· | | •preside at meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors, and advise the Chairman and CEO on decisions reached and suggestions made; •advise the Chairman on and approve meeting agendas and information sent to the Board; •advise the Chairman on and approve the schedule of Board meetings, assuring there is sufficient time for discussion of all agenda items; •provide the Chairman with input as to the preparation of Board and committee meeting agendas, taking into account the requests of the other Board and committee members; •interview, along with the Chairman and the Chairman of the Governance Committee, Board candidates and make recommendations to the Governance Committee and the Board; •call meetings of the independent directors; •support and facilitate engagement between the Chairman and the independent directors; and •if requested by major shareholders, ensure that he or she is available for consultation and direct communication. 16INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
Our Lead Independent Director is empowered to and does actively engage with our Chairman and Chief Executive Officer to help enable a strong and effective Board of Directors. | | | Committees of the Board at which the Chairperson is not present, including executive sessions of the independent directors, and advise the Chairperson and CEO on decisions reached and suggestions made;Directors |
· | | advise the Chairperson on and approve meeting agendas and information sent to the Board; |
· | | advise the Chairperson on and approve the schedule of Board meetings, assuring there is sufficient time for discussion of all agenda items; |
· | | provide the Chairperson with input as to the preparation of Board and committee meeting agendas, taking into account the requests of the other Board and committee members; |
· | | interview, along with the Chairperson and the Chairperson of the Governance Committee, Board candidates and make recommendations to the Governance Committee and the Board; |
· | | call meetings of the independent directors; |
· | | serve as liaison between the Chairperson and the independent directors; and |
· | | if requested by major shareholders, ensure that he or she is available for consultation and direct communication. |
Committees of the Board of Directors
The Board has four standing committees: the Audit and Risk Committee, the Compensation Committee, the Governance Committee and the Policy Committee. The membership of these committees is typically determined at the organizational meeting of the Board held in conjunction with the annual meeting. All the committees are composed entirely of independent directors. The primary responsibilities of each of the committees, as of the date of this Proxy Statement, are summarized below, together with a table listing the membership and chairpersonChairman of each committee. The charters for each standing committee can be found on the Investor Relations section of our website (www.northropgrumman.com). | | | | | | Audit and Risk Committee | Roles and Responsibilities | | Committee Members | Assist the Board in overseeing (1) the integrityCompany's financial and enterprise-related risk activities by: | William H. Hernandez (chair) David P. Abney Marianne C. Brown Ann M. Fudge James S. Turley Mark A. Welsh III Number of meetings in 2020:9 Independence, Financial Literacy and Audit Committee Financial Experts All members are independent and financially literate Messrs. Abney, Hernandez and Turley each qualifies as an Audit Committee Financial Expert
| ● assisting the Company’s financial statements andBoard in its oversight of enterprise risk management (including through the Company’s accounting and financial reporting processes; (2)different board committees), including reviewing at least annually the Company’s overall compliance with legal and regulatory requirements; (3) financial risk assessment and management; (4)management process at the qualifications, performance and independence of the Company’s independent auditor; (5) the performance of the Company’s internal audit function; and (6) the Company’s system of disclosure controls and procedures and internal control over financial reporting, by:Company level | ·● appointing, retaining, overseeing, evaluating and terminating, if necessary, the independent auditor | ·● reviewing andpre-approving audit and permittednon-audit services and related fees for the independent auditor | ·● reviewing and discussing the Company’sCompany's Annual Reports on Form10-K and Quarterly Reports on Form10-Q | ·● reviewing and discussing management’smanagement's assessment of, and report on, the effectiveness of the Company’sCompany's internal control over financial reporting at least annually and the independent auditor’sauditor's related report | ·● reviewing and discussing with the independent auditor any critical audit matters identified by the independent auditor, the Company's critical accounting policies, and material written communications with management
| ● reviewing with the General Counsel, at least annually, the status of significant pending litigation and various other significant legal, compliance or regulatory matters | ·● reviewing with the Chief Compliance Officer, at least annually, the Company’sCompany's compliance program,· discussing guidelines and implementation of global compliance policies, regarding risk assessmentpractices and riskprograms
| ● providing oversight and reviewing periodically the Company's management of its financial risks, as well as the Company's management of its risks related to cybersecurity, insurance, supplier, nuclear, natural and environmental matters | ·● reviewing any significant issues raised by the internal audit function and, as appropriate, management’smanagement's actions for remediation | ·● establishing and periodically reviewing and discussing with management the Company’sCompany's procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters
| | William H. Hernandez (chair)
Marianne C. Brown
Victor H. Fazio
Ann M. Fudge
Madeleine A. Kleiner
James S. Turley
Mark A. Welsh III
Number of meetings in 2017:9
Independence, Financial Literacy and Audit Committee Financial Experts
All members are independent and financially literate
Ms. Kleiner and Messrs. Hernandez and Turley each qualifies as an Audit Committee Financial Expert
|
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I |17
15
| | | CORPORATE GOVERNANCE Compensation Committee
|
| | | | | | Compensation Committee | | Roles and Responsibilities | | Committee Members | Assist the Board in overseeing the Company’sCompany's compensation policies and practices by: | Thomas M. Schoewe (chair) Donald E. Felsinger Bruce S. Gordon Madeleine A. Kleiner Karl J. Krapek Gary Roughead ·Number of meetings in 2020: 7
Independence All members are independent | ● overseeing and reviewing at least annually a risk assessment of the Company's compensation plans | ● approving the compensation for elected officers (other than the Chief Executive Officer, whose compensation is recommended by the Committee and approved by all the independent directors) | ·● establishing stock ownership guidelines and reviewing ownership levels on an annual basis·administering incentive and equity compensation plans and approving payments or grants under these plans for elected officers (other than the Chief Executive Officer)
Officer, whose payments or grants are recommended by the Committee and approved by all the independent directors) | ·● recommending for approval compensation for thenon-employee directors, after consultation with the independent compensation consultant | ·● overseeing and reviewing the Company's management of its human capital risk
| ●reviewing and monitoring the Company's diversity, equity and inclusion programs | ●conducting an annual evaluation of the compensation consultant and reporting results of the evaluation to the Board | ●producing an annual report on executive compensation for inclusion in the proxy statement | | ·● providing support to the Board in carrying out its overall responsibilities related to executive compensationestablishing stock ownership guidelines and reviewing ownership levels on an annual basis
| | Karl J. Krapek (chair)
Donald E. Felsinger
Bruce S. Gordon
Gary Roughead
Thomas M. Schoewe
Number of meetings in 2017:7
Independence
All members are independent
|
| | | | | | Governance Committee | Roles and Responsibilities | | Committee Members | Assist the Board in overseeing the Company’sCompany's corporate governance practices by: | Madeleine A. Kleiner (chair) Donald E. Felsinger Ann M. Fudge William H. Hernandez Karl J. Krapek James S. Turley ·Number of meetings in 2020: 5
Independence All members are independent
| ● overseeing and reviewing the Company's management of governance-related risks, including the risks related to corporate culture | ●regularly reviewing the Company’sCompany's corporate governance policies and practices, including the Principles of Corporate GovernanceCompany's Bylaws and the Company’s Bylawsother corporate documents | ·● regularly reviewing and considering corporate governance developments, emerging trends and best practices and recommending changes to the Board | ·● reviewing and making recommendations to the Board with respect to the corporate governance section of the proxy statement, including proposed responses to shareholder proposals
| ● meeting with shareholders and the resultsproxy advisory groups, as needed, to discuss issues of shareholder proposals, if any, voted on at a shareholders meetingcorporate governance | ·● regularly reviewing and making recommendations to the Board regarding the composition and size of the Board and the criteria for Board membership, which should include, among other things, diversity, experience and integrity | ·● providing effective board succession planning, identifying and recommending to the Board qualified potential candidates to serve on the Board and its committees and, if applicable, meeting with proxy access nominees nominated through the Company’sCompany's proxy access bylaw provision | ·● reviewing and determining whether a director’sdirector's service on another board or elsewhere is likely to interfere with the director’sdirector's duties and responsibilities as a member of the Board | ·● reviewing and recommending board, director and committee evaluation processes and coordinating the process for the Board to evaluate its performance
| | Madeleine A. Kleiner (chair)
Donald E. Felsinger
William H. Hernandez
Karl J. Krapek
Gary Roughead
James S. Turley
Number of meetings in 2017:5
Independence
All members are independent
|
18INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | CORPORATE GOVERNANCE Policy Committee
|
| | | | | | Policy Committee | | Roles and Responsibilities | | Committee Members | Assist the Board in overseeing policy, government relations and corporate responsibility by: | Gary Roughead (chair) David P. Abney Marianne C. Brown Bruce S. Gordon Thomas M. Schoewe Mark A. Welsh III ·Number of meetings in 2020: 5
Independence All members are independent | ● identifying and evaluating global security, political, budgetary, technological and other issues and trends that could impact the Company’sCompany's business activities and performance | ·● reviewing and providing oversight of the Company's programs regarding environmental and social aspects of sustainability, including environmental matters, human rights, health and safety
| ●reviewing and providing oversight over the Company’sCompany's ethics and corporate social responsibility policies and programs | ·● reviewing the Company’sCompany's public relations and advertising strategy | ·● reviewing and monitoring the Company’sCompany's government relations strategy and political action committee policies | ·● reviewing the Company’sCompany's community relations activities· reviewing and providing oversight of the Company’s environmental sustainability program
| | Bruce S. Gordon (chair)
Marianne C. Brown
Victor H. Fazio
Ann M. Fudge
Thomas M. Schoewe
Mark A. Welsh III
Number of meetings in 2017:charitable activities4
Independence
All members are independent
|
16 |
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 19
Board Meetings and Executive Sessions
| | | | Board Meetings and Executive Sessions |
The Board meets no fewer than nine times each year (including via telephonic meetings). Special meetings of the Board may be called from time to time as appropriate. On an annual basis, the Board holds an extended meeting to review our long-term strategy. The Board generally holds its meetings at Company locations other than our corporate headquarters on a regular basis to provide the directors with a first-hand view of different elements of our business and an opportunity to interact with local management.management and employees at various levels. Due to the COVID-19 pandemic, the Company was able to hold only one meeting at a business location outside of the Company's headquarters during 2020. The Board meets in executive session (with the directors only and then with the independent directors only) following each in-person Board meeting and on other occasions as needed. The non-executive Chairperson Chairman or the Lead Independent Director presides over the executive sessions of the independent directors. The Audit and Risk Committee meets in executive session at least five times each in-person Audit Committee meeting, year, and regularly requests separate executive sessions with representatives of our independent auditor and our senior management, including our Chief Financial Officer, General Counsel and our Vice President, Internal Audit. The Compensation Committee also meets in executive session from time to time and regularly receives a report from the Compensation Committee’sCommittee's independent compensation consultant. The Governance and Policy Committees also meet in executive session as they deem necessary. Meeting Attendance
During 2017,
In 2020, the Board held two of its regularly scheduled meetings virtually because of the COVID-19 pandemic. The Board also met more frequently by telephone, including in executive session, to receive updates and to provide oversight on the impact of the pandemic and issues of social justice and the Company's responses to both. In 2020, the Board held 14 meetings. Each incumbent director serving in 20172020 attended 75% or more of the total number of Board and committee meetings he or she was eligible to attend. Board members are expected to attend the Annual Meeting,each annual meeting, except where the failure to attend is due to unavoidable circumstances. All of our then-serving directors attended the 20172020 Annual Meeting. Director Independence
The Board has established an objective that at least 75% of our directors be independent directors.
The Board and the Governance Committee annually review the relevant relationships or arrangements between the Company and our directors or parties related to the directors in determining whether such directors are independent. No director is considered independent unless the Board has determined that the director meets the independence requirements under applicable New York Stock Exchange (NYSE) and SEC rules and under our categorical independence standards, which are described in our Principles of Corporate Governance. For a director to be considered independent, the Board must determine that a director has no material relationship with the Company other than as a director. Our Principles of Corporate Governance provide that a director may be found not to qualify as an independent director if the director: · | | has within the prior three years been a director, executive officer or trustee of a charitable organization that received annual contributions from the Company exceeding the greater of $1 million or 2% of the charitable organization’s annual gross revenues, where the gifts were not normal matching charitable gifts, did not go through normal corporate charitable donation approval processes or were made “on behalf of” a director; |
· | | has, or has an immediate family member who has, within the prior three years been employed by, a partner in or otherwise affiliated with any law firm or investment bank in which the director’s or the immediate family member’s compensation was contingent on the services performed for the Company or in which the director or the immediate family member personally performed services for the Company and the annual fees paid by the Company during the preceding fiscal year exceeded the greater of $1 million or 2% of the gross annual revenues of such firm; or |
· | | has, or has an immediate family member who has, within the prior three years owned, either directly or indirectly as a partner, shareholder or officer of another company, more than 5% of the equity of an organization that has a material business relationship with (including significant purchasers of goods or services), or more than 5% ownership in, the Company. |
•has within the prior three years been a director, executive officer or trustee of a charitable organization that received annual contributions from the Company exceeding the greater of $1 million or 2% of the charitable organization's annual gross revenues, where the gifts were not normal matching charitable gifts, did not go through normal corporate charitable donation approval processes or were made "on behalf of" a director; •has, or has an immediate family member who has, within the prior three years been employed by, a partner in or otherwise affiliated with any law firm or investment bank in which the director's or the immediate family member's compensation was contingent on the services performed for the Company or in which the director or the immediate family member personally performed services for the Company and the annual fees paid by the Company during the preceding fiscal year exceeded the greater of $1 million or 2% of the gross annual revenues of such firm; or •has, or has an immediate family member who has, within the prior three years owned, either directly or indirectly as a partner, shareholder or officer of another company, more than 5% of the equity of an organization that has a material business relationship with (including significant purchasers of goods or services), or more than 5% ownership in, the Company. 20INOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
Independence Determination In connection with their annual independence review, the Board and Governance Committee considered the following relationships with organizations to which we have made payments or from which we have received payments in the usual course of our business in 2017.· | | Mr. Fazio’s service as a member of the board of directors of the Center for Strategic and Budgetary Assessments; |
· | | Mr. Felsinger’s service as a member of the board of directors of Archer-Daniels-Midland; |
· | | Mr. Gordon’s service as a member of the board of directors of CBS Corporation; |
· | | Mr. Hernandez’s service as a member of the board of directors of Black Box Corporation; |
· | | Admiral Roughead’s service as a member of the board of directors of the Center For a New American Security and a member of the board of managers of Johns Hopkins University Applied Physics Lab; and |
· | | Mr. Turley’s service as a member of the board of directors of Citigroup. |
2020. •Mr. Abney's service as a member of the Board of Directors of United Parcel Service; •Ms. Brown's service as a member of the Board of Directors of VMWare; •Ms. Fudge's service as a trustee of the Brookings Institution; •Mr. Hernandez's service as a member of the Board of Directors of Albemarle Corporation; •Admiral Roughead's service as a trustee of Johns Hopkins University and a member of the Board of Managers of Johns Hopkins University Applied Physics Laboratory; •Mr. Schoewe's service as a member of the Board of Directors of General Motors; •Mr. Turley's service as a member of the Board of Directors of Citigroup; and •General Welsh's service as a member of the Board of Directors of the Air Force Association and the Board of Trustees of the Falcon Foundation. The Board of Directors considered that Mr. Fazio, Abney, Ms. Fudge, Mr. Gordon, Ms. Kleiner, Mr. Krapek,Admiral Roughead, Mr. Turley and General Welsh serveserved as members of the boards of or are otherwise affiliated with, organizations to which the Company and/or the Northrop Grumman Foundation (Foundation) made contributions during 20172020 in the usual course of our charitable contributions program, as well as in connection with our matching gifts program (which limits the contributions to $10,000 per year per director). The amounts paid were below the applicable thresholds under NYSE rules and our Principles of Corporate Governance. In addition, the Board considered that Mr. Fazio’s daughter is employed by us in anon-executive position. Her compensation is below the threshold required for disclosure by the SEC, and the Board determined that her employment does not interfere with Mr. Fazio’s independence. Following its review and the recommendation of the Governance Committee, the Board affirmatively determined that all of the directors, except Mr. Bush,Ms. Warden, are independent. The independent directors constitute approximately 92% of the members of our Board. The Board previously determined that General Richard B. Myers, who served as a director until his retirement from the Board effective the date of the 2017 Annual Meeting, was independent during the time he was a director. Director Election Process
Our Bylaws and Certificate of Incorporation provide for the annual election of directors. Each director will hold office until the next annual meeting of shareholders or until his or her earlier resignation or removal. Generally, in order to be elected, a director must receive more votes cast “for” than “against” his or her election, unless one or more shareholders provide notice of an intention to nominate one or more candidates to compete with the Board’s nominees for election in accordance with the procedures set forth in the Company’s corporate governance documents.
Board Composition and Director Nominations
| | | | Board Composition and Director Nominations |
The Governance Committee actively considers the composition and diversity of the Board to ensure it is well positioned to serve the best interests of the Company and ourits shareholders. The Governance Committee regularly assesses what skills, experiences and experiencesother attributes can best contribute to the effective operation of the Board, particularly in light of potential retirements and the evolving needs of the Company. The Committee also seeks to balance experience and new perspectives. The Governance Committee identifies director candidates from a wide range of sources and may employoften employs a third-party search firm to assist in the process. The Governance Committee evaluates potential director candidates on the basis of the candidate’scandidate's background, qualifications and experience. The Governance Committee carefully considers whether each potential candidate would be able to fulfill his or her duties to the Company consistent with Delaware law and the Company’s governing documents, including the Principles of Corporate Governance.Governance and security requirements. The Committee recommends to the full Board nominees for election. Shareholders may recommend director candidates for consideration by the Governance Committee pursuant to our Principles of Corporate Governance. The Governance Committee considers such director candidates recommended by shareholders similarly to other potential director candidates brought to the attention of the Governance Committee. Shareholder recommendations for director candidates under our Principles of Corporate Governance must be addressed to the Governance Committee in care of the Corporate Secretary. In addition, and as discussed immediately below, shareholders may also directly nominate director candidates in accordance with our Bylaws. 18 |
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 21
The Board carefully considered and adopted a strong and balanced proxy access framework
For more than a year,
Proxy Access In 2015, the Board carefully considered the issue of proxy access. The Board and management engaged extensively with shareholders and monitored developments and best practices regarding proxy access. Management solicited and received input from shareholders, our customers and other stakeholders. The Board amended our Bylaws explicitly to provide our shareholders the right to nominate directors through access to our proxy access, reflecting this extensive considerationmaterials. The Board did so consistent with and to reflect shareholder input. Under the Company’s proxy access bylaws, a shareholder, or a group of up to 20 shareholders, that has maintained continuous ownership of 3% or more of the Company’sCompany's outstanding common stock for at least three years may include in the Company’sCompany's proxy materials director nominees constituting up to the greater of two nominees or nominees constituting 20% of the number of directors in office. Director nominees may receive compensation from third parties for their candidacy, up to the total annual compensation paid to directors of the Company, as well as reimbursement for reasonable expenses, provided there is full disclosure of such compensation. Under the Company’s proxy access bylaw provisions, directors are treated similarly, whether nominated through proxy access or otherwise, and held to the same high fiduciary standards to serve all shareholders. The Company’sCompany's Bylaws provide our shareholders with broad and meaningful access to the Company’s proxy materials while enhancing transparency, protecting the interests of all shareholders and ensuring good governance. The terms of the Company’s proxy access bylaw provisions are also broadly consistent with the terms of proxy access bylaws adopted by other Fortune 500 companies, reflecting best practices. Director Qualifications
| | | | Director Election Process |
Our Bylaws and Certificate of Incorporation provide for the annual election of directors. Each director will hold office until the next annual meeting of shareholders or until his or her earlier resignation or removal. Generally, in order to be elected, a director must receive more votes cast "for" than "against" his or her election, unless one or more shareholders provide notice of an intention to nominate one or more candidates to compete with the Board's nominees for election in accordance with the procedures set forth in the Company's corporate governance documents. The Governance Committee is responsible for establishing the criteria for Board membership. In nominating directors, the Governance Committee bears in mind that the foremost responsibility of a director is to represent the interests of our shareholders as a whole. The activities and associations of candidates are reviewed for any legal impediment, conflict of interest or other consideration that might prevent or interfere with service on our Board. In evaluating candidates, the Governance Committee considers: · | | the personal integrity and the professional reputation of the individual; |
· | | the education, professional background and particular skills and experience most beneficial to service on our Board; |
· | | how the nominee brings diversity, experience and skills valuable to the Company and Board at the time; and |
· | | whether a director candidate is willing to submit to and obtain a background check necessary for obtaining and retaining a top secret security clearance. |
•the personal integrity and the professional reputation of the individual; •the education, professional background and particular skills and experience most beneficial to service on our Board; •how the nominee brings diversity, experience and skills valuable to the Company and Board at the time; and •whether a director candidate is willing to submit to and obtain a background check necessary for obtaining and retaining a top secret security clearance. In evaluating director candidates, the Governance Committee aims to foster diversity of thought on our Board. The Governance Committee seeks to achieveensure diversity, including in race and gender, as well as in perspective, professional experience, education, skill and other qualities that contribute to our Board and the long-term interests of our Company and shareholders. Director Orientation and Continuing Education
| | | | Director Orientation and Continuing Education |
All new directors to the Board receive in-person orientation and training that is individually tailored, taking into account the director’sdirector's experience, background, education and committee assignments. The orientation program is led by members of senior management and covers a review of our strategy and operating plans, financial statements, corporate governance and key policies and practices, as well as the roles and responsibilities of our directors. All directors receive regular in-person training onregarding our Company policies and procedures.procedures, and broad exposure to our operations and the teams. Members of senior management regularly review with the Board the operating plan for each of our business sectors and the Company as a whole. The Board also conducts periodic site visits to our facilities as part of its regularly scheduled Board meetings. These visits allow directors to interact with a broader group of our executives and employees and gain firsthand insights into our operations. 22INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
Directors may also attend outside director and other continuing education programs to assist them in staying current on developments in corporate governance, our industry, the global environment and issues critical to the operation of public company boards. NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT|19
| | | CORPORATE GOVERNANCE
Board Membership and External Relationships |
Board Membership and External Relationships
Directors are required to ensure that their other commitments, including for example, other board memberships, employment, partnerships and consulting arrangements, do not interfere with their duties and responsibilities as members of the Board. Directors must provide notice to the General Counsel prior to accepting an invitation to serve on the board of any other organization or agreeing to other new commitments that could interfere with their duties and responsibilities as a member of the Board, and the General Counsel will adviseadvises the ChairpersonChairman of the Governance Committee (or the ChairpersonChairman of the Board, if notice is from the ChairpersonChairman of the Governance Committee). A director should not accept service on such other boardthe new commitment until being advised by the ChairpersonChairman of the Governance Committee (or ChairpersonChairman of the Board, as appropriate) that such engagement will not unacceptably create conflicts of interest or regulatory issues, conflict with Company policies or otherwise interfere with the director’sdirector's duties and responsibilities as a member of the Board. Directors are also required promptly to inform the General Counsel if an actual or potentiala conflict of interest arises, or they are concerned that a conflict may arise or circumstances could otherwise interfere with their duties and responsibilities as a director. Directors shouldare required to seek to avoid even an appearance of aan improper conflict of interest. Directors may not serve on more than three other boards of publicly traded companies in addition to our Board without the written approval of the ChairpersonChairman of the Governance Committee (or ChairpersonChairman of the Board, as appropriate). A director who is a full-time employee of our Company may not serve on the board of more than twoone other public companiescompany unless approved by the Board. When a director’sdirector's principal occupation or business association changes substantially during his or her tenure as a director, the Board expects the director to tender his or her resignation for consideration by the Governance Committee, which subsequently will recommend to the Board what action to take. We have a retirement policy whereby a director will retire at the annual meeting following his or her 75th birthday, unless the Board determines, based on special circumstances, that it is in the Company’sCompany's best interest to request that the director serve beyond such date. Effect of Failure to Receive the Required Vote or Obtain and Retain Security Clearance
| | | | Effect of Failure to Receive the Required Vote or Obtain and Retain Security Clearance |
Each director is required to tender a resignation that will be effective upon (i) the failure to receive the required vote at any future meeting at which such director faces re-election, the failure to obtain top secret security clearance within 12 months of election or appointment to the Board or the failure to retain a top secret security clearance once obtained and (ii) the Board’sBoard's acceptance of such resignation. If an incumbent director fails to receive the required vote for re-election or fails to obtain and retain a top secret security clearance, the Governance Committee will consider whether the Board should accept the director’sdirector's resignation and will submit a recommendation for prompt consideration by the Board. The Board will decide whether to accept or reject a resignation within 90 days, unless the Board determines that compelling circumstances require additional time. The Governance Committee and the Board may consider any factor they deem relevant in deciding whether to accept a resignation, including, without limitation, any harm to our Company that may result from accepting the resignation, and the underlying reasons for the action at issue. Board and Committee Self-Evaluation
The Board and each Committee conductconducts annually a thorough self-assessment process. processes at the full board level, within each committee, and at the individual director level. These processes are intended to ensure and enhance the effective operation of the Board. The self-assessment of the full Board is overseen by the Governance Committee. As part of this assessment, the Lead Independent Director and ChairpersonChairman of the Governance Committee facilitate a broad discussion of Board performance, held in executive session. Among other topics, the Board considers: · | | the Board’s effectiveness in evaluating and monitoring the Company’s business plan, long-term strategy and risks; |
· | | whether strategic and critical issues are being addressed by the Board in a timely manner; |
· | | whether the Board’s expectations and concerns are openly communicated to and discussed with the Chief Executive Officer; |
· | | whether there is adequate contact between the Board and members of senior management; |
· | | whether the directors collectively operate effectively as a Board; |
· | | whether the individual directors have the appropriate mix of attributes and skills to fulfill their duties as directors of the Company; |
· | | whether there are adequate opportunities to raise questions and comments on issues, both inside and outside of Board meetings; |
20 •the Board's effectiveness in evaluating and monitoring the Company's business plan, long-term strategy and risks;
|•whether strategic and critical issues are being addressed by the Board in a timely manner;
•whether the Board’s expectations and concerns are openly communicated to and discussed with the Chief Executive Officer; •whether there is adequate contact between the Board and members of senior management; •whether the directors collectively operate effectively as a Board; NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 23
· | | whether the Board has focused adequately on succession planning; and |
· | | whether the Board is adequately responsive to shareholder communication. |
•whether the individual directors have the appropriate mix of attributes and skills to fulfill their duties as directors of the Company; •whether there are adequate opportunities to raise questions and comments on issues, both inside and outside of Board meetings; •whether the Board has focused adequately on succession planning; and •whether the Board is adequately responsive to shareholder communication. Following this review, the Board discusses the results and identifies opportunities for improvement, including any necessary steps to implement such improvements. Also as part
Each of the annual self-assessment process, each director completes an individual director evaluation for each of the other directors. These assessments include, among other topics, each director’s:· | | understanding of the Company’s overall business and risk profile and its significant financial opportunities and plans; |
· | | engagement during meetings and other board functions; |
· | | analysis of benefits and risks of courses of action considered by the Board; and |
· | | appropriate respect for the views of other Board members. |
The Lead Independent Director or the Chairperson of the Governance Committee meets with each director individually to discuss the results of his or her assessment, including comments provided by other directors. The Lead Independent Director or the Chairperson of the Governance Committee reports generally on the overall results of these discussions to the Board in executive session. These evaluations assist the Governance Committee with its recommendation for directors to be renominated for election to the Board of Directors.
In addition, each of the Committees also conducts an annual self-assessment. During an executive session led by the Committee chairperson, theeach Committee discusses, among other topics: whether the quality of participation and discussion at the Committee meetings is effective in facilitating the Committee’s obligations under its charter; the opportunity to engage in strategic discussion; and whether the Committee is covering the right topics in the right amount of detail. Following this discussion, the Committee develops and implements a list of action items, as appropriate.
Succession Planning
Also as part of the annual self-assessment process, each non-employee director completes an individual director evaluation for each of the other non-employee directors. These assessments include, among other topics, each non-employee director’s: •understanding of the Company’s overall business and risk profile and its significant financial opportunities and plans; •engagement during meetings and other Board functions; •analysis of benefits and risks of courses of action considered by the Board; and •appropriate respect for the views of other Board members. The Lead Independent Director or the Chairman of the Governance Committee meets with each non-employee director individually to discuss the results of his or her assessment, including comments provided by other non-employee directors. The Lead Independent Director or the Chairman of the Governance Committee reports generally on the overall results of these discussions to the Board in executive session. These evaluations also assist the Governance Committee with its recommendation for directors to be renominated for election to the Board of Directors. The Board believes that providing for strong and effective continuity of leadership is critical to the success of our Company. Therefore,The Board commits significant resources to succession planning, with processes are in place:place for the Board:•to evaluate the Chief Executive Officer annually based on a specific set of performance objectives; •to work with the Chief Executive Officer to support and ensure the development of potential succession candidates for the Chief Executive Officer and other leadership positions; •to discuss with the Chief Executive Officer annually an assessment of persons considered potential successors to various senior management positions; and •robustly to consider, plan for and ensure successful transitions of leadership. · | | to evaluate the Chief Executive Officer annually based on a specific set | Departure and Election of performance objectives;Directors |
· | | for the Chief Executive Officer annuallyOn June 10, 2020, David P. Abney was elected to provide an assessment of persons considered potential successors to various senior management positions and discuss the results of these reviews with the Board; and |
· | | to support continuity of top leadership and Chief Executive Officer succession, including through annual reports to the Board. |
Departure and Election of Directors
General Richard B. Myers, a director who served during 2017, did not stand forre-election at the 2017 Annual Meeting and retired from the Board effective the date of the 2017 Annual Meeting.
Board. In accordance with the retirement policy described above, Mr. Fazio,Gordon, a director who served during 2017,2021, will not stand for re-election at the 20182021 Annual Meeting, as he will have attained his 75th birthday prior to the Annual Meeting. Upon Mr. Fazio’s retirement, theThe Board intends to reduce the number of members on the Board from 13 to 12 members. Communications with the Board of Directors
directors effective upon Mr. Gordon's retirement.
24INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | | Communications with the Board of Directors |
Any interested person may communicate with any of our directors, our Board as a group, ournon-employee directors as a group or our Lead Independent Director through the Corporate Secretary by writing to the following address:Office of the Corporate Secretary, Northrop Grumman Corporation, 2980 Fairview Park Drive, Falls Church, Virginia 22042. The Corporate Secretary will forward correspondence to the director or directors to whom it is addressed, except for job inquiries, surveys, business solicitations or advertisements and other inappropriate material. The Corporate Secretary may forward certain correspondence elsewhere within our Company for review and possible response. The Board has met with, and looks forward to the opportunity to meet with, interested shareholders to address concerns and to receive input. NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT|21
Interested persons may also report any concerns relating to accounting matters, internal accounting controls or auditing matters tonon-management directors (including anonymously) by writing directly to the ChairpersonChairman of the Audit Committee,Northrop Grumman Board of Directors c/o Corporate Ethics Office, 2980 Fairview Park Drive, Falls Church, Virginia 22042. Corporate Responsibility and Sustainability
| | | | Corporate Responsibility and Sustainability |
Corporate responsibility and sustainability are critical to our business and long-term value creation for our shareholders, customers, employees, communities and employees.suppliers. Our strong culture — founded in ethics, integrity, diversity, equity and inclusion, and focused on enduring performance, innovation, accountability effective governance and responsible citizenshiplong-term profitable growth — enables our success. Strong environmental, social and governance (ESG) programs and practices help us attract and maintainretain the best talent, perform for our customers, serve as responsible corporate citizens in the communities we operate, and create long-term value for our shareholders.The Policy Committeestakeholders. We are particularly proud of our longstanding focus on and commitment to diversity, equity and inclusion.
Our Board of Directors provides leadership and oversight with respect to ESG practices, and regularly receives reports from management on these issues. The Policy Committee reviews, monitors and provides oversight of the Company's policies and programs for ethics and standards of business conduct, corporate responsibility, environmental matters, human rights, employee health and safety, and corporate citizenship and charitable programs. The Governance Committee oversees matters related to corporate governance, the board and shareholder rights, and our ESG practices.corporate culture. The Compensation Committee provides oversight of compensation programs and the Company's management of its human capital, including the Company's focus on diversity, equity and inclusion. The full Board regularly receives reports from the Committees and management, meets with employees across our policiesbusiness, and programsaddresses in depth a full range of issues referred to broadly as sustainability. The Enterprise Risk Management Council also reviews risks related to both corporate responsibility and sustainability, including risks related to climate change and regularly reviews our community relations activities, amongnatural disasters that may affect operations, especially in regions prone to hurricanes, earthquakes, damaging storms and other responsibilities. We engage with a variety of stakeholders and regularly obtain feedback on our ESG performance.In 2017, we published our ninth annualnatural disasters.
