest with each group led$987 million of capital expenditures. We increased our dividend by an executive vice president:10% in 2019 over 2018, marking the 22nd consecutive annual increase. REVENUE
(Dollars in millions) | | EARNINGS FROM
CONTINUING OPERATIONS
(Dollars in millions) |  | |  | | | | GENERAL DYNAMICSDILUTED EARNINGS
PER SHARE FROM
CONTINUING OPERATIONS
| | DIVIDEND HISTORY
(Quarterly) | Aerospace
 | | Combat Systems | Information Systems and Technology
| | Marine Systems |
2020 Proxy Statement 41
Table of Contents Compensation Discussion & Analysis Executive Compensation Philosophy Our management team deliversstrives to deliver shareholder returns through disciplined execution on backlog, efficient cash-flowcash flow conversion and prudent capital deployment. We manage costs and investments, provide thoughtful human capital management and leadership, undertake continuous improvement initiatives and collaborate across our businesses to achieve our goals of maximizing earnings and cash and creating value for our shareholders. Management’s focus on these principles is reflected in the goals set forth in the company’s incentive plans because wegoals. We believe successful execution in these areas, measured by the performance metrics set forth in our incentive plans, directly translates to shareholder value creation. Thus, company-wide and business group performance measures are the key metrics the Compensation Committee (the Committee) considers when makingThe ultimate goal of our executive compensation program is to closely link pay to the performance of our executives. | Component | | Purpose | | Description | Annual Base
Salary | | Provides competitive, fixed-rate cash compensation | | 〉Base Salary is set at or around the median of our peers. | Annual Incentive
Compensation | | Provides a cash incentive based on annual performance and aligned with our financial, strategic and operational goals | | 〉Targeted at or around the median of our peers, the cash incentive is designed to motivate and align management with annual business goals. 〉2019 annual incentives were based on financial metrics of earnings from continuing operations (35%) and free cash flow from continuing operations (35%), as well as strategic and operational performance (30%). 〉Strategic and operational performance measures include, but are not limited to: EPS growth, prudent allocation of capital, human capital management, debt management, segment performance, cost reductions and leadership. | Long-Term
Incentive (LTI)
Compensation | | Provides our NEOs with a significant personal stake in the long-term success of the company by tying earned amounts to our multi-year financial and total shareholder return performance; aligns management’s interest with that of shareholders; and facilitates retention of key talent | | 〉The LTI program consists of three elements, including Performance Stock Units, or PSUs (50%), Stock Options (30%) and Restricted Stock (20%). 〉The LTI is targeted as a range around the median of our peers and has multi-year performance metrics designed to align NEOs with the objectives of our company and shareholders. |
| CEO | | OTHER NEOs - AVERAGE |  | |  |
42 General Dynamics
Table of Contents Compensation Discussion & Analysis Our Executive Compensation Governance Practices | WHAT WE DO | | WHAT WE DON’T DO | ✓100% independent Compensation Committee (the Committee) ✓Independent compensation consultant reporting to the Committee ✓Director and management engagement with shareholders ✓Market-leading stock ownership requirements (15x salary for the CEO and 8x to 10x salary for the other officers) ✓Incentive compensation based on clear, measurable goals with key financial and operational metrics that drive business performance ✓The value of earned long-term incentives is based on our future performance and value creation ✓Double-trigger change in control arrangements ✓Clawback, Anti-hedging and Anti-pledging policies ✓Thoughtfully selected peer group consisting of other aerospace and defense firms as well as other large-cap companies in related industries with annual Committee review ✓Conduct annual proactive shareholder engagement to discuss executive pay program ✓50% of our long-term incentive is delivered in performance-based stock units subject to two relevant and objectively measurable metrics, Return on Invested Capital (ROIC) and Relative TSR (rTSR) | | ✕No single-trigger equity acceleration on change in control ✕No excessive perquisites ✕No excise tax gross-ups ✕No employment agreements with NEOs |
The Compensation Process The Committee approves and is actively engaged in the design and implementation of the executive compensation program, with the support of the independent compensation consultant and company management. The program is structured to: | 〉 | Provide market-competitive total target compensation that is pay-for-performance based | | 〉 | Compensate executives subject to clear and challenging performance metrics | | 〉 | Align executive compensation with shareholder value creation | | 〉 | Ensure retention and growth for executives in a competitive environment |
The program objective of pay for performance is achieved through the use of short- and long-term incentives. The company targets the median pay of our peers as further discussed in detail below. In addition, through the annual and long-term incentive plans, the NEOs are rewarded for outperforming on company goals. 2020 Proxy Statement 43
Table of Contents Compensation Discussion & Analysis Evaluation and Compensation Process Timeline | November 2018 | | 〉Business units present operating goals and plans to the chairman and chief executive officer 〉The chairman and chief executive officer, in consultation with chief financial officer and executive vice presidents, establishes company operating goals | | February 2019 | | 〉Business units present business plans to the Board of Directors 〉The Board reviews, adjusts where appropriate, and approves business unit operating goals and adopts the company operating plan 〉The company operating plan establishes the financial goals for the annual incentive and long-term incentive. Throughout the year, the Board reviews and monitors company performance as compared to the operating plan through a series of financial and operating reports from senior management 〉The proposed annual incentive payouts for 2018 performance, together with proposed base salary and long-term incentive grant values for 2019, are presented to the Committee on a scorecard for each executive, along with commentary on financial performance accomplishments, strategic and operational performance and any other factors not contemplated at the start of the year | | January – February 2020 | | 〉Based on company and individual performance for the prior fiscal year, the chairman and chief executive officer calculates a score for each NEO (other than herself) 〉The Committee evaluates the chairman and chief executive officer’s performance and reviews peer compensation data in preparation for determining an annual incentive payout for the NEOs 〉The Committee ensures base salary recommendations approximate the market 50th percentile 〉The proposed annual incentive payouts for 2019 performance, together with proposed base salary and long-term incentive grant values for 2020, are presented to the Committee on a scorecard for each executive, along with commentary on financial performance accomplishments, strategic and operational performance and any other factors not contemplated at the start of the year | | March 2020 | | 〉The Committee reviews NEO scorecards and pay recommendations from management 〉The Committee approves compensation based on the clearly defined and disclosed performance metrics described in this Proxy Statement. The Committee’s decisions also reflect factors such as the degree of difficulty of goals, market conditions and exceptional individual achievement. 〉The Committee reviews, refines and approves compensation for the chairman and chief executive officer in executive session 〉The Committee certifies the results of the 3-year performance measures for PSUs 〉The Committee reviews, refines and approves financial, strategic and operational goals for the next year |
44 General Dynamics
Table of Contents Compensation Discussion & Analysis Peer Group and Benchmarking to the Market Each year the Committee, in consultation with management and with support from its independent compensation consultant, develops a peer group. The peer group was modified in 2019. Based on a review for 2020, the peer group remained the same. It is comprised of companies that are: | 〉 | In similar industries and where General Dynamics competes for business | | 〉 | Likely sources of or competition for executive talent | | 〉 | Reasonably comparable in size, as measured by revenue and market capitalization | | 〉 | Reasonably similar in organizational structure and complexity | | 〉 | Included as peers of some of our peer companies |
Peer group proxy data and survey data provided by Aon are utilized to assess the competitiveness of our executive compensation practices, structures and levels. The Committee reviews and analyzes the peer group annually for reasonableness and alignment with the objectives listed above. | Peer Group Companies | | Market
Capitalization
(in millions)* | | Revenue
(in millions)** | | Employee
Population | | Peer of
Peers | | 3M Company | | | $ | 101,450 | | | | $ | 32,136 | | | | 96,163 | | | ✓ | | Accenture plc | | | $ | 133,711 | | | | $ | 43,215 | | | | 492,000 | | | ✓ | | The Boeing Company | | | $ | 183,335 | | | | $ | 76,559 | | | | 161,100 | | | ✓ | | Caterpillar Inc. | | | $ | 81,617 | | | | $ | 53,800 | | | | 104,000 | | | ✓ | | Cisco Systems, Inc. | | | $ | 203,459 | | | | $ | 51,904 | | | | 75,900 | | | ✓ | | Deere & Company | | | $ | 54,278 | | | | $ | 39,233 | | | | 73,489 | | | ✓ | | Eaton Corporation plc | | | $ | 39,157 | | | | $ | 21,390 | | | | 101,000 | | | ✓ | | Emerson Electric Co. | | | $ | 46,588 | | | | $ | 18,372 | | | | 88,000 | | | ✓ | | Honeywell International Inc. | | | $ | 126,472 | | | | $ | 36,709 | | | | 113,000 | | | ✓ | | Johnson Controls International plc | | | $ | 31,404 | | | | $ | 23,968 | | | | 104,000 | | | ✓ | | Lockheed Martin Corporation | | | $ | 109,833 | | | | $ | 59,812 | | | | 110,000 | | | ✓ | | Northrop Grumman Corporation | | | $ | 57,970 | | | | $ | 33,841 | | | | 90,000 | | | ✓ | | Raytheon Company | | | $ | 61,193 | | | | $ | 29,176 | | | | 70,000 | | | ✓ | | Textron Inc. | | | $ | 10,181 | | | | $ | 13,630 | | | | 35,000 | | | ✓ | | United Technologies Corporation | | | $ | 127,850 | | | | $ | 77,046 | | | | 243,200 | | | ✓ | | General Dynamics | | | $ | 50,898 | | | | $ | 39,350 | | | | 102,900 | | | | | General Dynamics (Percentile Rank) | | | | 25% | | | | | 57% | | | | 55% | | | |
| * | As of December 31, 2019 | | ** | As of latest annual filing |
2020 Proxy Statement 45
Table of Contents Compensation Discussion & Analysis Shareholder Engagement In 2019, we received 96% approval for our advisory vote on executive compensation. We believe our efforts to engage with shareholders and thoughtfully consider and incorporate shareholder feedback are reflected in this strong level of support. As we have for the NEOs. General Dynamics 2017 Proxy Statement 27
Compensation Discussion and Analysis
COMPANY PERFORMANCE HIGHLIGHTS
Shareholder Value. In 2016, the company’s commitment to operational excellence delivered another yearpast several years, we conducted an extensive shareholder outreach campaign targeted at holders of value creation for shareholders. The successover 65% of our approach under Ms. Novakovic’s leadership is evident inCommon Stock. Senior representatives of investor relations, corporate governance and human resources, supplemented by our strong operating results. We balanceLead Director as appropriate, met in-person or by phone with shareholders to gather feedback on our focus on operations with a thoughtful capital deployment strategy. As stewards of your capital, in 2016 we maintained a deliberate approach to creating shareholder value through our prudent use of capital including investment in long-termgovernance, executive compensation program, operational performance, sustainability efforts and other business opportunities, an increase in the dividend for the 19th consecutive year and tactical share repurchases. Despite early concerns regarding the near-term health of thebusiness-jet market, our Aerospace group exceeded its plan and achieved the highest margin in the company’s history.topics.
Financial Performance Summary. In 2016, the company demonstrated the successful results of a continued focus on operational excellence, resulting in positive operating leverage, strong earnings and record-setting margin. The following charts show key performance metricsprovides a summary of the most recent enhancements to our program based on the feedback we received over relevant periods. In the fourth year under Ms. Novakovic’s leadership, the company has improved performance while also adding new contracts to backlog, thereby sustaining the opportunity for strong execution in the future. In addition, our prudent capital allocation has enabled the company to invest in our businesses while also returning capital to shareholders through dividends and share repurchases.
28 General Dynamics 2017 Proxy Statement
Compensation Discussion and Analysis
Dividend Payment History*
last several years: | Shareholder Feedback | | Changes Made in Response | | Enhance disclosure and provide greater transparency regarding the annual incentive award | | | 〉For 2019, we changed the allocation of the annual incentive to more formally incorporate strategic and operational goals in addition to our financial metrics as follows: 35% Earnings from Continuing Operations | | Operating Margin | 
| | 
|
| | | Return on Invested Capital** | | – 35% Free Cash Flow from Operations** – 30% Strategic and Operational Goals.〉We also provided a more comprehensive disclosure of our annual incentive metrics, which includes threshold and maximum goals around our targets, commentary regarding goal setting and a more thorough discussion of the performance of each of our NEOs on the financial, strategic and operational goals for the annual incentive award. | 
| | 
|
* | Dividends are paid quarterly.
|
** | See Appendix B for a discussionIncrease proportion of thesenon-GAAP measures and a reconciliation to their more directly comparable GAAP measures.
|
General Dynamics 2017 Proxy Statement 29
Compensation Discussion and Analysis
COMPONENTSOF COMPENSATIONAND ALIGNMENTWITH COMPANY PERFORMANCE
We pay each NEO through three primary forms of compensation: base salary, an annual incentive and a long-term incentive. The annual and long-term incentives are variable depending on achieving specific performance objectives.
Structural Alignment of Pay with Performance. We demonstrate our commitment to aligning compensation with company performance through the following key elements of the program:
Executive compensation is linked strongly to the financial and operational performance of the business. Over 90 percent of the CEO’s total compensation is at risk, while over 85 percent of the other NEOs’ compensation is at risk. A significant amount of the compensation at risk is delivered through equity: performance restricted stock units (PRSUs), restricted stock and stock options.
In order to emphasize a culture of ownership and strengthen management’s alignment with long-term shareholder interests, the Committee requires one of the strictest set of stock ownership guidelines in our industry for the NEOs. Our CEO is required to hold General Dynamics stock with a value equal to 15 times base salary. Other NEOs are required to hold 10 times base salary.
| annual equity in the form of PSUs | | 〉Starting with 2019 equity awards, annual grants reflect 50% PSUs, 30% stock options and 20% restricted stock. Prior to 2019, the annual equity allocation was 25% PSUs, 50% stock options and 25% restricted stock. | CEO Compensation Allocation for 2016* | | Other NEO Compensation Allocation for 2016* | 
| | 
|
*Fixed compensation represents base salary, and variable compensation represents annual incentive and equity awards.
30 General Dynamics 2017 Proxy Statement
Compensation Discussion and Analysis
CONTINUED CHANGESTO COMPENSATION PROGRAMIN RESPONSETO SHAREHOLDER FEEDBACK
In 2016 and 2017, we continued to make changes to our compensationIncorporate a relative performance measure into the program to better align with market best practices and respond to feedback from our shareholders. We believe these changes to the way we pay our NEOs provides for increased alignment and transparency between senior management and our shareholders.
First, we eliminated all remaining legacy excise taxgross-ups. We also implemented a target bonus structure for 2016 and instituted long-term incentive guidelines for equity awards granted in March 2017 for our NEOs. These changes demonstrate our commitment to continuous assessment of our compensation program, our responsiveness to shareholders’ feedback and our focus on ensuring we meet the needs of our business and provide strong value creation for our shareholders.
The following table summarizes the key components of each NEO’s compensation and how we have made changes in our approach in the past several years:
| | | | | | | | | | | 〉Key ComponentsStarting with the 2019 equity awards, a relative Total Shareholder Return (rTSR) modifier will be applied against ROIC performance results on PSUs. The rTSR modifier can increase or decrease the PSU payout by as much as one-third depending on the company’s performance ranking relative to the TSRs of Pay | | 2015 Benchmark
| | 2016 Benchmark
| | 2017 Benchmark
| | | Base
Salary
| | • Cash
| | Notthe companies in the S&P 500 thus better aligning long-term compensation to exceed the market medianrelative stock performance of the company and ensuring alignment with our peer group | | | Annual
Incentive
| | • Cash
| | Peer median | | Each NEO’s target is established using market data from our peer group and is set as a percentage of base salary and paid based upon a business and individual achievement scorecard | | | Long-
Term
Incentive
| | • PRSUs
• Restricted Stock
• Stock Options
| | Targeted at peer median;
Indexed to total cash compensation
| | Committee decides LTI awards in a range in accordance with individual assessments, business performance and market benchmarks | | shareholders. |
Employing a Disciplined, Structured Approach to Compensation. 46 General Dynamics
Table of Contents Compensation Discussion & Analysis Components of Executive Compensation and Alignment with Company Performance NEO compensation is based on clear, measurable goals related to company and business group performance. In March 2016, Ms. Novakovic proposed, and the Committee reviewed and approved, scorecards for each of the NEOs to ensure a continued focus on structure and discipline around performance management and compensation. Details of each NEO’s scorecard are included beginning on page 44 of this CD&A. Annual bonuses are tied directly to these measurable objectives. Linking Pay Levels to the Market and General Dynamics Performance. Each component of our NEO compensation isgenerally targeted toat the median of a corethe peer group of aerospace, defense and industrial companies with whom we compete for business and executive talent.by component. To the extent compensation exceeds targeted levels, it is directly attributable to performance whichthat increases shareholder value and exceeds measurable, clearly defined performance goals. Conversely, total compensation can be substantially less than target for performance that does not meet company or business group goals, and can include no annual bonus.falls significantly short of pre-established targets.
General Dynamics 2017 Proxy Statement 31
Compensation Discussion and Analysis
2016 VARIABLE COMPENSATION DRIVERSAND OUTCOMES
Both annual and long-term incentives are based on measurable and objective performance metrics. The following summarizes company-wide performance targets against actual 2016 performance for certain key financial metrics. Detailed business group performance targets and achievements along with NEO scorecards are described in detail in The Compensation Process section on page 42 of this CD&A.
| | | | | | | | | | | | | | Financial Performance
Metrics
| | 2016 Target
| | 2016 Actual
| | 2016
Achievement
| | 2015 Actual
| | | | | | Earnings from Continuing
Operations
| | $2.89 billion | | $3.06 billion | | Exceeded | | $2.97 billion | | | | | | Free Cash Flow from
Operations
| | $1.49 billion | | $1.81 billion | | Exceeded | | $1.93 billion | | | | | | Return on Invested Capital
| | 15.3%* | | 18.1%** | | Exceeded | | 17.4%** |
* | Represents a target three-year ROIC performance measure applicable to PRSUs. ROIC excludes accumulated other comprehensive income (AOCI) because changes in AOCI are not reflective of company performance or a result of management’s decision making regarding the business. |
** | Represents one-year ROIC performance. |
Setting Challenging Targets Based on Market Conditions. Annual incentive compensation targets were set in early 2016 based on backlog, anticipated order activity, and expected market conditions. They were in line with guidance providedWe demonstrate our commitment to the market by company management. Our operating metric targets were set based on our assessment of our backlog and the market conditions for our company.
The following explains each financial metric:
Earnings from Continuing Operations. The earnings target for 2016 was $2.89 billion, relative to a 2015 actual of $2.97 billion. Actual results for 2016 were $3.06 billion. The 2016 target, set early in 2016, was based on management’s assessment of backlog, expected order activity and market conditions which resulted in modest anticipated top line and operating earnings growth but lower net earnings due to a higher effective tax rate. Management’s focus on operational efficiency and cost reduction initiatives resulted in stronger than forecasted earnings.
Free Cash Flow from Operations. The free cash flow from operations target for 2016 was $1.49 billion, relative to a 2015 actual of $1.93 billion. The decline in expected free cash flow in 2016 relative to the free cash flow result in 2015 was due to the continued utilization of a significant customer deposit received in 2014 by our Combat Systems group, and an increase in operating working capital at our Gulfstream business unit. Actual results for 2016 were $1.81 billion, which exceeded our expectations.
Return on Invested Capital. The three-year ROIC target applicable for PRSUs granted in 2016 is 15.3 percent. The three-year ROIC target applicable for PRSUs granted in 2015 is 14.1 percent. These three-year targets represented the company’s expectation of average ROIC performance over the 2015–2017 and 2016–2018 performance periods. The actual result for 2016 was 18.1 percent and was among the strongest in our peer group. The PRSUs granted in 2015 remain subject to ROIC performance for the third year of the performance period, and the PRSUs granted in 2016 remain subject to ROIC performance for the second and third years of the performance period.
32 General Dynamics 2017 Proxy Statement
Compensation Discussion and Analysis
2016 SHAREHOLDER OUTREACHAND SAYON PAY RESULTAND PROGRAM UPDATES
Every year we engage with holders of at least 65 percent of our outstanding Common Stock to understand shareholder views on our executive compensation program. Following changes to our executive compensation program resulting in part from shareholder engagement, our shareholders have expressed very strong support for our program and the results it is driving. At our 2016 annual shareholder meeting, investors strongly supported our executive compensation program with over 90 percent of shares voted in favor of our Say on Pay proposal.
The Committee and company management continually seek to improve the executive compensation program and have made several enhancements to the program in recent years. With the support of management and the independent compensation consultant, each change was based on the Committee’s review of emerging corporate governance practices, feedback from shareholders, and an effort to more closely align executivealigning compensation with company performance.
New in 2016. The program updates described inperformance through the following table were approved by the Committee and were in place for compensation granted in 2016.
| | | | | | | | | | | Executive Compensation
Program Changes in 2016
| | | | Description/Rationale | | | Eliminated legacy excise taxgross-ups
| | | | • We ended the practice of providing new executives with excise taxgross-ups in 2009
• In 2016, remaining executives with taxgross-ups were asked to sign new agreements removing that provision
• This change further aligns our compensation program with market best practices
| | | Implemented target bonuses as a percent of base salary
| | | | • As part of our continued effort to use best practices, this year we established NEO bonus targets and maximums as a percentage of base salary
• This change further aligns our compensation program with market best practices
| | | Adopted LTI grant guidelines for NEOs
| | | | • For equity grants made in March 2017, the Committee used LTI guidelines to determine the value of the awards
• This change allows the Committee to consider multiple factors in making equity grants to ensure a strong linkage between pay and performance while balancing other factors such as individual assessments, business performance and market benchmarks
| | | Aligned restricted stock vesting with other equity vehicles
| | | | • To match our other equity vehicles (stock options and PRSUs) restricted stock granted in 2017 will vest three years after the date of grant
• This change aligns the vesting schedule of all equity vehicles
| | |
General Dynamics 2017 Proxy Statement 33
Compensation Discussion and Analysis
STRONG, INDEPENDENT COMPENSATION GOVERNANCEAND PRACTICES
The executive compensation program is independently governed by the Committee with the support of company management and an independent compensation consultant. The following are characteristics of the program that demonstrate strong governance of the program.
| | | | | | | | | | Leading Compensation Governance Practices | | | | | | ✓
| | Each component of pay is targeted to the median of the peer group
| | | | | | ✓
| | The value of long-term incentives that are ultimately earned is based on our future, multi-year performance and shareholder value creation
| | | | | | ✓
| | No merit pools for base salaries; they are strictly tied to the peer group median
| | | | | | ✓
| | Thoughtfully selected peer group consisting of other aerospace and defense firms, with annual Committee review of the group
| | | | | | ✓
| | Incentive compensation based on scorecards identifying clear, measurable goals with key financial and operational metrics that drive business performance
| | | | | | ✓
| | Market-leading stock ownership requirements of 15 times base salary for the CEO and 10 times for the other NEOs
| | | | | | ✓
| | No employment agreements with NEOs
| | | | | | ✓
| | Directors and management engagement with shareholders
| | | | | | ✓
| | 100 percent independent Compensation Committee
| | | | | | ✓
| | Independent compensation consultant reporting to the Compensation Committee
| | | | | | ✓
| | Double-trigger change in control arrangements
| | | | | | ✓
| | Clawback policy
| | | | | | ✓
| | Anti-hedging policy
| | | | | | ✓
| | Anti-pledging policy
| | | | | | ✓
| | No excise taxgross-ups paid in conjunction with a termination as part of a change in control
| | |
34 General Dynamics 2017 Proxy Statement
Compensation Discussion and Analysis
| EXECUTIVE COMPENSATION GOALSAND OBJECTIVES
|
The objectivekey elements of the executive compensation program is to incentivize NEOs to achieve strong operational performance and to align the interests of each NEO with our shareholders. The majority of compensation is equity-based, vests over several years and is tied directly to long-term shareholder value creation. Our NEOs have stock ownership requirements of 10 or 15 times base salary, which strengthens their alignment with our shareholders.
program: | 〉 | Executive compensation is linked strongly to the financial and operational performance of the company. In 2019, over 90% of the chairman and chief executive officer’s total compensation was linked to metrics assessing company or stock performance and therefore meaningfully at-risk, while over 80% of the other NEOs’ compensation was in line with a similar risk profile. Over 75% of the at-risk compensation is delivered through equity: PSUs, stock options and restricted stock. | COMPONENTSOF EXECUTIVE COMPENSATION〉
| To emphasize a culture of ownership and strengthen management’s alignment with long-term shareholder interests, the Committee requires one of the strictest sets of stock ownership guidelines across the Fortune 100 for the NEOs. Our chairman and chief executive officer is required to hold General Dynamics stock with a value at least equal to 15 times base salary. The other NEOs are required to hold General Dynamics stock with a value at least 8 to 10 times base salary. |
Each NEO receives a mix of fixed and variable components of compensation. The following charts summarize the various forms of compensation and demonstrate that over 90 percent of the CEO’s compensation and over 85 percent of other NEO compensation is variable and tied to company performance. 
compensation. | Components of Compensation | | Description | | Annual Base Salary (Cash) | | 〉Base Salary is set at or around the median of our peers to represent a fixed level of competitive compensation. | | Annual Incentive Compensation (Cash) | | 〉2019 annual incentives were based on financial metrics of earnings from continuing operations (35%) and free cash flow from continuing operations (35%), as well as strategic and operational performance (30%). 〉Strategic and operational performance measures include, but are not limited to: EPS growth, prudent allocation of capital, human capital management, debt management, segment performance, cost reductions and leadership. | | Long-Term Incentive Compensation | | | CEO Compensation Mix
Performance Stock Units (PSUs):50% | | | | Other NEO Compensation Mix
|  |  | | |  |
General Dynamics 2017 Proxy Statement 35
〉PSUs closely connect NEOs to the company’s financial performance and total shareholder return, and act as a retention tool over the three-year performance period.
Compensation Discussion and Analysis
VARIABLEAND PERFORMANCE-BASED COMPENSATION
| | | | | | | | | Variable Incentive Compensation |
| | | | | | | Annual Incentive
| | | | | | | | | | | | Cash | | | | | | | | | | | | | | | | | | | | | Long-Term IncentiveStock Options:30% | |  | | | Performance Restricted
〉Stock Units(25%)
options closely connect NEOs to the company’s stock price performance and align our executive team with shareholders over the long term. They also act as a retention tool. | | Restricted Stock:20% | |  | | | 〉Restricted stock closely connects NEOs to the company’s total shareholder return performance over the three-year vesting period and also acts as a retention tool. | | | | | Restricted Stock
(25%)
| | Benefits and Perquisites | | | | | | | | | | Stock Options
(50%)
〉The company provides market competitive perquisites, retirement, health and welfare benefits and change-in-control arrangements for purposes of recruitment and retention and to ensure the security and accessibility of our executives to facilitate the transaction of business. |
The Committee has carefully considered2020 Proxy Statement 47
Table of Contents Compensation Discussion & Analysis Annual Base Salary We pay each NEO a base salary that is set around the value driversmedian of the companyour peers. Salaries are reviewed annually, and each business groupincreases, when structuring incentive compensation and has determined to use the following factors and metrics to set compensation for the reasons summarizedthey occur, are driven primarily by changes in the table below. Somemarket. Consequently, we adjusted the salaries for all our NEOs except the chairman and chief executive officer to reflect the market. We believe that organizations that perform well over the long term, like General Dynamics, make an effort to pay salaries at or near the market median and create opportunities for executives to earn above-median compensation through annual and long-term incentives that are awarded based on performance relative to challenging and clear performance goals. The goal of the metrics for the business group executive vice presidents are different, as described below.our base salary is to provide a competitive, fixed-rate of cash compensation. | Name and Title | | 2018 Base Salary | | 2019 Base Salary | Ms. Novakovic*
Chairman and Chief Executive Officer | | $ | 1,585,000 | | | $ | 1,585,000 | | Mr. Aiken
Senior Vice President and Chief Financial Officer | | $ | 850,000 | | | $ | 850,000 | | Mr. Roualet
Executive Vice President, Combat Systems | | $ | 800,000 | | | $ | 800,000 | | Mr. Burns
Vice President and President, Gulfstream Aerospace | | $ | 655,000 | | | $ | 655,000 | | Mr. Gallopoulos
Senior Vice President and General Counsel | | $ | 720,000 | | | $ | 740,000 | |
| * | | | | | | | | | Component of Compensation
| | Setting Target
Amounts | | Factors Determining
Value | | Objectives
| | | | | | Annual
Incentive
| | • Cash
| | Percentage of
Base Salary Benchmarked to
Peer Group
Median
| | Earnings from Continuing Operations | | Measures company’s ability to maximize profitability and drive shareholder value
| | | | Free Cash Flow from Operations | | Measures company’s ability to turn operating earnings into cash flow (operating efficiency)
| | | | Business Group Performance and Individual Performance | | Measures performance against goals that are unique to each business group and individual
| | | | | | | | | | | | Stock Price | | Determines value of equity grants realized by executives; aligns executives with shareholders’ interests
| | | | | | Long-Term
Incentive
| | • PRSUs
• Restricted Stock
• Stock Options
| | Targeted to Peer Group Median;
Indexed to Total Cash Compensation
| | Return on Invested Capital | | Measures efficient use of capital over three-year performance period for PRSUs
| | | | | | | | | | | | Indexed to Total Cash Compensation | | Links long-term incentive grant size to key company financial metrics, such as earnings, free cash flow, revenue, ROIC, and business group performance
Ms. Novakovic’s base salary has remained constant since 2015. |
36 General Dynamics 2017 Proxy Statement
Compensation Discussion and Analysis
ANNUAL INCENTIVE COMPENSATIONAnnual Incentive Compensation
The NEOs are eligible forto earn an annual incentive paid in cash incentive based on the company’s prior-year performance and for NEOs other than the CEO and CFO, that of their business groups.performance. The incentive is designed to place at risk a significant portion of each NEO’s annualtotal target compensation. The incentive is based on performance against specific, measurable goals established at the beginning of the year and approved by the Compensation Committee as well as the Committee’s assessment of each NEO’s individual contribution to company performance during the year. The goals are designed to be difficult but achievable through solid execution. The Committee believes the chosen incentive metrics are good indicators of the company’s overall performance and lead to the creation of long-term value for our shareholders. Setting Annual Incentive Targets.Each yearNEO’s target annual incentive, as a percentage of base salary, was determined during our annual compensation benchmarking process and is generally designed to provide total cash compensation near the committee evaluates each NEO’s performance against apre-established scorecard and makes a determination on the amount50th percentile of the annualpeer group if targets are met. Consistent with peer and market practice, the maximum incentive that may range from no incentive for performance that falls short of expectations or up tocan be earned under this plan is two times the target amount foramount. For performance that exceedsfalls significantly short of the goals. LONG-TERM INCENTIVE COMPENSATIONpre-established target, there may be no payout.
In 2016 we based long-termNEO Performance Metrics.For 2019, the annual incentive grants for each NEO was determined based on three performance metrics, two factors:equally-weighted financial metrics totaling 70%: earnings from continuing operations and free cash flow from operations and strategic and operational goals weighted 30%. Because our NEOs play a major role in the overall success of the company in addition to overseeing their business and operational segments, the Committee believes that they should be evaluated on similar company-wide financial metrics as the chief executive officer and the chief financial officer. The performance targets were set in early 2019 based on expected market conditions. The Compensation Committee determines the final payout by considering the NEO’s achievements and contributions during the year as well as company performance, market conditions and difficulty of achieving the goals.
