| 〉 | Henry Crown and Company and one of its affiliated entities made payments of approximately $830,000 to the company in 2019 for the purchase of business jet spare parts and aircraft maintenance and services from our subsidiary, Gulfstream Aerospace. Additionally, these companies purchased aircraft services from our subsidiary, Jet Aviation. The amount of payments of approximately $403,000 to the company in 2018 for the purchase of business jet spare parts and aircraft maintenance and services from our subsidiary, Gulfstream Aerospace Corporation. Additionally, these companies purchased aircraft services from our subsidiary, Jet Aviation. The amount of paymentsGeneral Dynamics 2019 Proxy Statement 21
Governance of the Company
| made to Jet Aviation in 20182019 was approximately $448,000.$456,000. The purchases from Gulfstream and Jet Aviation were in the ordinary course of business and onarm’s-length terms. Henry Crown and Company is an affiliated entity of Mr. Crown. |
32 General Dynamics
An affiliated entityTable of Nicholas D. Chabraja, who served as a directorContents
Governance of the company until retiring from the Board in May 2018, made payments of approximately $429,000 to the company in 2018 for the purchase of business jet spare parts and aircraft maintenance from our subsidiary, Gulfstream Aerospace Corporation. These purchases were in the ordinary course of business and onarm’s-lengthCompany terms. DIRECTOR COMPENSATIONDirector Compensation
We compensate eachnon-management director for service on the Board of Directors. The Compensation Committee reviews director compensation on an annual basis. 2018 Compensation.2019 Compensation
Non-management director compensation for 20182019 was: | Compensation Element | | Amount | COMPENSATION ELEMENT
| | AMOUNT
| Annual Retainer | | $85,000 | Lead Director Retainer | | $25,000 | Committee Chair Annual Retainer | | $10,000 | Attendance Fees | | $3,000 for each meeting of the Board of Directors;
| | $2,000 for each meeting of any committee; and
| | $3,000 per day for attending strategic or financial planning meetings sponsored by General Dynamics | Annual Equity Award | | Approximately $150,000 on the date of award | Per Diem Fee forNon-Employee Directors Performing Specific Projects for the Company | | $10,000 |
As part of the Compensation Committee’s annual review in early 20182019 and at its request, management engaged Aon to conduct a director compensation survey. Aon provided director compensation data for the peer group that we used to benchmark executive compensation. This information showed that the directors’ pay program was approximate to the median of the peer group. Based on this review, the committee recommended no changes to director compensation. Eachnon-management director has the option of receiving all or part of the annual retainer in the form of Common Stock. The annual retainer, additional committee chair retainer (if any) and attendance fees paid to each director during 20182019 are reflected in the Fees Earned or Paid in Cash column of the Director Compensation for Fiscal Year 20182019 table, irrespective of whether a director took the annual retainer in shares of Common Stock. The annual equity award consists of restricted stock and stock options granted pursuant to our shareholder-approved equity compensation plan and on the same terms, limits and schedule as awards to other plan participants. In light of the travel required by service on the Board, we also provide each director with accidental death and dismemberment insurance coverage. Payments by General Dynamics for director accidental death and dismemberment insurance premiums are reflected in the All Other Compensation column of the Director Compensation for Fiscal Year 20182019 table. 2019 Compensation. 2020 Compensation
In early 2019,2020, as part of its annual review of director compensation, the Compensation Committee requested that management update its director compensation analysis. Management again engaged Aon to provide survey data for the peer group used to benchmark executive compensation. The committee reviewed the survey data regarding director compensation provided by Aon. This information showed that the company’s director compensation was below the peer median. Based on this review, the committee recommended, no changes to director compensation.and the Board approved, an increase of $10,000 for the annual retainer and an increase of $10,000 for the annual equity award. 22 General Dynamics 20192020 Proxy Statement33
Table of Contents
Governance of the Company Director Compensation Table The table below provides total compensation for 2019 for each non-management director serving during the year. DIRECTOR COMPENSATION FOR FISCAL YEAR 2019 | Name | | Fees Earned
or Paid in
Cash(a) | | Stock
Awards(b) | | Option
Awards(c) | | All Other
Compensation(d) | | Total | | James S. Crown | | | $ | 186,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 337,888 | | Rudy F. deLeon | | | $ | 155,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 306,888 | | Cecil D. Haney(e) | | | $ | 114,111 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,504 | | | $ | 266,363 | | Lester L. Lyles | | | $ | 151,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 4,080 | | | $ | 304,828 | | Mark M. Malcolm | | | $ | 153,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 304,888 | | James N. Mattis(e) | | | $ | 61,489 | | | $ | 31,184 | | $ | 31,135 | | | $ | 3,650 | | | $ | 127,458 | | C. Howard Nye | | | $ | 135,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 286,888 | | William A. Osborn | | | $ | 161,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 4,180 | | | $ | 314,928 | | Catherine B. Reynolds | | | $ | 163,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 314,888 | | Laura J. Schumacher | | | $ | 135,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 286,888 | | Peter A. Wall | | | $ | 163,000 | | | $ | 74,586 | | $ | 75,162 | | | $ | 2,140 | | | $ | 314,888 |
| (a) | Messrs. Malcolm and Nye, Ms. Reynolds and Ms. Schumacher elected to receive 100% of their annual retainer in Common Stock; Messrs. deLeon, Lyles and Wall elected to receive 50% of their annual retainer in Common Stock; and Mr. Haney elected to receive 10% of his annual retainer, in Common Stock. Based upon these elections and each director’s length of service for the year, they received the following number of shares of Common Stock with the associated approximate grant date fair value: Mr. deLeon – 237 shares ($42,046); Mr. Haney – 34 shares ($6,125); Mr. Lyles – 237 shares ($42,046); Mr. Malcolm – 477 shares ($84,623); Mr. Nye – 477 shares ($84,623); Ms. Reynolds – 477 shares ($84,623); Ms. Schumacher – 477 shares ($84,623); and Mr. Wall – 166 shares ($29,457). | | (b) | The amounts reported in the Stock Awards column reflect the aggregate grant date fair value computed in accordance with ASC Topic 718, Compensation — Stock Compensation. Assumptions used in the calculation of these amounts are included in Note Q to our audited financial statements for the fiscal year ended December 31, 2019, included in our Annual Report on Form 10-K filed with the SEC on February 10, 2020. Restricted stock awards outstanding as of December 31, 2019, for each director were as follows: 1,690 for Messrs. Crown, deLeon, Lyles, Malcolm, Osborn and Ms. Schumacher; 445 for Mr. Haney; 165 for Mr. Mattis; 695 for Mr. Nye; 1,025 for Ms. Reynolds; and 1,370 for Mr. Wall. | | (c) | The amounts reported in the Option Awards column reflect the aggregate grant date fair value computed in accordance with ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note Q to our audited financial statements for the fiscal year ended December 31, 2019, included in our Annual Report on Form 10-K filed with the SEC on February 10, 2020. Option awards outstanding as of December 31, 2019, for each director were as follows: 17,040 for Messrs. Crown, Osborn and Ms. Schumacher; 12,640 for Mr. deLeon; 23,940 for Mr. Lyles; 2,590 for Mr. Haney; 11,280 for Mr. Malcolm; 980 for Mr. Mattis; 4,040 for Mr. Nye; 6,050 for Ms. Reynolds; and 8,170 for Mr. Wall. | | (d) | Amounts reflect payments for accidental death and dismemberment (AD&D) insurance. | | (e) | Mr. Haney joined the Board in March 2019 and Mr. Mattis joined the Board in August 2019. |
DIRECTOR STOCK OWNERSHIP GUIDELINESDirector Stock Ownership Guidelines
The Board of Directors believes that each director should develop a meaningful ownership position in General Dynamics. Therefore, the Board of Directors adopted stock ownership guidelines fornon-management directors. Pursuant to these guidelines, eachnon-management director is expected to own shares of our Common Stock having a value equal to at least eight times the annual retainer.Non-management directors are subject to the same holding requirements as our NEOs and are expected to retain shares received upon the vesting of restricted stock or exercise of options until the ownership guidelines are met. Management directors are subject to the ownership requirements discussed under Compensation Discussion and Analysis – Stock Ownership Guidelines.Guidelines and Holding Requirements. 34 General Dynamics
Table of Contents DIRECTOR COMPENSATION TABLE
 Advisory Vote on The table below provides total compensation for 2018 for eachSelection of General Dynamics’non-managementIndependent Auditors directors serving during the year. Each director is awarded the same number of shares of restricted stock and stock options each year.
| | | | | | | | | | | | | | | | | | | | | | DIRECTOR COMPENSATIONFOR FISCAL YEAR 2018 | | | | | | | | | NAME | | FEES EARNED
OR PAID IN CASH (a) | | | STOCK AWARDS (b) | | | OPTION
AWARDS (C) | | | ALL OTHER
COMPENSATION (d) | | | TOTAL | | Nicholas D. Chabraja (e) | | $ | 258,106 | | | $ | 75,017 | | | $ | 74,705 | | | $ | 450,000 | | | $ | 857,828 | | James S. Crown | | $ | 197,000 | | | $ | 75,017 | | | $ | 74,705 | | | $ | 2,140 | | | $ | 348,862 | | Rudy F. deLeon | | $ | 176,000 | | | $ | 75,017 | | | $ | 74,705 | | | $ | 2,140 | | | $ | 327,862 | | John M. Keane (e) | | $ | 60,106 | | | $ | 75,017 | | | $ | 74,705 | | | $ | — | | | $ | 209,828 | | Lester L. Lyles | | $ | 152,000 | | | $ | 75,017 | | | $ | 74,705 | | | $ | 4,080 | | | $ | 305,802 | | Mark M. Malcolm | | $ | 172,000 | | | $ | 75,017 | | | $ | 74,705 | | | $ | 2,140 | | | $ | 323,862 | | C. Howard Nye (f) | | $ | 52,894 | | | $ | 50,343 | | | $ | 49,445 | | | $ | 2,461 | | | $ | 155,143 | | William A. Osborn | | $ | 172,000 | | | $ | 75,017 | | | $ | 74,705 | | | $ | 4,080 | | | $ | 325,802 | | Catherine B. Reynolds | | $ | 150,000 | | | $ | 75,017 | | | $ | 74,705 | | | $ | 2,140 | | | $ | 301,862 | | Laura J. Schumacher | | $ | 146,000 | | | $ | 75,017 | | | $ | 74,705 | | | $ | 2,140 | | | $ | 297,862 | | Peter A. Wall | | $ | 182,000 | | | $ | 75,017 | | | $ | 74,705 | | | $ | 2,140 | | | $ | 333,862 | |
(a) | Ms. Reynolds, Ms. Schumacher and Messrs. Keane and Nye elected to receive 100 percent of their annual retainer in Common Stock. Messrs. deLeon, Lyles and Wall elected to receive 50 percent of their annual retainer in Common Stock. Based upon these elections and each director’s length of service for the year, they received the following number of shares of Common Stock with the associated approximate grant date fair value: Mr. deLeon — 217 shares ($42,054); Mr. Keane — 150 shares ($31,847); Mr. Lyles — 217 shares ($42,054); Mr. Nye — 286 shares ($52,686); Ms. Reynolds — 437 shares ($84,727); Ms. Schumacher — 437 shares ($84,727); and Mr. Wall — 151 shares ($29,286).
PROPOSAL 2 ADVISORY VOTE ON THE SELECTION OF INDEPENDENT AUDITORS |
(b) | The amounts reported in the Stock Awards column reflect the aggregate grant date fair value computed in accordance with ASC Topic 718,Compensation — Stock Compensation. Assumptions used in the calculation of these amounts are included in Note P to our audited financial statements for the fiscal year ended December 31, 2018, included in our Annual Report on Form10-K filed with the SEC on February 13, 2019.Restricted stock awards outstanding as of December 31, 2018, for each director were as follows: 1,508 for Messrs. Chabraja and Keane; 1,765 for Messrs. Crown, deLeon, Osborn and Lyles and Ms. Schumacher; 1,455 for Mr. Malcolm; 250 for Mr. Nye; 580 for Ms. Reynolds; and 925 for Mr. Wall.
|
(c) | The amounts reported in the Option Awards column reflect the aggregate grant date fair value computed in accordance with ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note P to our audited financial statements for the fiscal year ended December 31, 2018, included in our Annual Report on Form10-K filed with the SEC on February 13, 2019.Option awards outstanding as of December 31, 2018, for each director were as follows: 22,146 for Messrs. Chabraja and Keane; 21,350 for Messrs. Crown and Osborn; 10,050 for Mr. deLeon; 25,930 for Mr. Lyles; 8,690 for Mr. Malcolm; 1,450 for Mr. Nye; 3,460 for Ms. Reynolds; 14,450 for Ms. Schumacher; and 5,580 for Mr. Wall.
|
(d) | Amount for Mr. Chabraja reflects payments for services provided to the company following his retirement from the Board at the May 2018 annual meeting. Amounts for other directors reflect payments by General Dynamics for accidental death and dismemberment (AD&D) insurance.
|
(e) | Messrs. Chabraja and Keane retired from the Board at the May 2018 annual meeting.
|
(f) | Mr. Nye joined the Board in May 2018.
|
General Dynamics 2019 Proxy Statement 23
ADVISORY VOTEONTHE SELECTIONOF INDEPENDENT AUDITORS
(PROPOSAL 2)
The Audit Committee of the Board of Directors has the sole authority to retain the company’s independent auditors and is responsible for the compensation and oversight of the work of the independent auditors for the purpose of preparing or issuing an audit report or related work. The Audit Committee has selected KPMG LLP (KPMG), an independent registered public accounting firm, as our independent auditors for 2019.2020. KPMG has been retained as the company’s independent auditors since 2002. In order to assure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent audit firm. The members of the Audit Committee believe that the continued retention of KPMG to serve as the company’s independent auditors is in the best interests of the company and its shareholders. Your Board of Directors is submitting this selection of KPMG as the independent auditors for 20192020 to an advisory vote of the shareholders. The Sarbanes-Oxley Act of 2002 requires that the Audit Committee be directly responsible for the appointment, compensation and oversight of the audit work of the independent auditors. Nevertheless, as a good corporate governance practice, your Board has determined to solicit the vote of the shareholders on an advisory basis in making this appointment. If the shareholders do not vote on an advisory basis in favor of the selection of KPMG as our independent auditors, the Audit Committee will reconsider whether to engage KPMG and may ultimately determine to engage that firm or another audit firm without resubmitting the matter to shareholders. Even if the shareholders vote in favor of the selection of KPMG, the Audit Committee may in its sole discretion terminate the engagement of KPMG and direct the appointment of another independent audit firm at any time during the year.  | Your Board of Directors unanimously recommends a voteFOR this proposal. |
2020 Proxy Statement 35
Table of Contents Advisory Vote on The Selection of Independent Auditors Audit andNon-Audit Fees Fees. The following table shows aggregate fees for professional services rendered by KPMG for the audit of our annual consolidated financial statements for the years 20182019 and 2017,2018, and fees billed for other services rendered by KPMG during those years. | | | | | | | | | | | | 2018 | | | 2017 | | | | | Audit Fees (a) | | $ | 23,415,000 | | | $ | 19,967,000 | | Audit-related Fees (b) | | | 3,149,000 | | | | 1,882,000 | | Tax Fees (c) | | | 1,107,000 | | | | 1,226,000 | | All Other Fees (d) | | | 76,000 | | | | 5,000 | | | | | Total Fees | | $ | 27,747,000 | | | $ | 23,080,000 | |
| | 2019 | | 2018 | | Audit Fees(a) | | $25,471,100 | | $23,415,000 | | Audit-related Fees(b) | | 1,809,000 | | 3,149,000 | | Tax Fees(c) | | 1,602,000 | | 1,107,000 | | All Other Fees(d) | | 229,000 | | 76,000 | | Total Fees | | $29,111,000 | | $27,747,000 |
| (a) | (a) | Audit fees are fees for professional services performed by KPMG for the audit of our consolidated annual financial statements (including the audit of internal control over financial reporting) and review of our consolidated quarterly financial statements. These fees also include fees for services that are normally provided in connection with statutory and regulatory filings. |
| (b) | (b) | Audit-related fees are fees for assurance and related services performed by KPMG that are reasonably related to the performance of the audit or review of our consolidated financial statements. These fees consist primarily of fees for professional services for benefit plan audits and evaluation of new accounting standards. |
| (c) | (c) | Tax fees are fees for professional services performed by KPMG for tax compliance, tax advice and tax planning. These fees consist primarily of fees for tax return preparation and review, tax compliance services for expatriates and advice regarding tax implications of certain transactions. |
| (d) | (d) | All other fees are primarily related to professional services performed by KPMG for information technology contract compliance,assessment and advisory services. |
Auditor Independence. The Audit Committee has considered whether the services rendered by KPMG are compatible with maintaining KPMG’s independence. Representatives of KPMG are expected to attend the Annual Meeting, may make a statement if they desire to do so and will be available to respond to questions. Policy onPre-Approval. Pre-Approval The company and the Audit Committee are committed to ensuring the independence of the independent auditors, both in fact and in appearance. Therefore, in accordance with the applicable rules of the SEC, the Audit Committee has established policies and procedures forpre-approval of all audit and permittednon-audit services provided by the independent auditors. The Audit Committee determines annually whether to approve all audit and permittednon-audit services proposed to be performed by the independent auditors (including an estimate of fees). If other audit or permittednon-audit services not included in thepre-approved services are required during the year, such services must be approved in advance by the Audit Committee. The Audit Committee may delegate authority to grantpre-approvals to its chair or a subcommittee as it deems appropriate, subject to a reporting obligation to the Audit Committee. All audit and permittednon-audit services listed above were pre-approved. pre-approved.36 General Dynamics
Table of Contents Advisory Vote on The Selection of Independent Auditors Audit Committee Report YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE FORTHISPROPOSAL.
24 General Dynamics 2019 Proxy Statement
The following Audit Committee Report shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement or any portion hereof into any filing under the Securities Act of 1933, as amended (Securities Act) or the Securities Exchange Act of 1934, as amended (Exchange Act), and shall not otherwise be deemed filed under such acts. AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors has furnished the following report. The following fiveseven directors serve on the Audit Committee: Mark M. Malcolm (Chair), James S. Crown, Lester L. Lyles, James N. Mattis, C. Howard Nye, William A. Osborn and Catherine B. Reynolds. None of these directors is an officer or employee of General Dynamics. They all meet the independence requirements of the New York Stock Exchange and Rule10A-3 of the Exchange Act. The Board has determined that Mr.Messrs. Malcolm, Mr.Nye and Osborn and Ms. Reynolds each qualifies as an “audit committee financial expert” as defined by the Securities and Exchange CommissionSEC in Item 407(d) of RegulationS-K. The Audit Committee is governed by a written charter approved by the Board. In accordance with that charter, the Committeecommittee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing and financial reporting practices of General Dynamics. The Committeecommittee held eight meetings in 2018.2019. The Audit Committee has reviewed and discussed with management and the company’s independent auditors for 2018,2019, KPMG LLP, an independent registered public accounting firm, the company’s audited consolidated financial statements as of December 31, 2018,2019, and for the year ended on that date. Management is responsible for the company’s financial reporting process, including maintaining a system of internal controls, and for preparing the consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). KPMG is responsible for auditing those consolidated financial statements and for expressing an opinion on the conformity of the consolidated financial statements with GAAP. In addition, in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the Audit Committee reviewed and discussed with management and KPMG management’s report on the operating effectiveness of internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act and KPMG’s attestation report on the company’s internal control over financial reporting. The Audit Committee has discussed with KPMG the matters required under applicable professional auditing standards and regulations adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee has received and reviewed the written disclosures and letter from KPMG required by applicable requirements of the Public Company Accounting Oversight Board regarding KPMG’s communications with the Audit Committee concerning independence, and has discussed with KPMG its independence, including the compatibility ofnon-audit services with maintaining KPMG’s independence. Based on the foregoing discussions and reviews, the Audit Committee has satisfied itself as to the independence of KPMG. In reliance on the reviews and discussions described above, the Audit Committee recommended to the Board, and the Board approved, the inclusion of the audited consolidated financial statements in the company’s Annual Report on Form10-K as of and for the year ended December 31, 2018,2019, for filing with the Securities and Exchange Commission. This report is submitted by the Audit Committee. | | | Mark M. Malcolm (Chair) | James S. Crown | James N. Mattis | William A. Osborn | | (Chair) | Lester L. Lyles | C. Howard Nye | William A. Osborn
Catherine B. Reynolds |
February 9, 20196, 2020 General Dynamics 20192020 Proxy Statement 2537
Table of ContentsADVISORY VOTETO APPROVE EXECUTIVE COMPENSATION (PROPOSAL 3) Advisory Vote to Approve Executive Compensation
PROPOSAL 3 ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION |
As required by Section 14A of the Exchange Act, we are seeking shareholder input on our executive compensation as disclosed in this Proxy Statement. The Board and the Compensation Committee actively monitor our executive compensation practices in light of the industry in which we operate and the marketplace for talent in which we compete. We remain focused on compensating our executive officers fairly and in a manner that emphasizes performance while providing the tools necessary to attract and retain the best talent. As described in the Compensation Discussion and Analysis section, our executive compensation program is designed to create incentives both for strong operational performance in the current year and for the long-term benefit of the company, thereby closely aligning the interests of management with the interests of our shareholders. For these reasons, the Board recommends shareholders vote in favor of the following resolution: “Resolved, that the compensation paid to the company’s named executive officers, as disclosed pursuant to Item 402 of RegulationS-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.” The vote is advisory and is not binding on the Board. However, the Compensation Committee of the Board expects to take into account the outcome of the vote as it continues to consider the company’s executive compensation program.  | Your Board of Directors unanimously recommends a voteFOR this proposal. |
YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE FORTHISPROPOSAL.38
26 General Dynamics 2019 Proxy Statement
COMPENSATION DISCUSSIONAND ANALYSIS
Table of Contents Compensation Discussion & Analysis Table of Contents General Dynamics 20192020 Proxy Statement 2739
Table of Contents
Compensation Discussion and& Analysis | | | | | | EXECUTIVE SUMMARYExecutive Summary
|
This Compensation Discussion and Analysis (CD&A) describes the 20182019 compensation of our Named Executive Officers (NEOs) who are identified below: | | | Name | | Title | | Tenure in Role | Phebe N. Novakovic | | Chairman and Chief Executive Officer | | 7 years | Jason W. Aiken | | Senior Vice President and Chief Financial Officer | | 6 years | John P. Casey
| | Executive Vice President, Marine Systems
| Mark C. Roualet | | Executive Vice President, Combat Systems | | 7 years | S. Daniel Johnson*
Mark L. Burns | | Executive Vice President Information Technologyof the Company and Mission Systems
| | 4 years |
*Mr. Johnson retired from General Dynamics on December 31, 2018. Christopher Marzilli, then-Vice President of the Corporation and President of General Dynamics Mission Systems, succeeded Mr. Johnson as Executive Vice President, Information Technology and Mission Systems on January 1, 2019.
| | President, Gulfstream Aerospace | | | | Gregory S. Gallopoulos | EXECUTIVE SUMMARYOF RESPONSIVENESSTO SHAREHOLDER FEEDBACK
| At the 2018 annual meeting, the advisory vote in favor of our executive compensation program received 68 percent support, which is significantly lower than the support shown in recent years. As part of its ongoing consideration of the executive compensation program, the Compensation Committee (the Committee) reviewed this voteSenior Vice President and viewpoints expressed during our extensive shareholder engagement discussions. While the Committee noted that many shareholders support our executive compensation program and the incentives it has created to drive strong company performance, the Committee determined that changes to the long-term incentive portion of our executive compensation program would further enhance thepay-for-performance philosophy at the heart of the program. Accordingly, the Committee implemented changes to the program for our NEOs effective in 2019 as follows:
•Doubled the portion of the long-term incentive award represented by performance stock units (PSUs) from 25 percent to50 percent
•Added a relative Total Shareholder Return (TSR) modifier to be applied to the existing Return on Invested Capital (ROIC) performance metric on the PSUs
•Modified the peer group adding eight companies that match well to General Dynamics
The objective of our executive compensation program remains to align NEO compensation with company, business segment and individual performance and provide the incentives necessary to attract, motivate and retain our NEOs to drive company success and increase shareholder value.
Counsel | | 10 years |
28 General Dynamics 2019 Proxy Statement
Compensation Discussion and Analysis
BUSINESS OVERVIEWBusiness Overview
General Dynamics is a global aerospace and defense company that offers a broad portfolio of products and services in: Combat vehicles, weapons systems and munitions;
Information technology services;
C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions; and
Shipbuilding and ship repair.
| 〉 | Business aviation; | | 〉 | Combat vehicles, weapons systems and munitions; | | 〉 | Information technology services; | | 〉 | C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions; and | | 〉 | Shipbuilding and ship repair. |
We operate and manage our ten business units through five business segments as shown below:  
40 General Dynamics
Table of ContentsCOMPANY PERFORMANCE HIGHLIGHTS FinancialCompensation Discussion & Analysis
2019 Performance Summary. Highlights In 2018, the company’s2019, our focused commitment to operational excellence delivered another year of revenue and earnings growth and a double-digit increase in earnings per share for shareholders. The success of our approach under Ms. Novakovic’s leadership is evident in higher revenue atoperating performance drove each of our five business segments which drove growth into deliver higher revenues and earnings from continuing operations. We continueEarnings per share rose to balance$11.98, increasing by 6.8%, on a record-high revenue of $39.4 billion. Our backlog also reached an all-time high of $86.9 billion on strong order intake, driven in part by a $22.2 billion award from the U.S. Navy for the advanced-capability Block V Virginia-class submarine. Our Aerospace business expanded its portfolio of products and its backlog rose by nearly $2 billion due in part to the launch of the Gulfstream G700. To support our focus on operationsgrowing businesses, we continued to invest with a thoughtful capital deployment strategy. As stewards of your capital, in 2018 we enhanced shareholder value through our prudent use$987 million of capital including investmentexpenditures. We increased our dividend by 10% in long-term business opportunities, an increase in2019 over 2018, marking the dividend for the 21st22nd consecutive year, tactical share repurchases and the acquisition of complementary businesses. In the sixth year under Ms. Novakovic’s leadership, the company added new, key contracts, which helped us grow our backlog by over 7 percent, providing the opportunity to deliver strong operating results in the future.annual increase. CSRA Acquisition. On April 3, 2018, we completed a $9.7 billion acquisition of CSRA Inc. (CSRA), our largest acquisition to date. The combination of General Dynamics Information Technology (GDIT) and CSRA created a premier provider of technology solutions and mission services to help customers across defense, intelligence and federal civilian markets advance mission performance and transform operations. Integrating these two businesses has enhanced our ability to develop cost-effective, next-generation technology solutions, leverage our expanded and deep experience across multiple agencies and pursue large-scale enterprise solutions for our customers.