Our commitment to strong corporate responsibility report (CRR). Usingand sustainability is demonstrated by the GRI G4 Sustainability Reporting Guidelines, we continued to report to our stakeholders on our progress in meeting various environmental, social and governance performance indicators. You may view a copyincorporation of our annual CRR atcrreport.northropgrumman.com. For the seventh consecutive year, we incorporatednon-financial sustainability ESG performance metrics into our annual incentive compensation program. See page 4150 in the Compensation Discussion and Analysis section. We engage with a variety of stakeholders — including shareholders, employees, customers and community advocates — and regularly obtain feedback on our ESG performance. As a responsible corporate citizen, we understand the importance of environmental stewardship for local and global communities and we recognize the role we must play in protecting our planet. By managing and reducing our environmental footprint, we improve operational efficiencies, realize long-term cost savings and enhance our understanding of climate-related risks and opportunities. In 2020, we took bold steps on renewable energy and completed the last year of our 2020 Environmental Sustainability Goals. Our Sustainability Report provides our stakeholders detailed information on various ESG programs, goals, and achievements. The report, our ESG Performance Data Matrix, and other ESG-related disclosures are available at https://www.northropgrumman.com/corporate-responsibility/reports-disclosures/. We are proud that our corporate responsibility and sustainability programs received various notable recognitions in 2017.2020. They include: · | | earning a leadership score ofA- in CDP’s 2017 climate change program for the sixth consecutive year; |
· | | earning an A rating from MSCI for environmental, social and governance management and performance; |
· | | being named to the Dow Jones Sustainability North America Index for the second consecutive year; and |
· | | being named one of DiversityInc’s Top 50 Companies for Diversity for the eighth year in a row. |
22 •Dow Jones Sustainability North America Index for the fifth consecutive year;
|•an AA rating from MSCI for environmental, social and governance management and performance;
•achieved a perfect score on the CPA-Zicklin Index of Corporate Political Disclosure and Accountability; •named as one of Corporate Responsibility Magazine's 100 Best Corporate Citizens; NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 25
•one of DiversityInc's Top 50 Companies for Diversity for the 11th year in a row as well as a top company for veterans and people with disabilities, employee resource groups, executive diversity councils, philanthropy and ESG; •named as one of Equileap’s top 25 companies on the S&P 500 for gender equality; •named as one of the top 10 industry supporters for engineering programs at HBCUs by Career Communications Group, Inc.; •received the highest ranking for the sixth year in a row on the Disability Equality Index and named a “Best Place to Work For Disability Inclusion”; •achieved a perfect score on the Corporate Equality Index and designated a “Best Place to Work for LGBTQ Equality”; •named as one of the 2020 Best of the Best Top Supplier Diversity Programs and Top Veteran-Friendly Employers by U.S. Veterans magazine; •received the Pledge to America’s Workers Presidential Award, highlighting our workforce development program, and Northrop Grumman subsidiary Park Air Systems Limited achieved Platinum accreditation for Investors in People, a national standard of good practice for people management; and •a leadership score of A- in CDP’s 2020 climate change program for the ninth consecutive year. 26INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
Northrop Grumman is committed to maintaining a strong culture with a deep respect for individuals and human rights. We have adopted numerous policies, procedures and practices to reflect and implement this broad commitment. The Company enhanced its Human Rights Policy last year to reflect better the Company's commitment. (The Policy is available on the Company's website at https://www.northropgrumman.com/corporate-responsibility/northrop-grumman-human-rights-policy/). The Company has also established a Human Rights Working Group to help ensure our human rights program is being implemented effectively and achieving our goals. The Board of Directors oversees the Company's commitment to human rights. The Policy Committee has specific responsibility to provide oversight of the Company's human rights program, including reviewing and making recommendations for enhancements, as appropriate. The Policy Committee receives reports from our Vice President, Global Corporate Responsibility, and our Corporate Vice President and General Counsel, who is chair of the Human Rights Working Group, on how we are implementing our Human Rights Policy and to discuss any areas of concern. The Company’s Human Rights Policy starts with our culture and core values, including our commitment to ethics and integrity, treating everyone with respect, valuing diversity and equity, and fostering safe and inclusive environments. We work hard to nurture a culture in which each person can thrive. The Human Rights Policy makes clear our commitment to people, including our respect for the rights of employees to work in a positive work environment that treats employees with respect and dignity. As an employer, the Company strives to provide a culture where the differing points of view that we each bring to the workplace challenge us to think more broadly and enhance the overall results. The Company has 14 employee resource networks with 25,000 diverse colleagues participating that inform and implement strategies and initiatives that align with the Company's business goals and its values. The Company does not tolerate any discrimination in employment based on an individual’s protected status. We do not tolerate the use of child labor, forced labor, bonded labor, human trafficking or any other such violations of human rights. We respect the privacy of employees and business partners who trust us with their personal information. The Human Rights Policy addresses explicitly the Company's supply chain, making clear both that we treat our suppliers with respect and dignity, and that we require our suppliers to follow similar policies protecting human rights. We require suppliers to adhere to a detailed Supplier Code of Conduct, which articulates our requirement for ethical conduct and social responsibility at all tiers of our supply base. The Supplier Code of Conduct specifically requires our suppliers to protect the rights of workers and prohibits the use of forced labor of any kind. Before entering into supply agreements, we undertake due diligence on potential suppliers to assess whether they will be able to meet our requirements, and we continue to monitor their performance during the contract period. The Human Rights Policy also addresses various processes the Company follows to consider a wide range of potential risks – including risks to human rights – as it develops products and determines whether to undertake certain business opportunities. For example, the Company has robust procedures to help ensure we do not do business in countries or sell products to customers that are not properly approved by our government, or, even if permissible, where the risk – to human rights or, more broadly, the reputation of the Company – is too significant. The Company is mindful of both intended and unintended uses of its products. The Company may exit programs and/or decline to pursue others because of concerns related to potential impacts on human rights. For Northrop Grumman and its employees, being a good corporate citizen means improving the lives of the people in the communities where we live and work. As the Human Rights Policy makes clear, we invest in our communities, supporting a wide range of activities and causes around the globe. Our current efforts are focused on issues of education/STEM, diversity, equity and inclusion, human dignity, veterans and environmental stewardship, to name a few. As noted above, the Human Rights Policy provides for a Human Rights Working Group, tasked to help ensure that our Human Rights Policy is being implemented effectively and achieving our goals. The Working Group is led by the Company’s General Counsel (or her designee) and includes senior representatives from, among others, the Office of Global Corporate Responsibility, Global Supply Chain, Investor Relations, Contracts, EHS, Global Business Office, Government Relations, Communications and our Sectors. The Human Rights Policy provides employees with various well-defined reporting channels when they believe there may have been a violation of the Policy. Concerns are investigated and corrective actions are taken. The Policy is also reinforced through communications and with robust training. Our Sustainability Report provides additional background and information on our human rights programs. We have a strong corporate culture, which is founded in ethics and integrity and respect. We value diversity, equity and inclusion and generate trust. We work together to deliver on our commitments to our customers, employees, shareholders and those with whom we work. Our culture is focused on breaking barriers and doing what others think is impossible. We are responsible NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 27
environmental stewards and seek to give back to the communities in which we operate. Our culture enables long-term profitable growth and value creation for our shareholders and other stakeholders, while also maintaining a focus on safety and sustainability. As discussed previously on page 14, we recently restated the values that guide our Company and provide the foundation for our culture. We all have a shared responsibility to maintain and enhance those values and our culture. We work to ensure our employees feel that it is safe to speak up, to challenge how things are done and raise concerns without fear of retribution. There are many avenues to report concerns, including through one's manager, to ethics officers or members of our human resources and law departments, or through the OpenLine reporting system, which give employees, business partners, suppliers and other stakeholders resources to seek guidance on ethics questions or report suspected violations of law or Company policy. The Company promotes giving back to the community. The Company continually strives to be a good corporate citizen and encourages volunteerism, including honoring employees who have demonstrated commitment to volunteerism. The Company annually contributes to numerous charitable organizations, including those with a focus on STEM education and veterans. During 2020, amidst the COVID-19 pandemic and drive for greater social justice, we focused in particular on keeping our employees safe as we continued to serve our customers and stakeholders, helping those most in need, and advancing social justice across our Company and our communities. The Company, our Foundation and our employees, individually and together, contributed time, skill and financial resources. We contributed to global, national and local efforts supporting healthcare, addressing food insecurity, advancing opportunity for all and increasing student access to technology, combating systemic discrimination, providing disaster relief, and serving some of our most vulnerable populations. Management establishes and reinforces the Company's culture, and our Board and its Committees are actively engaged in providing oversight. The Board is committed to sustaining and enhancing the Company's strong culture with an engaged, diverse and inclusive workforce. The Company conducts an annual employee engagement survey, which gives our employees the opportunity to provide feedback on our Company culture. This survey is managed by a third-party vendor to encourage candor and solicit feedback on many aspects of engagement, including how our employees perceive Company leadership, and issues of accountability, inclusion and career development. The results of this survey are reported to and discussed with the full Board annually. The Board also meets regularly with employees at all levels to reaffirm the health of our culture. The Board meets with employees during site visits that are a critical part of Board meetings, and also during "Sector Days," when our directors visit the operations without members of senior leadership present. Members of our Board also often share their time by generously participating as speakers in Company leadership programs. The Committees of the Board oversee elements of the Company's culture associated with their respective area of responsibility. The Audit and Risk Committee reviews and discusses the Company's global compliance policies and programs with our General Counsel and Chief Compliance Officer, including the tone set by leaders throughout the organization, and meets quarterly with our Vice President, Global Corporate Responsibility to receive a report on issues that are received through the Company's OpenLine reporting system. The Compensation Committee reviews with the Chief Human Resources Officer the Company's human capital management, monitors policies and practices with respect to diversity and equal employment opportunity, and reviews a risk assessment of the Company's compensation programs. The Governance Committee provides the board oversight of the Company's corporate culture, with a focus on governance-related risks. The Policy Committee receives at least annually a report from our Vice President, Global Corporate Responsibility regarding our ethics and corporate responsibility programs, including our Standards of Business Conduct, and reviews and monitors practices with respect to sustainability and environmental matters, human rights, health and safety, and charitable organizations. 28INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | COMPENSATION OF DIRECTORS |
The Compensation Committee, with the assistance of its independent compensation consultant, is responsible for reviewing and recommending for approval the compensation of the non-employee directors. At the request of the Compensation Committee, the independent compensation consultant prepares annually a comprehensive benchmarking of our non-employee director compensation program against the compensation programs offered by our Target Industry Peer Group (the same peer group against which executive compensation is compared). Consistent with this benchmarking, the overarching approach for non-employee director compensation is to target approximately the 50th percentile of the Target Industry Peer Group.Group and to align our director compensation with our shareholders' interests. In May 2017,2019, the Compensation Committee recommended to the Board, and the Board approved, the current non-employee director fee structure, effective May 17, 2017.15, 2019. In May 2020, the Compensation Committee recommended to the Board, and the Board approved, maintaining the current non-employee director fee structure. There was no increase to director compensation in 2020. The table below lists the annual fees payable to our non-employee directors from January 1, 2017 to May 16, 2017 under the prior fee structure and the annual fees payable under the current fee structure effective since May 17, 2017. | | | | | | | | | | | Compensation Element | | Amount ($) (1/1/17 - 5/16/17) | | Amount ($) (5/17/17 - 12/31/17) | Annual Cash Retainer | | | | 122,500 | | | | | 122,500 | | Lead Independent Director Retainer | | | | 35,000 | | | | | 35,000 | | Audit Committee Retainer | | | | 10,000 | | | | | 10,000 | | Audit Committee Chair Retainer | | | | 20,000 | | | | | 20,000 | | Compensation Committee Chair Retainer | | | | 20,000 | | | | | 20,000 | | Governance Committee Chair Retainer | | | | 15,000 | | | | | 15,000 | | Policy Committee Chair Retainer | | | | 7,500 | | | | | 7,500 | | Annual Equity Grant (1) | | | | 145,000 | | | | | 150,000 | |
| | | | | | | | | | | | | | | | | |
Compensation Element | | | Amount ($) | | | Annual Cash Retainer | | | 130,000 | | | Lead Independent Director Retainer | | | 35,000 | | | Audit and Risk Committee Retainer | | | 10,000 | | | Audit and Risk Committee Chair Retainer | | | 20,000 | | | Compensation Committee Chair Retainer | | | 20,000 | | | Governance Committee Chair Retainer | | | 20,000 | | | Policy Committee Chair Retainer | | | 20,000 | | | Annual Equity Grant (1) | | | 160,000 | | | | | | | | (1) | The annual equity grant is deferred into a stock unit account pursuant to the 2011 Long-Term Incentive Stock Plan (2011 Plan) as described below. The Northrop Grumman Equity Grant Program forNon-Employee Directors (Director Program) sets forth the terms and conditions of the equity awards granted tonon-employee directors under the 2011 Plan. | |
Retainer fees are paid on a quarterly basis at the end of each quarter. To encourage directors to have a direct and material investment in shares of our common stock, non-employee directors are awarded an annual equity grant of $150,000$160,000 in the form of deferred stock units (Automatic Stock Units). The Director Program was amended and restated effective January 1, 2016 (the Amended Director Program). DirectorsNon-employee directors other than Mr. Abney received an annual equity grant of Automatic Stock Units on May 18, 2016,15, 2019, which vested on May 18, 2017,15, 2020, and received an annual equity grant of Automatic Stock Units on May 17, 2017,20, 2020 which will vest on May 20, 2021. Mr. Abney received an annual equity grant of Automatic Stock Units upon his election to the one year anniversary of the grant date.Board on June 10, 2020 which will vest on May 20, 2021. Under the Amended Director Program, directors may elect to have all or any portion of their Automatic Stock Units paid on (A) the earlier of (i) the beginning of a specified calendar year after the vesting date or (ii) their separation from service as a member of the Board, or (B) the vesting date. Directors may elect to defer to a later year all or a portion of their remaining cash retainer or committee retainer fees into a stock unit account as Elective Stock Units or in alternative investment options. Elective Stock Units are awarded on a calendar quarterly basis. Directors may elect to have all or a portion of their Elective Stock Units paid on the earlier of (i) the beginning of a specified calendar year or (ii) their separation from service as a member of the Board. Stock units awarded under the Amended Director Program will be paid out in an equivalent number of shares of our common stock. Deferral elections are made prior to the beginning of the year for which the retainer fees will be paid. Directors are credited with dividend equivalents in connection with the accumulated stock units until the shares of common stock related to such stock units are issued. Non-employee directors are eligible to participate in our Matching Gifts Program for Education. Under this program, the Northrop Grumman Foundation matches director contributions, up to $10,000 per year per director, to eligible educational programs in accordance with the program. Stock Ownership Requirements and Anti-Hedging and Pledging Policy
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 29
| | | COMPENSATION OF DIRECTORS
|
| | | | Stock Ownership Requirements and Anti-Hedging and Pledging Policy |
Non-employee directors are required to own common stock of the Company in an amount equal to five times the annual cash retainer, with such ownership to be achieved within five years of the director’sdirector's election to the Board. Deferred stock units and Company stock owned outright by the director count towards this requirement. Anti-Hedging and Pledging Policy Company policy prohibits members ofour directors, NEOs, other elected and appointed officers, designated employees who are subject to specific preclearance procedures under the Board of DirectorsCompany’s insider trading policy and any other employees who receive performance-based compensation, from engaging in hedging, pledging or other specified transactions. Specifically, this policy prohibits such persons from: engaging in hedging or derivative transactions, such as “cashless” collars, forward contracts, equity swaps or other similar or related transactions; entering into margin transactions involving Company stock; pledging Company securities as collateral for loans or other transactions; trading in puts, calls, options, warrants or other similar derivative instruments involving Company securities; or engaging in hedging transactions with respect to anyshort sales of their Company stock, continuing to align the interests of our Board of Directors with those of our shareholders. securities. None of the shares of Company common stock held by our directors are pledged or subject to any hedging transaction. 30INOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
|
23
| | | COMPENSATION OF DIRECTORS
|
2017 Director Compensation
| | | | 2020 Director Compensation |
The table below provides information on the compensation of our non-employee directors for the year ended December 31, 2017. | | | | | | | | | | | | | | | | | | | | | Name | | Fees Earned or
Paid in Cash (1)
($) | | Stock Awards (2)
($) | | All Other
Compensation (3)
($) | | Total ($) | Marianne C. Brown | | | | 132,500 | | | | | 150,000 | | | | | 177 | | | | | 282,677 | | Victor H. Fazio | | | | 132,500 | | | | | 150,000 | | | | | 25,690 | | | | | 308,190 | | Donald E. Felsinger | | | | 157,500 | | | | | 150,000 | | | | | 17,307 | | | | | 324,807 | | Ann M. Fudge | | | | 132,500 | | | | | 150,000 | | | | | 8,073 | | | | | 290,573 | | Bruce S. Gordon | | | | 130,000 | | | | | 150,000 | | | | | 17,086 | | | | | 297,086 | | William H. Hernandez | | | | 152,500 | | | | | 150,000 | | | | | 447 | | | | | 302,947 | | Madeleine A. Kleiner | | | | 147,500 | | | | | 150,000 | | | | | 17,022 | | | | | 314,522 | | Karl J. Krapek | | | | 142,500 | | | | | 150,000 | | | | | 19,287 | | | | | 311,787 | | Richard B. Myers (4) | | | | 30,625 | | | | | — | | | | | 2,517 | | | | | 33,142 | | Gary Roughead | | | | 122,500 | | | | | 150,000 | | | | | 1,500 | | | | | 274,000 | | Thomas M. Schoewe | | | | 122,500 | | | | | 150,000 | | | | | 2,027 | | | | | 274,527 | | James S. Turley | | | | 132,500 | | | | | 150,000 | | | | | 155 | | | | | 282,655 | | Mark A. Welsh III | | | | 132,500 | | | | | 150,000 | | | | | 13 | | | | | 282,513 | |
2020. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | Fees Earned or Paid in Cash (1)
($) | | Stock
Awards (2)
($) | | All Other
Compensation (3)
($) | | Total
($) | | David P. Abney | | 77,700 | | 150,400 | | 3 | | 228,103 | | Marianne C. Brown | | 136,125 | | 160,000 | | 11,402 | | 307,527 | | Donald E. Felsinger | | 165,000 | | 160,000 | | 34,479 | | 359,479 | | Ann M. Fudge | | 140,000 | | 160,000 | | 10,740 | | 310,740 | | Bruce S. Gordon | | 130,000 | | 160,000 | | 34,814 | | 324,814 | | William H. Hernandez | | 160,000 | | 160,000 | | 1,835 | | 321,835 | | Madeleine A. Kleiner | | 153,875 | | 160,000 | | 19,446 | | 333,321 | | Karl J. Krapek | | 130,000 | | 160,000 | | 28,143 | | 318,143 | | Gary Roughead | | 150,000 | | 160,000 | | 4,217 | | 314,217 | | Thomas M. Schoewe | | 150,000 | | 160,000 | | 5,303 | | 315,303 | | James S. Turley | | 140,000 | | 160,000 | | 10,830 | | 310,830 | | Mark A. Welsh III | | 140,000 | | 160,000 | | 414 | | 300,414 |
(1) | Amounts reflect the annual cash retainer paid to each director, including any applicable annual committee and committee chair retainers and any applicable Lead Independent Director or Chairperson retainer. As described above, a director may elect to defer all or a portion of his or her annual cash retainer into a deferred stock unit account. Amounts deferred as Elective Stock Units or deferred into alternative investment options are reflected in this column. |
(2) | Amounts represent the target value of Automatic Stock Units awarded to each of ournon-employee directors in 2017 under the 2011 Plan pursuant to the Amended Director Program. The amount reported for each director reflects the aggregate fair value of the Automatic Stock Units on the grant date, as determined under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation, excluding any assumed forfeitures. The grant date fair value assumes the value of dividend equivalents accrued directly on the awarded units. The aggregate number of Automatic Stock Units and Elective Stock Units held by each director as of December 31, 2017 is provided in the Deferred Stock Units table below. |
(3) | Amounts reflect (i) the estimated dollar value of additional stock units credited to eachnon-employee director as a result of dividend equivalents earned, directly or indirectly, on reinvested dividend equivalents as such amounts are not assumed in the grant date fair value of the Automatic Stock Units shown in the “Stock Awards” column, and (ii) matching contributions made through our Matching Gifts Program for Education discussed above as follows: Mr. Fazio, $10,000; Ms. Fudge, $8,000; Mr. Gordon, $10,000; Ms. Kleiner, $10,000; and Mr. Krapek, $10,000. |
(4) | General Myers did not stand for reelection at the 2017 Annual Meeting. |
24 Amounts reflect the annual cash retainer paid to each director, including any applicable annual committee and committee chair retainers and any applicable Lead Independent Director or Chairman retainer. As described above, a director may elect to defer all or a portion of his or her annual cash retainer into a deferred stock unit account. Amounts deferred as Elective Stock Units or deferred into alternative investment options are reflected in this column.
|(2)Amounts represent the target value of Automatic Stock Units awarded to each of our non-employee directors in 2020 under the 2011 Plan pursuant to the Amended Director Program. The amount reported for each director reflects the aggregate fair value of the Automatic Stock Units on the grant date, as determined under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation, excluding any assumed forfeitures. The grant date fair value assumes the value of dividend equivalents accrued directly on the awarded units. The aggregate number of Automatic Stock Units and Elective Stock Units held by each director as of December 31, 2020 is provided in the Deferred Stock Units table below.
(3)Amounts reflect (i) the estimated dollar value of additional stock units credited to each non-employee director as a result of dividend equivalents earned, directly or indirectly, on reinvested dividend equivalents as such amounts are not assumed in the grant date fair value of the Automatic Stock Units shown in the "Stock Awards" column, and (ii) matching contributions made through our Matching Gifts Program for Education discussed above and to non-profit organizations under a Company program as follows: Ms. Brown, $10,000; Ms. Fudge, $10,000; Mr. Gordon, $20,000; Ms. Kleiner, $5,000; Mr. Krapek, $10,000; and Mr. Turley, $10,000.
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 31
| | | COMPENSATION OF DIRECTORS
|
As of December 31, 2017,2020, the non-employee directors had the following aggregate number of deferred stock units accumulated in their deferral accounts for all years of service as a director, including additional stock units credited as a result of dividend equivalents earned on the stock units. | | | | | | | | | | | | | | | | Name | | Automatic Stock Units | | Elective Stock Units | | Total | Marianne C. Brown | | | | 2,250 | | | | | 1,121 | | | | | 3,371 | | Victor H. Fazio | | | | 12,694 | | | | | 7,611 | | | | | 20,305 | | Donald E. Felsinger | | | | 19,677 | | | | | 14,663 | | | | | 34,340 | | Ann M. Fudge | | | | 1,312 | | | | | 474 | | | | | 1,786 | | Bruce S. Gordon | | | | 16,325 | | | | | — | | | | | 16,325 | | William H. Hernandez | | | | 3,851 | | | | | — | | | | | 3,851 | | Madeleine A. Kleiner | | | | 15,339 | | | | | — | | | | | 15,339 | | Karl J. Krapek | | | | 16,368 | | | | | 5,840 | | | | | 22,208 | | Richard B. Myers (1) | | | | — | | | | | — | | | | | — | | Gary Roughead | | | | 7,045 | | | | | — | | | | | 7,045 | | Thomas M. Schoewe | | | | 8,241 | | | | | — | | | | | 8,241 | | James S. Turley | | | | 2,319 | | | | | — | | | | | 2,319 | | Mark A. Welsh III | | | | 889 | | | | | — | | | | | 889 | |
(1) | General Myers did not stand for reelection at the 2017 Annual Meeting. All stock units were paid out to General Myers in the form of common stock after his retirement from the Board in May 2017. |
Director Equity Plan
Under the Northrop Grumman
| | | | | | | | | | | | | | | | | | | | | | | | | Name | | Automatic Stock
Units | | Elective Stock
Units | | Total | | David P. Abney | | 445 | | — | | 445 | | Marianne C. Brown | | 3,932 | | 2,479 | | 6,411 | | Donald E. Felsinger | | 22,224 | | 15,930 | | 38,154 | | Ann M. Fudge | | 2,947 | | 498 | | 3,445 | | Bruce S. Gordon | | 18,706 | | — | | 18,706 | | William H. Hernandez | | 5,613 | | — | | 5,613 | | Madeleine A. Kleiner | | 17,671 | | — | | 17,671 | | Karl J. Krapek | | 17,715 | | 4,690 | | 22,405 | | Gary Roughead | | 8,965 | | — | | 8,965 | | Thomas M. Schoewe | | 10,220 | | — | | 10,220 | | James S. Turley | | 3,358 | | — | | 3,358 | | Mark A. Welsh III | | 2,504 | | — | | 2,504 | | | | | | | | |
Non-Employee
32 Directors Equity Participation Plan (Director Equity Plan),non-employeeI directors had an amount equal to 50% of their annual retainer credited to an equity participation account and converted into stock units based on the then fair market value (as defined in the Director Equity Plan) of our common stock. No new participants have been added to the Director Equity Plan since May 31, 2005, and no new annual accruals have been credited to the then-existing participants in the Director Equity Plan since that time. However, directors that served on the Board in and before 2005 continue to be credited with dividend equivalents on the cumulative stock units held in their equity participation accounts until the director terminates service on the Board. Mr. Fazio is the only director that earns dividend equivalents under the Director Equity Plan. No other current director participates in the Director Equity Plan.Generally, if a participatingnon-employee director terminates service on the Board after completion of at least three consecutive years of service or retires from the Board as a result of a total disability or a debilitating illness as defined in the Director Equity Plan, the participant will be entitled to receive the full balance of the participant’s equity participant account in annual installments. Upon a change in control of the Company, as defined in the Director Equity Plan, the participant will immediately be entitled to receive the full balance of the equity participation account under the Director Equity Plan regardless of the number of years of consecutive service, although payment of his or her benefits will not commence until the termination of his or her service.
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
|
25
| | | TRANSACTIONS WITH RELATED PERSONS AND CONTROL PERSONS |
Related Person Transactions
| | | | Related Person Transactions |
The Company has a written policy approved by the Board, for the review, approval and ratification of transactions between our Company and our directors, executive officers and other related persons (Related Person Transactions Policy). A copy of the policy is available on the Investor Relations section of our website (www.northropgrumman.com). The policy provides for all related person transactions to be reviewed in advance and approved or ratified, as applicable, by the Board of Directors, the Governance Committee or the ChairpersonChairman of the Governance Committee. A related person transaction may be approved if, after reviewing the relevant facts and circumstances, the reviewing party concludes that approving the related person transaction is in the best interests of the Company and its shareholders. The policy defines a related person transaction as any transaction in which the Company was, is or will be a participant, where the amount involved exceeds $120,000, and in which a related person had, has or is expected to have a direct or indirect material interest. A “related person”"related person" includes: · | | any of our directors or executive officers; |
· | | any person who is known to be the beneficial owner of more than 5% of our common stock; |
· | | an immediate family member of any such persons; or |
· | | any firm, corporation, or other entity controlled by any such persons. |
•any of our directors or executive officers; •any person who is known to be the beneficial owner of more than 5% of our common stock; •an immediate family member of any such persons; or •any firm, corporation, or other entity controlled by any such persons. The Corporate Secretary may determine that, based on facts and circumstances, a transaction in an amount less than $120,000 should nonetheless be deemed a related person transaction. If this occurs, the transaction would be submitted for review and approval or ratification in accordance with the policy. Under exceptional circumstances, if a related person transaction has not been approved in advance, the Governance Committee will recommend to the Board of Directors such action as the Governance Committee deems appropriate, including ratification, amendment or termination of the transaction. The policy requires each director and executive officer to complete an annual questionnaire to identify his or her related interests and to notify the Corporate Secretary of any changes in their information. In 2017, nonethe ordinary course of business, the Company purchases logistical services from UPS. One of our directors, orDavid P. Abney, served as the Chief Executive Officer of UPS until June 2020 and the Executive Chairman of the UPS Board of Directors through September 2020. For the year ended December 31, 2020, amounts paid for these services accounted for less than 0.1% of either company's revenues for the 2020 fiscal year. During 2020, the Company employed one family member of an executive officersofficer who received compensation in excess of the reporting threshold. The spouse of our Corporate Vice President and President, Enterprise Services, Shawn Purvis, was a participant in or had a relationship regardedemployed by the Company as a related person transaction, as considered under applicable regulationsConsulting Chief Engineer in our Mission Systems sector. He received cash compensation (base salary and bonus) of approximately $262,000 and participated in the Company’s benefit plans, commensurate with his position at the Company. Effective January 30, 2021, he transferred to a new company pursuant to the sale of our IT services business and he is no longer employed by the Company. State Street Corporation (State Street), acting in various fiduciary capacities, filed a Schedule 13G/A with the SEC reporting that as of December 31, 2020, State Street and certain of its subsidiaries collectively were the NYSE listing standards. Compensation Committee Interlocksbeneficial owners of more than 5% of our outstanding common stock. A subsidiary of State Street is the trustee for various Northrop Grumman defined benefit and Insider Participation
defined contribution plan trusts. Two other State Street subsidiaries provide investment management services. During 2017,2020, those State Street subsidiaries received approximately $5.75 million for such services, with over 99% of that amount paid by the plan trusts. BlackRock, Inc. (BlackRock) filed a Schedule 13G/A with the SEC reporting that as of December 31, 2020, BlackRock and certain of its subsidiaries collectively were the beneficial owners of more than 5% of our outstanding common stock. A subsidiary of BlackRock provides investment management services for the Northrop Grumman Rabbi Trust II and certain assets within various Northrop Grumman defined benefit trusts. During 2020, the trusts paid that BlackRock subsidiary approximately $528,000 for such services. Wellington Management Group LLP (Wellington) filed a Schedule 13G with the SEC reporting that as of December 31, 2020, Wellington and certain of its subsidiaries collectively were the beneficial owners of more than 5% of our outstanding common stock. A subsidiary of Wellington provides investment management services for certain assets within various Northrop Grumman defined benefit and defined contribution plan trusts. During 2020, the trusts paid that Wellington subsidiary approximately $1.14 million for such services.
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 33
| | | | TRANSACTIONS WITH RELATED PERSONS AND CONTROL PERSONS |
| | | | Compensation Committee Interlocks and Insider Participation |
During 2020, Ms. Brown, Ms. Kleiner and Messrs. Felsinger, Gordon, Krapek, Myers, Roughead and Schoewe served as members of the Compensation Committee. During 2017,2020, no member of the Compensation Committee had a relationship with the Company or any of our subsidiaries, other than as directors and shareholders, and no member was an officer or employee of the Company or any of our subsidiaries, a participant in a related person transaction or an executive officer of another entity, where one of our executive officers serves on the board of directors that would constitute a related person transaction or raise concerns of a Compensation Committee interlock. Indemnification Agreements
| | | | Indemnification Agreements |
Our Bylaws require us generally to indemnify our directors and executive officers to the fullest extent permitted by Delaware law. Additionally, as permitted by Delaware law, we have entered into indemnification agreements with each of our directors and elected officers. Under the indemnification agreements, we have agreed to hold harmless and indemnify each indemnitee, generally to the fullest extent permitted by Delaware law, against expenses, liabilities and loss incurred in connection with threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative to which the indemnitee is made a party by reason of the fact that the indemnitee is or was a director or officer of the Company or any other entity at our request, provided however, that the indemnitee acted in good faith and in a manner reasonably believed to be in the best interests of our Company. 26 34|I NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
|
Section 16(a) of the Securities Exchange Act of 1934, as amended (Exchange Act), requires our directors and executive officers, and persons who own more than ten percent of our common stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC.
Based on our review of Forms 3, 4 and 5 we have received or have filed on behalf of our executive officers and directors, and written representations from those persons that they were not required to file a Form 5, we believe that all required filings, other than one delayed filing for Mrs. Fudge (which resulted from an administrative error by a third party) were made on a timely basis during the year ended December 31, 2017.
NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT|27
| VOTING SECURITIES AND PRINCIPAL HOLDERS
|
Stock Ownership of Certain Beneficial Owners
| | | | Stock Ownership of Certain Beneficial Owners |
The following entities beneficially owned, to the best of our knowledge, more than five percent of the outstanding common stock as of December 31, 2017.the dates indicated in the footnotes below. All information shown is based on information reported by the filer on a Schedule 13G filed with the SEC on the dates indicated in the footnotes below. | | | | | | | | | | | Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership of Common Stock | | Percent of Class | BlackRock, Inc. 55 East 52nd Street, New York, NY 10055 | | | | 13,545,765 | (1) | | | | 7.8% | | State Street Corporation One Lincoln Street, Boston, MA 02111 | | | | 19,261,080 | (2) | | | | 11.1% | | The Vanguard Group 100 Vanguard Blvd., Malvern, PA 19355 | | | | 13,248,398 | (3) | | | | 7.6% | |
| | | | | | | | | | | | | | | | | | | | | | Name and Address of Beneficial Owner | | Amount and Nature of
Beneficial Ownership of
Common Stock | | Percent
of Class | State Street Corporation
One Lincoln Street, Boston, MA 02111 | | 16,098,467 | (1) | | 9.7% | Capital International Investors 333 South Hope Street, 55th Floor, Los Angeles, CA 90071 | | 14,658,627 | (2) | | 8.8% | The Vanguard Group
100 Vanguard Blvd., Malvern, PA 19355 | | 12,540,325 | (3) | | 7.5% | BlackRock, Inc. 55 East 52nd Street, New York, NY 10055 | | 9,489,573 | (4) | | 5.7% | Wellington Management Group LLP 280 Congress Street, Boston, MA 02210 | | 9,025,016 | (5) | | 5.4% |
(1) | This information was provided by BlackRock, Inc. (BlackRock) in a Schedule 13G/A filed with the SEC on January 29, 2018. According to BlackRock, as of December 31, 2017, BlackRock had sole voting power over 12,190,349 shares and sole dispositive power over 13,545,765 shares. |
(2) | This information was provided by State Street Corporation (State Street) in a Schedule 13G filed with the SEC on February 14, 2018. According to State Street, as of December 31, 2017, State Street had shared voting and dispositive power over 19,261,080 shares. This total includes 12,074,939 shares held in the Defined Contributions Master Trust for the Northrop Grumman Savings Plan and the Northrop Grumman Financial Security and Savings Program, for which State Street Bank and Trust Company acts as trustee and investment manager. |
(3) | This information was provided by The Vanguard Group (Vanguard) in a Schedule 13G/A filed with the SEC on February 9, 2018. According to Vanguard, as of December 31, 2017, Vanguard had sole voting power over 239,674 shares, sole dispositive power over 12,968,516 shares and shared dispositive power over 279,882 shares. |
28 This information was provided by State Street Corporation (State Street) in a Schedule 13G/A filed with the SEC on February 24, 2021. According to State Street, as of December 31, 2020, State Street had shared voting power over 15,636,757 shares and shared dispositive power over 16,097,110 shares. This total includes 9,983,272 shares held as of December 31, 2020 in the Defined Contribution Plans Master Trust for the Northrop Grumman Savings Plan and the Northrop Grumman Financial Security and Savings Program, for which State Street Bank and Trust Company acts as trustee and State Street Global Advisors Trust Company acts as investment manager.
|(2)This information was provided by Capital International Investors (Capital International), a division of Capital Research and Management Company, in a Schedule 13G/A filed with the SEC on February 16, 2021. According to Capital International, as of December 31, 2020, Capital International had sole voting power over 14,636,652 shares and sole dispositive power over 14,658,627 shares.
(3)This information was provided by The Vanguard Group (Vanguard) in a Schedule 13G/A filed with the SEC on February 10, 2021. According to Vanguard, as of December 31, 2020, Vanguard had shared voting power over 258,121 shares, sole dispositive power over 11,887,639 shares and shared dispositive power over 652,686 shares. (4)This information was provided by BlackRock, Inc. (BlackRock) in a Schedule 13G/A filed with the SEC on January 29, 2021. According to BlackRock, as of December 31, 2020, BlackRock had sole voting power over 8,627,438 shares and sole dispositive power over 9,489,573 shares. (5)This information was provided in a Schedule 13G jointly filed with the SEC on February 4, 2021 by Wellington Management Group LLP, a parent holding company, and three of its affiliates: Wellington Group Holdings LLP, owned by Wellington Management Group LLP; Wellington Investment Advisors Holdings LLP, owned by Wellington Group Holdings LLP; and Wellington Management Company LLP, an investment adviser controlled by Wellington Investment Advisors Holdings LLP (the four joint filers collectively, "Wellington"). Wellington reported that the shares as to which the Schedule 13G was filed are owned of record by clients of Wellington Management Company LLP. According to Wellington, as of December 31, 2020, each of the joint filers except Wellington Management Company LLP had shared voting power over 8,950,082 shares and shared dispositive power over 9,025,016 shares; and Wellington Management Company LLP had shared voting power over 8,865,582 shares and shared dispositive power over 8,919,050 shares. NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 35
| | | VOTING SECURITIES AND PRINCIPAL HOLDERS
|
Stock Ownership of Officers and Directors
| | | | Stock Ownership of Officers and Directors |
The following table shows beneficial ownership of our common stock as of March 20, 201823, 2021 by each of our current directors, our named executive officers and all directors and executive officers as a group. As of March 20, 2018,23, 2021, there were 174,383,808160,962,047 shares of our common stock outstanding. None of the persons named below beneficially owns in excess of 1% of our outstanding common stock. Unless otherwise indicated, each individual has sole investment power and sole voting power with respect to the shares owned by such person. | | | | | | | | | | | | | | | | | | | Shares of Common Stock
Beneficially Owned | | Share
Equivalents (1) | | Total | Non-Employee Directors | | | | | | | | | | | | | | | | Marianne C. Brown | | | | — | | | | | 3,371 | | | | | 3,371 | | Victor H. Fazio | | | | 18,368 | (2) | | | | 20,305 | | | | | 38,673 | | Donald E. Felsinger | | | | — | | | | | 34,340 | | | | | 34,340 | | Ann M. Fudge | | | | 93 | | | | | 1,786 | | | | | 1,879 | | Bruce S. Gordon | | | | — | | | | | 16,325 | | | | | 16,325 | | William H. Hernandez | | | | 1,000 | | | | | 3,851 | | | | | 4,851 | | Madeleine A. Kleiner | | | | 971 | | | | | 15,339 | | | | | 16,310 | | Karl J. Krapek | | | | 8,194 | | | | | 21,139 | | | | | 29,333 | | Gary Roughead | | | | — | | | | | 7,045 | | | | | 7,045 | | Thomas M. Schoewe | | | | 3,160 | | | | | 8,241 | | | | | 11,401 | | James S. Turley | | | | — | | | | | 2,319 | | | | | 2,319 | | Mark A. Welsh III | | | | — | | | | | 889 | | | | | 889 | | Named Executive Officers | | | | | | | | | | | | | | | | Wesley G. Bush (3) | | | | 430,162 | (4) | | | | 5,560 | | | | | 435,722 | | Kenneth L. Bedingfield | | | | 34,340 | | | | | — | | | | | 34,340 | | Gloria A. Flach (5) | | | | 87,668 | | | | | — | | | | | 87,668 | | Janis G. Pamiljans | | | | 6,677 | | | | | 6,224 | | | | | 12,901 | | Kathy J. Warden | | | | 88,011 | | | | | — | | | | | 88,011 | | Other Executive Officers | | | | 245,957 | | | | | 9,176 | | | | | 255,133 | | All Directors and Executive Officers as a Group (27 persons) | | | | 924,601 | | | | | 155,910 | | | | | 1,080,511 | (6) |
(1) | Share equivalents for directors represent | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Shares of Common Stock
Beneficially Owned | | | Share
Equivalents (1) | | Total | | | Non-Employee Directors | | | | | | | | | | David P. Abney | | — | | | 447 | | 447 | | | Marianne C. Brown | | — | | | 6,443 | | 6,443 | | | Donald E. Felsinger | | — | | | 38,343 | | 38,343 | | | Ann M. Fudge | | 93 | | | 3,462 | | 3,555 | | | Bruce S. Gordon | | — | | | 18,798 | | 18,798 | | | William H. Hernandez | | 1,000 | | | 5,641 | | 6,641 | | | Madeleine A. Kleiner | | — | | | 17,758 | | 17,758 | | | Karl J. Krapek | | 4,445 | | | 21,305 | | 25,750 | | | Gary Roughead | | — | | | 9,009 | | 9,009 | | | Thomas M. Schoewe | | 3,160 | | | 10,271 | | 13,431 | | | James S. Turley | | 635 | | | 3,374 | | 4,009 | | | Mark A. Welsh III | | — | | | 2,516 | | 2,516 | | | Named Executive Officers | | | | | | | | | | Kathy J. Warden (2) | | 118,956 | | | — | | 118,956 | | | David F. Keffer | | — | | | — | | — | | | Kenneth L. Bedingfield | | 10,153 | | | — | | 10,153 | | | Mark A. Caylor | | 20,338 | | | 36 | | 20,374 | | | Blake E. Larson | | 11,263 | | | — | | 11,263 | | | Janis G. Pamiljans | | 7,948 | | | 6,914 | | 14,862 | | | Other Executive Officers | | 77,909 | | | 3,343 | | 81,252 | | All Directors and Executive Officers as a Group (27 persons) | | 255,900 | | | 147,660 | | 403,560 | (3) |
(1)Share equivalents for directors represent non-voting deferred stock units acquired under the 2011 Plan, some of which are paid out in shares of common stock at the conclusion of a director-specified deferral period, and others are paid out upon termination of the director's service on the Board. Certain of the NEOs hold share equivalents with pass-through voting rights in the Northrop Grumman Savings Plan or the Northrop Grumman Financial Security and Savings Program. (2)Ms. Warden also serves on the Company's Board of Directors. (3)Total represents 0.25% of the outstanding common stock as of March 23, 2021. 36I deferred stock units acquired under the 2011 Plan, some of which are paid out in shares of common stock at the conclusion of a director-specified deferral period, and others are paid out upon termination of the director’s service on the Board. Certain of the NEOs hold share equivalents with pass-through voting rights in the Northrop Grumman Savings Plan or the Northrop Grumman Financial Security and Savings Program. |
(2) | Includes 1,141 shares held in our Dividend Reinvestment Plan. |
(3) | Mr. Bush is also Chairman of the Board. |
(4) | Includes 259,053 shares held in the W.G. and N.F. Bush Family Trust, 63,980 shares held in the Bush Trust Number 4 Trust, and 63,979 shares held in the Wesley G. Bush Revocable Trust, each of which Mr. Bush and his wife serve as trustees. |
(5) | Ms. Flach retired from the Company on December 31, 2017. |
(6) | Total represents 0.62% of the outstanding common stock as of March 20, 2018. |
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
|
29
| | | EQUITY COMPENSATION PLAN INFORMATION
|
We currently maintain two equity compensation plans: the 2011 Plan and the 1993 Stock Plan for Non-Employee Directors, as amended (1993 Directors Plan). Each of these plans has been approved by our shareholders. The following table sets forth the number of shares of our common stock to be issued upon payout of outstanding awards and the number of shares remaining available for future award grants under these equity compensation plans as of December 31, 2017. | | | | | | | | | | | | | | | | Plan category | | Number of shares of
common stock to be
issued upon exercise
of outstanding options and
payout of outstanding
awards (1) (#) | | Weighted-average
exercise price of
outstanding options
(2)
($) | | Number of shares of common stock
remaining available for future issuance under equity compensation plans (excluding shares reflected in the first column) (3) (#) | Equity compensation plans approved by shareholders | | | | 1,989,372 | | | | | N/A | | | | | 6,295,076 | | Equity compensation plans not approved by shareholders | | | | N/A | | | | | N/A | | | | | N/A | | Total | | | | 1,989,372 | | | | | N/A | | | | | 6,295,076 | (4) �� |
2020. | | | | | | | | | | | | | | | | | | | | | | | | | Plan category | | Number of shares of
common stock to be
issued upon exercise
of outstanding options and
payout of outstanding
awards (1)
(#) | | Weighted-average
exercise price of
outstanding options (2)
($) | | Number of shares of
common stock remaining available for future issuance under equity compensation plans (excluding shares reflected in the first column) (3)
(#) | | | Equity compensation plans approved by shareholders | | 1,255,949 | | N/A | | 5,246,915 | | | Equity compensation plans not approved by shareholders | | N/A | | N/A | | N/A | | | Total | | 1,255,949 | | N/A | | 5,246,915 | (4) |
(1) | This number includes 955,588 shares that were subject to outstanding stock awards granted under the 2011 Plan, 462,245 awards earned at year end but pending distribution subject to final performance adjustments, 136,019 shares subject to outstanding stock unit credited under the 2011 Plan and 1993 Directors Plan, and additional performance shares of 435,521, which reflect the number of shares deliverable under payment of outstanding restricted performance stock rights, assuming maximum performance criteria have been achieved. |
(2) | There were no options outstanding as of December 31, 2017. |
(3) | Of the aggregate number of shares that remained available for future issuance, 6,295,076 were available under the 2011 Plan as of December 31, 2017. No new awards may be granted under the 1993 Directors Plan. |
(4) | After giving effect to our February 2018 awards, the number of shares of common stock remaining available for future issuance would be 5,900,763 (assuming maximum payout of such awards). |
30 This number includes 603,275 shares that were subject to outstanding stock awards granted under the 2011 Plan, 224,275 awards earned at year end but pending distribution subject to final performance adjustments, 137,897 shares subject to outstanding stock units credited under the 2011 Plan and 1993 Directors Plan, and additional performance shares of 290,502, which reflect the number of shares deliverable under payment of outstanding restricted performance stock rights, assuming maximum performance criteria have been achieved.
|(2)There were no options outstanding as of December 31, 2020.