48 General Dynamics
Each NEO’s actual total cash compensationTable of Contents
Compensation Discussion & Analysis How We Chose Our Target Goals.The Committee approved the target goals for the most recently completedtwo financial metrics, in alignment with our annual operating plan and financial guidance, and believes these goals were appropriately challenging and demonstrated significant goal rigor, considering our business outlook at the time. 〉The 2019 earnings from continuing operations and free cash flow from operations targets represented 1.1% and 14.7% growth, respectively, from the 2018 actual performance for these metrics. When comparing the targets year andover year, the 2019 earnings from continuing operations target was 6.6% higher than the 2018 target. The 2019 free cash flow from operations target was essentially flat with the 2018 target, reflecting the impact of the expected increase in capital expenditures in 2019 within the Marine Systems segment to support anticipated growth at Electric Boat. ANNUAL TARGETS AND ACHIEVEMENT – 2019 | Performance Metric | | Threshold | | Target | | Maximum | | Weighting | | Payout
(% of Target) | Earnings from Continuing Operations | |  | | 35% | | 127% of Target | | Free Cash Flow from Operations* | |  | | 35% | | 71% of Target | | Strategic & Operational | | 0% | | 100% | | 200% | | 30% | | See Discussion Below |
| * | See Appendix A for a discussion of this non-GAAP measure. | | ** | Includes a $500 million progress payment collected in early January 2020 following protracted but successful negotiations with an international customer over past due obligations arising prior to 2020 to which management devoted extensive effort toward resolution in 2019. |
Financial Performance Commentary.Each NEO had financial goals (shown above) that determined 70% of their total annual incentive score. Our 2019 earnings from continuing operations exceeded target and reflected 3.8% growth from the results we achieved in 2018. Despite a two-year payment delay from an international wheeled vehicle customer in our Combat Systems segment that continued into 2019, we worked diligently and achieved 88% of target free cash flow from operations. Absent this issue, we would have exceeded our free cash flow from operations target for 2019. Strategic and Operational Goals and Performance Commentary.Each NEO had Strategic/Operational goals that determined 30% of their total annual incentive score. At the beginning of the year, the Committee approved the strategic and operational goals for each NEO. The goals were designed to reflect the significant individual performance expectations for each NEO and fully contemplate that notable achievements beyond the approved goals can be recognized in the individual achievements for the year. Each NEO is expected to contribute to the financial performance of the company beyond that specifically recognized in the financial performance metrics listed in the table above. The following goals, results and contributions were taken into consideration by the Committee to judge the performance of each NEO and are reflected in the individual scores. 2020 Proxy Statement 49
Table of Contents Compensation Discussion & Analysis | Phebe N. Novakovic – 200% of Target | Goals 〉Drive the financial performance of the company while prudently allocating capital 〉Provide strong leadership of cost reduction initiatives throughout the company 〉Effectively manage key leadership transitions 〉Manage enterprise challenges | Achievements 〉Drove record-high operating performance in revenue, operating earnings and earnings per share. 〉Achieved record-high backlog of $87 billion, up 28% from 2018, supporting our long-term growth expectations. Of particular note were the orders for Gulfstream aircraft that increased 57% over 2018 during a period of significant transition to three new models and the $22 billion contract award for Block V of the Virginia-class submarine program, the largest shipbuilding contract in U.S. Navy history. 〉Made prudent capital allocation decisions during a period of constrained cash due to significant customer payment delays on an international wheeled vehicle contract while managing through a multi-year capital investment plan to support the substantial growth anticipated at Electric Boat. 〉Led the cost containment and reduction efforts to drive operating margin performance as the company transitions through a mix shift to several new commercial products at Gulfstream Aerospace and contracts within the defense segments. 〉Managed succession planning through several senior leadership transitions and provided key guidance and oversight to new leaders. 〉Directed and provided significant leadership as to the direction of the customer negotiations on a significant wheeled vehicle contract. 〉Provided oversight and guidance to the strategic efforts at Gulfstream Aerospace to manage through a new model transition; within the Marine Systems segment to influence the contract negotiations on the awarded Virginia-class Block V and upcoming Columbia-class submarine program; and at General Dynamics Information Technology as they managed the integration efforts post the 2018 acquisition of CSRA. |
| Jason Aiken – 200% of Target | Goals 〉Drive the financial performance of the company including earnings per share growth, effective debt management and tax planning strategies 〉Lead the financial direction of cost reduction and cash maximization efforts across the company 〉Provide leadership, oversight and succession planning guidance to the finance function | Achievements 〉Drove record-high operating performance in revenue, operating earnings and earnings per share. 〉Achieved record-high backlog, up 28% from 2018, supporting our long-term growth expectations. 〉Led efforts to maximize the company’s free cash flow from operations in light of continued payment delays related to an international wheeled vehicle contract. Efforts included reduction strategies in the areas of capital expenditures, cash taxes and working capital to facilitate the repayment of outstanding commercial paper as planned. 〉One of two lead negotiators on contract amendment with an international wheeled vehicle customer that resolved two-year long delinquent payment issues. 〉Provided financial leadership and direction over company-wide cost reduction efforts to improve the operating performance across the company. 〉Actively managed the leadership development and succession planning across the finance organization. |
50 General Dynamics
Table of Contents Compensation Discussion & Analysis | Mark C. Roualet – 190% of Target | Goals 〉Meet or exceed Combat Systems segment financial goals 〉Direct segment in driving the reduction of costs 〉Assist with the resolution of operating challenges and leadership transitions 〉Thorough management and frequent reporting of business unit risks and opportunities | Achievements 〉Achieved strong Combat Systems group growth in revenue and operating earnings, 12.3% and 3.5%, respectively, while earning a solid 14.2% operating margin. 〉Led the segment to maximize their cash flow in light of continued payment delays on an international wheeled vehicle contract. 〉Provided experienced leadership and oversight of the Combat Systems segment including advice and counsel to the business unit presidents. 〉Oversaw and directed key operational challenges within the Combat Systems segment resulting in greater manufacturing predictability, delivery improvements and schedule adherence. 〉Provided significant direction and influence to ensure that succession planning efforts within the Combat Systems segment were timely and executed without management interruption. 〉Worked in conjunction with the chairman and chief executive officer to manage the business risks and opportunities to position the Combat Systems segment for future growth. |
| Mark L. Burns – 197% of Target | Goals 〉Meet or exceed Gulfstream Aerospace financial goals 〉Exceed new aircraft order goal 〉Meet major development milestones 〉Harmonize health and welfare plan offerings | Achievements 〉Strong Gulfstream Aerospace performance including record-high revenue and operating earnings while managing through a significant transition to new aircraft models and achieving industry-leading operating margins. 〉Net orders for Gulfstream aircraft increased over 57% from 2018 reflecting significant demand for its three new products - G500, G600 and recently introduced G700. 〉Met all significant development milestones, achieved U.S. Federal Aviation Administration certification of the G600 and delivered 147 aircraft to customers, a 21% increase over 2018. 〉Harmonized health and welfare plans to reflect the consolidated offerings. 〉Certified two consequential safety technologies, runway overrun protection and Enhanced Vision System to land, both industry firsts. 〉Recognized for significant sustainability efforts to utilize and promote the use of sustainable aviation fuel. |
2020 Proxy Statement 51
Table of Contents Compensation Discussion & Analysis | Gregory S. Gallopoulos – 200% of Target | Goals 〉Provide leadership and oversight of the legal function including effective use and management of outside counsel 〉Contribute significantly to the strategy and resolution of general business and legal matters impacting the company 〉Provide strategic thought leadership with respect to legal matters and reduction of legal risk to the company | Achievements 〉Developed sophisticated and innovative legal strategies and options to address significant business issues and areas of legal risk. 〉Managed legal department talent development and succession planning to provide seamless transitions to business unit general counsels and corporate legal roles. 〉Supported the chairman and chief executive officer’s strategic and business priorities with thoughtful and timely legal advice and counsel. 〉Assembled a global team of experts and top-tier legal talent and developed strategies for critical business engagements including negotiations. 〉Focused on strategies to minimize legal expense while preventing the imposition of liability on matters of key importance. 〉Emphasized and directed the legal and operations management teams on the importance of adhering to and fostering a culture of compliance. |
ANNUAL INCENTIVE PAYOUT The peer group medianbelow table summarizes the NEOs’ targets and the Committee’s determination of long-termearned annual incentives. Annual incentives for 2019 performance reflect a decline of 21% from the prior year reflecting our pay-for-performance philosophy, particularly due to the company’s free cash flow from operations shortfall. | Name | | 2019
Base Salary | | Target
Incentive
(% of Base) | | Maximum
Incentive
(% of Base) | | Target
Incentive | | Overall
Achievement | | Annual
Incentive
Payout | | Prior Year’s
Payout | | Percent
Change | | Ms. Novakovic | | $ | 1,585,000 | | 170% | | 340% | | $ | 2,694,500 | | 129% | | $ | 3,482,000 | | $ | 4,727,000 | | -26.3% | | Mr. Aiken | | $ | 850,000 | | 100% | | 200% | | $ | 850,000 | | 129% | | $ | 1,098,000 | | $ | 1,275,000 | | -13.9% | | Mr. Roualet | | $ | 800,000 | | 100% | | 200% | | $ | 800,000 | | 126% | | $ | 1,010,000 | | $ | 1,288,000 | | -21.6% | | Mr. Burns | | $ | 655,000 | | 100% | | 200% | | $ | 655,000 | | 128% | | $ | 840,000 | | $ | 1,100,000 | | -23.6% | | Mr. Gallopoulos | | $ | 740,000 | | 100% | | 200% | | $ | 740,000 | | 129% | | $ | 956,000 | | $ | 950,000 | | 0.6% |
52 General Dynamics
Table of Contents Compensation Discussion & Analysis Long-Term Incentive Compensation Long-term incentive awards ascompensation (LTI) is provided to NEOs to align management’s interest with that of shareholders, to reward NEOs for achievement of multi-year financial goals and total shareholder return performance, and to retain key talent. LTI comprises a percentmajor portion of total cashtarget compensation (TCC). We awardprovided to each NEO. This provides our executives with a significant personal stake in the long-term incentive compensation in three formssuccess of equity: performance restricted stock units (25 percent of award value), restricted stock (25 percent of award value) and stock options (50 percent of award value). Each of these formsGeneral Dynamics. By awarding LTI through various types of equity alignsinstruments, different elements of shareholder alignment are achieved. The following chart illustrates the NEOs with the company’s shareholders and provides retention incentives through multi-year, performance-based vesting periods.
Setting Long-term Grant Amounts:allocation of LTI in our annual grants:
2017. 2019 LONG-TERM INCENTIVE ALLOCATIONStarting withequity grants made in March 2017, the
Setting Long-Term Grant Amounts.The Committee uses guidelines that are constructed around a benchmark of the market median and balances other considerations such as prior-yearcompany performance, complexity of the role, length of service, future expected contributions to the company and impact on dilution.dilution, when determining actual LTI grant amounts. We believe that this approach allows for the consideration of factors in addition to the quantitative metrics that drive annual incentive payments. This change allows the Committee to make grant decisions that better meet the needs of our business and shareholders. 2016. To ensure that long-term incentive awards are reasonablyAs shown below, for annual LTI grants awarded in line with long-term awards at our peer group companies and reflect the financial performance of the company, we used a multiple of TCC to determineMarch 2019, the amount of LTI compensation granted to three of the equity grant. We basedNEOs was comparatively less (10.5% lower vs. 2018) than in the multiple on survey data forprior year due primarily to the ratio of long-term incentives tocompany’s free cash compensation that our peer group companies award to their executives in similar positions.flow from operations performance.
| Name | | 2018 LTI Grant | | 2019 LTI Grant | | Ms. Novakovic | | $ | 14,000,000 | | $ | 12,488,000 | | Mr. Aiken | | $ | 3,300,000 | | $ | 2,970,000 | | Mr. Roualet | | $ | 3,220,000 | | $ | 2,898,000 | | Mr. Burns* | | $ | 2,443,000 | | $ | 2,545,000 | | Mr. Gallopoulos* | | $ | 2,306,000 | | $ | 2,451,000 |
| * | At the time the grants were awarded, Messrs. Gallopoulos and Burns were not NEOs, accordingly, their equity allocation was Stock Options (50%), PSUs (25%) and Restricted Stock (25%). |
Long-Term Incentive Allocation
General Dynamics 2017 Proxy Statement 37
Compensation Discussion and Analysis
Performance Restricted Stock Units Performance Restricted Stock Units (PRSUs)– 50% of LTI.PSUs are a form of equity compensation tied to the achievement of specific performance goals and linked to the long-term performance of the company.
| Purpose | | This element of executive compensation closely connects NEOs to the company’s financial performance and total shareholder return over the long term and acts as a retention tool. | | Performance Metrics | | Three-year average ROIC** subject to a relative total shareholder return (rTSR) modifier | | Vesting | | Three-year cliff vesting | | Dividend and Voting Rights | | Dividend equivalents are deemed reinvested in additional stock units, which are earned only if and when the underlying PSU is earned; PSUs do not have voting rights. | | Forfeiture | | NEOs who voluntarily resign or are terminated for cause prior to the end of the applicable performance period immediately forfeit all PSUs that have not vested unless otherwise determined by the Committee. |
| ** | See Appendix A for additional information. |
2020 Proxy Statement 53
Table of executive compensation closely connects executives to the company’s financial and stock performance over the long term. PRSUs at General Dynamics are structured as follows: PRSU Award = Total LTI Grant x 25%
PRSU grants are calculated by multiplying the overall target LTI economic value determined as noted above by the weighting assigned to the PRSU component (25 percent) and dividing the result by the value of a single share of General Dynamics Common Stock.Contents
Target Setting:Compensation Discussion & Analysis
The three-year ROIC target is set on the date of grant each year and will release at the end of the performance period.
2019 PSU GRANT (2019 – 2021 PERFORMANCE CYCLE) The Committee does not have discretion to reset the target during the three-year performance cycle.
The performance target is set to be challenging, yet achievable.
For the 2016-2018 performance period the ROIC target was established at 15.3 percent which was higher than the target set for grants made in prior years. Consistent with prior years, this target reflects the multi-year operating plan for the company and takes into account management’s assessment of future backlog, earnings and capital deployment. The Committee believes this target is challenging but achievable through continued strong operating performance.
Plan Operation:HOW WE CHOSE OUR TARGET GOAL
| 〉 | The Committee and management believe that the target reflects the multi-year operating plan for the company and reflects management’s assessment of future company performance and required investments in the company’s businesses to support the long-term growth of the company. | | 〉 | The company operates in a dynamic and competitive environment. As such, the target established each year represents the outlook for the upcoming three-year period and may not be comparable to past targets or prior achievement. It is set to be a challenging, yet achievable target. | | 〉 | The three-year ROIC target is set on the date of grant and reflects the best judgment of the Committee at that time. | | 〉 | For the 2019 – 2021 performance period, the ROIC target was set at 13.6% which was modestly above the 13.4% target for the 2018 – 2020 performance period. In setting the target, the Committee considered the impact that the company’s continued investment at Electric Boat, product line expansion at Gulfstream Aerospace and working capital build-up at Land Systems due to customer payment delays will have on the projected ROIC. The Committee cautioned against comparing actual one-year ROIC results to the projected three-year target for ROIC as the one-year results may not reflect the strategic investments that are required by the company to achieve its operating plan. |
After the three-year performance period (2019 – 2021), the number of PRSUsPSUs earned will be adjusted upward or downwarddetermined based on our three-year average ROIC subject to a+/-2.5 percent collar adjustment around the ROIC target to reflect rigorous alignment with company performance. The adjustment provides for the following payouts: rTSR modifier. | | | Three-Year Average ROIC PerformancePerformance* | | PRSU Payout AfterPSU Performance after 3 Years from Grant Date | | 2.5% or more above target | | 150% of target PRSUsPSUs | | | At target | | 100% of target PRSUsPSUs | | | 2.5% below target | | 50% of target PRSUsPSUs | | | More than 2.5% below target | | 0% of target PRSUsPSUs | |
| * | Performance interpolated between 2.5% below and 2.5% above target. |
The resulting percentage earned from three-year average ROIC calculation for purposeswill be subject to a rTSR modifier, which compares our rTSR performance to the TSR performance of PRSU performance does not include accumulatedthe other comprehensive income (AOCI), goodwill write-offscompanies in the yearS&P 500, to produce the final number of earned units. The Committee believes that the S&P 500 provides a more comprehensive comparison for our share price performance compared to our compensation peer group which is a customized benchmark based on a limited number of companies. The rTSR modifier will increase or decrease the PSU payout by as much as one-third, resulting in a payout range between zero and 200% of the event ortarget units granted. | | | | rTSR Modifier | | | | | ROIC Performance (As shown in the chart above) (0—150%) | | × | | Relative TSR Performance | Payout | | = | | Maximum Total Payout | | | 75th Percentile and Above | 133.3% | | |  | | | 50th Percentile | 100.0% | | | | | 25th Percentile and Below | 66.7% | | | | | Payout interpolated for performance between 25th and 75th percentile | | | |
non-economic54 accounting changes. General Dynamics
Table of Contents Compensation Discussion & Analysis In March 2020, the Committee certified the three-year ROIC achievement for PSUs granted in 2017, against the target established for the 2017 – 2019 performance period. | Performance Metric | | 0% Payout of
Target PSU | 50% Payout of
Target PSU | 100% Payout of
Target PSU | 150% Payout of
Target PSU | | Payout*
(% of Target) | | 3-year Average ROIC Performance | |  | | 148% of Target PSUs |
| * | The 2017 – 2019 performance period did not include the relative TSR modifier which was added for performance periods starting in 2019. | | ** | Because the PSU target did not contemplate the acquisition of CSRA, the impact of the acquisition was excluded from the 2018 and 2019 ROIC results (see discussion in Appendix A). |
Restricted Stock – 20% of LTI. Restricted stock awards are designeda form of equity compensation tied to attract and retain executives by providing them with somethe completion of a service period. | Purpose | | This element of executive compensation closely connects NEOs to the company’s total shareholder return performance over the vesting period and also acts as a retention tool. | | Vesting | | The shares are subject to a three-year cliff vesting period (i.e., 100% of the shares vest on the third anniversary of the grant). The Committee believes that the use of three-year cliff vesting on our restricted stock ensures that executives are focused on long-term value creation while supporting the company’s need to attract and retain executives during all market conditions. | | Dividend and Voting Rights | | During the restriction period, NEOs may not sell, transfer, pledge, assign, or otherwise convey their restricted shares. NEOs are eligible to vote their shares and receive dividend payments and other distributions on our Common Stock when declared by the Board of Directors. | | Forfeiture | | NEOs who voluntarily resign or are terminated for cause prior to the end of the applicable vesting period forfeit their restricted stock unless otherwise determined by the Committee. |
Stock Options – 30% of LTI.Stock options are a form of equity compensation linked to the long-term share performance of the benefits associated withcompany. A stock ownership during the restriction period, while incentivizing them to remain with General Dynamics. The Committee has determined that the use of cliff vesting (the entire grant vests at once as opposed to ratably over time) on our restricted stock ensures that executives are focused on long-term value creation while supporting the company’s need to attract and retain executives during all market conditions. Awards granted in 2016 vest after approximately four years. Restricted stock awards granted in March 2017 will vest three years from the grant date. This change increased the alignment across all of our equity vehicles which also vest in three years and mirrors the vesting schedule utilized by most of our peers. Restricted Stock Award = Total LTI Grant x 25%
38 General Dynamics 2017 Proxy Statement
Compensation Discussion and Analysis
Restricted stock grants are calculated by multiplying the overall target LTI economic value determined as noted above by the weighting assigned to the restricted stock component (25 percent) and dividing the result by the value of a single share of General Dynamics Common Stock. During the restriction period, executives may not sell, transfer, pledge, assign, or otherwise convey their restricted shares. Executives are eligible, however, to vote their shares and receive dividend payments and other distributions on our Common Stock when declared by the Board of Directors. Restricted stock awards are service-based, meaning that executives who voluntarily resign or are terminated for cause prior to the end of the holding period forfeit their restricted stock unless otherwise determined by the Committee.
Stock Options
The Committee grants stock options to align executive interests with shareholder interests for many years into the future. They serve as both a retention tool and a value driver. Stock options giveoption gives our NEOs the right to buy up to a sharespecified number of shares of our Common Stock inover the futureterm of the option at a predetermined fixed exercise price. A stock option’s exercise price which is established as the average of the high and low salesshare price of our Common Stock on the date of award.grant. In 2016,March 2019, the exercise price for granted options was $135.85 for each stock option. Stock options vest after three years, with 50 percent of theCommittee approved a grant exercisable after two years and 50 percent exercisable after three years. Our outstanding options granted since 2015 expire 10 years after the grant date.
Stock Options Award = Total LTI Grant x 50%
Stock option grants are calculated by multiplying the overall target LTI economic value determined as noted above by the weighting assigned to the stock options component (50 percent) and dividing the result by the value of a single option, determined under the Black-Scholes methodology applying the same assumptions used for recognizing option expense in our audited financial statements. These assumptions are set out in Note O to our financial statements contained in our Annual Report. The Black-Scholes formula is based on a set of key variables and assumptions and is an accepted model for valuing stock options under FASB ASC Topic 718.
As with restricted stock and PRSU awards, NEOs who voluntarily resign or are terminated for cause immediately forfeit all options that have not vested unless otherwise determined by the Committee. Our equity compensation plan prohibits the repricing of stock options without the approvalto each NEO. The exercise price of shareholders.these stock options was set at $167.61.
| Purpose | | This element of executive compensation closely connects NEOs to the company’s stock price performance over the long term and acts as a retention tool. | | Vesting | | The stock options vest as follows: 50% of the grant becomes exercisable after two years and 50% becomes exercisable after three years. Vested stock options remain exercisable through the options’ expiration date, which occurs on the tenth anniversary of the grant date. Due to our strenuous stock ownership guidelines, stock options, when exercised, must be held as shares until the ownership requirement is met. | | Repricing of Stock Options | | Our equity compensation plan prohibits the repricing of stock options, including the exchange of underwater stock options for another award or for cash, without the approval of shareholders. | | Forfeiture | | As with restricted stock and PSU awards, NEOs who voluntarily resign or are terminated for cause immediately forfeit all stock options that have not vested unless otherwise determined by the Committee. |
2020 Proxy Statement 55
Table of ContentsFIXED COMPENSATIONAND BENEFITS Base SalaryCompensation Discussion & Analysis
Benefits and Perquisites We pay executives an annual salary in cash that is strictly tied to the peer group median (50th percentile) for salaries of executives in comparable positions at our peer group companies based on survey data. Salaries are reviewed annually, and increases, when they occur, are driven by changes in the market. We believe that organizations that perform well over the long term, like General Dynamics, make an effort to pay salaries at or near the market median and create opportunities for executives to earn above median compensation through annual and long-term incentives that are awarded based on performance relative to challenging and clear performance goals. The goal of our base salary is to provide a competitive, fixed rate of cash compensation.
BenefitsBENEFITS
General Dynamics-provided benefits are an important tool used to attract and retain outstanding executives. Benefit levels are reviewed periodically to ensure they are cost-effective, and competitive and support the overall needs of our employees. The company makes available medical, dental, vision, life insurance and disability coverage to all of the NEOs.coverage. NEOs can select the level of coverage appropriate for their circumstances. The company also provides NEOs group life insurance coverage worth two times base salary and 50 percent long-term disability coverage.coverage worth 50% of base salary. General Dynamics 2017 Proxy Statement 39
Compensation Discussion and Analysis
Company-Sponsored Retirement PlansCOMPANY-SPONSORED RETIREMENT PLANS
We provide retirement plans to our eligible employees, including the eligible NEOs, through a combination of qualified andnon- qualified non-qualified plans. Following is a description of the retirement plans in which the NEOs participate: General Dynamics 401(k) Plan Each NEO is eligible to participate in the General Dynamics Corporation 401(k) Plan, a tax-qualified defined contribution retirement plan. Each NEO is eligible to make before-tax contributions and receive company matching contributions under the 401(k) Plan. During 2019, the 401(k) Plan provided for a company-matching contribution of 100% on contributions up to the first 6% of eligible pay for the NEOs. Our matching contributions during 2019 for the NEOs are included in footnote (d) to the All Other Compensation column of the Summary Compensation Table. Defined-Benefit Retirement Plan. PlansEach NEO other than Mr. Johnson participates Ms. Novakovic and Messrs. Aiken and Roualet participate in a company-sponsored defined-benefit plan called the General Dynamics Salaried Retirement Plan.Beginning January 1, 2014, pension accrualsPlan (the Salaried Plan). Benefits under this plan stoppedthe Salaried Plan were frozen for employees at our corporate headquarters, including the participating named executive officers.NEOs, as of December 31, 2013. The benefit under the planSalaried Plan is payable as a life annuity. The Salaried Retirement Plan is a funded, tax-qualified, noncontributory defined-benefit pension plan. It was amended effective January 1, 2007, to exclude any employee initially hired or who incurs a break in service after that date. Thedate.The benefit formula under the Salaried Retirement Plan for employees hired before December 31, 2006,January 1, 2007, is 1.0 percent1.0% times a participant’s highest final average pay frozen as of December 31, 2013, multiplied by years of service earned on andor after January 1, 2007, and before January 1, 2014, plus 1.333 percent1.333% times a participant’s highest final average pay frozen as of December 31, 2010, multiplied by years of service earned prior to January 1, 2007. Final average pay for purposes of calculating retirement benefits includes a NEO’s base salary and cash bonus.annual incentive. The company makes contributions to the Salaried Retirement Plan through payments into a trust fund from which the benefits are paid. Mr. Burns participates in a company-sponsored defined-benefit plan called the Gulfstream Aerospace Corporation Pension Plan (the GAC Plan). The plan was amended in December 2018, freezing the benefits for Mr. Burns as of December 31, 2018. The GAC Plan is a funded, tax-qualified, noncontributory defined-benefit pension plan. For service prior to January 1, 2004, Mr. Burns has a frozen pension accrued benefit under the GAC Plan that totals approximately $3,400 payable monthly as a single-life annuity. Upon his retirement, this amount will increase with cost of living adjustments up to a maximum of 3% annually. Effective January 1, 2004, the GAC Plan was amended to provide benefits for each month of credited service earned after December 31, 2003, based on 1.125% of the final average monthly pay at or below the monthly integration level plus 1.25% of the excess above the integration level. Final average monthly pay takes into account salary and annual bonus after December 31, 2003, but excludes equity awards. The portion of Mr. Burns’ benefit earned after December 31, 2003, is frozen as of December 31, 2018, is payable monthly as a life annuity and is not subject to cost-of-living adjustments. Mr. Gallopoulos is not eligible to participate in any of the company’s defined-benefit plans. 56 General Dynamics
Table of Contents Compensation Discussion & Analysis Supplemental Retirement Plan. Plan The amount of cash compensation used to calculate pension benefits for participants in the Salaried Retirement Plan is limited by the Internal Revenue Code ($265,000280,000 in 2016)2019). To provide a benefit calculated on compensation in excess of this compensation limit, the company provides eligible executives participating in the Salaried Plan with coverage under the General Dynamics Corporation Supplemental Retirement Plan. Benefits under the Supplemental Retirement Plan are general unsecured obligations of General Dynamics. Each NEO, other than Mr. Johnson, participatesMs. Novakovic and Messrs. Aiken and Roualet participate in the Supplemental Retirement Plan.Beginning January 1, 2014, pension Pension accruals under this plan stoppedwere frozen for employees at our corporate headquarters including the participating named executive officers.NEOs as of December 31, 2013. Anteon International Corporation Supplemental Retirement Savings Plan. Mr. Johnson has an account balance under the frozen Anteon International Corporation Supplemental Retirement Savings Plan. Under the plan, certain eligible employees of Anteon could defer receipt of all or a portion of their annual cash compensation prior to the plan being frozen in 2007. Upon his retirement or other separation from the company, Mr. Johnson may elect to receive the deferred compensation in either a lump sum or in annual installments over a period of up to ten years.
401(k) Plan. Each NEO is eligible to participate in the General Dynamics Corporation 401(k) Plan, atax-qualified defined contribution retirement plan. Each NEO is eligible to makebefore-tax contributions and receive company matching contributions under the 401(k) Plan. During 2016, for NEOs other than Mr. Johnson, the 401(k) Plan provided for a company-matching contribution of (1) 100 percent onbefore-tax contributions up to the first 3 percent of a participant’s eligible pay and (2) 50 percent onbefore-tax contributions on the next 3 percent of a participant’s eligible pay. Mr. Johnson participates in a version of the 401(k) plan that provides for a company-matching contribution of 50 percent onbefore-tax contributions up to the first 6 percent of his eligible pay. Our matching contributions during 2016 for the NEOs are included in footnote (d) to the All Other Compensation column of the Summary Compensation Table on page 49 of this Proxy Statement.
Supplemental Savings Plan. Plan The company provides a Supplemental Savings Plan to key employees, including each NEO. The purpose of the Supplemental Savings Plan is to allow key executives to defer salary and receive matching contributions on compensation in excess of the compensation limit imposed by the Internal Revenue Service on earnings used to calculate 401(k) contributions. Matching contributions during 20162019 for the NEOs are included in footnote (d) to the All Other Compensation column of the Summary Compensation Table on page 49 of this Proxy Statement.Table. Other Retiree Benefits. Benefits Eligible key executives throughout the company, including the NEOs (other than Mr. Burns), can purchase group term life insurance prior to retiringat retirement of up to two times their base pay. For executives who retire early (prior to age 65), we pay for insurance coverage equal toone-half the executive’s base salary until the executive reaches age 65. For early retirees who elect coverage in excess ofone-half of base pay they will pay monthly premiums for the additional coverage. For executives retiring at or after age 65, we pay for insurance coverage up to two times an executive’s base salary. This coverage is ratably reduced over a five-year period following the executive’s retirement, or beginning at age 65 for early retirees, subject to a maximum coverage level of 25 percent25% of the coverage in effect at the time of retirement. 40 General Dynamics 2017 Proxy Statement
Compensation Discussion and Analysis
PerquisitesPERQUISITES
We continue to offer onlyprovide our NEOs perquisites that the Committee believes are reasonable yet competitive. The company provides perquisites to key executive officers, including the NEOs for purposes of recruiting,recruitment, retention and security. We provide perquisites to ensure the security and accessibility of our executives and to facilitate the transaction of business. As a reasonableness test, we compare these perquisites to generally accepted corporate practices. TheIn 2019, the perquisites provided to our NEOs in 2016 were:were financial planning and tax preparation services, physical examinations, home security systems, personal liability and supplemental accidental death and dismemberment insurance, and the personal use of automobiles owned or leased by the company. In addition, personal use of our aircraft was provided only to our chairman and chief executive officer as required by the Board to help ensure her security and accessibility.
We have provided additional information on perquisites in footnote (d) to the All Other Compensation column of the Summary Compensation Table on page 49 of this Proxy Statement.Table. POTENTIAL SEVERANCEOther Considerations
POTENTIAL SEVERANCE AND CHANGE CHANGE IN CONTROL BENEFITS CONTROL BENEFITS The company has change in control agreements, also known as severance protection agreements, with each of the NEOs. The company believes that these agreements are an important tool for recruiting and retaining highly qualified executives. The agreements are structured to protect the interests of shareholders by including a “double trigger”“double-trigger” mechanism that results in a severance payout only when: | 〉 | A change of control is consummated, and | | 〉 | The executive’s employment is terminated by the company without cause or by the executive for good reason within 24 months following the change in control. |
2020 Proxy Statement 57
Table of control is consummated, andContents Compensation Discussion & Analysis The executive’s employment is terminated by the company without cause or by the executive for good reason within 24 months following the change in control.
A “change in control” is defined to include specified stock acquisition, merger or disposition transactions involving General Dynamics. The Committee evaluates and reviews payment and benefit levels under the change in control agreements regularly. These reviews support the view that the agreements are consistent with the practices of our peer group companies. The form ofOur severance protection agreementagreements for NEOs appointed after April 2009 excludesexclude any provision for reimbursement of excise taxes that may become due upon a change in control. Updated Agreements in 2016. This year, Ms. Novakovic, the only remaining NEO eligible for reimbursement of excise taxes signed a new severance protection agreement which eliminated this provision. All employees with severance protection agreements are no longer eligible for reimbursement on excise taxes after signing new agreements effective this year.
Payments and benefits provided to NEOs pursuant to the change in control agreements are described in the Potential Payments upon Termination or Change in Control section beginning on page 5768 of this Proxy Statement. General Dynamics 2017 Proxy Statement 41
Compensation Discussion and Analysis
The Committee approves and is actively engaged in the development and implementation of the executive compensation program, with the support of the independent compensation consultant and company management. The program is structured to:
Align executive compensation with shareholder value creation
Ensure retention and growth for executives in a competitive environment
Compensate executives subject to clear and challenging performance metrics
Program objectives are achieved through the use of both short-term and long-term incentives. The company currently targets the median pay of our peers as further discussed in detail below. In addition, through the annual incentive plan, the NEOs are rewarded for achieving annual company and business group goals.
SETTING COMPENSATION LEVELSAND EVALUATING PERFORMANCE
Setting compensation for senior executives is a16-month process that begins in the fall of each year when senior management establishes company operating goals for the coming year. The business plans are presented to the chairman and chief executive officer annually in November. The chairman, in consultation with the chief financial officer and the executive vice presidents, establishes the business group operating goals and the company operating plan for the coming year based on those business group plans. The business group plans include challenging but achievable goals that could result in incentive compensation payouts above the peer group median for superior performance or as little as zero if goals are not met. At athree-day Board meeting in the first quarter of each year, the business unit presidents present their plans to the Board of Directors. The Board then reviews, adjusts where appropriate, and approves the business group operating goals and adopts our company operating plan for the year. Throughout the year, the Board reviews and monitors company performance as compared to the operating plan through a series of financial and operating reports given by the chief financial officer and the executive vice presidents.
The Committee reviews performance beginning the following February. At that time, the chairman and chief executive officer and the executive vice presidents assess the performance of the business groups and the company compared with the operating plan goals adopted the prior year. The chairman and chief executive officer along with senior management report the results of that assessment to the Board of Directors at a meeting in the first quarter of the year. Following these reports, the chairman and chief executive officer, after consultation with senior management, undertakes an initial discussion with the Committee regarding executive compensation for the year. At this meeting, the chairman and chief executive officer provides the Committee with a performance assessment of each NEO (other than herself) against their scorecard goals. The Committee convenes in early March to review scorecards for the company and approve final executive compensation proposals. The Committee reviews, refines and approves compensation against the goals reflected on the scorecard for the chairman and chief executive officer in executive session at the March meeting.
The Committee bases compensation on the clearly defined and disclosed performance goals described in this Proxy Statement. The Committee’s decisions also reflect factors such as the degree of difficulty of goals, market conditions and exceptional individual achievement.
42 General Dynamics 2017 Proxy Statement
Compensation Discussion and Analysis
PEER GROUPAND BENCHMARKINGTOROLE OF THE MARKET
Each year, the Committee, with support from an independent compensation consultant, peer group proxy data and survey data provided by Aon Hewitt, identifies a core group of companies that are, in comparison to General Dynamics:
In similar industries and where General Dynamics competes for business (aerospace and defense)
Likely sources of executive talent
Reasonably comparable in size, as measured by revenue and market capitalization
Reasonably similar in organizational structure and complexity
Consist of some of the peers of our peer companies
The companies in our peer group for 2016 are listed below. This peer group is appropriate for our industry and where we compete for talent. The peer group is utilized for purposes of comparing our executive compensation practices, structures and levels. The Committee will continue to review and analyze the peer group for reasonableness and competitiveness with General Dynamics’ business offerings.
| | | | | | | | | | Peer Group Companies* | | | | Market
Capitalization
(in millions) | | Revenue (in millions) | | Employee
Population | | Peer of Peers | The Boeing Company | | $ 96,086 | | $ 94,571 | | 150,500 | | ✓ | Honeywell International Inc. | | $ 88,184 | | $ 39,302 | | 131,000 | | ✓ | L-3 Communications Holdings Inc. | | $ 11,748 | | $ 10,511 | | 38,000 | | ✓ | Lockheed Martin Corporation | | $ 72,483 | | $ 47,248 | | 97,000 | | ✓ | Northrop Grumman Corporation | | $ 40,608 | | $ 24,508 | | 67,000 | | ✓ | Raytheon Company | | $ 41,589 | | $ 24,069 | | 63,000 | | ✓ | Rockwell Collins, Inc. | | $ 12,136 | | $ 5,283 | | 19,000 | | ✓ | Textron Inc. | | $ 13,262 | | $ 13,788 | | 36,000 | | ✓ | United Technologies Corporation | | $ 88,339 | | $ 57,244 | | 201,600 | | ✓ | Median | | $ 41,589 | | $ 24,508 | | 67,000 | | | General Dynamics | | $ 52,216 | | $ 31,353 | | 98,800 | | ✓ | General Dynamics (Percentile Rank) | | 55% | | 56% | | 63% | | |
* Peer group data are as of December 31, 2016.