General Dynamics 2019 Proxy Statement 29
Compensation Discussion and Analysis
| | | | | | | | Dividend History | | | | | 
REVENUE
(Dollars in millions) | | We returned to shareholders over 115 percent of our free cash flow from operationsEARNINGS FROM
CONTINUING OPERATIONS
(Dollars in 2018. In addition to tactical share repurchases over the course of 2018, we raised our quarterly dividend for the 21st consecutive year and paid $1.1 billion in cash dividends.
millions) | | |
 | | | |  | Earnings from Continuing
Operations
(in millions)
| | 2018 marked another strong year for growth in earnings from continuing operations. Earnings from continuing operations and operating margin exceeded the challenging target amounts set forth in our operating plan.
| | | 
|
| | | | | Diluted Earnings Per Share
from Continuing Operations
| | In 2018, we achieved record-high diluted earnings per share from continuing operations, an increase of 17 percent from 2017.
| | | 
|
| | | | | | | | Return on Invested Capital†DILUTED EARNINGS
PER SHARE FROM
CONTINUING OPERATIONS
| | We focus our management team on driving Return on Invested Capital (ROIC) because it reflects our ability to generate returns from the capital we have deployed in our operations. 2018 reflects primarily the impact of the increased average invested capital resulting from the acquisition of CSRA.DIVIDEND HISTORY
(Quarterly)
| | | 
 | |  |
†We define ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after taxes is defined as earnings from continuing operations plusafter-tax2020 Proxy Statement interest and amortization expense. Average invested capital is defined as the sum41
Table of the average debt and shareholders’ equity excluding accumulated other comprehensive loss (AOCL). ROIC excludes goodwill impairments andnon-economicContents accounting changes as they are not reflective of company performance. See Appendix A for additional information. 30 General Dynamics 2019 Proxy Statement
Compensation Discussion and& Analysis | EXECUTIVE COMPENSATION PHILOSOPHYExecutive Compensation Philosophy
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Our management team deliversstrives to deliver shareholder returns through disciplined execution on backlog, efficient cash flow conversion and prudent capital deployment. We manage costs and investments, provide thoughtful human capital management and leadership, undertake continuous improvement initiatives and collaborate across our businesses to achieve our goals of maximizing earnings and cash flow and creating value for our shareholders. Management’s focus on these metrics is reflected in the goals set forth in the company’s incentive plans because wegoals. We believe successful execution in these areas, measured by the performance metrics set forth in our incentive plans, directly translates to shareholder value creation. Thus, NEO performance is assessed based on company-wide measures, the key metrics the Committee considers when makingThe ultimate goal of our executive compensation decisions forprogram is to closely link pay to the NEOs. Ultimately, the pay delivered toperformance of our NEOs is based on our long-standing pay-for-performance philosophy. executives. | Component | | Purpose | | Description | Our Executive Compensation Governance PracticesAnnual Base
Salary
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| | Provides competitive, fixed-rate cash compensation | | 〉Base Salary is set at or around the median of our peers. | Annual Incentive
Compensation | | Provides a cash incentive based on annual performance and aligned with our financial, strategic and operational goals | | 〉Targeted at or around the median of our peers, the cash incentive is designed to motivate and align management with annual business goals. 〉2019 annual incentives were based on financial metrics of earnings from continuing operations (35%) and free cash flow from continuing operations (35%), as well as strategic and operational performance (30%). 〉Strategic and operational performance measures include, but are not limited to: EPS growth, prudent allocation of capital, human capital management, debt management, segment performance, cost reductions and leadership. | Long-Term
Incentive (LTI)
Compensation | | Provides our NEOs with a significant personal stake in the long-term success of the company by tying earned amounts to our multi-year financial and total shareholder return performance; aligns management’s interest with that of shareholders; and facilitates retention of key talent | | 〉The LTI program consists of three elements, including Performance Stock Units, or PSUs (50%), Stock Options (30%) and Restricted Stock (20%). 〉The LTI is targeted as a range around the median of our peers and has multi-year performance metrics designed to align NEOs with the objectives of our company and shareholders. |
| CEO | | OTHER NEOs - AVERAGE |  | |  |
42 General Dynamics
Table of Contents Compensation Discussion & Analysis Our Executive Compensation Governance Practices | WHAT WE DO | | WHAT WE DON’T DO What We Do
| | | | | | ✓ | | 100% independent Compensation Committee | | | | | | (the Committee) ✓ | | Independent compensation consultant reporting to the Compensation Committee | | | | | | ✓ | | Director and management engagement with shareholders | | | | | | ✓ | | Market-leading stock ownership requirements (15x salary for the CEO and 8x to 10x salary for the other NEOs) | | | | | | officers) ✓ | | Incentive compensation based on clear, measurable goals with key financial and operational metrics that drive business performance | | | | | | ✓ | | The value of earned long-term incentives is based on our future performance and value creation | | | | | | ✓ | | Double-trigger change in control arrangements | | | | | | ✓ | | Clawback, Anti-hedging and Anti-pledging policies | | | | | | ✓ | | Thoughtfully selected peer group consisting of other aerospace and defense firms (and, starting in 2019,as well as other large-cap companies in related industries)industries with annual Committee review | | | | | | ✓ | | Starting in 2019, Conduct annual proactive shareholder engagement to discuss executive pay program
✓50% of theour long-term incentive will beis delivered in performance-based stock units subject to two relevant and objectively measurable metrics, ROICReturn on Invested Capital (ROIC) and Relative TSR | | | | (rTSR) | | | | | | | | | | | ✓
| | No single-trigger equity acceleration on change in control | | | | | | ✓
| | ✕No excessive perquisites | | | | | | ✓
| | ✕No excise tax gross-ups paid in conjunction with a termination as part of a change in control | | | | | | ✓
| | ✕No employment agreements with NEOs |
The Compensation Process The Committee approves and is actively engaged in the design and implementation of the executive compensation program, with the support of the independent compensation consultant and company management. The program is structured to: | 〉 | Provide market-competitive total target compensation that is pay-for-performance based | | 〉 | Compensate executives subject to clear and challenging performance metrics | | 〉 | Align executive compensation with shareholder value creation | | 〉 | Ensure retention and growth for executives in a competitive environment |
The program objective of pay for performance is achieved through the use of short- and long-term incentives. The company targets the median pay of our peers as further discussed in detail below. In addition, through the annual and long-term incentive plans, the NEOs are rewarded for outperforming on company goals. 2020 Proxy Statement 43
Table of Contents Compensation Discussion & Analysis Evaluation and Compensation Process Timeline | November 2018 | | 〉Business units present operating goals and plans to the chairman and chief executive officer 〉The chairman and chief executive officer, in consultation with chief financial officer and executive vice presidents, establishes company operating goals | | February 2019 | | 〉Business units present business plans to the Board of Directors 〉The Board reviews, adjusts where appropriate, and approves business unit operating goals and adopts the company operating plan 〉The company operating plan establishes the financial goals for the annual incentive and long-term incentive. Throughout the year, the Board reviews and monitors company performance as compared to the operating plan through a series of financial and operating reports from senior management 〉The proposed annual incentive payouts for 2018 performance, together with proposed base salary and long-term incentive grant values for 2019, are presented to the Committee on a scorecard for each executive, along with commentary on financial performance accomplishments, strategic and operational performance and any other factors not contemplated at the start of the year | ✓
January – February 2020 | | No merit pools
〉Based on company and individual performance for the prior fiscal year, the chairman and chief executive officer calculates a score for each NEO (other than herself) 〉The Committee evaluates the chairman and chief executive officer’s performance and reviews peer compensation data in preparation for determining an annual incentive payout for the NEOs 〉The Committee ensures base salaries; theysalary recommendations approximate the market 50th percentile 〉The proposed annual incentive payouts for 2019 performance, together with proposed base salary and long-term incentive grant values for 2020, are tiedpresented to the peer group medianCommittee on a scorecard for each executive, along with commentary on financial performance accomplishments, strategic and operational performance and any other factors not contemplated at the start of the year | | March 2020 | | 〉The Committee reviews NEO scorecards and pay recommendations from management 〉The Committee approves compensation based on the clearly defined and disclosed performance metrics described in this Proxy Statement. The Committee’s decisions also reflect factors such as the degree of difficulty of goals, market conditions and exceptional individual achievement. 〉The Committee reviews, refines and approves compensation for the chairman and chief executive officer in executive session 〉The Committee certifies the results of the 3-year performance measures for PSUs 〉The Committee reviews, refines and approves financial, strategic and operational goals for the next year |
44General Dynamics
Table of Contents Compensation Discussion & Analysis Peer Group and Benchmarking to the Market Each year the Committee, in consultation with management and with support from its independent compensation consultant, develops a peer group. The peer group was modified in 2019. Based on a review for 2020, the peer group remained the same. It is comprised of companies that are: | 〉 | In similar industries and where General Dynamics competes for business | | 〉 | Likely sources of or competition for executive talent | | 〉 | Reasonably comparable in size, as measured by revenue and market capitalization | | 〉 | Reasonably similar in organizational structure and complexity | | 〉 | Included as peers of some of our peer companies |
Peer group proxy data and survey data provided by Aon are utilized to assess the competitiveness of our executive compensation practices, structures and levels. The Committee reviews and analyzes the peer group annually for reasonableness and alignment with the objectives listed above. | Peer Group Companies | | Market
Capitalization
(in millions)* | | Revenue
(in millions)** | | Employee
Population | | Peer of
Peers | | 3M Company | | | $ | 101,450 | | | | $ | 32,136 | | | | 96,163 | | | ✓ | | Accenture plc | | | $ | 133,711 | | | | $ | 43,215 | | | | 492,000 | | | ✓ | | The Boeing Company | | | $ | 183,335 | | | | $ | 76,559 | | | | 161,100 | | | ✓ | | Caterpillar Inc. | | | $ | 81,617 | | | | $ | 53,800 | | | | 104,000 | | | ✓ | | Cisco Systems, Inc. | | | $ | 203,459 | | | | $ | 51,904 | | | | 75,900 | | | ✓ | | Deere & Company | | | $ | 54,278 | | | | $ | 39,233 | | | | 73,489 | | | ✓ | | Eaton Corporation plc | | | $ | 39,157 | | | | $ | 21,390 | | | | 101,000 | | | ✓ | | Emerson Electric Co. | | | $ | 46,588 | | | | $ | 18,372 | | | | 88,000 | | | ✓ | | Honeywell International Inc. | | | $ | 126,472 | | | | $ | 36,709 | | | | 113,000 | | | ✓ | | Johnson Controls International plc | | | $ | 31,404 | | | | $ | 23,968 | | | | 104,000 | | | ✓ | | Lockheed Martin Corporation | | | $ | 109,833 | | | | $ | 59,812 | | | | 110,000 | | | ✓ | | Northrop Grumman Corporation | | | $ | 57,970 | | | | $ | 33,841 | | | | 90,000 | | | ✓ | | Raytheon Company | | | $ | 61,193 | | | | $ | 29,176 | | | | 70,000 | | | ✓ | | Textron Inc. | | | $ | 10,181 | | | | $ | 13,630 | | | | 35,000 | | | ✓ | | United Technologies Corporation | | | $ | 127,850 | | | | $ | 77,046 | | | | 243,200 | | | ✓ | | General Dynamics | | | $ | 50,898 | | | | $ | 39,350 | | | | 102,900 | | | | | General Dynamics (Percentile Rank) | | | | 25% | | | | | 57% | | | | 55% | | | |
| * | As of December 31, 2019 | | ** | As of latest annual filing |
2020 Proxy Statement 3145
Table of Contents
Compensation Discussion & Analysis Shareholder Engagement In 2019, we received 96% approval for our advisory vote on executive compensation. We believe our efforts to engage with shareholders and Analysis At our 2018 annual shareholders’ meeting, approximately 68 percent of the votes cast werethoughtfully consider and incorporate shareholder feedback are reflected in favor of the advisory resolution to approve our company’s executive compensation program. Thisthis strong level of support was a significant decline fromsupport. As we have for the 2017 vote, when approximately 96 percent of the votes cast were in favor of this proposal. In connection with the 2018 annual meeting,past several years, we conducted an extensive shareholder outreach campaign through which seniortargeted at holders of over 65% of our Common Stock. Senior representatives of our Investor Relations, Corporate Governanceinvestor relations, corporate governance and Human Resources (including Executive Compensation) groups,human resources, supplemented by our Lead Director as appropriate, met in-person or by phone with shareholders representing over 50 percent of our outstanding shares of Common Stock to gather feedback on our governance, executive compensation program, operational performance, sustainability efforts and other business topics.
BasedThe following provides a summary of the most recent enhancements to our program based on the feedback we received we concluded thatover the following two items were of most concern:
The allocation within our long-term incentive compensation plan among performance shares, stock options and restricted stock
The absence of a relative metric applicable to performance shares under our long-term incentive plan
Considering this feedback and the results of the advisory vote on executive compensation at our 2018 annual meeting, senior management and the Committee conducted a comprehensive review of our executive compensation program as applicable to our NEOs. Following this review, significant changes were made as shown below.
last several years: | | | | | Shareholder
Feedback | | Changes Made in Response | AEnhance disclosure and provide greater transparency regarding the annual incentive award | | 〉For 2019, we changed the allocation of the annual incentive to more formally incorporate strategic and operational goals in addition to our financial metrics as follows: 35% Earnings from Continuing Operations – 35% Free Cash Flow from Operations – 30% Strategic and Operational Goals. 〉We also provided a more comprehensive disclosure of our annual incentive metrics, which includes threshold and maximum goals around our targets, commentary regarding goal setting and a more thorough discussion of the performance of each of our NEOs on the financial, strategic and operational goals for the annual incentive award. | | Increase proportion of annual equity in the form of PSUs | | 〉Starting with 2019 equity awards, annual grants reflect 50 percent50% PSUs, 30 percent30% stock options and 20 percent shares of20% restricted stock. Prior to 2019, the annual equity allocation was 25% PSUs, 50% stock options and 25% restricted stock. | AIncorporate a relative performance measure should be incorporated into the program | | 〉Starting with the 2019 equity awards, a relative Total Shareholder Return (TSR)(rTSR) modifier will be applied against ROIC performance results on performance stock units.PSUs. The TSRrTSR modifier can increase or decrease the PSU payout by as much as one-third depending on the company’s performance ranking relative to the TSRs of the companies in the S&P 500 thus better aligning long-term compensation to the relative stock performance of the company and ensuring alignment with our shareholders. | Peer group should be expanded
| | The Committee revised the peer group it uses to benchmark executive pay levels. Eight new companies of reasonably similar size, scope and complexity were added, and two companies, Rockwell Collins, Inc. and L-3 Technologies, Inc., were removed. The Committee believes this new peer group of 15 companies is appropriate for our industry and reflects companies with whom we compete for talent.
| | | Revised Peer Group
*Addition for 2019
| | | 3M Company* | | Johnson Controls International plc* | | | Accenture plc* | | Lockheed Martin Corporation | | | Caterpillar Inc.* | | Northrop Grumman Corporation | | | Cisco Systems, Inc.* | | Raytheon Company | | | Deere & Company* | | Textron Inc. | | | Eaton Corporation plc* | | The Boeing Company | | | Emerson Electric Co.* | | United Technologies Corporation | | | Honeywell International Inc. | | |
In the fall46 General Dynamics
Table of 2018, we continued our shareholder engagement efforts by conducting outreach to holders of approximately 65 percent of our outstanding shares. Once again, our engagement team, comprised of senior management and our Lead Director for select meetings, met with holders representing over 50 percent of our outstanding shares. During these conversations, we discussed the changes made to our executive compensation program for 2019 and other matters of importance to the company and shareholders. Overall, the shareholders with whom we engaged expressed strong support for the changes made to our future pay structure and the increased alignment of pay with company performance.Contents 32 General Dynamics 2019 Proxy Statement
Compensation Discussion & Analysis Components of Executive Compensation and Analysis | THE COMPENSATION PROCESSAlignment with Company Performance
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The Committee approves and is actively engaged in the design and implementation of the executive compensation program, with the support of the independent compensation consultant and company management. The program is structured to:
Provide market-competitive total target compensation
Compensate executives subject to clear and challenging performance metrics
Align executive compensation with shareholder value creation
Ensure retention and growth for executives in a competitive environment
The program objective of pay for performance is achieved through the use of short- and long-term incentives. The company targets the median pay of our peers as further discussed in detail below. In addition, through the annual incentive plan, the NEOs are rewarded for achieving annual company goals.
SETTING COMPENSATION LEVELSAND EVALUATING PERFORMANCE
Setting compensation for senior executives is a 16-month process that begins in the fall of each year. The first steps in this process focus on establishing the operating goals for the company for the upcoming year. During this phase, the business units develop challenging but achievable goals which then form the basis of the business segment operating plans. In consultation with the chairman and chief executive officer and the chief financial officer, these plans are presented to the Board of Directors early the next year. After review and, where appropriate, adjustment, by the Board, the company operating plan for the year is adopted. Throughout the year, the Board reviews and monitors company performance as compared to the operating plan through a series of financial and operating reports given by the chief financial officer and the executive vice presidents.
Compensation discussions begin immediately following the execution of the operating plan. Based on company and individual performance for the prior fiscal year, the chairman and chief executive officer calculates and assigns a score to each NEO (other than herself) using a scorecard. The score for the chief executive officer is calculated solely by a review of independent directors. The scores determine the compensation recommendations that are made in the first quarter of the year. In February, the Committee reviews the NEO scorecards, calculates the score for the chief executive officer and reviews the compensation recommendations supported by the scores. As part of this process, the Committee reviews market data to ensure that any base salary increase does not place the NEOs’ annual salary in excess of the 50th percentile of our peer group.
The Committee convenes again in early March to review the final scorecards for the company and approves any base salary increases, annual incentive payments for the prior year’s performance and current-year long-term incentive grants. The Committee reviews, refines and approves compensation for the chairman and chief executive officer in executive session at the March meeting. The Committee approves compensation based on the clearly defined and disclosed performance goals described in this Proxy Statement. The Committee’s decisions also reflect factors such as the degree of difficulty of goals, market conditions and exceptional individual achievement.
General Dynamics 2019 Proxy Statement 33
Compensation Discussion and Analysis
2018 EVALUATIONAND COMPENSATION PROCESS TIMELINE
| | | | | | November 2017
| • Business units present plans to the Chairman and Chief Executive Officer
• The Chairman and Chief Executive Officer, in consultation with Chief Financial Officer and Executive Vice Presidents, establishes company operating goals
| | | | | | | February 2018
| • Business units present business plans to the Board of Directors
• The Board reviews, adjusts where appropriate, and approves business unit operating goals and adopts the company operating plan
• The company operating plan serves as the financial goals for the annual incentive and long-term incentive
| | | | | | | January – February 2019
| • Based on achievement against the 2018 operating plan, the Chairman and Chief Executive Officer proposes an annual incentive payout for each NEO other than herself and the Committee evaluates the Chairman and Chief Executive Officer’s performance and reviews peer compensation data in preparation for determining an annual incentive payout for the Chairman and Chief Executive Officer
• The proposed annual incentive payouts for 2018, together with proposed 2019 base salary and long-term incentive grant values, are presented to the Committee on a scorecard for each executive, along with commentary on financial performance accomplishments and any factors not contemplated at the start of the year
• The proposed payouts are based on performance against the company’s operating plan, the difficulty of the operating plan and the individual’s contributions to the success of the operating plan
• The Committee ensures base salary recommendations do not exceed the market 50th percentile
| | | | | | | March 2019
| • The Committee reviews NEO scorecards and pay recommendations and approves 2019 base salary, 2018 earned annual incentive and 2019 long-term incentive amounts
• The Committee reviews, refines and approves compensation for the Chairman and Chief Executive Officer in executive session
|
34 General Dynamics 2019 Proxy Statement
Compensation Discussion and Analysis
PEER GROUPAND BENCHMARKINGTOTHE MARKET
Each year the Committee, in consultation with management and with support from its independent compensation consultant, develops a peer group comprised of companies that are:
In similar industries and where General Dynamics competes for business
Likely sources of or competition for executive talent
Reasonably comparable in size, as measured by revenue and market capitalization
Reasonably similar in organizational structure and complexity
Included as peers of some of our peer companies
In 2018, the Committee made material revisions to the peer group to arrive at a peer group of 15 companies. Seven of the nine similarly-sized aerospace and defense companies from the 2017 peer group were retained; two companies were removed: Rockwell Collins, which was acquired by current peer United Technologies, and L-3 due to its smaller size. Eight new companies that met the above-listed criteria were added. Peer group proxy data and survey data provided by Aon are utilized to assess the competitiveness of our executive compensation practices, structures and levels. The Committee reviews and analyzes the peer group annually for reasonableness and alignment with the objectives listed above.
| | | | | | | | | PEER GROUP COMPANIES* | | | | Market
Capitalization (in millions) | |
Revenue
(in millions) | | Employee
Population | | Peer of Peers | | | | | | 3M Company** | | $ 110,949 | | $ 32,765 | | 93,516 | | ✓ | | | | | | Accenture plc** | | $ 108,331 | | $ 39,574 | | 469,000 | | | | | | | | The Boeing Company | | $ 183,143 | | $ 101,127 | | 153,000 | | ✓ | | | | | | Caterpillar Inc.** | | $ 74,985 | | $ 54,722 | | 104,000 | | ✓ | | | | | | Cisco Systems, Inc.** | | $ 200,202 | | $ 49,330 | | 74,200 | | ✓ | | | | | | Deere & Company** | | $ 42,783 | | $ 37,318 | | 74,413 | | ✓ | | | | | | Eaton Corporation plc** | | $ 29,757 | | $ 21,609 | | 99,000 | | ✓ | | | | | | Emerson Electric Co.** | | $ 48,128 | | $ 17,408 | | 87,500 | | ✓ | | | | | | Honeywell International Inc. | | $ 97,807 | | $ 41,802 | | 114,000 | | ✓ | | | | | | Johnson Controls International plc** | | $ 27,398 | | $ 31,559 | | 122,000 | | ✓ | | | | | | Lockheed Martin Corporation | | $ 74,474 | | $ 53,762 | | 105,000 | | ✓ | | | | | | Northrop Grumman Corporation | | $ 42,520 | | $ 30,095 | | 85,000 | | ✓ | | | | | | Raytheon Company | | $ 43,640 | | $ 27,058 | | 67,000 | | ✓ | | | | | | Textron Inc. | | $ 11,091 | | $ 13,972 | | 35,000 | | ✓ | | | | | | United Technologies Corporation | | $ 91,933 | | $ 66,501 | | 240,200 | | ✓ | | | | | | | General Dynamics | | $ 46,558 | | $ 36,193 | | 105,600 | | | | | | | | General Dynamics (Percentile Rank) | | 40% | | 48% | | 65% | | |
* | | Peer group data are as of their latest annual filing
|
** | New addition to peer group
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General Dynamics 2019 Proxy Statement 35
Compensation Discussion and Analysis
| COMPONENTSOF EXECUTIVE COMPENSATIONAND
ALIGNMENTWITH COMPANY PERFORMANCE
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Each NEO receives a mix of fixed and variable components of compensation. The following charts summarize the various forms of compensation.
*See discussion regarding the 2019 changes to long-term incentive compensation on page 32
Structural Alignment of Pay with Performance.We demonstrate our commitment to aligning compensation with company performance through the following key elements of the executive compensation program:
Executive compensation is linked strongly to the financial and operational performance of the company. In 2018, over 90 percent of the Chairman and Chief Executive Officer’s total compensation was linked to metrics assessing company or stock performance and therefore meaningfully at risk, while over 80 percent of the other NEOs’ compensation was in line with a similar risk profile. A significant amount of the at-risk compensation is delivered through equity: PSUs, stock options and restricted stock.
To emphasize a culture of ownership and strengthen management’s alignment with long-term shareholder interests, the Committee requires one of the strictest set of stock ownership guidelines across the Fortune 100 for the NEOs. Our Chairman and Chief Executive Officer is required to hold General Dynamics stock with a value at least equal to 15 times base salary. The other NEOs are required to hold General Dynamics stock with a value at least equal to 10 times base salary.
The following charts demonstrate the Chairman and Chief Executive Officer’s target compensation mix and other NEOs’ average target compensation mix.
| | | 2018 CEO Target Compensation Mix
| | 2018 Other NEO Target Compensation Mix
|  | |  |
36 General Dynamics 2019 Proxy Statement
Compensation Discussion and Analysis
Linking Pay Levels to the Market and General Dynamics Performance.NEO compensation is generally targeted toat the median of the peer group by component and in total.component. To the extent compensation exceeds targeted levels, it is directly attributable to performance that increases shareholder value and exceeds measurable, clearly defined performance goals. Conversely, total compensation can be substantially less than target for performance that falls significantly short of pre-established targets.
Setting Challenging Targets Based on Market Conditions.We demonstrate our commitment to aligning compensation with company performance through the following key elements of the executive compensation program:
| 〉 | Executive compensation is linked strongly to the financial and operational performance of the company. In 2019, over 90% of the chairman and chief executive officer’s total compensation was linked to metrics assessing company or stock performance and therefore meaningfully at-risk, while over 80% of the other NEOs’ compensation was in line with a similar risk profile. Over 75% of the at-risk compensation is delivered through equity: PSUs, stock options and restricted stock. | | 〉 | To emphasize a culture of ownership and strengthen management’s alignment with long-term shareholder interests, the Committee requires one of the strictest sets of stock ownership guidelines across the Fortune 100 for the NEOs. Our chairman and chief executive officer is required to hold General Dynamics stock with a value at least equal to 15 times base salary. The other NEOs are required to hold General Dynamics stock with a value at least 8 to 10 times base salary. |
Each NEO receives a mix of fixed and variable components of compensation. The annual incentive andfollowing charts summarize the PSUs are based on measurable and objective performance metrics. various forms of compensation. | Components of Compensation | | Description | | Annual Base Salary (Cash) | | 〉Base Salary is set at or around the median of our peers to represent a fixed level of competitive compensation. | | Annual Incentive Compensation (Cash) | | 〉2019 annual incentives were based on financial metrics of earnings from continuing operations (35%) and free cash flow from continuing operations (35%), as well as strategic and operational performance (30%). 〉Strategic and operational performance measures include, but are not limited to: EPS growth, prudent allocation of capital, human capital management, debt management, segment performance, cost reductions and leadership. | | Long-Term Incentive Compensation | | | | Performance Stock Units (PSUs):50% | |  | | 〉PSUs closely connect NEOs to the company’s financial performance and total shareholder return, and act as a retention tool over the three-year performance period. | | Stock Options:30% | |  | | 〉Stock options closely connect NEOs to the company’s stock price performance and align our executive team with shareholders over the long term. They also act as a retention tool. | | Restricted Stock:20% | |  | | 〉Restricted stock closely connects NEOs to the company’s total shareholder return performance over the three-year vesting period and also acts as a retention tool. | | Benefits and Perquisites | | 〉The company provides market competitive perquisites, retirement, health and welfare benefits and change-in-control arrangements for purposes of recruitment and retention and to ensure the security and accessibility of our executives to facilitate the transaction of business. |
2020 Proxy Statement 47
Table of Contents Compensation Discussion & Analysis Annual incentive performance targets were set in early 2018 based on backlog, anticipated order activity and expected market conditions. Three-year target goals for the PSUs were set in early 2018 based on our long-term operating plans. Targets were in line with guidance provided to the market by company management. ANNUAL BASE SALARYBase Salary
We pay each NEO a base salary that reflectsis set around the peer group median (50th percentile) salary.of our peers. Salaries are reviewed annually, and increases, when they occur, are driven primarily by changes in the market. Consequently, we adjusted the salaries for all our NEOs except the chairman and chief executive officer to reflect the market. We believe that organizations that perform well over the long term, like General Dynamics, make an effort to pay salaries at or near the market median and create opportunities for executives to earn above-median compensation through annual and long-term incentives that are awarded based on performance relative to challenging and clear performance goals. The goal of our base salary is to provide a competitive, fixed-rate of cash compensation. | Name and Title | | 2018 Base Salary | | 2019 Base Salary | Ms. Novakovic*
Chairman and Chief Executive Officer | | $ | 1,585,000 | | | $ | 1,585,000 | | Mr. Aiken
Senior Vice President and Chief Financial Officer | | $ | 850,000 | | | $ | 850,000 | | Mr. Roualet
Executive Vice President, Combat Systems | | $ | 800,000 | | | $ | 800,000 | | Mr. Burns
Vice President and President, Gulfstream Aerospace | | $ | 655,000 | | | $ | 655,000 | | Mr. Gallopoulos
Senior Vice President and General Counsel | | $ | 720,000 | | | $ | 740,000 | |
| * | Ms. Novakovic’s base salary has remained constant since 2015. |
| | | | | | | | | | | NAMEAND TITLE | | 2017 BASE
SALARY | | | 2018 BASE
SALARY | | % INCREASE* | | | | | | Ms. Novakovic Chairman and Chief Executive Officer | | | $ 1,585,000 | | | $ 1,585,000 | | | 0 | % | | | | | Mr. Aiken Senior Vice President and Chief Financial Officer | | | $ 770,000 | | | $ 850,000 | | | 10.4 | % | | | | | Mr. Casey Executive Vice President, Marine Systems | | | $ 780,000 | | | $ 800,000 | | | 2.6 | % | | | | | Mr. Roualet Executive Vice President, Combat Systems | | | $ 780,000 | | | $ 800,000 | | | 2.6 | % | | | | | Mr. Johnson Executive Vice President, Information Technology and Mission Systems | | | $ 780,000 | | | $ 800,000 | | | 2.6 | % |
*Ms. Novakovic’s base salary has remained constant since 2015. For 2018, Mr. Aiken’s 10.4 percent increase, as well as the 2.6 percent increases for each of our three Executive Vice Presidents, were made to align their base pay with the market median.