(3)Of the aggregate number of shares that remained available for future issuance, 5,246,915 were available under the 2011 Plan as of December 31, 2020. No new awards may be granted under the 1993 Directors Plan. (4)After giving effect to our February 2021 awards, the number of shares of common stock remaining available for future issuance would be 4,746,454 (assuming maximum payout of such awards).
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 37
| | | PROPOSAL TWO: ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS
|
Consistent with Section 14A of the Exchange Act, we are providing our shareholders with the opportunity to cast a non-binding, advisory vote on the compensation of our NEOs. This advisory vote, commonly known as “say-on-pay,” "say-on-pay," gives our shareholders the opportunity to express their view on our 20172020 executive compensation programs and policies for our NEOs. The vote does not address any specific item of compensation and is not binding on the Board; however, as an expression of our shareholders’shareholders' views, the Compensation Committee seriously considers the vote when making future executive compensation decisions. The Board has adopted a policy of providing for annual advisory votes on the compensation of our NEOs. We believe our compensation programs reflect responsible, measured practices that effectively incentivize our executives to dedicate themselves fully to value creation for our shareholders, customers and employees. Our pay practices are aligned with our shareholders’shareholders' interests and with leading industry practice and are governed by a set of strong policies. Examples include: · | | Double-trigger provisions for change in control situations, and no excise taxgross-ups for payments upon termination after a change in control; |
· | | A recoupment policy applicable to cash and equity incentive compensation payments; |
· | | Stock ownership guidelines of 7x base salary for the CEO and 3x base salary for other NEOs, and stock holding requirements of three years from the vesting date for equity awards; and |
· | | Prohibitions on hedging or pledging of Company stock. |
•Double-trigger provisions for change in control situations, and no excise tax gross-ups for payments upon termination after a change in control; •A recoupment policy applicable to cash and equity incentive compensation payments; •Stock ownership guidelines of 7x base salary for the CEO and 3x base salary for other NEOs, and stock holding requirements of three years from the vesting date for equity awards; and •Prohibitions on hedging or pledging of Company stock. For a more extensive list of our best practices, refer to page 3340 of this Proxy Statement. In addition, our Compensation Discussion and Analysis (CD&A) provides a detailed discussion of our performance-based approach to executive compensation. We encourage you to read the CD&A, the rest of this Proxy Statement and our 20172020 Form 10-K, which describes our business and 20172020 results in more detail. The compensation of our executives is aligned to performance, is sensitive to shareholder returns, appropriately motivates and retains our executives, and is a competitive advantage in attracting and retaining the high caliber talent necessary to drive our business forward and build sustainable value for our shareholders. Accordingly, the Board recommends that shareholders approve the following resolution: “
"RESOLVED, that, as an advisory matter, the shareholders of Northrop Grumman Corporation approve the compensation paid to the Company’sCompany's named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion. ”" Approval of this proposal requires that the votes cast “for”"for" the proposal exceed the votes cast “against”"against" the proposal. Abstentions and broker non-votes will have no effect on this proposal. | | | | | | | | | | | | | | | | THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR”"FOR" PROPOSAL TWO. |
38INOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
|
31
| | | COMPENSATION DISCUSSION AND ANALYSIS |
Compensation Discussion and Analysis
| | | | Compensation Discussion and Analysis |
In thisthe CD&A, we provide an overview of our executive compensation programs and the underlying philosophy used to develop the programs. We describe the material components of our executive compensation programs for our 20172020 NEOs and explain how and why our Board’sBoard's Compensation Committee arrived atdetermined certain specific compensation policies and decisions. We refer to certain non-GAAP (accounting principles generally accepted in the United States of America) financial measures, which are identified with asterisks. For more information, including definitions, reconciliations to the most directly comparable GAAP measure and why we believe these measures may be useful to investors, see “Appendix"Appendix A - Use of Non-GAAP Financial Measures. ”" The 20172020 NEO compensation is provided in the Summary Compensation Table on page 4958 and other compensation tables contained in this Proxy Statement. 2017
KATHY J. WARDEN DAVID F. KEFFER MARK A. CAYLOR BLAKE E. LARSON KENNETH L. BEDINGFIELD GLORIA A. FLACH(1)
JANIS G. PAMILJANS(2)
KATHY J. WARDEN
(1)Ms. Flach retired from the Company on December 31, 2017.
(2) Mr. Pamiljans was elected Corporate Vice President and President, Aerospace Systems (President, Aerospace Systems) effective April 1, 2017. References to Mr. Pamiljans’ compensation prior to April 1, 2017 in this CD&A include compensation for service as an appointed officer in the role of Vice President and General Manager.
32 |
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 39
| | | COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE SUMMARY EXECUTIVE SUMMARY
|
| | | Summary of Our Executive Compensation Programs |
Our executive compensation philosophy is to provide a complementary set of compensation programs to our NEOs with attractive, flexible and market-based total compensation tied to annual and long-term performance and aligned with the interests of our shareholders. The key elements of our compensation programs for our NEOs are summarized below. | | | | | | | | | | | | | | | | | | | Compensation Element | | | | Purpose | | | | Key Characteristics | | | | | | | | | | | | | | Fixed
Component
| Base Salary | | | Base Salary
| | | | Compensate fairly and competitively | | | | Determined by level of responsibility, competitive market pay assessment and individual performance | | | | | | | | | | | | | | Annual Incentive Plan (AIP) | | Motivate and reward achievement of annual business objectives | | Financial Metrics 35% Adjusted Cash Flow from Operations Conversion* 35% Segment Operating Income* Growth 15% Pension-adjusted Net Income* Growth 15% Pension-adjusted Operating Margin (OM) Rate* Subject to downward adjustment for failure to achieve non-financial objectives | | | | | | Long-Term Incentive Plan (LTIP)
Restricted Stock Rights (RSRs) | | | | Link the interests of our executive officers to shareholders and retain executive talent | | | | Three-year cliff vesting | | | | | | | | | | | | | | Performance-
Based
Component
| | | | Annual Incentive Plan (AIP) | | | | Motivate and reward achievement of annual business objectives | | | | Financial Metrics
Pension-adjusted Operating Margin (OM) Rate*,
Cash Flow from Operations Conversion* and Pension-adjusted Net Income* Growth
Subject to downward adjustment for failure to achievenon-financial objectives
| | | | | | | | | | | | | | | | LTIP
Restricted Performance Stock Rights (RPSRs) | | | | Link the interests of our executive officers to shareholders, motivate and reward achievement of long-term strategic goals and retain executive talent | | | | Three-year performance period Actual shares earned are
Equally weighted 50% tometrics of relative TSR and 50% toTotal Shareholder Return (TSR), Adjusted Cumulative Free Cash Flow* (Cumulative(Adjusted Cumulative FCF*) and Operating Return on Net Assets* (Operating RONA*) |
| * | | | | * This metric is anon-GAAP financial measure. For more information, see “Appendix"Appendix A - Use ofNon-GAAP Financial Measures.”" |
Our Compensation Pay Practices (pages 36 - 47)
| | | | Our Compensation Pay Practices (pages 40 - 56) |
Our compensation programs incorporate best practices, including the following: | | | | | | | | | | | | | | | | Best Practices | | | | | | | | | | ·• Pay for Performance
·• Above Target and MaximumAbove-Target Annual Incentive Payouts Only When We Outperform Our Peer Benchmarks·• Long-Term Incentives Focused on Performance·• Cap on Annual Bonuses and Performance-Based Long-Term Incentive ShareRPSR Payouts·• Total Direct Target Compensation AimedElements Benchmarked at Market Median
| | ·• Annual Peer Group Review·• Independent Consultant Reports Directly to Compensation Committee·•No Individual Change in Control Agreements
• LTIP Double Trigger Provisions for Change in Control ·• No Individual Change in Control Agreements·No Excise TaxGross-ups for Payments Received Upon Termination After a Change in Control
| | ·• No Hedging or Pledging of Company Stock·• Dividends Paid Upon Vesting of Equity Awards ·• Recoupment Policy on Cash and Equity Incentive Compensation Payments·• Stock Ownership Guidelines and Stock Holding Requirements·• Regular Risk Assessments Performed·• No Employment Contracts for CEO or otherOther NEOs
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40INOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE SUMMARY
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| | | | 2020 Performance Highlights |
We continued to generate strong financial results in 2020, including higher sales, operating income, segment operating income*, cash provided by operating activities and adjusted free cash flow*. 2020 diluted earnings per share were $19.03 and 2020 mark-to-market (MTM) adjusted diluted earnings per share* were $23.65. Our strong cash generation allowed us to invest $1.4B in our business and return approximately $1.4B to our shareholders through share repurchases and dividends. Throughout 2020, management and the Committee closely monitored the COVID-19-related impacts on our financial results. Our financial results were not significantly impacted and the performance results reflect the comparison to our peers. * This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures." | | | | 3-Year Total Shareholder Return |
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I |41
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| | | COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE SUMMARY EXECUTIVE SUMMARY
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2017 Performance Highlights
We continued to generate strong financial results in 2017, including higher segment operating income and, excluding 2017 tax reform and our related discretionary pension contribution impacts, higher earnings, cash from operations and free cash flow*. 2017 diluted earnings per share were $11.47 and excluding 2017 tax reform and our related discretionary pension contribution impacts were $13.28*. Our strong cash generation allowed us to invest $928 million in our business and return more than $1 billion to our shareholders through share repurchases and dividends. Operational performance and effective capital deployment supported a 33.9% TSR in 2017.
Earnings Per Share
Total Shareholder Return
* This metric is a
non-GAAP
financial measure. For more information, see “Appendix A - Use ofNon-GAAP Financial Measures.”34 |NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE SUMMARY
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Management and the Compensation Committee believe our executive compensation programs are competitive and support achieving strong financial performance while investing for profitable growth and value creation over the long-term. A 96% shareholder majority approved last year’syear's say-on-pay proposal, and our ongoing shareholder engagement indicates continued support for the structure and elements of our executive incentive compensation programs. Performance Incentive Compensation Metrics
2017 results, which have been adjusted to exclude the impacts of the Tax Cuts and Jobs Act (the “2017 Tax Act”), for AIP metrics:
· | | Pension-adjusted OM Rate*: 10.5% | | Compensation Mix and Incentive Metrics |
· | | Cash Flow from Operations Conversion*: 127% |
· | | Pension-adjusted Net Income* Growth: $1.93B |
For the LTIP, our three-year TSR score covering 2015-2017 was at the 89th percentile as measured against the 2015 Performance Peer Group identified on page 38 and the 96th percentile as measured against the S&P industrials. Over the last three years, the weighting of our LTIP RPSR metrics has transitioned from 100% TSR in 2015-2017 to 70% TSR and 30% Cumulative FCF* in 2016-2018 to the current 50% TSR and 50% Cumulative FCF* weighting. The weighting transition reflects a desire for a better balance between relative TSR performance and an operational metric more directly impacted by management decisions and behaviors.
Compensation Mix
We have a balanced pay for performance compensation structure that places an appropriate level of compensation at risk, based on our financial andnon-financial performance measures and relative TSR. The following charts show variable-based compensation elements at target values.
| | | | | | | | | | | | | | | | *Restricted Stock Rights (RSRs) have been reclassified as variable compensation. RSRs are subject to future vesting and are at risk due to fluctuations in the price of our common stock. The change aligns with peers and industry practice. |
For AIP, award is determined by our financialfollowing are the results for 2020 performance, and is subjectwhich have been adjusted, as applicable, to include proceeds from sale of equipment to a downward only adjustmentcustomer, and to exclude transaction-related expenses (Orbital ATK purchase and IT Services divestiture expenses), Orbital ATK intangible asset amortization and property, plant and equipment (PP&E) step-up depreciation expense (impacts related to Innovation Systems) and certain impacts related to the MTM method of accounting for the Company's pension and other postretirement benefit (OPB) plans as detailed in "Appendix A - Use of Non-GAAP Financial Measures": •Adjusted Cash Flow from Operations Conversion*: 81.3% •Segment Operating Income* Growth: $4.2B •Pension-adjusted Net Income* Growth: $3.0B •Pension-adjusted OM Rate*: 10.7% 42INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE SUMMARY
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For the RPSR, our score covering the three-year 2018-2020 performance againstnon-financial goals. For NEOs, the value of LTIP RPSR compensation isperiod was weighted 50% to relative TSR and 50% to Adjusted Cumulative FCF* , maintaining strong alignment to shareholder interest and increased emphasis on operational performance. The results, where applicable, include the after-tax impact of total pension funding and proceeds from sale of equipment to a customer, and to exclude impacts related to Innovation Systems and transaction-related expenses. Transaction-related expenses are primarily comprised of advisory, legal and other costs related to the completion of any acquisition or disposition. The combined weighted score for the metrics generated an overall performance score of 105%. AchievementThe full details of both annual and long-term incentive goals will result in individual awards commensurate with results; however, if absolute TSR is negative, the maximum relative TSR payout is capped at 100%, even if the relative TSR would have resulted in a higher score. The following charts show performance-based compensation elements at target values.
LTIP program can be found on page 52. NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I |43
35
| | | COMPENSATION DISCUSSION AND ANALYSIS | KEY PRINCIPLESKEY PRINCIPLES
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Compensation Philosophy and Objectives
| | | | Compensation Philosophy and Objectives |
We provide an attractive, flexible and market-based total compensation program tied to performance and aligned with the interests of our shareholders. Our objective is to recruit and retain the caliber of executives and other key employees capable of achieving top performance and generating value for our shareholders, customers and employees. Our goal is to lead our industry in sustainable performance while maintainingand build on our strong, enduring values. The targets, thresholds and thresholdspayout levels of our AIP are based on the performance of ourbenchmarked against peers and the market. Our 2017 LTIP2020 RPSR metrics are based on (1) TSR relative to our Performance Peer Group and the S&P Industrials, and (2) Adjusted Cumulative FCF* and (3) Operating RONA*. For each plan, we selected metrics that drive shareholder value and benchmark our performance against our peers and the market. Our executive compensation and benefit programs are guided by the following principles: | | | Pay for Performance | ·• Our incentive plans are based on peer and market benchmarked performance metrics. |
•Above-target incentive payouts are only awarded when we outperform our peer and market benchmarks. | | Leadership Recruitment, Retention and Succession | ·• Compensation is designed to be competitive within our industry and retain top talent. | ·• Programs are designed to recruit, motivate and reward NEOs for delivering operational and strategic performance over time. |
| Sustainable Performance | ·• Our AIP includes both financial andnon-financial metrics to ensure we are building a strong foundation for long-term sustainable performance and shareholder value creation. |
| Alignment with Shareholder Interests | ·• Our compensation structure places an appropriate amount of compensation at risk based on annual and long-term results. | ·•At-risk compensation is based on financial and non-financial performance measures and relative TSR. | ·• A significant portion of compensation is delivered in equity, the vesting and value of which provides alignment with shareholder returns. | ·• Stock ownership guidelines, holding requirements for equity awards and our recoupment policy further align executive and shareholder interests. | |
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| Benchmarking | ·• Compensation program provisions and financial objectives are evaluated on an annual basis and modified in accordance with industry and business conditions. | ·• We seek to outperform our peers (a group of top global defense companies identified as the Performance Peer Group on page 38)46). | ·• We use a Target Industry Peer Group (identified on page 39)46) for broader market executive compensation analyses that includes companies based on apeer-of-peers analysis. analysis. | |
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| Compensation Risk Management | ·• The Compensation Committee, together with its independent compensation consultant, conducts an annual assessment of the compensation programs to determine if there are potential material risks to the Company. | ·• Both the Compensation Committee and its independent compensation consultant evaluate the mix ofat-risk variable compensation linked to stock appreciation.financial and non-financial performance, as well as shareholder returns. | ·• The assessment is to confirm there is an appropriate balance in the executive compensation programs, practices and policies. | |
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36 44|I NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
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How We Make Compensation Decisions
| | | | How We Make Compensation Decisions |
Role of the Compensation Committee The Compensation Committee is responsible for overseeing our compensation policies, incentive and equity compensation plans and approving payments or grants under these plans for elected officers (other than the CEO). The Compensation Committee recommends the compensation for our CEO to the independent directors of the Board for approval and approves the compensation for the other NEOs. In performing its duties, the Compensation Committee: · | | retains an independent compensation consultant which reports directly to the Compensation Committee and is discussed further below; |
· | | reviews market data and other input from its independent compensation consultant; |
· | | reviews and approves incentive goals and objectives (CEO goals and objectives are reviewed and approved by the independent directors); |
· | | evaluates and approves executive benefit and perquisite programs; and |
· | | evaluates the competitiveness of each elected officer’s total compensation package. |
•receives advice from an independent compensation consultant who reports directly to the Compensation Committee and is discussed further below; •reviews market data and other input from its independent compensation consultant; •reviews and approves incentive goals and objectives (CEO goals and objectives are reviewed and approved by the independent directors); •evaluates and approves executive benefit and perquisite programs; •evaluates the competitiveness of each elected officer's total compensation package; and •conducts an annual evaluation of the independent compensation consultant. In addition, the Compensation Committee annually reviews and discusses with management the CD&A and provides a Compensation Committee Report for inclusion in the proxy statement. For more information regarding the composition of the Compensation Committee and its duties and responsibilities, see “Corporate"Corporate Governance – Committees of the Board of Directors – Compensation Committee.”Committee" on page 18. Role of the Independent Compensation Consultant The Compensation Committee retains an independent compensation consultant, Frederic W. Cook & Co. (the Compensation Consultant). The Compensation Consultant reports directly to the Compensation Committee, and the Compensation Committee may replace the Compensation Consultant or hire additional consultants at any time. A representative of the Compensation Consultant regularly attendsparticipates in meetings of the Compensation Committee and communicates with the Compensation Committee Chairperson between meetings as needed; however, the Compensation Committee and the independent directors of the Board make final decisions on the compensation actions for the NEOs. The Compensation Consultant regularly meetsalso participates in executive session with the Compensation Committee. Other than the fees paid to the Compensation Consultant pursuant to its engagement by the Compensation Committee for its advice on executive and director compensation, the Compensation Consultant does not receive any fees or income from the Company. The responsibilities of the Compensation Consultant’s role is to provide an independentConsultant include: •providing a review of market data and to adviseadvising the Compensation Committee on the levels and structure of our executive compensation policies and procedures, including compensation matters for NEOs. The Compensation Consultant utilizes aerospaceNEOs; •reviewing and defense industry market data and conducts an independent review of publicly available data.The roles ofadvising the Compensation Consultant include:
· | | reviewing and advising the Compensation Committee on our total compensation philosophy, peer groups and target competitive positioning; |
· | | identifying market trends and practices and advising the Compensation Committee on program design implications; |
· | | providing proactive advice to the Compensation Committee on best practices for Board governance of executive compensation, compensation-related risk management, and any areas for program design to most appropriately support the Company’s business strategy and organizational values; and |
· | | serving as a resource to the Compensation Committee Chairperson on setting agenda items for Compensation Committee meetings and undertaking special projects. |
Committee on our total compensation philosophy, peer groups and target competitive positioning; •identifying market trends and practices and advising the Compensation Committee on program design implications; •providing proactive advice to the Compensation Committee on best practices for Board governance of executive compensation, compensation-related risk management, and any areas for program design to most appropriately support the Company's business strategy and organizational values; and •serving as a resource to the Compensation Committee Chairperson on setting agenda items for Compensation Committee meetings and undertaking special projects. In February 2018,2021, the Compensation Committee determined that there were no relationships between the Compensation Consultant and the Company or any of the Company’sCompany's directors or executive officers that raised a conflict of interest. NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 45
| | | COMPENSATION DISCUSSION AND ANALYSIS | KEY PRINCIPLES
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Our CEO makes compensation-related recommendations for elected officers, other than the CEO, to the Compensation Committee for its review and approval. The CEO’sCEO's evaluation is based on each officer’sofficer's compensation relative to market and the overall framework, philosophy and objectives for our executive compensation programs setapproved by the Compensation Committee. NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT|37
| COMPENSATION DISCUSSION AND ANALYSIS | KEY PRINCIPLES
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The recommendations for elected officers are based on an assessment of each executive’sexecutive's performance, skills and industry knowledge, market compensation benchmarks, and succession and retention considerations. The Corporate Vice President and Chief Human Resources Officer provides a summary of historical compensation and benefits-related data when compensation decisions are considered by the Compensation Committee to ensure compensation decisions are made within our total compensation framework. Management also provides recommendations to the Compensation Committee regarding executive incentive and benefit plan designs and strategies. These recommendations include financial and non-financial operational goals and criteria for our annual and long-term incentive plans. Use of Competitive Data
Performance Peer Group: Set Performance Targets and Evaluate Performance The Compensation Committee uses the Performance Peer Group for purposes of setting performance targets and evaluating performance for our AIP and LTIP. The Performance Peer Group is comprised ofencompasses the largest global defense companies by government revenues within the domestic aerospace and defense market space. AIP goals for 2017 andThe same Performance Peer Group was used to establish the goals for the LTIP2020 AIP and 2018 RPSR grants made during 2017that vested at the end of 2020, and the 2020 RPSR grants that will vest in 2019 were established based on the 2017 Performance Peer Group.2022. | | | | | | | | | 2017 PERFORMANCE PEER GROUP
| BAE Systems | L3Harris Technologies, Inc. | Harris
Raytheon Technologies Corporation | | Lockheed Martin Corporation
(1) | The Boeing Company
| Leidos Holdings, Inc. | L3 Technologies, Inc.
| | Raytheon Company
Thales Group | Booz Allen Hamilton Holding Corporation | | Leidos Holdings, Inc.
| | Thales Group
| General Dynamics Corporation
| | Leonardo | | |
Performance targets for the LTIP grants for the three-year performance period vesting in 2017 were established in 2015, based on the 2015 Performance Peer Group.
| | | | | 2015 PERFORMANCE PEER GROUP
| BAE Systems
General Dynamics Corporation | | Finmeccanica(1)
| | Lockheed Martin Corporation | | The Boeing Company
| | General Dynamics Corporation
| | (1)Raytheon Company | Booz Allen Hamilton Holding merged with United Technologies in 2020, forming Raytheon Technologies Corporation
| | L-3 Communications Holdings, Inc.(2)
| | Thales Group
| (1) Finmeccanica changed its name to Leonardo in 2016
| (2)L-3 Communications Holdings, Inc. changed its name to L3 Technologies, Inc. in 2016 |
Target Industry Peer Group: Benchmark Executive Compensation Practices The Compensation Committee benchmarks our executive compensation levels and practices against a Target Industry Peer Group of 1413 companies, as well as againstincluding a subset of the Target Industry Peer Group containing six direct peers. Prior to the beginning of the year, the Compensation Committee sets the Target Industry Peer Group and the subset of direct peers used to benchmark compensation for the following year. To identify peer companies for compensation benchmarking purposes, the Compensation Consultant employed an objective criteria-based methodology where: · | | the company was identified as a peer by at least two aerospace and defense peers or proxy advisory services; |
· | | the company participated in the annual Aon Hewitt executive compensation study; and |
· | | revenues, total employees and market capitalization of the company were broadly similar to those of the Company. |
38 •the company was identified as a peer by at least two aerospace and defense peers or proxy advisory services;
|•the company participated in the annual Aon executive compensation study; and
•revenues, total employees and market capitalization of the peer company were broadly similar to those of the Company. 46I NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
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While the Target Industry Peer Group is reviewed annually by the Compensation Committee with the Compensation Consultant, our goal is to keep it as consistent as reasonably possible on a year-over-year basis. The companies that comprise the 20172020 Target Industry Peer Group are listed in the following table: | | | | | | 20172020 TARGET INDUSTRY PEER GROUP
| 3M Company | | Johnson Controls International | The Boeing Company(1) | | L3
L3Harris Technologies, Inc.(1) | Caterpillar, Inc. | | Lockheed Martin Corporation(1) | Eaton Corporation | | Raytheon Company(1)
Parker-Hannifin Corporation | Emerson Electric Company | | Rockwell Collins, Inc.
Raytheon Technologies Corporation (1)(2) | General Dynamics Corporation(1) | | Textron, Inc. | Honeywell International, Inc.(1) | | United Technologies Corporation
| (1) Included in the subset of six direct peers also used for compensation benchmarking
| (2) Raytheon Company merged with United Technologies in 2020, forming Raytheon Technologies Corporation |
It is the Company’sCompany's pay philosophy to provide the CEO a compensation package that comprises competitive elements of base salary and target variable pay relative to the Target Industry Peer Group.Group and the direct six peers noted in the table above. In 2017,2020, the CEO’sCEO's target total direct compensation approximated the median of the Target Industry Peer Group.Group and direct six peers. Another element of the Company’sCompany's pay philosophy is to tie a significant portion of the CEO’sCEO's pay to performance. As a result, the CEO’sCEO's actual compensation may differ from this market median based on the Company’sCompany's actual performance. In determining the base salary and target variable pay elements for the other NEOs, the Compensation Committee does not set any specific benchmark relative to the Target Industry Peer Group; rather, the Compensation Committee considers several factors in determining their compensation, including executive compensation levels and practices of the Target Industry Peer Group, NEO individual experience, growth in job as demonstrated through sustained performance, leadership impact, retention and pay relative to the CEO. Actual annual incentive awards and long-term incentive award opportunities reflect these factors, as well as Company performance.
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39
| | | COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTSKEY COMPONENTS OFOUR PROGRAMS PROGRAMS
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Annual Incentive Compensation
| | | | Annual Incentive Compensation |
Under our shareholder-approved 2002 Incentive Compensation Plan (the Plan)(AIP), the Compensation Committee approves the annual incentive compensation target payout percentage for each NEO other than the CEO. For the CEO, such percentage is approved by the independent directors of the Board. The target incentive award (target bonus) represents a percentage of each NEO’sNEO's base salary. Following the completion of the fiscal year, the target bonus is used by the Compensation Committee, together with its assessment of Company performance against pre-determined established performance criteria, to determine the final bonus award amount. 2017
2020 Annual Incentive Plan The 20172020 target bonus for the CEO was 180% of base salary, which was unchanged from 2016.2019. For each of the other NEOs, the 20172020 target bonus was 100% of base salary, which was also unchanged from 2016. Upon Mr. Pamiljans’ promotion effective April 1, 2017, his target2019. Final bonus was increased to 100% of base salary. Mr. Pamiljans’ 2017 target bonus and final bonus award were prorated to reflect the time he served in his role as an elected officer and as an appointed officer.The final bonus awardawards for each NEO waswere determined by multiplying the Northrop Grumman Company Performance Factor (CPF) by the target bonus. The CPF can range from 0% to 200% in the annual incentive formula described below.
. Annual Incentive Formula for 2017:
At2020:
| | | | | | | | | | | | | | |
Base Salary
| X |
Target Payout %
| = |
Target Bonus
| | | | | |
Target Bonus
| X |
CPF
| = |
Final Bonus Award
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Annual performance evaluations are conducted by the end of each year, the CEO conducts an annual performance evaluation for each NEO, other than himself,the CEO, and then reviews the evaluationreviewed with the Compensation Committee. The Compensation Committee reviews Companyconsiders this performance information as well as the comparison to market data. The Compensation Committee approves bonus amounts for all NEOs except the CEO, whose annual bonus is recommended by the Compensation Committee to the independent members of the Board for approval. The Compensation Committee has discretion to make adjustments to the annual bonus payouts for NEOs, exceptother than the CEO, if it determines such adjustment is warranted. For example, in instances where Company performance has been impacted by unforeseen or unusual events, (e.g., the 2017 Tax Act), the Compensation Committee has exercised its authority to increase the final awards as necessary to preserve the intended incentives and benefits. The Compensation Committee has also adjusted payouts downward in the past, despite performance targets having been met, when it determined that particular circumstances had a negative impact on the Company but were not reflected in the performance calculation. 40 48|I NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTSKEY COMPONENTS OFOUR PROGRAMS PROGRAMS
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2017
2020 Annual Incentive Goals and Results | | | | | | | | | 2016 Financial Metrics
| | Weighting
| | | | 2017 Financial Metrics
| | Weighting
| Pension-adjusted OM Rate*
| | 30%
| |  | | Pension-adjusted OM Rate*
| | 1/3
| Cash Flow from Operations Conversion*
| | 30%
| | | Cash Flow from Operations Conversion*
| | 1/3
| Pension-adjusted Net Income* Growth
| | 30%
| | | Pension-adjusted Net Income* Growth
| | 1/3
| Awards(Book-to-Bill)
| | 10%
| | | | | | * This metric is anon-GAAP financial measure. For more information, see “Appendix A - Use ofNon-GAAP Financial Measures.”
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For the AIP, we use a mix of financial andnon-financial metrics to measure our performance. For 2017, the Compensation Committee refined ourOur AIP financial metrics and weightings, reflectingreflect our commitment to investing for and achieving long-term profitable growth; maintaining alignment with shareholders’shareholders' interests; and incentivizing top performance against our industry peers. The FINANCIAL METRICS: For 2020, the Compensation Committee approved the following metrics, equallycontinued with Segment Operating Income* Growth and refined Pension-adjusted Cash Flow from Operations* to be Adjusted Cash Flow from Operations Conversion*, each weighted at 1/3:35%. The Committee remained consistent with Pension-adjusted Net Income* Growth and Pension-adjusted OM Rate*, each weighted at 15%. The metrics are defined as follows: •Adjusted Cash Flow from Operations Conversion*: calculated as Adjusted cash provided by operating activities* divided by earnings before interest, taxes, depreciation and amortization, excluding mark-to-market (MTM) expense and the MTM-related deferred state tax benefit (Adjusted EBITDA*). This metric emphasizes the importance of converting earnings into cash and enables management to make capital investment decisions that support long-term profitable growth without impacting performance-based incentive compensation. •Segment Operating Income* Growth: calculated as segment operating income* multiplied by a market-based growth rate. This metric incentivizes management to focus on profitable growth and enables management to evaluate the financial performance and operational trends of our sectors. •Pension-adjusted Net Income* Growth: calculated as net income before the after-tax impact of the total net FAS/CAS pension adjustment multiplied by a market-based growth rate. This metric incentivizes management to achieve relative long-term profitable growth greater than a projected industry growth rate. •Pension-adjusted OM Rate*: calculated as OM rate (operating margin divided by sales) before net FAS (service)/CAS pension adjustment. This metric establishes high program performance expectations for the Company.
* This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures." NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 49
· | | Pension-adjusted OM Rate*: establishes high program performance expectations for the Company and is calculated as OM rate (operating margin divided by sales) before net FAS/CAS pension adjustment* (the difference between pension expense charged to contracts and included as cost in segment operating income in accordance with U.S. Government Cost Accounting Standards (CAS) and pension expense determined in accordance with GAAP (FAS)). | COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS
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· | | Cash Flow from Operations Conversion*: recognizes the importance of converting net income into cash. The metric is calculated as cash provided by operating activities before theafter-tax impact of discretionary pension contributions* divided by net income. Cash Flow from Operations Conversion* enables management to make capital investment decisions that support long-term profitable growth without impacting performance-based incentive compensation. |
· | | Pension-adjusted Net Income* Growth: incentivizes management to achieve relative long-term profitable growth greater than a projected industry growth rate. Pension-adjusted Net Income* Growth is calculated as net income before theafter-tax impact of the net FAS/CAS pension adjustment* and is based on a three-year growth trajectory. |
NON-FINANCIAL METRICS:In addition to thesethe financial goals, we establishedvarious non-financial goals are used to align our objectives with all our stakeholders. Performance against these non-financial metrics can result only in a downward adjustment to the financial metric score. For 2017,2020, we selected the following non-financial metrics: · | | Customer Satisfaction: measured in terms of customer feedback, including customer-generated performance scores, award fees and verbal and written feedback. | | | | | | | | | |
·Non-Financial Metric | How Measured | Quality: measured using program-specificHighlights | | Quality | Program-specific objectives, including defect rates, process quality, supplier quality, planning quality or other appropriate criteria for program type and phase. | •Corporate quality metric was above target for the year |
· | Customer Satisfaction | Customer feedback, including customer-generated performance scores, award fees and verbal and written feedback. | •Customer satisfaction metric was at target for the year | | Engagement & Inclusion: measured based on performanceInclusion | Perform at or above the global high performing norm forGlobal High Performance (GHP) Norm, a Willis Towers Watson (WTW) index. Results derived from annual employee survey with a "percent favorable response" measurement scale. | •86% favorable employee engagement and equal to the GHP norm •83% favorable on the inclusion indicesindex and an accountability metric (as reportedabove the GHP norm | | Operational Efficiency | Reach or exceed the GHP Norm. Results derived from annual employee survey with a "percent favorable response" measurement scale. | •75% favorable and equal to the goal •Company improved during a year when most other companies had a decline as noted in a company-wide employee survey).the WTW indices |
· | Diversity | Diversity: measured in terms of improving representationRepresentation of females and people of color in all management level positions with respect to internal and external benchmarks. | •We met or exceeded our employee diversity goals in 2020, and since 2010, have made significant progress |
· | Environmental Sustainability | Safety: measured by totalReductions in absolute greenhouse gas emissions and potable water consumption, and improvement in solid waste diversion (i.e., waste diverted from landfill disposal). | •The company exceeded the annual target for the year, driving further progress towards our multi-year environmental sustainability goals that ended in 2020 | | Safety | Total case rate, defined as the number of Occupational Safety & Health Administration recordable injuries as well as by lost work day rate associated with those injuries. |
· | | Environmental Sustainability: measured•The Company exceeded the annual target in terms of reductions in absolute greenhouse gas emissions and potable water use consumption, and improvement in solid waste diversion (i.e., waste diverted from landfill disposal).2020 |
NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
PAYOUT:|41
| COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTSOFOUR PROGRAMS
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Our AIP provides for payout levels from 0% to 200% of target. The minimum, target and maximum performance levels are derived based on an analysis of the pasthistorical and forecasted performance of our Performance Peer Group (Pension-adjusted Net Income* Growth is based on projected market growth rates). Specific values are identified for each metric at selected points in the range between minimum and maximum and other values are determined by linear interpolation between these points. No payout is made if performance is below the minimum. Above targetAbove-target payout can be earned only if the Company’s performance exceeds the performance threshold noted in the table below.on the following page. The maximum 200% payout is based upon approximate top quartile past performance of the Performance Peer Group. This structure rewards superior performance by aligning above-target payouts to outperforming our peer benchmarks and provides reduced awards for below target performance. Based on 50INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS
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As mentioned previously, the Committee monitored the impact of COVID-19 throughout the year, and taking into consideration the modest impacts to our operations and results, determined not to make any adjustments to the AIP framework or calculated outcome of performance and resulting payouts.
In determining the CPF, both financial and non-financial performance against goals are assessed. The 2020 Company financial performance for the three financialfour metrics shown in the table below which have beenwas 143%. As approved by the Compensation Committee, Company performance calculations were adjusted, as applicable, to include proceeds from sale of equipment to a customer, and to exclude transaction-related expenses, Orbital ATK intangible asset amortization and property, plant and equipment (PP&E) step-up depreciation expense as well as certain accounting impacts related to the Company's pension, and OPB plans.
Consistent with prior years, GAAP earnings were adjusted for the after-tax impact of the 2017 Tax Act,Company's FAS/CAS pension adjustment recorded during the 2017 CPF was 131%. Noyear and MTM pension and OPB expense and related tax impacts recognized at the end of the year. As such, during 2020 we removed $1.3B from earnings related to our FAS/CAS pension adjustment and added back earnings of $0.8B associated with our MTM pension and OPB expense and related tax impacts. The adjustments allowed us to more effectively compare the Company's financial performance against our peers. Details are outlined in Appendix A - Use of Non-GAAP Financial Measures. | | | | | | | | | | | | | | | | Metric/Goal | Weighting | Performance to Achieve Target Payout | 2020 Performance | 2020 Financial Score | | Adjusted Cash Flow from Operations Conversion* | 35% | 72.0% | 81.3% | 64% | | Segment Operating Income* Growth | 35% | $4.2B | $4.2B | 35% | | Pension-adjusted Net Income* Growth | 15% | $2.8B | $3.0B | 29% | | Pension-adjusted OM Rate* | 15% | 11.1% | 10.7% | 15% | | | | | 143% | | * This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures." |
Performance against the annual non-financial metrics cannot exceed 100% and can result only in a downward adjustment was made fornon-financial metricto the financial performance asscore. The Company demonstrated strong performance in 2020 overall against the non-financial goals, and the Compensation Committee approved a non-financial score of 100%. In consideration of both the financial and non-financial performance, the 2020 Company Performance Factor was determined that performance, in aggregate, against thenon-financial goals, met the Company’s stated objectives. | | | | | | | | | Metric/Goal | | Weighting | | Performance to Achieve
Target Payout | | 2017
Performance | | 2017 Score | Pension-adjusted OM Rate* | | 1/3 | | 10.0% | | 10.5% | | 44% | Cash Flow from Operations Conversion* | | 1/3 | | 145% | | 127% | | 20% | Pension-adjusted Net Income* Growth | | 1/3 | | $1.67B | | $1.93B | | 67% | Company Performance Factor | | | | | | | | 131% |
* This metric is anon-GAAP financial measure. For more information, see “Appendix A - Use ofNon-GAAP Financial Measures.”
to be 143%. In February 2018,2021, the Compensation Committee applied the CPF to Mr. Bush’s target bonus. Based on the CPF, in February 2018, the Committee recommended, and the independent members of our Board approved, a 20172020 annual incentive award of $3,662,000$3,977,000 for Mr. Bush.the CEO, Ms. Warden. Based on the CPF, the CEOMs. Warden recommended, and the Compensation Committee approved, the other NEOs’NEOs' annual incentive awards. | | | | | | | | | Name | | Target Payout
% of Salary | | Payout Range
% of Salary | | Actual Payout
% of Salary | | Actual Payout (1) | Wesley G. Bush | | 180% | | 0% - 360% | | 236% | | $3,662,000 | Kenneth L. Bedingfield | | 100% | | 0% - 200% | | 131% | | $1,041,000 | Gloria A. Flach | | 100% | | 0% - 200% | | 131% | | $1,061,000 | Janis G. Pamiljans(2) | | 93% | | 0% - 186% | | 121% | | $861,000 | Kathy J. Warden | | 100% | | 0% - 200% | | 131% | | $1,061,000 |
(1)The potential range of bonus payouts based on 2017 performance is disclosed in the Grants of Plan-Based Awards Table. Actual bonus payouts for 2017 performance are disclosed above and in the Summary Compensation Table.