General Dynamics 2017 Proxy Statement 43
Compensation Discussion and Analysis
NEO PERFORMANCE METRICSAND TARGETSFOR 2016
The following scorecards demonstrate each NEO’s goals and objectives for the year and performance against those goals and objectives. There is a scorecard for the CEO, CFO and each other NEO who leads one of the General Dynamics business groups.
| | | GENERAL DYNAMICS | Aerospace | | Combat Systems | | | • Gulfstream Aerospace
• Jet Aviation
| | • European Land Systems
• Land Systems
• Ordnance and Tactical Systems
| Information Systems and Technology | | Marine Systems | | | • Information Technology
• Mission Systems
| | • Bath Iron Works
• Electric Boat
• NASSCO
|
New for 2016, annual incentives for NEOs are based on a percentage of base salary. Each NEO’s target was determined during our annual compensation benchmarking process and is designed to provide total cash compensation near the 50th percentile of the peer group if targets are met. Consistent with peer and market practice, the maximum incentive that can be earned under this plan is two times the target amount. For performance that falls short of thepre-established target, there may be no payout. 2016 was a strong operational year for General Dynamics which resulted in significant outperformance against all incentive plan metrics. Above target bonuses were awarded to NEOs in recognition of their role in driving these results as well as for their individual performance and achievements throughout the year. The below table summarizes each NEO’s target and the Compensation Committee’s determination of final incentives.
| | | | | | | | | | | | | Name and Title | | 2016 Base Salary | | Target Incentive (% of Base) | | Maximum Incentive (% of Base) | | Target Incentive | | Maximum Incentive | | Annual Incentive Payout | P. Novakovic Chairman and Chief Executive Officer | | $1,585,000 | | 170% | | 340% | | $2,694,500 | | $5,389,000 | | $5,150,000 | J. Aiken Senior Vice President and Chief Financial Officer | | $ 710,000 | | 100% | | 200% | | $ 710,000 | | $1,420,000 | | $1,200,000 | J. Casey Executive Vice President, Marine Systems | | $ 755,000 | | 100% | | 200% | | $ 755,000 | | $1,510,000 | | $1,400,000 | M. Roualet Executive Vice President, Combat Systems | | $ 755,000 | | 100% | | 200% | | $ 755,000 | | $1,510,000 | | $1,400,000 | S. Johnson Executive Vice President, Information Systems and Technology | | $ 725,000 | | 100% | | 200% | | $ 725,000 | | $1,450,000 | | $1,250,000 |
44 General Dynamics 2017 Proxy Statement
Compensation Discussion and Analysis
Chairman and Chief Executive Officer
| | | | | | | Performance Metric | | Weighting | | 2016 Target | | 2016 Actual | Earnings from Continuing Operations
| | 50% | | $2,888 million | | $3,062 million | Free Cash Flow from Operations
| | 50% | | $1,486 million | | $1,806 million |
Senior Vice President and Chief Financial Officer
| | | | | | | Performance Metric | | Weighting | | 2016 Target | | 2016 Actual | Earnings from Continuing Operations
| | 45% | | $2,888 million | | $3,062 million | Free Cash Flow from Operations
| | 45% | | $1,486 million | | $1,806 million | Meet /Under-run 2016 Budget
| | 5% | | Operate corporate
headquarters and
finance department below
budgeted costs | | Exceeded goal | Complete Two Continuous Improvement Projects
| | 5% | | Complete Lean Six Sigma
projects | | Exceeded goal |
Executive Vice President, Marine Systems
| | | | | | | Performance Metric | | Weighting | | 2016 Target | | 2016 Actual | Earnings from Continuing Operations
| | 45% | | $2,888 million | | $3,062 million | Free Cash Flow from Continuing Operations
| | 45% | | $1,486 million | | $1,806 million | Business Group Financial Metrics
| Continuous Improvement Savings
| | 10% | | $75 million | | $192 million |
Executive Vice President, Combat Systems
| | | | | | | Performance Metric | | Weighting | | 2016 Target | | 2016 Actual | Earnings from Continuing Operations
| | 45% | | $2,888 million | | $3,062 million | Free Cash Flow from Continuing Operations
| | 45% | | $1,486 million | | $1,806 million | Business Group Financial Metrics
| Continuous Improvement Savings
| | 10% | | $110 million | | $170 million |
Executive Vice President, Information Systems and Technology
| | | | | | | Performance Metric | | Weighting | | 2016 Target | | 2016 Actual | Earnings from Continuing Operations
| | 45% | | $2,888 million | | $3,062 million | Free Cash Flow from Continuing Operations
| | 45% | | $1,486 million | | $1,806 million | Business Group Financial Metrics
| IS&T Revenue
| | 10% | | $8,995 million | | $9,187 million |
General Dynamics 2017 Proxy Statement 45
Compensation Discussion and Analysis
ROLEOFTHE INDEPENDENT COMPENSATION CONSULTANT INDEPENDENT COMPENSATION CONSULTANT
The Committee’s charter provides that the Committee has sole authority to engage the services of an independent compensation consultant for the Committee and approve fees paid to the consultant by the company. The Committee engaged PricewaterhouseCoopers LLP (PwC)Meridian Compensation Partners, LLC (Meridian) as an independent compensation consultant to provide advice on executive compensation matters. The Committee found that PwCMeridian provided important perspectives about the market practices for executive compensation, peer company analysis and selection, the levels and structure of the compensation program and compensation governance. In early 2016, the Committee, after reviewing the factors influencing independence (as specified by the New York Stock Exchange listing standards) including the fees paid by the company to PwC for other services, engaged PwC for compensation consulting services. PwC is also available to provide advice to the chairman of the Committee or the Committee as a whole on executive compensation matters on anas-needed basis. PwC attends Committee meetings upon the request of the Committee’s chair and may also provide observations and insights to the Committee related to the amount or form of compensation for our executives.
During 2016,2019, at the Committee’s request, PwCMeridian performed the following specific services: | 〉 | Attended all Committee meetings | | 〉 | Provided regulatory education to the Committee | | 〉 | Provided information and advice relating to executive compensation matters | | 〉 | Reviewed compensation-related disclosures in the company’s proxy statement |
Attended all Committee meetings
Provided regulatory education session with the Committee
Provided information relating to executive compensation matters
Reviewed compensation-related disclosures in the company’s proxy statement
In 2016, the chair ofBefore engaging Meridian, the Committee approved fees of approximately $18,400 to PwC in its capacity as external advisor toreviewed the Committee. Management neither made, nor recommended, the decision to engage PwC. The PwC group providing compensation services to the Committee reports directly to the chair of the Committee and is not involved in providing any other services to the company. During 2016, the company retained PwC to provide services to the company unrelated to executive compensation, including tax and other business-related services. The aggregate fees paid for those services in 2016 were approximately $2.8 million. In February 2017, the Committee undertook an assessment of PwC’s services for the Committee and the company as well as other factors influencing independence (as specified by the New York Stock Exchange listing standards) and determined that no conflict of interest exists. The Committee further concluded that PwC is independent of management as a consultant and is duly qualified to assist the Committee.
In March 2017, the Committee ended its engagement with PwC and began using Meridian Compensation Partners, LLC as its independent compensation consultant.
46 General Dynamics 2017 Proxy Statement
Compensation Discussion and Analysis
STOCK OWNERSHIP GUIDELINESANTI-HEDGING AND HOLDING REQUIREMENTS
Our stock ownership and retention guidelines are the most stringent in our peer group. Stock ownership guidelines strongly align the interests of management with the interests of shareholders because executives become shareholders with a considerable investment in General Dynamics.
Our stock ownership and retention guidelines preclude NEOs from selling shares of common stock until they own shares with a market value of 10 times their base salary and 15 times for the CEO. Shares held outright and shares held through our 401(k) plans are counted for purposes of meeting the ownership guidelines. Stock options (whether vested or not), PRSUs and unvested shares of restricted stock are not counted in the ownership calculation.
| | | | Stock Ownership Guidelines | CEO | | 15x Base Salary | NEOs (other than CEO) | | 10x Base Salary |
When exercising options, executives who have not met the ownership guideline may sell shares acquired upon exercise to cover transaction costs and taxes and are expected to hold any remaining shares until the guidelines are met. Similarly, shares received upon vesting of restricted stock and PRSUs may not be sold until the ownership guidelines are met. Once an officer attains his or her required ownership level, the officer must maintain that ownership level until he or she no longer serves as an officer. The stock ownership and retention guidelines are reviewed annually by the Committee.
ANTI-HEDGINGAND ANTI-PLEDGING POLICIES ANTI-PLEDGING POLICIES
The company has a longstanding policy in place that prohibits all directors and executive officers from hedging company securities. Since 2014, the company has maintained a policy prohibiting all directors and executive officers from pledging company securities that they own directly. Mr. Crown has the ownership of certain shares attributed to him that arise from the business of Henry Crown and Company, an investment company where Mr. Crown serves as President,Chairman and Chief Executive Officer, and trusts of which Mr. Crown serves as trustee (Attributed Shares). Mr. Crown disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest. The Attributed Shares are distinct from shares owned by Mr. Crown or his spouse own individually, or shares held in trusts for the benefit of his children (Crown Personally Held Shares). The company has reviewed the potential pledging of the Attributed Shares with Mr. Crown, recognizes Mr. Crown’s distinct obligations with respect to Henry Crown and Company and the trusts, and believes such shares may be prudently pledged or held in margin loan accounts. Under the company’s anti-pledging policy, Crown Personally Held Shares are considered company securities that are owned directly by Mr. Crown and, accordingly, may not be and are not held in margin accounts or otherwise pledged as collateral, nor may the economic risk of such shares be pledged.hedged. 58 General Dynamics
Table of ContentsCLAWBACK POLICY Compensation Discussion & Analysis STOCK OWNERSHIP GUIDELINES AND HOLDING REQUIREMENTS Our stock ownership and retention guidelines are the most stringent in our peer group. Stock ownership guidelines strongly align the interests of management with the interests of shareholders because executives become shareholders with a considerable investment in General Dynamics. Our stock ownership and retention guidelines preclude NEOs from selling shares of our Common Stock until they own shares with a market value of eight to 10 times their base salary and 15 times for the chief executive officer. Shares held outright and shares held through our 401(k) plans are counted for purposes of meeting the ownership guidelines. Stock options (whether vested or not), PSUs and unvested shares of restricted stock are not counted in the ownership calculation. | Stock Ownership Guidelines | | Chief Executive Officer | Officers including Other NEOs | | | | 15xBase Salary | 8x to 10xBase Salary | | 〉 | |
When exercising options, executives who have not met the ownership guideline may sell shares acquired upon exercise to cover transaction costs and taxes and are expected to hold any remaining shares until the guidelines are met. Similarly, shares received upon vesting of restricted stock and PSUs may not be sold until the ownership guidelines are met. Once an officer attains the required ownership level, the officer must maintain that ownership level until he or she no longer serves as an officer. The stock ownership and retention guidelines are reviewed annually by the Committee. For the year ended December 31, 2019, the total number of shares owned by our CEO and other officers represented 18 times their combined annual salaries. CLAWBACK POLICY The company has in place an executive compensation recoupment policy, or “clawback” policy, which applies to senior executive officers of the company (referred to as the covered“covered executive officers)officers”), including the NEOs. In the event of a restatement of our financial results due to a covered executive officer engaging in fraud or intentional illegal conduct, the result of which is that any equity or other performance-based compensation paid to that covered executive officer would have been a lower amount had it been calculated based on the restated results, the Committee will have the authority to recover any excess compensation that was awarded to that covered executive officer. In determining the excess compensation, the Committee will take into account its good faith estimate of the value of awarded and actual compensation that may have been affected by the restatement and the events leading to it. This includes all performance-based cash incentives and equity-based grants which may have vested or been exercised during the period in question. General Dynamics 2017 Proxy Statement 47
Compensation Discussion and Analysis
MONITORING DILUTIONCOMPENSATION AND ANNUAL EQUITY USAGE
The Committee is focused on using equity to compensate executives in a manner that links executive and shareholder interests while focusing on the overall dilutive effect of that equity. The Committee achieves this balance by managing reasonable levels of equity dilution and annual share usage (“burn rate”) when granting equity-based compensation. The Committee considers the need to attract, motivate and retain the level of executive talent required to execute the business strategy and achieve operational excellence at General Dynamics.
The dilution and grant/burn rate are calculated as follows:
Actual dilution is calculated as the amount of outstanding PRSUs, restricted stock and stock options granted to all employees (not just NEOs) andnon-employee directors, divided by shares outstanding.
Grant rate, or burn rate, is calculated as the amount of PRSUs, restricted stock and stock options granted to all employees (not just NEOs) andnon-employee directors, divided by shares outstanding.
The table below shows the dilution and one and three-year grant rate for 2014, 2015 and 2016:
| | | | | | | | | | | | | | | | | | | | 2014 | | | 2015 | | | 2016 | | Actual Dilution | | | 5.12% | | | | 4.80% | | | | 4.54% | | 1-Yr Grant Rate | | | 1.67% | | | | 0.82% | | | | 1.06% | | 3-Yr Average Grant Rate | | | 1.97% | | | | 1.63% | | | | 1.19% | |
COMPENSATIONAND RISK MANAGEMENT RISK MANAGEMENT
With the support of management and the independent compensation consultant, the Committee evaluates the company’s overall risk profile relative to the incentive components of compensation to ensure that NEOs are not overly incentivized to focus on short-term stock performance. The use of long-term equity incentive awards as a significant portion of total direct compensation and robust stock ownership guidelines are structured to ensure management is focused on the long term and not incentivized to take excessive risk. TAX CONSIDERATIONSTAX CONSIDERATIONS
As part of the annual compensation review process, the Committee considers the implications of Section 162(m) of the Internal Revenue Code which is a provision thatgenerally precludes the company from taking a tax deduction for individualcertain executive officers’ compensation in excess of $1 million. TheHowever, tax law provides transition relief for certain “performance-based compensation” and other arrangements in place as of November 2, 2017. While the Committee also considers the exemptionsimplications of Section 162(m) when taking any actions concerning compensation that may qualify for transition relief and may continue to consider tax deductibility as a factor in making compensation decisions, it retains the $1 million limit, which are also provided in Section 162(m), includingflexibility to provide compensation to executives consistent with the exemption for “performance-based compensation” as defined in Section 162(m). In May 2016, shareholders approved the General Dynamics Corporation Executive Annual Incentive Plan that supports the deductibility of payments made under the incentive component of total cash compensation. This change affects incentive payments made in 2017 based on 2016 performance.company’s compensation programs, even if such compensation would not be fully deductible.
48 General Dynamics 20172020 Proxy Statement59
Table of ContentsEXECUTIVE COMPENSATION SUMMARY COMPENSATION Executive Compensation
Summary Compensation The Summary Compensation Table conforms to requirements of the SEC and shows base salary, cashannual incentive, equity awards (restricted stock, performance restricted stock units (PSUs) and stock options) and all other compensation, which includes among other things the value of perquisites, 401(k) contributions and tax reimbursements (see footnote (d) to the Summary Compensation Table for a complete listing of categories included in All Other Compensation). The table also includes a column titled Change in Pension Value and Nonqualified Deferred Compensation Earnings. For our eligible named executive officers,NEOs, this includes only the change in pension value (see footnote (c)), which is an actuarial estimate of the present value of the future cost of pension benefits. The value does not reflect a current cash cost to General Dynamics or, necessarily, the pension benefit that an executive would receive, since that is determined by a number of factors, including length of service, age at retirement and longevity. SUMMARY COMPENSATION TABLE Name and
Principal Position | | Year | | Salary | | Stock
Awards(a) | | Option
Awards(a) | | Non-Equity
Incentive Plan
Compensation(b) | | Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(c) | | All Other
Compensation(d) | | Total | Phebe N. Novakovic
Chairman and
Chief Executive Officer | | 2019 | | $ | 1,585,000 | | $ | 8,630,680 | | $ | 3,746,192 | | | $ | 3,482,000 | | | | $ | 484,613 | | | | $ | 384,719 | | | $ | 18,313,204 | | 2018 | | | 1,585,000 | | | 7,000,052 | | | 6,999,708 | | | | 4,727,000 | | | | | — | | | | | 408,494 | | | | 20,720,254 | | 2017 | | | 1,585,000 | | | 6,999,332 | | | 7,000,390 | | | | 5,300,000 | | | | | 300,661 | | | | | 316,046 | | | | 21,501,429 | Jason W. Aiken
Senior Vice President and
Chief Financial Officer | | 2019 | | $ | 850,000 | | $ | 2,052,799 | | $ | 890,624 | | | $ | 1,098,000 | | | | $ | 158,659 | | | | $ | 73,227 | | | $ | 5,123,309 | | 2018 | | | 830,000 | | | 1,650,364 | | | 1,649,508 | | | | 1,275,000 | | | | | — | | | | | 66,158 | | | | 5,471,030 | | 2017 | | | 755,000 | | | 1,625,701 | | | 1,624,228 | | | | 1,386,000 | | | | | 85,192 | | | | | 65,619 | | | | 5,541,740 | Mark C. Roualet
Executive Vice President,
Combat Systems | | 2019 | | $ | 800,000 | | $ | 2,003,157 | | $ | 868,859 | | | $ | 1,010,000 | | | | $ | 542,898 | | | | $ | 81,760 | | | $ | 5,306,674 | | 2018 | | | 795,000 | | | 1,610,057 | | | 1,609,715 | | | | 1,288,000 | | | | | — | | | | | 78,162 | | | | 5,380,934 | | 2017 | | | 773,750 | | | 1,610,364 | | | 1,609,342 | | | | 1,404,000 | | | | | 330,396 | | | | | 83,926 | | | | 5,811,778 | Mark L. Burns
Vice President of the
Company and President,
Gulfstream Aerospace | | 2019 | | $ | 655,000 | | $ | 1,272,160 | | $ | 1,272,817 | | | $ | 840,000 | | | | $ | 267,984 | | | | $ | 64,524 | | | $ | 4,372,485 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gregory S. Gallopoulos
Senior Vice President and
General Counsel | | 2019 | | $ | 735,000 | | $ | 1,225,229 | | $ | 1,225,515 | | | $ | 956,000 | | | | $ | — | | | | $ | 67,747 | | | $ | 4,209,491 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | SUMMARY COMPENSATION TABLE(a) | | NAMEAND
PRINCIPAL
POSITION
| | YEAR | | | SALARY | | | BONUS (a) | | | STOCK
AWARDS (b)
| | | OPTION
AWARDS (b)
| | | NON-EQUITY
INCENTIVE PLAN
COMPENSATION (a) | | | CHANGEIN
PENSION
VALUEAND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS (c)
| | | ALL OTHER
COMPENSATION
(d)
| | | TOTAL | | Phebe N. Novakovic
Chairman and Chief Executive Officer
| |
| 2016
2015
2014
|
| | $
| 1,585,000
1,583,750
1,560,000
|
| | $
| —
4,850,000
4,250,000
|
| | $
| 7,079,144
6,856,781
6,460,752
|
| | $
| 7,077,746
6,855,267
6,464,027
|
| | $
| 5,150,000
—
—
|
| | $
| 155,239
—
394,888
|
| | $
| 310,948
278,306
258,417
|
| | $
| 21,358,077
20,424,104
19,388,084
|
| Jason W. Aiken
Senior Vice President and Chief Financial Officer
| |
| 2016
2015
2014
|
| | $
| 701,250
662,500
625,000
|
| | $
| —
900,000
600,000
|
| | $
| 1,490,275
1,344,547
1,249,888
|
| | $
| 1,489,540
1,345,267
1,249,895
|
| | $
| 1,200,000
—
—
|
| | $
| 38,464
—
106,112
|
| | $
| 139,984
58,305
1,281,747
|
| | $
| 5,059,513
4,310,619
5,112,642
|
| John P. Casey
Executive Vice President, Marine Systems
| |
| 2016
2015
2014
|
| | $
| 747,500
716,250
685,000
|
| | $
| —
1,020,000
900,000
|
| | $
| 1,642,427
1,299,410
1,249,888
|
| | $
| 1,642,472
1,300,360
1,253,914
|
| | $
| 1,400,000
—
—
|
| | $
| 242,463
—
720,069
|
| | $
| 64,724
58,204
59,862
|
| | $
| 5,739,586
4,394,224
4,868,733
|
| Mark C. Roualet
Executive Vice President, Combat Systems
| |
| 2016
2015
2014
|
| | $
| 747,500
713,750
678,750
|
| | $
| —
995,000
900,000
|
| | $
| 1,619,332
1,299,410
1,047,568
|
| | $
| 1,620,593
1,300,360
1,048,370
|
| | $
| 1,400,000
—
—
|
| | $
| 168,004
—
490,084
|
| | $
| 69,278
67,230
353,422
|
| | $
| 5,624,707
4,375,750
4,518,194
|
| S. Daniel Johnson
Executive Vice President, Information Systems and Technology
| |
| 2016
2015
|
| | $
| 713,750
680,000
|
| | $
| —
850,000
|
| | $
| 1,457,671
1,236,491
|
| | $
| 1,457,274
1,235,342
|
| | $
| 1,250,000
—
|
| | $
| —
—
|
| | $
| 54,297
44,752
|
| | $
| 4,932,992
4,046,585
|
|
(a) | Payments are reported for the fiscal year in which the related services were rendered, although the actual payments are made in the succeeding year. Bonus awards for 2016 performance were made under the General Dynamics Corporation Executive Annual Incentive Plan and are shown in theNon-Equity Incentive Plan Compensation column.
|
(b) | The amounts reported in the Stock Awards and the Option Awards columns reflect aggregate grant date fair value computed in accordance with FASB ASC Topic 718.718,Compensation – Stock Compensation. These amounts reflect our calculation of the value of these awards at the grant date and do not necessarily correspond to the actual value that may ultimately be recognizedrealized by the named executive officer.NEO. Assumptions used in the calculation of these amounts are included in Note OQ to our audited financial statements for the fiscal year ended December 31, 2016,2019, included in our Annual Report on Form10-K filed with the SEC on February 6, 2017.10, 2020. Stock Awards include awards of restricted stock and performance restricted stock units (PRSUs).PSUs. The maximum grant date value of 2016 PRSUs2019 PSUs for each named executive officer,NEO, which assumes a 150 percent maximum payout, is $5,309,290$9,199,936 for Ms. Novakovic; $1,117,638$1,187,933 for Mr. Aiken; $1,231,752 for Mr. Casey; $1,214,499$2,134,840 for Mr. Roualet; and $1,093,185$954,120 for Mr. Johnson.Burns; and $918,922 for Mr. Gallopoulos. |
| (b) | Payments are reported for the fiscal year in which the related services were rendered, although the actual payments are made in the succeeding year. | | (c) | The values listed in this column represent the change in the present value of accumulated benefits from December 31 of the prior year to December 31 of the respective year calculated for all the pension plans in which the executive participates. The values are an actuarial estimate of the present value of the future cost of pension benefits for each of the named executive officersNEOs and do not reflect a current cash cost to the company or, necessarily, the pension benefit that an executive would receive. Pension benefits for named executive officersMs. Novakovic and Messrs. Aiken and Roualet were frozen as of December 31, 2013. Pension benefits for Mr. Burns were frozen as of December 31, 2018. Negative changes in pension value were excluded from this column for the named executive officersNEOs as follows: for Ms. Novakovic, $(40,533)$(140,339) for 2015;2018; for Mr. Aiken, $(24,600)$(65,402) for 2015; for Mr. Casey, $(30,414) for 2015;2018; and for Mr. Roualet $(51,485)$(167,921) for 2015. Mr. Johnson is not eligible to participate in the company’s pension plans.2018. |
60General Dynamics 2017 Proxy Statement 49
Table of Contents
| (d) | All Other Compensation for 20162019 includes the following items: |
ALL OTHER COMPENSATION | | | | | | | | | | | | | | | | | | | | ALL OTHER COMPENSATION | | NAME | | REIMBURSEMENT
OF TAXES(1) | | | RETIREMENT PLAN
CONTRIBUTIONS AND
ALLOCATIONS (2) | | | TERM LIFE INSURANCE
PAYMENTS | | | PERQUISITES (3) | | Ms. Novakovic | | $ | 1,894 | | | $ | 43,625 | | | $ | 16,253 | | | $ | 249,176 | | Mr. Aiken | | $ | 11,779 | | | $ | 25,425 | | | $ | 4,471 | | | $ | 98,309 | | Mr. Casey | | $ | 3,200 | | | $ | 26,425 | | | $ | 12,764 | | | $ | 22,335 | | Mr. Roualet | | $ | 3,339 | | | $ | 26,425 | | | $ | 8,811 | | | $ | 30,703 | | Mr. Johnson | | $ | 174 | | | $ | 21,865 | | | $ | 18,555 | | | $ | 13,703 | |
| Name | | Reimbursement
of Taxes(1) | | Retirement Plan
Contributions
and Allocations(2) | | Term Life
Insurance
Payments | | Perquisites(3) | | Ms. Novakovic | | | $ | 1,784 | | | | $ | 48,500 | | | | $ | 24,793 | | | | $ | 309,642 | | | Mr. Aiken | | | $ | 3,645 | | | | $ | 33,800 | | | | $ | 6,210 | | | | $ | 29,572 | | | Mr. Roualet | | | $ | 3,966 | | | | $ | 32,800 | | | | $ | 9,340 | | | | $ | 35,654 | | | Mr. Burns | | | $ | — | | | | $ | 29,900 | | | | $ | 8,200 | | | | $ | 26,424 | | | Mr. Gallopoulos | | | $ | 2,116 | | | | $ | 31,200 | | | | $ | 8,770 | | | | $ | 25,661 | |
| (1) | Reflects amounts reimbursed for the payment of taxes associated with a company-provided dining room benefit. All employees at our corporate headquarters receive this dining room benefit and associated tax reimbursement. For Mr. Aiken, the amount also reflects reimbursement for the payment of taxes of $8,252 in connection with his 2014 relocation. |
| (2) | Represents amounts contributed by General Dynamics to the 401(k) Plan and allocations by General Dynamics to the Supplemental Savings Plan. |
| (3) | Noncash items (perquisites) provided to named executive officersNEOs in 2016,2019, which for one or more named executive officersNEOs is in the aggregate equal to or greater than $10,000, were as follows: financial planning and tax preparation services, home security systems and, solely for the chairman and chief executive officer, personal use of company aircraft. Perquisites that exceeded the greater of $25,000 or 10 percent10% of the total amount of perquisites for a specific NEO were as follows: Ms. Novakovic – $118,299Novakovic—$254,122 related to personal travel on company aircraft, and $106,649$29,040 related to a home security system installed atfor Ms. Novakovic’s personal residence; and Mr. Aiken – $57,889 related to relocation costs incurred by the company in 2016 for Mr. Aiken’s relocation to the company’s headquarters in 2014.Novakovic. The aggregate incremental cost to General Dynamics for Ms. Novakovic’s personal travel aboard aircraft owned by the company (products of subsidiary Gulfstream Aerospace Corporation)Aerospace), as required by the Board to help ensure Ms. Novakovic’s security and accessibility, is calculated based on the following variable operating costs to the company: fuel costs, trip-related maintenance expenses, landing fees, trip-related hangar and parking fees,on-board catering expenses and crew expenses. No additional direct operating cost is incurred if a family member accompanies an executive on a flight. The aggregate incremental cost to the company for the provision of home security systems represents the amounts paid by the company to third parties for the installation, servicing and monitoring of the systems. The aggregate incremental cost to the company for relocation represents moving expenses, temporary housingsecurity systems and closing and related costs for the purchase of a home.other security services. |
50 General Dynamics 2017 Proxy Statement
2016 EQUITY-BASED AWARDS2019 Equity-Based Awards
General Dynamics’Our long-term compensation for senior executives, including the named executive officers,NEOs, consists of equity awards in the form of restricted stock, PRSUsPSUs and stock options. The following table provides information on the equity awards in 20162019 for the named executive officers.NEOs. The table includes the grant date of each equity award, the number of shares of restricted stock, PRSUsPSUs and stock options, the exercise price of the stock options, the closing price of our Common Stock on the date of grant and the grant date fair value of the equity awards. As discussed in the Compensation Discussion and Analysis section, we use the average of the high and low stock price of our Common Stock on the date of the grant, not the closing price, to value the restricted stock and PRSUsPSUs and set the exercise price for stock options.