ANNUAL INCENTIVE COMPENSATIONAnnual Incentive Compensation
The NEOs are eligible to earn an annual incentive paid in cash based on the company’s and their performance. The incentive is designed to place at risk a significant portion of each NEO’s total target compensation. The incentive is based on performance against specific, measurable goals established at the beginning of the year and approved by the Compensation Committee as well as the Committee’s assessment of each NEO’s individual contribution to company performance during the year. The goals are designed to be difficult but achievable through solid execution. The Committee believes the chosen incentive metrics are good indicators of the company’s overall performance and lead to the creation of long-term value for our shareholders. NEO PERFORMANCE METRICS
In 2018, the annual incentive for each NEO was determined initially based on the same two financial metrics: company earnings from continuing operations and free cash flow from operations. Because the executive vice presidents play a major role in the overall success of the company in addition to overseeing their business segment, the Committee believes that they should be evaluated on similar company-wide metrics as the chief executive officer and the chief financial officer.
General Dynamics 2019 Proxy Statement 37
Compensation Discussion and Analysis
The Committee approved these target goals, in alignment with our annual operating plan, in 2018 and believes these goals were appropriately challenging considering our business outlook at the time. The 2018 earnings from continuing operations target represented a 9.3 percent growth from the 2017 actual performance for this metric, demonstrating significant goal rigor. The 2018 free cash flow from operations goal was set below 2017 actual performance for this metric because of the anticipated operating working capital growth required to support an international wheeled armored vehicle contract with the Canadian government in our Combat Systems segment and the new G500 and G600 aircraft programs in our Aerospace segment.
NEOSetting Annual Targets and Achievement - 2018Incentive Targets.
| | | | | | | | | | | | | | | Performance Metric
| | Weighting
| | | Target
| | | Actual
| | | Achievement
| Earnings from Continuing Operations
| | | 50
| %
| | $
| 3,184 million
| | | $
| 3,358 million
| | | Exceeded
| Free Cash Flow from Operations*
| | | 50 | % | | $ | 2,830 million | | | $ | 2,458 million | | | Below Target |
* | See Appendix A for a discussion of thisnon-GAAP measure.
| |
General Dynamics delivered strong financial results in 2018. Our actual performance in 2018 was above target by 5.5 percent for earnings from continuing operations, reflecting solid performance, but below target for free cash flow from operations. The free cash flow from operations for 2018 was $2.5 billion compared with a target of $2.8 billion or approximately $370 million lower. The modest shortfall versus the free cash flow from operations target was due to delays in payments on the international wheeled armored vehicle contract resulting from diplomatic issues between the Canadian government and its customer on our armored vehicle supply contract referenced above. Absent this issue, we would have exceeded our free cash flow target for 2018.
The annual incentive payouts for 2018 were determined taking into account the company’s outperformance on the earnings from continuing operations goal and the below-target performance on the free cash flow from operations goal. However, the impact of the below-target performance on the free cash flow from operations was tempered somewhat as it resulted from a unique and unexpected diplomatic situation between the Canadian government and its customer on our armored vehicle supply contract and was not reflective of operational issues or management’s deficiency. Ultimately, all of our NEOs exhibited exceptional individual performance and the company delivered solid operational and financial performance in 2018, with all-time highs for revenue, earnings from continuing operations and diluted earnings per share from continuing operations.
Other notable 2018 accomplishments included:
Each of our five segments experienced organic revenue growth. We, once again, achieved double-digit year-over-year growth in diluted earnings per share, which was up 17.4 percent over 2017. We had a book-to-bill ratio of 1:1 on a consolidated basis and ended the year with total backlog of $67.9 billion, up 7.4 percent over 2017.
Our Aerospace segment successfully managed through a new model transition while achieving good order intake, industry leading operating margins and increased deliveries of large cabin aircraft. We achieved FAA certification and began customer deliveries of the all-new G500 business jet. Additionally, we resolved a significant supplier challenge, which will support improved quality and lower costs.
Our Defense businesses demonstrated strong operating performance while continuing to book significant new business. Backlog in the defense segments grew by 11.4 percent over 2017 with each of the segments achieving an organic book-to-bill ratio equal to or greater than 1:1. We embarked on a multi-year capital investment plan to support the substantial growth we anticipate in our Marine Systems segment driven by the Columbia-class submarine program.
With the combination of General Dynamics Information Technology (GDIT) and CSRA, we have created a premier provider of technology solutions and mission services to help customers across defense, intelligence and federal civilian markets advance mission performance and transform operations. Integrating these two businesses has enhanced our ability to develop cost-effective, next-generation technology solutions, leverage our expanded and deep experience across multiple agencies and pursue large-scale enterprise solutions for our customers.
38 General Dynamics 2019 Proxy Statement
Compensation Discussion and Analysis
The below table summarizes the NEO’s targets and the Committee’s determination of annual incentives. Annual incentives for 2018 performance reflect an average decline of more than 11 percent from the prior year.
| | | | | | | | | | | | | NAMEAND TITLE | | 2018 BASE
SALARY | | TARGET
INCENTIVE
(% OF BASE) | | MAXIMUM
INCENTIVE
(% OF BASE) | | TARGET
INCENTIVE | | MAXIMUM
INCENTIVE | | ANNUAL
INCENTIVE
PAYOUT | | | | | | | | Ms. Novakovic | | $ 1,585,000 | | 170% | | 340% | | $ 2,694,500 | | $5,389,000 | | $4,727,000 | | | | | | | | Mr. Aiken | | $ 850,000 | | 100% | | 200% | | $ 850,000 | | $1,700,000 | | $1,275,000 | | | | | | | | Mr. Casey | | $ 800,000 | | 100% | | 200% | | $ 800,000 | | $1,600,000 | | $1,344,000 | | | | | | | | Mr. Roualet | | $ 800,000 | | 100% | | 200% | | $ 800,000 | | $1,600,000 | | $1,288,000 | | | | | | | | Mr. Johnson | | $ 800,000 | | 100% | | 200% | | $ 800,000 | | $1,600,000 | | $1,000,000 |
Each NEO’s target annual incentive, as a percentage of base salary, was determined during our annual compensation benchmarking process and is generally designed to provide total cash compensation near the 50th percentile of the peer group if targets are met. Consistent with peer and market practice, the maximum incentive that can be earned under this plan is two times the target amount. For performance that falls significantly short of thepre-established target, there may be no payout. NEO Performance Metrics.For 2019, the annual incentive for each NEO was determined based on three performance metrics, two equally-weighted financial metrics totaling 70%: earnings from continuing operations and free cash flow from operations and strategic and operational goals weighted 30%. Because our NEOs play a major role in the overall success of the company in addition to overseeing their business and operational segments, the Committee believes that they should be evaluated on similar company-wide financial metrics as the chief executive officer and the chief financial officer. The performance targets were set in early 2019 based on expected market conditions. The Compensation Committee determines the final payout by considering the NEO’s achievements and contributions during the year as well as company performance, market conditions and difficulty of achieving the goals. 48 General Dynamics
Table of Contents Compensation Discussion & Analysis How We Chose Our Target Goals.The Committee approved the target goals for the two financial metrics, in alignment with our annual operating plan and financial guidance, and believes these goals were appropriately challenging and demonstrated significant goal rigor, considering our business outlook at the time. 〉The 2019 earnings from continuing operations and free cash flow from operations targets represented 1.1% and 14.7% growth, respectively, from the 2018 actual performance for these metrics. When comparing the targets year over year, the 2019 earnings from continuing operations target was 6.6% higher than the 2018 target. The 2019 free cash flow from operations target was essentially flat with the 2018 target, reflecting the impact of the expected increase in capital expenditures in 2019 within the Marine Systems segment to support anticipated growth at Electric Boat. ANNUAL TARGETS AND ACHIEVEMENT – 2019 | Performance Metric | | Threshold | | Target | | Maximum | | Weighting | | Payout
(% of Target) | Earnings from Continuing Operations | |  | | 35% | | 127% of Target | | Free Cash Flow from Operations* | |  | | 35% | | 71% of Target | | Strategic & Operational | | 0% | | 100% | | 200% | | 30% | | See Discussion Below |
| * | See Appendix A for a discussion of this non-GAAP measure. | | ** | Includes a $500 million progress payment collected in early January 2020 following protracted but successful negotiations with an international customer over past due obligations arising prior to 2020 to which management devoted extensive effort toward resolution in 2019. |
Financial Performance Commentary.Each NEO had financial goals (shown above) that determined 70% of their total annual incentive score. Our 2019 earnings from continuing operations exceeded target and reflected 3.8% growth from the results we achieved in 2018. Despite a two-year payment delay from an international wheeled vehicle customer in our Combat Systems segment that continued into 2019, we worked diligently and achieved 88% of target free cash flow from operations. Absent this issue, we would have exceeded our free cash flow from operations target for 2019. Strategic and Operational Goals and Performance Commentary.Each NEO had Strategic/Operational goals that determined 30% of their total annual incentive score. At the beginning of the year, the Committee approved the strategic and operational goals for each NEO. The goals were designed to reflect the significant individual performance expectations for each NEO and fully contemplate that notable achievements beyond the approved goals can be recognized in the individual achievements for the year. Each NEO is expected to contribute to the financial performance of the company beyond that specifically recognized in the financial performance metrics listed in the table above. The following goals, results and contributions were taken into consideration by the Committee to judge the performance of each NEO and are reflected in the individual scores. 2020 Proxy Statement 49
Table of Contents Compensation Discussion & Analysis | Phebe N. Novakovic – 200% of Target | Goals 〉Drive the financial performance of the company while prudently allocating capital 〉Provide strong leadership of cost reduction initiatives throughout the company 〉Effectively manage key leadership transitions 〉Manage enterprise challenges | Achievements 〉Drove record-high operating performance in revenue, operating earnings and earnings per share. 〉Achieved record-high backlog of $87 billion, up 28% from 2018, supporting our long-term growth expectations. Of particular note were the orders for Gulfstream aircraft that increased 57% over 2018 during a period of significant transition to three new models and the $22 billion contract award for Block V of the Virginia-class submarine program, the largest shipbuilding contract in U.S. Navy history. 〉Made prudent capital allocation decisions during a period of constrained cash due to significant customer payment delays on an international wheeled vehicle contract while managing through a multi-year capital investment plan to support the substantial growth anticipated at Electric Boat. 〉Led the cost containment and reduction efforts to drive operating margin performance as the company transitions through a mix shift to several new commercial products at Gulfstream Aerospace and contracts within the defense segments. 〉Managed succession planning through several senior leadership transitions and provided key guidance and oversight to new leaders. 〉Directed and provided significant leadership as to the direction of the customer negotiations on a significant wheeled vehicle contract. 〉Provided oversight and guidance to the strategic efforts at Gulfstream Aerospace to manage through a new model transition; within the Marine Systems segment to influence the contract negotiations on the awarded Virginia-class Block V and upcoming Columbia-class submarine program; and at General Dynamics Information Technology as they managed the integration efforts post the 2018 acquisition of CSRA. |
| Jason Aiken – 200% of Target | Goals 〉Drive the financial performance of the company including earnings per share growth, effective debt management and tax planning strategies 〉Lead the financial direction of cost reduction and cash maximization efforts across the company 〉Provide leadership, oversight and succession planning guidance to the finance function | Achievements 〉Drove record-high operating performance in revenue, operating earnings and earnings per share. 〉Achieved record-high backlog, up 28% from 2018, supporting our long-term growth expectations. 〉Led efforts to maximize the company’s free cash flow from operations in light of continued payment delays related to an international wheeled vehicle contract. Efforts included reduction strategies in the areas of capital expenditures, cash taxes and working capital to facilitate the repayment of outstanding commercial paper as planned. 〉One of two lead negotiators on contract amendment with an international wheeled vehicle customer that resolved two-year long delinquent payment issues. 〉Provided financial leadership and direction over company-wide cost reduction efforts to improve the operating performance across the company. 〉Actively managed the leadership development and succession planning across the finance organization. |
50 General Dynamics
Table of Contents Compensation Discussion & Analysis | Mark C. Roualet – 190% of Target | Goals 〉Meet or exceed Combat Systems segment financial goals 〉Direct segment in driving the reduction of costs 〉Assist with the resolution of operating challenges and leadership transitions 〉Thorough management and frequent reporting of business unit risks and opportunities | Achievements 〉Achieved strong Combat Systems group growth in revenue and operating earnings, 12.3% and 3.5%, respectively, while earning a solid 14.2% operating margin. 〉Led the segment to maximize their cash flow in light of continued payment delays on an international wheeled vehicle contract. 〉Provided experienced leadership and oversight of the Combat Systems segment including advice and counsel to the business unit presidents. 〉Oversaw and directed key operational challenges within the Combat Systems segment resulting in greater manufacturing predictability, delivery improvements and schedule adherence. 〉Provided significant direction and influence to ensure that succession planning efforts within the Combat Systems segment were timely and executed without management interruption. 〉Worked in conjunction with the chairman and chief executive officer to manage the business risks and opportunities to position the Combat Systems segment for future growth. |
| Mark L. Burns – 197% of Target | Goals 〉Meet or exceed Gulfstream Aerospace financial goals 〉Exceed new aircraft order goal 〉Meet major development milestones 〉Harmonize health and welfare plan offerings | Achievements 〉Strong Gulfstream Aerospace performance including record-high revenue and operating earnings while managing through a significant transition to new aircraft models and achieving industry-leading operating margins. 〉Net orders for Gulfstream aircraft increased over 57% from 2018 reflecting significant demand for its three new products - G500, G600 and recently introduced G700. 〉Met all significant development milestones, achieved U.S. Federal Aviation Administration certification of the G600 and delivered 147 aircraft to customers, a 21% increase over 2018. 〉Harmonized health and welfare plans to reflect the consolidated offerings. 〉Certified two consequential safety technologies, runway overrun protection and Enhanced Vision System to land, both industry firsts. 〉Recognized for significant sustainability efforts to utilize and promote the use of sustainable aviation fuel. |
2020 Proxy Statement 51
Table of Contents Compensation Discussion & Analysis | Gregory S. Gallopoulos – 200% of Target | Goals 〉Provide leadership and oversight of the legal function including effective use and management of outside counsel 〉Contribute significantly to the strategy and resolution of general business and legal matters impacting the company 〉Provide strategic thought leadership with respect to legal matters and reduction of legal risk to the company | Achievements 〉Developed sophisticated and innovative legal strategies and options to address significant business issues and areas of legal risk. 〉Managed legal department talent development and succession planning to provide seamless transitions to business unit general counsels and corporate legal roles. 〉Supported the chairman and chief executive officer’s strategic and business priorities with thoughtful and timely legal advice and counsel. 〉Assembled a global team of experts and top-tier legal talent and developed strategies for critical business engagements including negotiations. 〉Focused on strategies to minimize legal expense while preventing the imposition of liability on matters of key importance. 〉Emphasized and directed the legal and operations management teams on the importance of adhering to and fostering a culture of compliance. |
ANNUAL INCENTIVE PAYOUT The below table summarizes the NEOs’ targets and the Committee’s determination of earned annual incentives. Annual incentives for 2019 performance reflect a decline of 21% from the prior year reflecting our pay-for-performance philosophy, particularly due to the company’s free cash flow from operations shortfall. | Name | | 2019
Base Salary | | Target
Incentive
(% of Base) | | Maximum
Incentive
(% of Base) | | Target
Incentive | | Overall
Achievement | | Annual
Incentive
Payout | | Prior Year’s
Payout | | Percent
Change | | Ms. Novakovic | | $ | 1,585,000 | | 170% | | 340% | | $ | 2,694,500 | | 129% | | $ | 3,482,000 | | $ | 4,727,000 | | -26.3% | | Mr. Aiken | | $ | 850,000 | | 100% | | 200% | | $ | 850,000 | | 129% | | $ | 1,098,000 | | $ | 1,275,000 | | -13.9% | | Mr. Roualet | | $ | 800,000 | | 100% | | 200% | | $ | 800,000 | | 126% | | $ | 1,010,000 | | $ | 1,288,000 | | -21.6% | | Mr. Burns | | $ | 655,000 | | 100% | | 200% | | $ | 655,000 | | 128% | | $ | 840,000 | | $ | 1,100,000 | | -23.6% | | Mr. Gallopoulos | | $ | 740,000 | | 100% | | 200% | | $ | 740,000 | | 129% | | $ | 956,000 | | $ | 950,000 | | 0.6% |
52 General Dynamics
Table of Contents Compensation Discussion & Analysis LONG-TERM INCENTIVE COMPENSATIONLong-Term Incentive Compensation
Long-term incentive compensation (LTI) is provided to NEOs to align management’s interest with that of shareholders.shareholders, to reward NEOs for achievement of multi-year financial goals and total shareholder return performance, and to retain key talent. LTI comprises a major portion of total target compensation provided to each NEO. This provides the NEOsour executives with a significant personal stake in the long-term success of General Dynamics. By awarding LTI through various types of equity instruments, different elements of shareholder alignment are achieved. The following charts illustratechart illustrates the allocation of LTI in our 2018 annual grants as well as how our LTI allocation changed for 2019 grants: 2019 LONG-TERM INCENTIVE ALLOCATION | | | Long-Term Incentive Allocation
2018 and Prior
| | New Long-Term Incentive Allocation
Beginning in 2019
| 
| | 
|
Setting Long-termLong-Term Grant Amounts.The Committee uses guidelines that are constructed around the market median and balances other considerations such as prior-yearcompany performance, complexity of the role, length of service, future expected contributions to the company and impact on dilution, when determining actual LTI grant amounts. We believe that this approach allows for the consideration of factors in addition to the quantitative metrics that drive annual incentive payments. This allows the Committee to make grant decisions that better meet the needs of our business and shareholders. General Dynamics 2019 Proxy Statement 39
Compensation Discussion and Analysis
As shown below, for annual LTI grants awarded in March 2019, the amount of LTI compensation granted to three of the NEOs was comparatively less (10.5% lower vs. 2018) than in the prior yearsyear due primarily to 2018 performance, particularly the company’s free cash flow from operations performance. | Name | | 2018 LTI Grant | | 2019 LTI Grant | | Ms. Novakovic | | $ | 14,000,000 | | $ | 12,488,000 | | Mr. Aiken | | $ | 3,300,000 | | $ | 2,970,000 | | Mr. Roualet | | $ | 3,220,000 | | $ | 2,898,000 | | Mr. Burns* | | $ | 2,443,000 | | $ | 2,545,000 | | Mr. Gallopoulos* | | $ | 2,306,000 | | $ | 2,451,000 |
| * | At the time the grants were awarded, Messrs. Gallopoulos and Burns were not NEOs, accordingly, their equity allocation was Stock Options (50%), PSUs (25%) and Restricted Stock (25%). |
| | | | | | | NAMEAND TITLE* | | 2018 LTI GRANT | | 2019 LTI GRANT | | % DECREASE | Ms. Novakovic | | $ 14,000,000 | | $ 12,488,000 | | 10.8% | Mr. Aiken | | $ 3,300,000 | | $ 2,970,000 | | 10.0% | Mr. Casey | | $ 3,220,000 | | $ 2,960,000 | | 8.1% | Mr. Roualet | | $ 3,220,000 | | $ 2,898,000 | | 10.0% |
*Mr. Johnson retired December 31, 2018, and therefore is not included above.
PERFORMANCE STOCK UNITS
Performance Stock Units (PSUs)– 50% of LTI.PSUs are a form of equity compensation tied to the achievement of specific performance goals and linked to the long-term performance of the company. This element of executive compensation closely connects NEOs to the company’s financial and stock performance over the long term and acts as a retention tool. | Purpose | | This element of executive compensation closely connects NEOs to the company’s financial performance and total shareholder return over the long term and acts as a retention tool. | | Performance Metrics | | Three-year average ROIC** subject to a relative total shareholder return (rTSR) modifier | | Vesting | | Three-year cliff vesting | | Dividend and Voting Rights | | Dividend equivalents are deemed reinvested in additional stock units, which are earned only if and when the underlying PSU is earned; PSUs do not have voting rights. | | Forfeiture | | NEOs who voluntarily resign or are terminated for cause prior to the end of the applicable performance period immediately forfeit all PSUs that have not vested unless otherwise determined by the Committee. 2016-2018 PSU Achievement.In March 2019, the Committee certified the three-year ROIC achievement for PSUs granted in 2016, against the target established for the 2016 – 2018 performance period. After reviewing company results, the Committee certified our three-year average ROIC of 17.8 percent which was 2.5 percent above the target and translated into a payout of 150 percent of the target number of PSUs granted to each NEO. Because the PSU target did not contemplate the acquisition of CSRA, the Committee excluded the impact of the acquisition from the 2018 ROIC results (see discussion in Appendix A).
2018 PSU GRANT (2018 – 2020 PERFORMANCE CYCLE)
| • | | For the 2018 – 2020 performance period, the ROIC target was set at 13.4 percent. This target is modestly below the 15.2 percent target of the previous performance period. In setting the target, the Committee considered the company’s 2018 $9.7 billion acquisition of CSRA and the impact that this important investment will have on ROIC results. In particular, the Committee acknowledged the limitations of comparing the ROIC target to prior-period targets and performance due to the significant amount of capital deployed to fund the CSRA acquisition. The acquisition-related indebtedness increased the company’s invested capital, a key component of the ROIC computation, and therefore decreased the ROIC target for the 2018 – 2020 performance period.
| |
| ** | •See Appendix A for additional information. |
2020 Proxy Statement 53
Table of Contents Compensation Discussion & Analysis 2019 PSU GRANT (2019 – 2021 PERFORMANCE CYCLE) HOW WE CHOSE OUR TARGET GOAL | 〉 | | The three-year ROICCommittee and management believe that the target is set onreflects the date of grantmulti-year operating plan for the company and reflects management’s assessment of future company performance and required investments in the best judgmentcompany’s businesses to support the long-term growth of the Committee at that time. company. | | 〉 | |
| • | | The performance target is set to be challenging, yet achievable.
| |
| • | | The company operates in a dynamic and competitive environment. As such, the target established each year represents the outlook for the upcoming three-year period and may not be comparable to past targets or prior achievement. It is set to be a challenging, yet achievable target. | | 〉 | |
| • | | Additionally,The three-year ROIC target is set on the date of grant and reflects the best judgment of the Committee and management believeat that time.
| | 〉 | For the 2019 – 2021 performance period, the ROIC target was set at 13.6% which was modestly above the 13.4% target for the 2018 – 2020 performance period. In setting the target, the Committee considered the impact that the company’s continued investment at Electric Boat, product line expansion at Gulfstream Aerospace and working capital build-up at Land Systems due to customer payment delays will have on the projected ROIC. The Committee cautioned against comparing actual one-year ROIC results to the projected three-year target reflectsfor ROIC as the multi-year operating plan forone-year results may not reflect the strategic investments that are required by the company and reflects management’s assessment of future company performance and needed investments in the company’s businesses to support the long-term growth of the company. | achieve its operating plan. |
40 General Dynamics 2019 Proxy Statement
Compensation Discussion and Analysis
After the three-year performance period (2018(2019 – 2020)2021), the number of PSUs earned will be determined based on our three-year average ROIC subject to a +/- 2.5 percent collar. the rTSR modifier. | | | Three-Year Average ROIC PerformancePerformance* | | PSU Payout AfterPerformance after 3 Years from Grant Date | 2.5% or more above target | | 150% of target PSUs | | At target | | 100% of target PSUs | | 2.5% below target | | 50% of target PSUs | | More than 2.5% below target | | 0% of target PSUs | |
| * | Performance interpolated between 2.5% below and 2.5% above target. |
Payout interpolated for performance between 2.5% below and 2.5% above target
Relative Total Shareholder Return Metric Beginning in 2019.Starting with the 2019 PSU award, theThe resulting percentage earned from three-year average ROIC will be subject to a relative TSRrTSR modifier, which compares our relative TSRrTSR performance to the TSR performance of the other companies in the S&P 500, to produce the final number of earned shares.units. The Committee believes that the S&P 500 provides a more comprehensive comparison for our share price performance compared to our compensation peer group which is a customized benchmark based on a limited number of companies. The relative TSRrTSR modifier will increase or decrease the PSU payout by as much asone-third, resulting in a payout range between zero percent and 200 percent200% of the target units granted.
| | | | rTSR Modifier | | | | | ROIC Performance (As shown in the chart above) (0—150%) | | × | | Relative TSR Performance | Payout | | = | | Maximum Total Payout | | | 75th Percentile and Above | 133.3% | | |  | | | 50th Percentile | 100.0% | | | | | 25th Percentile and Below | 66.7% | | | | | Payout interpolated for performance between 25th and 75th percentile | | | |
54 General Dynamics | | | | | | | | | | | | | | | | | | | | | | | | Maximum Total Payout | | ROIC PERFORMANCE (AS SHOWN IN THE
CHART ABOVE) (0 — 150%) | | | | TSR Modifier | | | | | | 200% | | | | | | Relative TSR Performance | | Payout | | | | | |  | | | |  | | 75th Percentile and Above | | 133.3% | | | |  | | | | | 50th Percentile | | 100% | | | | | | | | | 25th Percentile and Below | | 66.7% | | | | | | 0% | | | | | | Payout interpolated for performance between 25th and 75th percentile | | | | |
RESTRICTED STOCKTable of Contents
Compensation Discussion & Analysis In March 2020, the Committee certified the three-year ROIC achievement for PSUs granted in 2017, against the target established for the 2017 – 2019 performance period. | Performance Metric | | 0% Payout of
Target PSU | 50% Payout of
Target PSU | 100% Payout of
Target PSU | 150% Payout of
Target PSU | | Payout*
(% of Target) | | 3-year Average ROIC Performance | |  | | 148% of Target PSUs |
| * | The 2017 – 2019 performance period did not include the relative TSR modifier which was added for performance periods starting in 2019. | | ** | Because the PSU target did not contemplate the acquisition of CSRA, the impact of the acquisition was excluded from the 2018 and 2019 ROIC results (see discussion in Appendix A). |
Restricted Stock – 20% of LTI.Restricted stock awards are a form of equity compensation tied to the completion of a service period. | Purpose | | This element of executive compensation closely connects NEOs to the company’s total shareholder return performance over the vesting period and also acts as a retention tool. | | Vesting | | The shares are subject to a three-year cliff vesting period (i.e., 100% of the shares vest on the third anniversary of the grant). The Committee believes that the use of three-year cliff vesting on our restricted stock ensures that executives are focused on long-term value creation while supporting the company’s need to attract and retain executives during all market conditions. | | Dividend and Voting Rights | | During the restriction period, NEOs may not sell, transfer, pledge, assign, or otherwise convey their restricted shares. NEOs are eligible to vote their shares and receive dividend payments and other distributions on our Common Stock when declared by the Board of Directors. | | Forfeiture | | NEOs who voluntarily resign or are terminated for cause prior to the end of the applicable vesting period forfeit their restricted stock unless otherwise determined by the Committee. |
Stock Options – 30% of executive compensation closely connects NEOs to the company’s stock performance over the vesting period and therefore acts as a retention tool. NEOs who voluntarily resign or are terminated for cause prior to the end of the applicable vesting period forfeit their restricted stock unless otherwise determined by the Committee. In 2018, the Committee approved the grant of restricted stock to each NEO. The shares are subject to a three-year cliff vesting period (i.e., 100 percent of the shares vest on the third anniversary of the grant). The Committee has determined that the use of three-year cliff vesting on our restricted stock ensures that executives are focused on long-term value creation while supporting the company’s need to attract and retain executives during all market conditions. During the restriction period, NEOs may not sell, transfer, pledge, assign, or otherwise convey their restricted shares. NEOs are eligible, however, to vote their shares and receive dividend payments and other distributions on our Common Stock when declared by the Board of Directors.