(2) Mr. Pamiljans was elected President, Aerospace Systems effective April 1, 2017. His target and actual payout under the AIP is prorated to reflect time served as an elected officer and as an appointed officer.
42 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | AIP Target % of Salary | | AIP Payout Range % | | Performance Payout | | Actual Payout (1) | | Kathy J. Warden | | 180% | | 0% - 200% | | 143% | | $3,977,000 | | David F. Keffer | | 100% | | 0% - 200% | | 143% | | $928,000 | | Mark A. Caylor | | 100% | | 0% - 200% | | 143% | | $1,223,000 | | Blake E. Larson | | 100% | | 0% - 200% | | 143% | | $1,160,000 | | Janis G. Pamiljans | | 100% | | 0% - 200% | | 143% | | $1,223,000 | Kenneth L. Bedingfield(2) | | 100% | | 0% - 200% | | 143% | | $185,000 | (1) The potential range of bonus payouts based on 2020 performance is disclosed in the Grants of Plan-Based Awards Table. Actual bonus payouts for 2020 performance are disclosed above and in the Summary Compensation Table. | (2) Mr. Bedingfield's payout represents the portion of his severance payment equal to the prorated bonus he would have received under the Company's AIP. |
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| | | COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTSKEY COMPONENTS OFOUR PROGRAMS PROGRAMS
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| | | | Long-Term Incentive Compensation |
2020 Long-Term Incentive Compensation2017 Long-Term Incentive Program
In determining the amount of the individual long-term incentive award for an NEOour NEOs (other than the CEO), the Compensation Committee considers an elected officer’sofficer's individual performance during the preceding year, growth in job as demonstrated through sustained performance, leadership impact, retention and pay relative to the CEO, as well as market data for the elected officer’sofficer's position based on the Target Industry Peer Group analysis. In 2017,2020, after determining the award value for the NEOs as described above, the Compensation Committee granted awards in the form of RPSRs to ensure sustainability and achievement of business goals over time and RSRs to provide retention value. The awards were comprised of 70% RPSRs and 30% RSRs. The Compensation Committee determined this long-term incentive mix would appropriately motivate and reward the NEOs to achieve our long-term objectives and further reinforce the link between their interests and the interests of our shareholders. The RPSRs will vest and be distributed following the completion of the three-year performance period (2017-2019)(commencing January 1, 2020 and ending December 31, 2022) if goals are met. The RSRs generally vest 100% after three years. Earned RPSRs and RSRs may be paid in shares, cash or a combination of shares and cash at the Compensation Committee's discretion. An executive generally must remain employed through the vesting period to earn an award. Vesting for termination due to death, disability, retirement or retirementchange in control is discussed in the Terms of Equity Awards section. For the 2017 grant, dividend"Termination Payments and Benefits" section on page 70. Dividend equivalents accrue on both RPSR and RSR awards earned and will be paid upon distribution of the RPSRs and RSRs. The Compensation Committee evaluates RPSR performance requirements each year to ensure they are aligned with our business objectives. For the 20172020 RPSR grant, the Compensation Committee determined that for the NEOs, performance metrics will continue to be measured in terms of relative TSR, andAdjusted Cumulative FCF* ; however, in order to increase management’s focus and Operating RONA*, each equally weighted at 1/3. The current metrics and weightings reflect the Company's continued emphasis on the operational metrics that drive long-termperformance directly impacted by management decisions and behaviors, while maintaining strong alignment with shareholder value creation, the weighting of Cumulative FCF* has been increased to 50% from 30%. Therefore, 2017 RPSR grant performance will be weighted 50% to relative TSR and 50% to Cumulative FCF*.interests. Based on the performance against these metrics, shares earned for 20172020 RPSR grants can vary from 0% to 150% of the rights awarded. TSR is measured by comparing cumulative stock price appreciation with reinvestment of dividends over athe three-year period to the Performance Peer Group (50% of relative TSR portion of award) and to the S&P Industrials (50% of relative TSR portion of award), which comprises companies within the S&P 500 classified as Industrials, reflecting the range of similar investment alternatives available to our shareholders. To smooth volatility in the market, the TSR calculation is based on the average of the three-year returns for each of the 30 calendar days, immediately priorstarting from the grant date, to the start of the performance period and the last 30 calendar days of the performance period. The maximum relative TSR payout is capped at 100% of target shares if the absolute TSR is negative, even if the relative TSR would have resulted in a higher score. Adjusted Cumulative FCF* focuses on cash generation after capital investments and is calculated as the aggregate free cash flowAdjusted Free Cash Flow before theafter-tax impact of total pension funding* over a three-year period. Adjusted Free cash flow*Cash Flow* includes funds available to create shareholder value after investing in the business through capital expenditures. On February 17, 2017, prior to his promotion, Mr. Pamiljans received an annual long-term incentive award
Operating RONA* drives operational productivity through the efficient use of capital resources (net operating assets). The metric is calculated as an appointed officer. The terms associated with this award are disclosed inAdjusted Net Operating Profit After-Tax* (adjusted NOPAT*) divided by the Grantstwo-year average of Plan-Based Awards Table on page 52.net operating assets. Recently Completed RPSR Performance Period (2015(2018 – 2017)2020) In February 2015,2018, when granting RPSRs to NEOs who were elected officers at the time of the grant, the Compensation Committee selected relative TSR and Adjusted Cumulative FCF*, equally weighted at 50%, as the performance metricmetrics for the awards and established the performance criteria for the awards as set forth in the table below. | | | | | | | | | | | | | | | | | | | | | | Performance Required to Score | | | | Metric/Goal | Weighting | 0% | 100% | 150% | 2020 Actual Performance | 2020 Score | | Relative TSR - 2018 Performance Peer Group | 25% | 25th | 50th | 80th | 60th | 29% | | Relative TSR - S&P Industrials | 25% | 25th | 50th | 80th | 32nd | 7% | | Adjusted Cumulative FCF* | 50% | $5.6B | $6.8B | $8.5B | $8.1B | 69% | | RPSR Performance Factor | | | | | | 105% |
52INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
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In February 2018,2021, the Compensation Committee reviewed performance for the January 1, 20152018 to December 31, 20172020 RPSR performance period. | | | | | | | | | | | | | | | | Percentile Required to Score | | | Metric/Goal | | Weighting | | 0% | | 100% | | 150% | | 2017 Actual
Performance | Relative TSR - 2015 Performance Peer Group | | 50% | | 25th | | 50th | | 80th | | 89th | Relative TSR - S&P Industrials | | 50% | | 25th | | 50th | | 80th | | 96th |
NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT|43
| COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTSOFOUR PROGRAMS
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Decisions for 2017
Based on 2015 - 2017 TSR performance, we ranked second against the 2015 Performance Peer Group and were in the 89th percentile. We were in the 96th percentile of the S&P Industrials. The combined weighted score for the metrics generated an overall performance score of 150% for NEOs who were elected officers at105% (excluding the timeimpact of the grant.
legacy Innovation Systems as detailed in "Appendix A - Use of Non-GAAP Financial Measures"). In February 2018,2021, the NEOs received payouts in stock with respect to the outstanding RPSR awards that were granted in February 20152018 for the three-year performance period ending December 31, 20172020 (as described further in footnote 3 to the Outstanding Equity Awards Table on page 54)61). Other Benefits
This section describes other benefits the NEOs receive. These benefits are not performance related and are designed to provide a competitive package for purposes of attracting and retaining the executive talent needed to achieve our business objectives. These benefits include retirement benefits, certain perquisites and severance arrangements. We maintain tax-qualified retirement plans (both defined benefit pension plans and defined contribution savings plans) that cover most of our workforce, including the NEOs. We also maintain nonqualified retirement plans that are available to our NEOs, which are designed to restore benefits that were limited under the tax-qualified plans or to provide supplemental benefits. Compensation, age and years of service factor into the amount of benefits provided under the plans. Thus, the plans are structured to reward and retain employees of long service and recognize higher performance levels as evidenced by increases in annual pay. Additional information about these retirement plans and the NEO benefits under these plans can be found in the Pension Benefits Table and Nonqualified Deferred Compensation Table, on pages 5663 and 60,68, respectively. The Compensation Committee assesses aggregate benefits available to the NEOs and has previously imposed an overall cap, generally limited to no more than 60% of final average pay, on pension benefits for the NEOs (except for small variations due to contractual restrictions under the plans). Mr. Bush voluntarily agreed to reduce his cap to 50% of final average pay. In addition, theThe nonqualified supplemental defined benefit plans in which our NEOs participate were frozen as to pay and service as of December 31, 2014. Retiree Medical Arrangement
The Special Officer Retiree Medical Plan (SORMP) was closed to new participants in 2007. Participants in the SORMP are entitled to retiree medical benefits and life insurance pursuant to the terms of the Plan. Mr. Bush is eligible for SORMP benefits due to his date of hire and years of service as an executive. The other NEOs became elected officers after the SORMP was closed to new participants and are not eligible for SORMP benefits. The estimated cost of the SORMP benefit reflected in the Termination Payment Table is the present value of the estimated cost to provide future benefits using actuarial calculations and assumptions.
Our NEOs are eligible for certain limited executive perquisites that include financial planning, income tax preparation, physical exams and personal liability insurance. The Compensation Committee believes these perquisites are common within the competitive market for total compensation packages for executives and are useful in attracting, retaining and motivating talented executives. Perquisites provided to the NEOs in 20172020 are detailed in the Summary Compensation Table on page 49.58. Given the nature of our business, we maintain a comprehensive security program. As a component of that program, we provide residential and/or travel protection that we consider necessary to address our security requirements. In selecting the level and form of protection, we and the Board consider both security risks faced by those in our industry in general and security risks specific to our Company and its individuals. Based on security threat information obtained and an ongoing dialogue with law enforcement officials,and security specialists, the Board has required that Mr. BushMs. Warden and other NEOs receive varying levels of residential and travel protection. Since we require this protection under a comprehensive security program and it is not designed to provide a personal benefit (other than the intended security), we do not view these security arrangements as compensation to the individuals. We report these security arrangements as perquisites as required under applicable SEC rules. In addition, we would report them as taxable compensation to the individuals if they wereare not excludable from income as working condition fringe benefits under Section 132 of the Internal Revenue Code. 44 |NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTSOFOUR PROGRAMS
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The Board has determined that the CEO should avoid traveling by commercial aircraft for purposes of security, rapid availability and communications connectivity during travel, and should use Company-provided aircraft for all air travel. If, as a result, the CEO uses Company-provided aircraft for personal travel, the costs of such travel are imputed as income and are subject to the appropriate tax reporting according to Internal Revenue Code regulations. We regularly review the nature of the security threat and associated vulnerabilities with law enforcement and security specialists and will continue to revise our security program as appropriate. NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 53
| | | COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS
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We maintain the Severance Plan for Elected and Appointed Officers of Northrop Grumman Corporation (Severance Plan), which is available to ourMs. Warden and other NEOs (other than the CEO) who qualify and are approved to receive such benefits. Mr. Bush is not eligible to participate in a Northrop Grumman severance plan. The purpose of the Severance Plan is to help bridge the gap in an executive’sexecutive's income and health coverage during a period of unemployment following termination.termination, and to ensure certain benefits for the Company. We do not maintain any change in control (CIC) severance plans. In addition, we do not provide excise tax gross-ups for any payments received upon termination after a change in control. Upon a “qualifying termination”"qualifying termination" (defined below) the Company will provide severance benefits to eligible NEOs under the Severance Plan. Provided the NEO signs a release and agrees to certain restrictions, he or she willmay receive: (i) a lump sum severance benefit equal to one and one-half times annual base salary and target bonus, (ii) a prorated performance bonus for the year of termination, (iii) continued medical and dental coverage for the eighteen-month severance period, (iv) income tax preparation/financial planning fees for the year of termination and the following year and (v) outplacement expenses up to 15% of salary, all subject to management approval. The cost of providing continued medical and dental coverage is based upon current premium costs. The cost of providing income tax preparation and financial planning is capped at $15,000 for the year of termination and $15,000 for the year following termination. The annual cap for the CEO is $30,000 and for the rest of the NEOs is $18,500. A “qualifying termination” means"qualifying termination" includes one of the following: · | | involuntary termination, other than for cause or mandatory retirement; or |
· | | election to terminate in lieu of accepting a downgrade to anon-officer position (i.e., good reason). |
•involuntary termination, other than for cause or mandatory retirement; or •election to terminate in lieu of accepting a downgrade to a non-officer position (i.e., good reason). Change in Control Benefits We do not maintain separate change in controlCIC programs or agreements. The only change in controlCIC benefits available to the NEOs are those described in the terms and conditions of the grants under the 2011 Long-Term Incentive Stock Plan (2011 Plan). Policies and Procedures
Stock Ownership Guidelines We maintain stock ownership guidelines for our NEOs to further promote alignment of management and shareholder interests. These guidelines require that NEOs own Company stock with a value denominated as a multiple of their annual salaries, which can be accumulated over a five-year period from the date of hire or promotion into an elected officer position. The guidelines are as follows: | | | | | | | Position | | Position
| | Stock Value as a Multiple of Base Salary | Chairman and Chief Executive Officer | | 7x base salary | Other NEOs | | 3x base salary |
Shares that satisfy the stock ownership guidelines include: · | | Company stock owned outright; |
· | | the value of shares held in the Northrop Grumman Savings Plan or Northrop Grumman Financial Security and Savings Program. |
•Company stock owned outright; •unvested RSRs; and •the value of shares held in the Northrop Grumman Savings Plan or Northrop Grumman Financial Security and Savings Program. Unvested RPSRs are not included in calculating ownership until they are converted to actual shares owned. The Compensation Committee reviews compliance with our stock ownership guidelines on an annual basis. As of December 31, 2017,2020, all NEOs were in compliance with the ownership guidelines. The Compensation Committee continues to monitor compliance and will conduct a full review again in 2018.NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT|45
2021.
| COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTSOFOUR PROGRAMS
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Stock Holding Requirements We have a holding period requirementrequirements for payouts from long-term incentive grants, further emphasizing the importance of sustainable performance and appropriate risk-management behaviors. Under this policy, NEOs are required to hold, for a period of three years, 50% of their net after-tax shares received from RPSR distributions and RSR vestings and RPSR distributions.vestings. These restrictions generally continue following termination and retirement; however, shares acquired from RPSR distributions following termination or retirement occurring more than one year after separation from the Company are not subject to the holding requirement. 54INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS
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Anti-Hedging and Pledging Policy Company policy prohibits our NEOs and other elected officers from hedging or entering into margin transactions involving Company stock, and pledging Company securities as collateral for loans or other transactions. Additional information about our policy can be found in "Compensation of Directors - Stock Ownership Requirements and Anti-Hedging and Pledging Policy" on page 30. The Company’sCompany's recoupment policy provides that: · | | the Board has discretion to recoup incentive compensation paid to an elected officer in the event of a restatement or if an elected officer engages in illegal conduct that causes significant financial or reputational harm to the Company; |
· | | the Board has discretion to recoup incentive compensation paid to the elected officer in the event the elected officer fails to report such misconduct of another, or is grossly negligent in fulfilling his or her supervisory responsibilities to prevent such misconduct; and |
· | | the CEO has discretion to recoup under similar circumstances incentive compensation provided tonon-elected officers or other employees. |
•the Board has discretion to recoup incentive compensation paid to an elected officer in the event of a restatement or if an elected officer engages in illegal conduct that causes significant financial or reputational harm to the Company; •the Board has discretion to recoup incentive compensation paid to the elected officer in the event the elected officer fails to report such misconduct of another, or is grossly negligent in fulfilling his or her supervisory responsibilities to prevent such misconduct; and •the CEO has discretion to recoup under similar circumstances incentive compensation provided to non-elected officers or other employees. The Company’s recoupment policy applies to a three-year look back of performance-based shortshort- or long-term, cash or equity incentive payments. It provides for certain disclosure in the event of recoupment, consistent with SEC and other legal requirements. The Compensation Committee annually reviews our compensation program and together with the independent compensation consultantCompensation Consultant assesses potential compensation-related risks to the Company. Based on this assessment for 2017,2020, the Compensation Committee determined that the risk profile is appropriate and substantial risk management features are incorporated into our compensation program. This determination reflects the following conclusions from the detailed risk assessment: · | | there is appropriate balance to mitigate compensation-related risk in the executive compensation program’s design between fixed and variable pay, cash and stock components, short- and long-term measures, financial andnon-financial measures, and formulaic and discretionary decisions; |
· | | there are appropriate policies in place to mitigate compensation-related risk including the Compensation Committee’s and its advisor’s independence, transparent disclosure, officer stock ownership guidelines and holding period requirements, and hedging and recoupment policies; and |
· | | there are no incentive or commission arrangements below the executive level that potentially encourage excessive risk-taking behavior. |
•there is appropriate balance to mitigate compensation-related risk in the executive compensation program's design between fixed and variable pay, cash and stock components, short- and long-term measures, financial and non-financial measures, and formulaic and discretionary decisions; •there are appropriate policies in place to mitigate compensation-related risk, including the Compensation Committee's and its advisor's independence, transparent disclosure, officer stock ownership guidelines and holding period requirements, and hedging and recoupment policies; and •there are no incentive or commission arrangements below the executive level that potentially encourage excessive risk-taking behavior. Grant Date for Equity Awards Annual grant cycles for equity awards occur in February at the same time as salary increases and annual incentive grants.targets are determined. This timing allows the Compensation Committee to make decisions on each of these compensation components at the same time, utilizing a total compensation philosophy. The Compensation Committee reviews and approves annual long-term incentive grants during its scheduled meeting, which occurs following the announcement of our year-end financial results. Equity grants may also be granted on an interim basis throughout the year for special situations, such as new executive hires, promotions or retention. Under prior law, Section 162(m) of the Internal Revenue Code generally limited the annual tax deduction to $1 million per person for compensation paid to the Company’sCompany's CEO and the next three highest-paid NEOs, other than the Chief Financial Officer (collectively, covered employees). Certain compensation, including qualified performance-based compensation, was not subject to the deduction limit if certain requirements were met. 46 |NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTSOFOUR PROGRAMS
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The 2017 Tax Act enacted on December 22, 2017, modifiesmodified Section 162(m). The 2017 Tax Act expandsexpanded the definition of covered employees to include the Company’sCompany's Chief Financial Officer and any employee who was a covered employee for any taxable year beginning after December 31, 2016. The 2017 Tax Act also repealsrepealed the performance-based compensation exception to the deduction limit. These amendments, effective January 1, 2018, do not apply to compensation paid pursuant to a written binding contract in effect on November 2, 2017, that was not materially modified after such date.
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 55
| | | COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS
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Our shareholders have beenare asked annually to approve, on an advisory basis, the compensation paid to our NEOs. We regularly engage with our shareholders to understand their concerns regarding executive compensation. The Compensation Committee annually reviews and discusses the results of thesay-on-pay vote. In 2017,2020, our executive compensation programs continued to receive strong support from shareholders with 96% approval at our 2017 2020 Annual Meeting of Shareholders. Based on its review and feedback from shareholder engagement, the Compensation Committee determined that our programs are effective and aligned with shareholder interests, and no substantive changes were required. 56INOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
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47
| | | COMPENSATION COMMITTEE REPORT |
The Compensation Committee reviewed and discussed the CD&A with management. Based on such review and discussion, the Compensation Committee recommended to the Board that the CD&A be included in this Proxy Statement. The Board has approved the recommendation. THOMAS M. SCHOEWE, CHAIRPERSON DONALD E. FELSINGER BRUCE S. GORDON MADELEINE A. KLEINER KARL J. KRAPEK CHAIRPERSONDONALD E. FELSINGER
BRUCE S. GORDON
GARY ROUGHEAD THOMAS M. SCHOEWE
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NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| COMPENSATION TABLES | SUMMARY COMPENSATION TABLE
|
2017 Summary Compensation Table
| | | | | | | | | | | | | | | | | | | | | Name & Principal Position | | Year | | | Salary (1)
($) | | Bonus (2)
($) | | Stock
Awards (3)
($) | | Non-Equity
Incentive Plan
Compensation (4)
($) | | Change in
Pension Value
andNon-
Qualified
Deferred
Compensation
Earnings (5)
($) | | All Other
Compensation (6)
($) | | Total
($) | | Wesley G. Bush | | | 2017 | | | 1,548,577 | | — | | 9,999,969 | | 3,662,000 | | 2,733,390 | | 925,121 | | | 18,869,057 | | Chairman, Chief Executive Officer
and President | | | 2016 | | | 1,530,000 | | — | | 10,000,072 | | 4,406,400 | | 3,036,744 | | 868,625 | | | 19,841,841 | | | | | 2015 | | | 1,588,846 | | — | | 10,000,018 | | 3,304,800 | | — | | 901,958 | | | 15,795,622 | | Kenneth L. Bedingfield | | | 2017 | | | 790,192 | | — | | 3,250,106 | | 1,041,000 | | — | | 351,426 | | | 5,432,724 | | Corporate Vice President and
Chief Financial Officer | | | 2016 | | | 756,539 | | — | | 2,999,980 | | 1,232,000 | | — | | 314,724 | | | 5,303,243 | | | | | 2015 | | | 685,077 | | — | | 3,000,092 | | 840,000 | | — | | 196,798 | | | 4,721,967 | | Gloria A. Flach (7) | | | 2017 | | | 807,116 | | — | | 3,499,993 | | 1,061,000 | | — | | 184,922 | | | 5,553,031 | | Corporate Vice President and
Chief Operating Officer | | | 2016 | | | 792,116 | | — | | 3,499,856 | | 1,272,000 | | 995,033 | | 159,738 | | | 6,718,743 | | | | | 2015 | | | 806,538 | | — | | 3,500,083 | | 936,000 | | — | | 357,219 | | | 5,599,840 | | Janis G. Pamiljans (8) | | | 2017 | | | 702,623 | | 100,000 | | 3,499,941 | | 861,000 | | 369,399 | | 1,032,397 | | | 6,565,360 | | Corporate Vice President and
President, Aerospace Systems | | | 2016 | | | — | | — | | — | | — | | — | | — | | | — | | | | | 2015 | | | — | | — | | — | | — | | — | | — | | | — | | Kathy J. Warden | | | 2017 | | | 807,116 | | — | | 3,499,993 | | 1,061,000 | | 388,015 | | 206,548 | | | 5,962,672 | | Corporate Vice President and
President, Mission Systems | | | 2016 | | | 772,500 | | — | | 3,499,856 | | 1,272,000 | | 200,220 | | 165,596 | | | 5,910,172 | | | | | 2015 | | | 701,077 | | — | | 3,200,053 | | 814,000 | | 20,782 | | 425,763 | | | 5,161,675 | |
(1) | Includes amounts deferred under the qualified savings and nonqualified deferred compensation plans. |
(2) | Pursuant to a 2016 retention agreement, Mr. Pamiljans received a bonus of $200,000 in two installments ($100,000 each) in 2016 and 2017. |
(3) | Represents the grant date aggregate fair value of RPSRs and RSRs granted during the periods presented. The fair value of awards was computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718 disregarding potential forfeitures. Assumptions used in the calculation of these amounts are disclosed in Note 14 of the Company’s 2017 Form10-K. The maximum grant date fair values of the 2017 RPSRs are as follows, noting the grants assume a 150% maximum payout other than for Mr. Pamiljans: |
| | | | | | | | | | | Name
| | Maximum Grant Date Fair Value
($)
| | | Mr. Bush
| | | | 10,500,087
| | | | | | | Mr. Bedingfield
| | | | 3,412,596
| | | | | | | Ms. Flach
| | | | 3,674,895
| | | | | | | Mr. Pamiljans(a)
| | | | 3,884,932
| | | | | | | Ms. Warden
| | | | 3,674,895
| | | | | | |
(a)Comprised of a February RPSR grant which assumes a 200% maximum payout and an April RPSR grant which assumes a 150% maximum payout. These grants are disclosed in the Grants of Plan-Based Awards Table on page 52.
(4) | These amounts were paid pursuant to the Company’s AIP. Includes amounts deferred under the qualified savings and nonqualified deferred compensation plans. |
(5) | These amounts relate solely to the increased present value of the NEO’s pension plan benefits using mandatory SEC assumptions (see the descriptions of these plans under the Pension Benefits table on page 56). The amount accrued in each year differs from the amount accrued in prior years due to an increase in age, service and pay (salary and bonus). |
The aggregate change in actuarial present value of accumulated benefits is a negative amount for Ms. Flach (-$5,874,072) due to her attainment of an early retirement milestone, which eliminates double counting of benefits in the Northrop Grumman
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I |57
49
| | | COMPENSATION TABLES | SUMMARY COMPENSATION TABLESUMMARY COMPENSATION TABLE
|
Electronic Systems Executive Pension Plan (ESEPP)
| | | | 2020 Summary Compensation Table |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name & Principal Position | Year | | Salary (1)
($) | | Bonus
($) | | Stock
Awards (2)
($) | | Non-Equity Incentive Plan Compensation (3)
($) | | Change in Pension Value and Non-Qualified Deferred Compensation Earnings (4)
($) | | All Other Compensation (5)
($) | | Total
($) | | Kathy J. Warden | 2020 | | 1,536,346 | | — | | 13,499,889 | | 3,977,000 | | 1,144,248 | | 649,661 | | 20,807,144 | | Chairman, Chief Executive Officer and President | 2019 | | 1,488,462 | | — | | 13,000,159 | | 4,509,000 | | 687,615 | | 623,484 | | 20,308,720 | | 2018 | | 963,462 | | — | | 9,999,869 | | 1,920,000 | | — | | 458,976 | | 13,342,307 | | David F. Keffer (6) | 2020 | | 634,616 | | — | | 4,000,102 | | 928,000 | | — | | 71,494 | | 5,634,212 | | Corporate Vice President and Chief Financial Officer | | | | | | | | | | | | | | | | | | Mark A. Caylor | 2020 | | 855,000 | | — | | 3,000,212 | | 1,223,000 | | 870,818 | | 144,715 | | 6,093,745 | | Corporate Vice President and President, Mission Systems | 2019 | | 850,192 | | — | | 3,499,779 | | 1,428,000 | | 886,646 | | 129,727 | | 6,794,344 | | 2018 | | 790,577 | | — | | 3,900,096 | | 1,328,000 | | — | | 127,017 | | 6,145,690 | | Blake E. Larson | 2020 | | 802,154 | | — | | 3,500,217 | | 1,160,000 | | 326,767 | | 217,676 | | 6,006,814 | | Corporate Vice President and President, Space Systems | 2019 | | 746,394 | | — | | 3,000,163 | | 1,278,000 | | 388,000 | | 189,586 | | 5,602,143 | | 2018 | | 426,216 | | — | | 6,499,923 | | 1,127,000 | | 5,297 | | 35,717 | | 8,094,153 | | Janis G. Pamiljans (7) | 2020 | | 855,000 | | — | | 3,500,217 | | 1,223,000 | | 861,964 | | 239,096 | | 6,679,277 | | Corporate Vice President and President, Aeronautics Systems | 2019 | | 850,192 | | — | | 3,499,779 | | 1,428,000 | | 1,088,160 | | 356,125 | | 7,222,256 | | 2018 | | 826,154 | | — | | 3,500,008 | | 1,328,000 | | — | | 241,318 | | 5,895,480 | | Kenneth L. Bedingfield (8) | 2020 | | 145,212 | | — | | — | | — | | — | | 3,072,889 | | 3,218,101 | | Former Corporate Vice President and Chief Financial Officer | 2019 | | 834,385 | | — | | 3,499,779 | | 1,401,000 | | — | | 296,756 | | 6,031,920 | | 2018 | | 811,154 | | — | | 3,500,008 | | 1,304,000 | | — | | 312,214 | | 5,927,376 |
(1)Includes amounts deferred under qualified savings and Officers Supplemental Executive Retirement Program (OSERP) that had been required by SEC guidance. Innonqualified deferred compensation plans. (2)Represents the grant date aggregate fair value of RPSRs and RSRs granted during the periods presented. The fair value of awards was computed in accordance with SEC rules, this negative amount is reported as $0Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, excluding any assumed forfeitures. Assumptions used in the above table.calculation of these amounts are disclosed in Note 14 of the Company's 2020 Form 10-K. The maximum grant date fair values of the 2020 RPSRs are as follows (grants assume a 150% maximum payout): | | | | | | | Name | Maximum Grant Date Fair Value
($) | | Ms. Warden | 14,174,991 | | Mr. Keffer | 4,199,931 | | Mr. Caylor | 3,150,413 | | Mr. Larson | 3,150,413 | | Mr. Pamiljans | 3,150,413 | | Mr. Bedingfield | — |
(3)These amounts were paid pursuant to the Company's AIP. Includes amounts deferred under the qualified savings and nonqualified deferred compensation plans. (4)These amounts relate solely to the increased present value of the NEO's pension plan benefits using mandatory SEC assumptions (see the descriptions of these plans under the Pension Benefits table on page 63). The amount accrued in each year differs from the amount accrued in prior years due to an increase in age, service and pay (salary and bonus). The change in pension value is also highly sensitive to changes in the interest rate used to determine the present value of the payments to be made over the life of the executive. Mr. Bedingfield wasand Mr. Kefferwere hired after the Company’sCompany's defined benefit pension plans were closed to new entrants, and as a result, he doesthey do not participate in any defined benefit pension plans. There were no above-market earnings in the nonqualified deferred compensation plans (see the descriptions of these plans under the Nonqualified Deferred Compensation table on page 60)68). 58INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
(6) | Amounts include, as applicable, (a) the value of perquisites and personal benefits, (b) basic life insurance premiums, (c) matching contributions through the Northrop Grumman Foundation made to eligible educational institutions and to disaster relief organizations during qualifying disasters, and to | | non-profitCOMPENSATION TABLES | organizations under a Company program, (d) Company contributions to defined contribution and deferred compensation plans (the Northrop Grumman Savings Plan, the Savings Excess Plan and the Officers Retirement Account Contribution Plan), and (e) with respect to Mr. Bedingfield, agross-upSUMMARY COMPENSATION TABLE of $1,042 to cover costs incurred as a result of an administrative error by the Company. Where the value of the items reported in a particular category for a NEO exceeded $10,000 in 2017 (other than perquisites and personal benefits, which are subject to different thresholds as described below), those items are identified and quantified below.
|
(5)Amounts include, as applicable, (a) the value of perquisites and personal benefits, (b) basic life insurance premiums, (c) matching contributions through the Northrop Grumman Foundation made to eligible educational institutions and to non-profit organizations under a Company program, and (d) Company contributions to defined contribution and deferred compensation plans. Where the value of the items reported in a particular category for an NEO exceeded $10,000 in 2020 (other than perquisites and personal benefits, which are subject to different thresholds as described below), those items are identified and quantified below. Perquisites and Personal Benefits -Perquisites and other personal benefits provided to certain NEOs are as follows: security, travel-related perquisites including(including use of Company aircraft or ground transportation services for personal travel (including travel and incidental expenses for family members if accompanying the NEO while on business travel), financial planning/income tax preparation services, insurance premiums paid by the Company on the NEO’sNEO's behalf, executive physicals and other nominal perquisites or personal benefits.The We determine the incremental cost of any category of the listedfor perquisites and personal benefits did not exceed the greater of $25,000based on costs or 10% of total perquisites and personal benefits for any NEO in 2017, except for the following:
| i. | Mr. Bush: costs attributable to security protection ($399,545), which includes personal travel on Company aircraft consistent with the Company’s security program ($172,353), |
| ii. | Mr. Bedingfield: costs attributable to security protection ($61,657) and |
| iii. | Mr. Pamiljans: relocation expenses ($850,000), which were in lieu of all benefits he would have been entitled to receive under the Company’s relocation policy. |
The amount of security costs reported for Mr. Bush has been reducedcharges incurred by $72,719, which reflects the portion of the security perquisite that Mr. Bush reimbursed to the Company for himself and his family related to personal travel on the corporate aircraft ($37,557) and other transportation ($35,162).
Security Protection - benefits.
As discussed in “Key"Key Components of Our Programs - Security Arrangements, ”" the Company provides NEOs with certain residential and travel security protection due to the nature of our business and security threat information. The amounts reflected in the “All"All Other Compensation”Compensation" column include expenses for certain residential and travel security that we treat as perquisites under relevant SEC guidance, even though the need for such expenses arises from the risks attendant with their positions with the Company. The Company calculates the cost of travel security coverage here based on the hourly rates and overhead fees charged directly to the Company by the firms providing security personnel. If Company security personnel are used, their hourly rates are used to calculate the cost of coverage. Use of Company Aircraft - We determine the incremental cost for perquisites and personal benefits based on the actual costs or charges incurred by the Company for the benefits. The Company calculates the value of personal use of Company aircraft based on the incremental cost of each element. Fixed costs that would be incurred in any event to operate Company aircraft (e.g., aircraft purchase costs, maintenance not related to personal trips and flight crew salaries) are not included.
The cost of any category of the listed perquisites and personal benefits did not exceed the greater of $25,000 or 10% of total perquisites and personal benefits for any NEO in 2020, except for the following: 50 i.Ms. Warden:|costs attributable to security protection ($100,353), which includes personal travel on Company aircraft consistent with the Company's security program ($67,195), and matching gifts ($18,900);
NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTii.Mr. Caylor: costs attributable to matching gifts ($14,740);
| iii.Mr. Larson: costs attributable to matching gifts ($13,310); iv.Mr. Pamiljans: costs attributable to matching gifts ($13,000); and v.Mr. Bedingfield: costs attributable to cash severance ($2,702,000) and vacation payout ($157,873). COMPENSATION TABLES | SUMMARY COMPENSATION TABLE |
Contributions to Plans - In 2017,2020, we made the following Company contributions to Northrop Grummanthe defined contribution and deferred compensation plans (the Northrop Grumman Savings Plan, the Savings Excess Plan and the Officers Retirement Account Contribution Plan): plans: | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | Company Contributions
($)
| | | | | | | | | Mr. Bush
Ms. Warden | | | | 476,398
| | | | | | | | | | | | | | | | | | | | | 483,628 | Mr. Bedingfield Keffer | | | | 242,663
| | | | | | | | | | | | | | | | | | | | | 33,323 | Ms. Flach
Mr. Caylor | | | | 162,296
| | | | | | | | | | | | | | | | | | | | | 102,714 | Mr. Pamiljans Larson | | | | 55,762
| | | | | | | | | | | | | | | | | | | | | 175,451 | Ms. Warden
Mr. Pamiljans | 182,628 | | Mr. Bedingfield | | | 166,329
| | | | | | | | | | | | | | | | | | | | | 185,561 |
(7) | Ms. Flach retired from the Company on December 31, 2017. |
(8) | Mr. Pamiljans was not an NEO for 2016 and 2015; therefore, data for these years is not reflected. |
(6)Mr. Keffer was appointed Corporate Vice President and Chief Financial Officer effective February 17, 2020. (7)Mr. Pamiljans retired from the Company on February 26, 2021. (8)Mr. Bedingfield was the Corporate Vice President and Chief Financial Officer in 2019. He stepped down from this position effective February 17, 2020 and left the Company February 21, 2020. On February 6, 2020, the Company filed a Form 8-K which included, as an exhibit, the Separation Agreement with Mr. Bedingfield. NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I |59
51
| | | COMPENSATION TABLES | GRANTSGRANTS OF PLAN-BASED AWARDS TABLE PLAN-BASED AWARDS TABLE
|
2017
| | | | 2020 Grants of Plan-Based Awards |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated Future Payouts Under
Non-Equity Incentive
Plan Awards (1) | | Estimated Future Payouts
Under Equity Incentive
Plan Awards (2) | All Other
Stock
Awards:
Number of
Shares of
Stock or
Units (3)
(#) | Grant
Date Fair
Value of
Stock Awards (4)
($) | | Name | Grant Type | Grant Date | Threshold
($) | Target
($) | Maximum
($) | | Threshold
(#) | Target
(#) | Maximum
(#) | | Kathy J. Warden | Incentive Plan | | — | 2,781,000 | 5,562,000 | | | | | | | | RPSR | 2/12/2020 | | | | | — | 27,037 | 40,556 | | 9,449,994 | | RSR | 2/12/2020 | | | | | | | | 11,453 | 4,049,895 | | David F. Keffer | Incentive Plan | | — | 649,038 | 1,298,076 | | | | | | | | RPSR | 5/5/2020 | | | | | — | 6,565 | 9,848 | | 2,100,050 | | RSR | 5/5/2020 | | | | | | | | 2,885 | 900,033 | | RPSR (5) | 5/5/2020 | | | | | | 2,188 | 3,282 | | 699,904 | | RSR (5) | 5/5/2020 | | | | | | | | 962 | 300,115 | | Mark A. Caylor | Incentive Plan | | — | 855,000 | 1,710,000 | | | | | | | | RPSR | 2/12/2020 | | | | | — | 6,009 | 9,014 | | 2,100,275 | | RSR | 2/12/2020 | | | | | | | | 2,545 | 899,937 | | Blake E. Larson | Incentive Plan | | — | 811,000 | 1,622,000 | | | | | | | | RPSR | 2/12/2020 | | | | | — | 6,009 | 9,014 | | 2,100,275 | | RSR | 2/12/2020 | | | | | | | | 2,545 | 899,937 | | RSR (6) | 2/12/2020 | | | | | | | | 1,414 | 500,005 | | Janis G. Pamiljans | Incentive Plan | | — | 855,000 | 1,710,000 | | | | | | | | RPSR | 2/12/2020 | | | | | — | 6,009 | 9,014 | | 2,100,275 | | RSR | 2/12/2020 | | | | | | | | 2,545 | 899,937 | | RSR (6) | 2/12/2020 | | | | | | | | 1,414 | 500,005 | | Kenneth L. Bedingfield | Incentive Plan (7) | | — | 129,077 | 258,154 | | | | | | | | RPSR | 2/12/2020 | | | | | — | — | — | | — | | RSR | 2/12/2020 | | | | | | | | — | — |
(1)Represents the potential range of Plan-Based Awards | | | | | | | | | | | | | | | | | | | | | | | | | | | | Estimated Future Payouts Under
Non-Equity Incentive
Plan Awards (1) | | Estimated Future Payouts
Under Equity Incentive
Plan Awards (2) | | All Other
Stock
Awards:
Number of
Shares of
Stock or
Units (3)
(#) | | Grant Date Fair Value of Stock
Awards (4) ($) | | Name | | Grant Type | | Grant Date | | Threshold
($) | | Target
($) | | Maximum
($) | | Threshold
(#) | | Target
(#) | | Maximum
(#) | | | Wesley G. Bush | | Incentive Plan | | | | — | | 2,795,400 | | 5,590,800 | | | | | | | | | | | | | RPSR | | 2/17/2017 | | | | | | | | — | | 30,504 | | 45,756 | | | | 7,000,058 | | | RSR | | 2/17/2017 | | | | | | | | | | | | | | 12,756 | | 2,999,911 | Kenneth L. Bedingfield | | Incentive Plan | | | | — | | 795,000 | | 1,590,000 | | | | | | | | | | | | | RPSR | | 2/17/2017 | | | | | | | | — | | 9,914 | | 14,871 | | | | 2,275,064 | | | RSR | | 2/17/2017 | | | | | | | | | | | | | | 4,146 | | 975,042 | Gloria A. Flach | | Incentive Plan | | | | — | | 810,000 | | 1,620,000 | | | | | | | | | | | | | RPSR | | 2/17/2017 | | | | | | | | — | | 10,676 | | 16,014 | | | | 2,449,930 | | | RSR | | 2/17/2017 | | | | | | | | | | | | | | 4,465 | | 1,050,063 | Janis G. Pamiljans | | Incentive Plan | | | | — | | 659,263 | | 1,318,526 | | | | | | | | | | | | | RPSR | | 2/17/2017 | | | | | | | | — | | 1,786 | | 3,572 | | | | 420,025 | | | RSR | | 2/17/2017 | | | | | | | | | | | | | | 765 | | 179,910 | | | RPSR | | 4/1/2017 | | | | | | | | — | | 9,395 | | 14,093 | | | | 2,029,921 | | | RSR | | 4/1/2017 | | | | | | | | | | | | | | 3,789 | | 870,085 | Kathy J. Warden | | Incentive Plan | | | | — | | 810,000 | | 1,620,000 | | | | | | | | | | | | | RPSR | | 2/17/2017 | | | | | | | | — | | 10,676 | | 16,014 | | | | 2,449,930 | | | RSR | | 2/17/2017 | | | | | | | | | | | | | | 4,465 | | 1,050,063 |
(1) | Represents the potential range of payouts under the Company’s AIP. Actual payouts are shown in the Summary Compensation Table column entitled“Non-Equity Incentive Plan Compensation” on page 49. |
(2) | These amounts relate to RPSRs granted in 2017payouts under the Company's AIP. Actual payouts are shown in the Summary Compensation Table column entitled "Non-Equity Incentive Plan Compensation" on page 58.(2)These amounts relate to RPSRs granted in 2020 under the 2011 Plan. Each RPSR represents the right to receive a share of the Company’s common stock upon vesting. Earned RPSRs may be paid in shares, cash or a combination of shares and cash at the Compensation Committee’s discretion. Dividend equivalents accrue on RPSR awards earned and will be paid upon distribution of the RPSRs. |
For NEOs who were elected officers atadditional details on our RPSRs, refer to "Key Components of Our Programs - Long-Term Incentive Compensation" on page 52. (3)These amounts relate to RSRs granted in 2020 under the time2011 Plan. For additional details on our RSRs, refer to "Key Components of Our Programs - Long-Term Incentive Compensation" on page 52. (4)The fair value of awards was computed in accordance with FASB ASC Topic 718. (5)Mr. Keffer was granted a sign-on RPSR and RSR award on May 5, 2020. The RPSR grant RPSRs are earnedvests based on relative TSR andperformance for the achievement of Cumulative FCF* targets over a three-year performance period commencing January 1, 2017 and ending on December 31, 2019.2022. The payout will occur in early 2020 and will range from 0% to 150% of the rights awarded.The RPSRs granted to Mr. Pamiljans in February 2017 while he was serving as an appointed officer are earned based on the achievement of metric targets weighted 50% to pension-adjusted return on net assets and 50% to Cumulative FCF* over a three-year performance period. The payout will occur in early 2020 and will range from 0% to 200% of the rights awarded.