2020 Proxy Statement 61 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | GRANTSOF PLAN-BASED AWARDSIN FISCAL YEAR 2016 | | NAME | | GRANT
DATE | | | DATEOF
COMPENSATION
COMMITTEE
ACTION | | | ESTIMATED POSSIBLE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (A) | | | ESTIMATED FUTURE PAYOUTS UNDER
EQUITY INCENTIVE PLAN AWARDS (B) | | | ALL OTHER
STOCK
AWARDS:
NUMBER OF
SHARESOF
STOCKOR
UNITS (C) | | | ALL OTHER
OPTION
AWARDS:
NUMBEROF
SECURITIES
UNDERLYING
OPTIONS | | | EXERCISE
OR BASE
PRICEOF
OPTION
AWARDS (D) | | | GRANT DATE
FAIR VALUE
OF STOCK
AND OPTION
AWARDS (E) | | | | | | THRESHOLD | | | TARGET | | | MAXIMUM | | | THRESHOLD | | | TARGET | | | MAXIMUM | | | | | | | Ms. Novakovic | | | | | | | | | | | 0 | | | $ | 2,694,500 | | | $ | 5,389,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3/2/16 | | | | 3/1/16 | | | | | | | | | | | | | | | | 0 | | | | 26,055 | | | | 39,082 | | | | 26,055 | | | | — | | | | — | | | $ | 7,079,144 | | | | | 3/2/16 | | | | 3/1/16 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 320,260 | | | $ | 135.85 | | | | 7,077,746 | | | Mr. Aiken | | | | | | | | | | | 0 | | | $ | 710,000 | | | $ | 1,420,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3/2/16 | | | | 3/1/16 | | | | | | | | | | | | | | | | 0 | | | | 5,485 | | | | 8,227 | | | | 5,485 | | | | — | | | | — | | | $ | 1,490,275 | | | | | 3/2/16 | | | | 3/1/16 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 67,400 | | | $ | 135.85 | | | | 1,489,540 | | | Mr. Casey | | | | | | | | | | | 0 | | | $ | 755,000 | | | $ | 1,510,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3/2/16 | | | | 3/1/16 | | | | | | | | | | | | | | | | 0 | | | | 6,045 | | | | 9,067 | | | | 6,045 | | | | — | | | | — | | | $ | 1,642,427 | | | | | 3/2/16 | | | | 3/1/16 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 74,320 | | | $ | 135.85 | | | | 1,642,472 | | | Mr. Roualet | | | | | | | | | | | 0 | | | $ | 755,000 | | | $ | 1,510,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3/2/16 | | | | 3/1/16 | | | | | | | | | | | | | | | | 0 | | | | 5,960 | | | | 8,940 | | | | 5,960 | | | | — | | | | — | | | $ | 1,619,332 | | | | | 3/2/16 | | | | 3/1/16 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 73,330 | | | $ | 135.85 | | | | 1,620,593 | | | Mr. Johnson | | | | | | | | | | | 0 | | | $ | 725,000 | | | $ | 1,450,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3/2/16 | | | | 3/1/16 | | | | | | | | | | | | | | | | 0 | | | | 5,365 | | | | 8,047 | | | | 5,365 | | | | — | | | | — | | | $ | 1,457,671 | | | | | | 3/2/16 | | | | 3/1/16 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 65,940 | | | $ | 135.85 | | | | 1,457,274 | |
Table of Contents Executive Compensation GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2019 | |
Date of
Compensation
Committee
Action |
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards(a) | | Estimated Future Payouts Under
Equity Incentive Plan Awards(b) | All Other
Stock
Awards:
Number of
Shares of
Stock or
Units(c) | All Other
Option
Awards:
Number of
Securities
Underlying
Options |
Exercise
or Base
Price of
Option
Awards(d) |
Grant Date
Fair Value of
Stock and
Option
Awards(e) | | Name | Grant Date | Threshold | Target | Maximum | | Threshold | Target | Maximum | | Ms. Novakovic | | | 0 | $ | 2,694,500 | $ | 5,389,000 | | | | | | | | | | | | 03/06/2019 | 03/05/2019 | | | | | | | 0 | 37,255 | 74,510 | 14,900 | — | | — | $ | 8,630,680 | | 03/06/2019 | 03/05/2019 | | | | | | | — | — | — | — | 129,090 | $ | 167.61 | | 3,746,192 | | Mr. Aiken | | | 0 | $ | 850,000 | $ | 1,700,000 | | | | | | | | | | | | 03/06/2019 | 03/05/2019 | | | | | | | 0 | 8,860 | 17,720 | 3,545 | — | | — | $ | 2,052,799 | | 03/06/2019 | 03/05/2019 | | | | | | | — | — | — | — | 30,690 | $ | 167.61 | | 890,624 | | Mr. Roualet | | | 0 | $ | 800,000 | $ | 1,600,000 | | | | | | | | | | | | 03/06/2019 | 03/05/2019 | | | | | | | 0 | 8,645 | 17,290 | 3,460 | — | | — | $ | 2,003,157 | | 03/06/2019 | 03/05/2019 | | | | | | | — | — | — | — | 29,940 | $ | 167.61 | | 868,859 | | Mr. Burns | | | 0 | $ | 655,000 | $ | 1,310,000 | | | | | | | | | | | | 03/06/2019 | 03/05/2019 | | | | | | | 0 | 3,795 | 5,693 | 3,795 | — | | — | $ | 1,272,160 | | 03/06/2019 | 03/05/2019 | | | | | | | — | — | — | — | 43,860 | $ | 167.61 | | 1,272,817 | | Mr. Gallopoulos | | | 0 | $ | 740,000 | $ | 1,480,000 | | | | | | | | | | | | 03/06/2019 | 03/05/2019 | | | | | | | 0 | 3,655 | 5,483 | 3,655 | — | | — | $ | 1,225,229 | | 03/06/2019 | 03/05/2019 | | | | | | | — | — | — | — | 42,230 | $ | 167.61 | | 1,225,515 |
| (a) | These amounts represent cash awards that are possible under the company’s annual incentive plan. The value earned can be found in the Summary Compensation Table in the“Non-Equity Incentive Plan Awards”Awards column. |
| (b) | These amounts relate to PRSUsPSUs granted in 2016.2019. Each PRSUPSU represents the right to receive a share of Common Stock upon release of the PRSU.PSU. The exact number of PRSUsPSUs that may be earned is determined based upon a performance metric set by the Compensation Committee, which for 20162019 grants is the company’s return on invested capitalROIC over the three-year period from 2016-2018,2019-2021, and can range from 0 to 150 percent150% of the PRSUsPSUs originally awarded. Grants for Ms. Novakovic, Mr. Aiken and Mr. Roualet were also subject to a relative total shareholder return modifier that can increase or decrease the PSU payout by as much as one-third. Dividend equivalents accrue on PRSUsPSUs during the performance period and are subject to the same vesting conditions based upon performance. For PRSUsPSUs granted in 2016,2019, the PRSUs arePSUs will be released to the participant following the three-year performance period, to the extent earned. |
| (c) | These amounts relate to shares of restricted stock that are released approximately fourthree years after the grant date, subject to continuous service requirements. |
| (d) | The exercise price for stock options is the average of the high and low stock price of our Common Stock on the date of grant. |
| (e) | For PRSUs,PSUs, the grant date fair value is calculated based upon the target payout amount. |
General Dynamics 2017 Proxy Statement 51
OPTION EXERCISESAND STOCK VESTEDOption Exercises and Stock Vested
The following table shows the stock options exercised by the named executive officersNEOs and restricted stock released to them during 2016.2019. As explained in the Compensation Discussion and Analysis section, we require officers to retain shares of Common Stock issued to them as compensation, up topre-determined levels, based on their position inwith General Dynamics. Once an ownership level is attained, the officer must maintain that minimum ownership level until he or she no longer serves as an officer of General Dynamics. The amounts reported in the Value Realized on Exercise and the Value Realized on Vesting columns in the table below arebefore-tax amounts. OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2019 | | | | | | | | | | | | | | | | | | | | | | OPTION EXERCISESAND STOCK VESTEDIN FISCAL YEAR 2016 | | | | | OPTION AWARDS | | | | | | STOCK AWARDS | | NAME | | NUMBER OF
SHARES
ACQUIRED ON
EXERCISE | | | VALUE REALIZED
ON EXERCISE | | | | | | NUMBER OF
SHARES
ACQUIRED ON
VESTING | | | VALUE REALIZED
ON VESTING | | Ms. Novakovic | | | 97,120 | | | $ | 6,815,882 | | | | | | | | 12,130 | | | $ | 1,643,130 | | Mr. Aiken | | | 11,945 | | | $ | 814,530 | | | | | | | | 2,000 | | | $ | 270,920 | | Mr. Casey | | | 127,385 | | | $ | 12,172,583 | | | | | | | | 5,390 | | | $ | 730,129 | | Mr. Roualet | | | 79,680 | | | $ | 6,977,199 | | | | | | | | 3,640 | | | $ | 493,074 | | Mr. Johnson | | | 34,650 | | | $ | 1,230,430 | | | | | | | | 3,520 | | | $ | 476,819 | |
| | Option Awards | | Stock Awards | | Name | | Number of Shares
Acquired on Exercise | | Value Realized
on Exercise | | Number of Shares
Acquired on Vesting | | Value Realized
on Vesting | | Ms. Novakovic | | 1,199,380 | | $ | 114,004,768 | | 66,385 | | $ | 10,825,109 | | Mr. Aiken | | 45,090 | | $ | 3,356,500 | | 13,613 | | $ | 2,222,494 | | Mr. Roualet | | 65,065 | | $ | 7,258,217 | | 14,201 | | $ | 2,322,994 | | Mr. Burns | | 9,345 | | $ | 966,834 | | 4,895 | | $ | 804,329 | | Mr. Gallopoulos | | 36,740 | | $ | 2,526,242 | | 10,206 | | $ | 1,664,229 |
52 62 General Dynamics 2017 Proxy Statement
Table of Contents
OUTSTANDING EQUITY AWARDSOutstanding Equity Awards
The following table provides information on outstanding stock option and stock awards held by the named executive officersNEOs as of December 31, 2016.2019. The table shows the number of stock options that a named executive officeran NEO holds (both exercisable and unexercisable), the option exercise price and its expiration date. For stock awards, the table includes the number of shares of restricted stock and PSUs that are still subject to the restriction period or the performance period (i.e., have not vested). For restricted stock and PRSUs,PSUs, the market value is based on the closing price of the company’s Common Stock on December 31, 2016.2019. OUTSTANDING EQUITY AWARDS AT 2019 FISCAL YEAR-END | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | OUTSTANDING EQUITY AWARDSAT 2016 FISCAL YEAR-END | | | | | OPTION AWARDS | | | STOCK AWARDS | | | NAME | | NUMBEROF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
EXERCISABLE | | | NUMBEROF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
UNEXERCISABLE (a) | | | OPTION
EXERCISE
PRICE | | | OPTION
EXPIRATION
DATE | | | NUMBER
OF SHARES OF STOCK OR UNITS
THAT
HAVE NOT VESTED (b) | | | MARKET VALUE
OF SHARESOF
STOCKOR UNITS THAT
HAVE NOT
VESTED | | | EQUITY INCENTIVE
PLAN AWARDS:
NUMBEROF
UNEARNED
SHARES, UNITS
OR OTHER RIGHTS
THAT HAVE NOT
VESTED (C) | | | EQUITY INCENTIVE
PLAN AWARDS:
MARKETOR
PAYOUT VALUEOF
UNEARNED
SHARES, UNITS
OR OTHER RIGHTS
THAT HAVE
NOT VESTED | | Ms. Novakovic | | | | | | | | | | | | | | | | | | | 256,463 | | | $ | 44,280,902 | | | | 52,394 | | | | $9,046,348 | | | | | — | | | | 320,260 | | | | $135.85 | | | | 3/1/2026 | | | | | | | | | | | | | | | | | | | | | — | | | | 248,830 | | | | 136.78 | | | | 3/3/2025 | | | | | | | | | | | | | | | | | | | | | 466,380 | | | | — | | | | 112.40 | | | | 3/4/2021 | | | | | | | | | | | | | | | | | | | | | 733,000 | | | | — | | | | 67.70 | | | | 3/5/2020 | | | | | | �� | | | | | | | | | | | | | | | 39,500 | | | | — | | | | 67.90 | | | | 5/1/2019 | | | | | | | | | | | | | | | | | | | | | 89,720 | | | | — | | | | 71.01 | | | | 3/6/2019 | | | | | | | | | | | | | | | | | | | Mr. Aiken | | | | | | | | | | | | | | | | | | | 31,878 | | | | $5,504,055 | | | | 10,655 | | | $ | 1,839,692 | | | | | — | | | | 67,400 | | | | $135.85 | | | | 3/1/2026 | | | | | | | | | | | | | | | | | | | | | — | | | | 48,830 | | | | 136.78 | | | | 3/3/2025 | | | | | | | | | | | | | | | | | | | | | 90,180 | | | | — | | | | 112.40 | | | | 3/4/2021 | | | | | | | | | | | | | | | | | | | | | 28,890 | | | | — | | | | 67.70 | | | | 3/5/2020 | | | | | | | | | | | | | | | | | | | | | 21,500 | | | | — | | | | 71.01 | | | | 3/6/2019 | | | | | | | | | | | | | | | | | | Mr. Casey | | | | | | | | | | | | | | | | | | | 50,201 | | | | $8,667,705 | | | | 11,052 | | | | $1,908,238 | | | | | — | | | | 74,320 | | | | $135.85 | | | | 3/1/2026 | | | | | | | | | | | | | | | | | | | | | — | | | | 47,200 | | | | 136.78 | | | | 3/3/2025 | | | | | | | | | | | | | | | | | | | | | 90,470 | | | | — | | | | 112.40 | | | | 3/4/2021 | | | | | | | | | | | | | | | | | | | | | 69,895 | | | | — | | | | 67.70 | | | | 3/5/2020 | | | | | | | | | | | | | | | | | | | Mr. Roualet | | | | | | | | | | | | | | | | | | | 48,430 | | | | $8,361,924 | | | | 10,966 | | | | $1,893,390 | | | | | — | | | | 73,330 | | | | $135.85 | | | | 3/1/2026 | | | | | | | | | | | | | | | | | | | | | — | | | | 47,200 | | | | 136.78 | | | | 3/3/2025 | | | | | | | | | | | | | | | | | | | | | 75,640 | | | | — | | | | 112.40 | | | | 3/4/2021 | | | | | | | | | | | | | | | | | | | | | 68,650 | | | | — | | | | 70.08 | | | | 3/19/2020 | | | | | | | | | | | | | | | | | | | | | 59,460 | | | | — | | | | 67.70 | | | | 3/5/2020 | | | | | | | | | | | | | | | | | | Mr. Johnson | | | | | | | | | | | | | | | | | | | 24,436 | | | | $4,219,120 | | | | 10,124 | | | | $1,748,010 | | | | | — | | | | 65,940 | | | | $135.85 | | | | 3/1/2026 | | | | | | | | | | | | | | | | | | | | | | — | | | | 44,840 | | | | 136.78 | | | | 3/3/2025 | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards | | Name | | Number of
Securities
Underlying
Unexercised
Options
Exercisable | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable(a) | | Option
Exercise
Price | | Option
Expiration
Date | | Number of
Shares of
Stock or
Units That
Have Not
Vested(b) | | Market Value of
Shares of Stock or
Units That Have
Not Vested | | Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other Rights
That Have Not
Vested(c) | | Equity
Incentive
Plan
Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested | | Ms. Novakovic | | | | | | | | | | | 74,840 | | $ | 13,198,034 | | 73,360 | | $ | 12,937,036 | | | — | | 129,090 | | $ | 167.61 | | 03/05/2029 | | | | | | | | | | | | | — | | 186,460 | | | 223.93 | | 03/06/2028 | | | | | | | | | | | | | 105,810 | | 105,810 | | | 191.71 | | 02/28/2027 | | | | | | | | | | | | | 320,260 | | — | | | 135.85 | | 03/01/2026 | | | | | | | | | | | | | 248,830 | | — | | | 136.78 | | 03/03/2025 | | | | | | | | | | | | Mr. Aiken | | | | | | | | | | | 16,955 | | $ | 2,990,014 | | 17,305 | | $ | 3,051,737 | | | — | | 30,690 | | $ | 167.61 | | 03/05/2029 | | | | | | | | | | | | | — | | 43,940 | | | 223.93 | | 03/06/2028 | | | | | | | | | | | | | 24,550 | | 24,550 | | | 191.71 | | 02/28/2027 | | | | | | | | | | | | | 67,400 | | — | | | 135.85 | | 03/01/2026 | | | | | | | | | | | | | 48,830 | | — | | | 136.78 | | 03/03/2025 | | | | | | | | | | | | | 45,090 | | — | | | 112.40 | | 03/04/2021 | | | | | | | | | | | | Mr. Roualet | | | | | | | | | | | 17,215 | | $ | 3,035,865 | | 16,952 | | $ | 2,989,485 | | | — | | 29,940 | | $ | 167.61 | | 03/05/2029 | | | | | | | | | | | | | — | | 42,880 | | | 223.93 | | 03/06/2028 | | | | | | | | | | | | | 24,325 | | 24,325 | | | 191.71 | | 02/28/2027 | | | | | | | | | | | | | 73,330 | | — | | | 135.85 | | 03/01/2026 | | | | | | | | | | | | | 47,200 | | — | | | 136.78 | | 03/03/2025 | | | | | | | | | | | | | 75,640 | | — | | | 112.40 | | 03/04/2021 | | | | | | | | | | | | Mr. Burns | | | | | | | | | | | 11,490 | | $ | 2,026,262 | | 9,559 | | $ | 1,685,730 | | | — | | 43,860 | | $ | 167.61 | | 03/05/2029 | | | | | | | | | | | | | — | | 32,560 | | | 223.93 | | 03/06/2028 | | | | | | | | | | | | | 15,795 | | 15,795 | | | 191.71 | | 02/28/2027 | | | | | | | | | | | | | 27,600 | | — | | | 135.85 | | 03/01/2026 | | | | | | | | | | | | | 1,600 | | — | | | 143.33 | | 06/30/2025 | | | | | | | | | | | | | 11,730 | | — | | | 136.78 | | 03/03/2025 | | | | | | | | | | | | | 22,410 | | — | | | 112.40 | | 03/04/2021 | | | | | | | | | | | | Mr. Gallopoulos | | | | | | | | | | | 13,095 | | $ | 2,309,303 | | 9,404 | | $ | 1,658,395 | | | | | 42,230 | | $ | 167.61 | | 03/05/2029 | | | | | | | | | | | | | | | 30,700 | | | 223.93 | | 03/06/2028 | | | | | | | | | | | | | 16,600 | | 16,600 | | | 191.71 | | 02/28/2027 | | | | | | | | | | | | | 49,170 | | — | | | 135.85 | | 03/01/2026 | | | | | | | | | | | | | 38,300 | | — | | | 136.78 | | 03/03/2025 | | | | | | | | | | | | | 36,740 | | — | | | 112.40 | | 03/04/2021 | | | | | | | | | | |
2020 Proxy Statement 63
Table of Contents Executive Compensation | (a) | Of the 320,260129,090 stock options held by Ms. Novakovic with an exercise price of $135.85, 160,130$167.61, 64,545 will become exercisable on March 2, 2018,6, 2021, and 160,13064,545 will become exercisable on March 2, 2019.6, 2022. Of the 248,830186,460 stock options held by Ms. Novakovic with an exercise price of $136.78, 124,415$223.93, 93,230 became exercisable on March 4, 2017,7, 2020, and 124,41593,230 will become exercisable on March 4, 2018. 7, 2021. Of the 211,620 stock options held by Ms. Novakovic with an exercise price of $191.71, 105,810 became exercisable on March 1, 2020. |
Of the 67,400 stock options held by Mr. Aiken with an exercise price of $135.85, 33,700 will become exercisable on March 2, 2018, and 33,700 will become exercisable on March 2, 2019. Of the 48,830 stock options held by Mr. Aiken with an exercise price of $136.78, 24,415 became exercisable on March 4, 2017, and 24,415 will become exercisable on March 4, 2018.
Of the 74,320 stock options held by Mr. Casey with an exercise price of $135.85, 37,160 will become exercisable on March 2, 2018, and 37,160 will become exercisable on March 2, 2019. Of the 47,200 stock options held by Mr. Casey with an exercise price of $136.78, 23,600 became exercisable on March 4, 2017, and 23,600 will become exercisable on March 4, 2018.
Of the 73,330 stock options held by Mr. Roualet with an exercise price of $135.85, 36,665 will become exercisable on March 2, 2018, and 36,665 will become exercisable on March 2, 2019. Of the 47,200 stock options held by Mr. Roualet with an exercise price of $136.78, 23,600 became exercisable on March 4, 2017, and 23,600 will become exercisable on March 4, 2018.
Of the 65,940 stock options held by Mr. Johnson with an exercise price of $135.85, 32,970 will become exercisable on March 2, 2018, and 32,970 will become exercisable on March 2, 2019. Of the 44,840 stock options held by Mr. Johnson with an exercise price of $136.78, 22,420 will become exercisable on March 4, 2017, and 22,420 will become exercisable on March 4, 2018.
General Dynamics 2017 Proxy Statement 53
(b) | RestrictedOf the 30,690 stock options held by Mr. Aiken with an exercise price of $167.61, 15,345 will become exercisable on March 6, 2021, and PRSUs that have been earned are15,345 will become exercisable on March 6, 2022. Of the 43,940 stock options held by Mr. Aiken with an exercise price of $223.93, 21,970 became exercisable on March 7, 2020, and 21,970 will become exercisable on March 7, 2021. Of the 49,100 stock options held by Mr. Aiken with an exercise price of $191.71, 24,550 became exercisable on March 1, 2020.
| | Of the 29,940 stock options held by Mr. Roualet with an exercise price of $167.61, 14,970 will become exercisable on March 6, 2021, and 14,970 will become exercisable on March 6, 2022. Of the 42,880 stock options held by Mr. Roualet with an exercise price of $223.93, 21,440 became exercisable on March 7, 2020, and 21,440 will become exercisable on March 7, 2021. Of the 48,650 stock options held by Mr. Roualet with an exercise price of $191.71, 24,325 became exercisable on March 1, 2020. | | Of the 43,860 stock options held by Mr. Burns with an exercise price of $167.61, 21,930 will become exercisable on March 6, 2021, and 21,930 will become exercisable on March 6, 2022. Of the 32,560 stock options held by Mr. Burns with an exercise price of $223.93, 16,280 became exercisable on March 7, 2020, and 16,280 will become exercisable on March 7, 2021. Of the 31,590 stock options held by Mr. Burns with an exercise price of $191.71, 15,795 became exercisable on March 1, 2020. | | Of the 42,230 stock options held by Mr. Gallopoulos with an exercise price of $167.61, 21,115 will become exercisable on March 6, 2021, and 21,115 will become exercisable on March 6, 2022. Of the 30,700 stock options held by Mr. Gallopoulos with an exercise price of $223.93, 15,350 became exercisable on March 7, 2020, and 15,350 will become exercisable on March 7, 2021. Of the 33,200 stock options held by Mr. Gallopoulos with an exercise price of $191.71, 16,600 became exercisable on March 1, 2020. | | (b) | For awards made prior to 2017, shares of restricted stock were released to participants on the first day of January on which the New York Stock Exchange is open for business of the fourth calendar year following the calendar year in which the grant date occurs. The numberBeginning with awards of PRSUs actually released will depend upon dividend equivalentsrestricted stock in 2017, shares release to participants on the first day on which the New York Stock Exchange is open for business after the third anniversary of the day of grant. PSUs that are paid as additionalearned release following certification by the Compensation Committee of the applicable performance result. | | Of the 74,840 restricted shares or units duringheld by Ms. Novakovic, 26,055 restricted shares were released on January 2, 2020, with a market value of $4,637,269; 18,255 restricted shares were released on March 2, 2020, with a market value of $2,946,722; 15,630 restricted shares will be released on March 8, 2021; and 14,900 restricted shares will be released on March 7, 2022. | | Of the vesting period.16,955 restricted shares or units held by Mr. Aiken, 5,485 restricted shares were released on January 2, 2020, with a market value of $976,220; 4,240 restricted shares were released on March 2, 2020, with a market value of $684,421; 3,685 restricted shares will be released on March 8, 2021; and 3,545 restricted shares will be released on March 7, 2022. |
Of the 256,463
| Of the 17,215 restricted shares or units held by Mr. Roualet, 5,960 restricted shares were released on January 2, 2020, with a market value of $1,060,761; 4,200 restricted shares were released on March 2, 2020, with a market value of $677,964; 3,595 restricted shares will be released on March 8, 2021; and 3,460 restricted shares will be released on March 7, 2022. | | Of the 11,490 restricted shares or units held by Mr. Burns, 2,245 restricted shares were released on January 2, 2020, with a market value of $399,565; 2,725 restricted shares were released on March 2, 2020, with a market value of $439,870; 2,725 restricted shares will be released on March 8, 2021; and 3,795 restricted shares will be released on March 7, 2022. | | Of the 13,095 restricted shares or units held by Mr. Gallopoulos, 4,005 restricted shares were released on January 2, 2020, with a market value of $712,810; 2,860 restricted shares were released on March 2, 2020, with a market value of $461,661; 2,575 restricted shares will be released on March 8, 2021; and 3,655 restricted shares will be released on March 7, 2022. | | (c) | Represents PSUs that released in the first quarter of 2020 or, units held by Ms. Novakovic, 47,860 restricted shares were released on January 3, 2017, with a market value of $8,398,951; 28,740 restricted shares will be released on January 2, 2018; 25,065 restricted shares will be released on January 2, 2019; 26,055 will be released on January 2, 2020; 70,492 PRSUs were released on January 3, 2017, with a market value of $12,370,641; and 58,251 PRSUs will be released on January 2, 2018.Of the 31,878 restricted shares or units held by Mr. Aiken, 1,880 restricted shares were released on January 3, 2017, with a market value of $329,921; 5,560 restricted shares will be released on January 2, 2018; 4,915 restricted shares will be released on January 2, 2019; 5,485 restricted shares will be released on January 2, 2020; 2,769 PRSUs were released on January 3, 2017, with a market value of $485,932; and 11,269 PRSUs will be released on January 2, 2018.
Of the 50,201 restricted shares or units held by Mr. Casey, 9,130 restricted shares were released on January 3, 2017, with a market value of $1,602,224; 5,560 restricted shares will be released on January 2, 2018; 4,750 restricted shares will be released on January 2, 2019; 6,045 restricted shares will be released on January 2, 2020; 13,447 PRSUs were released on January 3, 2017, with a market value of $2,359,814; and 11,269 PRSUs will be released on January 2, 2018.
Of the 48,430 restricted shares or units held by Mr. Roualet, 9,550 restricted shares were released on January 3, 2017, with a market value of $1,675,930; 4,660 restricted shares will be released on January 2, 2018; 4,750 restricted shares will be released on January 2, 2019; 5,960 restricted shares will be released on January 2, 2020; 14,065 PRSUs were released on January 3, 2017, with a market value of $2,468,267; and 9,445 PRSUs will be released on January 2, 2018.
Of the 24,436 restricted shares or units held by Mr. Johnson, 3,290 restricted shares were released on January 3, 2017, with a market value of $577,362; 2,120 restricted shares will be released on January 2, 2018; 4,520 restricted shares will be released on January 2, 2019; 5,365 restricted shares will be released on January 2, 2020; 4,845 PRSUs were released on January 3, 2017, with a market value of $850,249; and 4,296 PRSUs will be released on January 2, 2018.
(c) | Represents PRSUs that, subject to satisfaction of the performance condition and committeeCompensation Committee determination, may release during the first quarter of 20182021 or 2022.
| | For Ms. Novakovic, 19,256 PSUs will release during the first quarter of 2019.2020; 16,214 may release during the first quarter of 2021 and 37,890 may release during the first quarter of 2022. | | For Mr. Aiken, 4,472 PSUs will release during the first quarter of 2020; 3,822 may release during the first quarter of 2021 and 9,011 may release during the first quarter of 2022. | | For Mr. Roualet, 4,430 PSUs will release during the first quarter of 2020; 3,730 may release during the first quarter of 2021 and 8,792 may release during the first quarter of 2022. | | For Mr. Burns, 2,874 PSUs will release during the first quarter of 2020; 2,826 may release during the first quarter of 2021 and 3,859 may release during the first quarter of 2022. | | For Mr. Gallopoulos, 3,016 PSUs will release during the first quarter of 2020; 2,671 may release during the first quarter of 2021; and 3,717 may release during the first quarter of 2022. |
For Ms. Novakovic, 25,945 PRSUs may release during the first quarter64 General Dynamics
Table of 2018 and 26,449 PRSUs may release during the first quarter of 2019.Contents For Mr. Aiken, 5,087 PRSUs may release during the first quarter of 2018 and 5,568 PRSUs may release during the first quarter of 2019.
For Mr. Casey, 4,916 PRSUs may release during the first quarter of 2018 and 6,136 PRSUs may release during the first quarter of 2019.
For Mr. Roualet, 4,916 PRSUs may release during the first quarter of 2018 and 6,050 PRSUs may release during the first quarter of 2019.
For Mr. Johnson, 4,678 PRSUs may release during the first quarter of 2018 and 5,446 PRSUs may release during the first quarter of 2019.
54 General Dynamics 2017 Proxy Statement
COMPANY-SPONSORED RETIREMENT PLANSCompany-Sponsored Retirement Plans
General Dynamics offers retirement programs through a combination of qualified and nonqualified Employee Retirement Income Security Act of 1974 plans. The named executive officersNEOs, other than Mr. JohnsonGallopoulos, participate in each of the retirement programs indicated next to their name in the table below. Mr. Johnson is not eligible to participate in the company’s pension plans. Beginning January 1, 2014, pension accruals stopped for employees at our corporate headquarters, including the participating named executive officers.
The table shows the actuarial present value as of December 31, 2016,2019, of the pension benefits earned for each named executive officerNEO over the course of the officer’s career. All retirement plans in the table operate in exactly the same manner for the named executive officers as for all other plan participants. A description of the material terms and conditions of each of these plans and agreements follows the table. Pension benefits have been frozen for each NEO for the plans listed below. PENSION BENEFITS FOR FISCAL YEAR 2019 | | | | | | | | | | | | PENSION BENEFITSFOR FISCAL YEAR 2016 | | NAME | | PLAN NAME | | NUMBER OF
YEARS CREDITED
SERVICE | | PRESENT VALUE OF
ACCUMULATED
BENEFIT (a) | | | PAYMENTS DURING
LAST FISCAL YEAR | Ms. Novakovic (b) | | Salaried Retirement Plan | | 13 | | $ | 367,073 | | | None | | | Supplemental Retirement Plan | | 13 | | $ | 1,860,581 | | | | Mr. Aiken (c) | | Salaried Retirement Plan | | 11 | | $ | 176,619 | | | None | | | Supplemental Retirement Plan | | 11 | | $ | 184,277 | | | | Mr. Casey (d) | | Salaried Retirement Plan | | 32 | | $ | 1,149,375 | | | None | | | Supplemental Retirement Plan | | 32 | | $ | 2,720,850 | | | | Mr. Roualet (e) | | Salaried Retirement Plan | | 29 | | $ | 866,300 | | | None | | | Supplemental Retirement Plan | | 29 | | $ | 1,438,835 | | | | Mr. Johnson | | — | | — | | | — | | | — |
| Name | | Plan Name | | Number of
Years Credited
Service | | Present Value
of Accumulated
Benefit(a) | | Payments
During Last
Fiscal Year | | Ms. Novakovic(b) | | Salaried Retirement Plan | | 13 | | $ | 473,346 | | None | | | Supplemental Retirement Plan | | 13 | | $ | 2,399,243 | | | | Mr. Aiken(c) | | Salaried Retirement Plan | | 11 | | $ | 263,950 | | None | | | Supplemental Retirement Plan | | 11 | | $ | 275,395 | | | | Mr. Roualet(d) | | Salaried Retirement Plan | | 29 | | $ | 1,131,676 | | None | | | Supplemental Retirement Plan | | 29 | | $ | 1,878,832 | | | | Mr. Burns(e) | | Gulfstream Aerospace Corporation
Pension Plan | | 35 | | $ | 1,656,088 | | None |
| (a) | The Present Value of Accumulated Benefit under each plan has been calculated as of December 31, 2016,2019, using the company’s FASB ASC Topic 715,Compensation – Retirement Benefits, assumptions as ofyear-end 2016. 2019. For a discussion of this calculation, see Note PR to our consolidated financial statements contained in our Annual Report on Form10-K for the year ended December 31, 2016,2019, filed with the SEC on February 6, 2017. 10, 2020. |
| (b) | Ms. Novakovic’s total service is 1619 years and credited service is 13 years. |
| (c) | Mr. Aiken’s total service is 1518 years and credited service is 11 years. |
| (d) | Mr. Casey’sRoualet’s total service is 38 years and credited service is 3229 years. |
| (e) | Mr. Roualet’sBurns’ total service is 3536 years and credited service is 2935 years. |
Salaried Retirement Plan.Plan The General Dynamics Salaried Retirement Plan (the Salaried Plan) is atax-qualified defined-benefit pension plan that provides benefits as a life annuity to retired participants. A participant’s benefit under the Salaried Retirement Plan increases with each year of service. Participants who leave before they are eligible for early retirement are paid a substantially reduced amount. All the named executive officers, other than Mr. Johnson,Ms. Novakovic and Messrs. Aiken and Roualet participate in the Salaried Retirement Plan. Earnings used to calculate pension benefits (pensionable earnings) include only a participant’s base salary and cash bonus and exclude all other items of income, including equity awards. Under the Internal Revenue Code, the Salaried Retirement Plan does not take into account any earnings over a predetermined compensation limit, which was $265,000$280,000 for 2016,2019, and does not pay annual benefits beyond a predetermined benefit limit, which was $225,000 for 2016 was $210,000.2019. Beginning January 1, 2014, pension accruals stoppedBenefits under the Salaried Plan were frozen as of December 31, 2013, for employees at our corporate headquarters, including the participating named executive officers.NEOs. The Salaried Retirement Plan pays a monthly benefit equal to the product of (1) the benefit percentage times (2) the final average monthly pay times (3) the years of credited service. For credited service earned prior to January 1, 2007, the benefit percentage equals 1.333 percent.1.333%. For credited service earned on or after January 1, 2007, the benefit percentage equals 1.0 percent.1.0%. Final average monthly pay is equal to the average of the participant’s highest 60 consecutive months of pensionable earnings out of the participant’s last 120 months of employment. For credited service earned prior to January 1, 2007, the final average monthly pay used in the benefit calculation froze as of December 31, 2010. The normal retirement age under the Salaried Retirement Plan is age 65. The Salaried Retirement Plan benefit is calculated
2020 Proxy Statement 65
Table of Contents Executive Compensation as a single-life monthly annuity beginning at age 65 and has multiple actuarially equivalent payment forms from which participants can choose to take their benefit. A cash lump sum is only available if a participant’s accrued benefit is less than $5,000. None of the eligible named executive officersNEOs had reached the normal retirement age as of December 31, 2016. General Dynamics 2017 Proxy Statement 55
2019. A participant with at least 10 years of service qualifies for early retirement at age 55. Ms. Novakovic and Messrs. Casey andMr. Roualet have qualified for early retirement as of December 31, 2016.retirement. A participant who is eligible for early retirement is entitled to receive the following: | (1) | for benefits based on credited service earned prior to January 1, 2007, if a participant retires between age 55 and 62, his or her age 65 benefit is reduced by 2.5 percent2.5% for each full year that he or she retires prior to age 62. If the participant retires between age 62 and 65, he or she will receive 100 percent100% of his or her age 65 benefit. |
| (2) | for benefits based on credited service earned on or after January 1, 2007, a participant who is eligible for early retirement and subsequently retires between age 55 and 65 will have his or her age 65 benefit reduced by 4.8 percent4.8% for each full year that he or she retires prior to age 65. |
Supplemental Retirement Plan.Plan The General Dynamics Corporation Supplemental Retirement Plan (the Supplemental Retirement Plan) is a nonqualified defined-benefit plan that provides retirement benefits to eligible employees whose salaries exceed the Internal Revenue Code compensation limit or whose annual benefits would exceed the Internal Revenue Code benefit limit. All the named executive officers other than Mr. JohnsonMs. Novakovic and Messrs. Aiken and Roualet participate in the Supplemental Retirement Plan. Beginning January 1, 2014,Benefits under the Supplemental Retirement Plan pension accruals stoppedwere frozen as of December 31, 2013, for employees at our corporate headquarters, including the named executive officersNEOs who participate in the plan. The Supplemental Retirement Plan provides benefits equal to the difference between (1) the amount that would have been provided under the Salaried Retirement Plan if the annual compensation limit and annual benefit limit did not apply, and (2) the benefit actually paid under the Salaried Retirement Plan. A participant’s pensionable earnings and forms of payment are the same under the Supplemental Retirement Plan as the Salaried Retirement Plan.
Gulfstream Aerospace Corporation Pension Plan The Gulfstream Aerospace Corporation Pension Plan (the GAC Plan) is a tax-qualified defined-benefit pension plan that provides benefits as a life annuity to retired participants. A participant’s benefit under the GAC Plan increases with each year of service. Participants who leave before they are eligible for early retirement are paid a substantially reduced amount. Mr. Burns participates in the GAC Plan. Earnings used to calculate pension benefits (pensionable earnings) include only a participant’s base salary and cash bonus and exclude all other items of income, including equity awards. Under the Internal Revenue Code, the GAC Plan does not take into account any earnings over a predetermined compensation limit and does not pay annual benefits beyond a predetermined benefit limit. Benefits under the GAC Plan were frozen as of December 31, 2018, for Mr. Burns. For service prior to January 1, 2004, Mr. Burns has a frozen pension accrued benefit under the GAC Plan that totals approximately $3,400 payable monthly as a single-life annuity. Upon his retirement, this amount will increase with cost of living adjustments up to a maximum of 3% annually. Effective January 1, 2004, the GAC Plan was amended to provide benefits for each month of credited service earned after December 31, 2003, based on 1.125% of the final average monthly pay at or below the monthly integration level plus 1.25% of the excess above the integration level. The portion of Mr. Burns’ benefit earned after December 31, 2003, is payable monthly as a life annuity and is not subject to cost of living adjustments. The normal retirement age under the GAC Plan is age 65. The GAC Plan benefit is calculated as a single-life monthly annuity beginning at age 65 and has multiple actuarially equivalent payment forms from which participants can choose to take their benefit. A cash lump sum is only available if a participant’s present value of accrued benefit is less than $5,000. Mr. Burns did not reach the normal retirement age as of December 31, 2019. 66 General Dynamics
NONQUALIFIED DEFINED-CONTRIBUTION DEFERRED COMPENSATIONTable of Contents
Executive Compensation A participant with at least 20 years of service at age 50 or with at least 5 years of service at age 60 qualifies for early retirement. Mr. Burns qualified for early retirement as of December 31, 2019. A participant who is eligible for early retirement is entitled to receive the following: 〉If a participant retires between age 50 and 60, his or her age 65 benefit is reduced by a factor based on a table described in the GAC Plan document for each full year that he or she retires prior to age 60. 〉If the participant retires between age 60 and 65, he or she will receive 100% of his or her age 60 benefit. Nonqualified Defined-Contribution Deferred Compensation As part of General Dynamics’our overall retirement program, the named executive officersNEOs and other key employees are eligible to participate in a nonqualified defined-contribution plan. The following table illustrates the amounts due to each executive as of December 31, 2016.2019. In addition, the table shows contributions made by both the named executive officersNEOs and General Dynamics in 20162019 along with the earnings on each executive’s total account. NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL YEAR 2019 | | | | | | | | | | | | | | | | | | | | NONQUALIFIED DEFERRED COMPENSATIONFOR FISCAL YEAR 2016 | | | NAME | | EXECUTIVE CONTRIBUTIONS IN LAST FISCAL YEAR | | | REGISTRANT CONTRIBUTIONS IN LAST FISCAL YEAR (a) | | | AGGREGATE EARNINGS IN LAST
FISCAL YEAR (b) | | | AGGREGATE WITHDRAWALS/ DISTRIBUTIONS | | AGGREGATE BALANCE AT LAST FISCAL YEAR END (c) | | Ms. Novakovic | | $ | 158,500 | | | $ | 31,700 | | | $ | 143,111 | | | — | | $ | 1,494,573 | | Mr. Aiken | | $ | 13,500 | | | $ | 13,500 | | | $ | 9,825 | | | — | | $ | 112,447 | | Mr. Casey | | $ | 72,500 | | | $ | 14,500 | | | $ | 29,100 | | | — | | $ | 754,240 | | Mr. Roualet | | $ | 72,500 | | | $ | 14,500 | | | $ | 177,558 | | | — | | $ | 832,381 | | Mr. Johnson | | $ | 69,577 | | | $ | 13,915 | | | $ | 132,499 | | | — | | $ | 2,810,607 | |
| Name | | Executive
Contributions
in Last
Fiscal Year | | Registrant
Contributions
in Last
Fiscal Year(a) | | Aggregate
Earnings
in Last
Fiscal Year(b) | | Aggregate
Withdrawals/
Distributions | | Aggregate
Balance at
Last Fiscal
Year End(c) | | Ms. Novakovic | | $ | 158,500 | | $ | 31,700 | | $ | 116,174 | | — | | $ | 2,202,947 | | Mr. Aiken | | $ | 17,000 | | $ | 17,000 | | $ | 52,146 | | — | | $ | 269,863 | | Mr. Roualet | | $ | 80,000 | | $ | 16,000 | | $ | 138,128 | | — | | $ | 1,168,867 | | Mr. Burns | | $ | 65,500 | | $ | 13,100 | | $ | 61,608 | | — | | $ | 357,162 | | Mr. Gallopoulos | | $ | 72,000 | | $ | 14,400 | | $ | 84,548 | | — | | $ | 1,003,078 |
| (a) | The registrant contributions of $31,700, $13,500, $14,500, $14,500$17,000, $16,000, $13,100 and $13,915,$14,400 for Ms. Novakovic and Messrs. Aiken, Casey, Roualet, Burns and Johnson,Gallopoulos, respectively, are included in the All Other Compensation column of the Summary Compensation Table. |
| (b) | No amounts shown in the Aggregate Earnings in Last Fiscal Year column are reported as compensation in the Summary Compensation Table. |
| (c) | Certain amounts in the Aggregate Balance at Last Fiscal Year End column were previously reported in the Summary Compensation Table in the Salary column (in the case of executive contributions) or in the All Other Compensation column (in the case of companyregistrant contributions) for the named executive officers.NEOs. The amounts previously reported as executive and registrant contributions were as follows: (i) Ms. Novakovic, $489,000$964,500 and $132,250;$227,350; (ii) Mr. Aiken, $19,700$62,800 and $19,700;$62,800; and (iii) Mr. Casey, $178,500Roualet, $319,000 and $42,725; (iv) Mr. Roualet, $93,000 and $22,100; and (v) Mr. Johnson, $40,942 and $8,188. $67,300. |
General Dynamics Corporation Supplemental Savings Plan. Plan The Supplemental Savings Plan is a nonqualified defined-contribution plan that provides key employees, including the named executive officers,NEOs, the opportunity to defer a portion of their salary without regard to the limitations imposed by the Internal Revenue Code on the 401(k) Plan and receive employer matching contributions on a portion of the contributions. Effective January 1, 2014, for those who elect to participate in the Supplemental Savings Plan, a participant may contribute between 1 percent1% and 10 percent10% of the participant’s base salary to the plan. The company will match the participant’s contributions for the first 2 percent2% of the participant’s base salary on adollar-for-dollar basis. Investment performance mirrors the performance of the funds that are available to participants under the 401(k) Plan. 56 General Dynamics 2017 Proxy Statement
Supplemental Savings Plan participants, including the named executive officers,NEOs, do not receive any earnings on their Supplemental Savings Plan accounts that are not otherwise paid to all other 401(k) Plan participants with a balance in the same investment fund. Participants receivelump-sum payments six months after their separation from service for balances (including earnings) accumulated on or after January 1, 2005. For balances accumulated prior to January 1, 2005, payment is made as soon as possible after termination and participants will receive a lump-sum payment unless they have previously elected to receive a deferredlump-sum payment or annual installment payments. 2020 Proxy Statement Anteon International Corporation Supplemental Retirement Savings Plan.67Mr. Johnson has an account balance under the frozen Anteon International Corporation Supplemental Retirement Savings Plan. Under the plan, certain eligible employees
Table of Anteon could defer receipt of allContents Executive Compensation Potential Payments Upon Termination or a portion of their annual cash compensation prior to the plan being frozenChange in 2007. Upon his retirement or other separation from the company, Mr. Johnson may elect to receive the deferred compensation in either a lump sum or in annual installments over a period of up to ten years. POTENTIAL PAYMENTSUPON TERMINATIONOR CHANGEIN CONTROLControl
The following are estimated payments and benefits that would be provided to the named executive officersNEOs in the event of termination of the executive’s employment assuming a termination date of December 31, 2016.As discussed below, in 2016 we amended our severance protection agreements to eliminate excise tax gross-up provisions.2019. We have calculated these amounts for different termination scenarios based on our existing benefit plans and the General Dynamics Corporation equity compensation plan currently in effect (the Equity Compensation Plan). The actual amounts of the payments and costs of the benefits, however, can only be determined at the time of an executive’s separation from General Dynamics and, depending on the payment or benefit, may extend over several years. For each termination and change in control scenario discussed below, the named executive officerNEO would also be entitled to: | (1) | the pension benefits described in the Pension Benefits for Fiscal Year 20162019 table, on page 55 of this Proxy Statement, for those named executive officersNEOs who are eligible to receive benefits; and |
| (2) | (2) | the amounts listed in the Nonqualified Deferred Compensation for Fiscal Year 2016 table on page 56 of this Proxy Statement. 2019 table. |
The estimated totals presented in the table on the next page do not include these pension benefit and nonqualified deferred compensation amounts, nor do the totals include items that are provided to all employees, such as payment of accrued vacation. Change in Control Agreements – Double Trigger. Double-Trigger For a change in control situation, we have change in control agreements (also referred to as severance protection agreements) with key employees, including each of the named executive officers.NEOs. We have estimated the payments and benefits the named executive officersNEOs could receive under our existing benefit plans, change in control agreements and the equity compensation plans. Our calculations assume the executive was terminated on December 31, 2016,2019, and that this date was within 24 months following a change in control, thereby satisfying the “double-trigger” requirement under the change in control agreements. The actual amounts of the payments and costs of the benefits, however, can only be determined at the time of an executive’s separation from General Dynamics and depending on the payment or benefit may extend over several years. As discussed on page 41 of this Proxy Statement under “CompensationCompensation Discussion and Analysis – Other Considerations – Potential Severance and Change in Control Benefits”Benefits the change in control agreements contain a “double-trigger” mechanism that is triggered only under certain circumstances. In 2016, we amended any Our severance protectionsprotection agreements that contained a provisiondo not provide for the reimbursement of taxes that may be imposed under the change in control excise tax provisions of Section 280G and Section 4999 ofgross-ups. Rather, the Internal Revenue Code, including the severance protection agreement with Ms. Novakovic. The amended severance protection agreements provide that, in the event change in control benefits would trigger an excise tax under Section 280G and Section 4999, then the value of the benefits will be either (1) delivered in full or (2) subject to a cutback, whichever provides the executive officer the greatest benefit on anafter-tax basis (with the excise tax being the responsibility of the executive to pay).