LTI.STOCK OPTIONS Stock options are a form of equity compensation linked to the long-term share performance of the company. This element of executive compensation closely connects NEOs to the company’s stock performance over the long term and acts as a retention tool. A stock option gives our NEOs the right to buy up to a specified number of shares of our Common Stock over the term of the option at a predetermined fixed exercise price. A stock option’s exercise price is the average of the high and low share price of our Common Stock on the date of grant. In March 2018,2019, the Committee approved a grant of stock options to each NEO. The exercise price of these stock options was set at $223.93. The stock options vest as follows: 50 percent of the grant becomes exercisable after two years and 50 percent becomes exercisable after three years. Vested stock options remain exercisable through the options’ expiration date, which occurs on the tenth$167.61. | Purpose | | This element of executive compensation closely connects NEOs to the company’s stock price performance over the long term and acts as a retention tool. | | Vesting | | The stock options vest as follows: 50% of the grant becomes exercisable after two years and 50% becomes exercisable after three years. Vested stock options remain exercisable through the options’ expiration date, which occurs on the tenth anniversary of the grant date. Due to our strenuous stock ownership guidelines, stock options, when exercised, must be held as shares until the ownership requirement is met. | | Repricing of Stock Options | | Our equity compensation plan prohibits the repricing of stock options, including the exchange of underwater stock options for another award or for cash, without the approval of shareholders. | | Forfeiture | | As with restricted stock and PSU awards, NEOs who voluntarily resign or are terminated for cause immediately forfeit all stock options that have not vested unless otherwise determined by the Committee. |
General Dynamics 20192020 Proxy Statement 4155
Table of Contents
Compensation Discussion & Analysis Benefits and Analysis anniversary of the grant date. Due to our strenuous stock ownership guidelines (10 times base salary and 15 times for the chief executive officer) stock options must be exercised and held as shares until the ownership requirement is met.
As with restricted stock and PSU awards, NEOs who voluntarily resign or are terminated for cause immediately forfeit all stock options that have not vested unless otherwise determined by the Committee. Our equity compensation plan prohibits the repricing of stock options, including the exchange of underwater stock options for another award or for cash, without the approval of shareholders.
BENEFITSAND PERQUISITESPerquisites
BENEFITSBENEFITS
General Dynamics-provided benefits are an important tool used to attract and retain outstanding executives. Benefit levels are reviewed periodically to ensure they are cost-effective, competitive and support the overall needs of our employees. The company makes available medical, dental, vision, life insurance and disability coverage to all of the NEOs.coverage. NEOs can select the level of coverage appropriate for their circumstances. The company also provides NEOs group life insurance coverage worth two times base salary and long-term disability coverage worth 50 percent50% of base salary. COMPANY-SPONSORED RETIREMENT PLANSCOMPANY-SPONSORED RETIREMENT PLANS
We provide retirement plans to our eligible employees, including the eligible NEOs, through a combination of qualified andnon-qualified plans. Following is a description of the retirement plans in which the NEOs participate: General Dynamics 401(k) Plan Each NEO is eligible to participate in the General Dynamics Corporation 401(k) Plan, a tax-qualified defined contribution retirement plan. Each NEO is eligible to make before-tax contributions and receive company matching contributions under the 401(k) Plan. During 2019, the 401(k) Plan provided for a company-matching contribution of 100% on contributions up to the first 6% of eligible pay for the NEOs. Our matching contributions during 2019 for the NEOs are included in footnote (d) to the All Other Compensation column of the Summary Compensation Table. Defined-Benefit Retirement Plan. PlansEach NEO other than Mr. Johnson participates Ms. Novakovic and Messrs. Aiken and Roualet participate in a company-sponsored defined-benefit plan called the General Dynamics Salaried Retirement Plan.Beginning January 1, 2014, pension accrualsPlan (the Salaried Plan). Benefits under this plan stoppedthe Salaried Plan were frozen for employees at our corporate headquarters, including the participating NEOs.NEOs, as of December 31, 2013. The benefit under the planSalaried Plan is payable as a life annuity. The Salaried Retirement Plan is a funded,tax-qualified, noncontributory defined-benefit pension plan. It was amended effective January 1, 2007, to exclude any employee initially hired or who incurs a break in service after that date. Thedate.The benefit formula under the Salaried Retirement Plan for employees hired before December 31, 2006,January 1, 2007, is 1.0 percent1.0% times a participant’s highest final average pay frozen as of December 31, 2013, multiplied by years of service earned on or after January 1, 2007, and before January 1, 2014, plus 1.333 percent1.333% times a participant’s highest final average pay frozen as of December 31, 2010, multiplied by years of service earned prior to January 1, 2007. Final average pay for purposes of calculating retirement benefits includes a NEO’s base salary and annual incentive. The company makes contributions to the Salaried Retirement Plan through payments into a trust fund from which the benefits are paid. Mr. Burns participates in a company-sponsored defined-benefit plan called the Gulfstream Aerospace Corporation Pension Plan (the GAC Plan). The plan was amended in December 2018, freezing the benefits for Mr. Burns as of December 31, 2018. The GAC Plan is a funded, tax-qualified, noncontributory defined-benefit pension plan. For service prior to January 1, 2004, Mr. Burns has a frozen pension accrued benefit under the GAC Plan that totals approximately $3,400 payable monthly as a single-life annuity. Upon his retirement, this amount will increase with cost of living adjustments up to a maximum of 3% annually. Effective January 1, 2004, the GAC Plan was amended to provide benefits for each month of credited service earned after December 31, 2003, based on 1.125% of the final average monthly pay at or below the monthly integration level plus 1.25% of the excess above the integration level. Final average monthly pay takes into account salary and annual bonus after December 31, 2003, but excludes equity awards. The portion of Mr. Burns’ benefit earned after December 31, 2003, is frozen as of December 31, 2018, is payable monthly as a life annuity and is not subject to cost-of-living adjustments. Mr. Gallopoulos is not eligible to participate in any of the company’s defined-benefit plans. 56 General Dynamics
Table of Contents Compensation Discussion & Analysis Supplemental Retirement Plan. Plan The amount of cash compensation used to calculate pension benefits for participants in the Salaried Retirement Plan is limited by the Internal Revenue Code ($275,000280,000 in 2018)2019). To provide a benefit calculated on compensation in excess of this compensation limit, the company provides eligible executives participating in the Salaried Plan with coverage under the General Dynamics Corporation Supplemental Retirement Plan. Benefits under the Supplemental Retirement Plan are general unsecured obligations of General Dynamics. Each NEO, other than Mr. Johnson, participatesMs. Novakovic and Messrs. Aiken and Roualet participate in the Supplemental Retirement Plan.Beginning January 1, 2014, pension Pension accruals under this plan stoppedwere frozen for employees at our corporate headquarters including the participating NEOs.NEOs as of December 31, 2013. Anteon International Corporation Supplemental Retirement Savings Plan. Mr. Johnson has an account balance under the frozen Anteon International Corporation Supplemental Retirement Savings Plan. Under the plan, certain eligible employees of Anteon could defer receipt of all or a portion of their annual cash compensation prior to the plan being frozen in 2007. Upon his retirement, Mr. Johnson elected to receive the deferred compensation in a lump sum.
401(k) Plan. Each NEO is eligible to participate in the General Dynamics Corporation 401(k) Plan, atax-qualified defined contribution retirement plan. Each NEO is eligible to makebefore-tax contributions and receive company matching contributions under the 401(k) Plan. During 2018, the 401(k) Plan provided for a company-matching contribution of 100 percent onbefore-tax contributions up to the first 6 percent of a participant’s eligible pay. Our matching contributions during 2018 for the NEOs are included in footnote (d) to the All Other Compensation column of the Summary Compensation Table.
42 General Dynamics 2019 Proxy Statement
Compensation Discussion and Analysis
Supplemental Savings Plan. Plan The company provides a Supplemental Savings Plan to key employees, including each NEO. The purpose of the Supplemental Savings Plan is to allow key executives to defer salary and receive matching contributions on compensation in excess of the compensation limit imposed by the Internal Revenue Service on earnings used to calculate 401(k) contributions. Matching contributions during 20182019 for the NEOs are included in footnote (d) to the All Other Compensation column of the Summary Compensation Table. Other Retiree Benefits. Benefits Eligible key executives throughout the company, including the NEOs (other than Mr. Burns), can purchase group term life insurance prior to retiringat retirement of up to two times their base pay. For executives who retire early (prior to age 65), we pay for insurance coverage equal toone-half the executive’s base salary until the executive reaches age 65. For early retirees who elect coverage in excess ofone-half of base pay they will pay monthly premiums for the additional coverage. For executives retiring at or after age 65, we pay for insurance coverage up to two times an executive’s base salary. This coverage is ratably reduced over a five-year period following the executive’s retirement, or beginning at age 65 for early retirees, subject to a maximum coverage level of 25 percent25% of the coverage in effect at the time of retirement. PERQUISITESPERQUISITES
We provide our NEOs perquisites that the Committee believes are reasonable yet competitive. The company provides perquisites to the NEOs for purposes of recruitment, retention and security. We provide perquisites to ensure the security and accessibility of our executives to facilitate the transaction of business. As a reasonableness test, we compare these perquisites to generally accepted corporate practices. In 2018,2019, the perquisites provided to our NEOs were financial planning and tax preparation services, physical examinations, home security systems, personal liability and supplemental accidental death and dismemberment insurance, and the personal use of automobiles owned or leased by the company. In addition, personal use of our aircraft was provided only to our chairman and chief executive officer as required by the Board to help ensure her security and accessibility. We have provided additional information on perquisites in footnote (d) to the All Other Compensation column of the Summary Compensation Table. OTHER CONSIDERATIONSOther Considerations
POTENTIAL SEVERANCEPOTENTIAL SEVERANCE AND CHANGE CHANGE IN CONTROL BENEFITS CONTROL BENEFITS
The company has change in control agreements, also known as severance protection agreements, with each of the NEOs. The company believes that these agreements are an important tool for recruiting and retaining highly qualified executives. The agreements are structured to protect the interests of shareholders by including a “double trigger”“double-trigger” mechanism that results in a severance payout only when: | 〉 | A change of control is consummated, and | | 〉 | The executive’s employment is terminated by the company without cause or by the executive for good reason within 24 months following the change in control. |
2020 Proxy Statement 57
Table of control is consummated, andContents Compensation Discussion & Analysis The executive’s employment is terminated by the company without cause or by the executive for good reason within 24 months following the change in control.
A “change in control” is defined to include specified stock acquisition, merger or disposition transactions involving General Dynamics. The Committee evaluates and reviews payment and benefit levels under the change in control agreements regularly. These reviews support the view that the agreements are consistent with the practices of our peer group companies. Our severance protection agreements for NEOs exclude any provision for reimbursement of excise taxes that may become due upon a change in control. Payments and benefits provided to NEOs pursuant to the change in control agreements are described in the Potential Payments upon Termination or Change in Control section beginning on page 5368 of this Proxy Statement. General Dynamics 2019 Proxy Statement 43
Compensation Discussion and Analysis
ROLEROLE OFTHE INDEPENDENT COMPENSATION CONSULTANT INDEPENDENT COMPENSATION CONSULTANT
The Committee’s charter provides that the Committee has sole authority to engage the services of an independent compensation consultant for the Committee and approve fees paid to the consultant by the company. The Committee engaged Meridian Compensation Partners, LLC (Meridian) as an independent compensation consultant to provide advice on executive compensation matters. The Committee found that Meridian provided important perspectives about market practices for executive compensation, peer company analysis and selection, the levels and structure of the compensation program and compensation governance. During 2018,2019, at the Committee’s request, Meridian performed the following specific services: Attended all Committee meetings
Provided regulatory education to the Committee
Provided information and advice relating to executive compensation matters
Reviewed compensation-related disclosures in the company’s proxy statement
| 〉 | Attended all Committee meetings | | 〉 | Provided regulatory education to the Committee | | 〉 | Provided information and advice relating to executive compensation matters | | 〉 | Reviewed compensation-related disclosures in the company’s proxy statement |
Before engaging Meridian, the Committee reviewed the factors influencing independence (as specified by the New York Stock Exchange listing standards) and determined that no conflict of interest exists. ANTI-HEDGINGANTI-HEDGING AND ANTI-PLEDGING POLICIES ANTI-PLEDGING POLICIES
The company has a longstanding policy in place that prohibits all directors and executive officers from hedging company securities. Since 2014, the company has maintained a policy prohibiting all directors and executive officers from pledging company securities that they own directly. Mr. Crown has the ownership of certain shares attributed to him that arise from the business of Henry Crown and Company, an investment company where Mr. Crown serves as Chairman and Chief Executive Officer, and trusts of which Mr. Crown serves as trustee (Attributed Shares). Mr. Crown disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest. The Attributed Shares are distinct from shares owned by Mr. Crown or his spouse individually, or shares held in trusts for the benefit of his children (Crown Personally Held Shares). The company has reviewed the potential pledging of the Attributed Shares with Mr. Crown, recognizes Mr. Crown’s distinct obligations with respect to Henry Crown and Company and the trusts, and believes such shares may be prudently pledged or held in margin loan accounts. Under the company’s anti-pledging policy, Crown Personally Held Shares are considered company securities that are owned directly by Mr. Crown and, accordingly, may not be and are not held in margin accounts or otherwise pledged as collateral, nor may the economic risk of such shares be hedged. 58 General Dynamics
Table of ContentsSTOCK OWNERSHIP GUIDELINES Compensation Discussion & Analysis STOCK OWNERSHIP GUIDELINES AND HOLDING REQUIREMENTS HOLDING REQUIREMENTS Our stock ownership and retention guidelines are the most stringent in our peer group. Stock ownership guidelines strongly align the interests of management with the interests of shareholders because executives become shareholders with a considerable investment in General Dynamics. Our stock ownership and retention guidelines preclude NEOs from selling shares of General Dynamics common stockour Common Stock until they own shares with a market value of eight to 10 times their base salary and 15 times for the chief executive officer. Shares held outright and shares held through our 401(k) plans are counted for purposes of meeting the ownership guidelines. Stock options (whether vested or not), PSUs and unvested shares of restricted stock are not counted in the ownership calculation. | | | | Stock Ownership Guidelines | | Chief Executive Officer | Officers including Other NEOs | | | Chief Executive Officer
15xBase Salary | 8x to 10xBase Salary | | 〉 | | 15x Base Salary
| | | Other NEOs
| | 10x Base Salary
|
44 General Dynamics 2019 Proxy Statement
Compensation Discussion and Analysis
When exercising options, executives who have not met the ownership guideline may sell shares acquired upon exercise to cover transaction costs and taxes and are expected to hold any remaining shares until the guidelines are met. Similarly, shares received upon vesting of restricted stock and PSUs may not be sold until the ownership guidelines are met. Once an officer attains the required ownership level, the officer must maintain that ownership level until he or she no longer serves as an officer. The stock ownership and retention guidelines are reviewed annually by the Committee. For the year ended December 31, 2019, the total number of shares owned by our CEO and other officers represented 18 times their combined annual salaries. CLAWBACK POLICYCLAWBACK POLICY
The company has in place an executive compensation recoupment policy, or “clawback” policy, which applies to senior executive officers of the company (referred to as the covered“covered executive officers)officers”), including the NEOs. In the event of a restatement of our financial results due to a covered executive officer engaging in fraud or intentional illegal conduct, the result of which is that any equity or other performance-based compensation paid to that covered executive officer would have been a lower amount had it been calculated based on the restated results, the Committee will have the authority to recover any excess compensation that was awarded to that covered executive officer. In determining the excess compensation, the Committee will take into account its good faith estimate of the value of awarded and actual compensation that may have been affected by the restatement and the events leading to it. This includes all performance-based cash incentives and equity-based grants which may have vested or been exercised during the period in question. COMPENSATIONCOMPENSATION AND RISK MANAGEMENT RISK MANAGEMENT
With the support of management and the independent compensation consultant, the Committee evaluates the company’s overall risk profile relative to the incentive components of compensation to ensure that NEOs are not overly incentivized to focus on short-term stock performance. The use of long-term equity incentive awards as a significant portion of total direct compensation and robust stock ownership guidelines are structured to ensure management is focused on the long term and not incentivized to take excessive risk. TAX CONSIDERATIONSTAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code generally precludes the company from taking a tax deduction for certain executive officers’ compensation in excess of $1 million. Prior to 2018, Section 162(m) exemptedHowever, tax law provides transition relief for certain “performance-based compensation” from the $1 million limitation. The Tax Cuts and Jobs Act of 2017 repealed this exemption effective for our 2018 year, such that compensation paid to our covered executive officers in excess of $1 million will not be deductible for 2018 or future years, unless the compensation qualifies for transition relief applicable to certain compensationother arrangements in place as of November 2, 2017. For our arrangements to which transition relief applies,While the Committee will continue to considerconsiders the implications of Section 162(m) when taking any actions concerning outstanding performance-based or other compensation.compensation that may qualify for transition relief and may continue to consider tax deductibility as a factor in making compensation decisions, it retains the flexibility to provide compensation to executives consistent with the company’s compensation programs, even if such compensation would not be fully deductible. General Dynamics 20192020 Proxy Statement 4559
Table of ContentsEXECUTIVE COMPENSATION SUMMARY COMPENSATION Executive Compensation
Summary Compensation The Summary Compensation Table conforms to requirements of the SEC and shows base salary, annual incentive, equity awards (restricted stock, performance stock units (PSUs) and stock options) and all other compensation, which includes among other things the value of perquisites, 401(k) contributions and tax reimbursements (see footnote (d) to the Summary Compensation Table for a complete listing of categories included in All Other Compensation). The table also includes a column titled Change in Pension Value and Nonqualified Deferred Compensation Earnings. For our eligible NEOs, this includes only the change in pension value (see footnote (c)), which is an actuarial estimate of the present value of the future cost of pension benefits. The value does not reflect a current cash cost to General Dynamics or, necessarily, the pension benefit that an executive would receive, since that is determined by a number of factors, including length of service, age at retirement and longevity. SUMMARY COMPENSATION TABLE Name and
Principal Position | | Year | | Salary | | Stock
Awards(a) | | Option
Awards(a) | | Non-Equity
Incentive Plan
Compensation(b) | | Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings(c) | | All Other
Compensation(d) | | Total | Phebe N. Novakovic
Chairman and
Chief Executive Officer | | 2019 | | $ | 1,585,000 | | $ | 8,630,680 | | $ | 3,746,192 | | | $ | 3,482,000 | | | | $ | 484,613 | | | | $ | 384,719 | | | $ | 18,313,204 | | 2018 | | | 1,585,000 | | | 7,000,052 | | | 6,999,708 | | | | 4,727,000 | | | | | — | | | | | 408,494 | | | | 20,720,254 | | 2017 | | | 1,585,000 | | | 6,999,332 | | | 7,000,390 | | | | 5,300,000 | | | | | 300,661 | | | | | 316,046 | | | | 21,501,429 | Jason W. Aiken
Senior Vice President and
Chief Financial Officer | | 2019 | | $ | 850,000 | | $ | 2,052,799 | | $ | 890,624 | | | $ | 1,098,000 | | | | $ | 158,659 | | | | $ | 73,227 | | | $ | 5,123,309 | | 2018 | | | 830,000 | | | 1,650,364 | | | 1,649,508 | | | | 1,275,000 | | | | | — | | | | | 66,158 | | | | 5,471,030 | | 2017 | | | 755,000 | | | 1,625,701 | | | 1,624,228 | | | | 1,386,000 | | | | | 85,192 | | | | | 65,619 | | | | 5,541,740 | Mark C. Roualet
Executive Vice President,
Combat Systems | | 2019 | | $ | 800,000 | | $ | 2,003,157 | | $ | 868,859 | | | $ | 1,010,000 | | | | $ | 542,898 | | | | $ | 81,760 | | | $ | 5,306,674 | | 2018 | | | 795,000 | | | 1,610,057 | | | 1,609,715 | | | | 1,288,000 | | | | | — | | | | | 78,162 | | | | 5,380,934 | | 2017 | | | 773,750 | | | 1,610,364 | | | 1,609,342 | | | | 1,404,000 | | | | | 330,396 | | | | | 83,926 | | | | 5,811,778 | Mark L. Burns
Vice President of the
Company and President,
Gulfstream Aerospace | | 2019 | | $ | 655,000 | | $ | 1,272,160 | | $ | 1,272,817 | | | $ | 840,000 | | | | $ | 267,984 | | | | $ | 64,524 | | | $ | 4,372,485 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gregory S. Gallopoulos
Senior Vice President and
General Counsel | | 2019 | | $ | 735,000 | | $ | 1,225,229 | | $ | 1,225,515 | | | $ | 956,000 | | | | $ | — | | | | $ | 67,747 | | | $ | 4,209,491 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | SUMMARY COMPENSATION TABLE(a) | | NAMEAND
PRINCIPAL POSITION
| | YEAR | | | SALARY | | | STOCK
AWARDS (a) | | | OPTION
AWARDS (a) | | | NON-EQUITY
INCENTIVE PLAN
COMPENSATION (b) | | | CHANGEIN
PENSION
VALUEAND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS (c) | | | ALL OTHER
COMPENSATION
(d) | | | TOTAL | | Phebe N. Novakovic
Chairman and
Chief Executive Officer
| |
| 2018
2017
2016
|
| | $
| 1,585,000
1,585,000
1,585,000
|
| | $
| 7,000,052
6,999,332
7,079,144
|
| | $
| 6,999,708
7,000,390
7,077,746
|
| | $
| 4,727,000
5,300,000
5,150,000
|
| |
| $ —
300,661
155,239
|
| |
| $408,494
316,046
310,948
|
| |
| $20,720,254
21,501,429
21,358,077
|
| Jason W. Aiken
Senior Vice President and
Chief Financial Officer
| |
| 2018
2017
2016
|
| | $
| 830,000
755,000
701,250
|
| | $
| 1,650,364
1,625,701
1,490,275
|
| | $
| 1,649,508
1,624,228
1,489,540
|
| | $
| 1,275,000
1,386,000
1,200,000
|
| |
| $ —
85,192
38,464
|
| |
| $ 66,158
65,619
139,984
|
| |
| $ 5,471,030
5,541,740
5,059,513
|
| John P. Casey
Executive Vice President,
Marine Systems
| |
| 2018
2017
2016
|
| | $
| 795,000
773,750
747,500
|
| | $
| 1,610,057
1,610,364
1,642,427
|
| | $
| 1,609,715
1,609,342
1,642,472
|
| | $
| 1,344,000
1,404,000
1,400,000
|
| |
| $ —
447,894
242,463
|
| |
| $ 62,389
63,650
64,724
|
| |
| $ 5,421,161
5,909,000
5,739,586
|
| Mark C. Roualet
Executive Vice President,
Combat Systems
| |
| 2018
2017
2016
|
| | $
| 795,000
773,750
747,500
|
| | $
| 1,610,057
1,610,364
1,619,332
|
| | $
| 1,609,715
1,609,342
1,620,593
|
| | $
| 1,288,000
1,404,000
1,400,000
|
| |
| $ —
330,396
168,004
|
| |
| $ 78,162
83,926
69,278
|
| |
| $ 5,380,934
5,811,778
5,624,707
|
| S. Daniel Johnson
Executive Vice President,
Information Technology and
Mission Systems
| |
| 2018
2017
2016
|
| | $
| 795,000
766,250
713,750
|
| | $
| 1,560,792
1,560,519
1,457,671
|
| | $
| 1,559,036
1,559,391
1,457,274
|
| | $
| 1,000,000
1,378,000
1,250,000
|
| |
| $ —
—
—
|
| |
| $ 73,001
52,508
54,297
|
| |
| $ 4,987,829
5,316,668
4,932,992
|
|
(a) | The amounts reported in the Stock Awards and the Option Awards columns reflect aggregate grant date fair value computed in accordance with ASC Topic 718,Compensation – Stock Compensation. These amounts reflect our calculation of the value of these awards at the grant date and do not necessarily correspond to the actual value that may ultimately be realized by the NEO. Assumptions used in the calculation of these amounts are included in Note PQ to our audited financial statements for the fiscal year ended December 31, 2018,2019, included in our Annual Report on Form10-K filed with the SEC on February 13, 2019.10, 2020. Stock Awards include awards of restricted stock and performance stock units (PSUs).PSUs. The grant date value of 20182019 PSUs for each NEO, which assumes a 150 percent maximum payout, is $5,250,039$9,199,936 for Ms. Novakovic; $1,237,773$1,187,933 for Mr. Aiken; $1,207,543 for Mr. Casey; $1,207,543$2,134,840 for Mr. Roualet; and $1,170,594$954,120 for Mr. Johnson.Burns; and $918,922 for Mr. Gallopoulos. |
| (b) | Payments are reported for the fiscal year in which the related services were rendered, although the actual payments are made in the succeeding year. |
| (c) | The values listed in this column represent the change in the present value of accumulated benefits from December 31 of the prior year to December 31 of the respective year calculated for all the pension plans in which the executive participates. The values are an actuarial estimate of the present value of the future cost of pension benefits for each of the NEOs and do not reflect a current cash cost to the company or, necessarily, the pension benefit that an executive would receive. Pension benefits for NE0sMs. Novakovic and Messrs. Aiken and Roualet were frozen as of December 31, 2013. Pension benefits for Mr. Burns were frozen as of December 31, 2018. Negative changes in pension value were excluded from this column for the NEOs as follows: for Ms. Novakovic, $(140,339) for 2018; for Mr. Aiken, $(65,402) for 2018; for Mr. Casey, $(155,951) for 2018; and for Mr. Roualet $(167,921) for 2018. Mr. Johnson, who retired from the company on December 31, 2018, was not eligible to participate in the company’s pension plans. |
4660 General Dynamics 2019 Proxy Statement
Table of Contents
Executive Compensation | (d) | All Other Compensation for 20182019 includes the following items: |
ALL OTHER COMPENSATION | | | | | | | | | | | | | | | | | | | | ALL OTHER COMPENSATION | | NAME | | REIMBURSEMENT
OF TAXES (1) | | | RETIREMENT PLAN
CONTRIBUTIONS AND
ALLOCATIONS (2) | | | TERM LIFE INSURANCE
PAYMENTS | | | PERQUISITES (3) | | Ms. Novakovic | | | $1,773 | | | | $48,200 | | | | $24,793 | | | | $333,728 | | Mr. Aiken | | | $3,337 | | | | $31,900 | | | | $ 4,471 | | | | $ 26,450 | | Mr. Casey | | | $2,857 | | | | $32,100 | | | | $12,764 | | | | $ 14,668 | | Mr. Roualet | | | $3,590 | | | | $32,100 | | | | $ 8,811 | | | | $ 33,661 | | Mr. Johnson | | | $1,794 | | | | $32,100 | | | | $18,555 | | | | $ 20,552 | |
| Name | | Reimbursement
of Taxes(1) | | Retirement Plan
Contributions
and Allocations(2) | | Term Life
Insurance
Payments | | Perquisites(3) | | Ms. Novakovic | | | $ | 1,784 | | | | $ | 48,500 | | | | $ | 24,793 | | | | $ | 309,642 | | | Mr. Aiken | | | $ | 3,645 | | | | $ | 33,800 | | | | $ | 6,210 | | | | $ | 29,572 | | | Mr. Roualet | | | $ | 3,966 | | | | $ | 32,800 | | | | $ | 9,340 | | | | $ | 35,654 | | | Mr. Burns | | | $ | — | | | | $ | 29,900 | | | | $ | 8,200 | | | | $ | 26,424 | | | Mr. Gallopoulos | | | $ | 2,116 | | | | $ | 31,200 | | | | $ | 8,770 | | | | $ | 25,661 | |
| (1) | Reflects amounts reimbursed for the payment of taxes associated with a company-provided dining room benefit. All employees at our corporate headquarters receive this dining room benefit and associated tax reimbursement. |
| (2) | Represents amounts contributed by General Dynamics to the 401(k) Plan and allocations by General Dynamics to the Supplemental Savings Plan. |
| (3) | Noncash items (perquisites) provided to NEOs in 2018,2019, which for one or more NEOs is in the aggregate equal to or greater than $10,000, were as follows: financial planning and tax preparation services, home security systems spousal meals and travel, and, solely for the chairman and chief executive officer, personal use of company aircraft. Perquisites that exceeded the greater of $25,000 or 10 percent10% of the total amount of perquisites for a specific NEO were as follows: Ms. Novakovic — $258,503Novakovic—$254,122 related to personal travel on company aircraft, and $50,608$29,040 related to a home security system for Ms. Novakovic. The aggregate incremental cost to General Dynamics for Ms. Novakovic’s personal travel aboard aircraft owned by the company (products of subsidiary Gulfstream Aerospace), as required by the Board to help ensure Ms. Novakovic’s security and accessibility, is calculated based on the following variable operating costs to the company: fuel costs, trip-related maintenance expenses, landing fees, trip-related hangar and parking fees,on-board catering expenses and crew expenses. No additional direct operating cost is incurred if a family member accompanies an executive on a flight. The aggregate incremental cost to the company for the provision of home security systems represents the amounts paid by the company to third parties for the installation, servicing and monitoring of the systems.security systems and other security services. |
General Dynamics 2019 Proxy Statement 47
Executive Compensation
2018 EQUITY-BASED AWARDSEquity-Based Awards
General Dynamics’Our long-term compensation for senior executives, including the NEOs, consists of equity awards in the form of restricted stock, PSUs and stock options. The following table provides information on the equity awards in 20182019 for the NEOs. The table includes the grant date of each equity award, the number of shares of restricted stock, PSUs and stock options, the exercise price of the stock options, the closing price of our Common Stock on the date of grant and the grant date fair value of the equity awards. As discussed in the Compensation Discussion and Analysis section, we use the average of the high and low stock price of our Common Stock on the date of the grant, not the closing price, to value the restricted stock and PSUs and set the exercise price for stock options.