An executive must remain employed through the performance period to earn an award, although prorated vesting results if employment terminates earlier due to early retirement, death or disability. The award will fully vest if the executive terminates due to a change in control qualifying termination or normal retirement (mandatory at age 65). See the Termination Payments and Benefits section for treatment of RPSRs in these situations and upon a change in control.
(3) | These amounts relate to RSRs granted in 2017 under the 2011 Plan. Each RSR represents the right to receive a share of the Company’s common stock upon vesting. Earned RSRs may be paid in shares, cash or a combination of shares and cash at the Compensation Committee’s discretion. Dividend equivalents accrue on RSR awards earned and will be paid upon distribution of the RSRs. |
52 |NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| COMPENSATION TABLES | GRANTSOF PLAN-BASED AWARDS TABLE
|
RSRs generally vestRSR grant vests three years from the date of grant. An executive must remain employed through the vesting period to earn an award, although full vesting results if employment terminates earlier due to death, disability, a change in control qualifying termination or normal retirement (mandatory at age 65). The award is prorated if the executive terminates due to early retirement. See the Termination Payments and Benefits section for treatment of RSRs in these situations and upon a change in control.
The RSRs granted to Mr. Pamiljans in April 2017 in connection with his promotion vest one year from the date of grant on April 1, 2018. Mr. PamiljansKeffer must remain employed through the vesting period to earn the awards.
(6)Mr. Larson and Mr. Pamiljans were granted retention RSR awards on February 12, 2020. The awards do not include retirement provisions and will vest on December 31, 2021. However, Mr. Pamiljans retired on February 26, 2021 and forfeited the retention award. (7)Mr. Bedingfield's non-equity incentive plan award although full vesting will result ifrepresents the portion of his employment terminates earlier dueseverance payment equal to death, disability or a change in control qualifying termination.(4) | The fair value of awards was computed in accordance with FASB ASC Topic 718 disregarding potential forfeitures. |
the prorated bonus he would have received under the Company's AIP.
60INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | COMPENSATION TABLES | OUTSTANDING EQUITY AWARDS TABLE
|
| | | | Outstanding Equity Awards at 2020 Fiscal Year End |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | Grant Date | Number of Shares or Units of Stock that Have Not Vested (1)
(#) | | Market Value of Shares or Units of Stock that Have Not Vested (2)
($) | | Equity Incentive Plan Awards: Number of Unearned
Shares, Units or Other Rights that Have Not Vested (3)
(#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested (2)
($) | | Kathy J. Warden | 2/12/2020 | 11,453 | | 3,489,958 | | 27,037 | | 8,238,715 | | 2/13/2019 | 14,227 | | 4,335,251 | | 33,572 | | 10,230,060 | | 9/19/2018 | 4,943 | | 1,506,231 | | 13,016 | | 3,966,236 | | 2/13/2018 | 4,516 | | 1,376,116 | | 9,944 | | 3,030,136 | | David F. Keffer | 5/5/2020 | 3,847 | | 1,172,258 | | 8,753 | | 2,667,214 | | Mark A. Caylor | 2/12/2020 | 2,545 | | 775,512 | | 6,009 | | 1,831,062 | | 2/13/2019 | 3,830 | | 1,167,078 | | 9,038 | | 2,754,059 | | 12/4/2018 | 1,655 | | 504,312 | | — | | — | | 2/13/2018 | 3,161 | | 963,220 | | 6,961 | | 2,121,156 | | Blake E. Larson | 2/12/2020 | 3,959 | | 1,206,386 | | 6,009 | | 1,831,062 | | 2/13/2019 | 3,283 | | 1,000,396 | | 7,748 | | 2,360,971 | | 6/13/2018 | 2,831 | | 862,662 | | 6,642 | | 2,023,950 | | Janis G. Pamiljans | 2/12/2020 | 3,959 | | 1,206,386 | | 6,009 | | 1,831,062 | | 2/13/2019 | 3,830 | | 1,167,078 | | 9,038 | | 2,754,059 | | 2/13/2018 | 3,161 | | 963,220 | | 6,961 | | 2,121,156 | | Kenneth L. Bedingfield | 2/12/2020 | — | | — | | — | | — | | 2/13/2019 | — | | — | | — | | — | | 2/13/2018 | — | | — | | — | | — |
(1)Outstanding RSRs generally vest three years from date of grant. Mr. Larson's and Mr. Pamiljans's February 12, 2020 RSR grants include a retention award in the amount of 1,414 shares for each executive. The retention awards will vest on December 31, 2021. However, Mr. Pamiljans retired on February 26, 2021 and forfeited the retention award. (2)The value listed is based on the closing price of the Company's stock of $304.72 on December 31, 2020, the last trading day of the year. (3)Outstanding RPSRs granted in 2020, 2019 and 2018 generally vest based on performance for the three-year performance period ending on December 31, 2022, 2021 and 2020, respectively. All RPSR grants are subject to the Compensation Committee's approval of the performance-based earnout percentage applicable to the grant following the end of the performance period. Amounts presented assume target level performance. The 2018 RPSRs were distributed in February 2021 upon the Compensation Committee's approval. The actual number of shares distributed to the NEOs in February 2021 as a result of the vesting RPSRs was as follows: | | | | | | | Name | Actual Shares Distributed
(#) | | Ms. Warden | 24,108 | | Mr. Keffer | — | | Mr. Caylor | 7,309 | | Mr. Larson | 6,974 | | Mr. Pamiljans | 7,309 | | Mr. Bedingfield | — |
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I |61
53
| COMPENSATION TABLES | OUTSTANDING EQUITY AWARDS TABLE
|
Outstanding Equity Awards at 2017 Fiscal Year End
| | | | | | | | | | | | | Name | | Grant Date | | | Number of
Shares or Units of
Stock that Have
Not Vested (1)
(#) | | Market Value of
Shares or Units of
Stock that Have Not
Vested (2)
($) | | Equity Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or Other
Rights that Have
Not Vested (3)
(#) | | Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or Other
Rights that
Have Not Vested (2)
($) | Wesley G. Bush | | | 2/17/2017 | | | 12,756 | | 3,914,944 | | 30,504 | | 9,361,983 | | | | 2/17/2016 | | | 16,478 | | 5,057,263 | | 36,316 | | 11,145,744 | | | | 2/18/2015 | | | 16,745 | | 5,139,208 | | 41,147 | | 12,628,426 | Kenneth L. Bedingfield | | | 2/17/2017 | | | 4,146 | | 1,272,449 | | 9,914 | | 3,042,706 | | | | 2/17/2016 | | | 4,943 | | 1,517,056 | | 10,895 | | 3,343,784 | | | | 2/18/2015 | | | 5,582 | | 1,713,172 | | 11,837 | | 3,632,894 | Gloria A. Flach (4) | | | 2/17/2017 | | | 4,465 | | 1,370,353 | | 10,676 | | 3,276,571 | | | | 2/17/2016 | | | 5,767 | | 1,769,950 | | 12,710 | | 3,900,826 | | | | 2/18/2015 | | | 6,512 | | 1,998,598 | | 13,810 | | 4,238,427 | Janis G. Pamiljans | | | 4/1/2017 | | | 3,789 | | 1,162,882 | | 9,395 | | 2,883,419 | | | | 2/17/2017 | | | 765 | | 234,786 | | 1,786 | | 548,141 | | | | 2/17/2016 | | | 2,362 | | 724,921 | | 2,307 | | 708,041 | | | | 2/18/2015 | | | 987 | | 302,920 | | 2,302 | | 706,507 | Kathy J. Warden | | | 2/17/2017 | | | 4,465 | | 1,370,353 | | 10,676 | | 3,276,571 | | | | 2/17/2016 | | | 5,767 | | 1,769,950 | | 12,710 | | 3,900,826 | | | | 2/18/2015 | | | 5,954 | | 1,827,342 | | 12,626 | | 3,875,046 |
(1) | Outstanding RSRs generally vest three years from date of grant. Mr. Pamiljans’ April 1, 2017 RSR promotion grant vests on April 1, 2018. Mr. Pamiljans’ February 17, 2016 RSR grant is comprised of an annual grant (989 shares) and a retention grant (1,373 shares) and vests on February 17, 2018. |
(2) | The value listed is based on the closing price of the Company’s stock of $306.91 on December 29, 2017, the last trading day of the year. |
(3) | Outstanding RPSRs granted in 2017, 2016 and 2015 generally vest based on performance for the three-year performance period ending on December 31, 2019, 2018 and 2017, respectively. Mr. Pamiljans’ 2016 RPSR grant vests based on performance for the 2015-2017 performance period ending on December 31, 2017. All RPSR grants are subject to the Compensation Committee’s approval of the performance-based earnout percentage applicable to the grant following the end of the performance period. The 2015 RPSRs and Mr. Pamiljans’ 2016 RPSRs were distributed in February 2018 upon the Compensation Committee’s approval. Mr. Pamiljans was an appointed officer at the time his 2015 and 2016 RPSRs were granted and his payout reflects the performance-based earnout percentage applicable to awards for appointed officers. The actual number of shares distributed to the NEOs in February 2018 as a result of the vesting RPSRs was as follows: |
| | | | | | | | NameCOMPENSATION TABLES | STOCK VESTED TABLE
|
| | Actual Shares Distributed
(#)
| | | Mr. Bush
| | | | 61,721
| | | | Mr. Bedingfield
| | | | 17,756
| | | | Ms. Flach
| | | | 20,715
| | | | Mr. Pamiljans
| | | | 6,038
| | | | Ms. Warden
| | | | 18,939
| | | 2020 Stock Vested |
(4) | Ms. Flach retired from the Company on December 31, 2017. In accordance with the retirement-related provisions established at the time of grant, a prorated portion of the outstanding grants above will be paid out based on the number of days in the applicable vesting period that Ms. Flach was employed with the Company. Ms. Flach’s prorated RPSRs will be distributed following the applicable performance period and subject to the performance factor. Because Ms. Flach qualifies as a “specified employee” for purposes of Section 409A of the Internal Revenue Code, her prorated RSRs will be distributed six months from the date of her retirement. |
| | | | | | | | | | | | | | | | | | Stock Awards (1) (2) | | Name | | Number of Shares Acquired on Vesting
(#) | | Value Realized on Vesting
($) | | Kathy J. Warden | | 17,169 | | 6,334,659 | | David F. Keffer | | — | | — | | Mark A. Caylor | | 12,264 | | 4,524,775 | | Blake E. Larson | | — | | — | | Janis G. Pamiljans | | 15,517 | | 5,709,673 | | Kenneth L. Bedingfield | | 15,944 | | 5,882,407 |
54 (1)The number of shares and the amounts reflected in the table are reported on an aggregate basis and do not reflect shares sold or withheld to pay withholding taxes.
|(2)Consists of RPSRs and RSRs granted in 2017. The RPSRs vested based on the three-year performance period which ended on December 31, 2019 and were distributed in February 2020. The RSRs vested three years from the date of grant and were distributed in February 2020.
62I NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | COMPENSATION TABLES | STOCK VESTED TABLEPENSION BENEFITS
|
2017 Stock Vested
| | | | | | | | Stock Awards (1) (2) | Name | | Number of Shares Acquired
on Vesting
(#) | | Value Realized on Vesting ($) | Wesley G. Bush | | 103,173 | | 25,130,821 | Kenneth L. Bedingfield | | 7,601 | | 1,851,435 | Gloria A. Flach | | 40,123 | | 9,773,277 | Janis G. Pamiljans | | 5,637 | | 1,373,143 | Kathy J. Warden | | 34,391 | | 8,376,940 |
(1) | Number of shares and amounts reflected in the table are reported on an aggregate basis and do not reflect shares sold or withheld to pay withholding taxes. |
(2) | Consists of RSRs and RPSRs granted in 2014. The 2014 RSRs vested three years from the date of grant and the 2014 RPSRs vested based on the three-year performance period ended on December 31, 2016 and were distributed in February 2017. |
NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT|55
| | | COMPENSATION TABLES | PENSION BENEFITS
2020 Pension Benefits |
2017 Pension Benefits
The following table provides information about the pension plans in which the NEOs participate (described in more detail on the following pages), including the present value of each NEO’sNEO's accumulated benefits as of December 31, 2017,2020, calculated pursuant to SEC specifications for this table. Our policy generally limits an executive’sexecutive's total benefit under these plans to be no more than 60% of final average pay. | | | | | | | | | | | | | | | | Name (1) | Plan Name | Number of Years Credited Service (2)
(#) | Present Value of
Accumulated
Benefit (3)
($) | Payments
During Last
Fiscal Year
($) | | Kathy J. Warden | OSERP II | 12.33 | 3,259,999 | — | | Mark A. Caylor | S&MS Pension Plan | 18.50 | 833,672 | — | | SRIP | 18.50 | 2,105,472 | — | | OSERP | 12.50 | 1,354,541 | — | | Blake E. Larson | Pension Plan | 39.50 | 814,875 | — | | NGIS DB SERP | 39.50 | 3,424,149 | — | | Janis G. Pamiljans | Pension Plan | 34.00 | 2,356,168 | — | | ERISA 2 | 34.00 | 4,800,140 | — | | OSERP | 28.00 | 19,986 | — |
(1)Mr. Bush has voluntarily electedBedingfield and Mr. Keffer were hired after the Company's defined benefit pension plans were closed to limit hisnew entrants and as a result, they do not participate in any defined benefit pension plans. (2)Credited service under OSERP for Mr. Caylor and Mr. Pamiljans is less than actual service because credited service under this plan stopped as of December 31, 2014. Each NEO's actual service is as follows: Ms. Warden: 12.33; Mr. Caylor: 18.50; Mr. Larson: 39.50; Mr. Pamiljans: 33.92. (3)Amounts are calculated using the following assumptions: •The NEO retires on the earliest date he/she could receive an unreduced benefit tounder each plan; •The form of payment is a single life annuity except for Mr. Larson whose NGIS DB SERP benefit is paid as a lump sum; and •The discount rate is 2.65% for the Pension Plan, 2.73% for the S&MS Pension Plan and 2.68% for all other plans. The mortality table is the Pri-2012 White Collar mortality table projected generationally with Scale MP-2020 for all plans except the NGIS DB SERP which uses no more than 50%mortality because the form of final average pay. | | | | | | | | | Name (1) | | Plan Name | | Number of Years
Credited Service (2)
(#) | | Present Value of
Accumulated
Benefit (3)
($) | | Payments
During Last
Fiscal Year
($) | Wesley G. Bush | | Pension Plan | | 15.00 | | 816,937 | | — | | | S&MS Pension Plan | | 15.67 | | 733,725 | | — | | | ERISA 2 | | 15.00 | | 15,035,377 | | — | | | SRIP | | 15.67 | | 13,986,129 | | — | | | OSERP | | 27.67 | | 8,712,894 | | — | Gloria A. Flach | | Pension Plan | | 36.39 | | 1,377,858 | | — | | | ERISA 2 | | 14.50 | | 2,225,301 | | — | | | OSERP | | 33.42 | | 2,279,385 | | — | | | ESEPP | | 33.39 | | 6,843,298 | | — | Janis G. Pamiljans | | Pension Plan | | 31.00 | | 1,924,666 | | — | | | ERISA 2 | | 31.00 | | 3,430,836 | | — | | | OSERP | | 28.00 | | 82,209 | | — | Kathy J. Warden | | OSERP II | | 9.33 | | 1,453,584 | | — |
(1) | Mr. Bedingfield was hired after the Company’s defined benefit pension plans were closed to new entrants and as a result he does not participate in any defined benefit pension plans. |
(2) | Each NEO’s credited service under OSERP and ESEPP is less than his or her actual service because credited service under these plans stopped as of December 31, 2014. In addition, Mr. Bush’s credited service under his other plans is less because of his transfers among those plans due to Company acquisitions. Ms. Flach’s credited service under her other plans is less due to a period of employment before plan eligibility commenced. Each NEO’s actual service is as follows: Mr. Bush: 30.67; Ms. Flach: 37.58; Mr. Pamiljans: 30.92; Ms. Warden: 9.33. |
(3) | Amounts are calculated using the following assumptions: |
| · | | The NEO retires on the earliest date he/she could receive an unreduced benefit under each plan; |
| · | | The form of payment is a single life annuity; and |
| · | | The discount rate is 3.67% for the Pension Plan, 3.72% for the S&MS Pension Plan and 3.68% for all other plans; the mortality table is theRP-2006 annuitant mortality tables projected generationally with an adjusted version of ScaleMP-2017 (the same assumptions used for the Company’s financial statements). |
56 payment is a lump sum. These are the same assumptions used for the valuation of benefits in the Company's financial statements.|
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 63
| | | COMPENSATION TABLES | PENSION BENEFITSPENSION BENEFITS
|
Pension Plans and Descriptions
| | | | Pension Plans and Descriptions |
Most of the pension plans were closed to new hires in 2008.2008 or earlier. Prior to that time, the Company consolidated the pension plan provisions from diverse Heritage Formulas to avarious Cash Balance Formula.Formulas. Over time, the Company also transitioned officers, including NEOs, from SERPs to a deferred compensation plan, called the Officers Retirement Account Contribution Plan. In addition, all final average pay formulas were frozen as of December 31, 2014.2014 or earlier. The pension plans in which NEOs participate are listed below in alphabetical order. Service and pay have been frozen with regards to ESEPP and OSERP plans.· | | ERISA 2•ERISA 2 is the ERISA Supplemental Program 2. This plan makes participants whole for benefits they lose under the Pension Plan due to certain Internal Revenue Code limits. |
· | | ESEPP is the Northrop Grumman Electronic Systems Executive Pension Plan. This plan provides a supplemental pension benefit for certain Company officers. |
· | | OSERPis the Officers Supplemental Executive Retirement Program. This plan provides a supplemental pension benefit for certain Company officers. |
· | | OSERP II is the Officers Supplemental Executive Retirement Program II. This plan provides a pension benefit for certain Company officers. |
· | | Pension Plan is the Northrop Grumman Pension Plan. This is a tax qualified pension plan covering a broad base of Company employees. |
· | | S&MS Pension Plan is the Northrop Grumman Space & Mission Systems Salaried Pension Plan (former TRW plan). This is a tax qualified pension plan covering a broad base of Company employees. |
· | | SRIP is the Northrop Grumman Supplementary Retirement Income Plan (former TRW plan). This plan makes participants whole for benefits they lose under the Pension Plan (excluding the Northrop Grumman Innovation Systems Pension and Retirement Plan (NGIS P&R Plan) participants) due to certain Internal Revenue Code limits.•NGIS DB SERP is the Northrop Grumman Innovation Systems Defined Benefit Supplemental Executive Retirement Plan.This plan provides a supplemental pension benefit for certain heritage NGIS executives.In addition, the plan makes participants whole for benefits they lose under the NGIS P&R Plan due to certain Internal Revenue Code limits. •OSERP is the Officers Supplemental Executive Retirement Program. This plan provides a supplemental pension benefit for certain Company officers. •OSERP II is the Officers Supplemental Executive Retirement Program II. This plan provides a pension benefit for certain Company officers. •Pension Plan is the Northrop Grumman Pension Plan. This is a tax qualified pension plan covering a broad base of Company employees. •S&MS Pension Plan is the Northrop Grumman Space & Mission Systems Salaried Pension Plan. This is a tax qualified pension plan covering a broad base of Company employees. •SRIP is the Northrop Grumman Supplementary Retirement Income Plan. This plan makes participants whole for benefits they lose under the S&MS Pension Plan due to certain Internal Revenue Code limits. | | | Pension Plan and S&MS Pension Plan due to certain Internal Revenue Code limits.(Tax Qualified Plans) |
The Pension Plan (excluding NGIS P&R Plan) and the S&MS Pension Plan (Tax Qualified Plans)Due to acquisitions, the Company acquired various pension plans with different types ofhave heritage (non-cash balance) pension formulas (Heritage Formulas). These are described in detail in the Heritage Formulas table that follows. Prior to 2005, the Company transitioned the various Heritage Formulas in these plans to a Cash Balance Formula. The Cash Balance Formula is a percentage of pay credited to a hypothetical account, which grows with interest. At retirement, the Cash Balance Account is converted to a monthly pension benefit (further information is included in the Cash Balance Formula section below). Except as provided below, the final benefit from each plan is the sum of the two formulas: the Heritage Formula benefit plus the Cash Balance Formula benefit.
The NGIS P&R Plan merged into the Pension Plan, effective January 1, 2020. Provisions and features of the NGIS P&R Plan were preserved upon the merger. Thus, the provisions of the NGIS P&R Plan in this section are noted separately from the Pension Plan. The NGIS P&R Plan also transitioned to the Cash Balance formulas, details of which are noted in the Cash Balance Formulas section.
The following explains the formulas applicable to each NEO: · | | Mr. Bush and Mr. Pamiljans receive a benefit under a Heritage Formula and a Cash Balance Formula in the Northrop Grumman Retirement Plan, a subplan of the Pension Plan (NGR Subplan). |
· | | Mr. Bush receives a frozen benefit under a Heritage Formula in the S&MS Pension Plan due to hisTRW-related•Mr. Caylor receives a benefit under a Heritage Formula and a Cash Balance Formula in the S&MS Pension Plan. •Mr. Pamiljans receives a benefit under a Heritage Formula and a Cash Balance Formula in the Pension Plan. •Mr. Larson does not have a Heritage Formula benefit. He receives benefits from two distinct Cash Balance Formulas: the Old NGIS Cash Balance Formula which includes pay-based credits from April 1, 1992 through June 30, 2013 and the New NGIS Cash Balance Formula from July 1, 2013.The value of his pension benefit accrued prior to April 1, 1992 was converted to an opening balance in the Old NGIS Cash Balance Formula. 64I service. He ceased to be eligible for future service growth under this plan and the SRIP when he began participating in the NGR Subplan. |
· | | Ms. Flach receives a benefit under a Heritage Formula and a Cash Balance Formula in the Northrop Grumman Electronic Systems Pension Plan, a subplan of the Pension Plan (ES Subplan). |
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
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57
| | | COMPENSATION TABLES | PENSION BENEFITSPENSION BENEFITS
|
Heritage Formulas
The following table summarizes the key features of the Heritage Formulas applicable to the eligible NEOs. | | | | | | | | | | | | | | | Feature | | NGR Subplan
Pension Plan (excluding NGIS P&R Plan) | | ES Subplan
| | S&MS Pension Plan | Benefit Formula | | Final Average Pay x 1.6667% timesPre-July 1, 2003 service | | Eligible Pay since
1995 x 2% plus the prior Westinghouse Pension Plan benefit
| | (Final Average Pay x 1.5% minus Covered Compensation x 0.4%) timesPre- January Pre-January 1, 2005 service | Final Average Pay (1) | | Average of highest 3 years of Eligible Pay | | Not applicable
| | Average of the highest 5
consecutive years of Eligible Pay; Covered Compensation is specified
by the IRS | Eligible Pay (limited by Internal Revenue Code section 401(a)(17)) | | Salary plus bonus | | Salary plus bonus (50% of bonus through 2001)
| | Salary plus bonus
| Normal Retirement | | Age 65 | | Age 65 | | Age 65
| Early Retirement | | Age 55 with 10 years of service | | Age 58 with 30 years of service
or age 60 with 10 years of service
| | Age 55 with 10 years of service | Early Retirement Reduction (for retirements occurring between Early Retirement and Normal Retirement) | | Benefits are reduced for commencement prior to the earlier of age 65 and 85 points (age + service) | | Benefits are reduced for
commencement prior to age 60
| | Benefits are reduced for
commencement prior to age 60
62 |
(1) Final average pay was frozen for the NGR SubplanPension Plan and the S&MS Pension Plan as of December 31, 2014. Cash Balance Formula
The Cash Balance Formula in the Pension Plan (excluding NGIS P&R Plan) and the S&MS Pension Plan is a hypothetical account balance consisting of pay credits plus interest. It has the following features: •Pay credits are a percentage of pay that vary based on an employee's "points" (age plus service) and are credited monthly. The range of percentages applicable to the NEOs on December 31, 2020 was 5.5% – 9.0%. •Interest is credited at the 30-year U.S. Treasury bond rate subject to a minimum annual interest rate of 2.25%. The December 31, 2020 interest credit rate was 2.25%. •Eligible pay is salary plus bonus, as limited by Internal Revenue Code section 401(a)(17). •Eligibility for early retirement occurs at age 55 with 10 years of service. Benefits may be reduced if commenced prior to Normal Retirement Age (65). The NGIS P&R Plan Cash Balance Formulas are also hypothetical account balances consisting of pay credits plus interest. The features of the Old and New NGIS Cash Balance Formulas are as follows:
Old NGIS Cash Balance Formula (pay credits ceased on June 30, 2013) •Pay credits are a percentage of pay that vary based on an employee's service. Due to Mr. Larson's service of more than 25 years at June 30, 2013, he was receiving 8.5% of pensionable earnings and an additional 5.5% of earnings in excess of the Social Security Wage Base at that time. •Interest is credited at one-twelfth of the average of the one-year Treasury Constant Maturities during the 12 months ending September 30 of the prior calendar year. The minimum annual interest crediting rate is 3.06%. After June 30, 2013, interest credits continue to apply to this benefit. The post-2020 interest credit rate is assumed to be 3.5% (this is consistent with the valuation of the Old NGIS Cash Balance benefit in the Company's financial statements). •Eligible pay is salary plus bonus, as limited by Internal Revenue Code section 401(a)(17). •Eligibility for early retirement occurs at age 55 with five years of service. Benefits may be reduced if commenced prior to Normal Retirement Age (65).
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 65
· | | Pay credits are a percentage of pay that vary based on an employee’s “points” (age plus service). The range of percentages applicable to the NEOs on December 31, 2017 was 5.5% – 9.0%. | COMPENSATION TABLES | PENSION BENEFITS
|
New NGIS Cash Balance Formula (pay credits commenced on July 1, 2013) •Pay credits are a percentage of pay that vary based on an employee's age plus service and are credited annually at the end of each calendar year or earlier termination. The percentage applicable to Mr. Larson as of December 31, 2020 is 4.0%. •Interest is credited at the end of each year at 4.0%. Interest is prorated for commencements during the calendar year. •Eligible pay is salary plus bonus, as limited by Internal Revenue Code section 401(a)(17). •After termination of employment, a participant's New NGIS Cash Balance benefit may be distributed immediately, regardless of age, in a variety of actuarially equivalent monthly annuities or as a lump sum. · | | Interest is credited at the30-year U.S. Treasury bond rate. The December 31, 2017 interest credit rate was 2.80%. | | ERISA 2, SRIP, and NGIS DB SERP (Nonqualified Restoration Plans) |
· | | Eligible pay is salary plus bonus, as limited by Internal Revenue Code section 401(a)(17). |
· | | Eligibility for early retirement occurs at age 55 with 10 years of service. Benefits may be reduced if commenced prior to Normal Retirement Age (65). |
ERISA 2, SRIP and SRIP (Nonqualified Restoration Plans)ERISA 2 and SRIPa portion of the NGIS DB SERP are nonqualified plans that restore benefits provided for under the Pension Plan, and S&MS Pension Plan, and NGIS P&R Plan, respectively, but for the limits on eligible pay imposed by Internal Revenue Code section 401(a)(17) and the overall benefit limitation of Internal Revenue Code section 415. Benefits and features in these restoration plans otherwise are generally the same as described above for the underlying tax qualified plan.
58 |NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | COMPENSATION TABLES | PENSION BENEFITS
OSERP, OSERP II, and NGIS DB SERP (Nonqualified Supplemental Executive Retirement Plans) |
OSERP, OSERP II and ESEPP (Nonqualified Supplemental Executive Retirement Plans)
These plans provide supplemental pension benefits. They were closed to new hires inon or before 2009. In addition, final average pay and associated service under these plans were frozen as of December 31, 2014.2014, or earlier, as noted below. The following chart highlights the key features of these plans applicable to eligible NEOs. | | | | | | | | | Feature | | OSERP and OSERP II (1) | | ESEPP
NGIS DB SERP (2) | Benefit Formula | | Final Average Pay times 2% for each year of service up to 10 years, 1.5% for each subsequent year up to 20 years, and 1% for each additional year over 20 and less than 45 | Service times the sum of 11% of Final Average Pay in excess of one-half of the Social Security Wage Base and 5.5% of one-half of the Social Security Wage Base; interest at 4% per annum is applied from July 1, 2013 through commencement | Final Average Pay times 1.47% for each year that
the NEO made maximum contributions to the ES Subplan | Final Average Pay
| | Average of highest 3 years of Eligible Pay | | Average of highest 5 years60 months of Eligible Pay; both Final Average Pay and the Social Security Wage Base were frozen at June 30, 2013 | Eligible Pay | | Salary and bonus (including amounts above Internal Revenue Code limits and amounts deferred) | | Salary and bonus averaged separately (including amounts above Internal Revenue Code limits and amounts deferred) | Normal Retirement | | Age 65 | | Age 65 | Early Retirement | | Age 55 with 10 years of service | | Age 58 with 30 years of service or Age 60 with 10 years of service
55 | Early Retirement Reduction | | Benefits are reduced for commencement prior to the earlier of age 65 or 85 points (age + service) | | Benefits are reduced for
commencement prior to age 60
Not Applicable | Reductions From Other Plans | | Reduced by any other Company pension benefits | | Reduced by ES Subplan and ERISA 2 benefits |
(1) | Ms. Warden participates in OSERP II, which mirrors the benefits provided under theOld NGIS Cash Balance Formula, ERISA 2 and OSERP provisions described above.benefit from the NGIS P&R Plan |
Information
(1)Ms. Warden participates in OSERP II, which mirrors the benefits provided under the Cash Balance Formula, ERISA 2 and OSERP provisions described above. (2)Mr. Larson participates in the NGIS DB SERP which provides the greater of the Final Average Pay benefit noted above and the Old NGIS Cash Balance benefit based on Executives Eligible for Early RetirementPay in excess of the Internal Revenue Code section 401(a)(17) limits. In addition, the NGIS DB SERP pays a benefit equal to the New NGIS Cash Balance formula based on Eligible Pay in excess of the Internal Revenue Code section 401(a)(17). 66INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | COMPENSATION TABLES | PENSION BENEFITS
|
| | | | Information on Executives Eligible for Early Retirement |
The following NEOs were eligible for early retirement as of December 31, 2017:· | | If Mr. Bush had retired on December 31, 2017, he would have been eligible to receive an estimated total annual pension benefit of $2,408,678 (commencing January 1, 2018) plus a supplemental benefit payable from retirement to age 62 of $5,437. |
· | | Ms. Flach retired on December 31, 2017. Her total annual pension benefit is $790,646 (based on a commencement date of January 1, 2018) plus a supplemental benefit payable from retirement to age 62 of $3,152. |
· | | If Mr. Pamiljans had retired on December 31, 2017, he would have been eligible to receive an estimated total annual pension benefit of $335,297 (commencing January 1, 2018). |
2020 (timing below excludes delays imposed by Internal Revenue Code section 409A): •If Mr. Caylor had retired on December 31, 2020, he would have been eligible to receive an estimated total annual pension benefit of $227,063 (commencing January 1, 2021). •If Mr. Larson had retired on December 31, 2020, he would have been eligible to receive an estimated total annual pension from the Pension Plan of $46,615 (commencing January 1, 2021) and a lump sum from the NGIS DB SERP of $3,249,192. •If Mr. Pamiljans had retired on December 31, 2020, he would have been eligible to receive an estimated total annual pension benefit of $401,401 (commencing January 1, 2021). NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I |67
59
| | | COMPENSATION TABLES | NONQUALIFIED DEFERRED COMPENSATION TABLENONQUALIFIED DEFERRED COMPENSATION TABLE
|
2017 Nonqualified Deferred Compensation
| | | | | | | | | | | | | | Name | | Plan Name | | Executive Contributions in Last FY (1) ($) | | Registrant Contributions in Last FY (2) ($) | | Aggregate Earnings in Last FY (3) ($) | | Aggregate Withdrawals/ Distributions ($) | | Aggregate Balance at Last FYE (4) ($) | Wesley G. Bush | | Deferred Compensation | | — | | — | | 456,102 | | — | | 3,116,783 | | | Savings Excess | | 454,798 | | 227,399 | | 1,347,609 | | — | | 10,556,370 | | | ORAC | | — | | 238,199 | | 76,026 | | — | | 726,221 | Kenneth L. Bedingfield | | Savings Excess | | 140,175 | | 140,176 | | 112,895 | | — | | 989,068 | | | ORAC | | — | | 80,888 | | 39,528 | | — | | 335,650 | Gloria A. Flach | | Deferred Compensation | | — | | — | | 22,855 | | — | | 996,143 | | | Savings Excess | | 144,729 | | 73,131 | | 22,121 | | — | | 1,034,369 | | | ORAC | | — | | 83,165 | | 4,891 | | — | | 237,983 | Janis G. Pamiljans | | Deferred Compensation | | — | | — | | 119,983 | | — | | 954,370 | | | Savings Excess | | — | | — | | 347,240 | | — | | 1,883,791 | | | ORAC | | — | | 44,962 | | 12,933 | | — | | 119,517 | Kathy J. Warden | | Savings Excess | | 144,729 | | 72,365 | | 187,589 | | — | | 1,272,491 | | | ORAC | | — | | 83,165 | | 38,372 | | — | | 261,646 |
(1) | NEO contributions in this column are also included in the 2017 Summary | | 2020 Nonqualified Deferred Compensation Table on page 49, under the columns entitled “Salary” and“Non-Equity Incentive Plan Compensation.” |
| | | | | | | | | | | | | | | | | | | | | | Name | Plan Name | Executive Contributions in Last FY (1) ($) | Registrant Contributions in Last FY (2) ($) | Aggregate Earnings in Last FY (3) ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE (4) ($) | | Kathy J. Warden | Savings Excess | 460,828 | 230,414 | 498,236 | (5,303) | 3,321,583 | | ORAC | — | 241,814 | 128,470 | (3,204) | 892,388 | | David F. Keffer | ORAC | — | 25,385 | — | — | 25,385 | | Mark A. Caylor | Savings Excess | — | — | 28,673 | — | 205,429 | | ORAC | — | 91,314 | 85,122 | (2,048) | 543,754 | | Blake E. Larson | Savings Excess | 107,682 | 80,762 | 78,365 | (1,832) | 451,862 | | ORAC | — | 83,188 | 47,715 | (1,761) | 222,980 | | NGIS DC SERP | — | — | 42,947 | — | 327,266 | | NGIS NQDCP | — | — | 96,067 | — | 1,088,307 | | Janis G. Pamiljans | Deferred Compensation | — | — | 151,149 | — | 1,246,410 | | Savings Excess | 199,785 | 79,914 | 197,430 | (1,816) | 3,142,909 | | ORAC | — | 91,314 | 59,917 | (2,048) | 448,732 | | Kenneth L. Bedingfield | Savings Excess | 100,907 | 112,307 | 146,869 | (2,167,743) | 61,854 | | ORAC | — | 61,854 | 52,689 | (607,996) | 61,854 |
(1)NEO contributions in this column are also included in the 2020 Summary Compensation Table on page 58, under the columns entitled "Salary" and "Non-Equity Incentive Plan Compensation." (2)Company contributions in this column are included in the 2020 Summary Compensation Table, under the column entitled "All Other Compensation." (3)Aggregate earnings in the last fiscal year are not included in the 2020 Summary Compensation Table because they are not above market or preferential. (4)NEO and Company contributions in this column may include balances for merged plans. Employee contributions by Ms. Warden, Mr. Larson, Mr. Pamiljans and Mr. Bedingfield for the years ended December 31, 2020, 2019 and 2018, collectively, previously reported as compensation in the Summary Compensation tables, were as follows: (2) | Company contributions in this column are included in the 2017 Summary Compensation Table, under the column entitled “All Other Compensation.” |
(3) | Aggregate earnings in the last fiscal year are not included in the 2017 Summary Compensation Table because they are not above market or preferential. |
(4) | NEO and Company contributions in this column may include balances for merged plans. Employee contributions by Mr. Bush, Mr. Bedingfield, Ms. Flach and Ms. Warden for the years ended December 31, 2017, 2016 and 2015, collectively, previously reported as compensation in the Summary Compensation tables, were as follows: |
| | | | | | Name | | Employee Contributions
($) | | | Mr. Bush
Kathy J. Warden | | 1,194,346 | | 851,062 | Mr. Bedingfield
Blake E. Larson | | 308,304 | | 203,286 | Ms. Flach
Janis G. Pamiljans | | 261,778 | | 516,698 | Ms. Warden
Kenneth L. Bedingfield | | 363,015 | | 486,151 |
Employee
There were no employee contributions made by Mr. Pamiljans for the year ended December 31, 2017 are presented in the table above. BecauseCaylor or Mr. Pamiljans was not an NEOKeffer for the years ended December 31, 20162020, 2019 and 2015, employee contribution data for these years is not presented. Deferred Compensation Plans and Descriptions
2018. 68INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | COMPENSATION TABLES | NONQUALIFIED DEFERRED COMPENSATION TABLE
|
| | | | Deferred Compensation Plans and Descriptions |
The deferred compensation plans in which the NEOs participate are listed below:· | | Deferred Compensation Planis the Northrop Grumman Deferred Compensation Plan. In 2010, this plan was closed to new hires and existing participants ceased to be able to make contributions. Before 2011, eligible executives were allowed to defer a portion of their salary and bonus. No Company contributions were made to the plan. |
· | | Officers Retirement Account Contribution Plan (ORAC)is the Northrop Grumman Officers Retirement Account Contribution Plan. This plan allows eligible executives, including NEOs, to receive a Company contribution of 4% of base salary and bonus. |
· | | Savings Excess Plan (SEP) is the Northrop Grumman Savings Excess Plan.This plan allows eligible employees, including the NEOs, to (i) defer up to 50% of their salary and bonus beyond the compensation limits of the tax qualified plans and receive a Company matching contribution of up to 4% on a maximum of 8% of pay and (ii) receive RAC contributions beyond the compensation limits in the qualified plans. |
below, in alphabetical order: 60 •Deferred Compensation |is the Northrop Grumman Deferred Compensation Plan. In 2010, this plan was closed to new hires and existing participants ceased to be able to make contributions. Before 2011, eligible executives were allowed to defer a portion of their salary and bonus. No Company contributions were made to the plan.