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Executive Compensation POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL | | | | | | | | | | | | | | | | | | | | | | POTENTIAL PAYMENTSUPON TERMINATIONOR CHANGEIN CONTROL | | | SCENARIOAND PAYMENT TYPE | | MS. NOVAKOVIC | | | MR. AIKEN | | | MR. CASEY | | | MR. ROUALET | | | MR. JOHNSON | | | | | | | | Termination For Cause or Voluntary Resignation | | | | | | | | | | | | | | | | | | Retiree Life Insurance Benefit (a) | | $ | 433,328 | | | $ | — | | | $ | 245,145 | | | $ | 244,154 | | | $ | — | | Retiree Medical and Dental Benefit (b) | | | 67,740 | | | | — | | | | 81,899 | | | | 130,024 | | | | — | | Stock Options | | | — | | | | — | | | | — | | | | — | | | | — | | Restricted Stock | | | — | | | | — | | | | — | | | | — | | | | — | | PRSUs | | | — | | | | — | | | | — | | | | — | | | | — | | Total | | $ | 501,068 | | | $ | — | | | $ | 327,044 | | | $ | 374,178 | | | $ | — | | | | | | | | | Death (c) | | | | | | | | | | | | | | | | | | | | | Life Insurance Benefit | | $ | 3,170,000 | | | $ | 1,420,000 | | | $ | 1,510,000 | | | $ | 1,510,000 | | | $ | 1,450,000 | | Stock Options (d) (e) | | | 20,709,859 | | | | 4,231,654 | | | | 4,427,940 | | | | 4,391,498 | | | | 4,034,861 | | Restricted Stock (d) (f) | | | 22,007,312 | | | | 3,071,696 | | | | 4,391,571 | | | | 3,316,497 | | | | 2,637,532 | | PRSUs (d) (g) | | | 14,566,517 | | | | 2,851,842 | | | | 2,864,900 | | | | 2,544,972 | | | | 1,593,914 | | Total | | $ | 60,453,688 | | | $ | 11,575,192 | | | $ | 13,194,411 | | | $ | 11,762,967 | | | $ | 9,716,307 | | | | | | | | Retirement, Termination without Cause or Disability (c) | | | | | | | | | | | | | | | | | | Retiree Life Insurance Benefit (a) | | $ | 433,328 | | | $ | — | | | $ | 245,145 | | | $ | 244,154 | | | $ | — | | Retiree Medical and Dental Benefit (b) | | | 67,740 | | | | — | | | | 81,899 | | | | 130,024 | | | | — | | Stock Options (h) (e) | | | 14,288,823 | | | | 2,859,300 | | | | 2,875,205 | | | | 2,299,548 | | | | 2,674,809 | | Restricted Stock (h) (f) | | | 21,701,455 | | | | 3,008,410 | | | | 4,323,855 | | | | 3,249,530 | | | | 2,576,506 | | PRSUs (g) (h) | | | 14,566,517 | | | | 2,851,842 | | | | 2,864,900 | | | | 2,544,972 | | | | 1,593,914 | | Total | | $ | 51,057,863 | | | $ | 8,719,552 | | | $ | 10,391,004 | | | $ | 8,468,228 | | | $ | 6,845,229 | | | | | | | | | Change in Control, with Qualifying Termination | | | | | | | | | | | | | | | | | | | | | Annual Incentive (i) | | $ | 4,850,000 | | | $ | 900,000 | | | $ | 1,020,000 | | | $ | 995,000 | | | $ | 850,000 | | Severance (j) | | | 19,240,650 | | | | 4,813,900 | | | | 5,307,250 | | | | 5,232,500 | | | | 4,709,250 | | Life, medical, dental and long-term disability benefits (k) | | | 59,845 | | | | 61,138 | | | | 77,601 | | | | 78,880 | | | | 85,654 | | Retiree life, medical and dental benefits (l) | | | 411,542 | | | | — | | | | 238,454 | | | | 310,026 | | | | — | | Outplacement services (m) | | | 15,000 | | | | 15,000 | | | | 15,000 | | | | 15,000 | | | | 15,000 | | Financial counseling and tax planning services (n) | | | 30,000 | | | | 30,000 | | | | 30,000 | | | | 30,000 | | | | 30,000 | | Supplemental retirement benefit (o) | | | 121,235 | | | | 68,033 | | | | 71,654 | | | | 71,097 | | | | — | | Stock Options (p) | | | 20,716,790 | | | | 4,233,014 | | | | 4,429,255 | | | | 4,392,813 | | | | 4,036,111 | | Restricted Stock (p) | | | 22,052,135 | | | | 3,080,254 | | | | 4,400,240 | | | | 3,323,705 | | | | 2,640,835 | | PRSUs (p) | | | 19,104,286 | | | | 3,785,574 | | | | 3,854,238 | | | | 3,524,378 | | | | 2,490,092 | | Total | | $ | 86,601,483 | | | $ | 16,986,913 | | | $ | 19,443,692 | | | $ | 17,973,399 | | | $ | 14,856,942 | |
| Scenario and Payment Type | | Ms. Novakovic | | Mr. Aiken | | Mr. Roualet | | Mr. Burns | | Mr. Gallopoulos | | Termination For Cause or Voluntary Resignation | | | | | | | | | | | | | | | | | Retiree Life Insurance Benefit(a) | | $ | 519,519 | | $ | — | | $ | 297,779 | | $ | — | | $ | 275,769 | | Retiree Medical and Dental Benefit(b) | | | — | | | — | | | 58,828 | | | 71,119 | | | — | | Stock Options | | | — | | | — | | | — | | | — | | | — | | Restricted Stock | | | — | | | — | | | — | | | — | | | — | | PSUs | | | — | | | — | | | — | | | — | | | — | | Total | | $ | 519,519 | | $ | — | | $ | 356,607 | | $ | 71,119 | | $ | 275,769 | | Death(c) | | | | | | | | | | | | | | | | | Life Insurance Benefit | | $ | 3,170,000 | | $ | 1,700,000 | | $ | 1,600,000 | | $ | 1,310,000 | | $ | 1,480,000 | | Stock Options(d) | | | 1,128,247 | | | 268,231 | | | 261,676 | | | 383,336 | | | 369,090 | | Restricted Stock(d) | | | 13,198,034 | | | 2,990,014 | | | 3,035,865 | | | 2,026,262 | | | 2,309,303 | | PSUs(d)(e) | | | 7,529,322 | | | 1,767,674 | | | 1,736,460 | | | 1,065,918 | | | 1,064,390 | | Total | | $ | 25,025,603 | | $ | 6,725,919 | | $ | 6,634,001 | | $ | 4,785,516 | | $ | 5,222,783 | | Retirement, Termination without Cause or Disability(c) | | | | | | | | | | | | | | | | | Retiree Life Insurance Benefit(a) | | $ | 519,519 | | $ | — | | $ | 297,779 | | $ | — | | $ | 275,769 | | Retiree Medical and Dental Benefit(b) | | | — | | | — | | | 58,828 | | | 71,119 | | | — | | Stock Options(f)(h) | | | 302,216 | | | 71,848 | | | 70,087 | | | 102,678 | | | 98,859 | | Restricted Stock(g)(h) | | | 12,569,604 | | | 2,840,606 | | | 2,889,975 | | | 1,872,297 | | | 2,161,063 | | PSUs(e)(h) | | | 7,529,322 | | | 1,767,674 | | | 1,736,460 | | | 1,065,918 | | | 1,064,390 | | Total | | $ | 20,920,661 | | $ | 4,680,128 | | $ | 5,053,129 | | $ | 3,112,012 | | $ | 3,600,081 | | Change in Control, with Qualifying Termination | | | | | | | | | | | | | | | | | Annual Incentive(i) | | $ | 5,059,000 | | $ | 1,287,000 | | $ | 1,364,000 | | $ | 1,100,000 | | $ | 950,000 | | Severance(j) | | | 19,865,560 | | | 6,389,630 | | | 6,470,360 | | | 3,510,000 | | | 5,053,100 | Life, medical, dental and long-term
disability benefits(k) | | | 82,472 | | | 76,476 | | | 89,595 | | | 46,856 | | | 73,231 | | Retiree life, medical and dental benefits(l) | | | 455,670 | | | — | | | 290,832 | | | 48,706 | | | 238,821 | | Outplacement services(m) | | | 10,000 | | | 10,000 | | | 10,000 | | | 10,000 | | | 10,000 | | Financial counseling and tax planning services(n) | | | 30,000 | | | 30,000 | | | 30,000 | | | 20,000 | | | 30,000 | | Supplemental retirement benefit(o) | | | 134,729 | | | 89,167 | | | 89,726 | | | 48,021 | | | 83,576 | | Stock Options(p) | | | 1,128,247 | | | 268,231 | | | 261,676 | | | 383,336 | | | 369,090 | | Restricted Stock(p) | | | 13,198,034 | | | 2,990,014 | | | 3,035,865 | | | 2,026,262 | | | 2,309,303 | | PSUs(p) | | | 12,937,036 | | | 3,051,737 | | | 2,989,309 | | | 1,685,730 | | | 1,658,395 | | Total | | $ | 52,900,748 | | $ | 14,192,255 | | $ | 14,631,363 | | $ | 8,878,911 | | $ | 10,775,516 |
| (a) | Assumes the executive elects the maximum oftwo-times-pay coverage at retirement. The estimated cost is calculated using the assumptions made for financial reporting purposes for valuing post-retirement life insurance at December 31, 2016.2019. The life insurance benefit is further described on page 40 of this Proxy Statement under “CompensationCompensation Discussion and Analysis – Other Retiree Benefits.” |
| (b) | The estimated cost for this coverage is based on the difference between the COBRA rate that the executive would pay and the higher expense we must recognize for financial reporting purposes. We provide retiree medical and dental coverage only until an executive reaches age 65. Ms. Novakovic and Messrs. Aiken and Gallopoulos were not eligible for retiree medical and dental coverage at December 31, 2019. |
| (c) | In situations where an executive has completed a full calendar year of service to the company, for certain termination scenarios not involving a change in control, the executive may remain eligible for an annual incentive for performance during the year, though whether a bonus is paid in the future, and the amount, if any, would be subject to Compensation Committee approval. No future bonus payment is guaranteed, and the amount of any bonus would be determined as described in the Compensation Discussion and Analysis section. The named executive officerNEO may also be eligible for $2 million of proceeds under accidental death and dismemberment insurance, depending upon the circumstances. |
| (d) | Under the terms of the Equity Compensation Plan, unvested stock options held by the executive would be treated as if the executive remained employed with General Dynamics throughout the option term. The options would be exercisable by the executive’s estate in accordance with the terms of the original option grant. Restricted stock held by the executive would be transferred to the estate and released at the end of the restriction period. PRSUsPSUs granted in 2014 held by |
58 General Dynamics 2017 Proxy Statement
| the executive would be transferred to the estate and released immediately. PRSUs granted in 2015 and 2016 would be evaluated for achievement relative to goals and if earned, a pro rata amount (determined as set forth in the respective award agreements) will vest and be released within two and one-half months following the respective scheduleddeath vesting date. For the 2015 and 2016 grants, theThe unvested stock options vest immediately, and the restricted stock held by the executive would be transferred to the estate and released at the time of death.
|
(e) | The present value of the |
2020 Proxy Statement 69
Table of Contents Executive Compensation | unvested options reflected in the table represents the difference between the closing share price of $172.66$176.35 on December 31, 2016,2019, and the option grant price, multiplied by the number of retained unvested options. The value of the restricted stock represents the number of restricted shares held on December 31, 2019, multiplied by the closing share price of $176.35 on December 31, 2019. | | (e) | The value of the prorated PSUs represents the number of earned units as of December 31, 2019, multiplied by the closing share price of $176.35 on December 31, 2019. | | (f) | The present value of the unvested stock options reflected in the table represents the difference between the closing share price of $176.35 on December 31, 2019, and the option grant price, multiplied by the number of retained unvested options, and applying a discount factor to account for the option exercise dates. In the case of death, the present value of the unvested options for shares granted in 2015 and 2016 does not apply a discount factor to account for the option exercise dates due to immediate vesting. |
(f)(g) | The present value of the restricted stock represents the number of restricted shares held on December 31, 2016,2019, multiplied by the closing share price of $172.66$176.35 on the same date,December 31, 2019, and applying a discount rate factor to account for the restriction periods. |
(g) | The present value of the PRSUs represents the number of earned units as of December 31, 2016, multiplied by the closing share price of $172.66 on the same date.
|
| (h) | Under the terms of the Equity Compensation Plan, most participants qualify for retirement treatment after reaching age 55 with at least five years of continuous service with the company. For participants who are elected officers of the company and who have reached age 55, the plan provides for retirement treatment with the consent of the company’s chief executive officer or, in the case of the chief executive officer, the Compensation Committee. For purposes of this Proxy Statement, we assume that any required consents for retirement treatment have been obtained. Since Ms. Novakovic and Messrs. Casey,Burns, Gallopoulos and Roualet and Johnson are eligible to retire, they would forfeit a portion of their unvested stock option awards based on days of service during the three-year period beginning on January 1as of the year of grant.grant date. The retained options would be exercisable in accordance with the terms of the original grant. The restricted stock award will pro rata vest at the end of the original restriction period if retirement occurs prior to one year from grant. The restricted stock award would be released at the end of the original restriction period.period if retirement occurs on or after one year from grant. The PRSUsPSUs would be prorated (as set forth in the respective award agreements) and will be released within two and one halfone-half months following their respective scheduled vesting date, if earned based on the applicable performance goals. Because Mr. Aiken was not eligible to retire at December 31, 2016,2019, the equity values in these scenarios would apply only in the case of disability. |
| (i) | Any annual incentive amount paid in a change in control situation would be determined in accordance with the terms of the applicable change in control agreement. Since we assume that a change in control and triggering event had occurred on December 31, 2016,2019, the change in control scenarios identify the March 2016 annual incentive amounts.2019 bonus amounts (or the average of the 2017, 2018 and 2019 bonus amounts, if higher). |
| (j) | Calculated in accordance with the applicable change in control agreement. For the named executive officers,NEOs other than Mr. Burns, this amount equals 2.99 times their annual salary and annual incentive. For Mr. Burns, the multiple is 2.00 times. |
| (k) | Represents an additional 36 months of life, medical, dental and long-term disability benefits.benefits for the NEOs other than Mr. Burns. These costs reflect an amount equal to three times the 20162019 annual employer premiums for these benefits. For Mr. Burns, the amount represents an additional 24 months and the costs reflect an amount equal to two times the 2019 annual employer premiums for these benefits. |
| (l) | The costs of Ms. Novakovic’s, Mr. Casey’s and Mr. Roualet’s retiree benefits for Ms. Novakovic and Messrs. Burns, Gallopoulos and Roualet are reduced in this scenario because the 36 months (24 months for Mr. Burns) of continued active coverage described in noteNote (k) defers the commencement date of this coverage. Ms. Novakovic and Mr. Gallopoulos are not eligible for retiree medical and dental benefits; therefore, the amount shown represents retiree life only. Mr. Burns is not eligible for retiree life; therefore, the amount represents medical and dental benefits only. |
| (m) | Represents the estimated outplacement services costs, obtained from an outplacement vendor, for 12 months for a senior executive. |
| (n) | Represents financial counseling and tax planning services for 36 months (for NEOs other than Mr. Burns) or 24 months (for Mr. Burns) following the termination date, at a total cost not to exceed $30,000$10,000 per year for each named executive officer.NEO. |
| (o) | Represents a supplemental retirement benefit payable in cash equal to an additional 36 months (24 months for Mr. Burns) of company contributions to each defined-contribution plan in which the executive participates. |
| (p) | Our Equity Compensation Plan and the applicable award agreements contain a “double-trigger” mechanism for all participants, including the named executive officers.NEOs. This mechanism provides that if, within two years following a change in control, a participant’s employment is terminated by the company for any reason other than for Cause (as defined in the plan) or by the executive for Good Reason (as defined in the plan), then all outstanding awards that have not vested will immediately vest and become exercisable and all restrictions on awards will immediately lapse. |
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Executive CompensationPay Ratio Results The chief executive officer pay ratio figures below are a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K under the Exchange Act. There have been no changes in our employee population or employee compensation arrangements in 2019 that we reasonably believe would result in a significant change in our pay ratio disclosure. Therefore, we have based our pay ratio calculation for 2019 using compensation for the same median employee identified for 2018, which median employee was identified under the process described in our 2018 pay ratio calculation. Total 2019 annual compensation for the median employee was valued at $116,510 and total annual compensation for the chief executive officer was valued at $18,313,204, resulting in a ratio of median employee total annual compensation to chief executive officer total annual compensation of 1:157. Total annual compensation for the median employee and the chief executive officer is calculated according to the disclosure requirements of the Summary Compensation Table and includes base salary, annual incentive, equity awards, change in pension values and other compensation such as perquisites and company-paid healthcare benefits. Compensation Committee Report The following Compensation Committee Report shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement or any portion hereof into any filing under the Securities Act or the Exchange Act, and shall not otherwise be deemed filed under such acts. COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has furnished the following report. The following sixfive directors serve on the Compensation Committee: William A. Osborn (Chair), Mary T. Barra, James S. Crown, Rudy F. deLeon, William P. FricksC. Howard Nye and Laura J. Schumacher. None of these directors is an officer or employee of General Dynamics. They all meet the independence requirements of the New York Stock Exchange. The Compensation Committee is governed by a written charter approved by the Board. In accordance with that charter, the Compensation Committee is responsible for evaluating the performance of the chief executive officer and other General Dynamics officers as well as reviewing and approving their compensation. The Committee also establishes and monitors company-wide compensation programs and policies, including the incentive compensation plans.policies. The Committee’s processes and procedures for the consideration and determination of executive compensation are explained in greater detail in the Compensation Discussion and Analysis section of this Proxy Statement. The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based on this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement in accordance with Item 407(e) of RegulationS-K. This report is submitted by the Compensation Committee. | William A. Osborn(Chair) | | C. Howard Nye | | James S. Crown | | Laura J. Schumacher | | Rudy F. deLeon | | |
William A. Osborn (Chair)March 3, 2020
Mary T. Barra
James S. Crown
Rudy F. deLeon
William P. Fricks
Laura J. Schumacher
February 28, 2017
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SECURITY OWNERSHIPOF MANAGEMENT Security Ownership
Security Ownership of Management The following table provides information as of March 6, 2017,9, 2020, on the beneficial ownership of Common Stock by (1) each of our directors and nominees for director, (2) each of the named executive officersNEOs and (3) all of our directors and executive officers as a group. The following table also shows Common Stock held by these individuals through company-sponsored benefits programs. Except as otherwise noted, the persons listed below have the sole voting and investment power for all shares held by them, except for such power that may be shared with a spouse. | | | | | | | | | | | | | | Common Stock Beneficially Owned(a) | | Common Stock
Equivalents
Beneficially
Owned(b) | | Total Common
Stock and
Equivalents | NAMEOF BENEFICIAL OWNER | | COMMON STOCK BENEFICIALLY OWNED (a) | | | COMMON STOCK
EQUIVALENTS BENEFICIALLY OWNED
(c) | | | TOTAL COMMON STOCKAND EQUIVALENTS | | | | | SHARES OWNED (b) | | | PERCENTAGE OF CLASS | | | | | Name of Beneficial Owner | | | Shares Owned | | Options Exercisable
within 60 Days | | Percentage
of Class | | Common Stock
Equivalents
Beneficially
Owned(b) | | Total Common
Stock and
Equivalents | Directors and Nominees | | | | | | | | | | Mary T. Barra | | | 28,746 | | | | | * | | | 0 | | | | 28,746 | | | Nicholas D. Chabraja | | | 660,165 | | | | | * | | | 0 | | | | 660,165 | | | James S. Crown (d) | | | 16,039,599 | | | | 5.3 | % | | | 2,938 | | | | 16,042,537 | | | | James S. Crown(c) | | | 15,542,840 | | 13,455 | | 5.4% | | 3,117 | | 15,559,412 | Rudy F. deLeon | | | 3,253 | | | | | * | | | 0 | | | | 3,253 | | | 3,501 | | 9,055 | | * | | 0 | | 12,556 | William P. Fricks | | | 56,085 | | | | | * | | | 0 | | | | 56,085 | | | John M. Keane | | | 32,580 | | | | | * | | | 0 | | | | 32,580 | | | | Cecil D. Haney | | | 964 | | 0 | | * | | 0 | | 964 | Lester L. Lyles | | | 32,207 | | | | | * | | | 0 | | | | 32,207 | | | 8,647 | | 13,455 | | * | | 0 | | 22,102 | Mark M. Malcolm | | | 1,120 | | | | | * | | | 0 | | | | 1,120 | | | 5,862 | | 7,695 | | * | | 0 | | 13,557 | | James N. Mattis | | | 650 | | 0 | | * | | 0 | | 650 | Phebe N. Novakovic | | | 1,725,998 | | | | | * | | | 0 | | | | 1,725,998 | | | 729,722 | | 873,940 | | * | | 0 | | 1,603,662 | | C. Howard Nye | | | 1,943 | | 0 | | * | | 0 | | 1,943 | William A. Osborn | | | 42,605 | | | | | * | | | 0 | | | | 42,605 | | | 36,369 | | 13,455 | | * | | 0 | | 49,824 | Catherine B. Reynolds | | | 0 | | | | | * | | | 0 | | | | 0 | | | 2,688 | | 1,730 | | * | | 0 | | 4,418 | Laura J. Schumacher | | | 9,113 | | | | | * | | | 0 | | | | 9,113 | | | 5,586 | | 13,455 | | * | | 0 | | 19,041 | | John G. Stratton | | | 3,533 | | 0 | | * | | 0 | | 3,533 | Peter A. Wall | | | 590 | | | | | * | | | 0 | | | | 590 | | | 2,296 | | 4,585 | | * | | 0 | | 6,881 | | | | | | | | | | | | Other Named Executive Officers | | | | Other NEOs | | | | Jason W. Aiken | | | 205,057 | | | | | * | | | 0 | | | | 205,057 | | | 86,082 | | 232,390 | | * | | 0 | | 318,472 | John P. Casey | | | 247,035 | | | | | * | | | 0 | | | | 247,035 | | | Mark C. Roualet | | | 323,721 | | | | | * | | | 0 | | | | 323,721 | | | 130,539 | | 266,260 | | * | | 0 | | 396,799 | S. Daniel Johnson | | | 87,418 | | | | | * | | | 0 | | | | 87,418 | | | | | | | | | | | | | | | Mark L. Burns | | | 44,425 | | 111,210 | | * | | 0 | | 155,635 | | Gregory S. Gallopoulos | | | 114,237 | | 172,760 | | * | | 0 | | 286,997 | Directors and Executive Officers as a Group | Directors and Executive Officers as a Group | | | | (24 individuals) | | | 20,623,691 | | | | 6.7 | % | | | 2,938 | | | | 20,626,629 | | | | (25 individuals) | | | 17,013,398 | | 2,256,205 | | 6.6% | | 3,117 | | 19,272,720 |
| (a) | Includes shares in the 401(k) Plan votedheld by the executive officers and shares of Common Stock subject to resale restrictions, for which restrictions have not expired. |
| (b) | Includes shares subject to options that are either currently exercisable or exercisable within 60 days of March 6, 2017, as follows: (i) Ms. Novakovic – 1,378,015 shares; Mr. Aiken – 164,985 shares; Mr. Casey – 149,015 shares; Mr. Roualet – 227,350 shares; and Mr. Johnson – 22,420 shares; (ii) other directors of the company – 136,555 shares; and (iii) other executive officers of the company – 775,770 shares.
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(c) | Reflects phantom stock units that were received on December 1, 1999, upon termination of benefits under the former retirement plan for directors and additional phantom stock units resulting from the reinvestment of dividend equivalents on the phantom stock units. |
(d)(c) | Based solely on information provided on behalf of Mr. Crown. Of the 16,042,53715,542,840 shares of Common Stock shown as beneficially owned by Mr. Crown, (i) he disclaims beneficial ownership as to 15,945,14815,528,880 shares, except to the extent of his beneficial interest in entities that own these shares; and (ii) a total of 504,8003,510,667 shares held indirectly by entities in which Mr. Crown holds interests are pledged as collateral for bank borrowings (and for which Mr. Crown disclaims beneficial ownership). |
72General Dynamics 2017 Proxy Statement 61
Table of Contents
SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERSSecurity Ownership of Certain Beneficial Owners
Except as otherwise noted, the following table provides information as of March 6, 2017,9, 2020, with respect to the number of shares of Common Stock owned by each person known by General Dynamics to be the beneficial owner of more than 5 percent5% of our Common Stock. | | | | | | | | | | | | COMMON STOCK BENEFICIALLY OWNED (a) | | NAMEOF BENEFICIAL OWNER | | SHARES OWNED | | | PERCENTAGE OF CLASS | | | | | Longview Asset Management, LLC (b) 222 North LaSalle Street Chicago, Illinois 60601 | | | 33,387,811 | | | | 11.0 | % | | | | Evercore Trust Company, N.A. (c) 55 East 52nd Street, 36th Floor New York, New York 10055 | | | 22,134,047 | | | | 7.3 | % | | | | The Vanguard Group (d) 100 Vanguard Blvd. Malvern, Pennsylvania 19355 | | | 18,905,640 | | | | 6.2 | % | | | | Capital Research Global Investors (e) 333 South Hope Street Los Angeles, California 90071 | | | 16,086,509 | | | | 5.3 | % | | | | BlackRock, Inc. (f) 55 East 52nd Street New York, New York 10055 | | | 15,509,208 | | | | 5.1 | % |
| | Common Stock
Beneficially Owned(a) | | Name of Beneficial Owner | | Shares
Owned | | Percentage
of Class | | Longview Asset Management, LLC(b) | | | | | | 222 North LaSalle Street | | | | | | Chicago, Illinois 60601 | | 32,690,644 | | 11.3% | | Capital Research Global Investors(c) | | | | | | 333 South Hope Street | | | | | | Los Angeles, California 90071 | | 23,304,219 | | 8.0% | | The Vanguard Group(d) | | | | | | 100 Vanguard Blvd. | | | | | | Malvern, Pennsylvania 19355 | | 20,569,605 | | 7.1% | | Newport Trust Company(e) | | | | | | 570 Lexington Avenue, Suite 1903 | | | | | | New York, New York 10022 | | 19,883,568 | | 6.9% | | BlackRock, Inc.(f) | | | | | | 55 East 52ndStreet | | | | | | New York, New York 10055 | | 15,605,001 | | 5.4% |
| (a) | Share information for The Vanguard Group, Capital Research Global Investors and BlackRock, Inc. is as of December 31, 2016. 2019. |
| (b) | This information is based solely on information provided by Longview Asset Management, LLC (Longview). Longview manages investment portfolios for clients who own Common Stock, which include accounts of clients related to Mr. Crown. Pursuant to its investment advisory agreements, Longview has voting and dispositive power over the Common Stock held in its clients’ accounts and is deemed to beneficially own 33,387,81132,690,644 shares of Common Stock, including the 15,945,14815,528,880 shares included in Mr. Crown’s beneficial ownership amount for which he disclaims beneficial ownership. Clients of Longview disclaim that they are a group for purposes of Section 13(d) of the Exchange Act, and disclaim that any one of them is the beneficial owner of shares owned by any other person or entity. |
| (c) | EvercoreThis information is based solely on information contained in a Schedule 13G filed by Capital Research Global Investors with the SEC on February 14, 2020.
| | (d) | This information is based solely on information contained in a Schedule 13G filed by The Vanguard Group with the SEC on February 12, 2020. | | (e) | Newport Trust Company N.A. (Evercore)(Newport) is the independent fiduciary and investment manager for the assets of the General Dynamics Stock Fund under the General Dynamics Corporation 401(k) Plan Master Trust. EvercoreNewport has shared voting power over the shares held in the General Dynamics Stock Fund. Share information for EvercoreNewport is based solely on information provided on behalf of Evercore.Newport. |
(d)(f) | This information is based solely on information contained in a Schedule 13G filed by The Vanguard Group with the SEC on February 13, 2017.
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(e) | This information is based solely on information contained in a Schedule 13G filed by Capital Research Global Investors with the SEC on February 13, 2017.
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(f) | This information is based solely on information contained in a Schedule 13G filed by BlackRock, Inc. with the SEC on January 24, 2017. February 5, 2020. |
2020 Proxy Statement 73
Table of Contents Security Ownership EQUITY COMPENSATION PLAN INFORMATIONEquity Compensation Plan Information
The following table provides information as of December 31, 2016,2019, regarding Common Stock that may be issued under our equity compensation plans. | | (A) | | (B) | | (C) | | Plan Category | | Number of Securities
to be Issued Upon the
Exercise of Outstanding
Options, Warrants
and Rights | | Weighted-Average
Exercise Price
of Outstanding
Options, Warrants
and Rights | | Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation Plans
(Excluding Securities Reflected
in Column (A)) | | Equity compensation plans approved | | 10,619,715 | (a) | | $ | 161.54 | (b) | | 25,631,368 | | by shareholders | | | | | | | | | | | Equity compensation plans not approved | | — | | | | — | | | — | | by shareholders | | | | | | | | | | | Total | | 10,619,715 | | | $ | 161.54 | | | 25,631,368 |
| (a) | Includes 9,767,749 stock options, 51,082 shares issuable upon vesting of restricted stock units (including dividend equivalents thereon) (RSUs), and 785,734 shares issuable upon vesting of PSUs (assuming achievement at the maximum payout and including dividend equivalents thereon); and 15,150 shares of the company’s Common Stock issuable upon vesting of restricted stock units subject to terms and conditions in equity compensation plans assumed by the company in connection with the acquisition of CSRA Inc. in 2018 (Converted CSRA RSUs). No additional awards or grants may be made under those CSRA plans. | | (b) | RSUs, PSUs and Converted CSRA RSUs do not have an exercise price and, therefore, are not taken into consideration in calculating the weighted average exercise price. |
| | | | | | | | | | | | | | | | (A) | | | (B) | | | (C) | | | | | | PLANCATEGORY | | NUMBER OF SECURITIES TO BE ISSUEDUPONTHEEXERCISE OFOUTSTANDINGOPTIONS, WARRANTSANDRIGHTS | | | WEIGHTED-AVERAGE EXERCISEPRICEOF OUTSTANDING OPTIONS, WARRANTS AND RIGHTS | | | NUMBEROFSECURITIESREMAINING AVAILABLEFORFUTUREISSUANCE UNDER EQUITY COMPENSATION PLANS (EXCLUDING SECURITIES REFLECTED IN COLUMN (A)) | | Equity compensation plans approved by shareholders | | | 10,934,621 | | | | $108.23 | | | | 7,729,290 | | Equity compensation plans not approved by shareholders | | | — | | | | — | | | | — | | Total | | | 10,934,621 | | | | $108.23 | | | | 7,729,290 | |
6274 General Dynamics 2017 Proxy Statement
Table of ContentsAPPROVALOFTHE GENERAL DYNAMICS CORPORATION AMENDEDAND RESTATED Shareholder Proposal – Special Shareholder Meetings
PROPOSAL 4 SHAREHOLDER PROPOSAL – SPECIAL SHAREHOLDER MEETINGS |
We have been advised by John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, California 90278, owner of at least 50 shares of Common Stock, that he intends to present the following shareholder proposal at the Annual Meeting. We are not responsible for the accuracy or content of the proposal and supporting statement, presented below, as received from the proponent. Our reasons for opposing the proposal are also presented below. Proposal and Supporting Statement 2012 EQUITY COMPENSATION PLANProposal 4 – Make Shareholder Right to Call Special Meeting More Accessible
(PROPOSAL 5)Resolved, Shareowners ask our board to take the steps necessary to amend our bylaws and each appropriate governing document to give the owners of a total of 15% of our outstanding common stock the power to call a special shareowner meeting. This proposal does not impact our board’s current power to call a special meeting.