2020 Proxy Statement 61 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | GRANTSOF PLAN-BASED AWARDSIN FISCAL YEAR 2018 | | NAME | | GRANT
DATE | | | DATEOF
COMPENSATION
COMMITTEE
ACTION | | | ESTIMATED POSSIBLE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (A) | | | ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS (B) | | | ALL OTHER
STOCK
AWARDS:
NUMBER OF
SHARESOF
STOCKOR
UNITS (C) | | | ALL OTHER
OPTION
AWARDS:
NUMBEROF
SECURITIES
UNDERLYING
OPTIONS | | | EXERCISE
OR BASE
PRICEOF
OPTION
AWARDS (D) | | | GRANT DATE
FAIR VALUE
OF STOCK
AND OPTION
AWARDS (E) | | | | THRESHOLD | | | TARGET | | | MAXIMUM | | | THRESHOLD | | | TARGET | | | MAXIMUM | | | | | | | | | | | | | | | | Ms. Novakovic | | | | | | | | | | | 0 | | | | $2,694,500 | | | | $5,389,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3/7/18 | | | | 3/6/18 | | | | | | | | | | | | | | | | 0 | | | | 15,630 | | | | 23,445 | | | | 15,630 | | | | — | | | | — | | | $ | 7,000,052 | | | | | 3/7/18 | | | | 3/6/18 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 186,460 | | | $ | 223.93 | | | | 6,999,708 | | | | | | | | | | | | | | | | Mr. Aiken | | | | | | | | | | | 0 | | | | $ 850,000 | | | | $1,700,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3/7/18 | | | | 3/6/18 | | | | | | | | | | | | | | | | 0 | | | | 3,685 | | | | 5,527 | | | | 3,685 | | | | — | | | | — | | | $ | 1,650,364 | | | | | 3/7/18 | | | | 3/6/18 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 43,940 | | | $ | 223.93 | | | | 1,649,508 | | | | | | | | | | | | | | | | Mr. Casey | | | | | | | | | | | 0 | | | | $ 800,000 | | | | $1,600,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3/7/18 | | | | 3/6/18 | | | | | | | | | | | | | | | | 0 | | | | 3,595 | | | | 5,392 | | | | 3,595 | | | | — | | | | — | | | $ | 1,610,057 | | | | | 3/7/18 | | | | 3/6/18 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 42,880 | | | $ | 223.93 | | | | 1,609,715 | | | | | | | | | | | | | | | | Mr. Roualet | | | | | | | | | | | 0 | | | | $ 800,000 | | | | $1,600,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3/7/18 | | | | 3/6/18 | | | | | | | | | | | | | | | | 0 | | | | 3,595 | | | | 5,392 | | | | 3,595 | | | | — | | | | — | | | $ | 1,610,057 | | | | | 3/7/18 | | | | 3/6/18 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 42,880 | | | $ | 223.93 | | | | 1,609,715 | | | | | | | | | | | | | | | | Mr. Johnson | | | | | | | | | | | 0 | | | | $ 800,000 | | | | $1,600,000 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 3/7/18 | | | | 3/6/18 | | | | | | | | | | | | | | | | 0 | | | | 3,485 | | | | 5,227 | | | | 3,485 | | | | — | | | | — | | | $ | 1,560,792 | | | | | | 3/7/18 | | | | 3/6/18 | | | | | | | | | | | | | | | | — | | | | — | | | | — | | | | — | | | | 41,530 | | | $ | 223.93 | | | | 1,559,036 | |
Table of Contents Executive Compensation GRANTS OF PLAN-BASED AWARDS IN FISCAL YEAR 2019 | |
Date of
Compensation
Committee
Action |
Estimated Possible Payouts Under
Non-Equity Incentive Plan Awards(a) | | Estimated Future Payouts Under
Equity Incentive Plan Awards(b) | All Other
Stock
Awards:
Number of
Shares of
Stock or
Units(c) | All Other
Option
Awards:
Number of
Securities
Underlying
Options |
Exercise
or Base
Price of
Option
Awards(d) |
Grant Date
Fair Value of
Stock and
Option
Awards(e) | | Name | Grant Date | Threshold | Target | Maximum | | Threshold | Target | Maximum | | Ms. Novakovic | | | 0 | $ | 2,694,500 | $ | 5,389,000 | | | | | | | | | | | | 03/06/2019 | 03/05/2019 | | | | | | | 0 | 37,255 | 74,510 | 14,900 | — | | — | $ | 8,630,680 | | 03/06/2019 | 03/05/2019 | | | | | | | — | — | — | — | 129,090 | $ | 167.61 | | 3,746,192 | | Mr. Aiken | | | 0 | $ | 850,000 | $ | 1,700,000 | | | | | | | | | | | | 03/06/2019 | 03/05/2019 | | | | | | | 0 | 8,860 | 17,720 | 3,545 | — | | — | $ | 2,052,799 | | 03/06/2019 | 03/05/2019 | | | | | | | — | — | — | — | 30,690 | $ | 167.61 | | 890,624 | | Mr. Roualet | | | 0 | $ | 800,000 | $ | 1,600,000 | | | | | | | | | | | | 03/06/2019 | 03/05/2019 | | | | | | | 0 | 8,645 | 17,290 | 3,460 | — | | — | $ | 2,003,157 | | 03/06/2019 | 03/05/2019 | | | | | | | — | — | — | — | 29,940 | $ | 167.61 | | 868,859 | | Mr. Burns | | | 0 | $ | 655,000 | $ | 1,310,000 | | | | | | | | | | | | 03/06/2019 | 03/05/2019 | | | | | | | 0 | 3,795 | 5,693 | 3,795 | — | | — | $ | 1,272,160 | | 03/06/2019 | 03/05/2019 | | | | | | | — | — | — | — | 43,860 | $ | 167.61 | | 1,272,817 | | Mr. Gallopoulos | | | 0 | $ | 740,000 | $ | 1,480,000 | | | | | | | | | | | | 03/06/2019 | 03/05/2019 | | | | | | | 0 | 3,655 | 5,483 | 3,655 | — | | — | $ | 1,225,229 | | 03/06/2019 | 03/05/2019 | | | | | | | — | — | — | — | 42,230 | $ | 167.61 | | 1,225,515 |
| (a) | These amounts represent cash awards that are possible under the company’s annual incentive plan. The value earned can be found in the Summary Compensation Table in theNon-Equity Incentive Plan Awards column. |
| (b) | These amounts relate to PSUs granted in 2018.2019. Each PSU represents the right to receive a share of Common Stock upon release of the PSU. The exact number of PSUs that may be earned is determined based upon a performance metric set by the Compensation Committee, which for 20182019 grants is the company’s ROIC over the three-year period from 2018-2020,2019-2021, and can range from 0 to 150 percent150% of the PSUs originally awarded. Grants for Ms. Novakovic, Mr. Aiken and Mr. Roualet were also subject to a relative total shareholder return modifier that can increase or decrease the PSU payout by as much as one-third. Dividend equivalents accrue on PSUs during the performance period and are subject to the same vesting conditions based upon performance. For PSUs granted in 2018,2019, the PSUs arewill be released to the participant following the three-year performance period, to the extent earned. |
| (c) | These amounts relate to shares of restricted stock that are released three years after the grant date, subject to continuous service requirements. |
| (d) | The exercise price for stock options is the average of the high and low stock price of our Common Stock on the date of grant. |
| (e) | For PSUs, the grant date fair value is calculated based upon the target payout amount. |
OPTION EXERCISESAND STOCK VESTEDOption Exercises and Stock Vested
The following table shows the stock options exercised by the NEOs and restricted stock released to them during 2018.2019. As explained in the Compensation Discussion and Analysis section, we require officers to retain shares of Common Stock issued to them as compensation, up topre-determined levels, based on their position with General Dynamics. Once an ownership level is attained, the officer must maintain that minimum ownership level until he or she no longer serves as an officer of General Dynamics. The amounts reported in the Value Realized on Exercise and the Value Realized on Vesting columns in the table below arebefore-tax amounts. OPTION EXERCISES AND STOCK VESTED IN FISCAL YEAR 2019 | | | | | | | | | | | | | | | | | | | | | | OPTION EXERCISESAND STOCK VESTEDIN FISCAL YEAR 2018 | | | | | OPTION AWARDS | | | | | | STOCK AWARDS | | NAME | | NUMBER OF
SHARES
ACQUIRED ON
EXERCISE | | | VALUE REALIZED
ON EXERCISE | | | �� | | | NUMBER OF
SHARES
ACQUIRED ON
VESTING | | | VALUE REALIZED
ON VESTING | | | | | | | | Ms. Novakovic | | | 54,220 | | | | $8,496,140 | | | | | | | | 127,717 | | | | $26,669,365 | | | | | | | | Mr. Aiken | | | 28,890 | | | | $4,553,616 | | | | | | | | 24,811 | | | | $ 5,182,508 | | | | | | | | Mr. Casey | | | 45,000 | | | | $3,610,433 | | | | | | | | 24,550 | | | | $ 5,124,063 | | | | | | | | Mr. Roualet | | | 3,585 | | | | $ 562,813 | | | | | | | | 21,795 | | | | $ 4,567,580 | | | | | | | | Mr. Johnson | | | 77,810 | | | | $4,938,375 | | | | | | | | 13,654 | | | | $ 2,915,172 | |
| | Option Awards | | Stock Awards | | Name | | Number of Shares
Acquired on Exercise | | Value Realized
on Exercise | | Number of Shares
Acquired on Vesting | | Value Realized
on Vesting | | Ms. Novakovic | | 1,199,380 | | $ | 114,004,768 | | 66,385 | | $ | 10,825,109 | | Mr. Aiken | | 45,090 | | $ | 3,356,500 | | 13,613 | | $ | 2,222,494 | | Mr. Roualet | | 65,065 | | $ | 7,258,217 | | 14,201 | | $ | 2,322,994 | | Mr. Burns | | 9,345 | | $ | 966,834 | | 4,895 | | $ | 804,329 | | Mr. Gallopoulos | | 36,740 | | $ | 2,526,242 | | 10,206 | | $ | 1,664,229 |
48 62 General Dynamics 2019 Proxy Statement
Table of Contents
Executive Compensation OUTSTANDING EQUITY AWARDSOutstanding Equity Awards
The following table provides information on outstanding stock option and stock awards held by the NEOs as of December 31, 2018.2019. The table shows the number of stock options that an NEO holds (both exercisable and unexercisable), the option exercise price and its expiration date. For stock awards, the table includes the number of shares of restricted stock and PSUs that are still subject to the restriction period or the performance period (i.e., have not vested). For restricted stock and PSUs, the market value is based on the closing price of the company’s Common Stock on December 31, 2018.2019. OUTSTANDING EQUITY AWARDS AT 2019 FISCAL YEAR-END | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | OUTSTANDING EQUITY AWARDSAT 2018 FISCAL YEAR-END | | | | OPTION AWARDS (a) | | STOCK AWARDS | NAME | | NUMBEROF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
EXERCISABLE | | NUMBEROF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS
UNEXERCISABLE (a) | | OPTION
EXERCISE
PRICE | | OPTION
EXPIRATION
DATE | | NUMBER
OF SHARES
OF STOCK
OR UNITS
THAT
HAVE NOT
VESTED (b) | | MARKET VALUE
OF SHARESOF
STOCKOR
UNITS THAT
HAVE NOT
VESTED | | EQUITY INCENTIVE
PLAN AWARDS:
NUMBEROF
UNEARNED
SHARES, UNITS
OR OTHER RIGHTS
THAT HAVE NOT
VESTED (c) | | EQUITY INCENTIVE
PLAN AWARDS:
MARKETOR
PAYOUT VALUE OF
UNEARNED
SHARES, UNITS
OR OTHER RIGHTS THAT HAVE
NOT VESTED | Ms. Novakovic | | | | | | | | | | | | | | | | | | | | | | | | 85,005 | | | | | $13,363,636 | | | | | 62,089 | | | | | $9,761,012 | | | | | | — | | | | | 186,460 | | | | | $223.93 | | | | | 3/6/2028 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | 211,620 | | | | | 191.71 | | | | | 2/28/2027 | | | | | | | | | | | | | | | | | | | | | | | | | | 160,130 | | | | | 160,130 | | | | | 135.85 | | | | | 3/1/2026 | | | | | | | | | | | | | | | | | | | | | | | | | | 248,830 | | | | | — | | | | | 136.78 | | | | | 3/3/2025 | | | | | | | | | | | | | | | | | | | | | | | | | | 466,380 | | | | | — | | | | | 112.40 | | | | | 3/4/2021 | | | | | | | | | | | | | | | | | | | | | | | | | | 733,000 | | | | | — | | | | | 67.70 | | | | | 3/5/2020 | | | | | | | | | | | | | | | | | | | | | | | Mr. Aiken | | | | | | | | | | | | | | | | | | | | | | | | 18,325 | | | | | $2,880,873 | | | | | 13,881 | | | | | $2,182,232 | | | | | | — | | | | | 43,940 | | | | | $223.93 | | | | | 3/6/2028 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | 49,100 | | | | | 191.71 | | | | | 2/28/2027 | | | | | | | | | | | | | | | | | | | | | | | | | | 33,700 | | | | | 33,700 | | | | | 135.85 | | | | | 3/1/2026 | | | | | | | | | | | | | | | | | | | | | | | | | | 48,830 | | | | | — | | | | | 136.78 | | | | | 3/3/2025 | | | | | | | | | | | | | | | | | | | | | | | | | | 90,180 | | | | | — | | | | | 112.40 | | | | | 3/4/2021 | | | | | | | | | | | | | | | | | | | | | | Mr. Casey | | | | | | | | | | | | | | | | | | | | | | | | 18,590 | | | | | $2,922,534 | | | | | 14,337 | | | | | $2,253,920 | | | | | | — | | | | | 42,880 | | | | | $223.93 | | | | | 3/6/2028 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | 48,650 | | | | | 191.71 | | | | | 2/28/2027 | | | | | | | | | | | | | | | | | | | | | | | | | | 37,160 | | | | | 37,160 | | | | | 135.85 | | | | | 3/1/2026 | | | | | | | | | | | | | | | | | | | | | | | | | | 47,200 | | | | | — | | | | | 136.78 | | | | | 3/3/2025 | | | | | | | | | | | | | | | | | | | | | | | | | | 45,470 | | | | | — | | | | | 112.40 | | | | | 3/4/2021 | | | | | | | | | | | | | | | | | | | | | | | Mr. Roualet | | | | | | | | | | | | | | | | | | | | | | | | 18,505 | | | | | $2,909,171 | | | | | 14,248 | | | | | $2,239,928 | | | | | | — | | | | | 42,880 | | | | | $223.93 | | | | | 3/6/2028 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | 48,650 | | | | | 191.71 | | | | | 2/28/2027 | | | | | | | | | | | | | | | | | | | | | | | | | | 36,665 | | | | | 36,665 | | | | | 135.85 | | | | | 3/1/2026 | | | | | | | | | | | | | | | | | | | | | | | | | | 47,200 | | | | | — | | | | | 136.78 | | | | | 3/3/2025 | | | | | | | | | | | | | | | | | | | | | | | | | | 75,640 | | | | | — | | | | | 112.40 | | | | | 3/4/2021 | | | | | | | | | | | | | | | | | | | | | | | | | | 65,065 | | | | | — | | | | | 70.08 | | | | | 3/19/2020 | | | | | | | | | | | | | | | | | | | | | | Mr. Johnson | | | | | | | | | | | | | | | | | | | | | | | | 17,440 | | | | | $2,741,742 | | | | | 13,376 | | | | | $2,102,841 | | | | | | — | | | | | 41,530 | | | | | $223.93 | | | | | 3/6/2028 | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | 47,140 | | | | | 191.71 | | | | | 2/28/2027 | | | | | | | | | | | | | | | | | | | | | | | | | | | — | | | | | 32,970 | | | | | 135.85 | | | | | 3/1/2026 | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards | | Name | | Number of
Securities
Underlying
Unexercised
Options
Exercisable | | Number of
Securities
Underlying
Unexercised
Options
Unexercisable(a) | | Option
Exercise
Price | | Option
Expiration
Date | | Number of
Shares of
Stock or
Units That
Have Not
Vested(b) | | Market Value of
Shares of Stock or
Units That Have
Not Vested | | Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other Rights
That Have Not
Vested(c) | | Equity
Incentive
Plan
Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested | | Ms. Novakovic | | | | | | | | | | | 74,840 | | $ | 13,198,034 | | 73,360 | | $ | 12,937,036 | | | — | | 129,090 | | $ | 167.61 | | 03/05/2029 | | | | | | | | | | | | | — | | 186,460 | | | 223.93 | | 03/06/2028 | | | | | | | | | | | | | 105,810 | | 105,810 | | | 191.71 | | 02/28/2027 | | | | | | | | | | | | | 320,260 | | — | | | 135.85 | | 03/01/2026 | | | | | | | | | | | | | 248,830 | | — | | | 136.78 | | 03/03/2025 | | | | | | | | | | | | Mr. Aiken | | | | | | | | | | | 16,955 | | $ | 2,990,014 | | 17,305 | | $ | 3,051,737 | | | — | | 30,690 | | $ | 167.61 | | 03/05/2029 | | | | | | | | | | | | | — | | 43,940 | | | 223.93 | | 03/06/2028 | | | | | | | | | | | | | 24,550 | | 24,550 | | | 191.71 | | 02/28/2027 | | | | | | | | | | | | | 67,400 | | — | | | 135.85 | | 03/01/2026 | | | | | | | | | | | | | 48,830 | | — | | | 136.78 | | 03/03/2025 | | | | | | | | | | | | | 45,090 | | — | | | 112.40 | | 03/04/2021 | | | | | | | | | | | | Mr. Roualet | | | | | | | | | | | 17,215 | | $ | 3,035,865 | | 16,952 | | $ | 2,989,485 | | | — | | 29,940 | | $ | 167.61 | | 03/05/2029 | | | | | | | | | | | | | — | | 42,880 | | | 223.93 | | 03/06/2028 | | | | | | | | | | | | | 24,325 | | 24,325 | | | 191.71 | | 02/28/2027 | | | | | | | | | | | | | 73,330 | | — | | | 135.85 | | 03/01/2026 | | | | | | | | | | | | | 47,200 | | — | | | 136.78 | | 03/03/2025 | | | | | | | | | | | | | 75,640 | | — | | | 112.40 | | 03/04/2021 | | | | | | | | | | | | Mr. Burns | | | | | | | | | | | 11,490 | | $ | 2,026,262 | | 9,559 | | $ | 1,685,730 | | | — | | 43,860 | | $ | 167.61 | | 03/05/2029 | | | | | | | | | | | | | — | | 32,560 | | | 223.93 | | 03/06/2028 | | | | | | | | | | | | | 15,795 | | 15,795 | | | 191.71 | | 02/28/2027 | | | | | | | | | | | | | 27,600 | | — | | | 135.85 | | 03/01/2026 | | | | | | | | | | | | | 1,600 | | — | | | 143.33 | | 06/30/2025 | | | | | | | | | | | | | 11,730 | | — | | | 136.78 | | 03/03/2025 | | | | | | | | | | | | | 22,410 | | — | | | 112.40 | | 03/04/2021 | | | | | | | | | | | | Mr. Gallopoulos | | | | | | | | | | | 13,095 | | $ | 2,309,303 | | 9,404 | | $ | 1,658,395 | | | | | 42,230 | | $ | 167.61 | | 03/05/2029 | | | | | | | | | | | | | | | 30,700 | | | 223.93 | | 03/06/2028 | | | | | | | | | | | | | 16,600 | | 16,600 | | | 191.71 | | 02/28/2027 | | | | | | | | | | | | | 49,170 | | — | | | 135.85 | | 03/01/2026 | | | | | | | | | | | | | 38,300 | | — | | | 136.78 | | 03/03/2025 | | | | | | | | | | | | | 36,740 | | — | | | 112.40 | | 03/04/2021 | | | | | | | | | | |
2020 Proxy Statement 63
Table of Contents Executive Compensation | (a) | Of the 129,090 stock options held by Ms. Novakovic with an exercise price of $167.61, 64,545 will become exercisable on March 6, 2021, and 64,545 will become exercisable on March 6, 2022. Of the 186,460 stock options held by Ms. Novakovic with an exercise price of $223.93, 93,230 will becomebecame exercisable on March 7, 2020, and 93,230 will become exercisable on March 7, 2021. Of the 211,620 stock options held by Ms. Novakovic with an exercise price of $191.71, 105,810 became exercisable on March 1, 2019, and 105,8102020. | | Of the 30,690 stock options held by Mr. Aiken with an exercise price of $167.61, 15,345 will become exercisable on March 1, 2020.6, 2021, and 15,345 will become exercisable on March 6, 2022. Of the 320,26043,940 stock options held by Ms. NovakovicMr. Aiken with an exercise price of $135.85, the remaining 160,130 stock options$223.93, 21,970 became exercisable on March 2, 2019.7, 2020, and 21,970 will become exercisable on March 7, 2021. Of the 49,100 stock options held by Mr. Aiken with an exercise price of $191.71, 24,550 became exercisable on March 1, 2020. |
Of the 43,940 stock options held by Mr. Aiken with an exercise price of $223.93, 21,970 will become exercisable on March 7, 2020, and 21,970 will become exercisable on March 7, 2021. Of the 49,100 stock options held by Mr. Aiken with an exercise price of $191.71, 24,550 became exercisable on March 1, 2019, and 24,550 will become exercisable on March 1, 2020. Of the 67,400 stock options held by Mr. Aiken with an exercise price of $135.85, the remaining 33,700 stock options became exercisable on March 2, 2019.
Of the 42,880 stock options held by Mr. Casey with an exercise price of $223.93, 21,440 will become exercisable on March 7, 2020, and 21,440 will become exercisable on March 7, 2021. Of the 48,650 stock options held by Mr. Casey with an exercise price of $191.71, 24,325 became exercisable on March 1, 2019, and 24,325 will become exercisable on March 1, 2020. Of the 74,320 stock options held by Mr. Casey with an exercise price of $135.85, the remaining 37,160 stock options became exercisable on March 2, 2019.
Of the 42,880 stock options held by Mr. Roualet with an exercise price of $223.93, 21,440 will become exercisable on March 7, 2020, and 21,440 will become exercisable on March 7, 2021. Of the 48,650 stock options held by Mr. Roualet with an exercise price of $191.71, 24,325 became exercisable on March 1, 2019, and 24,325 will become exercisable on March 1, 2020. Of the 73,330 stock options held by Mr. Roualet with an exercise price of $135.85, the remaining 36,665 stock options became exercisable on March 2, 2019.
General Dynamics 2019 Proxy Statement 49
Executive Compensation
Of the 41,530 stock options held by Mr. Johnson with an exercise price of $223.93, 20,765 will become exercisable on March 7, 2020, and 20,765 will become exercisable on March 7, 2021. Of the 47,140 stock options held by Mr. Johnson with an exercise price of $191.71, 23,570 became exercisable on March 1, 2019, and 23,570 will become exercisable on March 1, 2020. Of the 32,970 stock options held by Mr. Johnson with an exercise price of $135.85, the remaining 32,970 stock options became exercisable on March 2, 2019.
(b) | Of the 29,940 stock options held by Mr. Roualet with an exercise price of $167.61, 14,970 will become exercisable on March 6, 2021, and 14,970 will become exercisable on March 6, 2022. Of the 42,880 stock options held by Mr. Roualet with an exercise price of $223.93, 21,440 became exercisable on March 7, 2020, and 21,440 will become exercisable on March 7, 2021. Of the 48,650 stock options held by Mr. Roualet with an exercise price of $191.71, 24,325 became exercisable on March 1, 2020. | | Of the 43,860 stock options held by Mr. Burns with an exercise price of $167.61, 21,930 will become exercisable on March 6, 2021, and 21,930 will become exercisable on March 6, 2022. Of the 32,560 stock options held by Mr. Burns with an exercise price of $223.93, 16,280 became exercisable on March 7, 2020, and 16,280 will become exercisable on March 7, 2021. Of the 31,590 stock options held by Mr. Burns with an exercise price of $191.71, 15,795 became exercisable on March 1, 2020. | | Of the 42,230 stock options held by Mr. Gallopoulos with an exercise price of $167.61, 21,115 will become exercisable on March 6, 2021, and 21,115 will become exercisable on March 6, 2022. Of the 30,700 stock options held by Mr. Gallopoulos with an exercise price of $223.93, 15,350 became exercisable on March 7, 2020, and 15,350 will become exercisable on March 7, 2021. Of the 33,200 stock options held by Mr. Gallopoulos with an exercise price of $191.71, 16,600 became exercisable on March 1, 2020. | | (b) | For awards made prior to 2017, shares of restricted stock were released to participants on the first day of January on which the New York Stock Exchange is open for business of the fourth calendar year following the calendar year in which the grant date occurs. Beginning with awards of restricted stock in 2017, shares release to participants on the first day on which the New York Stock Exchange is open for business after the third anniversary of the day of grant. PSUs that are earned release following certification by the Compensation Committee of the applicable performance result. |
Of the 85,005 restricted shares held by Ms. Novakovic, 25,065 restricted shares were released on January 2, 2019, with a market value of $3,901,117; 26,055 restricted shares will be released on January 2, 2020; 18,255 restricted shares will be released on March 2, 2020; 15,630 restricted shares will be released on March 8, 2021.