•NGIS DC SERP is the Northrop Grumman Innovation Systems Defined Contribution Supplemental Executive Retirement Plan. In 2019, this plan was closed and contributions ceased to be made to plan participants. Before 2019, certain heritage Orbital ATK executives received an annual match allocation of 4.5% of compensation in excess of the IRS compensation limit, assuming the executive made the maximum allowable before-tax or Roth 401(k) contributions to the 401(k) plan for the calendar year. •NGIS NQDCP is the Northrop Grumman Innovation Systems Nonqualified Deferred Compensation Plan. In 2019, this plan was closed and contributions ceased to be made to plan participants. Prior to 2019, certain heritage Orbital ATK executives could defer up to 70% of salary and 100% of cash or equity incentive compensation. In addition, the Company could credit additional amounts relating to matching contributions foregone under the 401(k) Plan due to IRS compensation limits in that plan. The Company could also make additional discretionary contributions to participants' accounts. •ORAC is the Northrop Grumman Officers Retirement Account Contribution Plan. This plan allows eligible executives, including NEOs, to receive a Company contribution of 4% of base salary and bonus. •Savings Excess Plan is the Northrop Grumman Savings Excess Plan.This plan allows eligible employees, including the NEOs, to (i) defer up to 50% of their salary and bonus beyond the compensation limits of the tax qualified plans and receive a Company matching contribution of up to 4.5% of pay and (ii) receive Retirement Account Contributions (RAC) beyond the compensation limits in the qualified plan.
NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
2017 CEO Pay Ratio
Consistent with Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of RegulationS-K (the pay ratio rule), we are providing the following information about the relationship of the annual total compensation of employees and the annual total compensation of our Chief Executive Officer (CEO), Mr. Bush. We believe the pay ratio included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of RegulationS-K.
We determined that as of October 31, 2017, the company’s global employee population, applying the definition of employee under the pay ratio rule, consisted of 73,822 individuals. We selected October 31, 2017 to allow sufficient time to identify the median employee given the global scope of our operations. While the population is primarily comprised of U.S. based employees (92%), we scoped in individuals employed in countries such as the United Kingdom, Germany and Australia, as they represent a significant portion of our international population. As permitted under the pay ratio rule, we excluded the other individuals employed outside of the U.S. from the employee population. The number of excluded individuals totaled approximately 2,983 (~4% of the population) and were located in the following countries:
| | | | | | Countries (1)
| | Approximate Number of Excluded Individuals
| Belgium
| | 102 | Canada
| | 15 | Denmark
| | 15 | France
| | 425 | Italy
| | 243 | Japan
| | 54 | South Korea
| | 81 | Netherlands
| | 62 | Norway
| | 6 | Saudi Arabia
| | 1,889 | Singapore
| | 22 | Spain
| | 1 | Switzerland
| | 4 | United Arab Emirates
| | 64 | Total
| | 2,983 |
| | | (1)
| | The approximate number of excluded individuals in Saudi Arabia consists largely of individuals employed by a joint venture in which the Company holds a 51% ownership interest.
|
After taking into account the exclusions above, our employee population consisted of 70,839 individuals. To identify the median employee, we used wages comprised of base and overtime pay for the10-month period ending October 31, 2017. We believe this measure provides a reasonably obtainable and well reflective component of compensation from which to identify the median employee.
After identifying the median employee, we calculated the median employee’s annual total compensation in the same manner as the CEO’s annual total compensation was calculated in the Summary Compensation Table on page 49. The median employee’s annual total compensation was $101,872, which includes other forms of compensation including financial and wellness benefits. The CEO’s annual total compensation was $18,869,057, as reported in the “Total” column of the Summary Compensation Table. Based on this information, for 2017 the ratio of the annual total compensation of the CEO to the annual total compensation of the median employee was 185 : 1.
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I |69
61
| | | TERMINATION PAYMENTS AND BENEFITS |
Terms of Equity Awards
| | | | Termination Payments and Benefits |
The terms of equity awards granted tofollowing table summarizes certain payments and benefits the NEOs under the 2011 Plan provide for accelerated vesting if an NEO’s employment terminates for certain reasons.Generally for RPSRs, vesting of a prorated portion of each award occurs frommay receive upon termination, due to early retirement, death or disability, and full vesting occurs upon normal retirement (mandatory at age 65), all subject to the Compensation Committee’s approvalreferenced plans and terms and conditions of the earnout percentage based on the RPSR performance metrics for the three-year performance period.
Generally for RSRs, vesting of a prorated portion of each award occurs from termination due to early retirement, and full vesting occurs upon normal retirement (mandatory at age 65), death or disability.
Possible Accelerated Equity Vesting Due to Change in Control
awards. | | | | | | | | | | | | | | | | Voluntary
Termination (3) | Involuntary Termination
Not For Cause (3) | Post-CIC
Involuntary
or Good Reason
Termination | Death or
Disability (3) | | RSRs (1) | Unvested RSRs are forfeited, except in the case of early retirement where the RSRs are prorated and mandatory retirement (age 65) where they will fully vest. Retention awards do not include retirement provisions | Unvested RSRs are forfeited, except in the case of early retirement where the RSRs are prorated and mandatory retirement (age 65) where they will fully vest. Retention awards do not include retirement provisions | For certain change in control events as set forth in the 2011 Plan (CIC), unvested RSRs will vest and payment is accelerated, only in the event of a double trigger (CIC and termination other than for cause within the specified period), or if the acquiring company fails to assume the awards; subject to certain limitations to the extent such accelerated payments would otherwise trigger an excise tax | Unvested RSRs will fully vest and payment is accelerated | | RPSRs (1)(2) | Unvested RPSRs are forfeited except in the case of early retirement where the RPSRs are prorated and mandatory retirement (age 65) where they fully vest | Unvested RPSRs are forfeited except in the case of early retirement where the RPSRs are prorated and mandatory retirement (age 65) where they fully vest | For a CIC, unvested RPSRs will fully vest and payment is accelerated based on a truncated performance period, only in the event of a double trigger (CIC and termination other than for cause within the specified period), or if the acquiring company fails to assume the awards; subject to certain limitations to the extent such accelerated payments would otherwise trigger an excise tax | Unvested RPSRs are prorated and payment, at target, is accelerated | | Cash Severance | No payment | Lump sum equal to 1.5x base salary and bonus target and a prorated performance bonus for the year of termination | No payment | No payment | | Medical | No payment | Continued medical and dental coverage for the 18-month severance period | No payment | No payment | | Financial Planning | No payment | Reimbursement of fees for the year of termination and the following year | No payment | No payment | | Outplacement | No payment | Expenses up to 15% of base salary | No payment | No payment | | (1) Terms of equity awards granted to the NEOs under the 2011 Plan | | (2) Subject to the Compensation Committee's approval of the earnout percentage based on the RPSR performance metrics | | (3) Any retirement treatment requires employment for at least six months following the grant date with respect to RSRs and at least six months of the performance period with respect to RPSRs |
The terms of equity awards to the NEOs under the 2011 Plan provide for possible accelerated vesting of RSRs and RPSRs when the Company is involved in certain types of change in control events, which are more fully described in the 2011 Plan (e.g., certain business combinations after which the Company is not the surviving entity and the surviving entity does not assume the awards). Possible acceleration would occur with respect to RSRs and RPSRs in certain change in control events that result in a termination of the NEO (other than for cause) within the specified period (double trigger). The acceleration of awards requires this double trigger, unless an acquiring company fails to assume the awards. The award terms provide that acceleration will not occur to the extent that it would result in an excise tax that decreases theafter-tax value of the awards to an NEO.In cases where acceleration would occur under these limited change in control provisions, distributions for RPSRs and RSRs would be in full.
The table below provides the estimated value of accelerated equity vesting if such a change in control had occurred on December 31, 2017. The estimated value is computed by multiplying unvested shares as of December 31, 2017 by the closing market price of the Company’s common stock on December 29, 2017, the last trading day of the year ($306.91). For RPSRs, Company performance is assumed to be at target levels through the close of each three-year performance period.
| | | | | | | | | | RSRs | | RPSRs | | | Name | | Acceleration
of Vesting
($) | | Acceleration
of Vesting
($) | | Total ($) | Wesley G. Bush | | 14,111,415 | | 20,507,726 | | 34,619,141 | Kenneth L. Bedingfield | | 4,502,677 | | 6,386,490 | | 10,889,167 | Gloria A. Flach | | 5,138,901 | | 7,177,397 | | 12,316,298 | Janis G. Pamiljans | | 2,425,510 | | 3,431,560 | | 5,857,070 | Kathy J. Warden | | 4,967,645 | | 7,177,398 | | 12,145,043 |
Potential Termination Payments and Benefits The following tableTable provides estimated payments and benefits that the Company would have provided to each NEO if his or her employment had terminated on December 31, 20172020 for the reasons set forth in the table below. The Company stock price is assumed to be $306.91,$304.72, the closing market price on December 29, 2017,31, 2020, the last trading day of the year. These payments and benefits are payable based on:
· | | the 2011 Plan and the terms and conditions of equity awards made pursuant to the plan; and |
· | | the SORMP (Retiree Medical and Life Insurance). |
•the Severance Plan; and •the 2011 Plan and the terms and conditions of equity awards made pursuant to the plan. Due to the many factors that affect the nature and amount of any benefits provided upon termination events, actual amounts paid or distributed to NEOs may be different from the values shown in the table. Factors that may affect these amounts include timing during the year of the occurrence of the event, our stock price, the NEO's age, and the NEO’s age.terms and circumstances of the event. The amounts described below are in addition to an NEO’sNEO's benefits described in the Pension Benefits and Nonqualified Deferred Compensation Tables on pages 5663 and 60,68, respectively, as well as benefits generally available to our employees such as distributions under our savings plan, disability or life insurance benefits and accrued vacation. 62 70|I NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | TERMINATION PAYMENTS AND BENEFITS | TERMINATION PAYMENT TABLE |
Termination Payment Table
Potential Termination Payments
| | | | | | | | | | | | | Name | | Executive Benefits | | Voluntary
Termination
($) | | Involuntary
Termination
Not For Cause (1)
($) | | Post-CIC
Involuntary
or Good Reason
Termination (2)
($) | | Death or
Disability
($) | | | Wesley G. Bush | | Long-term Incentives (3) | | 19,753,035 | | 19,753,035 | | 34,619,141 | | 24,665,743 | | | | | Retiree Medical and Life Insurance (4) | | 1,889,724 | | 1,889,724 | | 1,889,724 | | 1,889,724 | | | Kenneth L. Bedingfield | | Long-term Incentives (3) | | — | | — | | 10,889,167 | | 7,746,715 | | | | | Severance Benefits (5) | | | | | | | | | | | | | Cash Severance | | — | | 2,385,000 | | — | | — | | | | | Medical/Dental Continuation | | — | | 8,104 | | — | | — | | | | | Financial Planning/Income Tax | | — | | 15,000 | | — | | — | | | | | Outplacement Services | | — | | 119,250 | | — | | — | | | Gloria A. Flach (6) | | Long-term Incentives (3) | | 7,103,739 | | 7,103,739 | | 12,316,298 | | 8,832,563 | | | | | Severance Benefits (5) | | | | | | | | | | | | | Cash Severance | | — | | 2,430,000 | | — | | — | | | | | Medical/Dental Continuation | | — | | 5,668 | | — | | — | | | | | Financial Planning/Income Tax | | — | | 15,000 | | — | | — | | | | | Outplacement Services | | — | | 121,500 | | — | | — | | | Janis G. Pamiljans | | Long-term Incentives (3) | | 1,500,483 | | 1,500,483 | | 5,857,070 | | 3,569,056 | | | | | Severance Benefits (5) | | | | | | | | | | | | | Cash Severance | | — | | 2,430,000 | | — | | — | | | | | Medical/Dental Continuation | | — | | 14,988 | | — | | — | | | | | Financial Planning/Income Tax | | — | | 15,000 | | — | | — | | | | | Outplacement Services | | — | | 121,500 | | — | | — | | | Kathy J. Warden | | Long-term Incentives (3) | | — | | — | | 12,145,043 | | 8,661,307 | | | | | Severance Benefits (5) | | | | | | | | | | | | | Cash Severance | | — | | 2,430,000 | | — | | — | | | | | Medical/Dental Continuation | | — | | 3,625 | | — | | — | | | | | Financial Planning/Income Tax | | — | | 15,000 | | — | | — | | | | | Outplacement Services | | — | | 121,500 | | — | | — | | |
(1) | Similar treatment provided for certain “good reason” terminations, as described in “Key Components of Our Programs - Severance Benefits” found on page 45; however, there would be no termination payment in the event of an involuntary termination for cause. |
(2) | The amounts assume full acceleration, which, as discussed above, may not occur to the extent that it would result in an excise tax that decreases theafter-tax value of the awards to an NEO. |
(3) | Long-term Incentives include grants of RPSRs and RSRs. Results in a benefit under Voluntary Termination only if eligible for retirement treatment under the terms and conditions of the grants. |
(4) | Represents SORMP benefits outlined in “Key Components of Our Programs - Retiree Medical Arrangement.” Mr. Bush is the only NEO eligible for benefits under this plan due to his date of hire and years of service as an executive. Retiree medical values for Mr. Bush reflect cost associated with disability. If termination results from death, the retiree medical insurance expense would be less than the disability amount indicated. |
(5) | Represents the following benefits under the Severance Plan, assuming a termination date of December 31, 2017: (i) cash severance equivalent to one and a half times the sum of the annual base salary and target annual bonus, (ii) continued medical/dental coverage for the severance period, (iii) financial planning/income tax preparation fees for the year following termination and (iv) outplacement services up to 15% of salary. |
Mr. Bush does not receiveBedingfield left the Company February 21, 2020. On February 6, 2020, the Company filed a Form 8-K including, as an exhibit, the Separation Agreement with Mr. Bedingfield. He received a lump-sum cash severance benefits aspayment, $2,517,000, and an additional cash severance payment equal to the pro rata portion of the bonus he would have received for the 2020 performance year, $185,000, calculated based on the number of days active during the calendar year. He is not eligible for continued medical and dental coverage for 18 months from his February 21, 2020 separation date, financial planning reimbursement for fees incurred in 2020 and 2021, subject to participate in a Northrop Grumman severance plan.(6) | Ms. Flach retired on December 31, 2017 and is eligible for prorated payout of her outstanding grants based on the number of days in the applicable vesting period that Ms. Flach was employed with the Company. For further detail, refer to the Outstanding Equity Awards Table on page 54. |
maximum reimbursement of $18,500 for each year, and outplacement services no greater than $125,850 under the Severance Plan. All of Mr. Bedingfield's outstanding RSRs and RPSRs were forfeited upon termination. NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I |71
63
| | | TERMINATION PAYMENTS AND BENEFITS | TERMINATION PAYMENT TABLE
|
| | | | Termination Payment Table |
Potential Termination Payments | | | | | | | | | | | | | | | | | | | Name (1) | Executive Benefits | Voluntary
Termination
($) | Involuntary Termination
Not For Cause (2)
($) | Post-CIC
Involuntary
or Good Reason
Termination (3)
($) | Death or
Disability
($) | | Kathy J. Warden | RSRs (4) | — | — | 10,707,556 | 10,707,556 | | RPSRs (4) | — | — | 18,468,775 | 9,573,998 | | Severance Benefits (5) | | | | | | Cash Severance | — | 6,489,000 | — | — | | Medical/Dental Continuation | — | 15,382 | — | — | | Financial Planning/Income Tax | — | 30,000 | — | — | | Outplacement Services | — | 231,750 | — | — | | David F. Keffer | RSRs (4) | — | — | 1,172,258 | 1,172,258 | | RPSRs (4) | — | — | 2,667,214 | 890,392 | | Severance Benefits (5) | | | | | | Cash Severance | — | 2,250,000 | — | — | | Medical/Dental Continuation | — | 15,382 | — | — | | Financial Planning/Income Tax | — | 18,500 | — | — | | Outplacement Services | — | 112,500 | — | — | | Mark A. Caylor | RSRs (4) | 1,885,303 | 1,885,303 | 3,410,122 | 3,410,122 | | RPSRs (4) | 2,448,120 | 2,448,120 | 4,585,121 | 2,448,120 | | Severance Benefits (5) | | | | | | Cash Severance | — | 2,565,000 | — | — | | Medical/Dental Continuation | — | 5,418 | — | — | | Financial Planning/Income Tax | — | 18,500 | — | — | | Outplacement Services | — | 128,250 | — | — | | Blake E. Larson | RSRs (4) | 1,589,420 | 1,589,420 | 3,069,444 | 3,069,445 | | RPSRs (4) | 2,185,757 | 2,185,757 | 4,192,033 | 2,185,757 | | Severance Benefits (5) | | | | | | Cash Severance | — | 2,433,000 | — | — | | Medical/Dental Continuation | — | 5,272 | — | — | | Financial Planning/Income Tax | — | 18,500 | — | — | | Outplacement Services | — | 121,650 | — | — | | Janis G. Pamiljans | RSRs (4) | 1,885,303 | 1,885,303 | 3,336,684 | 3,336,684 | | RPSRs (4) | 2,448,120 | 2,448,120 | 4,585,121 | 2,448,120 | | Severance Benefits (5) | | | | | | Cash Severance | — | 2,565,000 | — | — | | Medical/Dental Continuation | — | 15,382 | — | — | | Financial Planning/Income Tax | — | 18,500 | — | — | | Outplacement Services | — | 128,250 | — | — |
(1)Mr. Bedingfield is not included due to his last day of employment on February 21, 2020. (2)Similar treatment provided for certain "good reason" terminations, as described in "Key Components of Our Programs - Severance Benefits" found on page 54; however, there would be no termination payment in the event of an involuntary termination for cause. (3)The amounts assume full acceleration, which, as discussed above, may not occur to the extent that it would result in an excise tax that decreases the after-tax value of the awards to an NEO. (4)Long-term Incentive awards result in a benefit under Voluntary Termination only if eligible for retirement treatment under the terms and conditions of the grants. (5)Represents the following benefits under the Severance Plan, assuming a termination date of December 31, 2020: (i) cash severance equivalent to one and a half times the sum of the annual base salary and target annual bonus, (ii) continued 72INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | TERMINATION PAYMENTS AND BENEFITS | TERMINATION PAYMENT TABLE
|
medical/dental coverage for the severance period, (iii) financial planning/income tax preparation fees for the year following termination and (iv) outplacement services up to 15% of salary. NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 73
We are providing the following information about the relationship of the annual total compensation of our median employee and the annual total compensation of our Chief Executive Officer (CEO), Ms. Warden, as of our fiscal year-end December 31, 2020. We believe the pay ratio included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K. In accordance with SEC rules, we re-identified the median employee in 2020. We determined that as of October 31, 2020, the company's global employee population consisted of approximately 98,800 individuals. We selected October 31, 2020 to allow sufficient time to identify the median employee given the global scope of our operations. As a company we decided to scope in all employees in our domestic and international locations. To identify the median employee, we used wages comprised of base salary, overtime pay, and shift premiums for the ten-month period ending October 31, 2020. We believe this measure provides a reasonably obtainable and reflective component of compensation from which to identify the median employee. We calculated the median employee’s annual total compensation in the same manner as the CEO’s annual total compensation as calculated in the Summary Compensation Table on page 58. The median employee’s annual total compensation was $101,601, which includes other forms of compensation such as financial and wellness benefits. The CEO’s annual total compensation was $20,807,144, as reported in the Summary Compensation Table. Based on this information, for 2020 the ratio of the annual total compensation of the CEO to the annual total compensation of the median employee was 205 : 1. 74INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | | PROPOSAL THREE: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR |
The Audit and Risk Committee believes that the appointment of Deloitte & Touche LLP (Deloitte) is in the best interests of the Company and its shareholders, and proposes and recommends that the shareholders ratify the Audit Committee’sand Risk Committee's appointment of Deloitte as our independent auditor for 2018.2021. Deloitte served as our independent auditor for 2017,2020, and Deloitte or its predecessors have served as the independent auditor for the Company (including certain of its predecessor companies) since 1975. The Audit and Risk Committee is responsible for the appointment, compensation, retention, oversight, evaluation and termination, if necessary, of our independent auditor. The Audit and Risk Committee is responsible for reviewing and pre-approving audit and non-audit services and related fees for the independent auditor. In addition, the Audit and Risk Committee, at least annually, reviews and evaluates with management and our internal auditors Deloitte’s performanceperformance. The Audit and periodically considers whether to change the independent auditor. The AuditRisk Committee also reviews the performance of Deloitte’s lead audit partner, and the Audit and Risk Committee and its ChairpersonChairman oversee the rotation of Deloitte’s lead audit partner and are involved in the selection and approval of the lead audit partner. Although ratification is not required by our Bylaws or otherwise, the Audit and Risk Committee is submitting the selection of Deloitte to shareholders as a matter of good corporate governance. If the shareholders fail to ratify the appointment of Deloitte, the Audit and Risk Committee will consider this in its selection of auditor for the following year. A representative from Deloitte will attend the Annual Meeting and will have the opportunity to make a statement and respond to appropriate questions. Audit Fees and All Other Fees
| | | | Audit Fees and All Other Fees |
The following table summarizes aggregate fees billedincurred for professional audit services for the audit of the Company's consolidated financial statement audits for the years ended December 31, 20172020 and 20162019, and fees billed for other services in fiscal years 2020 and 2019, in each case by Deloitte, the member firms of Deloitte Touche Tohmatsu Limited and their respective affiliates: | | | | | | | | | | | | 2017 | | | 2016 | Audit Fees (a) | | $ | 15,110,000 | | | $ | 15,253,000 | | Audit-Related Fees (b) | | | 803,000 | | | | 803,000 | | Tax-Related Fees (c) | | | 637,000 | | | | 377,000 | | All Other Fees | | | — | | | | — | | Total Fees | | $ | 16,550,000 | | | $ | 16,433,000 | |
| | | | | | | | | | | | | | | | | 2020 | | 2019 | | Audit Fees (1) | $ | 19,464,100 | $ | 17,889,100 | | Audit-Related Fees (2) | | 1,575,000 | | — | | Tax-Related Fees (3) | | 596,000 | | 468,000 | | All Other Fees | | — | | — | | Total Fees | $ | 21,635,100 | $ | 18,357,100 |
(1)Audit fees for 2020 and 2019 reflect fees of $17,175,000 and $15,950,000, respectively, for the consolidated financial statement audits and include the audit of internal controls pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. Audit fees for 2020 and 2019 also include $1,920,000 and $1,855,000, respectively, for foreign statutory audits. Fees for foreign statutory audits are reported in the year in which the audits are performed. For example, foreign statutory audit fees reported in 2020 relate to audits of the Company's foreign entities for the fiscal year ended 2019. The remaining 2020 audit fees primarily relate to audit services associated with the Company's Form 8-K filing in connection with its sector realignment in April 2020, fees related to the Company's Form 8-K filing in connection with its debt offering in March 2020, fees related to the Company's shelf registration statement on Form S-3, and fees related to the recasting of certain unallowable costs as disclosed in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020. (2)Audit-related fees reflect fees for services that are reasonably related to the performance of the audit or review of the Company's financial statements, including fees related to the support of business divestiture activities. Audit-related fees exclude fees that totaled $1,494,500 and $1,320,000 for 2020 and 2019, respectively, related to benefit plan audits which are paid for by the plans. (3)Tax-related fees during 2020 and 2019 reflect fees of $596,000 and $468,000, respectively, for services concerning foreign income tax compliance, foreign Value Added Tax compliance and other tax matters. (a) | | | Policy on Audit fees for 2017 and 2016 reflect feesRisk Committee Pre-Approval of $12,900,000 in each year for the consolidated financial statement auditsAudit and include the audit of internal controls pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. Audit fees for 2017 and 2016 also include $1,544,000 and $1,576,000, respectively, for foreign statutory audits. Fees for foreign statutory audits are reported in the year in which the audits are performed. For example, foreign statutory audit fees reported in 2017 relate to audits of the Company’s foreign entities for the fiscal year ended 2016. The remaining 2017 audit fees primarily relate to audit services associated with the Company’s evaluation of the adoption of Accounting Standards Update (ASU)2014-09,Revenue from Contracts with Customers, and procedures and consultations related to the Company’s Form8-K filings in connection with its debt issuance in October 2017.Permissible Non-Audit Services |
(b) | Audit-related fees reflect fees for services that are reasonably related to the performance of the audit or review of the Company’s financial statements, including fees related to independent assessment of controls concerning outsourcing activities. Audit-related fees exclude fees that totaled $1,423,000 and $1,370,000 for 2017 and 2016, respectively, related to benefit plan audits which are paid for by the plans. |
(c) | Tax-related fees during 2017 and 2016 reflect fees of $637,000 and $377,000, respectively, for services concerning foreign income tax compliance, foreign Value Added Tax compliance and other tax matters. |
Policy on Audit CommitteePre-Approval of Audit and PermissibleNon-Audit Services
It is the Audit Committee’sand Risk Committee's policy to pre-approve all audit and permitted non-audit services provided by our independent auditor in order to provide reasonable assurance that the provision of these services does not impair the auditor’sauditor's independence. Pre-approval may be given at any time. The Audit and Risk Committee has delegated pre-approval authority for any individual project up to $100,000 to the ChairpersonChairman of the Audit and Risk Committee. The decisions of the ChairpersonChairman to pre-approve a permitted service are reported to the Audit and Risk Committee at its next meeting. The independent auditor is required to periodically report to the full Audit and Risk Committee regarding the extent of services provided by the independent auditor in accordance with this pre-approval policy, as well as the fees for the services performed to date. 64 |
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 75
| | | PROPOSAL THREE: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITOR |
The Audit and Risk Committee approved all audit and non-audit services provided by Deloitte, the member firms of Deloitte Touche Tohmatsu Limited and their respective affiliates during 20172020 and 2016,2019, in each case before being engaged to provide those services. Approval of this proposal requires that the votes cast “for”"for" the proposal exceed the votes cast “against”"against" the proposal. Abstentions and broker non-votes will have no effect on this proposal. | | | | | | | | | | | | | | | | THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” "FOR" PROPOSAL THREE.
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65
| | | AUDIT AND RISK COMMITTEE REPORT |
The Audit and Risk Committee of the Board of Directors is responsible for assisting the Board of Directors in fulfilling its oversight responsibilities over the Company’sCompany's accounting, auditing and financial reporting processes and financial risk assessment and management process, and for monitoring compliance with certain regulatory and compliance matters. The Audit Committee’sand Risk Committee's written charter describes the Audit Committee’sand Risk Committee's responsibilities and has been approved by the Board of Directors. Management is responsible for preparing the Company’sCompany's financial statements and for the financial reporting process, including evaluating the effectiveness of the Company’sCompany's disclosure controls and procedures and internal control over financial reporting. Deloitte & Touche LLP (Deloitte), the Company’sCompany's independent auditor, is responsible for performing an independent audit of the Company’sCompany's consolidated financial statements and expressing an opinion on the conformity of the financial statements with accounting principles generally accepted in the United States of America, and on the effectiveness of the Company’sCompany's internal control over financial reporting. In connection with the preparation of the Company’sCompany's financial statements as of and for the year ended December 31, 2017,2020, the Audit and Risk Committee reviewed and discussed the audited financial statements with the Company’sCompany's Chief Executive Officer, Chief Financial Officer and Deloitte. The Audit and Risk Committee also discussed with Deloitte the communications required under applicable professional auditing standardsrequirements of the Public Company Accounting Oversight Board (PCAOB) and regulations,the SEC, including the matters required to be discussed by Auditing Standard No. 1301, Communications with Audit Committees, as adopted by the Public Company Accounting Oversight Board (PCAOB)PCAOB, and, with and without management present, discussed and reviewed the results of Deloitte’sDeloitte's examination of the financial statements. Additionally, the Audit and Risk Committee discussed with the Company’sCompany's internal auditors the results of their audits completed during 2017.2020. The Audit and Risk Committee received the written disclosures and the letter from Deloitte required by the applicable requirements of the PCAOB regarding the independent auditor’sauditor's communications with the Audit and Risk Committee concerning independence. In addition, the Audit and Risk Committee discussed with Deloitte that firm’sfirm's independence from the Company. Based on the Audit Committee’sand Risk Committee's review and discussions described in this report, the Audit and Risk Committee recommended to the Board of Directors that the audited financial statements for the year ended December 31, 20172020 be included in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 20172020 for filing with the SEC. The Audit and Risk Committee also reappointed Deloitte to serve as the Company’sCompany's independent auditor for 2018,2021, and requested that this appointment be submitted to shareholders for ratification at the Annual Meeting. WILLIAM H. HERNANDEZ, CHAIRPERSON DAVID P. ABNEY MARIANNE C. BROWN VICTOR H. FAZIO
ANN M. FUDGE MADELEINE A. KLEINER
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NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 77
| | | PROPOSAL FOUR: SHAREHOLDER PROPOSAL |
The Sisters of St. Dominic of Caldwell New Jersey, 75 South Fullerton Avenue, Montclair, NJ 07042, a beneficial owner of 303 shares of common stock of the Company, the Sisters of St. Francis of Philadelphia, 609 S. Convent Road, Aston, PA 19014, a beneficial owner of 11 shares of common stock of the Company, and the School Sisters of Notre Dame Cooperative Investment Fund, 345 Belden Hill Road, Wilton, CT 06897, a beneficial owner of 88 shares of common stock of the Company, the co-proponents of a shareholder proposal, have each stated that it intends to present a proposal at the Annual Meeting. The proposal and supporting statement, for which the Board of Directors accepts no responsibility, is set forth below. The Board of Directors opposes the shareholder proposal for the reasons stated below. | | | | Proposal Four: Shareholder Proposal to Publish Human Rights Impact Assessment Report |
Whereas: As the world’s fourth-largest defense company, Northrop Grumman’s most severe human rights impacts are likely to result from the use of its products and services, such as controversial arms trade, military training, nuclear weapons, and border surveillance systems. Business relationships with the U.S. Government and foreign governments whose activities may be linked to human rights violations may expose Northrop Grumman to legal, financial, and reputational risks. Under the UN Guiding Principles on Business and Human Rights (UNGPs), companies have a responsibility to respect human rights which is distinct from the duties of states. The high likelihood of severe impacts linked to business in conflict-affected and high-risk areas warrants heightened due diligence. A 2019 Amnesty International report found that the defense industry is failing to carry out effective human rights due diligence. This requires conducting human rights impact assessments to identify and evaluate the actual and potential adverse human rights impacts of the company’s business activities.1 The findings from the impact assessments should inform business decision making, prevention and mitigation efforts, and public disclosure. Northrop Grumman has contracts with or supplies weapons to multiple states engaged in conflict, including Saudi Arabia, the United Arab Emirates, India, Israel, Morocco, and Colombia.2 Northrop Grumman is one of the Saudi Arabian Armed Forces’s largest defense partners, supplying weapons since 1971, and is heavily involved in military training.3 A 2020 report by the UN Human Rights Council alleges that Saudi-led coalition airstrikes in Yemen “may amount to war crimes” and the supply of weapons from the U.S. and other countries “has helped to perpetuate the conflict.”4 The Department of State’s 2020 due diligence guidance on foreign sales of “products or services that have surveillance capabilities” states companies should consider if “the end-user will likely misuse the product or service to carry out human rights violations.”5 The company also has at least $68.3 billion in outstanding nuclear weapons contracts with the U.S. and foreign governments.6 As the Treaty on the Prohibition of Nuclear Weapons enters into force in 2021, nuclear weapons sales expose Northrop Grumman to increasing regulatory and reputational risks. Northrop Grumman has a contract with the U.S. Department of Homeland Security to develop infrastructure for the Homeland Advanced Recognition Technology (HART) database. It will hold sensitive biometric and biographical data for 260 million people, which presents risks of privacy rights violations, increased surveillance, racial bias, and harm to immigrant communities.7 While Northrop Grumman has a Human Rights Policy, it does not disclose its salient human rights issues or the nature and extent of the participation of impacted rightsholders in its assessment process. Resolved: Shareholders request that Northrop Grumman publish a report, at reasonable cost and omitting proprietary information, with the results of human rights impact assessments examining the actual and potential human rights impacts associated with high-risk products and services, including those in conflict-affected areas. ____________________________ 1 https://www.amnesty.org/download/Documents/ACT3008932019ENGLISH.PDF 2 www.northropgrumman.com/AboutUs/OurGlobalPresence/Pages/default.aspx; www.upi.com/DefenseNews/2015/10/16/Colombia-receives-Northrop-Grumman-ANTPS-78-radar/4871445000556/;www.moroccoworldnews.com/2018/05/246179/morocco-cargo-m1a2s-laser-tanks-us/; https://news.northropgrumman.com/news/releases/northrop-grumman-delivers-center-fuselage-for-firstisraeli-f-35-aircraft 3www.northropgrumman.com/AboutUs/OurGlobalPresence/MiddleEastAndAfrica/Pages/Who-We-Are-inthe-Middle-East.aspx 4 https://www.ohchr.org/Documents/HRBodies/HRCouncil/GEE-Yemen/2020-09-09-report.pdf 5https://www.state.gov/wp-content/uploads/2020/10/DRL-Industry-Guidance-Project-FINAL-1-pager-5081.pdf 6 https://www.dontbankonthebomb.com/northrop-grumman/ 7 https://theintercept.com/2020/11/17/dhs-biometrics-dna/; http://www.documentcloud.org/documents/6542043-MSLS-Industry-Day-Presentation-FINAL.html 78INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | | PROPOSAL FOUR: SHAREHOLDER PROPOSAL |
| | | | Board of Directors' Statement in Opposition to Proposal Four |
The Board of Directors has carefully considered Proposal Four and, for the reasons summarized below, unanimously recommends a vote against Proposal Four. The Company is, and has long been, deeply committed to human rights and to transparency, including in how the Company implements its human rights policies and practices. The Company is also committed to updating and refining its program, as we engage with our shareholders and receive their input, and as best practices evolve. Indeed, in 2020, the Company significantly refined its Policy and created a Human Rights Working Group to help ensure its effective implementation. However, the Board does not believe that the Company could implement the Proposal in a meaningful and constructive way, nor that it would serve the interests of our shareholders, or even progress what we believe is the Proponents' ultimate objective. Proposal Four is not entirely clear. The Proponents appear to be focused not so much on what the Company is doing, but on risks to the Company from doing business with our customers (the US and allied foreign governments), and their use of our products, particularly in areas of armed conflict. Proponents appear to recognize that the Company has a robust human rights policy, but express concern that notwithstanding the extensive list of issues addressed in the policy, we have somehow not disclosed our “salient human rights issues,” or the “nature and extent of the participation of [unidentified] impacted rightsholders.” They therefore request that the Company publish a report examining “the actual and potential impacts” associated with our customers’ future use of our products, including in conflict areas. While the Company is fully committed to advancing human rights, it is difficult to understand how the Proposal would serve our shareholders’ interest, or how the Company could effectively address what seems to be the Proponents’ underlying concern – namely how the US and other governments engage in armed conflict. The Board of Directors is concerned that Proponents’ request, which is both vague and overly broad, would impose unworkable requirements on the operations of the Company; adversely impact our ability to serve our largest customer, the US Government, and to shape the environment in which governments use our products and services, including to advance human rights; and ultimately harm our business and our ability to grow in service to our shareholders. The Board does not believe Proposal Four will enhance the Company’s ability to manage risk, progress a strong culture (including one that demands respect for human rights), influence our customers’ behavior or create long-term value for our stakeholders. Last year, our shareholders considered a similar proposal, and more than 75% of the shareholders who participated, voted against the proposal. The Board of Directors recommends our shareholders do so this year too. The Company is Deeply Committed to Respecting Human Rights The Company supports and maintains the highest standards of ethical conduct and is deeply committed to respecting human rights. This commitment is embedded in the Company’s culture, values, policies and practices and reflected in the Company’s robust Human Rights Policy and in our Standards of Business Conduct. The Company’s Human Rights Policy describes in some detail various components of the Company’s approach to protecting and advancing human rights, including: •Our People: We treat employees, suppliers, partners, customers and competitors with respect and dignity. We are committed to a diverse workforce, treated with equity and enabled in an inclusive environment. We do not tolerate any discrimination in employment based on an individual’s protected status. We strive to provide fair working conditions and do not tolerate the use of child labor, forced labor, bonded labor, or human trafficking; •Our Supply Chain: We are committed to high standards of ethical and business conduct as it relates to the procurement of goods and services. And we require our suppliers to conduct themselves similarly, in a manner consistent with our values and our Supplier of Code of Conduct; •Our Programs and Products: We are committed to high standards of ethical and business conduct as it relates to the development of our products, and to how we provide goods and services. We consider potential risks, including risks to human rights at different stages through the life cycle of a product. We are mindful of potential unintended uses of our products. We have robust processes to help ensure the Company does not do business in countries, or sell products to customers that are not properly approved by the government and consistent with U.S. law. The Company has procedures in place to engage in due diligence, to assess and potentially to mitigate risks before undertaking certain business opportunities, even if they are or would be approved; •Our Communities: We invest in our communities, including providing funding and support to a wide range of for a wide range of local, national and international causes across the globe; •Environment: We conduct our operations in an environmentally responsible manner, in compliance with all applicable legal requirements and Company-imposed objectives. We establish various specific environmental goals and then monitor our progress against them. We are committed to sustainability; NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 79
| | | | PROPOSAL FOUR: SHAREHOLDER PROPOSAL |
•Enforcement: We strive for an environment in which employees feel not only free to raise any concerns and report potential violations, but obligated to so. We maintain multiple channels for reporting and provide for prompt investigation of concerns and robust corrective actions, if needed. The Human Rights Working Group helps to ensure the Policy is effectively implemented. The Working Group includes senior representatives from different functions and our four business sectors. The Board of Directors, through its Policy Committee, provides further oversight of the Company’s Human Rights Policy and compliance with it. The Company provides for disclosure and transparency on the Company’s website, in the annual Proxy Statement, and in the Company’s annual Sustainability Report. The Board of Directors believes that the Company’s robust and enhanced policy, procedures, oversight and disclosure enable and demonstrate our commitment to human rights, as well as our responsiveness to shareholders. Proposal Four Is Neither Practicable nor Constructive As noted above, Shareholder Proposal Four does not appear to question the Company’s commitment to human rights or the substance of our Human Rights Policy. Instead, the Proposal appears to challenge indirectly how the Company’s government customers might potentially use our products, and to require the Company somehow to anticipate, assess and disclose the risks that such potential government conduct might harm human rights. The Company can and does take seriously the identity of the customers to whom we can and do sell our products, and the potential consequences. As an initial matter, security and export controls limit significantly the customers to whom we can sell most of our products and services. Not surprisingly, our business is tied primarily to the US Government and U.S. Government allies. Before entering into specific contracts, the Company considers, among other things, the financial, legal, strategic, operational and reputational implications of doing so. The Company has additional procedures to review potential business activities when they involve certain countries of concern. Those procedures provide for additional focus on compliance and reputational risks, among others, before determining whether to proceed with the proposed business activity. As noted above, the Company is mindful of both intended and unintended uses of its products. The Company has at times decided not to do business in a certain country, even where it was legally permissible, after evaluating the potential risks to the Company. And, similarly, the Company has decided at times to exit or not to pursue certain businesses in light of potential risks to the Company, including risks related to potential human rights concerns. Proposal Four goes beyond this, however, calling on the Company to examine and publicly report on how the US and other governments might use the products or services we provide, including in conflict, and what impacts might result to human rights. Such an effort would be impracticable and inappropriate and would not likely progress the Proponents' objectives of advancing human rights and reducing the Company's exposure to risk. It would, however, likely complicate how the Company operates on a day-to-day basis and how the Company serves its customers. It would require the Company to speculate about our customers, their current and future mission requirements and their behavior, including how our customers might use our products over time, depending on changes in policies and politics; the evolving threat environment; and what conflicts might arise, when and where. Such efforts, even if practicable, could significantly hinder the Company’s ability to operate and grow the business on a day-to-day basis, harm the Company’s reputation as a trusted partner, and create a competitive disadvantage. * * * * * The Board of Directors and Company management share Proponents’ concern for human rights. The Company has a strong Human Rights Policy and regularly evaluates and enhances our programs to implement that policy. However, the Board does not believe that the efforts proposed by Proponents will enhance our current human rights program or be constructive. To the contrary, the Board believes strongly that the proposal is not in the best interests of the Company and our shareholders. The Board therefore opposes this proposal and unanimously recommends that it should not be adopted. Vote Required Approval of this proposal requires that the votes cast "for" the proposal exceed the votes cast "against" the proposal. Abstentions and broker non-votes will have no effect on this proposal. | | | | | | | | | | | | | | | | THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "AGAINST" PROPOSAL FOUR. |
80INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | | PROPOSAL FIVE: SHAREHOLDER PROPOSAL |
Mr. John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, California 90278, a beneficial owner of 5020 shares of common stock of the Company, the proponent of a shareholder proposal, has stated that he intends to present a proposal at the Annual Meeting. The proposal and supporting statement, for which the Board of Directors accepts no responsibility, is set forth below. The Board of Directors opposes the shareholder proposal for the reasons stated below. | | | | Proposal Five: Shareholder Proposal to Move to 10% Ownership Threshold for Shareholders to Request Action by Written Consent |
Proposal Four: Special5 - Improve Shareholder Meeting ImprovementResolved, Shareowners askWritten Consent
Shareholders request our board toof directors take the steps necessary (unilaterally if possible) to amend our bylaws and each appropriate governing document to give holders in the aggregate of 10% 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.Scores of Fortune 500 companies allow a more reasonableenable 10% of shares to request a record date to initiate written consent.