The General Dynamics Corporation 2012 Equity Compensation Plan (the 2012 Plan), providesTo address the company withobjection of a critical meansnumber of attracting, retaining and motivating executives, key employees andnon-employee directors through the issuancecompanies that a lower stock ownership threshold could allow one shareholder to call a special meeting, adoption of equity compensation awards. Equity compensation awards provide participants with incentives to enhance the long-term growth and profitabilitythis proposal topic could include a provision that a 20% stock ownership threshold would apply if a single shareholder calling for a special meeting owned 10% or more of General Dynamics and align management’s interests with the interestsstock.
Special shareholder meetings allow shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. A more accessible ability of shareholders consistent withto call a special meeting could give shareholders greater standing to improve the fundamental philosophycomposition of our compensation program. board of directors. For instance, James Crown was Lead Director in spite of 32-years long-tenure and Mr. Crown received the highest negative votes of any GD director in 2019. Independence can be the most important attribute in a Lead Director. Ironically Mr. Crown also chairs the Nomination/Governance Committee which considers the merits of this proposal. Mr. Crown is also on 2 other important board committees. This alignment withproposal received 40%-support at General Dynamics in 2018 in spite of Mr. Crown’s opposition to it. This 40%-support would have been majority support if our management had simply allowed shareholders to make up their own minds. The current ownership threshold of 25% can mean that more than 50% of shareholders must be contacted during the prescribed short window of time to simply call a special meeting. Plus many shareholders, who are convinced that a special meeting should be called, can make a small paperwork error that will disqualify them from counting toward the 25 ownership threshold that is needed for a special meeting. Any claim that a shareholder right to call a special meeting can be costly – may be moot. When shareholders have a good reason to call a special meeting – our board should be able to take positive responding action to make a special meeting unnecessary. Making the right to call a special meeting more accessible to shareholders is further enhancedshowing increased support. For instance this proposal topic won 51%-support at O’Reilly Automotive, Inc. (ORLY) in 2019 – up form [sic] 41%-support in 2018. Please vote yes: Make Shareholder Right to Call Special Meeting More Accessible – Proposal 4 2020 Proxy Statement 75
Table of Contents Shareholder Proposal Statement by our rigorous stock ownership guidelines for executives. We strongly believe that equity compensation awards under the 2012 Plan are an essential part of our executive compensation program, and that our executive compensation program, together with our emphasis on executive stock ownership, contributes to the superior performance of our company. In May 2012, shareholders originally approved the adoption of the 2012 Plan. The 2012 Plan has not been amended since it received shareholder approval. The 2012 Plan is the only currently active equity compensation plan at the company. We have prudently and responsibly used shares available under the 2012 Plan and, as of March 6, 2017, there were 5,197,476 shares remaining available for issuance under the 2012 Plan. On March 1, 2017, theYour Board of Directors approved, subjectagainst the Shareholder Proposal
This proposal seeks to amend our company’s current special shareholder approval atmeeting right. Our current Bylaws provide that your Board will call a special meeting upon the 2017 Annual Meeting, an amendment and restatementwritten request of the 2012 Plan, andfollowing: 〉a single stockholder holding 10% of our outstanding Common Stock, or 〉one or more stockholders holding 25% of our outstanding stock, without any material restrictions. Given the amended and restated 2012 Plan is now being submittedcompany’s current shareholder base, shareholders have the ability to call a special meeting at both thresholds. Your Board understands the importance that the right to call a special meeting can provide to the company’s shareholders, to request approvalbut also acknowledges that reasonable provisions must be in place so that the right serves its purpose without a risk of misuse. The proposal requests that the threshold for calling a special shareholder meeting be set at 15% of the following changes: • | | Request to Add to Share Reserve.To avoid exhausting the reserve of remaining shares of Common Stock available for issuance under the 2012 Plan and to ensure a sufficient number of shares of Common Stock remains available for issuance for the company’s future equity compensation needs, we propose to increase the existing share reserve under the 2012 Plan by 24,000,000 shares of Common Stock. If shareholders approve the increase in the share reserve, a total of 42,250,000 shares would be authorized under the amended and restated 2012 Plan, of which 29,197,476 would be available for future issuance. The size of the share request is based on an analysis of historical equity compensation usage at both the company and its peer companies. The size of the request and the historic usage of shares are well with industry norms. The Compensation Committee has taken several actions in recent years to manage dilution levels. As detailed on page 48 of this Proxy Statement, as a result of these efforts, dilution and the one- and three-year burn rates have steadily decreased since 2013. We expect future dilution and grant rate levels to remain within industry norms.
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• | | Extension of the Term of the 2012 Plan.We propose to extend the term of the 2012 Plan to May 3, 2027 (the tenth anniversary of the 2017 Annual Meeting).
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• | | Adoption of an Annual Cap on Equity Awards toNon-Employee Directors.We propose to implement an annual grant date fair value limit of $400,000on the annual value of equity awards granted tonon-employee directors under the 2012 Plan. This limit is below both the median and average limits at Fortune 500 companies who have included director-specific annual dollar-based limits in their equity compensation plans.
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• | | Re-Approval of the Section 162(m) Performance Goals and Annual Grant Limitations.We propose there-approval of the material terms of the performance goals (including the annual per participant grant limitations) under the 2012 Plan for purposes of preserving the ability to grant awards to Section 162(m) covered executives under the 2012 Plan that are intended to qualify as performance-based compensation that is deductible under Section 162(m) of the Internal Revenue Code. Under Section 162(m) of the Internal Revenue Code, we must seek shareholder approval of the performance goals (including the annual per participant grant limitations) under the 2012 Plan every five years in order to preserve eligibility to qualify for the performance-based compensation exception under Section 162(m) of the Internal Revenue Code.
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We are not seeking to make any other material changes to the 2012 Plan that would require shareholder approval. Theoutstanding common stock. Your Board of Directors has also adopted other modificationsconsidered this proposal and believes its adoption is redundant as our existing special meeting bylaw strikes an appropriate balance between the right of shareholders to call a special meeting and the interests of our company and shareholders in promoting the appropriate use of corporate funds and resources.
Your Board proposes the following responses to the 2012 Plan, as amended and restated, which do not require shareholder approval, to reflect best market practices. These modifications include:proponent’s letter: Appropriate Threshold for Special Meetings Compensation Recoupment Policy.An express compensation recoupment, or clawback, provision that provides〉The Board has concluded that a participant’s rights15% threshold is too low for a group of investors to call a special meeting and that our current requirement is reasonable and appropriate for our company at this time, particularly when a single shareholder owning 10% can call a meeting under our current structure. In our recent engagement with respecta majority of our shareholders, we have continued to awardssolicit input on this topic. While some shareholders support lower thresholds, most have conveyed support for levels that are subjectin line with our current provision. Importantly, a 25% threshold is the most prevalent level among General Dynamics’ peers, as well as S&P 500 companies. In fact, the majority of General Dynamics’ peers have this threshold in place. In addition, 37% of S&P 500 companies require a 25% ownership threshold, as compared to anyonly 8% for the 15% level (source: SharkRepellent as of July 1, 2019). Moreover, General Dynamics’ current special shareholder meeting provision not only matches the prevalent practice but goes further by granting a single 10% shareholder the right thatto call a special meeting.
Director Independence 〉As has become the company has under its existing compensation recoupment policy or under any applicable securities regulation or exchange listing rule. General Dynamics 2017 Proxy Statement 63
• | | Two-Year Minimum Vesting Period for Stock Options and Stock Appreciation Rights.An increase in the minimum vesting period for stock options and stock appreciation rights from one year to two years.
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If the requisite shareholder approval of the amended and restated 2012 Plan is not obtained, the amended and restated 2012 Plan will not take effect to the extent shareholder approval is required, but the company may continue to grant awards under the 2012 Plan in accordance with the current terms and conditions of the 2012 Plan, including the terms and conditions approved by the Board on March 1, 2017, that do not require shareholder approval.
KEY COMPENSATION GOVERNANCE FEATURES
Importantly, the amended and restated 2012 Plan will continue to contain the following important compensation governance features that were included prior to its amendment and restatement:
✓ | No repricing of stock options or stock appreciation rights.Repricing of stock options and stock appreciation rights is prohibited unless shareholder approval is obtained.
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✓ | No discounted stock options or stock appreciation rights.Stock options and stock appreciation rights must be granted with an exercise price that is not lessproponent’s perennial custom, rather than 100 percent of the fair market value on the date of grant.
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✓ | No reloads of options or stock appreciation rights.The ability to automatically receive a grant of additional options or stock appreciation rights in connection with any exercise of the original stock options or stock appreciation rights (so-called “stock option reloading”) is not permitted.
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✓ | No liberal share recycling.The reuse of shares to satisfy the exercise price or tax withholding requirements of an award is not permitted.
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✓ | Minimum vesting periods for awards.Subject to limited exceptions, awards of restricted stock and participation units have a minimum vesting period of three years and awards of stock options and stock appreciation rights have a minimum vesting period of two years.
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✓ | Double-trigger change in control provisions.A “double-trigger” change in control mechanism is activated only when (1) a change in control is consummated and (2) a participant’s employment is terminated by the company or its successor without cause or by the participant for good reason within two years following the change in control.
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CONTINUED CLOSE MONITORINGOF DILUTIONAND BURN RATE
The Compensation Committee remains focused on using equity to compensate executives in a manner that links executive and shareholder interests while focusing on the overall dilutive effectactual merits of equity compensation. As displayedspecial meeting rights for shareholders, the proponent engages in a diatribe that confuses director tenure with director independence. His assertion that James Crown lacks independence is without merit and without basis in applicable rules or regulations. Further, it is directly contradictory to the table below, dilution and grant rate levels have steadily decreased since 2013. The Compensation Committee achieves this balance by (1) maintaining terms and conditionsBoard’s reasoned judgment of equity awardsMr. Crown’s independence. Your Board strongly objects to the proponent’s suggestion that have the resultindependence of reducing dilution levels and (2) actively managing reasonable levels of equity dilution and annual share usage (burn rate or grant rate) when granting equity awards.
Since 2014, the Compensation Committee has taken the following actions to enhance the role of equity compensation as a longer-term valuation creation tool and to manage dilution levels.
| | | Compensation Committee Actions Taken
| | Resulting Reduction in Dilution Levels
| Increased exercise period on options from a term of7-years to10-years
| | Option value increases result in fewer options granted to each participant
| Decreased leverage on performance shares from 2 times target to 1.5 times target
| | In the event of strong company performance, payout can only result in 50% higher share usage
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64 General Dynamics 2017 Proxy Statement
The table below shows the dilution and one- and three-year burn rate for 2014, 2015 and 2016:
| | | | | | | | | | | | | | | | 2014 | | | 2015 | | | 2016 | | Actual Dilution | | | 5.12 | % | | | 4.80 | % | | | 4.54 | % | 1-Yr Grant Rate | | | 1.67 | % | | | 0.82 | % | | | 1.06 | % | 3-Yr Average Grant Rate | | | 1.97 | % | | | 1.63 | % | | | 1.19 | % |
Additional information regarding the company’s calculation of dilution rate and burn rate is available on page 48 of this Proxy Statement.
As of March 6, 2017, there were:
5,197,476 shares remaining available for issuance under the 2012 Plan, of which 1,722,663board member may be issued as full value awards;
12,102,349 options outstanding in aggregate underimpaired merely because of length of service. We believe that the General Dynamics Corporation 2009 Equity Compensation Plan (the 2009 Plan) and the 2012 Plan with a weighted-average exercise pricetenure of $121.91 and a weighted-average remaining term of 6.3 years; and
1,983,171 full value awards outstanding and unvested in aggregate under all equity compensation plans of the company.
Since approval of the 2012 Plan at the 2012 Annual Meeting, no further grants were made under the 2009 Plan, but awards under the 2009 Plan remain outstanding and will, among other things, continuedirectors like Mr. Crown demonstrates strong commitment to vest and/or become exercisable in accordance with their original terms and conditions.
SUMMARYOFTHE PLAN
The principal features of the amended and restated 2012 Plan are summarized below. This summary does not contain all the information that may be important to you. The summary is qualified in its entirety by reference to the complete text of the amended and restated 2012 Plan, which is set forth in Appendix A to this Proxy Statement.
Plan Administration. Subject to the terms of the 2012 Plan, the Compensation Committee has the authority to interpret and administer the 2012 Plan. The Compensation Committee has the authority to, among other things, determine which individuals will participate in the 2012 Plan and to establish the amounts, types and terms of awards under the 2012 Plan.
Eligibility. Any officer or employee of the company or any of its subsidiaries and any member of the Board of Directors who is not an employee of the company or any of its subsidiaries (anon-employee director) is eligible for selection by the Compensation Committee to receive an award under the 2012 Plan. Awards tonon-employee directors must be approved by the Board of Directors. As of the date of this Proxy Statement, there are 27 officers and approximately 99,000 employees (excluding officers) of theour company and its subsidiariesshareholders, providing your Board with valuable insight into the long-term business cycles and there are 11non-employee directorsthe complex operations of our company. Also, your Board reviews the company.
Shares Subjectindependence of each director annually to the Plan. The 2012 Plan provides that an aggregate maximum of 42,250,000 shares of Common Stock will be available for issuance in connection with awards under the 2012 Plan and for the payment of dividend equivalents that are settled in shares of Common Stock. From that aggregate maximum, (1) the maximum number of shares available for grants of incentive stock options (ISOs) under the 2012 Plan is 42,250,000 shares of Common Stock, (2) the maximum aggregate number of shares available for grants ofnon-statutory stock options (NSOs) and stock appreciation rights (SARs) under the plan is 42,250,000 shares of Common Stock, and (3) the maximum aggregate number of shares available for grants of restricted stock, Common Stock awards, participation units and performance-based awards (other than performance-based awards that are ISOs, NSOs and SARs), and shares paid in settlement of dividend equivalents pursuant to the plan is 8,000,000 shares of Common Stock. If any award under the 2012 Plan or the 2009 Plan expires, is forfeited or cancelled, or terminates for any reason without the issuance of shares (including, without limitation, upon cash settlement), the shares relating to the award will again be available for issuance pursuant to awards under the 2012 Plan. However, if shares are tendered or withheld in payment of all or part of the exercise price of an award or in satisfaction of tax withholding obligations with respect to an award, the shares will not be available again for issuance pursuant to awards under the 2012 Plan. With respect to any SAR granted under the plan, the number of shares of Common Stock counted against the share limits described above shall be either the full number of shares subject to the SAR, if it is settled in shares, or zero shares, if it is settled in cash.
General Dynamics 2017 Proxy Statement 65
Award Types. The 2012 Plan permits grants of unrestricted shares of Common Stock (Common Stock awards), NSOs, SARs, restricted stock, participation units, cash awards, performance-based awards or any combination thereof, to officers, employees andnon-employee directors and grants of ISOs to officers and employees.
Common Stock Awards. The Compensation Committee may grant Common Stock awards under the 2012 Plan on such terms and conditions, not inconsistentconfirm compliance with the plan, as the Compensation Committee may determine. In addition, anon-employee director may elect to have all or part of his or her annual retainer paid in Common Stock under the 2012 Plan upon such terms and conditions as the Compensation Committee may establish from time to time.
Stock Options and SARs. The 2012 Plan provides for the grant of (1) ISOs, which are stock options that are designated by the Compensation Committee as incentive stock options and which meet the applicable requirements for incentive stock options pursuant to Section 422 of the Internal Revenue Code, (2) NSOs, which are stock options that do not qualify as ISOs or that are designated as NSOs notwithstanding that they may otherwise qualify as ISOs, and (3) SARs, which are rights to receive an amount of cash or shares of Common Stock with a fair market value equal to the increase in the fair market value of a specified number of shares between the date on which the SAR is grantedcompany’s Director Independence Guidelines and the date on which it is exercised. References in this summary to “stock options” will mean both ISOs and NSOs, unless otherwise specified.
Pursuant to the termsindependence rules of the 2012 Plan, the Compensation Committee determines the terms and conditions, not inconsistent with the 2012 Plan, of any award of stock options or SARs. The 2012 Plan provides that awards of stock options and SARs are subject to the following restrictions: (1) the exercise price per share for stock options or SARs may not be less than 100 percent of the fair market value of a share of Common Stock on the grant date (with fair market value determined by taking the average of the highest and lowest quoted selling price per share of Common Stock on the national securities exchange on which the Common Stock is principally traded on the grant date), (2) stock options and SARs may not have a term of more than 10 years, (3) no stock option or SAR may entitle the participant to receive an automatic grant of additional stock options or SARs in connection with any exercise of the original stock option or SAR, (4) except in connection with a corporate transaction involving the company, shareholder approval is required to reprice any stock options or SARs after their grant date or to exchange them for cash, other awards, or stock options or SARs with lower exercise prices, and (5) stock options and SARs generally may not vest sooner than two years from the original grant date, except in certain circumstances following a change in control or where the Compensation Committee provides for a shorter vesting period in connection with a corporate divestiture or acquisition or in other special circumstances as determined by the Compensation Committee. In addition, the exercise price of shares purchased upon the exercise of any stock option may be paid in cash, Common Stock or both, by cashless exercise or in any other manner as may be permitted by the Compensation Committee.
Restricted Stock. The 2012 Plan provides for the grant of restricted stock, which is Common Stock that may not be sold, transferred, pledged, assigned or otherwise alienated except upon the passage of time, or upon satisfaction of performance goals or other conditions. Pursuant to the terms of the 2012 Plan, the Compensation Committee determines the terms and conditions, not inconsistent with the plan, of any award of restricted stock. The 2012 Plan provides that (1) a participant holding restricted stock may vote the shares awarded and will be entitled to the payment of dividends and other distributions on the shares from the date the award is made, subject to such restrictions or conditions as the Compensation Committee may determine, except that no dividend shall be paid in respect of performance-based awards prior to the vesting of such awards; and (2) restricted stock awards generally have a minimum vesting period of three years (other than shares of restricted stock granted as an adjustment pursuant to a performance-based formula), except in certain circumstances following a change in control or where the Compensation Committee provides for a shorter vesting period in connection with a corporate divestiture or acquisition or in other special circumstances as determined by the Compensation Committee.
Participation Units. The 2012 Plan provides for the grant of participation units, which are awards of unfunded obligations of the company that have a value derived from or related to the value of Common Stock, including for example, phantom stock units or restricted stock units, and are payable in cash, Common Stock or any combination thereof. Pursuant to the terms of the 2012 Plan, the Compensation Committee determines the terms and conditions, not inconsistent with the 2012 Plan and in compliance with Section 409A of the Internal Revenue Code and the rules and regulations thereunder, of any award of participation units. The 2012 Plan provides that participation unit awards generally may not vest sooner than three years from the original grant date (other than participation units granted as an adjustment to a performance-based formula), except in certain circumstances following a change in control or where the Compensation Committee provides for a shorter vesting period in connection with a corporate divestiture or acquisition or in other special circumstances as determined by the Compensation Committee. A participant holding participation units
66 General Dynamics 2017 Proxy Statement
will not be entitled to any rights as a shareholder until shares are delivered upon settlement of the participation units, but a participant may be entitled to contractual dividend equivalents, subject to such restrictions or conditions as the Compensation Committee may determine, except that no dividend equivalents shall be paid in respect of performance-based awards prior to the vesting of such awards.
Cash Awards. The 2012 Plan provides for the grant of cash awards (referred to in the 2012 Plan as Other Awards), which are awards payable in cash. Pursuant to the terms of the 2012 Plan, the Compensation Committee determines the terms and conditions, not inconsistent with the 2012 Plan and in compliance with Section 409A of the Internal Revenue Code, of any cash awards.
AnnualNon-Employee Director Award Limitation. The 2012 Plan provides that the aggregate grant date fair value of all awards (excluding the issuance of shares of Common Stock as a result of a voluntary election to receive Common Stock in lieu of cash retainers) granted under the plan to individualnon-employee directors in any calendar year will not exceed $400,000.
Performance-Based Awards. The Compensation Committee may grant performance-based awards under the 2012 Plan. Performance-based awards are awards of Common Stock, stock options, SARs, restricted stock, participation units, cash awards, or any combination thereof, payment of which is contingent upon the attainment of one or more performance goals. A performance goal (1) may relate to the performance of the participant, the company or any of its subsidiaries, any business group, any business unit or other subdivision of the company or any of its subsidiaries, or any combination of the foregoing, as the Compensation Committee may deem appropriate and (2) may be expressed as an amount, as an increase or decrease over a specified period, as a relative comparison to the performance of a group of comparator companies or a published or special index, or any other external measure of the selected performance criteria, as the Compensation Committee, in its sole discretion, deems appropriate.
For performance-based awards granted to Section 162(m) covered executives of the company that are intended to meet the requirements of qualified performance-based compensation under Section 162(m) of the Internal Revenue Code, performance goals shall be determined by reference to one or more of the following criteria selected by the Compensation Committee in its sole discretion (as determined in accordance with generally accepted accounting principles, as applicable): (1) market price of Common Stock, (2) earnings per share of Common Stock, (3) net income or profit (before or after taxes), (4) return on total stockholders’ equity, (5) return of stockholders’ equity, (6) return on invested capital, (7) cash flow, (8) cumulative return on net assets employed, (9) earnings before interest and taxes, (10) earnings before interest, taxes, depreciation and amortization, (11) earnings from continuing operations, (12) sales or revenues, (13) return on assets, capital or investment, (14) market share, (15) cost reduction goals, (16) budget comparisons, (17) implementation or completion of specified projects or processes, (18) the formation of joint ventures, research or development collaborations, or the completion of other transactions, and/or (19) any combination of any of the foregoing. For all performance-based awards granted under the 2012 Plan that are not intended to meet the requirements of qualified performance-based compensation under Section 162(m) of the Internal Revenue Code, performance goals may be based on one or more of the foregoing criteria or any other criteria that the Compensation Committee deems appropriate.
The Compensation Committee will establish performance goals within 90 days after the beginning of the performance period for a performance-based award and in any case before 25 percent of the performance period has elapsed. The Compensation Committee may provide at the time it establishes a performance goal that the measurement of the performance goal shall exclude the impact of unusual,non-recurring or extraordinary items, charges for restructurings, discontinued operations, the cumulative effect of changes in accounting treatment and any other items, each determined in accordance with generally accepted accounting principles (to the extent applicable) and as identified in the company’s audited financial statements, including the notes thereto.
The 2012 Plan provides that the minimum vesting period for any performance-based award will not be less than the minimum vesting period for the form of award in which the performance-based award is granted.
The maximum number of shares of Common Stock (or in the case of a cash award, the maximum dollar amount) that may be subject to awards intended to meet the requirements of qualified performance-based compensation under Section 162(m) of the Internal Revenue Code granted under the 2012 Plan to any individual participant in any calendar year is: (1) 1,000,000 shares of Common Stock pursuant to a Common Stock award, (2) 1,000,000 shares of Common Stock pursuant to a stock option or SAR, (3) 200,000 shares of Common Stock for restricted stock awards, (4) participation units with a value equal to 200,000 shares of Common Stock, and (5) $5,000,000 for cash awards.
Amendment and Termination. The Compensation Committee may at any time suspend the operation of, terminate or amend the 2012 Plan or any award, provided that no suspension, termination or amendment may adversely impair the rights of any participant
General Dynamics 2017 Proxy Statement 67
under any outstanding award without such participant’s consent, except that the Compensation Committee may take such actions as it deems appropriate to ensure that the 2012 Plan and any awards comply with any tax, securities or other applicable law.
Adjustments and Reorganizations. The maximum number of shares of Common Stock available for issuance under the 2012 Plan and the individual and aggregate limits described above will be equitably adjusted upon certain events affecting the capitalization of the company such as a recapitalization or stock split. In the event of an increase or decrease in the number of issued shares of Common Stock without receipt or payment of consideration by the company, the Compensation Committee may adjust the number of shares subject to each outstanding award and the exercise price per share of each such award. Upon the occurrence of certain extraordinary corporate transactions, such as a dissolution, sale or merger of the company, the Compensation Committee has discretion to make certain adjustments, cancel, or provide for the exchange of outstanding awards.
Transferability. Except as provided by the Compensation Committee, an award under the 2012 Plan is not transferrable other than by the participant’s last will and testament or by applicable laws of descent and distribution.
Effect of a Change in Control.The change in control provision in the 2012 Plan contains a “double-trigger” mechanism that is activated only when (1) a change in control is consummated and (2) a participant’s employment is terminated by the company or its successor without cause or by the participant for good reason within two years following the change in control. If both of these triggers are satisfied then all of the participant’s outstanding awards under the 2012 Plan will immediately vest and become exercisable and all restrictions on the awards will lapse.
Company Recoupment of Awards. The 2012 Plan provides that a participant’s rights with respect to any Award under the plan is subject to (1) any right that the company may have under its compensation recoupment policy or other agreement with a participant and (2) any right or obligation that the company may have under Section 10D of the Exchange Act and any applicable rules and regulations of the SEC.
SUMMARYOF FEDERAL INCOME TAX CONSEQUENCESOF AWARDS
The following is a brief summary of the United States federal income tax consequences of the issuance and exercise of awards under the 2012 Plan to the company and to the participants. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign tax consequences.
Cash Awards and Common Stock Awards.A participant generally will not recognize income at the time a cash award or a Common Stock award subject to vesting conditions is granted to the participant. When cash is paid to the participant pursuant to a cash award or shares vest pursuant to a Common Stock award, the participant generally will recognize ordinary income equal to the amount of cash paid or the fair market value of the shares that vest. When a Common Stock award that is not subject to vesting conditions is granted to the participant, the participant generally will recognize ordinary income at the time of grant in an amount equal to the fair market value of the shares subject to the award. The amount of ordinary income recognized by the participant generally is subject to payroll taxes. The company generally is entitled to a tax deduction at the same time and in the same amount as the participant recognizes ordinary income.
Restricted Stock Awards and Participation Units.A participant generally will not recognize income at the time a restricted stock award is granted. When the restrictions lapse with regard to any installment of restricted stock, the participant generally will recognize ordinary income in an amount equal to the fair market value of the shares with respect to which the restrictions lapse, unless the participant elects to recognize ordinary income in the year the award is granted in an amount equal to the fair market value of the restricted stock awarded at the time of grant, determined without regard to the restrictions. The participant generally will recognize ordinary income at the time of payment of a dividend with respect to restricted stock (unless the participant has elected to recognize ordinary income in the year the restricted stock award is granted in an amount equal to the fair market value of the restricted stock awarded, in which case, any such dividend may be treated as dividend income) in an amount equal to the dividend paid, in the case of a cash dividend, or the fair market value of the shares delivered, in the case of a stock dividend. A participant generally will not recognize income at the time an award of participation units is granted or at the time that the participant is credited with a dividend equivalent with respect to such award. The participant generally will recognize ordinary income at the time the participation units or dividend equivalents are paid, in an amount equal to the cash paid or to be paid or the fair market value of the shares delivered or to be delivered. The amount of ordinary income recognized by the participant generally is subject to payroll taxes. The company generally is entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income.
68 General Dynamics 2017 Proxy Statement
Performance-Based Awards.A participant generally will not recognize income at the time of grant of a performance-based award. The participant generally will recognize ordinary income at the time the performance-based award is paid in an amount equal to the dollar amount, or the fair market value of the shares of Common Stock, paid or delivered. The amount of ordinary income recognized by the participant generally is subject to payroll taxes. The company generally is entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income.
NSOs and SARs.A participant who is granted an NSO or SAR generally does not recognize income at the time of grant, but will recognize ordinary income upon exercise of the NSO or SAR in an amount equal to the excess of the aggregate fair market value of the shares subject to the award on the exercise date over the aggregate exercise price of such shares. The amount of ordinary income recognized by the participant generally is subject to payroll taxes. The company generally is entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income.
ISOs.A participant who is awarded an ISO generally does not recognize taxable income at the time of award or upon exercise of the ISO, but the excess of the fair market value of the shares acquired on the exercise date over the exercise price is included in the participant’s income for alternative minimum tax purposes. The grant of an ISO generally does not entitle the company to a deduction. A participant who acquires shares by exercise of an ISO generally recognizes income on a sale or other disposition of those shares in an amount equal to the difference between the amount received on the sale or disposition of the shares and the exercise price previously paid by the participant. If the participant holds the shares issuable upon exercise of an ISO for the later of two years after the ISO grant date and one year from the date of exercise, income on the sale of such shares generally will be taxed to the participant at long-term capital gain rates. In such case, the company generally is not entitled to a deduction. If the participant sells the shares issuable upon exercise of an ISO prior to the end of the applicable holding periods, the participant generally will recognize ordinary income in the year of the sale equal to the excess, if any, of the lesser of (1) the fair market value of the shares on the date of exercise and (2) the amount received for the shares over the exercise price previously paid by the participant. The balance of the gain or the loss, if any, generally will be a long-term or short-term capital gain or loss, depending on how long the shares were held by the participant prior to the sale. The amount of ordinary income recognized by the participant in this circumstance generally is subject to payroll taxes. The company generally is entitled to a deduction at the same time and in the same amount as the participant recognizes ordinary income.
Certain Other Tax Issues and Related Matters.In addition to the matters described above, (1) any entitlement to a tax deduction on the part of the company is subject to applicable federal tax rules (including, without limitation, Section 162(m) of the Internal Revenue Code regarding the $1,000,000 limitation on deductible compensation), (2) the exercise of an ISO may have implications in the computation of alternative minimum taxable income, (3) certain awards under the 2012 Plan may be subject to the requirements of Section 409A of the Internal Revenue Code (regarding nonqualified deferred compensation), and (4) if the exercisability or vesting of any option is accelerated because of a change in control, such option (or a portion thereof), either alone or together with certain other payments, may constitute parachute payments under Section 280G of the Internal Revenue Code, which excess amounts may be subject to excise taxes and deduction limitations. Officers and directors of the company subject to Section 16(b) of the Exchange Act may be subject to special tax rules regarding the income tax consequences concerning their options. The 2012 Plan is not subject to any of the requirements of the Employee Retirement Income Security Act of 1974, as amended. The 2012 Plan is not, nor is it intended to be, qualified under Section 401(a) of the Internal Revenue Code.
General Dynamics 2017 Proxy Statement 69
GRANTSAND AWARDSUNDERTHE 2012 PLAN
As of March 6, 2017, the following outstanding awards have been granted under the 2012 Plan to each of the executive officers named below, all current executive officers as a group, allnon-employee directors as a group, and all other employees, respectively:
| | | | | | | | | | | | | | Name | | NUMBER OF SHARES
UNDERLYING
OPTIONS/SARS | | | WEIGHTED
AVERAGE EXERCISE
PRICEOF
OPTIONS/SARS | | | NUMBEROF
SHARES
UNDERLYING
RESTRICTED STOCK
AWARDS/STOCK
UNIT AWARDS* | | Phebe N. Novakovic | | | 1,980,090 | | | $ | 111.19 | | | | 227,475 | | Jason W. Aiken | | | 284,400 | | | $ | 131.30 | | | | 46,455 | | John P. Casey | | | 295,585 | | | $ | 129.96 | | | | 47,170 | | Mark C. Roualet | | | 372,930 | | | $ | 115.53 | | | | 44,266 | | S. Daniel Johnson | | | 157,920 | | | $ | 152.79 | | | | 34,626 | | All Executive Officers as a Group (13 people) | | | 4,300,995 | | | $ | 119.12 | | | | 568,187 | | AllNon-Employee Directors as a Group (11 people) | | | 159,430 | | | $ | 122.00 | | | | 18,900 | | All Other Employees | | | 6,693,406 | | | $ | 130.76 | | | | 1,396,084 | |
* | Includes performance restricted stock units (PRSUs) at target payout. The exact number of PRSUs that may be earned is determined by performance metrics set by the Compensation Committee.
|
Future Benefits.No awards have been granted, and no shares have been issued, on the basis of the proposed 24,000,000 share increase under the 2012 Plan. Future grants under the 2012 Plan will be made at the discretion of the Compensation Committee and, accordingly, are not yet determinable. In addition, the value of the awards granted under the 2012 Plan will depend on a number of factors, including the fair market value of the Common Stock on future dates and the exercise decisions made by the participants. Consequently, it is not possible at this time to determine the benefits that might be received by participants receiving discretionary grants under the 2012 Plan in the future.
As of March 6, 2017, the closing price on the New York Stock ExchangeExchange. Mr. Crown, who is affiliated with our largest shareholder and regularly engages with some of our largest shareholders, serves as our independent lead director, providing an important, shareholder-aligned voice on our Board. To balance long-tenure in the Common Stock was $190.94 per share.board room, your Board maintains strong refreshment, with six new independent directors having been appointed over the last four years.