Of the 18,325 restricted shares held by Mr. Aiken, 4,915 restricted shares were released on January 2, 2019, with a market value of $764,971; 5,485 restricted shares will be released on January 2, 2020; 4,240 restricted shares will be released on March 2, 2020; 3,685 restricted shares will be released on March 8, 2021.
Of the 18,590 restricted shares held by Mr. Casey, 4,750 restricted shares were released on January 2, 2019, with a market value of $739,290; 6,045 restricted shares will be released on January 2, 2020; 4,200 restricted shares will be released on March 2, 2020; 3,595 restricted shares will be released on March 8, 2021
Of the 18,505 restricted shares held by Mr. Roualet, 4,750 restricted shares were released on January 2, 2019, with market value of $739,290; 5,960 restricted shares will be released on January 2, 2020; 4,200 restricted shares will be released on March 2, 2020; 3,595 restricted shares will be released on March 8, 2021.
Of the 17,440 restricted shares held by Mr. Johnson, 4,520 restricted shares were released on January 2, 2019, with a market value of $703,493; 5,365 restricted shares will be released on January 2, 2020; 4,070 restricted shares will be released on March 2, 2020; 3,485 restricted shares will be released on March 8, 2021.
(c) | Of the 74,840 restricted shares or units held by Ms. Novakovic, 26,055 restricted shares were released on January 2, 2020, with a market value of $4,637,269; 18,255 restricted shares were released on March 2, 2020, with a market value of $2,946,722; 15,630 restricted shares will be released on March 8, 2021; and 14,900 restricted shares will be released on March 7, 2022. | | Of the 16,955 restricted shares or units held by Mr. Aiken, 5,485 restricted shares were released on January 2, 2020, with a market value of $976,220; 4,240 restricted shares were released on March 2, 2020, with a market value of $684,421; 3,685 restricted shares will be released on March 8, 2021; and 3,545 restricted shares will be released on March 7, 2022. | | Of the 17,215 restricted shares or units held by Mr. Roualet, 5,960 restricted shares were released on January 2, 2020, with a market value of $1,060,761; 4,200 restricted shares were released on March 2, 2020, with a market value of $677,964; 3,595 restricted shares will be released on March 8, 2021; and 3,460 restricted shares will be released on March 7, 2022. | | Of the 11,490 restricted shares or units held by Mr. Burns, 2,245 restricted shares were released on January 2, 2020, with a market value of $399,565; 2,725 restricted shares were released on March 2, 2020, with a market value of $439,870; 2,725 restricted shares will be released on March 8, 2021; and 3,795 restricted shares will be released on March 7, 2022. | | Of the 13,095 restricted shares or units held by Mr. Gallopoulos, 4,005 restricted shares were released on January 2, 2020, with a market value of $712,810; 2,860 restricted shares were released on March 2, 2020, with a market value of $461,661; 2,575 restricted shares will be released on March 8, 2021; and 3,655 restricted shares will be released on March 7, 2022. | | (c) | Represents PSUs that released in the first quarter of 20192020 or, subject to satisfaction of the performance condition and Compensation Committee determination, may release during the first quarter of 20202021 or 2021.2022. | | For Ms. Novakovic, 19,256 PSUs will release during the first quarter of 2020; 16,214 may release during the first quarter of 2021 and 37,890 may release during the first quarter of 2022. | | For Mr. Aiken, 4,472 PSUs will release during the first quarter of 2020; 3,822 may release during the first quarter of 2021 and 9,011 may release during the first quarter of 2022. | | For Mr. Roualet, 4,430 PSUs will release during the first quarter of 2020; 3,730 may release during the first quarter of 2021 and 8,792 may release during the first quarter of 2022. | | For Mr. Burns, 2,874 PSUs will release during the first quarter of 2020; 2,826 may release during the first quarter of 2021 and 3,859 may release during the first quarter of 2022. | | For Mr. Gallopoulos, 3,016 PSUs will release during the first quarter of 2020; 2,671 may release during the first quarter of 2021; and 3,717 may release during the first quarter of 2022. |
For Ms. Novakovic, 27,399 PSUs will release during the first quarter64 General Dynamics
Table of 2019; 18,832 may release during the first quarter of 2020; and 15,858 may release during the first quarter of 2021.Contents For Mr. Aiken, 5,768 PSUs will release during the first quarter of 2019; 4,374 may release during the first quarter of 2020; and 3,739 may release during the first quarter of 2021.
For Mr. Casey, 6,357 PSUs will release during the first quarter of 2019; 4,333 may release during the first quarter of 2020; and 3,647 may release during the first quarter of 2021.
For Mr. Roualet, 6,268 PSUs will release during the first quarter of 2019; 4,333 may release during the first quarter of 2020; and 3,647 may release during the first quarter of 2021.
For Mr. Johnson, 5,642 PSUs will release during the first quarter of 2019; 2,799 may release during the first quarter of 2020; and 1,178 may release during the first quarter of 2021 (Mr. Johnson’s 2017 and 2018 PSU grants have been prorated due to his retirement).
50 General Dynamics 2019 Proxy Statement
Executive Compensation COMPANY-SPONSORED RETIREMENT PLANSCompany-Sponsored Retirement Plans
General Dynamics offers retirement programs through a combination of qualified and nonqualified Employee Retirement Income Security Act of 1974 plans. The NEOs, other than Mr. JohnsonGallopoulos, participate in each of the retirement programs indicated next to their name in the table below. Mr. Johnson, who retired from the company on December 31, 2018, was not eligible to participate in the company’s pension plans. Beginning January 1, 2014, pension accruals stopped for employees at our corporate headquarters, including the participating NEOs.
The table shows the actuarial present value as of December 31, 2018,2019, of the pension benefits earned for each NEO over the course of the officer’s career. All retirement plans in the table operate in exactly the same manner for the NEOs as for all other plan participants. A description of the material terms and conditions of each of these plans and agreements follows the table. Pension benefits have been frozen for each NEO for the plans listed below. PENSION BENEFITS FOR FISCAL YEAR 2019 | | | | | | | | | | | PENSION BENEFITSFOR FISCAL YEAR 2018 | | NAME | | PLAN NAME | | NUMBER OF
YEARS CREDITED
SERVICE | | PRESENT VALUE OF
ACCUMULATED
BENEFIT (a) | | PAYMENTS DURING
LAST FISCAL YEAR | | | | | | | Ms. Novakovic (b) | | Salaried Retirement Plan | | 13 | | $ 393,491 | | | None | | | | | | | | | Supplemental Retirement Plan | | 13 | | $1,994,485 | | | | | | | | | | Mr. Aiken (c) | | Salaried Retirement Plan | | 11 | | $ 186,304 | | | None | | | | | | | | | Supplemental Retirement Plan | | 11 | | $ 194,382 | | | | | | | | | | Mr. Casey (d) | | Salaried Retirement Plan | | 32 | | $1,236,042 | | | None | | | | | | | | | Supplemental Retirement Plan | | 32 | | $2,926,126 | | | | | | | | | | Mr. Roualet (e) | | Salaried Retirement Plan | | 29 | | $ 927,336 | | | None | | | | | | | | | Supplemental Retirement Plan | | 29 | | $1,540,274 | | | | | Mr. Johnson | | — | | — | | — | | | — | |
| Name | | Plan Name | | Number of
Years Credited
Service | | Present Value
of Accumulated
Benefit(a) | | Payments
During Last
Fiscal Year | | Ms. Novakovic(b) | | Salaried Retirement Plan | | 13 | | $ | 473,346 | | None | | | Supplemental Retirement Plan | | 13 | | $ | 2,399,243 | | | | Mr. Aiken(c) | | Salaried Retirement Plan | | 11 | | $ | 263,950 | | None | | | Supplemental Retirement Plan | | 11 | | $ | 275,395 | | | | Mr. Roualet(d) | | Salaried Retirement Plan | | 29 | | $ | 1,131,676 | | None | | | Supplemental Retirement Plan | | 29 | | $ | 1,878,832 | | | | Mr. Burns(e) | | Gulfstream Aerospace Corporation
Pension Plan | | 35 | | $ | 1,656,088 | | None |
| (a) | (a) | The Present Value of Accumulated Benefit under each plan has been calculated as of December 31, 2018,2019, using the company’s FASB ASC Topic 715,Compensation – Retirement Benefits, assumptions as ofyear-end 2018. 2019. For a discussion of this calculation, see Note QR to our consolidated financial statements contained in our Annual Report on Form10-K for the year ended December 31, 2018,2019, filed with the SEC on February 13, 2019. 10, 2020. |
| (b) | (b) | Ms. Novakovic’s total service is 19 years and credited service is 13 years. | | (c) | Mr. Aiken’s total service is 18 years and credited service is 13 years. |
| (c) | Mr. Aiken’s total service is 17 years and credited service is 11 years.
|
| (d) | (d) | Mr. Casey’s total service is 40 years and credited service is 32 years.
|
| (e) | Mr. Roualet’s total service is 3738 years and credited service is 29 years. | | (e) | Mr. Burns’ total service is 36 years and credited service is 35 years. |
Salaried Retirement Plan.Plan The General Dynamics Salaried Retirement Plan (the Salaried Plan) is atax-qualified defined-benefit pension plan that provides benefits as a life annuity to retired participants. A participant’s benefit under the Salaried Retirement Plan increases with each year of service. Participants who leave before they are eligible for early retirement are paid a substantially reduced amount. All the NEOs, other than Mr. Johnson,Ms. Novakovic and Messrs. Aiken and Roualet participate in the Salaried Retirement Plan. Earnings used to calculate pension benefits (pensionable earnings) include only a participant’s base salary and cash bonus and exclude all other items of income, including equity awards. Under the Internal Revenue Code, the Salaried Retirement Plan does not take into account any earnings over a predetermined compensation limit, which was $275,000$280,000 for 2018,2019, and does not pay annual benefits beyond a predetermined benefit limit, which was $220,000$225,000 for 2018.2019. Beginning January 1, 2014, pension accruals stoppedBenefits under the Salaried Plan were frozen as of December 31, 2013, for employees at our corporate headquarters, including the participating NEOs. The Salaried Retirement Plan pays a monthly benefit equal to the product of (1) the benefit percentage times (2) the final average monthly pay times (3) the years of credited service. For credited service earned prior to January 1, 2007, the benefit percentage equals 1.333 percent.1.333%. For credited service earned on or after January 1, 2007, the benefit percentage equals 1.0 percent.1.0%. Final average monthly pay is equal to the average of the participant’s highest 60 consecutive months of pensionable earnings out of the participant’s last 120 months of employment. For credited service earned prior to January 1, 2007, the final average monthly pay used in the benefit calculation froze as of December 31, 2010. The normal retirement age under the Salaried Retirement Plan is age 65. The Salaried Retirement Plan benefit is calculated
2020 Proxy Statement 65
Table of Contents Executive Compensation as a single-life monthly annuity beginning at age 65 and has multiple General Dynamics 2019 Proxy Statement 51
Executive Compensation
actuarially equivalent payment forms from which participants can choose to take their benefit. A cash lump sum is only available if a participant’s accrued benefit is less than $5,000. None of the eligible NEOs had reached the normal retirement age as of December 31, 2018.2019. A participant with at least 10 years of service qualifies for early retirement at age 55. Ms. Novakovic and Messrs. Casey andMr. Roualet have qualified for early retirement as of December 31, 2018.retirement. A participant who is eligible for early retirement is entitled to receive the following: | (1) | for benefits based on credited service earned prior to January 1, 2007, if a participant retires between age 55 and 62, his or her age 65 benefit is reduced by 2.5 percent2.5% for each full year that he or she retires prior to age 62. If the participant retires between age 62 and 65, he or she will receive 100 percent100% of his or her age 65 benefit. |
| (2) | for benefits based on credited service earned on or after January 1, 2007, a participant who is eligible for early retirement and subsequently retires between age 55 and 65 will have his or her age 65 benefit reduced by 4.8 percent4.8% for each full year that he or she retires prior to age 65. |
Supplemental Retirement Plan.Plan The General Dynamics Corporation Supplemental Retirement Plan (the Supplemental Retirement Plan) is a nonqualified defined-benefit plan that provides retirement benefits to eligible employees whose salaries exceed the Internal Revenue Code compensation limit or whose annual benefits would exceed the Internal Revenue Code benefit limit. All the NEOs other than Mr. JohnsonMs. Novakovic and Messrs. Aiken and Roualet participate in the Supplemental Retirement Plan. Beginning January 1, 2014,Benefits under the Supplemental Retirement Plan pension accruals stoppedwere frozen as of December 31, 2013, for employees at our corporate headquarters, including the NEOs who participate in the plan. The Supplemental Retirement Plan provides benefits equal to the difference between (1) the amount that would have been provided under the Salaried Retirement Plan if the annual compensation limit and annual benefit limit did not apply, and (2) the benefit actually paid under the Salaried Retirement Plan. A participant’s pensionable earnings and forms of payment are the same under the Supplemental Retirement Plan as the Salaried Retirement Plan.
Gulfstream Aerospace Corporation Pension Plan The Gulfstream Aerospace Corporation Pension Plan (the GAC Plan) is a tax-qualified defined-benefit pension plan that provides benefits as a life annuity to retired participants. A participant’s benefit under the GAC Plan increases with each year of service. Participants who leave before they are eligible for early retirement are paid a substantially reduced amount. Mr. Burns participates in the GAC Plan. Earnings used to calculate pension benefits (pensionable earnings) include only a participant’s base salary and cash bonus and exclude all other items of income, including equity awards. Under the Internal Revenue Code, the GAC Plan does not take into account any earnings over a predetermined compensation limit and does not pay annual benefits beyond a predetermined benefit limit. Benefits under the GAC Plan were frozen as of December 31, 2018, for Mr. Burns. For service prior to January 1, 2004, Mr. Burns has a frozen pension accrued benefit under the GAC Plan that totals approximately $3,400 payable monthly as a single-life annuity. Upon his retirement, this amount will increase with cost of living adjustments up to a maximum of 3% annually. Effective January 1, 2004, the GAC Plan was amended to provide benefits for each month of credited service earned after December 31, 2003, based on 1.125% of the final average monthly pay at or below the monthly integration level plus 1.25% of the excess above the integration level. The portion of Mr. Burns’ benefit earned after December 31, 2003, is payable monthly as a life annuity and is not subject to cost of living adjustments. The normal retirement age under the GAC Plan is age 65. The GAC Plan benefit is calculated as a single-life monthly annuity beginning at age 65 and has multiple actuarially equivalent payment forms from which participants can choose to take their benefit. A cash lump sum is only available if a participant’s present value of accrued benefit is less than $5,000. Mr. Burns did not reach the normal retirement age as of December 31, 2019. 66 General Dynamics
NONQUALIFIED DEFINED-CONTRIBUTION DEFERRED COMPENSATIONTable of Contents
Executive Compensation A participant with at least 20 years of service at age 50 or with at least 5 years of service at age 60 qualifies for early retirement. Mr. Burns qualified for early retirement as of December 31, 2019. A participant who is eligible for early retirement is entitled to receive the following: 〉If a participant retires between age 50 and 60, his or her age 65 benefit is reduced by a factor based on a table described in the GAC Plan document for each full year that he or she retires prior to age 60. 〉If the participant retires between age 60 and 65, he or she will receive 100% of his or her age 60 benefit. Nonqualified Defined-Contribution Deferred Compensation As part of General Dynamics’our overall retirement program, the NEOs and other key employees are eligible to participate in a nonqualified defined-contribution plan. The following table illustrates the amounts due to each executive as of December 31, 2018.2019. In addition, the table shows contributions made by both the NEOs and General Dynamics in 20182019 along with the earnings on each executive’s total account. NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL YEAR 2019 | | | | | | | | | | | | | | | | | | | | NONQUALIFIED DEFERRED COMPENSATIONFOR FISCAL YEAR 2018 | | | NAME | | EXECUTIVE CONTRIBUTIONS IN LAST FISCAL YEAR | | | REGISTRANT
CONTRIBUTIONS
IN LAST FISCAL YEAR (a) | | | AGGREGATE
EARNINGS IN LAST
FISCAL YEAR (b) | | | AGGREGATE
WITHDRAWALS/ DISTRIBUTIONS | | AGGREGATE
BALANCEAT
LAST FISCAL
YEAR END (c) | | Ms. Novakovic | | | $158,500 | | | | $31,700 | | | | $(114,545 | ) | | — | | | $1,896,573 | | Mr. Aiken | | | $ 15,400 | | | | $15,400 | | | | $ (16,843 | ) | | — | | | $ 183,717 | | Mr. Casey | | | $ 78,000 | | | | $15,600 | | | | $ 16,260 | | | — | | | $ 992,500 | | Mr. Roualet | | | $ 78,000 | | | | $15,600 | | | | $(250,915 | ) | | — | | | $ 934,739 | | Mr. Johnson | | | $ 78,000 | | | | $15,600 | | | | $(101,357 | ) | | — | | | $3,519,777 | |
| Name | | Executive
Contributions
in Last
Fiscal Year | | Registrant
Contributions
in Last
Fiscal Year(a) | | Aggregate
Earnings
in Last
Fiscal Year(b) | | Aggregate
Withdrawals/
Distributions | | Aggregate
Balance at
Last Fiscal
Year End(c) | | Ms. Novakovic | | $ | 158,500 | | $ | 31,700 | | $ | 116,174 | | — | | $ | 2,202,947 | | Mr. Aiken | | $ | 17,000 | | $ | 17,000 | | $ | 52,146 | | — | | $ | 269,863 | | Mr. Roualet | | $ | 80,000 | | $ | 16,000 | | $ | 138,128 | | — | | $ | 1,168,867 | | Mr. Burns | | $ | 65,500 | | $ | 13,100 | | $ | 61,608 | | — | | $ | 357,162 | | Mr. Gallopoulos | | $ | 72,000 | | $ | 14,400 | | $ | 84,548 | | — | | $ | 1,003,078 |
| (a) | The registrant contributions of $31,700, $15,400, $15,600, $15,600$17,000, $16,000, $13,100 and $15,600,$14,400 for Ms. Novakovic and Messrs. Aiken, Casey, Roualet, Burns and Johnson,Gallopoulos, respectively, are included in the All Other Compensation column of the Summary Compensation Table. |
| (b) | No amounts shown in the Aggregate Earnings in Last Fiscal Year column are reported as compensation in the Summary Compensation Table. |
| (c) | Certain amounts in the Aggregate Balance at Last Fiscal Year End column were previously reported in the Summary Compensation Table in the Salary column (in the case of executive contributions) or in the All Other Compensation column (in the case of registrant contributions) for the NEOs. The amounts previously reported as executive and registrant contributions were as follows: (i) Ms. Novakovic, $806,000$964,500 and $196,650;$227,350; (ii) Mr. Aiken, $47,400$62,800 and $47,400;$62,800; and (iii) Mr. Casey, $326,500Roualet, $319,000 and $72,325; (iv) Mr. Roualet, $241,000 and $51,700; and (v) Mr. Johnson, $183,019 and $36,603. $67,300. |
General Dynamics Corporation Supplemental Savings Plan. Plan The Supplemental Savings Plan is a nonqualifieddefined-contribution plan that provides key employees, including the NEOs, the opportunity to defer a portion of their salary without 52 General Dynamics 2019 Proxy Statement
Executive Compensation
regard to the limitations imposed by the Internal Revenue Code on the 401(k) Plan and receive employer matching contributions on a portion of the contributions. Effective January 1, 2014, for those who elect to participate in the Supplemental Savings Plan, a participant may contribute between 1 percent1% and 10 percent10% of the participant’s base salary to the plan. The company will match the participant’s contributions for the first 2 percent2% of the participant’s base salary on adollar-for-dollar basis. Investment performance mirrors the performance of the funds that are available to participants under the 401(k) Plan. Supplemental Savings Plan participants, including the NEOs, do not receive any earnings on their Supplemental Savings Plan accounts that are not otherwise paid to all other 401(k) Plan participants with a balance in the same investment fund. Participants receivelump-sum payments six months after their separation from service for balances (including earnings) accumulated on or after January 1, 2005. For balances accumulated prior to January 1, 2005, payment is made as soon as possible after termination and participants will receive alump-sum payment unless they have previously elected to receive a deferredlump-sum payment or annual installment payments. 2020 Proxy Statement Anteon International Corporation Supplemental Retirement Savings Plan.67 Mr. Johnson has an account balance under the frozen Anteon International Corporation Supplemental Retirement Savings Plan. Under the plan, certain eligible employees
Table of Anteon could defer receipt of allContents Executive Compensation Potential Payments Upon Termination or a portion of their annual cash compensation prior to the plan being frozenChange in 2007. Upon his retirement, Mr. Johnson elected to receive the deferred compensation in a lump sum. POTENTIAL PAYMENTSUPON TERMINATIONOR CHANGEIN CONTROLControl
The following are estimated payments and benefits that would be provided to the NEOs in the event of termination of the executive’s employment assuming a termination date of December 31, 2018. On December 31, 2018, Mr. Johnson retired from the company. The payments and benefits provided to Mr. Johnson in connection with his retirement reflect standard benefits discussed on pages 42 and 43.2019. We have calculated these amounts for different termination scenarios based on our existing benefit plans and the General Dynamics Corporation equity compensation plan currently in effect (the Equity Compensation Plan). The actual amounts of the payments and costs of the benefits, however, can only be determined at the time of an executive’s separation from General Dynamics and, depending on the payment or benefit, may extend over several years. For each termination and change in control scenario discussed below, the NEO would also be entitled to: | (1) | the pension benefits described in the Pension Benefits for Fiscal Year 20182019 table, for those NEOs who are eligible to receive benefits; and |
| (2) | (2) | the amounts listed in the Nonqualified Deferred Compensation for Fiscal Year 20182019 table. |
The estimated totals presented in the table on the next page do not include these pension benefit and nonqualified deferred compensation amounts, nor do the totals include items that are provided to all employees, such as payment of accrued vacation. Change in Control Agreements – Double Trigger.Double-Trigger For a change in control situation, we have change in control agreements (also referred to as severance protection agreements) with key employees, including each of the NEOs. We have estimated the payments and benefits the NEOs could receive under our existing benefit plans, change in control agreements and the equity compensation plans. Our calculations assume the executive was terminated on December 31, 2018,2019, and that this date was within 24 months following a change in control, thereby satisfying the “double-trigger” requirement under the change in control agreements. The actual amounts of the payments and costs of the benefits, however, can only be determined at the time of an executive’s separation from General Dynamics and depending on the payment or benefit may extend over several years. As discussed under Compensation Discussion and Analysis – Other Considerations – Potential Severance and Change in Control Benefits the change in control agreements contain a “double-trigger” mechanism that is triggered only under certain circumstances. Our severance protection agreements do not provide for excise taxgross-ups. Rather, the agreements provide that, in the event change in control benefits would trigger an excise tax under Section 280G and Section 4999, then the value of the benefits will be either (1) delivered in full or (2) subject to a cutback, whichever provides the executive officer the greatest benefit on anafter-tax basis (with the excise tax being the responsibility of the executive to pay). 68General Dynamics 2019 Proxy Statement 53
Table of Contents
Executive Compensation POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL | | | | | | | | | | | | | | | | | POTENTIAL PAYMENTSUPON TERMINATIONOR CHANGEIN CONTROL | | | SCENARIOAND PAYMENT TYPE | | MS. NOVAKOVIC | | | MR. AIKEN | | | MR. CASEY | | | MR. ROUALET | | | | | | | Termination For Cause or Voluntary Resignation | | | | | | | | | | | | | | Retiree Life Insurance Benefit (a) | | | $ 424,558 | | | | $ — | | | | $ 245,868 | | | | $ 250,841 | | Retiree Medical and Dental Benefit (b) | | | 32,596 | | | | — | | | | 48,949 | | | | 98,351 | | Stock Options | | | — | | | | — | | | | — | | | | — | | Restricted Stock | | | — | | | | — | | | | — | | | | — | | PSUs | | | — | | | | — | | | | — | | | | — | | Total | | | $ 457,154 | | | | $ — | | | | $ 294,817 | | | | $ 349,192 | | | | | | | Death (c) | | | | | | | | | | | | | | | | | | | Life Insurance Benefit | | | $ 3,170,000 | | | | $ 1,700,000 | | | | $ 1,600,000 | | | | $ 1,600,000 | | Stock Options (d) | | | 3,420,377 | | | | 719,832 | | | | 793,738 | | | | 783,164 | | Restricted Stock (d) | | | 13,363,636 | | | | 2,880,873 | | | | 2,922,534 | | | | 2,909,171 | | PSUs (d) (e) | | | 7,112,076 | | | | 1,560,938 | | | | 1,644,364 | | | | 1,630,373 | | Total | | | $ 27,066,089 | | | | $ 6,861,643 | | | | $ 6,960,636 | | | | $ 6,922,708 | | | | | | Retirement, Termination without Cause or Disability (c) | | | | | | | | | | | | | | | | | | | Retiree Life Insurance Benefit (a) | | | $ 424,558 | | | | $ — | | | | $ 245,868 | | | | $ 250,841 | | Retiree Medical and Dental Benefit (b) | | | 32,596 | | | | — | | | | 48,949 | | | | 98,351 | | Stock Options (g) (h) | | | 3,402,010 | | | | 715,967 | | | | 789,475 | | | | 778,959 | | Restricted Stock (f) (h) | | | 12,541,140 | | | | 2,690,622 | | | | 2,732,996 | | | | 2,720,064 | | PSUs (e) (h) | | | 7,112,076 | | | | 1,560,938 | | | | 1,644,364 | | | | 1,630,373 | | Total | | | $ 23,512,380 | | | | $ 4,967,527 | | | | $ 5,461,652 | | | | $ 5,478,588 | | | | | | Change in Control, with Qualifying Termination | | | | | | | | | | | | | | | | | | | Annual Incentive (i) | | | $ 5,300,000 | | | | $ 1,386,000 | | | | $ 1,404,000 | | | | $ 1,404,000 | | | | | | | Severance (j) | | | 20,586,150 | | | | 6,685,640 | | | | 6,589,960 | | | | 6,589,960 | | | | | | | Life, medical, dental and long-term disability benefits (k) | | | 83,279 | | | | 71,429 | | | | 83,067 | | | | 84,701 | | | | | | | Retiree life, medical and dental benefits (l) | | | 375,023 | | | | — | | | | 236,818 | | | | 273,740 | | | | | | | Outplacement services (m) | | | 10,000 | | | | 10,000 | | | | 10,000 | | | | 10,000 | | | | | | | Financial counseling and tax planning services (n) | | | 30,000 | | | | 30,000 | | | | 30,000 | | | | 30,000 | | | | | | | Supplemental retirement benefit (o) | | | 135,102 | | | | 85,743 | | | | 88,282 | | | | 88,282 | | | | | | | Stock Options (p) | | | 3,420,377 | | | | 719,832 | | | | 793,738 | | | | 783,164 | | | | | | | Restricted Stock (p) | | | 13,363,636 | | | | 2,880,873 | | | | 2,922,534 | | | | 2,909,171 | | | | | | | PSUs (p) | | | 9,760,854 | | | | 2,181,918 | | | | 2,253,605 | | | | 2,239,614 | | | | | | | Total | | | $ 53,064,421 | | | | $ 14,051,435 | | | | $ 14,412,004 | | | | $ 14,412,632 | |
| Scenario and Payment Type | | Ms. Novakovic | | Mr. Aiken | | Mr. Roualet | | Mr. Burns | | Mr. Gallopoulos | | Termination For Cause or Voluntary Resignation | | | | | | | | | | | | | | | | | Retiree Life Insurance Benefit(a) | | $ | 519,519 | | $ | — | | $ | 297,779 | | $ | — | | $ | 275,769 | | Retiree Medical and Dental Benefit(b) | | | — | | | — | | | 58,828 | | | 71,119 | | | — | | Stock Options | | | — | | | — | | | — | | | — | | | — | | Restricted Stock | | | — | | | — | | | — | | | — | | | — | | PSUs | | | — | | | — | | | — | | | — | | | — | | Total | | $ | 519,519 | | $ | — | | $ | 356,607 | | $ | 71,119 | | $ | 275,769 | | Death(c) | | | | | | | | | | | | | | | | | Life Insurance Benefit | | $ | 3,170,000 | | $ | 1,700,000 | | $ | 1,600,000 | | $ | 1,310,000 | | $ | 1,480,000 | | Stock Options(d) | | | 1,128,247 | | | 268,231 | | | 261,676 | | | 383,336 | | | 369,090 | | Restricted Stock(d) | | | 13,198,034 | | | 2,990,014 | | | 3,035,865 | | | 2,026,262 | | | 2,309,303 | | PSUs(d)(e) | | | 7,529,322 | | | 1,767,674 | | | 1,736,460 | | | 1,065,918 | | | 1,064,390 | | Total | | $ | 25,025,603 | | $ | 6,725,919 | | $ | 6,634,001 | | $ | 4,785,516 | | $ | 5,222,783 | | Retirement, Termination without Cause or Disability(c) | | | | | | | | | | | | | | | | | Retiree Life Insurance Benefit(a) | | $ | 519,519 | | $ | — | | $ | 297,779 | | $ | — | | $ | 275,769 | | Retiree Medical and Dental Benefit(b) | | | — | | | — | | | 58,828 | | | 71,119 | | | — | | Stock Options(f)(h) | | | 302,216 | | | 71,848 | | | 70,087 | | | 102,678 | | | 98,859 | | Restricted Stock(g)(h) | | | 12,569,604 | | | 2,840,606 | | | 2,889,975 | | | 1,872,297 | | | 2,161,063 | | PSUs(e)(h) | | | 7,529,322 | | | 1,767,674 | | | 1,736,460 | | | 1,065,918 | | | 1,064,390 | | Total | | $ | 20,920,661 | | $ | 4,680,128 | | $ | 5,053,129 | | $ | 3,112,012 | | $ | 3,600,081 | | Change in Control, with Qualifying Termination | | | | | | | | | | | | | | | | | Annual Incentive(i) | | $ | 5,059,000 | | $ | 1,287,000 | | $ | 1,364,000 | | $ | 1,100,000 | | $ | 950,000 | | Severance(j) | | | 19,865,560 | | | 6,389,630 | | | 6,470,360 | | | 3,510,000 | | | 5,053,100 | Life, medical, dental and long-term
disability benefits(k) | | | 82,472 | | | 76,476 | | | 89,595 | | | 46,856 | | | 73,231 | | Retiree life, medical and dental benefits(l) | | | 455,670 | | | — | | | 290,832 | | | 48,706 | | | 238,821 | | Outplacement services(m) | | | 10,000 | | | 10,000 | | | 10,000 | | | 10,000 | | | 10,000 | | Financial counseling and tax planning services(n) | | | 30,000 | | | 30,000 | | | 30,000 | | | 20,000 | | | 30,000 | | Supplemental retirement benefit(o) | | | 134,729 | | | 89,167 | | | 89,726 | | | 48,021 | | | 83,576 | | Stock Options(p) | | | 1,128,247 | | | 268,231 | | | 261,676 | | | 383,336 | | | 369,090 | | Restricted Stock(p) | | | 13,198,034 | | | 2,990,014 | | | 3,035,865 | | | 2,026,262 | | | 2,309,303 | | PSUs(p) | | | 12,937,036 | | | 3,051,737 | | | 2,989,309 | | | 1,685,730 | | | 1,658,395 | | Total | | $ | 52,900,748 | | $ | 14,192,255 | | $ | 14,631,363 | | $ | 8,878,911 | | $ | 10,775,516 |
| (a) | Assumes the executive elects the maximum oftwo-times-pay coverage at retirement. The estimated cost is calculated using the assumptions made for financial reporting purposes for valuing post-retirement life insurance at December 31, 2018.2019. The life insurance benefit is further described under Compensation Discussion and Analysis – Other Retiree Benefits. |
| (b) | The estimated cost for this coverage is based on the difference between the COBRA rate that the executive would pay and the higher expense we must recognize for financial reporting purposes. We provide retiree medical and dental coverage only until an executive reaches age 65. Ms. Novakovic and Messrs. Aiken and Gallopoulos were not eligible for retiree medical and dental coverage at December 31, 2019. |
| (c) | In situations where an executive has completed a full calendar year of service to the company, for certain termination scenarios not involving a change in control, the executive may remain eligible for an annual incentive for performance during the year, though whether a bonus is paid in the future, and the amount, if any, would be subject to Compensation Committee approval. No future bonus payment is guaranteed, and the amount of any bonus would be determined as described in the Compensation Discussion and Analysis section. The NEO may also be eligible for $2 million of proceeds under accidental death and dismemberment insurance, depending upon the circumstances. |
| (d) | Under the terms of the Equity Compensation Plan, unvested stock options held by the executive would be treated as if the executive remained employed with General Dynamics throughout the option term. The options would be exercisable by the executive’s estate in accordance with the terms of the original option |
54 General Dynamics 2019 Proxy Statement
Executive Compensation
| grant. PSUs granted would be evaluated for achievement relative to goals and if earned, a pro rata amount (determined as set forth in the respective award agreements) will vest and be released within two andone-half months following the death vesting date. The unvested stock options vest immediately, and the restricted stock held by the executive would be transferred to the estate and released at the time of death. The value of the |
2020 Proxy Statement 69
Table of Contents Executive Compensation | unvested options reflected in the table represents the difference between the closing share price of $157.21$176.35 on December 31, 2018,2019, and the option grant price, multiplied by the number of retained unvested options. The value of the restricted stock represents the number of restricted shares held on December 31, 2018,2019, multiplied by the closing share price of $157.21$176.35 on December 31, 2018.2019. |
| (e) | The value of the prorated PSUs represents the number of earned units as of December 31, 2018,2019, multiplied by the closing share price of $157.21$176.35 on December 31, 2018.2019. |
| (f) | The present value of the restricted stock represents the number of restricted shares held on December 31, 2018, multiplied by the closing share price of $157.21 on December 31, 2018, and applying a discount rate factor to account for the restriction periods.