Currently it takes the formal backing 30% of all shares that normally cast ballots at the annual meeting to do so little ask for a record date for written consent. Requiring the formal backing 30% of shares to do so little ask for a record date cuts shareholders off at the knees. Why would anyone use the current written consent when the same 30% of shares can call a special meeting comparedand succeed with a 51%-vote? Any action taken by written consent would still need 60% supermajority approval from the shares that normally cast ballots at the annual meeting. This 60% vote requirement gives overwhelming supermajority protection to management accountability. Enabling 10% of shares to apply for a record date for written consent makes sense because scores of companies do not even require 01% of stock ownership to do so little as request a record date. Taking action by written consent is a means shareholders can use to raise important matters outside the normal annual meeting cycle like the election of the new director. For instance shareholders might determine that a poor performing director is in need of replacement. This proposal would serve as an added motivator for good director performance as measured by the number of negative votes announced on EDGAR within 4-days of the annual meeting. Now more than ever shareholders need a more viable option to take action outside of a shareholder meeting since online shareholder meetings are a management accountability and shareholder engagement wasteland. With a near universal use of online annual shareholder meetings, which can be only 10-minutes of stilted formalities, shareholders no longer have the right for engagement with other shareholders, management and directors at a shareholder meeting. Special shareholder meetings can now be online meetings which have an inferior format to even a Zoom meeting. Shareholders are also severely restricted in making their views known at online shareholder meetings because all challenging questions and comments can be screened out by management. For instance the Goodyear shareholder meeting was spoiled by a trigger-happy management mute button that was used to quash constructive shareholder criticism. AT&T, with 3000 institutional shareholders, would not even allow shareholders to speak. And even if Northrop Grumman (NOC). Northrop shareholders do not have the full rightmanagement pledges to call a specialfollow best practices in conducting an online shareholder meeting that is available under Delaware law.Special meetings allow shareownersmanagement can change abruptly when storm clouds appear due to vote on important matters, such as electing new directors that can arise between annual meetings. This proposal topic wonsubpar management performance.
Now more than 70%-support at Edwards Lifesciences and SunEdison in 2013.A full right forever shareholders need a more viable option to call a special meeting could give shareholders greater standing to improve the makeup of our board of directors after the 2018 annual meeting. For instance, Donald Felsinger, a former CEO is now our Lead Director. The Lead Director position has additional oversight of our CEO compared to other directors. For Wesley Bush, CEO, this is somewhat like answering to a Lead Director who is a member of the same CEO club - not in the best interest of shareholders. Plus one could argue that Mr. Felsinger believed CEOs should be paid lavishly when he was a CEO.
Victor Fazio, a lobbyist, with17-years long-tenure, was on our Audit Committee. Long-tenure can impair the independencetake action outside of a director. Independence is anall-important qualification forshareholder meeting since online shareholder meetings are a member of our Audit Committee.
We had a retired Admiral and retired General on our board. Thus serious consideration should be given to avoiding a 3rd director from primarily a military background. If we had 3 such directors they could become a powerful faction on the board that could tend to vote in lockstep. This may not be good for board diversity – having 3 directors who could speak with one voice.
Please vote to increase management accountability to shareholders:
Specialand shareholder engagement wasteland.
Proposal 5 - Improve Shareholder Meeting Improvement - Proposal 4 Board of Directors’ Statement in Opposition to Proposal Four
Written Consent | | | | Board of Directors' Statement in Opposition to Proposal Five |
The Board of Directors unanimously recommends that shareholders vote against this Proposal Four. Almost eight years ago,Five. In 2012, after thoughtful deliberation with the benefit of significant input from our shareholders, the Board of Directors recommended, and shareholders overwhelmingly approved, amendments to the Company’s Certificate of Incorporation and Bylaws to adopt robust and well-balanced special meeting provisions. Those provisions givefor the right of shareholders to act by written consent. Among other things, these provisions provide for shareholders holding in aggregate 25% or more of the Company’s outstanding shares of common stock the right to call special meetings, provided certain limited requirements are met. This Proposal Four - which recommends an alternative threshold of 10% of outstanding sharesact by written consent. In addition, our shareholders have the right to call a special meeting, to submit proposals to be considered at our annual meeting, to nominate directors through proxy access, and to meet with our directors and members of management. As this inclusive governance structure would suggest, our Board of Directors is, and has long been, committed to ensuring our shareholders have broad and meaningful rights to provide input and to influence the direction of our Company, and to do so in a way that respects the interests of all shareholders and enhances the Company’s ability to create long-term value. This NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 81
| | | | PROPOSAL FIVE: SHAREHOLDER PROPOSAL |
Proposal Five - which recommends reducing the threshold to seek action by written consent significantly from 25% to only 10% of the Company’s outstanding shares - is inaccurate, unnecessary and ill-advised. ill-advised.As an initial matter, Proposal Five is difficult to follow, at best, and replete with significant errors.The Proponent seems to suggest that because many companies felt compelled to host a virtual shareholder meetings in the spring of 2020 – to protect health and well-being during the COVID-19 pandemic – shareholders “no longer have the right for engagement with other shareholders, management and directors at a shareholder meeting” and, therefore, holders of 10% should be able to initiate action by written consent.The Proponent suggests further that it would, in any event, take approval by a 60% supermajority to approve the action.The Proponent also suggests that it would currently take holders of 30% of the shares to initiate action.This logic is flawed and the underlying “facts” are inaccurate.Shareholders, and indeed the Proponent himself, engaged with management and directors at our 2020 annual meeting;Northrop Grumman does not require a supermajority to approve action by written consent (a simple majority suffices); and Northrop Grumman does not currently require holders of 30% to initiate action (the current standard is 25%).Moreover, even if these assertions were correct, it would not follow that because companies adopted virtual shareholder meetings this past year to protect their directors, employees and shareholders, our board should reduce the threshold for action by written consent. To the contrary, and as noted above, the Board believes it is both unnecessary and unwise to lower the threshold from 25% to 10% to take action by written consent. In framing the special meeting provisions for written consent in 2012, the Board sought and was guided by extensive input from our shareholders and other stakeholders. The Board was mindful that our.Our shareholders both expressed support for special meetingsuch provisions generally, andbut also cautioned that the frameworkright of shareholders to act by written consent should be balanced and structured so as to ensure adequate protectionsan orderly and transparent process, guard against misuse, protect the interests of all shareholders, and promote good governance, all so as to enhance long-term value for all shareholders. The Board believesour shareholders.Almost 80% of our shareholders supported the Company’s current provisions accomplish those goals. The Company’s currentproposal to implement written consent at the 25% threshold. In 2020, when the Proponent presented a broadly similar shareholder proposal to reduce the ownership threshold is also among the more common thresholds for large public companies who offerto 3%, our shareholders the right to call special meetings, and the overall approach remains consistent with the special meeting provisions adopted by other Fortune 500 companies.overwhelmingly voted against it. The Board continues to believe that our special meeting provisions - including specifically the 25% ownership threshold -for written consent remain well aligned with our shareholders’ perspectives, best practices and the Company’s best interests. The Board believes they balance and promote the interests of all our shareholders, particularly in the context of our broader governance construct. For example, because our shareholders have the right to propose business for consideration at our annual meeting of shareholders, the Board believes that special meetings should be called only to consider extraordinary events that are of interest to a broad base of our shareholders; specifically, such as when strategic, significant transactional or similar considerations dictate that a matter be addressed on an expeditious basis and cannot be delayed until the next annual meeting of shareholders. The proponent’s shareholderProponent’s Proposal Four,Five, if adopted, could result in a small minority of shareholders, potentially with narrow, short-term interests, calling a special meetingrequesting action by written consent toNOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT|67
| PROPOSAL FOUR: SHAREHOLDER PROPOSAL
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pursue matters that have little likelihood of success and that as muchmany as 90% of shareholders may not view as requiring immediate attention,inappropriate for action, without regard to how the costs and other burdens might impact the Company’s future success orinterests of the interests ofCompany and the vast majority of shareholders. Not surprisingly, since the special meeting provision was adopted in 2010, we have received very positiveWe value and benefit from extensive and regular feedback from our shareholders in discussions regarding our approach. In that feedback,shareholders. But we have heard no input suggesting thedo not believe this Proposal, or such a reduced threshold should be reducedis necessary or appropriate to 10%, or that it presents a barrier forenable shareholders to bring matters of concern to the Company’s attention. For every special meeting, we must incur significant expenses,As noted above, the Board is committed to facilitating shareholder input, and already provides numerous such opportunities, including legal, printing and mailing expenses, as well as other costs normally associated with holding a shareholders meeting. Moreover, organizing and preparing forthrough proxy access, the right to call a special meeting, involves significant time and attention from our directors, officersopportunities to discuss matters directly with the Board and other employees, thus diverting attention away from their focus on meeting our business objectives and enhancing shareholder value. management.
Recognizing the substantial administrative and financial burdens that a special meeting imposesmaintaining and expanding the stockholder written consent process could impose on the Company and its shareholders, the Board believes that the Company’s existing 25% threshold strikes the appropriate balance between allowingproviding shareholders a meaningful mechanism to vote on important matters that arise between annual meetingsinfluence the direction of the Company and protecting against the risk that a small group of shareholders call a meetingseek to act by shareholder written consent on matters that servesserve only a narrow agenda not favored by the majority of shareholders. The proponent’sProponent’s shareholder Proposal FourFive to lower the threshold to call a special meetingrequest shareholder action by written consent to 10% would serve only to undermine the balance our Board sought to preserve.preserve, which was supported by nearly 80% of our shareholders, create conditions for costly and needless processes that do not serve the interests of many, increase risks to the Company and shareholders, and detract from effective corporate governance. Finally, we note that the Company’s current 25% threshold is consistent with best practices not only in our industry, but across industries. The majority of S&P 250 do not provide for the explicit right to act by written consent at all. And among those that do, the Company’s current 25% threshold is one of the more common thresholds found in corporate governance documents. As we continue to engage with our shareholders, we remain confident that our special meeting provisions for shareholders to act by written consent, including the 25% ownership threshold, are consistent with industrybest practices, provide our shareholders with a meaningful and appropriate right to call special meetings,rights, and balance the need to protect the interests of all of our shareholders.This right is an important element of a broader set of governance rights and principles that together, ensure meaningful engagement and effective oversight in the interests of all our shareholders. The Board believes that adoption of shareholder Proposal Four –Five is unnecessary and a threshold of 10% – is not only unnecessary, but contrary to the best interests of the Company and our shareholders.
82INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | | PROPOSAL FIVE: SHAREHOLDER PROPOSAL |
Approval of this proposal requires that the votes cast “for”"for" the proposal exceed the votes cast “against”"against" the proposal. Abstentions and broker non-votes will have no effect on this proposal. | | | | | | | | | | | | | | | | THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “AGAINST” "AGAINST" PROPOSAL FOUR.
FIVE. |
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| | | QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
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Why did I receive a “Notice"Notice of Internet Availability of Proxy Materials”Materials" but not a full set of proxy materials? We distribute our proxy materials to shareholders via the internet under the “Notice"Notice and Access”Access" approach permitted by the rules of the SEC. This approach reduces the environmental impact of the Annual Meeting and our distribution costs, while providing a timely and convenient method of accessing the proxy materials and voting. On March 30, 2018,April 2, 2021, we mailed a “Notice"Notice of Internet Availability of Proxy Materials”Materials" to participating shareholders, containing instructions on how to access the proxy materials on the internet.materials. Who is entitled to vote at the Annual Meeting? You may vote your shares of our common stock if you owned your shares as of the close of business on March 20, 201823, 2021 (Record Date). As of the Record Date, there were 174,383,808160,962,047 shares of our common stock outstanding. You may cast one vote for each share of common stock you hold as of the Record Date on all matters presented. How many votes must be present to hold the Annual Meeting? The presence in personvirtually or by proxy of the holders of a majority of the shares entitled to vote at the Annual Meeting will constitute a quorum at the Annual Meeting. Persons returning executed proxy cards will be counted as present for purposes of establishing a quorum even if they abstain from voting on any or all proposals. Shares held by brokers who vote such shares on any proposal and broker non-votes will be counted as present for purposes of establishing a quorum. How can I receive a paper copy of the proxy materials? Instead of mailing a printed copy of this Proxy Statement and accompanying materials to each shareholder of record, we have elected to provide a Notice of Internet Availability of Proxy Materials (Notice) as permitted by the rules of the SEC. The Notice instructs you as to how you may access and review all of the proxy materials and how you may provide your proxy. If you would like to receive a printed or electronic copy of this Proxy Statement and accompanying materials, you must follow the instructions for requesting such materials included in the Notice. What am I being asked to vote on and what are the Board of Directors’Directors' recommendations? The following table lists the proposals scheduled to be voted on, the vote required for approval of each proposal and the effect of abstentions and broker non-votes: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Proposal | | Board Recommendation | | Vote Required | | Vote Required
Abstentions | | Abstentions
Broker Non-Votes | | Broker
Non-Votes
Unmarked Proxy Cards | Election of Directors (Proposal One) | | Unmarked
Proxy Cards
| Election of Directors
(Proposal One)
FOR | | FOR
| | Majority of votes cast | | No effect | | No effect | | Voted “FOR” "FOR" | Advisory Vote on Compensation of Named Executive Officers
| | FOR | | Majority of votes cast | | No effect | | No effect | | Voted “FOR” "FOR" | Ratification of Appointment of Independent Auditor
| | FOR | | Majority of votes cast | | No effect | | No effect | | Voted "FOR" | Shareholder Proposal That the Company Assess and Report on Potential Human Rights Impacts That Could Result from Governments' Use of Our Products and Services, Including in Conflict Affected Areas (Proposal Four) | | AGAINST | | Majority of votes cast | | No effect | | No effect | | Voted “FOR” "AGAINST" | Shareholder Proposal to ModifyMove to a 10% Ownership Threshold for Shareholders to Call a Special Meeting
Request Action by Written Consent | | AGAINST | | Majority of votes cast | | No effect | | No effect | | No effect
| | Voted “AGAINST” "AGAINST" |
84INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
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What is a broker non-vote?Brokers who hold shares of common stock for the accounts of their clients may vote these shares either as directed by their clients or in their own discretion if permitted by the stock exchanges or other organizations of which they are members. Members of the New York Stock Exchange (NYSE) are permitted to vote their clients’clients' proxies in their own discretion on certain matters if the clients NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT|69
| QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
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have not furnished voting instructions within ten days of the meeting. However, NYSE Rule 452 defines various matters as“non-routine,” "non-routine," and brokers who have not received instructions from their clients do not have discretion to vote their client’sclient's shares on such“non-routine” "non-routine" matters, resulting in a “broker"broker non-vote.” " If you are a beneficial owner whose shares are held of record by a broker, your broker has discretionary voting authority under NYSE rules to vote your shares, without instructions from you, on the ratification of the appointment of Deloitte & Touche LLP as independent auditor. However, your broker does not have discretionary authority to vote your shares, without instructions from you, on the election of directors, the advisory vote to approve the compensation of our NEOs or the shareholder proposal,proposals, in which case a broker non-vote will occur and your shares will not be voted on these matters. How do I vote my shares?shares if they are registered directly in my name? If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A. (Computershare), you holdare considered the "registered shareholder" of those shares, as a record holder,and you may vote by proxy prior to the Annual Meeting, as discussed below, or you may vote in person at the Annual Meeting.below. Shares represented by a properly executed proxy will be voted at the Annual Meeting in accordance with the shareholder’sshareholder's instructions. If no instructions are given, the shares will be voted according to the recommendations of the Board. Registered shareholders and plan participants may go towww.envisionreports.com/noc to view this Proxy Statement and the Annual Report. If any other matters are properly brought before the Annual Meeting, the proxy card gives discretionary authority to the proxyholders named on the card to vote the shares in their best judgment. A shareholder who executes a proxy may revoke it at any time before its exercise by delivering a written notice of revocation to the Corporate Secretary or by delivering a valid, later-dated proxy, or a later-dated vote by telephone or on the internet, in a timely manner. In addition, a shareholder attending the Annual Meeting in person may revoke the proxy by giving notice of revocation to the inspector of election at the meeting or by voting by ballot at the meeting. How do I vote my shares if they are held by a bank, broker or other agent?Persons who ownnominee?
If your shares are held in a stock beneficially throughbrokerage account or by a bank broker or other agent may notnominee (that is, in street name), you are considered the "beneficial owner" of the shares that are registered in the street name. You are able to vote directlythose shares, to attend the annual meeting as a shareholder, and to ask questions at the meeting. (See below). You will need to instruct the record ownerbank, broker or other nominee how to vote theirthese shares using the procedure identified by the bank, broker or other agent. Beneficial owners who hold our common stock in “street name” through a brokernominee. You should receive voting instruction forms from their broker. Mostyour bank, broker or other nominee. We expect most banks, brokers and other nominees to enable beneficial owners will be able to provide voting instructions by telephone or on the internet by following the instructions on the form they receive from their broker.internet. Beneficial owners may view this Proxy Statement and the Annual Report on the internet by logging on towww.edocumentview.com/noc. A person who beneficially owns shares of our common stock through a bank, broker or other agent can vote his or her shares in person at the Annual Meeting only if he or she obtains from the bank, broker or other nominee a proxy, often referred to as a “legal proxy,” to vote those shares, and presents the proxy to the inspector of election at the meeting together with his or her ballot.70 |.NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
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Beneficial owners who hold shares in “street name”"street name" may revoke a proxy or change a vote by submitting a new, later-dated voting instruction form, contacting the bank, broker or other agentnominee or by voting in person at the Annual Meeting by obtaining a legal proxy as described above. below (see "How do I attend and vote at the virtual Annual Meeting?").
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How do I vote my shares held under a Northrop Grumman savings plan? If shares are held on an individual’sindividual's behalf under any of our savings plans, the proxy will serve to provide confidential instructions to the plan Trustee or Voting Manager who then votes the participant’sparticipant's shares in accordance with the individual’sindividual's instructions. For those participants who do not vote their plan shares, the applicable Trustee or Voting Manager will vote their plan shares in the same proportion as shares held under the plan for which voting directions have been received, unless the Employee Retirement Income Security Act requires a different procedure. Voting
Savings plan participants may submit their voting instructions by the same methods as registered shareholders (see "How do I vote my shares if they are registered directly in my name?" above) but voting instructions from savings plan participants must be received by the applicable plan Trustee or Voting Manager by 11:59 p.m. Eastern Daylight Time on May 13, 201816, 2021 in order to be used by the plan Trustee or Voting Manager to determine the votes cast with respect to plan shares. How do I attend and vote at the virtual Annual Meeting? Attending the Virtual Meeting as a Registered Shareholder Registered shareholders at the close of business on March 23, 2021 will be able to vote at, and participate in, the Annual Meeting by visiting www.meetingcenter.io/241697037 and clicking on "I have a Control Number." Registered shareholders will be able to use their 16-digit control number provided with this Notice to participate virtually. Attending the Virtual Meeting as a Participant in a Company Savings Plan If shares were held on your behalf under any of the Company’s savings plans at the close of business on March 23, 2021, you are eligible to attend and participate in the meeting. You may access the meeting in the same manner as the registered shareholders. However, voting instructions from savings plan participants must be received by the applicable plan Trustee or Voting Manager by 11:59 p.m. Eastern Daylight Time on May 16, 2021 in order to be used by the plan Trustee or Voting Manager to determine the votes cast with respect to plan shares. Registering to Attend the Virtual Meeting as a Beneficial Owner If you were a beneficial owner of record (i.e., you hold your shares through a broker, bank or other nominee) at the close of business on March 23, 2021, and you wish to attend the Annual Meeting, your broker, bank or other nominee should be able to confirm your ability to participate in the virtual Annual Meeting with the control number you receive with your voting instruction form. If your broker, bank or nominee says that you will need a separate control number from Computershare to participate in the Annual Meeting as a shareholder, you will also need a separate legal proxy from your broker, bank or other nominee, stating that you are the beneficial owner of the shares and are entitled to vote them. Once you have received a legal proxy, please email a scan or image of it to our transfer agent, Computershare, at legalproxy@computershare.com, with “Legal Proxy” noted in the subject line. We remind you that if you do request and receive a legal proxy from your broker, bank or other nominee, you will not be able to give any further voting instructions to your broker, bank or nominee to vote the shares on your behalf. You will only be able to vote at the Annual Meeting. Requests for registration must be received by Computershare no later than 5:00 p.m. Eastern Daylight Time, on May 14, 2021. You will then receive a confirmation of your registration, with a control number, by email from Computershare. At the time of the meeting, go to www.meetingcenter.io/241697037 and enter your control number and the meeting password, which if prompted for one, is NOC2021. Asking Questions We will invite shareholders to submit questions for consideration at the Annual Meeting by accessing the virtual Annual Meeting website available at www.meetingcenter.io/241697037. Shareholders will be able to access the meeting and submit questions by using the controls numbers discussed above in "How do I attend and vote at the virtual Annual Meeting?" You will be able to submit questions at any time during the week prior to the Annual Meeting (beginning at 9:00 a.m. on May 12, 2021 and continuing through May 18, 2021 at 5:00 p.m.) Shareholders will also be able to submit questions during the meeting. Questions should relate to the official business of the meeting, and management and shareholder proposals in particular. Management will seek to answer questions at the relevant time, when the proposal or matter is up for consideration. Additional Information We will disclose additional details about the Annual Meeting or changes to the process on the Investor Relations section of our website (www.northropgrumman.com) and in a public filing with the Securities and Exchange Commission, as appropriate. What if I have technical difficulties accessing or during the virtual Annual Meeting? If you encounter difficulties accessing the meeting, click the "Additional Information" button on the Meeting Center login page for assistance. If you encounter difficulties after accessing the meeting, click the "Help" button in the upper right-hand corner of the meeting page for assistance. 86INOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
We are not aware of any other business to be transacted at the Annual Meeting. Our Bylaws outline procedures, including minimum notice provisions, for shareholder nominations of directors and submission of other shareholder business to be transacted at the Annual Meeting. A copy of the pertinent Bylaw provisions is available on request to the Corporate Secretary,Northrop Grumman Corporation, 2980 Fairview Park Drive, Falls Church, Virginia 22042. Our Bylaws are also available in the Investor Relations section of our website atwww.northropgrumman.com. If any other business properly comes before the Annual Meeting, the shares represented by proxies will be voted in accordance with the judgment of the persons authorized to vote them. Shareholder Proposals for the 2019 Annual Meeting
| | | | Shareholder Proposals for the 2022 Annual Meeting |
Any shareholder who intends to present a proposal at the 20192022 Annual Meeting must deliver the proposal to the Corporate Secretary atNorthrop Grumman Corporation, 2980 Fairview Park Drive, Falls Church, Virginia 22042:· | | not later than November 30, 2018, if the proposal is submitted for inclusion in the Company’s proxy materials for that meeting pursuant to Rule14a-8 under the Exchange Act; and |
· | | not earlier than November 30, 2018 and not later than December 30, 2018, if the proposal is submitted pursuant to the Bylaws, but not pursuant to Rule14a-8, in which case we are not required to include the proposal in our proxy materials. If the 2019 Annual Meeting is convened more than 30 days prior to or delayed by more than 30 days after theone-year anniversary of the Annual Meeting, our Bylaws provide different notice requirements. |
•not later than December 3, 2021, if the proposal is submitted for inclusion in the Company's proxy materials for that meeting pursuant to Rule 14a-8 under the Exchange Act; and •not earlier than December 3, 2021 and not later than January 2, 2022, if the proposal is submitted pursuant to the Bylaws, but not pursuant to Rule 14a-8, in which case we are not required to include the proposal in our proxy materials. If the 2022 Annual Meeting is convened more than 30 days prior to or delayed by more than 30 days after the one-year anniversary of the Annual Meeting, our Bylaws provide different notice requirements. Any shareholder who wishes to introduce a proposal should review our Bylaws and applicable proxy rules of the SEC. Shareholder Nominations for Director Election at the 2019 Annual Meeting
| | | | Shareholder Nominations for Director Election at the 2022 Annual Meeting |
Any shareholder who intends to nominate a person for election as a director at the 20192022 Annual Meeting must deliver a notice of such nomination (along with certain other information required by our Bylaws) to the Corporate Secretary atNorthrop Grumman Corporation, 2980 Fairview Park Drive, Falls Church, Virginia 22042:· | | not earlier than October 31, 2018 and not later than November 30, 2018, if the nomination is submitted for inclusion in the Company’s proxy materials for that meeting pursuant to the Company’s proxy access provision, as set forth in our Bylaws, which nomination and supporting materials must comply with the requirements in our Bylaws; and |
· | | not earlier than November 30, 2018 and not later than December 30, 2018, if the nomination is submitted pursuant to the Bylaws, but not pursuant to our proxy access provision, in which case we are not required to include the nomination in our proxy materials. If the 2019 Annual Meeting is convened more than 30 days prior to or delayed by more than 30 days after theone-year anniversary of the Annual Meeting, our Bylaws provide different notice requirements. |
•not earlier than November 3, 2021 and not later than December 3, 2021, if the nomination is submitted for inclusion in the Company's proxy materials for that meeting pursuant to the Company's proxy access provision, as set forth in our Bylaws, which nomination and supporting materials must comply with the requirements in our Bylaws; and •not earlier than December 3, 2021 and not later than January 2, 2022, if the nomination is submitted pursuant to the Bylaws, but not pursuant to our proxy access provision, in which case we are not required to include the nomination in our proxy materials. If the 2022 Annual Meeting is convened more than 30 days prior to or delayed by more than 30 days after the one-year anniversary of the Annual Meeting, our Bylaws provide different notice requirements. Any shareholder who wishes to nominate a person for election as a director should review our Bylaws. Householding Information
Some banks, brokers and other nominee record holders may be participating in the practice of “householding.”"householding." This means that only one copy of the Notice of Internet Availability of Proxy Materials may have been sent to multiple shareholders in a household. We will promptly deliver a separate copy to a shareholder upon written or oral request to the Corporate Secretary at the following address and phone number:Northrop Grumman Corporation, 2980 Fairview Park Drive, Falls Church, Virginia 22042, (703) 280-2900. To receive separate copies of the notice in the future, or if a shareholder is receiving multiple copies and would like to receive only one copy for the household, the shareholder should contact his or her bank, broker or other nominee record holder, or may contact the Corporate Secretary at the above address or phone number.72 |
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI 87
Cost of Soliciting Proxies
| | | | Cost of Soliciting Proxies |
We will pay all costs of soliciting proxies. We have made arrangements with brokerage houses and other custodians, nominees and fiduciaries to make proxy materials available to beneficial owners. We will, upon request, reimburse them for reasonable expenses incurred. We have retained D.F. King & Co., Inc. of New York at an estimated fee of $20,000, plus reasonable disbursements to solicit proxies on our behalf. Our officers, directors and regular employees may solicit proxies personally, by means of materials prepared for shareholders and employee-shareholders or by telephone or other methods to the extent deemed appropriate by the Board. No additional compensation will be paid to such individuals for this activity. The extent to which this solicitation will be necessary will depend upon how promptly proxies are received. We therefore urge shareholders to give voting instructions without delay. Available Information
You may obtain a copy of the following corporate governance materials on the Investor Relations section of our website (www.northropgrumman.com) under Corporate Governance:· | | Principles of Corporate Governance; |
· | | Standards of Business Conduct; |
· | | Policy and Procedure Regarding Company Transactions with Related Persons; and |
· | | Board Committee Charters. |
•Bylaws; •Principles of Corporate Governance; •Standards of Business Conduct; •Policy and Procedure Regarding Company Transactions with Related Persons; and •Board Committee Charters. Copies of these documents are also available without charge to any shareholder upon written request to the Corporate Secretary,Northrop Grumman Corporation, 2980 Fairview Park Drive, Falls Church, Virginia 22042. We disclose amendments to provisions of our Standards of Business Conduct by posting amendments on our website. Waivers of the provisions of our Standards of Business Conduct that apply to our directors or executive officers are disclosed in a Current Report onForm 8-K. Incorporation by Reference
| | | | Incorporation by Reference |
In accordance with SEC rules, notwithstanding anything to the contrary set forth in any of our previous or future filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate this Proxy Statement or future filings made by the Company under those statutes, the information included under the section entitled “Compensation"Compensation Committee Report”Report" and those portions of the information included under the section entitled “Audit"Audit and Risk Committee Report”Report" required by the SEC’sSEC's rules to be included therein, shall not be deemed to be “soliciting material”"soliciting material" nor shall the information included under the section entitled "Compensation of Directors - Stock Ownership Requirements and Anti-Hedging and Pledging Policy," the information included under the section entitled "Compensation Committee Report," or “filed”those portions of the information included under the section entitled "Audit and Risk Committee Report" required by the SEC's rules to be included therein, be "filed" with the SEC and shall notor be deemed incorporated by reference into any of those prior filings or into any future filings made by the Company under those statutes, except to the extent we specifically incorporate these items by reference. Annual Report
March 30, 2018
Web links throughout this document are provided for convenience only, and the content on the referenced websites does not constitute a part of this Proxy Statement. April 2, 2021 NOTICE: THE COMPANY FILED AN ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 20172020 ON JANUARY 29, 2018.28, 2021. SHAREHOLDERS OF RECORD ON MARCH 20, 201823, 2021 MAY OBTAIN A COPY OF THIS REPORT WITHOUT CHARGE UPON WRITTEN REQUEST TO THE CORPORATE SECRETARY, NORTHROP GRUMMAN CORPORATION, 2980 FAIRVIEW PARK DRIVE, FALLS CHURCH, VIRGINIA 22042. 
Jennifer C. McGarey
Corporate Vice President and Secretary
| | | | | | | | | Jennifer C. McGarey | | Corporate Vice President and Secretary |
88INOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
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| | | APPENDIX A - USE OF NON-GAAP FINANCIAL MEASURES |
This Proxy Statement contains non-GAAP (accounting principles generally accepted in the United States of America) financial measures, as defined by SEC Regulation G and indicated by an asterisk in this Proxy Statement. While we believe investors and other users of our financial statements may find these non-GAAP financial measures useful in evaluating our financial performance and operational trends, they should be considered as supplemental in nature, and therefore, should not be considered in isolation or as a substitute for financial information prepared in accordance with GAAP. Definitions and reconciliations for the non-GAAP financial measures contained in this Proxy Statement are provided below.below and the reconciliations of non-GAAP financial measures presented in this Proxy Statement are located on pages A-3 and A-4 of this Appendix A. Other companies, including companies in our industry, may define these measures differently or may utilize different non-GAAP financial measures.measures, limiting the usefulness of those measures for comparative purposes between companies. Certain of the non-GAAP financial measures below are used as internal measures for performance-based compensation decisions, as further discussed in the “Key Components of our Programs” section of Compensation Discussion and Analysis. The Compensation Committee has discretion to make adjustments to these measures in instances where the Company’s performance has been impacted by unforeseen or unusual events. For 2020, 2019 and 2018 the Compensation Committee adjusted the calculation of certain measures in order to exclude the impact of certain events or transactions that were not contemplated when the performance metrics were established. Cash flow metrics:We use cash flow metrics as internal measures of financial performance and for performance-based compensation decisions. We also use these measures as a key factor in our planning for, and consideration of, acquisitions, stock repurchasespayments of dividends and the payment of dividends.share repurchases. The following cash flow metrics may be useful to investors and other users of our financial statements as a supplemental measure of our cash performance, but should not be considered in isolation, as a measure of residual cash flow available for discretionary purposes, or as an alternative to operating results presented in accordance with GAAP.Cash All cash flow metrics are reconciled below.
Adjusted cash provided by operating activities beforeafter-tax discretionary pension contribution: CashDefined as cash provided by operating activities, beforeplus proceeds from sale of equipment to a customer (not otherwise included in net cash provided by operating activities) and the after-tax impact of discretionary pension contribution. Cashcontributions, and less transaction-related expenses, as approved by the Compensation Committee. Adjusted cash provided by operating activities beforeincludes proceeds from the sale of equipment to a customer as such proceeds were generated in a customer sales transaction. It also includes the after-tax impact of discretionary pension contribution is reconciled below.contributions for consistency and comparability of financial performance. Transaction-related expenses are primarily comprised of advisory, legal and other costs related to the acquisition of Orbital ATK and the divestiture of our IT service business. Adjusted Cash Flow from Operations Conversion:Cash Defined as Adjusted cash provided by operating activities, divided by earnings beforeafter-tax pension contribution interest, taxes, depreciation and amortization, excluding mark-to-market (MTM) expense and the MTM-related deferred state tax benefit (Adjusted EBITDA), as defined above, dividedbelow. As approved by net income excluding the impact of 2017 tax reform.Compensation Committee, this metric has been adjusted to exclude transaction-related expenses, as defined above. Adjusted Free cash flowCash Flow: Net cash provided by operating activities, less capital expenditures. Freeexpenditures, plus proceeds from sale of equipment to a customer (not otherwise included in net cash flow is reconciled below.Free cash flow beforeprovided by operating activities) and the after-tax discretionary pension contribution: Free cash flow before theafter-tax impact of discretionary pension contribution. Free cash flow beforeafter-tax discretionary pension contribution is reconciled below.