76 General Dynamics
Table of Contents Shareholder Proposal YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE FORTHISPROPOSAL.Prior Shareholder Vote Rejecting a Lower Threshold
〉The proponent references the vote outcome of this same topic submitted by him in 2018. At that time, our shareholders rejected the proposal with 59% votes cast against the proposal. The proponent’s claim that shareholders were not allowed to “make up their own minds” is baseless as the proposal was on our proxy ballot for a shareholder vote in 2018, and his assertion that the proposal would have passed under his proposed circumstances is factually inaccurate. Our Provisions Comply with Applicable Laws and Regulations and Are Not Onerous 〉Your Board follows standard guidelines established by applicable laws and regulations and allows for sufficient time for the special meeting request to be conducted effectively. Any “small paperwork error” could be corrected in a timely manner and, thus, shareholders would be allowed sufficient time to process the request. Shareholder Meetings ARE Costly 〉Special meetings are expensive, time-consuming and require significant management attention and should occur only in extraordinary circumstances. Accordingly, your Board believes that the expenditure of corporate funds and resources associated with a special meeting should only be incurred when shareholders meet an appropriate, meaningful threshold of ownership interest in our company, which is why our current special meeting bylaw requires a single 10% shareholder or group of shareholders owning at least 25% to call a special meeting. For the reasons stated above, we believe that the company’s current Bylaw provision granting shareholders the ability to call a special meeting provides the appropriate right to ensure that shareholders have a meaningful avenue to vote on important matters.
 | Your Board of Directors unanimously recommends a voteAGAINST this shareholder proposal. |
70 General Dynamics 20172020 Proxy Statement77
Table of Contents
INFORMATION REGARDINGTHE ANNUAL MEETINGAND VOTING Information Regarding the Annual Meeting and Voting
All shareholders of record at the close of business on March 6, 2017,9, 2020, are entitled to vote their shares of Common Stock at the Annual Meeting. On the record date, General Dynamics had 303,370,701290,212,900 shares of Common Stock issued and outstanding. Following are questions and answers about the annual meeting and voting. ANNUAL MEETING ATTENDANCEAnnual Meeting Attendance
Will I need to provide documentation to attend the Annual Meeting?Yes. All shareholders will need an admission ticket and personal photo identification for admission. You may print your own admission ticket and you must bring it to the meeting. Tickets can be printed by accessing Shareholder Meeting Registration at www.ProxyVote.com and following the instructions provided. If you are unable to print your tickets, please call Broadridge Financial Solutions, Inc. (Broadridge) at1-855-449-0994 844-318-0137 toll-free or 925-331-6070 international toll for assistance. How many shares must be present to hold the Annual Meeting?A quorum of shares must be present to hold the Annual Meeting. A quorum is the presence, in person or by proxy, of holders of a majority of the issued and outstanding shares of Common Stock as of the record date. If you submit a properly completed proxy in accordance with one of the voting procedures described below or appear at the Annual Meeting to vote in person, your shares of Common Stock will be considered present. For purposes of determining whether a quorum exists, abstentions and brokernon-votes (as described below) will be counted as present. Once a quorum is present, voting on specific proposals may proceed. In the absence of a quorum, the Annual Meeting may be adjourned. How are proxy materials being distributed for the Annual Meeting?As permitted by the rules of the Securities and Exchange Commission (SEC),SEC, we are providing the proxy materials for our 20172020 Annual Meeting via the Internet to most of our shareholders. Use of the Internet will expedite receipt of the 20172020 proxy materials by many of our shareholders and help to keep mailing costs for our Annual Meeting as low as possible. For shareholders who are participants in our 401(k) plans we are required generally to deliver proxy materials in hard copy. On March 23,26, we initiated delivery of proxy materials to our shareholders of record in one of two ways: (1) a notice containing instructions on how to access proxy materials via the Internet or (2) a printed copy of those materials. If you received a notice in lieu of a printed copy of the proxy materials, you will not automatically receive a printed copy of the proxy materials in the mail. Instead, the notice provides instructions on how to access the proxy materials on the Internet and how to vote online or by telephone. If you received such a notice and would also like to receive a printed copy of the proxy materials, the notice includes instructions on how you may request a printed copy. VOTINGVoting
Who is entitled to vote at the Annual Meeting?You must be a shareholder of record on the record date, which is March 6, 2017,9, 2020, to vote your shares at the Annual Meeting. How do I vote my shares?How you vote your shares will depend on whether you are a shareholder of record or a beneficial owner of your shares. Shareholders of record.Each shareholder of record is entitled to one vote on all matters presented at the Annual Meeting for each share of Common Stock held. You are considered a shareholder of record if your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., as of the record date. If you are a shareholder of record, Broadridge provides proxy materials to you on our behalf. If your shares are registered in different names or held in more than one account, you may receive more than one proxy card or set of voting instructions. In that case, you will need to vote separately for each set of shares in accordance with the following voting procedures. 78 General Dynamics
Table of Contents Information Regarding the Annual Meeting and Voting Shareholders of record may cast their vote in one of the following ways: | | You May Cast Your Vote: | YOU MAY CAST YOUR VOTE: | By Internet: | | access www.ProxyVote.com and follow the instructions | By Telephone: | | call1-800-690-6903 and follow the instructions | By Mail: | | sign and date each proxy card received and return each card using the prepaid postage envelope | In Person: | | attend the Annual Meeting and vote by ballot |
General Dynamics 2017 Proxy Statement 71
Annual Meeting Information
The telephone and Internet voting systems are available 24 hours a day. They will close at 11:59 p.m. eastern time on May 2, 2017.5, 2020. Please note the voting deadline differs for participants in our 401(k) plans, as described below.below. All shares represented by properly executed, completed and unrevoked proxies that are received on time will be voted at the Annual Meeting in accordance with the specifications made in the proxy card. | | If You Return A Signed Proxy Card But Do Not Specifically Direct The Voting Of Shares, Your Proxy Will Be Voted As Follows: | | | IF YOU RETURN A SIGNED PROXY CARD BUT DO NOT SPECIFICALLY DIRECT THE VOTINGFOR
OF SHARES, YOUR PROXY WILL BE VOTED AS FOLLOWS:
| | | FORthe election of directors as described in this Proxy Statement
| | | FORthe selection, on an advisory basis, of KPMG LLP as the independent auditors of the company | | | FORthe approval, on an advisory basis, of the compensation of the named executive officers | | | On an advisory basis, to hold future executive compensation advisory votesEVERY YEARAGAINST
the shareholder proposal | | | FORthe approval of the General Dynamics Corporation Amended and Restated 2012 Equity Compensation Plan
| | | IN ACCORDANCE WITHthe judgment of the proxy holders for other matters that properly come before the Annual Meeting |
Beneficial Owners.If your shares are held by a bank, broker or other holder of record (sometimes referred to as holding shares in “street name”), the bank, broker or other holder is the shareholder of record and you are the beneficial owner of those shares. Your bank, broker or other holder of record will forward the proxy materials to you. As the beneficial owner, you have the right to direct the voting of your shares by following the voting instructions provided with these proxy materials. Please refer to the proxy materials forwarded by your bank, broker or other holder of record to see which voting options are available to you. 401(k) Plan Participants.Fidelity Management Trust Company (Fidelity), as trustee, is the holder of record of the shares of Common Stock held in our 401(k) plans – the General Dynamics Corporation 401(k) Plan and the General Dynamics Corporation 401(k) Plan for Represented Employees. If you are a participant in one of these plans and in the fund that invests in shares of Common Stock, you are the beneficial owner of the shares of Common Stock credited to your plan account. As beneficial owner and named fiduciary, you have the right to instruct Fidelity, as plan trustee, how to vote your shares. If you do not provide Fidelity with timely voting instructions then, consistent with the terms of the plans, EvercoreNewport Trust Company N.A. (Evercore)(Newport), will direct Fidelity, in Evercore’sNewport’s discretion, how to vote the shares. EvercoreNewport serves as the independent fiduciary and investment manager for the General Dynamics Stock Fund of the 401(k) plans. Broadridge provides proxy materials to participants in these plans on behalf of Fidelity. If you are a plan participant and also a shareholder of record, Broadridge may combine the shares registered directly in your name and the shares credited to your 401(k) plan account onto one proxy card. If Broadridge does not combine your shares, you will receive more than one set of proxy materials. In that case, you will need to submit a vote for each set of shares. The vote you submit via proxy card or the telephone or Internet voting systems will serve as your voting instructions to Fidelity.To allow sufficient time for Fidelity to vote your 401(k) plan shares, your vote, or anyre-vote, must be received by 99:00 a.m. eastern time on May 1, 2017. 4, 2020. Can I change or revoke my proxy vote?A shareholder of record may change or revoke a proxy at any time before it is voted at the Annual Meeting by: | | A Proxy May Be Revoked By: | | | A PROXY MAY BE REVOKED BY:Sending | | | Sendingwritten notice of revocation to our Corporate Secretary
| | | Submittinganother proxy card that is dated later than the original proxy card | | | Re-votingby using the telephone or Internet voting systems, or | | | Attendingthe Annual Meeting and voting by ballot (attendance at the Annual Meeting alone will not act to revoke a prior proxy). |
2020 Proxy Statement 79
Table of Contents Information Regarding the Annual Meeting and Voting Our Corporate Secretary must receive notice of revocation, or a subsequent proxy card, before the vote at the Annual Meeting for a revocation to be valid. Except as described above for participants in our 401(k) plans, are-vote by the telephone or Internet voting systems must occur before 11:59 p.m. eastern time on May 2, 2017.5, 2020. If you are a beneficial owner, you must revoke your proxy through the appropriate bank, broker or other holder of record. 72 General Dynamics 2017 Proxy Statement
Annual Meeting Information
VOTE REQUIREDVote Required
What is a brokernon-vote?A brokernon-vote occurs when a bank, broker or other holder of record holding shares for a beneficial owner does not vote on a particular proposal because that holder does not have discretionary voting power for the proposal and has not received voting instructions from the beneficial owner. Banks, brokers and other holders of record have discretionary authority to vote shares without instructions from beneficial owners only on matters considered “routine” by the New York Stock Exchange, such as the advisory vote on the selection of the independent auditors. Onnon-routine matters, such as the election of directors, and executive compensation matters and the shareholder proposal, these banks, brokers and other holders of record do not have discretion to vote uninstructed shares and thus are not “entitled to vote” on such proposals, resulting in a brokernon-vote for those shares. We encourage all shareholders that hold shares through a bank, broker or other holder of record to provide voting instructions to those holders to ensure that their shares are voted at the Annual Meeting. What is the vote required for each proposal, and what is the effect of an abstention or broker non-vote on the voting? | | Vote Requirements and the Effect of Abstentions or Broker Non-Votes | | Proposal | | Voting Standard | | Effect of Abstentions and Broker Non-Votes | VOTE REQUIREMENTS AND
THE EFFECT OF ABSTENTIONS OR BROKER NON-VOTES | PROPOSAL | | VOTING STANDARD | | EFFECTOF ABSTENTIONSAND
BROKERNON-VOTES
| | | | Proposal 1:
Election of the Board of
Directors of the Company | | Directors will be elected by a majority of the votes cast and entitled to vote at the Annual Meeting. A “majority of the votes cast” means the number of votes cast “for” a director’s election exceeds the number of votes cast “against” that director’s election. You may vote for, vote against or abstain from voting for any or all nominees. | | Abstentions and brokernon-votes will not be counted as a vote cast “for” or “against” a director’s election. | | | | Proposal 2:
Advisory Vote on the
Selection of Independent Auditors | | This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter. | | Abstentions will have the effect of a vote against this proposal. Brokernon-votes do not occur for this proposal because banks, brokers and other holders of record have authority under the New York Stock Exchange rules to vote in their discretion on the selection of independent auditors. | | | | Proposal 3: Advisory Vote to Approve Executive Compensation | | This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter. | | Abstentions will have the effect of a vote against the proposal. Brokernon-votes will have no effect on the proposal. | | | | Proposal 4: Advisory Vote on the
Frequency of Future
Executive Compensation
Advisory Votes
Shareholder Proposal | | For this proposal, you may choose to express a preference for holding future advisory votes on executive compensation every year, every two years or every three years. For any particular frequency to be approved, it must receive an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting. You may choose instead to abstain from voting on this matter.
| | Abstentions will have the effect of a vote against each choice. Brokernon-votes will have no effect on this proposal.
| | | | Proposal 5:
Approval of the General
Dynamics Corporation
Amended and Restated
2012 Equity Compensation
Plan
| | This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter. | | Abstentions will have the effect of a vote against the proposal. Brokernon-votes will have no effect on the proposal. |
Who will count the votes?Representatives of American Election Services, LLC, will tabulate the vote at the Annual Meeting. 80 General Dynamics
Table of Contents Information Regarding the Annual Meeting and Voting Who is soliciting votes for the Annual Meeting?The Board of Directors is soliciting proxies from shareholders. Directors, officers and other employees of General Dynamics may solicit proxies from our shareholders by mail,e-mail, telephone, facsimile or in person. In addition, Innisfree M&A Incorporated (Innisfree), 501 Madison Avenue, New York, New York, is soliciting brokerage firms, dealers, banks, voting trustees and their nominees. General Dynamics 2017 Proxy Statement 73
Annual Meeting Information
We will pay Innisfree approximately $15,000 for soliciting proxies for the Annual Meeting and will reimburse brokerage firms, dealers, banks, voting trustees, their nominees and other record holders for theirout-of-pocket expenses in forwarding proxy materials to the beneficial owners of Common Stock. We will not provide compensation, other than their usual compensation, to our directors, officers and other employees who solicit proxies. 2020 Proxy Statement 81
Table of ContentsOTHER INFORMATION ADDITIONAL SHAREHOLDER MATTERS Other Information
Additional Shareholder Matters If any other matters properly come before the Annual Meeting, the individuals named in the proxy card will have discretionary authority to vote the shares they represent on those matters, except to the extent their discretion may be limited under Rule14a-4(c) of the Exchange Act. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEDelinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our officers and directors, as well as anyone who is a beneficial owner of more than 10 percent10% of a registered class of our stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the New York Stock Exchange, and to furnish us with copies of these forms.Exchange. To our knowledge, based solely on a review of the copies of Forms 3, 4 and 5 submitted to us,that are publicly available on the SEC’s EDGAR filing system, all of our executive officers and directors complied with all filing requirements imposed by Section 16(a) of the Exchange Act during 2016.2019, except that Mr. Mattis, Kevin Graney and Robert Smith each filed one untimely report on Form 4. SHAREHOLDER PROPOSALSFOR 2018 ANNUAL MEETINGOF SHAREHOLDERSShareholder Proposals and Director Nominees For 2021 Annual Meeting of Shareholders
If you wish to submit a proposal for inclusion in our proxy materials to be distributed in connection with the 20182021 annual meeting, your written proposal must comply with the rules of the SEC and be received by us no later than November 23, 2017.26, 2020. The proposal should be sent to the Corporate Secretary, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church,11011 Sunset Hills Road, Reston, Virginia 22042.20190. If you intend to present a proposal at the 20182021 annual meeting that is not to be included in our proxy materials, including director nominations, you must comply with the various requirements established in our Bylaws. Among other things, the Bylaws require that a shareholder submit a written notice to our Corporate Secretary at the address in the preceding paragraph no earlier than January 3, 2018,6, 2021, and no later than February 2, 2018.5, 2021. In addition, our Bylaws permit a shareholder or a group of up to 20 shareholders who have owned 3 percent3% or more of our outstanding shares of capital stock continuously for three years to submit director nominees for inclusion in our proxy statement if the shareholder(s) and nominee(s) satisfy the requirements specified in our Bylaws. These requirements can be found in Article II, Section 10 of our Bylaws, and include the requirement that the applicable notice be received by the company no earlier than October 24, 2017,27, 2020, and no later than November 23, 2017.26, 2020. ANNUAL REPORTON FORMAnnual Report on Form 10-K
The Annual Report, which includes our Form10-K and accompanies this Proxy Statement, is not considered a part of the proxy solicitation material. We will furnish to any shareholder, without charge, a copy of our 20162019 Annual Report, as filed with the SEC. A request for the report can be made verbally or in writing to Investor Relations, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church,11011 Sunset Hills Road, Reston, Virginia 22042,20190, (703)876-3000 or through our website. The Form10-K and other public filings are also available through the SEC’s website at www.sec.gov and on our website at www.gd.com/SECFilings. DELIVERYOF DOCUMENTSTO SHAREHOLDERS SHARINGAN ADDRESSDelivery of Documents to Shareholders Sharing an Address
We will deliver only one Annual Report and Proxy Statement to shareholders who share a single address unless we have received contrary instructions from any shareholder at the address. In that case, we will deliver promptly a separate copy of the Annual Report and Proxy Statement. For future deliveries, shareholders who share a single address can request a separate copy of our Annual Report and Proxy Statement. Similarly, if multiple copies of the Annual Report and Proxy Statement are being delivered to a single address, shareholders can request a single copy of the Annual Report and Proxy Statement for future deliveries. To make a request, please call703-876-3000 or write to the Corporate Secretary, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church,11011 Sunset Hills Road, Reston, Virginia 22042.20190. 74 82 General Dynamics 2017 Proxy Statement
APPENDIX A
GENERAL DYNAMICS CORPORATION AMENDED AND RESTATEDTable of Contents
2012 EQUITY COMPENSATION PLAN Appendix A: Use of Non-GAAP Financial Measures
(as amended and restated on March 1, 2017) The purpose of the Plan is to provide the Company with an effective means of attracting, retaining and motivating directors, officers and key employees, and to provide them with incentives to enhance the growth and profitability of the Company.
2. | Effective Date and Duration of the Plan.
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The Plan was originally adopted by the Board on March 7, 2012, subject to approval by the stockholders of the Parent, which occurred on May 2, 2012. The amended and restated version of the Plan was adopted by the Board on March 1, 2017, subject to approval by the stockholders of the Parent at the Parent’s 2017 Annual Meeting of Shareholders. The Plan becomes effective upon the first date that the stockholders of the Parent approve the Plan in a manner that satisfies the requirements of the DGCL and the rules of the New York Stock Exchange. Awards may be made pursuant to the Plan through and including the 10 year anniversary of the date of the latest stockholder approval of the Plan, including without limitation any stockholder approval of any amendment to the Plan to increase the share award capacity hereunder.
3. | Definitions; Rules of Construction.
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| (a) | Defined terms. The terms defined in this Section shall have the following meanings for purposes of this Plan:
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| (i) | Award shall mean a grant under the Plan in any form permitted hereunder.
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| (ii) | Award Agreement shall mean a written or electronic agreement, in a form determined by the Committee from time to time, entered into by each Participant and the Company, evidencing the grant of an Award under the Plan. The Committee may provide for the use of electronic, Internet or other non-paper Award Agreements, and the use of electronic, Internet or other non-paper means for the acceptance thereof and actions thereunder by a Participant.
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| (iii) | Beneficial Owner shall have the meaning used in Rule 13d-3 promulgated under the Exchange Act. “Beneficial Ownership” shall have a correlative meaning.
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| (iv) | Board shall mean the Board of Directors of the Parent.
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| (v) | Cause for the termination of the Participant’s employment with the Company will be deemed to exist if the Participant has been convicted of a felony or if the Company determines in good faith that the Participant has (A) intentionally and continually failed to perform in all material respects the Participant’s reasonably assigned duties with the Company (other than a failure resulting from the Participant’s incapacity due to physical or mental disability or illness) or (B) intentionally engaged in conduct which is demonstrably and materially injurious to the Company; provided, however, that if the Participant has entered into an individual employment agreement or severance protection agreement between the Participant and the Company, and the agreement defines the term “Cause,” then Cause shall have the meaning assigned to such term in such agreement.
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| (vi) | Change in Control shall have the meaning set forth in Section 16 of the Plan.
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| (vii) | Code shall mean the Internal Revenue Code of 1986, as amended from time to time, including any regulations promulgated thereunder.
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| (viii) | Committee shall mean the Compensation Committee of the Board and any successor committee thereto.
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General Dynamics 2017 ProxyStatement A-1
| (ix) | Common Stock shall mean the common stock of the Parent.
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| (x) | Common Stock Award shall mean an Award of unrestricted Common Stock.
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| (xi) | Company shall mean collectively the Parent and its Subsidiaries.
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| (xii) | Covered Award shall mean an Award made to a Covered Employee that is intended to meet the requirements of “qualified performance-based compensation” under Section 162(m) of the Code.
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| (xiii) | Covered Employee shall mean a Participant who is an executive officer of the Parent or any Subsidiary within the meaning of Rule 3b-7 promulgated under the Exchange Act.
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| (xiv) | DGCL shall mean the Delaware General Corporation Law, as in effect from time to time.
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| (xv) | Dividend Equivalent shall mean an amount, payable either in shares of Common Stock or in cash, that is equal to the cash dividend that would be paid on each share of Common Stock underlying an Award if the share were duly issued and outstanding on the record date for the dividend.
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| (xvi) | Exchange Act shall mean the Securities Exchange Act of 1934, as amended from time to time, including any regulations promulgated thereunder.
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| (xvii) | Excluded Person shall have the meaning set forth in Section 16 of the Plan.
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| (xviii) | Fair Market Value shall mean, as of the date of determination, (A) the average of the highest and lowest quoted selling price per share of Common Stock on the national securities exchange or such other market on which such stock is principally traded, as determined by the Committee, or (B) if the shares of Common Stock are not listed or admitted to trading on any such exchange or market, the average of the highest and lowest selling price as reported by an over-the-counter market; provided that if no sales occur as of the date of determination, then the date of determination shall be the last day on which a sale was reported; further provided that if the shares of Common Stock are not then listed on a national securities exchange or market or traded in an over-the-counter market, such value shall be determined by the Committee in good faith. In no event shall the Fair Market Value of any share of Common Stock be less than the par value per share of Common Stock.
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| (xix) | Good Reason shall mean either (A) a material reduction in the Participant’s base salary (other than a reduction that applies across the board to similarly-situated employees) or (B) the imposition of a requirement that the Participant be based at any place outside a 50-mile radius from the Participant’s principal place of employment immediately prior to a Change in Control; provided, that, in each case, the Participant shall not have Good Reason to terminate service unless the Participant provides the Company with written notice of the occurrence of the action constituting Good Reason within 30 days following the occurrence of such action, the Participant provides the Company with a minimum of 30 days following delivery of the written notice to cure such action, and the Participant terminates service within 90 days following the occurrence of such action. Notwithstanding the foregoing, if the Participant has entered into an individual employment agreement or severance protection agreement with the Company, and the agreement defines the term “Good Reason,” then Good Reason shall have the meaning assigned to such term in such agreement.
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| (xx) | Grant Date shall mean the date designated by the Committee and specified in the Award Agreement as the date the Award is granted.
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| (xxi) | Incumbent Board shall have the meaning set forth in Section 16 of the Plan.
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| (xxii) | ISO shall mean any Option, or portion thereof, awarded to a Participant pursuant to the Plan which is designated by the Committee as an incentive stock option and also meets the applicable requirements of an incentive stock option pursuant to Section 422 of the Code.
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A-2 General Dynamics 2017 Proxy Statement
| (xxiii) | Non-Control Transaction shall have the meaning set forth in Section 16 of the Plan.
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| (xxiv) | Non-Employee Director shall mean a member of the Board who is not an employee of the Company.
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| (xxv) | Non-Statutory Stock Option shall mean any Option awarded under the Plan that does not qualify as an ISO or that is designated as a Non-Statutory Stock Option notwithstanding that it may otherwise qualify as an ISO.
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| (xxvi) | Option shall mean an Award in the form of an option to purchase Common Stock granted pursuant to the Plan.
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| (xxvii) | Other Award shall mean an Award payable only in cash.
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| (xxviii) | Parent shall mean General Dynamics Corporation (and any successor thereto).
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| (xxix) | Participant shall mean any individual who has an outstanding Award pursuant to the Plan.
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| (xxx) | Participation Unit shall mean an Award that has a value derived from or related to the value of Common Stock, including but not limited to a phantom stock unit or restricted stock unit, that is payable in cash or Common Stock, or any combination thereof, as specified in the Award Agreement.
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| (xxxi) | Performance-Based Award shall mean an Award granted under Section 7 of the Plan, the payment of which is conditioned upon the attainment of one or more Performance Goals.
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| (xxxii) | Performance Goal shall mean a measure of performance established by the Committee, based on one or more of the criteria set forth in Section 7, that must be met during the Performance Period under a Performance-Based Award.
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| (xxxiii) | Performance Period shall mean, with respect to any Performance-Based Award, the period over which the attainment of the applicable Performance Goal is measured. Performance Periods may be overlapping.
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| (xxxiv) | Person for purposes of Section 16 only shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange Act, and will include any “group” as such term is used in such sections.
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| (xxxv) | Plan shall mean the General Dynamics Corporation Amended and Restated 2012 Equity Compensation Plan as set forth herein and as may be amended or amended and restated from time to time.
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| (xxxvi) | Purchase Price shall mean the price per share (A) for which a share of Common Stock may be purchased pursuant to an Option or (B) by reference to which the amount of any payment pursuant to a Stock Appreciation Right is determined, in each case as established by the Committee, provided that such price will not be less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the Grant Date.
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| (xxxvii) | Restricted Stock shall mean an Award consisting of shares of Common Stock granted to a Participant pursuant to the Plan that may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated except upon passage of time, or upon satisfaction of Performance Goals or other conditions, or a combination thereof, in every case pursuant to such terms and conditions as may be determined by the Committee in its sole discretion.
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| (xxxviii) | Securities Act shall mean the Securities Act of 1933, as amended from time to time, including any regulations promulgated thereunder.
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| (xxxix) | Stock Appreciation Right shall mean an Award in the form of a right to receive an amount of cash, or shares of Common Stock with a Fair Market Value, equal to the increase in the Fair Market Value of a specified number of shares of Common Stock between the Grant Date of the right and the date on which it is exercised.
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General Dynamics 2017 Proxy Statement A-3
| (xl) | Subject Person shall have the meaning set forth in Section 16 of the Plan.
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| (xli) | Subsidiary shall mean any “subsidiary” of the Parent within the meaning of Rule 405 under the Securities Act.
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| (xlii) | Surviving Corporation shall have the meaning set forth in Section 16 of the Plan.
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| (xliii) | 13G Filer shall have the meaning set forth in Section 16 of the Plan.
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| (b) | Construction. Unless otherwise expressly provided or the context otherwise requires, the terms defined in this Plan include the plural and the singular, and pronouns of either gender or neuter shall include, as appropriate, the other pronoun forms.
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Any officer or employee of the Company is eligible for selection by the Committee for an Award under this Plan. Awards to Non-Employee Directors may be granted pursuant to Section 13 of the Plan.
The Committee shall determine the amounts and types of the Awards and the terms and conditions of such Awards, consistent with the terms of this Plan. Awards may be made in Common Stock Awards, Options, Stock Appreciation Rights, Restricted Stock, Participation Units, Other Awards, Performance-Based Awards or in any combination thereof. If any Award is settled in cash that is to be paid on a deferred basis, the Participant may be entitled at the Committee’s discretion and on terms and conditions as the Committee may determine, to be paid interest on the unpaid amount.
6. | Common Stock Available for Awards Pursuant to the Plan. |
| (a) | Shares Available. Subject to adjustment pursuant to Section 15 of the Plan, the maximum aggregate number of shares of Common Stock available for issuance pursuant to Awards (including Common Stock Awards, Options, Stock Appreciation Rights, Restricted Stock, Participation Units and Performance-Based Awards) under the Plan and for the payment of Dividend Equivalents that are settled in shares of Common Stock is 42,250,000. From that aggregate limit:
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| (i) | no more than 42,250,000 shares may be issued in the form of ISOs;
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| (ii) | no more than an aggregate of 42,250,000 shares may be issued in the form of Non-Statutory Stock Options and Stock Appreciation Rights; and
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| (iii) | no more than an aggregate of 8,000,000 shares may be issued in the form of Restricted Stock, Common Stock Awards, Participation Units, and Performance-Based Awards (excluding Performance-Based Awards that are Options or Stock Appreciation Rights and Other Awards that are by definition only payable in cash) and paid in settlement of Dividend Equivalents.
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The shares of Common Stock issued pursuant to the Plan may come from authorized and unissued shares, treasury shares or shares purchased by the Company in the open market.
| (i) | Share Recycling. The following categories of shares of Common Stock shall again be available for grant pursuant to Awards under the Plan, in addition to the shares described in Section 6(a): (A) shares related to Awards that expire, are forfeited or cancelled or terminate for any reason without the issuance of shares (including, without limitation, upon cash settlement), and (B) shares related to awards granted under the General Dynamics Corporation 2009 Equity Compensation Plan that expire, are forfeited or cancelled or terminate for any reason without the issuance of shares (including, without limitation, upon cash settlement).
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A-4 General Dynamics 2017 Proxy Statement
| For purposes of clarity, (x) shares of Common Stock that are tendered or withheld in payment of all or part of the Purchase Price of an Option or other exercise price of an Award or in satisfaction of tax withholding obligations in respect of any type of Award shall not be included in or added to the number of shares available for issuance under the Plan, (y) with respect to a Stock Appreciation Right granted hereunder, the number of shares of Common Stock counted against the share limits set forth in Section 6(a) shall be either (A) the full number of shares subject to the Stock Appreciation Right if the Stock Appreciation Right is settled in shares or (B) zero shares if the Stock Appreciation Right is settled in cash, and (z) shares of Common Stock repurchased in the open market using the Purchase Price or other exercise price paid in respect of an Option or other Award shall not be included in or added to the number of shares of Common Stock available for issuance under the Plan.
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| (ii) | Assumption, Replacement, Conversion and Adjustment. The Committee may grant Awards pursuant to the Plan in connection with the assumption, replacement, conversion or adjustment of outstanding equity-based awards in the context of a corporate acquisition or merger (within the meaning of Section 303A.08 of the New York Stock Exchange Listed Company Manual). Common Stock covered by Awards granted pursuant to this Section 6(b)(ii) shall not count against the number of shares available for issuance pursuant to Section 6(a).
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| (c) | Annual Non-Employee Director Award Limitation. The aggregate grant date fair value (computed as of the date of grant in accordance with applicable financial accounting rules) of all Awards granted under the Plan to any individual Non-Employee Director in any calendar year of the Company (excluding Awards made pursuant to the issuance of shares of Common Stock as a result of a Non-Employee Director’s voluntary election to receive shares of Common Stock in lieu of all or a portion of cash retainers) shall not exceed $400,000.
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7. | Performance-Based Awards. |
| (a) | General. The Committee may grant Performance-Based Awards in the form of Common Stock Awards, Options, Stock Appreciation Rights, Restricted Stock, Participation Units, or Other Awards. The minimum vesting period for any Performance-Based Award shall not be less than the minimum vesting period for the form of Award in which the Performance-Based Award is granted, as set forth herein.
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| (b) | Performance Goals. A Performance Goal (i) may relate to the performance of the Participant, the Parent, a Subsidiary, any business group, any business unit or other subdivision of the Parent or any Subsidiary, or any combination of the foregoing, as the Committee may deem appropriate, (ii) may be expressed as an amount, as an increase or decrease over a specified period, as a relative comparison to the performance of a group of comparator companies or a published or special index, or any other external measure of the selected performance criteria, as the Committee, in its sole discretion, deems appropriate, and (iii) shall be based on one or more of the following criteria selected by the Committee in its sole discretion (as determined in accordance with generally accepted accounting principles, as applicable):
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| (A) | market price of Common Stock; earnings per share of Common Stock; net income or profit (before or after taxes); return on total stockholders’ equity; return of stockholders’ equity; return on invested capital; cash flow; cumulative return on net assets employed; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; earnings from continuing operations; sales or revenues; return on assets, capital or investment; market share; cost reduction goals; budget comparisons; implementation or completion of specified projects or processes; the formation of joint ventures, research or development collaborations, or the completion of other transactions; and/or any combination of any of the foregoing; and
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| (B) | with respect to any Award that is not a Covered Award, any other criteria that the Committee deems appropriate.
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Within 90 days after the beginning of a Performance Period, and in any case before 25 percent of the Performance Period has elapsed, the Committee shall establish the Performance Goals for such Performance Period. The Committee may provide at the time it establishes the Performance Goal for any Performance Period that the measurement of the
General Dynamics 2017 Proxy Statement A-5
Performance Goal shall exclude the impact of items that are considered unusual in nature or that occur infrequently pursuant to Accounting Standards Codification Topic 225, charges for restructurings, discontinued operations, the cumulative effect of changes in accounting treatment and any other items, each determined in accordance with generally accepted accounting principles (to the extent applicable) and as identified in the Company’s audited financial statements, including the notes thereto.
| (c) | Individual Limits. Notwithstanding any other provision of the Plan, to the extent necessary for a Covered Award to satisfy the requirements of “qualified performance-based compensation” pursuant to Section 162(m) of the Code, the maximum number of shares of Common Stock (or in the case of an Other Award, the maximum dollar amount) that may be subject to Covered Awards granted under the Plan to any individual employee, in any calendar year, shall be:
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| (i) | 1,000,000 shares of Common Stock pursuant to a Common Stock Award;
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| (ii) | 1,000,000 shares of Common Stock pursuant to an Option or Stock Appreciation Right;
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| (iii) | 200,000 shares of Restricted Stock;
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| (iv) | Participation Units with a value equal to 200,000 shares of Common Stock; and
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| (v) | $5,000,000 of Other Awards.
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The limitations set forth in this Section 7(c) shall be subject to adjustment as provided in Section 15, but only to the extent such adjustment would not prevent a Covered Award from meeting the requirements of “qualified performance-based compensation” pursuant to Section 162(m) of the Code.
| (d) | Effect of a Termination of Employment or Service. The consequences with respect to a Performance-Based Award of the termination of employment, or service as a Non-Employee Director, of the Participant holding the Performance-Based Award shall be determined by the Committee in its sole discretion and set forth in the applicable Award Agreement.
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| (e) | Dividends and Dividend Equivalents. The Committee may provide in its discretion that a Performance-Based Award shall accrue dividends or Dividend Equivalents, as applicable, provided such dividends or Dividend Equivalents shall be subject to the same terms and conditions as, and shall in no event be paid prior to the vesting of, the Performance-Based Award to which they relate.
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8. | Common Stock Awards. The Committee may grant Common Stock Awards on such terms and conditions, not inconsistent with this Plan, as the Committee may determine.
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9. | Restricted Stock Awards. |
| (a) | General. The Committee may grant Restricted Stock, on such terms and conditions, not inconsistent with this Plan, as the Committee may determine.
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| (b) | Terms and Conditions. Restricted Stock Awards shall have a minimum vesting period of three years (other than shares of Restricted Stock granted as an adjustment pursuant to a performance-based formula), provided that Restricted Stock may vest earlier in accordance with Section 16 and the Committee may provide for a shorter vesting period (i) in connection with any corporate divestiture or acquisition affecting a Participant’s employment with, or provision of services to, the Company, (ii) in the case of any special agreement, award, or situation with respect to any individual Participant, or (iii) in connection with such other events or circumstances as the Committee may determine from time to time. Subject to the restrictions set forth in this Section 9, each Participant who receives Restricted Stock shall have all rights as a stockholder with respect to such shares, including the right to vote the shares and receive dividends and other distributions thereon, except as may be provided in the applicable Award Agreement. Restricted Stock shares may be held by the Company until all restrictions lapse and shall be subject to a legend describing applicable restrictions as provided by the Committee from time to time.
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A-6 General Dynamics 2017 Proxy Statement
| (c) | Effect of a Termination of Employment or Service. The consequences with respect to an Award of Restricted Stock of the termination of employment, or service as a Non-Employee Director, of the Participant holding the Restricted Stock shall be determined by the Committee in its sole discretion and set forth in the applicable Award Agreement.
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10. | Option and Stock Appreciation Right Awards. The Committee may grant Options and Stock Appreciation Rights on such terms and conditions, not inconsistent with the Plan, as the Committee may determine, subject to the following provisions:
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| (a) | Type of Options. The Committee may grant Options in the form of ISOs, Non-Statutory Stock Options, or any combination thereof. Each Option Award Agreement shall identify whether the Options are intended to be ISOs or Non-Statutory Stock Options. If an Award is not designated as either ISOs or Non-Statutory Stock Options, then such Award shall be deemed to be Non-Statutory Stock Options.
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| (b) | ISO Limitations. For ISOs granted under the Plan, the aggregate Fair Market Value (determined as of the Grant Date) of the number of shares with respect to which ISOs are exercisable for the first time by any Participant during any calendar year under all plans of the Company shall not exceed $100,000, or such other maximum amount then applicable under Section 422 of the Code. Any Option or a portion thereof that is designated as an ISO that for any reason fails to meet the requirements of an ISO shall be treated hereunder as a Non-Statutory Stock Option. No ISO may be granted to an individual who, at the time of the proposed grant, owns (or is deemed to own under the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of common stock of the Company unless (i) the exercise price of such ISO is at least one hundred ten percent (110%) of the Fair Market Value of a share of Common Stock at the time such ISO is granted and (ii) such ISO is not exercisable after the expiration of five years from the date it is granted.
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| (c) | Terms and Conditions. The Committee shall determine all terms and conditions of the Options and Stock Appreciation Rights, provided that the following terms and conditions shall apply to all Options and Stock Appreciation Rights:
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| (i) | Options and Stock Appreciation Rights shall have a minimum vesting period of two years, provided that Options and Stock Appreciation Rights may vest earlier in accordance with Section 16 and the Committee may provide for a shorter vesting period (A) in connection with any corporate divestiture or acquisition affecting a Participant’s employment with, or provision of services to, the Company, (B) in the case of any special agreement, award, or situation with respect to any individual Participant, or (C) in connection with such other events or circumstances as the Committee may determine from time to time.
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| (ii) | The term during which an Option or Stock Appreciation Right may be exercised shall not exceed ten years from the Grant Date.