|
(g) | The present value of the unvested stock options reflected in the table represents the difference between the closing share price of $157.21$176.35 on December 31, 2018,2019, and the option grant price, multiplied by the number of retained unvested options, and applying a discount factor to account for the option exercise dates. |
| (g) | The present value of the restricted stock represents the number of restricted shares held on December 31, 2019, multiplied by the closing share price of $176.35 on December 31, 2019, and applying a discount rate factor to account for the restriction periods. | | (h) | Under the terms of the Equity Compensation Plan, most participants qualify for retirement treatment after reaching age 55 with at least five years of continuous service with the company. For participants who are elected officers of the company and who have reached age 55, the plan provides for retirement treatment with the consent of the company’s chief executive officer or, in the case of the chief executive officer, the Compensation Committee. For purposes of this Proxy Statement, we assume that any required consents for retirement treatment have been obtained. Since Ms. Novakovic and Messrs. CaseyBurns, Gallopoulos and Roualet are eligible to retire, they would forfeit a portion of their unvested stock option awards based on days of service during the three-year period beginning on January 1 of the year of grant for options granted before 2017 and as of the grant date for options granted after 2017.date. The retained options would be exercisable in accordance with the terms of the original grant. The restricted stock award will pro rata vest at the end of the original restriction period if retirement occurs prior toone-year one year from grant. The restricted stock award would be released at the end of the original restriction period if retirement occurs on or afterone-year one year from grant. The PSUs would be prorated (as set forth in the respective award agreements) and will be released within two andone-half months following their respective scheduled vesting date, if earned based on the applicable performance goals. Because Mr. Aiken was not eligible to retire at December 31, 2018,2019, the equity values in these scenarios would apply only in the case of disability. |
| (i) | Any annual incentive amount paid in a change in control situation would be determined in accordance with the terms of the applicable change in control agreement. Since we assume that a change in control and triggering event had occurred on December 31, 2018,2019, the change in control scenarios identify the March 2019 bonus amounts (or the average of the 2017, 2018 and 2019 bonus amounts.amounts, if higher). |
| (j) | Calculated in accordance with the applicable change in control agreement. For the NEOs other than Mr. Burns, this amount equals 2.99 times their annual salary and annual incentive. For Mr. Burns, the multiple is 2.00 times. |
| (k) | Represents an additional 36 months of life, medical, dental and long-term disability benefits.benefits for the NEOs other than Mr. Burns. These costs reflect an amount equal to three times the 20182019 annual employer premiums for these benefits. For Mr. Burns, the amount represents an additional 24 months and the costs reflect an amount equal to two times the 2019 annual employer premiums for these benefits. |
| (l) | The costs of Ms. Novakovic’s, Messrs. Casey’s and Roualet’s retiree benefits for Ms. Novakovic and Messrs. Burns, Gallopoulos and Roualet are reduced in this scenario because the 36 months (24 months for Mr. Burns) of continued active coverage described in Note (k) defers the commencement date of this coverage. Ms. Novakovic and Mr. Gallopoulos are not eligible for retiree medical and dental benefits; therefore, the amount shown represents retiree life only. Mr. Burns is not eligible for retiree life; therefore, the amount represents medical and dental benefits only. |
| (m) | Represents the estimated outplacement services costs, obtained from an outplacement vendor, for 12 months for a senior executive. |
| (n) | Represents financial counseling and tax planning services for 36 months (for NEOs other than Mr. Burns) or 24 months (for Mr. Burns) following the termination date, at a total cost not to exceed $30,000$10,000 per year for each NEO. |
| (o) | Represents a supplemental retirement benefit payable in cash equal to an additional 36 months (24 months for Mr. Burns) of company contributions to each defined-contribution plan in which the executive participates. |
| (p) | Our Equity Compensation Plan and the applicable award agreements contain a “double-trigger” mechanism for all participants, including the NEOs. This mechanism provides that if, within two years following a change in control, a participant’s employment is terminated by the company for any reason other than for Cause (as defined in the plan) or by the executive for Good Reason (as defined in the plan), then all outstanding awards that have not vested will immediately vest and become exercisable and all restrictions on awards will immediately lapse. |
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Executive Compensation PAY RATIO RESULTSPay Ratio Results
The chief executive officer pay ratio figures below are a reasonable estimate calculated in a manner consistent with Item 402(u) of RegulationS-K under the Exchange Act. Due to the acquisition of CSRA and divestitures within GDIT in 2018, there hasThere have been a changeno changes in our employee population or employee compensation arrangements in 2019 that we reasonably believe would result in a significant change in our pay ratio disclosure. Therefore, we havere-identified based our pay ratio calculation for 2019 using compensation for the same median employee identified for 2018, using the same methodology we employed in 2017:
We determined that as of December 3, 2018 (our Determination Date), our total number of U.S. employees was approximately 93,000 and our total number ofnon-U.S. employees was approximately 14,000. We excluded from this employee population a total of 5,251 employees from: Mexico (2,451), Spain (859), Germany (531), Singapore (305), United Arab Emirates (247), Saudi Arabia (197), Italy (118), Estonia (74), Brazil (72), Colombia (70), Argentina (47), Netherlands (35), Russian Federation (30), France (28), Philippines (28), Bermuda (27), Israel (26), Malaysia (25), India (20), New Zealand (17), Jamaica (14), Guyana (6), Bahamas (4), Barbados (4), Czech Republic (3), Indonesia (3), Malta (3), Chile (1), Ecuador (1), Ethiopia (1), Peru (1), Portugal (1), Trinidad (1) and Turkey (1) as the total number of employees from thesenon-U.S. jurisdictions was less than 5 percent of our total employee population.
To determine ourwhich median employee was identified under the process described in our 2018 pay we chose base salary as our consistently applied compensation measure. We then calculated an annual base salary for each employee, annualizing pay for those employees who commenced work during 2018 and any employees who were on leave for a portion of 2018. For hourly employees, we used a reasonable estimate of hours worked to determine annual base pay. We used a clustered sampling methodology to identify the median base salary within this employee population.ratio calculation.
Total 2019 annual compensation for the median employee was valued at $86,432$116,510 and total annual compensation for the chief executive officer was valued at $20,720,254,$18,313,204, resulting in a ratio of median employee total annual compensation to chief executive officer total annual compensation of 1:240.157. Total annual compensation for the median employee and the chief executive officer is calculated according to the disclosure requirements of the Summary Compensation Table and includes base salary, annual incentive, equity awards, change in pension values and other compensation such as perquisites and company-paid healthcare benefits. Compensation Committee Report 56 General Dynamics 2019 Proxy Statement
The following Compensation Committee Report shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement or any portion hereof into any filing under the Securities Act or the Exchange Act, and shall not otherwise be deemed filed under such acts. COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has furnished the following report. The following fourfive directors serve on the Compensation Committee: William A. Osborn (Chair), James S. Crown, Rudy F. deLeon, C. Howard Nye and Laura J. Schumacher. None of these directors is an officer or employee of General Dynamics. They all meet the independence requirements of the New York Stock Exchange. The Compensation Committee is governed by a written charter approved by the Board. In accordance with that charter, the Compensation Committee is responsible for evaluating the performance of the chief executive officer and other General Dynamics officers as well as reviewing and approving their compensation. The Committee also establishes and monitors company-wide compensation programs and policies, including the incentive compensation plans.policies. The Committee’s processes and procedures for the consideration and determination of executive compensation are explained in greater detail in the Compensation Discussion and Analysis section of this Proxy Statement. The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis. Based on this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement in accordance with Item 407(e) of RegulationS-K. This report is submitted by the Compensation Committee. William A. Osborn (Chair)
James S. Crown
Rudy F. deLeon
Laura J. Schumacher
| William A. Osborn(Chair) | | C. Howard Nye | | James S. Crown | | Laura J. Schumacher | | Rudy F. deLeon | | |
March 5, 20193, 2020 General Dynamics 20192020 Proxy Statement 5771
Table of Contents SECURITYOWNERSHIPOF MANAGEMENT Security Ownership
Security Ownership of Management The following table provides information as of March 7, 2019,9, 2020, on the beneficial ownership of Common Stock by (1) each of our directors and nominees for director, (2) each of the NEOs and (3) all of our directors and executive officers as a group. The following table also shows Common Stock held by these individuals through company-sponsored benefits programs. Except as otherwise noted, the persons listed below have the sole voting and investment power for all shares held by them, except for such power that may be shared with a spouse. | | | | | | | | | | | | Common Stock Beneficially Owned(a) | | Common Stock
Equivalents
Beneficially
Owned(b) | | Total Common
Stock and
Equivalents | NAME OF BENEFICIAL OWNER | | COMMON STOCK BENEFICIALLY OWNED(a) | | | COMMON STOCK
EQUIVALENTS BENEFICIALLY OWNED
(b) | | | TOTAL COMMON
STOCKAND
EQUIVALENTS | | | | | SHARES OWNED | | | OPTIONS EXERCISABLE
WITHIN 60 DAYS | | | PERCENTAGE OF CLASS | | | | Name of Beneficial Owner | | | Shares Owned | | Options Exercisable
within 60 Days | | Percentage
of Class | | Common Stock
Equivalents
Beneficially
Owned(b) | | Total Common
Stock and
Equivalents | Directors and Nominees | Directors and Nominees | | | James S. Crown (c) | | | 15,611,526 | | | | 18,225 | | | | 5.4 | % | | 3,048 | | | | 15,632,799 | | | 15,542,840 | | 13,455 | | 5.4% | | 3,117 | | 15,559,412 | | Rudy F. deLeon | | | 3,033 | | | | 6,925 | | | | | * | | | 0 | | | | 9,958 | | | 3,501 | | 9,055 | | * | | 0 | | 12,556 | Cecil D. Haney | | | 445 | | | | 0 | | | | | * | | | 0 | | | | 445 | | | 964 | | 0 | | * | | 0 | | 964 | | Lester L. Lyles | | | 8,179 | | | | 18,225 | | | | | * | | | 0 | | | | 26,404 | | | 8,647 | | 13,455 | | * | | 0 | | 22,102 | | Mark M. Malcolm | | | 4,900 | | | | 5,565 | | | | | * | | | 0 | | | | 10,465 | | | 5,862 | | 7,695 | | * | | 0 | | 13,557 | | | James N. Mattis | | | 650 | | 0 | | * | | 0 | | 650 | Phebe N. Novakovic | |
| 450,929
|
| | | 1,874,280 | | | | | * | | | 0 | | |
| 2,325,209
|
| | 729,722 | | 873,940 | | * | | 0 | | 1,603,662 | | C. Howard Nye | | | 981 | | | | 0 | | | | | * | | | 0 | | | | 981 | | | 1,943 | | 0 | | * | | 0 | | 1,943 | | William A. Osborn | | | 30,685 | | | | 18,225 | | | | | * | | | 0 | | | | 48,910 | | | 36,369 | | 13,455 | | * | | 0 | | 49,824 | | Catherine B. Reynolds | | | 1,726 | | | | 0 | | | | | * | | | 0 | | | | 1,726 | | | 2,688 | | 1,730 | | * | | 0 | | 4,418 | | Laura J. Schumacher | | | 4,825 | | | | 11,325 | | | | | * | | | 0 | | | | 16,150 | | | 5,586 | | 13,455 | | * | | 0 | | 19,041 | | | John G. Stratton | | | 3,533 | | 0 | | * | | 0 | | 3,533 | Peter A. Wall | | | 1,822 | | | | 1,795 | | | | | * | | | 0 | | | | 3,617 | | | 2,296 | | 4,585 | | * | | 0 | | 6,881 | Other NEOs | Other NEOs | | | | | Jason W. Aiken | | | 73,593 | | | | 230,960 | | | | | * | | | 0 | | | | 304,553 | | | 86,082 | | 232,390 | | * | | 0 | | 318,472 | | John P. Casey | | | 102,663 | | | | 191,315 | | | | | * | | | 0 | | | | 293,978 | | | | Mark C. Roualet | | | 128,167 | | | | 285,560 | | | | | * | | | 0 | | | | 413,727 | | | 130,539 | | 266,260 | | * | | 0 | | 396,799 | | S. Daniel Johnson (d) | | | 66,363 | | | | 56,540 | | | | | * | | | 0 | | | | 122,903 | | | | | | | | | | | | | | | | | Mark L. Burns | | | 44,425 | | 111,210 | | * | | 0 | | 155,635 | | Gregory S. Gallopoulos | | | 114,237 | | 172,760 | | * | | 0 | | 286,997 | Directors and Executive Officers as a Group | Directors and Executive Officers as a Group | | | | (25 individuals) | | | 16,965,025 | | | | 3,709,080 | | | | 7.1 | % | | 3,048 | | | | 20,677,153 | | | 17,013,398 | | 2,256,205 | | 6.6% | | 3,117 | | 19,272,720 |
| (a) | Includes shares in the 401(k) Plan held by the executive officers and shares of Common Stock subject to resale restrictions, for which restrictions have not expired. |
| (b) | Reflects phantom stock units that were received on December 1, 1999, upon termination of benefits under the former retirement plan for directors and additional phantom stock units resulting from the reinvestment of dividend equivalents on the phantom stock units. |
| (c) | Based solely on information provided on behalf of Mr. Crown. Of the 15,611,52615,542,840 shares of Common Stock shown as beneficially owned by Mr. Crown, (i) he disclaims beneficial ownership as to 15,528,880 shares, except to the extent of his beneficial interest in entities that own these shares; and (ii) a total of 501,8923,510,667 shares held indirectly by entities in which Mr. Crown holds interests are pledged as collateral for bank borrowings (and for which Mr. Crown disclaims beneficial ownership). |
(d) | Information for Mr. Johnson is as of December 31, 2018, when he retired from the company.
|
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Security Ownership SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERSSecurity Ownership of Certain Beneficial Owners
Except as otherwise noted, the following table provides information as of March 7, 2019,9, 2020, with respect to the number of shares of Common Stock owned by each person known by General Dynamics to be the beneficial owner of more than 5 percent5% of our Common Stock. | | | | | | | | | | | | | | COMMON STOCK BENEFICIALLY OWNED (a) | NAMEOF BENEFICIAL OWNER | | SHARES OWNED | | PERCENTAGE OF CLASS | Longview Asset Management, LLC (b) 222 North LaSalle Street
Chicago, Illinois 60601 | | | | 32,898,410 | | | | | 11.4 | % | Capital Research Global Investors (c) 333 South Hope Street
Los Angeles, California 90071 | | | | 22,446,969 | | | | | 7.8 | % | The Vanguard Group (d) 100 Vanguard Blvd.
Malvern, Pennsylvania 19355 | | | | 21,561,226 | | | | | 7.5 | % | Newport Trust Company (e) 570 Lexington Avenue, Suite 1903
New York, New York 10022 | | | | 20,709,927 | | | | | 7.2 | % | BlackRock, Inc. (f) 55 East 52nd Street
New York, New York 10055 | | | | 17,225,288 | | | | | 6.0 | % |
| | Common Stock
Beneficially Owned(a) | | Name of Beneficial Owner | | Shares
Owned | | Percentage
of Class | | Longview Asset Management, LLC(b) | | | | | | 222 North LaSalle Street | | | | | | Chicago, Illinois 60601 | | 32,690,644 | | 11.3% | | Capital Research Global Investors(c) | | | | | | 333 South Hope Street | | | | | | Los Angeles, California 90071 | | 23,304,219 | | 8.0% | | The Vanguard Group(d) | | | | | | 100 Vanguard Blvd. | | | | | | Malvern, Pennsylvania 19355 | | 20,569,605 | | 7.1% | | Newport Trust Company(e) | | | | | | 570 Lexington Avenue, Suite 1903 | | | | | | New York, New York 10022 | | 19,883,568 | | 6.9% | | BlackRock, Inc.(f) | | | | | | 55 East 52ndStreet | | | | | | New York, New York 10055 | | 15,605,001 | | 5.4% |
| (a) | Share information for The Vanguard Group, Capital Research Global Investors and BlackRock, Inc. is as of December 31, 2018. 2019. |
| (b) | This information is based solely on information provided by Longview Asset Management, LLC (Longview). Longview manages investment portfolios for clients who own Common Stock, which include accounts of clients related to Mr. Crown. Pursuant to its investment advisory agreements, Longview has voting and dispositive power over the Common Stock held in its clients’ accounts and is deemed to beneficially own 32,898,41032,690,644 shares of Common Stock, including the 15,528,880 shares included in Mr. Crown’s beneficial ownership amount for which he disclaims beneficial ownership. Clients of Longview disclaim that they are a group for purposes of Section 13(d) of the Exchange Act, and disclaim that any one of them is the beneficial owner of shares owned by any other person or entity. |
| (c) | This information is based solely on information contained in a Schedule 13G filed by Capital Research Global Investors with the SEC on February 14, 2019. 2020. |
| (d) | This information is based solely on information contained in a Schedule 13G filed by The Vanguard Group with the SEC on February 11, 2019. 12, 2020. |
| (e) | Newport Trust Company (Newport) is the independent fiduciary and investment manager for the assets of the General Dynamics Stock Fund under the General Dynamics Corporation 401(k) Plan Master Trust. Newport has shared voting power over the shares held in the General Dynamics Stock Fund. Share information for Newport is based solely on information provided on behalf of Newport. |
| (f) | This information is based solely on information contained in a Schedule 13G filed by BlackRock, Inc. with the SEC on February 4, 2019. 5, 2020. |
2020 Proxy Statement EQUITY C73
Table of Contents Security Ownership OMPENSATION PLAN INFORMATIONEquity Compensation Plan Information
The following table provides information as of December 31, 2018,2019, regarding Common Stock that may be issued under our equity compensation plans. | | | | | | | | | | (A) | | (B) | | (C) | | | | | PLANCATEGORY | | NUMBER OF SECURITIES TO BE
ISSUEDUPONTHEEXERCISE
OFOUTSTANDINGOPTIONS,
WARRANTSANDRIGHTS | | WEIGHTED-AVERAGE
EXERCISEPRICEOF
OUTSTANDING OPTIONS,
WARRANTS AND RIGHTS | | NUMBER OF SECURITIES REMAINING
AVAILABLEFORFUTUREISSUANCE
UNDER EQUITY COMPENSATION PLANS
(EXCLUDING SECURITIES REFLECTED IN
COLUMN (A)) | | | | | Equity compensation plans approved by shareholders | | 11,594,984 (a) | | $143.43 (b) | | 27,499,790 | | | | | Equity compensation plans not approved by shareholders | | — | | — | | — | | | | | Total | | 11,594,984 | | $143.43 | | 27,499,790 |
| | (A) | | (B) | | (C) | | Plan Category | | Number of Securities
to be Issued Upon the
Exercise of Outstanding
Options, Warrants
and Rights | | Weighted-Average
Exercise Price
of Outstanding
Options, Warrants
and Rights | | Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation Plans
(Excluding Securities Reflected
in Column (A)) | | Equity compensation plans approved | | 10,619,715 | (a) | | $ | 161.54 | (b) | | 25,631,368 | | by shareholders | | | | | | | | | | | Equity compensation plans not approved | | — | | | | — | | | — | | by shareholders | | | | | | | | | | | Total | | 10,619,715 | | | $ | 161.54 | | | 25,631,368 |
| (a) | Includes 10,765,1959,767,749 stock options, 38,35451,082 shares issuable upon vesting of restricted stock units (including dividend equivalents thereon) (RSUs), and 763,302785,734 shares issuable upon vesting of PSUs (assuming achievement at the maximum payout and including dividend equivalents thereon); and 28,13315,150 shares of the company’s Common Stock issuable upon vesting of restricted stock units subject to terms and conditions in equity compensation plans assumed by the company in connection with the acquisition of CSRA Inc. in 2018 (Converted CSRA RSUs). No additional awards or grants may be made under those CSRA plans. |
| (b) | RSUs, PSUs and Converted CSRA RSUs do not have an exercise price and, therefore, are not taken into consideration in calculating the weighted average exercise price. |
74General Dynamics 2019 Proxy Statement 59
Table of ContentsAPPROVALOFTHE GENERAL DYNAMICS UNITED KINGDOM SHARE SAVE PLAN Shareholder Proposal – Special Shareholder Meetings
(PROPOSAL 4)
We currently have in place a Share Save Plan (the Prior U.K. Plan) approved by our shareholders in May 2009. The Prior U.K. Plan expires in March 2019. As a result, in February 2019, the Compensation Committee recommended, and the Board of Directors approved, the amended and restated General Dynamics United Kingdom Share Save Plan (the 2019 U.K. Plan) on terms substantially similar to the Prior U.K. Plan and recommended submission of the 2019 U.K. Plan to shareholders for their approval. The purpose of the 2019 U.K. Plan is to continue to provide our employees in the United Kingdom the opportunity to acquire an ownership position in General Dynamics and more closely align their interests with the interests of our shareholders.
If the shareholders approve the 2019 U.K. Plan, no new options will be granted under the Prior U.K. Plan. Any options previously granted under the Prior U.K. Plan will remain outstanding and will, among other things, continue to be exercisable in accordance with their original terms and conditions.
The 2019 U.K. Plan is being submitted to shareholders for approval. Your Board of Directors believes it is in the best interests of General Dynamics and its shareholders to approve the 2019 U.K. Plan.
SUMMARYOFTHE PLAN
The principal features of the 2019 U.K. Plan are summarized below. The summary may not contain all information that is important to you. The complete text of the 2019 U.K. Plan is set forth as Appendix B to this Proxy Statement.
Plan Administration. The 2019 U.K. Plan is administered by the Compensation Committee.
Eligibility. Participation in the 2019 U.K. Plan may be extended to our eligible employees in the United Kingdom. There are approximately 1,450 employees eligible to participate in this plan. Currently, this plan does not benefit any NEO or other executive officer or director of General Dynamics.
Shares Subject to the Plan. The 2019 U.K. Plan provides that 450,000 shares of Common Stock will be available for issuance under the plan.