Cumulative free cash flow: The aggregatecontributions. Adjusted free cash flow includes proceeds from the sale of equipment to a customer as such proceeds were generated in a customer sales transaction. It also includes the after-tax impact of discretionary pension contributions for consistency and comparability of financial performance.
Adjusted Free Cash Flow before after-tax total pension funding(1): Defined as Adjusted Free Cash Flow before theafter-tax impact of discretionary pension funding. As approved by the Compensation Committee, this metric has been adjusted to exclude the impacts related to Innovation Systems and transaction-related expenses, as discussed above. Adjusted Cumulative Free Cash Flow (Adjusted Cumulative FCF): Defined as the aggregate Adjusted Free Cash Flow before after-tax total pension funding, as defined above, over a three-year period.
Pension-adjusted metrics: For financial statement purposes, we account for our employee pension plans in accordance with GAAP (FAS). However, the cost of these plans is charged to our contracts in accordance with the Federal Acquisition Regulation (FAR) and the related U.S. Government Cost Accounting Standards (CAS) that govern such plans. We use pension-adjusted metrics as internal measures of financial performance and for performance-based compensation decisions. The net FAS (service)/CAS pension adjustment referred to below reflects the difference between CAS pension expense included as cost in segment operating income and the service cost component of FAS expense included in total operating income. The total net FAS/CAS pension adjustment referred to below reflects the combined net FAS (service)/CAS pension adjustment and net FAS (non-service) pension benefit. The following pension-adjusted measures may be useful to investors and other users of our financial statements in evaluating our performance based upon the pension costs charged to our contracts.Net FAS/CAS pension adjustment: The difference between pension expense charged to contracts and included as cost in segment operating income in accordance with CAS and pension expense determined in accordance with FAS. Net FAS/CAS pension adjustment is presented All pension-adjusted metrics are reconciled below.
Pension-adjusted operating income: Operating income before the net FAS/FAS (service)/CAS pension adjustment as defined above. above and the MTM-related deferred state tax benefit, as defined below within MTM related tax impacts. As approved by NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENTI A-1
| | | | APPENDIX A - USE OF NON-GAAP FINANCIAL MEASURES |
the Compensation Committee, this metric has been adjusted to exclude transaction-related expenses, as defined above, and Orbital ATK intangible asset amortization and property, plant and equipment (PP&E) step-up depreciation. Pension-adjusted operating income is reconciled below.Pension-adjusted operating margin rateOperating Margin Rate
: Pension-adjusted operating income as defined above, divided by sales. Pension-adjusted operating margin rate is reconciled below.
After-tax net pension adjustment:The net income impact, after taxafter-tax at the federal statutory rate of 3521 percent, of the net FAS/CASFAS /CAS pension adjustment, as defined above. After-tax net pension adjustment is presented below.Pension-adjusted net income:Net incomeearnings before theafter-tax net pension adjustment as defined above and excluding the impact of 2017 tax reform. Pension-adjusted net income is reconciled below. Pre-tax net pension adjustment per share: The per share impact, before tax, of the net FAS/CAS pension adjustment as defined above.Pre-tax net pension adjustment per share is presented below.
After-tax net pension adjustment per share: The per share impact, after tax at the statutory rate of 35 percent, of the net FAS/CAS pension adjustment as defined above.After-tax net pension adjustment per share is presented below.
Pension-adjusted diluted EPS: Diluted EPS excluding theafter-tax net pension adjustment per share as defined above. Pension-adjusted diluted EPS is reconciled below.
Diluted EPS excluding 2017 tax reformMTM expense and related discretionary pension contribution impacts: Net earnings excludingtax impacts. As approved by the Compensation Committee, this metric has been adjusted to exclude the after-tax impacts of 2017 tax reformtransaction-related expenses and our related discretionary pension contribution divided by weighted average diluted shares outstanding. This measure may be useful to investorsOrbital ATK intangible asset amortization and other users of our financial statements in understanding the impact of these items to our
PP&E step-up depreciation. NOTICE OF 2018 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT|A-1
| APPENDIX A - USE OF NON-GAAP FINANCIAL MEASURES
|
financial results, but should not be considered in isolation or as an alternative to earnings per share presented in accordance with GAAP. Diluted earnings per share excluding 2017 tax reform and related discretionary pension contribution impacts is reconciled below.
Segment operating income: TotalSegment operating income, as reconciled below, reflects total earnings from our threefour segments, including allocated pension expense recognized under CAS, and excluding unallocated corporate items and FAS pension expense. This measureCAS. These measures may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the financial performance and operational trends of our sectors. SegmentThese measures should not be considered in isolation or as alternatives to operating income is reconciled below. Segment operating margin rateresults presented in accordance with GAAP.
MTM-adjusted net earnings: Segment operating income as defined above,Net earnings excluding MTM expense and reconciled below, divided by sales.related tax impacts. This measure may be useful to investors and other users of our financial statements as a supplemental measure in evaluating the Company’s underlying financial performance by presenting the Company’s operating results before the non-operational impact of pension and operational trendsOPB actuarial gains and losses. This measure is also consistent with how management views the underlying performance of the business as the impact of MTM accounting is not considered in management’s assessment of the Company's operating performance or in its determination of incentive compensation awards. MTM-adjusted net earnings is reconciled below. MTM-adjusted diluted EPS: Diluted earnings per share excluding the per share impact of MTM expense and related tax impacts. This measure may be useful to investors and other users of our sectors.Reconciliationfinancial statements as a supplemental measure in evaluating the Company’s underlying financial performance per share by presenting the Company’s diluted earnings per share results before the non-operational impact of pension and OPB actuarial gains and losses. MTM-adjusted diluted EPS is reconciled below.
Non-GAAPOperating Return on Net Assets (Operating RONA): Calculated as Adjusted Net Operating Profit After-Tax (adjusted NOPAT), as defined below, divided by the two-year average of net operating assets. Net operating assets are defined as net total current assets, excluding cash and cash equivalents, less total current liabilities, excluding short-term debt, plus net PP&E.
Adjusted Net Operating Profit After-Tax: Calculated as operating income adjusted to exclude net FAS (service)/CAS pension adjustment, MTM expense and related tax impacts, as defined above, impacts related to transaction-related expenses, Orbital ATK intangible asset amortization and PP&E step-up depreciation, as defined above and approved by the Compensation Committee.
(1)For the 2018 LTIP grant, the financial scoring approach was finalized prior to the acquisition of Orbital ATK. This acquired business was established as a fourth business sector named Innovation Systems. As approved by the Compensation Committee, the legacy Innovation Systems business has been excluded from Adjusted Free Cash Flow before after-tax total pension funding for the three-year 2018-2020 performance period of the Adjusted Cumulative Free Cash Flow score.
A-2 Financial Measures | | | | | | | | | | | | Total Year | | | ($M) | | 2017 | | | 2016 | | Cash provided by operating activities beforeafter-tax discretionary pension contribution | | $ | 2,938 | | | $ | 2,813 | | After-tax discretionary pension contribution impact | | | (325 | ) | | | — | | | | | | | | | | | | | | | Net cash provided by operating activities | | $ | 2,613 | | | $ | 2,813 | | Less: capital expenditures | | | (928 | ) | | | (920 | ) | | | | | | | | | | | Free cash flow | | $ | 1,685 | | | $ | 1,893 | | After-tax discretionary pension contribution impact | | | 325 | | | | — | | | | | | | | | | | | Free cash flow beforeafter-tax discretionary pension contribution | | $ | 2,010 | | | $ | 1,893 | | | | | | | | | | | | Operating income | | $ | 3,299 | | | $ | 3,193 | | Operating margin rate | | | 12.8 | % | | | 13.0 | % | Reconciliation to segment operating income | | | | | | | | | Net FAS/CAS pension adjustment | | | (594 | ) | | | (316 | ) | Unallocated corporate expenses | | | 250 | | | | 53 | | Other | | | 4 | | | | 5 | | | | | | | | | | | | Segment operating income | | $ | 2,959 | | | $ | 2,935 | | Segment operating margin rate | | | 11.5 | % | | | 12.0 | % | | | | | | | | | | | Pension-adjusted operating highlights | | | | | | | | | Operating income | | $ | 3,299 | | | $ | 3,193 | | Net FAS/CAS pension adjustment | | | (594 | ) | | | (316 | ) | | | | | | | | | | | Pension-adjusted operating income | | $ | 2,705 | | | $ | 2,877 | | Pension-adjusted operating margin rate | | | 10.5 | % | | | 11.7 | % | | | | | | | | | | | Net income | | $ | 2,015 | | | $ | 2,200 | | Net FAS/CAS pension adjustment | | | (594 | ) | | | (316 | ) | Tax effect on net pension adjustment | | | 208 | | | | 111 | | | | | | | | | | | | After-tax net pension adjustment | | | (386 | ) | | | (205 | ) | Tax expense related to the 2017 Tax Act | | | 300 | | | | — | | | | | | | | | | | | Pension-adjusted net income | | $ | 1,929 | | | $ | 1,995 | | | | | | | | | | | | Net income | | $ | 2,015 | | | $ | 2,200 | | Tax expense related to the 2017 Tax Act | | | 300 | | | $ | — | | | | | | | | | | | | Net income excluding 2017 tax reform impact | | $ | 2,315 | | | $ | 2,200 | | | | | | | | | | | |
A-2 I| NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
| | | APPENDIX A - USE OF NON-GAAP FINANCIAL MEASURES |
| | | | | | | | | | | | | | | | Total Year | | | | | 2017 | | | 2016 | | | 2015 | | Pension-adjusted per share data | | | | | | | | | | | | | Diluted EPS | | $ | 11.47 | | | $ | 12.19 | | | $ | 10.39 | | Pre-tax net pension adjustment per share | | | (3.38 | ) | | | (1.75 | ) | | | (1.82) | | Tax effect on net pension adjustment per share | | | 1.18 | | | | 0.61 | | | | 0.64 | | | | | | | | | | | | | | | | After-tax net pension adjustment per share | | | (2.20 | ) | | | (1.14 | ) | | | (1.18) | | | | | | | | | | | | | | | | Pension-adjusted diluted EPS | | $ | 9.27 | | | $ | 11.05 | | | $ | 9.21 | | | | | | | | | | | | | | | |
| | | | | | | Total Year
| | | | 2017
| | Diluted EPS
| | $
| 11.47
| | Tax expense related to the 2017 Tax Act
| | | 1.71
| | Tax expense related to discretionary pension contribution1
| | | 0.05
| | Operating income reduction related to discretionary pension contribution, net of tax2
| | | 0.05
| | | | | | | Impact on diluted EPS of 2017 tax reform and related discretionary pension contribution
| | $
| 1.81
| | | | | | | Diluted EPS excluding 2017 tax reform and related discretionary pension contribution impacts
| | $
| 13.28
| | | | | | |
1Reflects $8 million
Reconciliation of additional income tax recorded due to lower manufacturing deductions available as a result of the $500 million voluntarypre-tax pension contribution.2 Reflects $9 million of lower operating income (net of tax) as follows; $18 million reduction in corporate operating income due to lower state deferred tax assets, partially offset by approximately $4.5 million of higher sector operating income as a result of lower state tax cost, each tax effected at 35 percent.
Non-GAAP Financial Measures | | | | | | | | | | | | | | | | | | Total Year | | ($M) | | 2020 | 2019 | 2018 | | Adjusted free cash flow metrics | | | | | | Net cash provided by operating activities | | $ | 4,305 | | $ | 4,297 | | $ | 3,827 | | | Capital expenditures | | (1,420) | | (1,264) | | (1,249) | | | Proceeds from sale of equipment to a customer | | 205 | | — | | — | | | After-tax discretionary pension contributions | | 593 | | 95 | | 186 | | | Adjusted free cash flow | | $ | 3,683 | | $ | 3,128 | | $ | 2,764 | | | After-tax required pension contributions | | 65 | | 70 | | 60 | | | Transaction-related expenses | | 32 | | 89 | | 36 | | | Impacts related to Innovation Systems | | (634) | | (478) | | (721) | | | Adjusted free cash flow before after-tax total pension funding | | 3,146 | | 2,809 | | 2,139 | | | Adjusted cumulative free cash flow | | $ | 8,094 | | $ | — | | $ | — | | | | | | Total Year | | ($M) | | | | 2020 | | Adjusted cash flow metrics | | | | | | Net cash provided by operating activities | | | | $ | 4,305 | | | After-tax discretionary pension contributions | | | | 593 | | | Proceeds from sale of equipment to a customer | | | | 205 | | | Transaction-related expenses | | | | 32 | | | Adjusted cash provided by operating activities | | | | $ | 5,135 | | | | | | | | Earnings before income taxes | | | | 3,728 | | | MTM expense | | | | 1,034 | | MTM-related deferred state tax benefit(1) | | | | (54) | | | Net interest expense/(income) | | | | 587 | | | Depreciation and amortization | | | | 993 | | | Transaction-related expenses | | | | 32 | | | Adjusted Earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) | $ | 6,320 | | | Adjusted Cash Flow from Operations Conversion | | | | 81.3 | % | | | | | | | Pension-adjusted metrics | | | | | | Operating income | | | | $ | 4,065 | | | Net FAS (service)/CAS pension adjustment | | | | (418) | | | Innovation Systems intangible asset amortization and PP&E step-up depreciation | 316 | | | Transaction-related expenses | | | | 32 | | | MTM-related deferred state tax benefit | | | | (54) | | | Pension-adjusted operating income | | | | $ | 3,941 | | | Pension-adjusted Operating Margin Rate | | | | 10.7 | % | | | | | | | Net earnings | | | | $ | 3,189 | | | Net FAS (service)/CAS pension adjustment | | | | (418) | | | Net FAS (non-service) pension benefit | | | | (1,198) | | | Tax effect of net pension adjustment | | | | 339 | | | After-tax net pension adjustment | | | | (1,277) | | | Innovation Systems intangible asset amortization and PP&E step-up depreciation | 316 | | | Transaction-related expenses | | | | 32 | | | Tax effect of items above | | | | (73) | | | After-tax MTM adjustment | | | | 774 | | | Pension-adjusted net income | | | | $ | 2,961 | |
NOTICE OF 20182021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT |I A-3
| | | | | | | IMPORTANT ANNUAL MEETING INFORMATION | | |
| | | Using ablack ink pen, mark your votes with anX as shown in this example. Please do not write outside the designated areas. | | ☒APPENDIX A - USE OF NON-GAAP FINANCIAL MEASURES |
Electronic Voting Instructions
Available 24 hours | | | | | | | | | | | | | | | | | Total Year | | ($M, except per share amount) | | 2020 | 2019 | 2018 | | Segment operating income | | | | | | Sales | | 36,799 | | 33,841 | | 30,095 | | | Operating income | | $ | 4,065 | | $ | 3,969 | | $ | 3,780 | | | Operating margin rate | | 11.0 | % | 11.7 | % | 12.6 | % | | Reconciliation to segment operating income | | | | | | Net FAS (service)/CAS pension adjustment | | (418) | | (465) | | (613) | | | Unallocated corporate expense | | 541 | | 474 | | 347 | | | Segment operating income | | $ | 4,188 | | $ | 3,978 | | $ | 3,514 | | | | | | | | MTM-adjusted net earnings and MTM-adjusted diluted EPS | | | | | | Net earnings | | $ | 3,189 | | $ | 2,248 | | $ | 3,229 | | | MTM expense | | 1,034 | | 1,800 | | 655 | | MTM-related deferred state tax benefit(1) | | (54) | | (81) | | (29) | | Federal tax benefit of items above(2) | | (206) | | (361) | | (131) | | | After-tax MTM adjustment | | 774 | | 1,358 | | 495 | | | MTM-adjusted net earnings | | $ | 3,963 | | $ | 3,606 | | $ | 3,724 | | | | | | | | Diluted EPS | | $ | 19.03 | | $ | 13.22 | | $ | 18.49 | | | MTM expense per share | | 6.17 | | 10.59 | | 3.76 | | | MTM-related deferred state tax benefit per share | | (0.32) | | (0.48) | | (0.17) | | | Federal tax benefit of items above per share | | (1.23) | | (2.12) | | (0.75) | | | After-tax MTM adjustment per share | | 4.62 | | 7.99 | | 2.84 | | | MTM-adjusted diluted EPS | | $ | 23.65 | | $ | 21.21 | | $ | 21.33 | |
(1) MTM expense is expected to be deductible on our future state tax returns. The deferred state tax benefit was calculated using the company’s blended state tax rate of 5.25% in 2020 and 4.50% in 2019 and 2018 and included in Unallocated corporate expense within operating income.
(2) MTM expense is expected to be deductible on our future federal tax returns. The federal tax benefit in each period was calculated by subtracting the deferred state tax benefit from MTM expense and applying the 21% federal statutory rate. A-4INOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT
A Proposals - The Board of Directors recommends a day, 7 days a week!Instead of mailing your proxy, you may choose one ofvote
FOR all the voting methods outlined below to vote your proxy.VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by 1:00 AM, Eastern Time, on May 16, 2018.
Vote by Internet
Go towww.envisionreports.com/nocnominees listed and FOR Proposals 2 and 3.
Or scan the QR code with your smartphone
Follow the steps outlined on the secure website
Vote by telephone
Call toll free1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone
Follow the instructions provided by the recorded message
q IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
| | | | | | | | | | | | | | | A | | Proposals — The Board of Directors recommends a voteFOR all the nominees listed,FOR Proposal 2,FOR Proposal 3 | | | andAGAINST Proposal 4. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 1. | | Election of Directors: | | For
| | Against
| | Abstain
| | | | For
| | Against
| | Abstain
| | | | For
| | Against
| | Abstain
| | + | | For Against Abstain | | For Against Abstain | | For Against Abstain | 01 - Wesley G. BushKathy J. Warden | □____□____□ | ☐
02 - David P. Abney | □____□____□ | ☐
03 - Marianne C. Brown | □____□____□ | | 04 - Donald E. Felsinger | ☐
□____□____□ | 05 - Ann M. Fudge | □____□____□ | 06 - William H. Hernandez | □____□____□ | | 07 - Madeleine A. Kleiner | ☐
□____□____□ | 08 - Karl J. Krapek | ☐
□____□____□ | 09 - Gary Roughead | ☐
□____□____□ | | 10 - Thomas M. Schoewe | □____□____□ | ☐
| | ☐
| | ☐
| | | | 02 - Marianne C. Brown
| | ☐
| | ☐
| | ☐
| | 07 - Madeleine A. Kleiner
| | ☐
| | ☐
| | ☐
| | 11 - James S. Turley | □____□____□ | ☐
| | ☐
| | ☐
| | | | 03 - Donald E. Felsinger
| | ☐
| | ☐
| | ☐
| | 08 - Karl J. Krapek
| | ☐
| | ☐
| | ☐
| | 1209 - Mark A. Welsh III
| | ☐
| | ☐
| | ☐
| □____□____□ | | | 04 - Ann M. Fudge
| | ☐
| | ☐
| | ☐
| | 09 - Gary Roughead
| | ☐
| | ☐
| | ☐
| | | | | | | | | | | | 05 - Bruce S. Gordon
| | ☐
| | ☐
| | ☐
| | | | | For Against Abstain | | 2. Proposal to approve, on an advisory basis, the compensation of the Company's Named Executive Officers. | □____□____□ | | | | | | For Against Abstain | | 3. Proposal to ratify the appointment of Deloitte & Touche LLP as the Company's Independent Auditor for fiscal year ending December 31, 2021. | | □____□____□ | | | | | | | The Board of Directors recommends a vote AGAINST Proposals 4 and 5. | For Against Abstain | | 4. Shareholder proposal that the Company assess and report on potential human rights impacts that could result from governments' use of the Company's products and services, including in conflict-affected areas. | | □____□____□ | | | | | | For Against Abstain | | 5. Shareholder proposal to move to a 10% ownership threshold for shareholders to request action by written consent. | | □____□____□ |
B Authorized Signatures - This section must be completed for your vote to be counted. Please date and sign below. Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. | | | | | | | | | | | | | | | | Date (mm/dd/yyyy) - Please print date below. | | Signature 1 - Please keep signature within the box. | | | For | | Against | | Abstain | | | 2.
| | Proposal to approve, on an advisory basis,Signature 2 - Please keep signature within the compensation of the Company’s Named Executive Officers.
| | | | ☐
| | ☐
| | ☐
| | box. | | | | | | | | | | | | | | For | | Against | | Abstain
| | | 3.
| | Proposal to ratify the appointment of Deloitte & Touche LLP as the Company’s Independent Auditor for fiscal year ending December 31, 2018.
| | | | ☐
| | ☐
| | ☐
| | | | | | | | | For
| | Against
| | Abstain
| | | 4.
| | Proposal to modify the ownership threshold for shareholders to call a special meeting.
| | | | ☐
| | ☐
| | ☐
| | |
| | | B
| | Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below |
| Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. |
| | | | | | | | | Date (mm/dd/yyyy) — Please print date below. | | | | Signature 1 — Please keep signature within the box. | | | | Signature 2 — Please keep signature within the box. |
The 2021 Annual Meeting of Shareholders of Northrop Grumman will be held on
May 19, 2021 at 8:00 a.m. Eastern Time, virtually via the internet at www.meetingcenter.io/241697037. q
IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
To access the virtual meeting, you must have the information that is printed in the shaded bar located on the reverse side of this form. q
| | | | | + | Proxy — NORTHROP GRUMMAN CORPORATION
| | | |
The password for this meeting is - NOC2021
ANNUAL MEETING OF SHAREHOLDERS
MAY 16, 2018,19, 2021, 8:00 A.M. Northrop Grumman Corporation Headquarters
2980 Fairview Park Drive, Falls Church, Virginia 22042
, Eastern Time This Proxy/Voting Instruction Card is Solicited on Behalf of The Board of Directors for the 20182021 Annual Meeting of Shareholders The undersigned hereby constitutes and appoints Sheila C. Cheston and Jennifer C. McGarey, and each of them, attorneys and proxies with full power of substitution, to represent the undersigned and to vote all shares of Common Stock, $1.00 par value, of Northrop Grumman Corporation (the “Company”), that the undersigned would be entitled to vote if personally present at the 20182021 Annual Meeting of Shareholders of the Company to be held virtually on Wednesday, May 16, 2018,19, 2021, at 8:00 a.m. (Eastern Daylight Time) at the Northrop Grumman Corporation Headquarters, 2980 Fairview Park Drive, Falls Church, Virginia 22042,, and at any and all adjournments or postponements thereof (the “Meeting”), as herein specified and in such proxyholder’s discretion upon any other matter that may properly come before the Meeting including without limitation to vote on the election of such substitute nominees as such proxies may select in the event nominee(s) named on their card become(s) unable to serve as director. By granting this proxy, the undersigned hereby revokes any proxy previously granted by the undersigned. THIS PROXY WILL BE VOTED AS DIRECTED.DIRECTED. IF NOT OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED “FOR” THE NOMINEES LISTED UNDER PROPOSAL 1, “FOR” PROPOSALPROPOSALS 2 “FOR” PROPOSALAND 3 AND “AGAINST” PROPOSAL 4.PROPOSALS 4 AND 5. PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY, EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING. If shares are held on your behalf under any of the Company Savings Plans, the proxy serves to provide confidential instructions to the plan Trustee or Voting Manager who then votes the shares. Instructions must be received by 11:59 p.m. Eastern Time on May 13, 201816, 2021 to be included in the tabulation to the plan Trustee or Voting Manager. For shares represented by proxies not received by this date, the applicable plan Trustee or Voting Manager will treat the received proxies as instructions to vote the respective plan shares in the same proportion as shares held under the plan for which voting instructions have been received, unless contrary to the Employment Retirement Income Security Act. (Continued and to be signed on the other side) | | | C | | CNon-Voting Items Non-Voting Items
|
Change of Address— - Please print new address below.
| | | | | | | IMPORTANT ANNUAL MEETING INFORMATION | | |
| | | Using ablack ink pen, mark your votes with anX as shown in this example. Please do not write outside the designated areas. | | ☒ |
A Proposals - The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2 and 3. 
q PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
| | | | | | | | | | | | | | | A | | Proposals — The Board of Directors recommends a voteFOR all the nominees listed,FOR Proposal 2,FOR Proposal 3 | | | andAGAINST Proposal 4. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | 1. | | Election of Directors: | | For
| | Against
| | Abstain
| | | | For
| | Against
| | Abstain
| | | | For
| | Against
| | Abstain
| | + | | For Against Abstain | | For Against Abstain | | For Against Abstain | 01 - Wesley G. BushKathy J. Warden | □____□____□ | ☐
02 - David P. Abney | □____□____□ | ☐
03 - Marianne C. Brown | □____□____□ | | 04 - Donald E. Felsinger | ☐
□____□____□ | 05 - Ann M. Fudge | □____□____□ | 06 - William H. Hernandez | □____□____□ | | 07 - Madeleine A. Kleiner | ☐
□____□____□ | 08 - Karl J. Krapek | ☐
□____□____□ | 09 - Gary Roughead | ☐
□____□____□ | | 10 - Thomas M. Schoewe | □____□____□ | ☐
| | ☐
| | ☐
| | | | 02 - Marianne C. Brown
| | ☐
| | ☐
| | ☐
| | 07 - Madeleine A. Kleiner
| | ☐
| | ☐
| | ☐
| | 11 - James S. Turley | □____□____□ | ☐
| | ☐
| | ☐
| | | | 03 - Donald E. Felsinger
| | ☐
| | ☐
| | ☐
| | 08 - Karl J. Krapek
| | ☐
| | ☐
| | ☐
| | 1209 - Mark A. Welsh III
| | ☐
| | ☐
| | ☐
| □____□____□ | | | 04 - Ann M. Fudge
| | ☐
| | ☐
| | ☐
| | 09 - Gary Roughead
| | ☐
| | ☐
| | ☐
| | | | | | | | | | | | 05 - Bruce S. Gordon
| | ☐
| | ☐
| | ☐
| | | | | For Against Abstain | | 2. Proposal to approve, on an advisory basis, the compensation of the Company's Named Executive Officers. | □____□____□ | | | | | | For Against Abstain | | 3. Proposal to ratify the appointment of Deloitte & Touche LLP as the Company's Independent Auditor for fiscal year ending December 31, 2021. | | □____□____□ | | | | | | | The Board of Directors recommends a vote AGAINST Proposals 4 and 5. | For Against Abstain | | 4. Shareholder proposal that the Company assess and report on potential human rights impacts that could result from governments' use of the Company's products and services, including in conflict-affected areas. | | □____□____□ | | | | | | For Against Abstain | | 5. Shareholder proposal to move to a 10% ownership threshold for shareholders to request action by written consent. | | □____□____□ |
B Authorized Signatures - This section must be completed for your vote to be counted. Please date and sign below. Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. | | | | | | | | | | | | | | | | Date (mm/dd/yyyy) - Please print date below. | | Signature 1 - Please keep signature within the box. | | | For | | Against | | Abstain | | | 2.
| | Proposal to approve, on an advisory basis,Signature 2 - Please keep signature within the compensation of the Company’s Named Executive Officers.
| | | | ☐
| | ☐
| | ☐
| | box. | | | | | | | | | | | | | | For | | Against | | Abstain
| | | 3.
| | Proposal to ratify the appointment of Deloitte & Touche LLP as the Company’s Independent Auditor for fiscal year ending December 31, 2018.
| | | | ☐
| | ☐
| | ☐
| | | | | | | | | For
| | Against
| | Abstain
| | | 4.
| | Proposal to modify the ownership threshold for shareholders to call a special meeting.
| | | | ☐
| | ☐
| | ☐
| | |
| | | B
| | Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below |
| Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title. |
| | | | | | | | | Date (mm/dd/yyyy) — Please print date below. | | | | Signature 1 — Please keep signature within the box. | | | | Signature 2 — Please keep signature within the box. |
q
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
q
| | | | | | Proxy — NORTHROP GRUMMAN CORPORATION
| | | |
ANNUAL MEETING OF SHAREHOLDERS
MAY 16, 2018,19, 2021, 8:00 A.M. Northrop Grumman Corporation Headquarters
2980 Fairview Park Drive, Falls Church, Virginia 22042
, Eastern Time This Proxy/Voting Instruction Card is Solicited on Behalf of The Board of Directors for the 20182021 Annual Meeting of Shareholders The undersigned hereby constitutes and appoints Sheila C. Cheston and Jennifer C. McGarey, and each of them, attorneys and proxies with full power of substitution, to represent the undersigned and to vote all shares of Common Stock, $1.00 par value, of Northrop Grumman Corporation (the “Company”), that the undersigned would be entitled to vote if personally present at the 20182021 Annual Meeting of Shareholders of the Company to be held virtually on Wednesday, May 16, 2018,19, 2021, at 8:00 a.m. (Eastern Daylight Time) at the Northrop Grumman Corporation Headquarters, 2980 Fairview Park Drive, Falls Church, Virginia 22042,, and at any and all adjournments or postponements thereof (the “Meeting”), as herein specified and in such proxyholder’s discretion upon any other matter that may properly come before the Meeting including without limitation to vote on the election of such substitute nominees as such proxies may select in the event nominee(s) named on their card become(s) unable to serve as director. By granting this proxy, the undersigned hereby revokes any proxy previously granted by the undersigned. THIS PROXY WILL BE VOTED AS DIRECTED.DIRECTED. IF NOT OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED “FOR” THE NOMINEES LISTED UNDER PROPOSAL 1, “FOR” PROPOSALPROPOSALS 2 “FOR” PROPOSALAND 3 AND “AGAINST” PROPOSAL 4.PROPOSALS 4 AND 5. PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY, EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING. If shares are held on your behalf under any of the Company Savings Plans, the proxy serves to provide confidential instructions to the plan Trustee or Voting Manager who then votes the shares. Instructions must be received by 11:59 p.m. Eastern Time on May 13, 201816, 2021 to be included in the tabulation to the plan Trustee or Voting Manager. For shares represented by proxies not received by this date, the applicable plan Trustee or Voting Manager will treat the received proxies as instructions to vote the respective plan shares in the same proportion as shares held under the plan for which voting instructions have been received, unless contrary to the Employment Retirement Income Security Act. (Continued and to be signed on the other side)
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| | + | IMPORTANT ANNUAL MEETING INFORMATION | | | | |
| | | | | Vote by Internet | | • Go towww.envisionreports.com/NOC | | • Or scan the QR code with your smartphone | | • Follow the steps outlined on the secure website |
Important Notice Regarding the Availability of Proxy Materials for the Northrop Grumman Corporation Annual Meeting of Shareholders to be Held on May 16, 201819, 2021 Under Securities and Exchange Commission rules, you are receiving this notice that the proxy materials for the annual shareholders’ meeting of shareholders are available on the Internet. Follow the instructions below to view the materials and vote online or request a copy. The items to be voted on and virtual location of the annual meeting are on the reverse side. Your vote is important! This communication is not a form for voting and presents only an overview of the more complete proxy materials that are available to you on the Internet or by mail.Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting. The proxy statement2021 Proxy Statement and annual report2020 Annual Report to shareholders are available at: 
| | |  | | Easy Online Access — A Convenient Way to View Proxy Materials and Vote
When you go online to view materials, you can also vote your shares.
Step 1:Go towww.envisionreports.com/NOCto view the materials.
Step 2:Click onCast Your Vote or Request Materials.
Step 3:Follow the instructions on the screen to log in.
Step 4:Make your selection as instructed on each screen to select delivery preferences and vote.
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When you go online, you can also help the environment by consenting to receive electronic delivery of future materials.
| | |  | | Obtaining a Copy of the Proxy Materials – If you want to receive a paper ore-mail copy of these documents, you must request one. There is no charge to you for requesting a copy. Please make your request for a copy as instructed on the reverse side on or before May 6, 2018 to facilitate timely delivery. |
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Northrop Grumman Corporation’s Annual Meeting of Shareholders will be held on May 16, 2018 at Northrop Grumman Corporation Headquarters, 2980 Fairview Park Drive, Falls Church, Virginia 22042,19, 2021 at 8:00 a.m. Eastern Daylight Time.Time, virtually via the internet at www.meetingcenter.io/241697037. To access the virtual meeting, you must have the information that is printed in the shaded bar located on the reverse side of this form. The password for this meeting is - NOC2021.
Proposals to be voted on at the meeting are listed below along with the Board of Directors’ recommendations.
The Board of Directors recommends that you voteFORproposals 1–3 andAGAINST Proposal 4. | 1. | Election of the following 12 nominees as Directors: |
Wesley G. Bush,1-3.
1.Election of the following 12 nominees as Directors: Kathy J. Warden, David P. Abney, Marianne C. Brown, Donald E. Felsinger, Ann M. Fudge, Bruce S. Gordon, William H. Hernandez, Madeleine A. Kleiner, Karl J. Krapek, Gary Roughead, Thomas M. Schoewe, James S. Turley, and Mark A. Welsh III. | 2. | Proposal to approve, on an advisory basis, the compensation of the Company’s Named Executive Officers. |
| 3. | Proposal to ratify the appointment of Deloitte & Touche LLP as the Company’s Independent Auditor for fiscal year ending December 31, 2018. |
| 4. | Proposal to modify the ownership threshold for shareholders to call a special meeting. |
2.Proposal to approve, on an advisory basis, the compensation of the Company’s Named Executive Officers.
3.Proposal to ratify the appointment of Deloitte & Touche LLP as the Company’s Independent Auditor for fiscal year ending December 31, 2021.
The Board of Directors recommends that you vote AGAINST proposals 4 and 5.
4.Shareholder proposal that the Company assess and report on potential human rights impacts that could result from governments' use of the Company's products and services, including in conflict-affected areas.
5.Shareholder proposal to move to a 10% ownership threshold for shareholders to request action by written consent.
PLEASE NOTE –- YOU CANNOT VOTE BY RETURNING THIS NOTICE. To vote your shares you must vote online or by telephone (1-800-652-VOTE (8683)) or request a paper copy of the proxy materials to receive a proxy card. If you wish to attend and vote at the meeting, please bring this notice with you.Directions to the 2018 annual meeting are available in the proxy statement,
which can be viewed at www.envisionreports.com/NOC.
  | | Here’s how to order a copy of the proxy materials and select a future delivery preference:
Paper copies: Current and future paper delivery requests can be submitted via the telephone, Internet or email options below.
Email copies: Current and future email delivery requests must be submitted via the Internet following the instructions below.
If you request an email copy of current materials you will receive an email with a link to the materials.
PLEASE NOTE: You must use the number in the shaded bar on the reverse side when requesting a set of proxy materials.
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| | Internet – Go towww.envisionreports.com/NOC. Click Cast Your Vote or Request Materials. Follow the instructions to log in and order a paper or email copy of the current meeting materials and submit your preference for email or paper delivery of future meeting materials.
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| | Telephone – Call us free of charge at1-866-641-4276 using a touch-tone phone and follow the instructions to log in and order a paper copy of the materials by mail for the current meeting. You can also submit a preference to receive a paper copy for future meetings.
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| | Email – Send email to investorvote@computershare.com with “Proxy Materials Northrop Grumman Corporation” in the subject line. Include in the message your full name and address, plus the number located in the shaded bar on the reverse, and state in the email that you want a paper copy of current meeting materials. You can also state your preference to receive a paper copy for future meetings.
To facilitate timely delivery, all requests for a paper copy of the proxy materials must be received by May 6, 2018.
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02SCPA
March 30, 2018
CA
April 2, 2021
Information Regarding Your Northrop Grumman Shares—Shares — Your Vote Is Important
To Northrop Grumman Employees:
Northrop Grumman filed its proxy statement today for the 20182021 Annual Meeting of Shareholders. The 2018meeting will be held virtually on May 19, 2021. The 2021 proxy statement and 20172020 annual report are now available online.
Many of you hold Northrop Grumman shares through one of the company’s savings plans. As shareholders, you have the right to vote on matters that impact the company. Your vote on these matters is important, and Northrop Grumman encourages you to vote your shares.
Northrop Grumman employees who hold Northrop Grummanthese shares as participants in the Northrop Grumman Savings Plan or the Northrop Grumman Financial Security and Savings Program willshould receive an emailtonight from the company’s transfer agent, Computershare. This email will be sent to your email address on record (either personal or company email) and will contain important instructions for viewing the proxy statement and annual report and for voting your shares.
This email is an important communication approved by Northrop Grumman. The subject line of the email will read, “Northrop Grumman Corporation Proxy Meeting Materials.” Note that the “EXT” warning tag, which appears in the subject line of emails originating outside of Northrop Grumman, will be removed for this message coming directly from Computershare. If you do not receive this email, or if you have any questions, please contact Computershare at 877-498-8861 or the company’s shareholder services at 703-280-3507.877-498-8861.
Northrop Grumman values your input as shareholders. Please ensure that your shares are represented at the 20182021 Annual Meeting. Thank you for your attention to this matter.
| | Your Northrop Grumman Corporation proxy statement and annual report are now available online and you may also vote your shares for the 2018 Annual Meeting of Shareholders. | | To view the proxy statement and annual report, please visit:www.envisionreports.com/NOC | | To cast your vote, please visitwww.envisionreports.com/NOC and follow theon-screen instructions. You will be prompted to enter your Control Number (provided above) to access this voting site. | | Please note that votes submitted through this site must be received by 1:00 a.m., Eastern Time, May 16, 2018. | | If shares are held on your behalf under any of the Company Savings Plans, voting instructions submitted through this site must be received by 11:59 p.m., Eastern Time, Sunday, May 13, 2018. | | Thank you for viewing the 2018 Northrop Grumman Corporation Annual Meeting Materials and for submitting your very important vote. | | REMEMBER, YOUR VOTE IS VERY IMPORTANT, PLEASE VOTE. | | Please note: Registered shareholders may unsubscribe to email notifications at any time by changing their elections at Investor Center. |
| Questions? For additional assistance regarding your account please visitwww.computershare.com/ContactUs. Our virtual agent, Penny, provides answer to many frequently asked questions. | | Please do not reply to this email. This mailbox is not monitored and you will not receive a response. |
| This email and any files transmitted with it are solely intended for the use of the addressee(s) and may contain information that is confidential and privileged. If you receive this email in error, please advise us immediately. Please also disregard the contents of the email, delete it and destroy any copies immediately.
Computershare Limited and its subsidiaries do not accept liability for the views expressed in the email or for the consequences of any computer viruses that may be transmitted with this email. This email is also subject to copyright. No part of it should be reproduced, adapted or transmitted without the written consent of the copyright owner.
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