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| (iii) | The Purchase Price of an Option or Stock Appreciation Right shall in no event be less than one hundred percent (100%) of the Fair Market Value of a share of Common Stock on the Grant Date.
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| (iv) | The consequences with respect to an Award of Options or Stock Appreciation Rights of the termination of employment, or service as a Non-Employee Director, of the Participant holding the Options or Stock Appreciation Rights shall be determined by the Committee in its sole discretion and set forth in the applicable Award Agreement.
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| (v) | Options and Stock Appreciation Rights shall not contain any provision entitling a Participant to the automatic grant of additional Options or Stock Appreciation Rights in connection with any exercise of the original Options or Stock Appreciation Rights.
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| (vi) | Except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding Options and Stock Appreciation Rights may not be amended to reduce the Purchase Price of outstanding Options or Stock Appreciation Rights or cancel, exchange, buyout, replace or surrender outstanding Options or Stock
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General Dynamics 2017 Proxy Statement A-7
| Appreciation Rights in exchange for cash, other Awards or Options or Stock Appreciation Rights with a Purchase Price that is less than the exercise price of the original Options or Stock Appreciation Rights without approval of the Parent’s shareholders.
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| (vii) | Exercise and Settlement. During the lifetime of the Participant, an Option or Stock Appreciation Right may be exercised only by the Participant or his or her personal representative.
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| (A) | Options. The Purchase Price of shares purchased upon the exercise of any Option shall be paid (i) in full in cash (including check or wire transfer), (ii) in whole or in part (in combination with cash) in full shares of unrestricted Common Stock owned by the Participant and valued at their Fair Market Value on the date of exercise, (iii) by cashless exercise in any manner as may be permitted by the Committee from time to time, or (iv) such other method as may be permitted by the Committee from time to time.
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| (B) | Stock Appreciation Rights. Upon the exercise of a Stock Appreciation Right, the Participant shall be entitled to a number of shares of Common Stock with a Fair Market Value, or an amount in cash, equal to the difference between the aggregate Fair Market Value of the shares of Common Stock underlying the Stock Appreciation Right on the Grant Date and the aggregate Fair Market Value of such shares on the date of exercise.
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| (a) | General. The Committee may grant Participation Units, on such terms and conditions, not inconsistent with the Plan and in compliance with Section 409A of the Code, as the Committee may determine in its discretion and set forth in the applicable Award Agreement.
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| (b) | Terms and Conditions. Participation Units shall have a minimum vesting period of three years (other than Participation Units granted as an adjustment pursuant to a performance-based formula), provided that Participation Units may vest earlier in accordance with Section 16 and the Committee may provide for a shorter vesting period (i) in connection with any corporate divestiture or acquisition affecting a Participant’s employment with, or provision of services to, the Company, (ii) in the case of any special agreement, award, or situation with respect to any individual Participant, or (iii) in connection with such other events or circumstances as the Committee may determine from time to time.
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12. | Other Awards. The Committee may grant Other Awards on such terms and conditions, not inconsistent with the Plan and in compliance with Section 409A of the Code, as the Committee may determine in its discretion, provided that an Other Award shall be payable only in cash.
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13. | Awards to Non-Employee Directors. |
| (a) | Awards. Awards to Non-Employee Directors may be made at the recommendation of the Committee, subject to final approval of the Board, in such amounts as the Committee shall determine in Common Stock Awards, Non-Statutory Stock Options, Stock Appreciation Rights, Restricted Stock, Participation Units, Performance-Based Awards or any combination thereof.
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| (b) | Retainers and Fees. Upon terms and conditions as may be established by the Committee from time to time, each Non-Employee Director may elect to have all or part of his or her annual retainer paid in Common Stock under the Plan.
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| (a) | Committee. The Plan shall be administered by the Committee. The Committee shall have the authority in its sole discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or as it deems necessary or advisable in administration of the Plan, including without limitation, (i) the authority to grant Awards; (ii) to determine the individuals
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A-8 General Dynamics 2017 Proxy Statement
| to whom and the time or times at which Awards shall be granted; (iii) to determine the type and number of Awards to be granted, the number of shares of Common Stock to which an Award may relate and the terms, conditions, restrictions and performance criteria relating to any Award; (iv) to determine whether, to what extent, and under what circumstances and the manner in which an Award may be settled, cancelled, forfeited, exchanged or surrendered; (v) to construe and interpret the Plan and any Award Agreement; (vi) to prescribe, amend, and rescind rules and regulations relating to the Plan, including but not limited to, rules and regulations relating to leaves of absence and changes from an employee to a service provider or consultant; (vii) to determine whether an Award Agreement would be appropriate with respect to any Award, and if so, to determine the form of such Award Agreement; (viii) to determine whether an Award will be credited with Dividend Equivalents and the terms and conditions of any such Dividend Equivalents; and (ix) to make all other determinations deemed necessary or advisable for the administration and implementation of the Plan. For purposes of clarity, the Committee may exercise its discretion in a non-uniform manner among Participants. The determination of the Committee on these matters shall be final and conclusive and binding on the Company and all Participants. Any authority, power or right of the Committee pursuant to the Plan may also be exercised by the Board.
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| (b) | Delegation. Except to the extent prohibited by applicable law, including Section 157(c) of the DGCL, the applicable rules of the national securities exchange or such other market on which the Common Stock is principally traded or Section 162(m) of the Code with respect to Covered Awards, the Committee has the authority to delegate any of its powers under the Plan (including, without limitation, its power to administer claims and appeals) to one or more members of the Committee or one or more officers of the Parent. Any delegation shall include the same sole discretionary and final authority that the Committee has hereunder, and any decisions, actions or interpretations made by any delegate shall have the same ultimate binding effect as if made by the Committee. Any such allocation or delegation may be limited or revoked by the Committee at any time.
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| (i) | Except as otherwise provided by the Committee, and to the extent permitted pursuant to applicable law, the applicable rules of the national securities exchange or such other market on which Common Stock is principally traded and the Committee charter, the chairperson of the Committee may make Awards on behalf of the Committee to any Participant, except that the chairperson of the Committee may not (A) make an Award to a Participant who is subject to the reporting requirements of Section 16(a) of the Exchange Act or (B) make a Covered Award to a Covered Employee.
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15. | Adjustments Upon Certain Changes. Subject to any action by the shareholders of the Parent required by law, applicable tax rules or the rules of any exchange on which shares of Common Stock are listed for trading:
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| (a) | Shares Available for Grants. In the event of any change in the number of shares of Common Stock outstanding by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or similar corporate change, the maximum aggregate number of shares of Common Stock available for grant pursuant to Awards under the Plan as set forth in Section 6 and the maximum number of shares of Common Stock with respect to which the Committee may grant Covered Awards to any individual Covered Employee in any calendar year as set forth in Section 7(c) shall be appropriately adjusted by the Committee. In the event of any change in the number of shares of Common Stock outstanding by reason of any other event or transaction, the Committee may, to the extent deemed appropriate by the Committee, make such adjustments in the number and class of shares of Common Stock with respect to which Awards may be granted.
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| (b) | Increase or Decrease in Issued Shares Without Consideration. In the event of any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares of Common Stock or the payment of a stock dividend (but only on the shares of Common Stock), or any other increase or decrease in the number of such shares affected without receipt or payment of consideration by the Company, the Committee shall, to the extent deemed appropriate by the Committee, adjust the number of shares of Common Stock subject to each outstanding Award and the Purchase Price or exercise price per share of Common Stock of each such Award.
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| (c) | Certain Mergers. In the event of any merger, consolidation or similar transaction as a result of which the holders of shares of Common Stock receive consideration consisting exclusively of securities of the surviving corporation in such transaction, the Committee may, to the extent deemed appropriate by the Committee, adjust each Award outstanding
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General Dynamics 2017 Proxy Statement A-9
| on the date of such merger or consolidation so that it pertains and applies to the securities which a holder of the number of shares of Common Stock subject to such Award would have received in such merger or consolidation.
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| (d) | Certain Other Transactions. In the event of (i) a dissolution or liquidation of the Parent, (ii) a sale of all or substantially all of the Company’s assets (on a consolidated basis), (iii) a merger, consolidation or similar transaction involving the Parent in which the holders of shares of Common Stock receive securities and/or other property, including cash, other than shares of the surviving corporation in such transaction, the Committee shall, in its sole discretion, have the power to:
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| (A) | cancel, effective immediately prior to the occurrence of such event, each Award (whether or not then exercisable or vested), and, in full consideration of such cancellation, pay to the Participant to whom such Award was granted an amount in cash, for each share of Common Stock subject to such Award equal to the value, as determined by the Committee in its reasonable discretion, of such Award, provided that with respect to any outstanding Option or Stock Appreciation Right such value shall be equal to the excess (if any, or if none, zero) of (i) the value, as determined by the Committee in its reasonable discretion, of the property (including cash) received by the holder of a share of Common Stock as a result of such event over (ii) the Purchase Price of such Option or Stock Appreciation Right; or
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| (B) | provide for the exchange of each Award (whether or not then exercisable or vested) for an Award with respect to some or all of the property which a holder of the number of shares of Common Stock subject to such Award would have received in such transaction and, incident thereto, make an equitable adjustment as determined by the Committee in its reasonable discretion in the Purchase Price or exercise price of the Award, or the number of shares or amount of property subject to the Award or provide for a payment (in cash or other property) to the Participant to whom such Award was granted in partial consideration for the exchange of the Award.
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| (e) | Other Changes. In the event of any change in the capitalization of the Parent or corporate change other than those specifically referred to in paragraphs (b), (c) or (d), the Committee may make such adjustments in the number and class of shares subject to Awards outstanding on the date on which such change occurs and in such other terms of such Awards as the Committee may consider appropriate, provided that if any such Award is a Covered Award such adjustments are consistent with the requirements of Section 162(m) of the Code.
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| (f) | Other Awards. In the event of any transaction or event described in this Section 15, including without limitation any corporate change referred to in paragraph (e) hereof, the Committee may, in its sole discretion, make such adjustments in any Performance Goal and in any other terms of any Other Awards, as the Committee may consider appropriate in respect of such transaction or event, provided that if such Other Award is a Covered Award, such adjustments are consistent with the requirements of Section 162(m) of the Code.
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| (g) | No Other Rights. Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger or consolidation of the Parent or any other corporation. Except as expressly provided in the Plan, no issuance by the Parent of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares or amount of other property subject to, or the terms related to, any Award.
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| (h) | Savings Clause. No provision of this Section 15 shall be given effect to the extent that such provision would cause any tax to become due under Section 409A of the Code.
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| (a) | In the event that, within two years following a Change in Control, the Participant’s service with the Company and its affiliates is terminated (i) by the Company or any of its affiliates for any reason other than for Cause or (ii) by the Participant for Good Reason, all outstanding Awards granted to a Participant which have not theretofore vested shall immediately vest and become exercisable and all restrictions on such Awards shall immediately lapse.
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A-10 General Dynamics 2017 Proxy Statement
| (b) | Except to the extent that it may give rise to a tax under Section 409A of the Code with respect to any Award, the Committee may also accord to any Participant a right to refuse to have any of the actions that the Committee may take otherwise as described in (a) above, whether pursuant to the Award or otherwise, in such circumstances as the Committee may approve.
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| (c) | “Change in Control” means any of the following events:
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| (i) | An acquisition by any Person of Beneficial Ownership (other than a direct or indirect acquisition from the Parent) of forty percent (40%) or more of the combined voting power of the Parent’s then-outstanding voting securities; provided that, in determining whether a Change in Control has occurred, an acquisition by any of the following Persons will not constitute a Change in Control:
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| (A) | an employee benefit plan (or a trust forming a part thereof) maintained by the Parent or any Subsidiary of the Parent,
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| (B) | the Parent or any Subsidiary of the Parent,
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| (C) | any Person that, pursuant to Rule 13d-1 promulgated under the Act, is permitted to, and actually does, report its Beneficial Ownership of voting securities of the Parent on Schedule 13G (or any successor schedule) (a “13G Filer”); provided that, a Person shall no longer be considered a 13G Filer if it subsequently becomes required to or does report its Beneficial Ownership of voting securities of the Parent on Schedule 13D (or any successor schedule) and for purposes of this Section 16 such Person shall be deemed to have first acquired, on the first date on which such Person does so file a Schedule 13D, Beneficial Ownership of all voting securities of the Parent Beneficially Owned by it on such date, (each of (A), (B), and (C) an “Excluded Person”),
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| (D) | any Person in connection with a Non-Control Transaction (as hereinafter defined), or
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| (E) | an underwriter temporarily holding securities of the Parent pursuant to an offering of such securities.
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Notwithstanding the foregoing provisions of this Section 16, a Change in Control will not be deemed to occur solely because any Person (a “Subject Person”) acquires Beneficial Ownership of forty percent (40%) or more of the combined voting power of the Parent’s then-outstanding voting securities as a result of the acquisition of voting securities by the Parent which, by reducing the number of voting securities outstanding, increases the proportional number of shares Beneficially Owned by the Subject Person; provided that, if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, then a Change in Control shall be deemed to occur on the date the Subject Person becomes the Beneficial Owner of any additional voting securities which increases the percentage of the then outstanding voting securities Beneficially Owned by the Subject Person.
| (A) | a merger, consolidation or reorganization involving the Parent, or any direct or indirect Subsidiary of the Parent, unless:
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| (i) | the stockholders of the Parent immediately before such merger, consolidation or reorganization will own, directly or indirectly, immediately following such merger, consolidation or reorganization, at least fifty percent (50%) of the combined voting power of the outstanding voting securities of the corporation resulting from such merger, consolidation or reorganization (the “Surviving Corporation”) or any parent thereof in substantially the same proportion as their ownership of the voting securities of the Parent immediately before such merger, consolidation or reorganization;
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General Dynamics 2017 Proxy Statement A-11
| (ii) | the individuals who were members of the Board immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute a majority of the members of the board of directors of the Surviving Corporation (or parent thereof); and
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| (iii) | no Person (other than an Excluded Person, the Surviving Corporation, any Subsidiary or parent of the Surviving Corporation, or any Person who, immediately prior to such merger, consolidation or reorganization, was the Beneficial Owner of forty percent (40%) or more of the then-outstanding voting securities of the Parent) is the Beneficial Owner of forty percent (40%) or more of the combined voting power of the Surviving Corporation’s outstanding voting securities immediately after the merger, consolidation or reorganization. A transaction described in clauses (i) through (iii) above is referred to herein as a “Non-Control Transaction.”
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| (B) | a sale or other disposition of all or substantially all of the assets of the Parent to an entity (other than to an entity (i) at least fifty percent (50%) of the combined voting power of the outstanding voting securities of which is owned, directly or indirectly, by stockholders of the Parent in substantially the same proportion as their ownership of the voting securities of the Parent, (ii) a majority of the board of directors of which consists of the individuals who were members of the Board immediately prior to the execution of the agreement providing for such sale or disposition, and (iii) of which no Person (other than an Excluded Person or any Person who, immediately prior to such sale or disposition, was the Beneficial Owner of forty percent (40%) or more of the combined voting power of the then-outstanding voting securities of the Parent) has Beneficial Ownership of forty percent (40%) or more of the combined voting power of the entity’s outstanding voting securities).
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| (iii) | Individuals who, as of the date of adoption of the Plan, constitute the Board (the “Incumbent Board”), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the adoption of the Plan whose election, or nomination for election, by Parent stockholders was approved by a vote of at least two-thirds (2/3) of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, unless any such individual’s initial assumption of office occurs as a result of either an actual or threatened election contest (including, but not limited to, a consent solicitation).
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| (iv) | The stockholders of the Company approve a plan of complete liquidation of the Company.
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With respect to Awards that are subject to Section 409A of the Code, the foregoing provisions of this Section 16 shall be interpreted in a manner that is consistent with the U.S. Department of Treasury Regulations promulgated pursuant to Section 409A of the Code so that only such transactions or events that could qualify as a “change in control event” within the meaning of Treasury Regulation § 1.409A-3(i)(5)(i) will be deemed to be a Change in Control for purposes of such Awards.
17. | Nontransferability of Awards.
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| (a) | Except as provided by the Committee for transfers without consideration, an Award shall not be transferable other than (i) by the Participant’s last will and testament or (ii) by the applicable laws of descent and distribution.
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| (b) | Any Award transferred pursuant to Section 17(a) shall be subject to all of the same original terms and conditions as provided in the Plan and the applicable Award Agreement. The Participant’s estate will remain liable for any withholding tax that may be imposed by any Federal, state or local tax authority.
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In connection with the vesting of Awards or issuance of Common Stock under the Plan, the Parent may require the recipient to remit to the Company an amount sufficient to satisfy any Federal, state or local (including foreign jurisdictions) tax withholding requirements
A-12 General Dynamics 2017 Proxy Statement
prior to the delivery of such Common Stock, or, in the discretion of the Committee, the Parent may withhold from the shares to be delivered shares sufficient to satisfy all or a portion of the minimum statutorily required tax withholding requirements (or such greater amount of shares as may be permitted without causing adverse accounting consequences to the Company under the applicable accounting rules). The Committee may determine the manner in which such tax withholding may be satisfied, and may permit a Participant to deliver unrestricted shares of Common Stock to be used to satisfy minimum statutorily required tax withholding based on the Fair Market Value of any such shares of Common Stock on the date the amount of tax to be withheld is determined. Any cash paid pursuant to the Plan is subject to all applicable tax withholding.
The expenses of administering the Plan shall be borne by the Company.
20. | Termination, Amendment and Changes to Outstanding Awards.
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The Committee may at any time suspend the operation of, terminate or amend the Plan or any Award thereunder, provided that no suspension, termination, or amendment shall adversely impair the rights of any Participant pursuant to an outstanding Award without the consent of the Participant. Notwithstanding the foregoing, the Committee may take such actions as it deems appropriate to ensure that the Plan and any Awards may comply with any tax, securities or other applicable law. Nothing herein shall restrict the Committee’s ability to exercise its discretionary authority as provided in the Plan.
Nothing contained in the Plan shall be deemed to preclude other compensation plans which may be in effect from time to time or be construed to limit the authority of the Company to exercise its corporate rights and powers, including, but not by way of limitation, the right of the Parent (a) to award options to acquire shares of Common Stock otherwise than under the Plan to an employee or other person, firm, corporation, or association, or (b) to award options to acquire shares of Common Stock, or assume the option of, any person in connection with the acquisition, by purchase, lease, merger, consolidation, or otherwise, of the business and assets (in whole or in part) of any person, firm, corporation, or association.
22. | Foreign Jurisdictions.
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The Committee may adopt, amend, and terminate such arrangements, not inconsistent with the intent of the Plan, as it may deem necessary or desirable to make available tax or other benefits of the laws of any foreign jurisdiction, to Participants who are subject to such laws and who receive Awards under the Plan.
The validity, construction, interpretation, administration and effect of the Plan, and its rules and regulations, and rights relating to the Plan and to Awards granted pursuant to the Plan, shall be governed by the substantive laws of the State of Delaware, without giving effect to its principles of conflict of laws.
24. | Section 409A of the Code.
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| (a) | To the extent applicable, it is intended that the Plan comply with or be exempt from the requirements of Section 409A of the Code and any related regulations or other guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service. Accordingly, to the maximum extent permitted, the Plan shall be interpreted and administered to be in compliance therewith and if any provision of this Plan or any term or condition of any Award would otherwise frustrate or conflict with this intent, the provision, term or condition will be interpreted and deemed amended so as to avoid this conflict. Any reservation of rights or discretion by the Company or the Committee hereunder affecting the timing of payment of any Award subject to Section 409A of the Code will only be as broad as is permitted by Section 409A of the Code and any regulations thereunder.
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| (b) | Notwithstanding anything herein or in any Award Agreement to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable
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General Dynamics 2017 Proxy Statement A-13
| and benefits that would otherwise be provided to a Participant during the six-month period immediately following the Participant’s separation from service (within the meaning of Section 409A of the Code) shall instead be paid on the first business day after the date that is six months following the Participant’s separation from service (or death, if earlier).
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| (a) | Limitation of Participant rights. No Participant shall have any right to an Award or a benefit under the Plan except in accordance with the terms of the Plan, the applicable Award Agreement, and any related documents. Establishment of the Plan and/or receipt of an Award shall not be construed to give any Participant the right to be retained in the service of the Company. No holder of an Option will have any rights to dividends or other rights as a stockholder with respect to the shares subject thereto prior to the purchase of such shares upon exercise of the Option pursuant to the terms thereof. Participation Unit Award holders shall have no rights to dividends or any other rights as a stockholder prior to the acquisition of shares upon the vesting and settlement of such Award pursuant to the terms thereof.
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| (b) | Limitation of liability. Notwithstanding any provision of the Plan to the contrary, none of the Company, the Board, the Committee or any individual acting as an employee or agent of the Company shall be liable to any Participant, former Participant, or any other person for any claim, loss, liability or expense incurred in connection with the Plan and any Award hereunder.
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| (c) | Treatment for other compensation purposes. Payments and other benefits received by a Participant pursuant to an Award shall not be deemed part of a Participant’s regular, recurring compensation for purposes of any termination, indemnity or severance pay laws and shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan, contract or similar arrangement provided by the Company, unless expressly so provided by such other plan, contract or arrangement.
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| (d) | Distribution only in compliance with applicable law. Notwithstanding any other provision of the Plan, the Company shall have no liability to deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless such delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act), and the applicable requirements of any securities exchange or similar entity.
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| (e) | Share issuance on a non-certificate basis. To the extent that the Committee provides for the issuance of shares of Common Stock or Restricted Stock, the issuance may be affected on a non-certificated basis, subject to applicable law or the applicable rules of any stock exchange.
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| (f) | Fractional shares. Any fractional shares underlying an Award shall be rounded down to the nearest whole number (without any payment in respect of any rounding down).
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| (g) | Termination of Employment. The employment of a Participant with the Company shall be deemed to have terminated for all purposes of the Plan if such person is employed by or provides services to an entity that is a Subsidiary of the Company and such entity ceases to be a Subsidiary of the Company, unless the Committee determines otherwise, including in order to maintain compliance with Section 409A of the Code.
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| (h) | Company Recoupment of Awards. A Participant’s rights with respect to any Award hereunder shall in all events be subject to (i) any right that the Company may have under any Company compensation recoupment policy or other agreement or arrangement with a Participant, and (ii) any right or obligation that the Company may have regarding the recoupment of “incentive-based compensation” under Section 10D of the Exchange Act and any applicable rules and regulations promulgated thereunder from time to time by the U.S. Securities and Exchange Commission.
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A-14 General Dynamics 2017 Proxy Statement
All notices to the Parent regarding the Plan shall be in writing, effective as of actual receipt by the Parent, and shall be sent to:
General Dynamics Corporation
2941 Fairview Park Drive, Suite 100
Falls Church, Virginia 22042
Attention: Corporate Secretary
The Committee may change the address to which notices under the Plan are sent provided such address is communicated to Participants.
General Dynamics 2017 Proxy Statement A-15
APPENDIX B
USE OFNON-GAAP FINANCIAL MEASURES
(DOLLARSINMILLIONS) MILLIONS)
This Proxy Statement containsnon-GAAP financial measures, as defined by Regulation G of the Securities and Exchange Commission.SEC. We emphasize the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. As described below, we use free cash flow from operations and ROIC to measure our performance in these areas. While we believe these metrics provide useful information, they are not defined operating measures under U.S. generally accepted accounting principles (GAAP), and there are limitations associated with their use. Our calculation of these metrics may not be completely comparable to similarly titled measures of other companies due to potential differences in the method of calculation. As a result, the use of these metrics should not be considered in isolation from, or as a substitute for, other GAAP measures. Free Cash Flow.We define free cash flow from operations as net cash provided by operating activities less capital expenditures. We believe free cash flow from operations is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying maturing debt, funding business acquisitions, repurchasing our common stockCommon Stock and paying dividends. We use free cash flow from operations to assess the quality of our earnings and as a performance measure in evaluating management. The following table reconciles the free cash flow from operations with net cash provided by operating activities: | Year Ended December 31 | | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | | 2019 | | | 2018 | | | 2017 | | Net cash provided by operating activities | | $ | 2,198 | | | $ | 2,607 | | | $ | 3,828 | | | $ | 3,159 | | | $ | 2,981 | | $ | 3,148 | | $ | 3,876 | | Capital expenditures | | | (392 | ) | | | (569 | ) | | | (521 | ) | | | (436 | ) | | (987 | ) | | | (690 | ) | | | (428 | ) | Free cash flow from operations | | $ | 1,806 | | | $ | 2,038 | | | $ | 3,307 | | | $ | 2,723 | | | $ | 1,994 | | $ | 2,458 | | $ | 3,448 | |
Return on Invested Capital.We believe ROIC is a useful measure for investors because it reflects our ability to generate returns from the capital we have deployed in our operations. We use ROIC to evaluate investment decisions and as a performance measure in evaluating management. We define ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after taxes is defined as earnings from continuing operations plusafter-tax interest and amortization expense.expense, calculated using the statutory federal income tax rate. Average invested capital is defined as the sum of the average debt and shareholders’ equity for the year. ROIC excludesexcluding accumulated other comprehensive income,loss. ROIC excludes goodwill impairments andnon-economic accounting changes.changes as they are not reflective of company performance. ROIC is calculated as follows: | Year Ended December 31 | | 2019 | | | 2018 | | | 2017 | | | Earnings from continuing operations | | $ | 3,484 | | | $ | 3,358 | | | $ | 2,912 | | | After-tax interest expense | | | 373 | | | | 295 | | | | 76 | | | After-tax amortization expense | | | 287 | | | | 258 | | | | 51 | | | Net operating profit after taxes | | $ | 4,144 | | | $ | 3,911 | | | $ | 3,039 | | | Average invested capital | | $ | 29,620 | | | $ | 25,367 | | | $ | 18,099 | | | Return on invested capital | | | 14.0 | % | | | 15.4 | % | | | 16.8 | % |
2020 Proxy Statement 83
Table of Contents | | | | | | | | | | | | | | | | | Year Ended December 31 | | | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | Earnings from continuing operations | | $ | 3,062 | | | $ | 2,965 | | | $ | 2,673 | | | $ | 2,486 | | After-tax interest expense | | | 64 | | | | 64 | | | | 67 | | | | 67 | | After-tax amortization expense | | | 57 | | | | 75 | | | | 79 | | | | 93 | | Net operating profit after taxes | | $ | 3,183 | | | $ | 3,104 | | | $ | 2,819 | | | $ | 2,646 | | Average invested capital | | $ | 17,619 | | | $ | 17,858 | | | $ | 18,673 | | | $ | 18,741 | | Return on invested capital | | | 18.1 | % | | | 17.4 | % | | | 15.1 | % | | | 14.1 | % |
Appendix A: Use of Non-GAAP Financial Measures B-1 In evaluating the company’s ROIC performance for the 2017 – 2019 period, the Compensation Committee excluded the effects of the early 2018 CSRA acquisition since the acquisition was not contemplated at the time the target ROIC was set in 2017. Accordingly, the following table shows the calculation of ROIC as used by the Compensation Committee in determining the appropriate ROIC performance over the three-year 2017 – 2019 period for an average of 17.6%.
| Year Ended December 31 | | 2019 | | | 2018 | | | 2017 | | | Earnings from continuing operations | | $ | 3,477 | | | $ | 3,399 | | | $ | 2,912 | | | After-tax interest expense | | | 117 | | | | 104 | | | | 76 | | | After-tax amortization expense | | | 59 | | | | 64 | | | | 51 | | | Net operating profit after taxes | | $ | 3,653 | | | $ | 3,567 | | | $ | 3,039 | | | Average invested capital | | $ | 20,931 | | | $ | 19,328 | | | $ | 18,099 | | | Return on invested capital | | | 17.5 | % | | | 18.5 | % | | | 16.8 | % |
84 General Dynamics 2017 Proxy Statement
Table of Contents  
Table of Contents
GENERAL DYNAMICS CORPORATION 2941 FAIRVIEW PARK DRIVE
FALLS CHURCH,
11011 SUNSET HILLS ROAD
RESTON, VA 2204220190
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Use any touch-tone telephone to transmit your voting instructions up until11:instructions. Vote by 11:59 P.M. Eastern Time the day before thecut-off date or meeting date.on May 5, 2020 for shares held directly and by 9:00 A.M. Eastern Time on May 4, 2020 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL
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| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | | E94453-P31414-Z76071 | KEEP THIS PORTION FOR YOUR RECORDS | | DETACH AND RETURN THIS PORTION ONLY | | THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
GENERAL DYNAMICS CORPORATION |
| | |
| The Board of Directors recommends you vote FOR the following proposal: |
| | | | 1. | | | | | | | | | | | | | | Election of Directors | | | | | | | GENERAL DYNAMICS CORPORATIONFor
| Against | Abstain | | | Nominees: | | | | | | | | | | | | | 1a. | James S. Crown | ☐ | ☐ | ☐ | | | | | | | | | | | 1b. | Rudy F. deLeon | ☐ | ☐ | ☐ | | | | The Board of Directors recommends you vote FOR the following proposal:
| | | | | | | | | | | | | | | | | | | | | | | 1c. | Cecil D. Haney | ☐ | ☐ | ☐ | | | | 1. Election of Directors
| | | | | | | | | | | | | | | | | | | | | | | 1d. | Mark M. Malcolm | ☐ | ☐ | ☐ | | | | Nominees:
| | For | | Against | | Abstain | | | | | | | | | | | | | | | | | | | 1e. | James N. Mattis | ☐ | ☐ | ☐ | | | | 1a. Nicholas D. Chabraja
1b. James S. Crown
1c. Rudy F. deLeon
1d. John M. Keane
1e. Lester L. Lyles
| | | | | | | 1f. Mark M. Malcolm1g.
| Phebe N. Novakovic | ☐ | ☐ | ☐ | | | | | | | | | | 1g. | C. Howard Nye | ☐ | ☐ | ☐ | | | | | | | | | | 1h. | William A. Osborn | ☐ | ☐ | ☐ | | | | | | | | | | 1i. | Catherine B. Reynolds | ☐ | ☐ | ☐ | | | | | | | | | | 1j. | Laura J. Schumacher | ☐ | ☐ | ☐ | | | | | | | | | | 1k. | John G. Stratton | ☐ | ☐ | ☐ | | | | | | | | | | 1l. | Peter A. Wall | ☐ | ☐ ☐
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| | | | The Board of Directors recommends you vote FOR the following proposals: | For | Against | Abstain | | | | | | 2. | Advisory Vote on the Selection of Independent Auditors | ☐ | ☐ | ☐ | | | | | | 3. | Advisory Vote to approve Executive Compensation | ☐ | ☐ | ☐ | | | | | The Board of Directors recommends you vote 1 year onAGAINST the following proposal: | For | Against | Abstain | | | | | 4. Advisory Vote on | Shareholder Proposal to reduce the Frequency of Future Executive Compensation Advisory VotesThe Board of Directors recommends you vote FOR the following proposal:
5. Approval of the General Dynamics Corporation Amended and Restated 2012 Equity Compensation Plan
ownership threshold required to call a Special Shareholder meeting | ☐ | ☐ | ☐ | | | | | | | NOTE:Such other business as may properly come before the meeting or any adjournment thereof. | | 1 Year
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | | | | | Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Signature [PLEASE SIGN WITHIN BOX] | | Date | | | | | | | | Signature (Joint Owners)
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| | | | Signature (Joint Owners) | Date |
V.1.1Table of Contents
DIRECT DEPOSIT NOTICE General Dynamics Corporation and Computershare remind you of the opportunity to have your quarterly dividends electronically deposited into your checking or savings account. The main benefit of direct deposit to you is knowing that your dividends are in your account on the payable date. Telephone inquiries regarding stock, including registration for direct deposit of dividends, should be made to Computershare’s automated Toll-Free Telephone Response Center at1-800-519-3111. General Dynamics Corporation encourages you to take advantage of one of the convenient ways by which you can vote these shares for matters to be covered at the 20172020 Annual Meeting of Shareholders. You can vote these shares electronically through the Internet or by telephone, either of which eliminates the need to return the proxy card. If you do not wish to vote through the Internet or by telephone, you can vote by mail by following the instructions on the proxy card on the reverse side. Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
E17892-TBD
| | Proxy — GENERAL DYNAMICS CORPORATION | PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 3, 2017 6, 2020
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION The undersigned hereby appoints PHEBE N. NOVAKOVIC, JASON W. AIKEN and GREGORY S. GALLOPOULOS, and each of them, as proxy or proxies, with full power of substitution, to vote all shares of common stock, par value $1.00 per share, ofGENERAL DYNAMICS CORPORATION, a Delaware corporation, that the undersigned is entitled to vote at the 2017Annual Meeting of Shareholders, and at any adjournment or postponement thereof, upon the matters set forth on the reverse side and upon such other matters as may properly come before the annual meeting, all as more fully described in the Proxy Statement for the 2017 Annual Meeting of Shareholders.
THIS PROXY WHEN PROPERLY EXECUTED AND TIMELY RETURNED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING, THIS PROXY WILL BE VOTED AT THE DISCRETION OF THE PROXIES NAMED ABOVE, AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IF THIS PROXY IS PROPERLY EXECUTED AND TIMELY RETURNED BUT NO DIRECTION IS MADE HEREON, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, AND 5 AND FOR EVERY YEAR FOR PROPOSAL 4.
If you are a participant in the Company’s 401(k) plans, this proxy card constitutes your instructions to Fidelity, the trustee of the plans, as to the vote of the shares of Company common stock in your plan accounts. If you do not submit valid and timely voting instructions, Evercore Trust Company, N.A., the independent fiduciary and investment manager for the Company common stock in your plan accounts, will direct the vote of your plan shares in its discretion.
PLEASE COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT IN THE POSTAGE-PAID ENVELOPE PROVIDED
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V.1.1The undersigned hereby appoints PHEBE N. NOVAKOVIC, JASON W. AIKEN and GREGORY S. GALLOPOULOS, and each of them, as proxy or proxies, with full power of substitution, to vote all shares of common stock, par value $1.00 per share, of GENERAL DYNAMICS CORPORATION, a Delaware corporation, that the undersigned is entitled to vote at the 2020 Annual Meeting of Shareholders, and at any adjournment or postponement thereof, upon the matters set forth on the reverse side and upon such other matters as may properly come before the annual meeting, all as more fully described in the Proxy Statement for the 2020 Annual Meeting of Shareholders.
THIS PROXY WHEN PROPERLY EXECUTED AND TIMELY RETURNED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING, THIS PROXY WILL BE VOTED AT THE DISCRETION OF THE PROXIES NAMED ABOVE, AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IF THIS PROXY IS PROPERLY EXECUTED AND TIMELY RETURNED BUT NO DIRECTION IS MADE HEREON, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3, AND AGAINST PROPOSAL 4. If you are a participant in the Company’s 401(k) plans, this proxy card constitutes your instructions to Fidelity, the trustee of the plans, as to the vote of the shares of Company common stock in your plan accounts. If you do not submit valid and timely voting instructions, Newport Trust Company, the independent fiduciary and investment manager for the Company common stock in your plan accounts, will direct the vote of your plan shares in its discretion. PLEASE COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT IN THE POSTAGE-PAIDENVELOPE PROVIDED.
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