Benefits. Under the 2019 U.K. Plan, a participant is invited to invest a designated amount in a savings account each month and receive a correspondingtax-free bonus payment. The bonus payment is set at the outset of a participant’s savings contract. The participant may be granted an option to purchase a specified number of shares of Common Stock at an exercise price not less than 80 percent of the fair market value of Common Stock as of the later of the date on which the participant is invited to participate in the 2019 U.K. Plan, or the date on which the participant is notified of the exercise price. In practice, the exercise price has historically been set at 85 percent of the fair market value. We may grant options that can be exercised three or five years after the date of the grant. The participant may exercise his or her options but can only purchase the Common Stock with the proceeds of his or her savings account (including thetax-free bonus). Alternatively, the participant may elect to take the proceeds of his or her savings contract in cash or choose to exercise only part of the option and receive the rest in cash. Benefits under the 2019 U.K. Plan depend on the participant’s election to participate and the fair market value of the Common Stock at various future dates. As a result, it is not possible to determine future benefits that will be received by participants.
Amendment and Termination. The Compensation Committee may amend the 2019 U.K. Plan. The 2019 U.K. Plan will terminate on the 10th anniversary of the date of adoption, or earlier by resolution of the Compensation Committee.
Tax Consequences of Awards. Under U.K. law, no income tax is due upon receipt of an option to purchase Common Stock under the 2019 U.K. Plan. Further, no income tax is due upon the exercise of the option by a participant unless the option is exercised within three years of its date of grant for reasons other than the death, injury, disability, layoff or retirement of the participant. If any
60 General Dynamics 2019 Proxy Statement
UK Share Save Plan
income tax liability does arise, it will be based on the fair market value of the shares less the exercise price. If a participant exercises an option to purchase Common Stock and then sells the Common Stock, capital gains tax may be due on the proceeds of the sale. Under U.K. law, however, a certain amount of capital gains are excludable from taxable income each year. The bonus payments aretax-free, but early termination of the savings contract will lead to the savings being either subject to tax or interest or there will be no return on the savings. Under U.K. law, we will be able to deduct the costs of establishing the 2019 U.K. Plan.
YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE
FOR
THISPROPOSAL.
General Dynamics 2019 Proxy Statement 61
SHAREHOLDER PROPOSAL – INDEPENDENT BOARD CHAIRMAN
(PROPOSAL 5)
PROPOSAL 4 SHAREHOLDER PROPOSAL – SPECIAL SHAREHOLDER MEETINGS |
We have been advised by John Chevedden, 2215 Nelson Ave., No. 205, Redondo Beach, California 92078,90278, owner of at least 10050 shares of Common Stock, that he intends to present the following shareholder proposal at the Annual Meeting. We are not responsible for the accuracy or content of the proposal and supporting statement, presented below, as received from the proponent. Our reasons for opposing the proposal are also presented below. PROPOSALAND SUPPORTING STATEMENTProposal and Supporting Statement
Proposal 54 – Independent Board ChairmanMake Shareholder Right to Call Special Meeting More Accessible Shareholders requestResolved, Shareowners ask our Board of Directorsboard to adopt as policy, andtake the steps necessary to amend our bylaws and each appropriate governing documents as necessary,document to require henceforth thatgive the Chairowners of a total of 15% of our outstanding common stock the Board of Directors, whenever possible,power to be an independent member of the Board. The Board would have the discretion to phase in this policy for the next Chief Executive Officer transition, implemented so itcall a special shareowner meeting. This proposal does not violate any existing agreement.impact our board’s current power to call a special meeting.
IfTo address the Board determinesobjection of a number of companies that a Chairman, who was independent when selected is no longer independent,lower stock ownership threshold could allow one shareholder to call a special meeting, adoption of this proposal topic could include a provision that a 20% stock ownership threshold would apply if a single shareholder calling for a special meeting owned 10% or more of General Dynamics stock.
Special shareholder meetings allow shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. A more accessible ability of shareholders to call a special meeting could give shareholders greater standing to improve the Board shall select a new Chairman who satisfies the requirementscomposition of the policy within a reasonable amountour board of time. Compliance with this policy is waived if no independent director is available and willing to serve as Chairman. This proposal requests that all the necessary steps be taken to accomplish the above. Caterpillar is an example of a company changing course and naming an independent board chairman. Caterpillar had opposed a shareholder proposal for an independent board chairman at its annual meeting. Wells Fargo also changed course and named an independent board chairman.
It is especially important to have an independent board chairman when our Lead Director lacks independence.directors. For instance, James Crown was Lead Director in spite of31-years long-tenure. Long-tenure 32-years long-tenure and Mr. Crown received the highest negative votes of any GD director in 2019. Independence can impairbe the most important attribute in a Lead Director. Ironically Mr. Crown also chairs the Nomination/Governance Committee which considers the merits of this proposal. Mr. Crown is also on 2 other important board committees.
This proposal received 40%-support at General Dynamics in 2018 in spite of Mr. Crown’s opposition to it. This 40%-support would have been majority support if our management had simply allowed shareholders to make up their own minds. The current ownership threshold of 25% can mean that more than 50% of shareholders must be contacted during the prescribed short window of time to simply call a special meeting. Plus many shareholders, who are convinced that a special meeting should be called, can make a small paperwork error that will disqualify them from counting toward the 25 ownership threshold that is needed for a special meeting. Any claim that a shareholder right to call a special meeting can be costly – may be moot. When shareholders have a good reason to call a special meeting – our board should be able to take positive responding action to make a special meeting unnecessary. Making the right to call a special meeting more accessible to shareholders is showing increased support. For instance this proposal topic won 51%-support at O’Reilly Automotive, Inc. (ORLY) in 2019 – up form [sic] 41%-support in 2018. Please vote yes: Make Shareholder Right to Call Special Meeting More Accessible – Proposal 4 2020 Proxy Statement 75
Table of Contents Shareholder Proposal Statement by Your Board of Directors against the Shareholder Proposal This proposal seeks to amend our company’s current special shareholder meeting right. Our current Bylaws provide that your Board will call a special meeting upon the written request of the following: 〉a single stockholder holding 10% of our outstanding Common Stock, or 〉one or more stockholders holding 25% of our outstanding stock, without any material restrictions. Given the company’s current shareholder base, shareholders have the ability to call a special meeting at both thresholds. Your Board understands the importance that the right to call a special meeting can provide to the company’s shareholders, but also acknowledges that reasonable provisions must be in place so that the right serves its purpose without a risk of misuse. The proposal requests that the threshold for calling a special shareholder meeting be set at 15% of the outstanding common stock. Your Board of Directors has considered this proposal and believes its adoption is redundant as our existing special meeting bylaw strikes an appropriate balance between the right of shareholders to call a special meeting and the interests of our company and shareholders in promoting the appropriate use of corporate funds and resources. Your Board proposes the following responses to the proponent’s letter: Appropriate Threshold for Special Meetings 〉The Board has concluded that a 15% threshold is too low for a group of investors to call a special meeting and that our current requirement is reasonable and appropriate for our company at this time, particularly when a single shareholder owning 10% can call a meeting under our current structure. In our recent engagement with a majority of our shareholders, we have continued to solicit input on this topic. While some shareholders support lower thresholds, most have conveyed support for levels that are in line with our current provision. Importantly, a 25% threshold is the most prevalent level among General Dynamics’ peers, as well as S&P 500 companies. In fact, the majority of General Dynamics’ peers have this threshold in place. In addition, 37% of S&P 500 companies require a 25% ownership threshold, as compared to only 8% for the 15% level (source: SharkRepellent as of July 1, 2019). Moreover, General Dynamics’ current special shareholder meeting provision not only matches the prevalent practice but goes further by granting a single 10% shareholder the right to call a special meeting. Director Independence 〉As has become the proponent’s perennial custom, rather than focusing on the actual merits of special meeting rights for shareholders, the proponent engages in a diatribe that confuses director tenure with director independence. His assertion that James Crown lacks independence is without merit and without basis in applicable rules or regulations. Further, it is directly contradictory to the Board’s reasoned judgment of Mr. Crown’s independence. Your Board strongly objects to the proponent’s suggestion that the independence of a director no matter how well qualified. Independence is anall-important qualification for a Lead Director.board member may be impaired merely because of length of service. We believe that the tenure of directors like Mr. Crown also had an oversized influence since he chaireddemonstrates strong commitment to our nomination committee and was on our executive pay and audit committees. The shareholder approval of General Dynamic’s executive pay dropped precipitously from 97% in 2017 to 68% in 2018 – apparently not helped by Mr. Crown’s oversight as a member of the executive pay committee. Plus we had 2 directors who came from the same military culture that emphasizes following orders. Retired military could be consultants instead of directors.
Meanwhile there are challenges that face our company that need to be managed well and prevented from reoccurring that could be helped by having an independent chairman to run the Board of Directors and address the above director issues while our CEO focuses onday-to-day challenges like these:
Complaint over alleged misclassification and underpayment of call center employees – General Dynamics Information Technology Inc.
July 2018
Criticisms over alleged role in controversial U.S. family separation policy
June 2018
Elimination ofchange-of-control excise taxgross-up in severance agreement of Phebe Novakovic – Chairman and CEO
October 2016
An independent Chairman is best positioned to build up the oversight capabilities of our directors while our CEO addresses the challengingday-to-day issues facing the company. The roles of Chairman of the Board and CEO are fundamentally different and should not be held by the same person. There should be a clear division of responsibilities between these positions to insure a balance of power and authority on the Board.
Please vote yes:
Independent Board Chairman – Proposal 5
62 General Dynamics 2019 Proxy Statement
Shareholder Proposal
STATEMENTBYYOUR BOARDOF DIRECTORS AGAINSTTHE SHAREHOLDER PROPOSAL
Your Board of Directors unanimously recommends a vote AGAINST this proposal. The Board believes that our shareholders’ interests are best served when we retain the ability to select the appropriate person to serve in the chairman’s role and that our current leadership structure is effective in its independent oversight of General Dynamics. Additionally, instead of confining discussion to the actual topic of board leadership structure, the proponent resorts to baseless, irrelevant and impertinent invective that redefines the proposal as a vote on ancillary points and not the core governance topic. This calumny should be rejected with a vote against the proposal.
Our Robust Lead Independent Director Role Provides Meaningful Independent Leadership and Oversight at the Board Level. Among the several shareholder protections in the company’s corporate governance structure is a robust and clearly defined independent Lead Director role. Elected annually, the independent Lead Director’s authority and responsibilities include the following:
Acts as chair at board meetings when the chairman is not present, including meetings of thenon-management directors;
Has the authority to call meetings of thenon-management directors;
Coordinates activities of thenon-management directors and serves as a liaison between the chairman and thenon-management directors;
Works with the chairman to develop and agree to meeting schedules and agendas, and agree to the nature of the information that will be provided to directors in advance of meetings; and
Is available for consultation and communication with significant shareholders, when appropriate.
Our current independent Lead Director, James Crown, performs each of the substantive responsibilities outlined above as well as the following additional duties:
Meets regularly with our chief executive officer to delve deeply into matters of interest to the Board, to provide feedback on past Board meetings and to seek specific information for future Board meetings;
Consults regularly with Board members, particularly thenon-management directors, to ensure strong communication among each Board member; and
Leads, as chairman of the Nominating and Corporate Governance Committee, the Board’s annual self-evaluation process.
Our Current Approach Allows the Board to Select the Most Appropriate Leadership Structure and Leaders for General Dynamics. The current policy on election of the Board’s chairman, consistent with the company’s Bylaws, is simple – the Board elects the best person to lead the Board in its mission to represent the interests of shareholders.
While our current chairman is also the chief executive officer, that arrangement is simply a reflection of the Board’s view that Phebe Novakovic is the right person for those roles currently, and that the company and its shareholders, would not be well served by splittingproviding your Board with valuable insight into the roles at this time.
General Dynamics’ Corporate Governance Guidelines provide thatlong-term business cycles and the complex operations of our company. Also, your Board will adopt a leadership structure that best servesreviews the independence of each director annually to confirm compliance with the company’s needs at any particular time,Director Independence Guidelines and that such arrangement could involve either the separate or combined roles of chairman and chief executive officer.
Accordingly, as part of the selection process each year the Board considers whether the roles should be separated and whether the company and its shareholders are best served by the individual(s) serving the role(s).
Our Strong Corporate Governance Practices Ensure Management Accountability and Provide Effective Independent Oversight of General Dynamics. In addition to the strong role and significant responsibilities of our independent Lead Director, the Board has in place many other mechanisms to ensure management accountability and a balanced governance structure:
The Board’s four standing committees are each chaired by independent directors and are 100% independent.
The Board’snon-management directors meet in executive session without management present at every Board meeting.
General Dynamics 2019 Proxy Statement 63
Shareholder Proposal
All directors, except the current chief executive officer, meet the independence requirementsrules of the New York Stock Exchange Listing StandardsExchange. Mr. Crown, who is affiliated with our largest shareholder and regularly engages with some of our largest shareholders, serves as our independent lead director, providing an important, shareholder-aligned voice on our Board. To balance long-tenure in the company’s Corporate Governance Guidelines.
board room, your Board maintains strong refreshment, with six new independent directors having been appointed over the last four years.76 General Dynamics
Table of Contents Shareholder Proposal Prior Shareholder Vote Rejecting a Lower Threshold 〉The full Board and each committee have authorityproponent references the vote outcome of this same topic submitted by him in 2018. At that time, our shareholders rejected the proposal with 59% votes cast against the proposal. The proponent’s claim that shareholders were not allowed to retain“make up their own independent outside legal, financial or other advisors,minds” is baseless as the members deem necessary.proposal was on our proxy ballot for a shareholder vote in 2018, and his assertion that the proposal would have passed under his proposed circumstances is factually inaccurate. Our Provisions Comply with Applicable Laws and Regulations and Are Not Onerous The full〉Your Board participates in performance managementfollows standard guidelines established by applicable laws and assessment of both senior managementregulations and itself.
Our shareholders enjoy strong shareholder rights, includingallows for sufficient time for the right to request a special meeting of shareholders and proxy access (the abilityrequest to nominate director candidates, and have those nominees included in our proxy statement).
The Corporate Governance Concerns Raised by the Proponent are Unfounded and Do Not Accurately Reflect the Company’s Leadership and Governance Practices.
First, the proponent asserts that our independent Lead Director “lacks independence” because of his substantial tenure on the Board. Mr. Crown is independent under all applicable independence standards and has continuously received very strong support from shareholders in his annual election to the Board. Additionally, Mr. Crown’s tenure and experience enable him to bring valuable and independent views to the boardroom, where he provides thoughtful leadership for both fellow directors and senior management.
Second, for the second yearbe conducted effectively. Any “small paperwork error” could be corrected in a rowtimely manner and, thus, shareholders would be allowed sufficient time to process the proponent suggests that he takes objection to anyone with a military background serving as a director. Directors with prior military service provide our Board with an unparalleled understanding of the requirementsrequest.
Shareholder Meetings ARE Costly 〉Special meetings are expensive, time-consuming and priorities of several of the company’s key customers. With the U.S. Government representing on average 60 percent of our revenues over the past several years, intimacy with our customer’s prioritiesrequire significant management attention and demands is critical. Our directors with prior military service play an irreplaceable roleshould occur only in advising our businesses on how to ensure that our products and services remain effective and responsive to our customers in supporting national security and defense programs. Furthermore, these directors are actively engaged in the Board’s deliberations and each exercises his own independent judgment in fulfilling fiduciary duties and maximizing shareholder value. Additionally, the proponent invokes three entirely irrelevant topics labeled as company challenges. A proposal concerning Board leadership structure should not be an avenue for debating unrelated issues. There is no demonstrable or intuitive link between the items listed by the proponent and the Board’s leadership structure. Two of the items invoked by the proponent, without a full discussion of the issues concerned, are misleading and, in the case of the call center business, relates to a business that is no longer owned by the company. The third item, regarding the company’s elimination of excise taxgross-up payments, is unquestionably favorable to shareholders and cannot logically be criticized as evidencing a problem with the Board’s governance.
Conclusion: Our Current Structure of a Combined Chief Executive Officer and Chairman with a Strong Lead Independent Director Enhance Your Board’s Ability to Govern the Company in Shareholders’ Best Interests.
Yourextraordinary circumstances. Accordingly, your Board believes that the decisionexpenditure of whocorporate funds and resources associated with a special meeting should serveonly be incurred when shareholders meet an appropriate, meaningful threshold of ownership interest in the roles of chairman and chief executive officer, and whether these roles should be combined,our company, which is the responsibility of the Board. This decision is not appropriately addressed with a“one-size-fits-all” approach that assumeswhy our current special meeting bylaw requires a single leadership structure works10% shareholder or group of shareholders owning at all times.
least 25% to call a special meeting.Your Board regularly evaluatesFor the corporate governance structures in place at our company, including the roles of chairman and chief executive officer.
While the Board has in the past and may again in the future determinereasons stated above, we believe that the interests ofcompany’s current Bylaw provision granting shareholders the company would be best served by separating the roles of chairman and chief executive officer, the Board believes that, on balance,ability to call a combined role works best at this time.
Your Board will continue to evaluate these structures to determinespecial meeting provides the appropriate board leadership structure forright to ensure that shareholders have a meaningful avenue to vote on important matters.
 | Your Board of Directors unanimously recommends a voteAGAINST this shareholder proposal. |
2020 Proxy Statement 77
Table of Contents Information Regarding the company. This model best serves our dynamicAnnual Meeting and successful company. YOUR BOARDOF DIRECTORSUNANIMOUSLYRECOMMENDSAVOTE
AGAINSTTHISSHAREHOLDERPROPOSAL.
64 General Dynamics 2019 Proxy Statement
INFORMATION REGARDINGTHE ANNUAL MEETINGAND VOTINGVoting
All shareholders of record at the close of business on March 7, 2019,9, 2020, are entitled to vote their shares of Common Stock at the Annual Meeting. On the record date, General Dynamics had 288,769,918290,212,900 shares of Common Stock issued and outstanding. Following are questions and answers about the annual meeting and voting. ANNUAL MEETING ATTENDANCEAnnual Meeting Attendance
Will I need to provide documentation to attend the Annual Meeting?Yes. All shareholders will need an admission ticket and personal photo identification for admission. You may print your own admission ticket and you must bring it to the meeting. Tickets can be printed by accessing Shareholder Meeting Registration at www.ProxyVote.com and following the instructions provided. If you are unable to print your tickets, please call Broadridge Financial Solutions, Inc. (Broadridge) at844-318-0137 toll-free or925-331-6070 international toll for assistance. How many shares must be present to hold the Annual Meeting?A quorum of shares must be present to hold the Annual Meeting. A quorum is the presence, in person or by proxy, of holders of a majority of the issued and outstanding shares of Common Stock as of the record date. If you submit a properly completed proxy in accordance with one of the voting procedures described below or appear at the Annual Meeting to vote in person, your shares of Common Stock will be considered present. For purposes of determining whether a quorum exists, abstentions and brokernon-votes (as described below) will be counted as present. Once a quorum is present, voting on specific proposals may proceed. In the absence of a quorum, the Annual Meeting may be adjourned. How are proxy materials being distributed for the Annual Meeting?As permitted by the rules of the SEC, we are providing the proxy materials for our 20192020 Annual Meeting via the Internet to most of our shareholders. Use of the Internet will expedite receipt of the 20192020 proxy materials by many of our shareholders and help to keep mailing costs for our Annual Meeting as low as possible. For shareholders who are participants in our 401(k) plans we are required generally to deliver proxy materials in hard copy. On March 21,26, we initiated delivery of proxy materials to our shareholders of record in one of two ways: (1) a notice containing instructions on how to access proxy materials via the Internet or (2) a printed copy of those materials. If you received a notice in lieu of a printed copy of the proxy materials, you will not automatically receive a printed copy of the proxy materials in the mail. Instead, the notice provides instructions on how to access the proxy materials on the Internet and how to vote online or by telephone. If you received such a notice and would also like to receive a printed copy of the proxy materials, the notice includes instructions on how you may request a printed copy. VOTINGVoting
Who is entitled to vote at the Annual Meeting?You must be a shareholder of record on the record date, which is March 7, 2019,9, 2020, to vote your shares at the Annual Meeting. How do I vote my shares?How you vote your shares will depend on whether you are a shareholder of record or a beneficial owner of your shares. Shareholders of record.Each shareholder of record is entitled to one vote on all matters presented at the Annual Meeting for each share of Common Stock held. You are considered a shareholder of record if your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., as of the record date. If you are a shareholder of record, Broadridge provides proxy materials to you on our behalf. If your shares are registered in different names or held in more than one account, you may receive more than one proxy card or set of voting instructions. In that case, you will need to vote separately for each set of shares in accordance with the following voting procedures. 78 General Dynamics
Table of Contents Information Regarding the Annual Meeting and Voting Shareholders of record may cast their vote in one of the following ways: | | | | You May Cast Your Vote: | | | YOU MAY CAST YOUR VOTE:By Internet: | | | By Internet:
| | access www.ProxyVote.com and follow the instructions | | | By Telephone: | | call1-800-690-6903 and follow the instructions | | | By Mail: | | sign and date each proxy card received and return each card using the prepaid postage envelope | | | In Person: | | attend the Annual Meeting and vote by ballot | | |
General Dynamics 2019 Proxy Statement 65
Annual Meeting Information
The telephone and Internet voting systems are available 24 hours a day. They will close at 11:59 p.m. eastern time on April 30, 2019.May 5, 2020. Please note the voting deadline differs for participants in our 401(k) plans, as described below. All shares represented by properly executed, completed and unrevoked proxies that are received on time will be voted at the Annual Meeting in accordance with the specifications made in the proxy card. | | If You Return A Signed Proxy Card But Do Not Specifically Direct The Voting Of Shares, Your Proxy Will Be Voted As Follows: | | | | | IF YOU RETURN A SIGNED PROXY CARD BUT DO NOT SPECIFICALLY DIRECT THE VOTING
OF SHARES, YOUR PROXY WILL BE VOTED AS FOLLOWS:FOR | | | FORthe election of directors as described in this Proxy Statement | | | FORthe selection, on an advisory basis, of KPMG LLP as the independent auditors of the company | | | FORthe approval, on an advisory basis, of the compensation of the named executive officers | | | FORAGAINST the approval of the General Dynamics United Kingdom Share Save Plan | | | AGAINSTthe shareholder proposal | | | IN ACCORDANCE WITHthe judgment of the proxy holders for other matters that properly come before the Annual Meeting |
Beneficial Owners.If your shares are held by a bank, broker or other holder of record (sometimes referred to as holding shares in “street name”), the bank, broker or other holder is the shareholder of record and you are the beneficial owner of those shares. Your bank, broker or other holder of record will forward the proxy materials to you. As the beneficial owner, you have the right to direct the voting of your shares by following the voting instructions provided with these proxy materials. Please refer to the proxy materials forwarded by your bank, broker or other holder of record to see which voting options are available to you. 401(k) Plan Participants.Fidelity Management Trust Company (Fidelity), as trustee, is the holder of record of the shares of Common Stock held in our 401(k) plans – the General Dynamics Corporation 401(k) Plan and the General Dynamics Corporation 401(k) Plan for Represented Employees. If you are a participant in one of these plans and in the fund that invests in shares of Common Stock, you are the beneficial owner of the shares of Common Stock credited to your plan account. As beneficial owner and named fiduciary, you have the right to instruct Fidelity, as plan trustee, how to vote your shares. If you do not provide Fidelity with timely voting instructions then, consistent with the terms of the plans, Newport Trust Company (Newport), will direct Fidelity, in Newport’s discretion, how to vote the shares. Newport serves as the independent fiduciary and investment manager for the General Dynamics Stock Fund of the 401(k) plans. Broadridge provides proxy materials to participants in these plans on behalf of Fidelity. If you are a plan participant and also a shareholder of record, Broadridge may combine the shares registered directly in your name and the shares credited to your 401(k) plan account onto one proxy card. If Broadridge does not combine your shares, you will receive more than one set of proxy materials. In that case, you will need to submit a vote for each set of shares. The vote you submit via proxy card or the telephone or Internet voting systems will serve as your voting instructions to Fidelity.To allow sufficient time for Fidelity to vote your 401(k) plan shares, your vote, or anyre-vote, must be received by 9:00 a.m. eastern time on April 29, 2019.May 4, 2020. Can I change or revoke my proxy vote?A shareholder of record may change or revoke a proxy at any time before it is voted at the Annual Meeting by: | | A Proxy May Be Revoked By: | | | | | A PROXY MAY BE REVOKED BY:Sending | | | Sendingwritten notice of revocation to our Corporate Secretary
| | | Submittinganother proxy card that is dated later than the original proxy card | | | Re-votingby using the telephone or Internet voting systems, or | | | Attendingthe Annual Meeting and voting by ballot (attendance at the Annual Meeting alone will not act to revoke a prior proxy). |
2020 Proxy Statement 79
Table of Contents Information Regarding the Annual Meeting and Voting Our Corporate Secretary must receive notice of revocation, or a subsequent proxy card, before the vote at the Annual Meeting for a revocation to be valid. Except as described above for participants in our 401(k) plans, are-vote by the telephone or Internet voting systems must occur before 11:59 p.m. eastern time on April 30, 2019.May 5, 2020. If you are a beneficial owner, you must revoke your proxy through the appropriate bank, broker or other holder of record. 66 General Dynamics 2019 Proxy Statement
Annual Meeting Information
VOTE REQUIREDVote Required
What is a brokernon-vote?A brokernon-vote occurs when a bank, broker or other holder of record holding shares for a beneficial owner does not vote on a particular proposal because that holder does not have discretionary voting power for the proposal and has not received voting instructions from the beneficial owner. Banks, brokers and other holders of record have discretionary authority to vote shares without instructions from beneficial owners only on matters considered “routine” by the New York Stock Exchange, such as the advisory vote on the selection of the independent auditors. Onnon-routine matters, such as the election of directors, executive compensation matters approval of an equity compensation plan and the shareholder proposal, these banks, brokers and other holders of record do not have discretion to vote uninstructed shares and thus are not “entitled to vote” on such proposals, resulting in a brokernon-vote for those shares. We encourage all shareholders that hold shares through a bank, broker or other holder of record to provide voting instructions to those holders to ensure that their shares are voted at the Annual Meeting. What is the vote required for each proposal, and what is the effect of an abstention or brokernon-vote on the voting? | | Vote Requirements and the Effect of Abstentions or Broker Non-Votes | | Proposal | | Voting Standard | | | | Effect of Abstentions and Broker Non-Votes | VOTE REQUIREMENTSAND
THE EFFECTOF ABSTENTIONSOR BROKER NON-VOTES | PROPOSAL | | VOTING STANDARD | | | | EFFECTOF ABSTENTIONSAND
BROKERNON-VOTES
| | | | | | | | Proposal 1:
Election of the Board of
Directors of the Company | | Directors will be elected by a majority of the votes cast and entitled to vote at the Annual Meeting. A “majority of the votes cast” means the number of votes cast “for” a director’s election exceeds the number of votes cast “against” that director’s election. You may vote for, vote against or abstain from voting for any or all nominees. | | | | Abstentions and brokernon-votes will not be counted as a vote cast “for” or “against” a director’s election. | | | | | | | | Proposal 2:
Advisory Vote on the
Selection of Independent Auditors | | This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter. | | | | Abstentions will have the effect of a vote against this proposal. Brokernon-votes do not occur for this proposal because banks, brokers and other holders of record have authority under the New York Stock Exchange rules to vote in their discretion on the selection of independent auditors. | | | | | | | | Proposal 3: Advisory Vote to Approve Executive Compensation | | This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter. | | | | Abstentions will have the effect of a vote against the proposal. Brokernon-votes will have no effect on the proposal. | | | | | | | | Proposal 4: Approval of the General
Dynamics United Kingdom
Share Save Plan
Shareholder Proposal | | This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter. | | | | Abstentions will have the effect of a vote against the proposal. Brokernon-votes will have no effect on the proposal. | | | | | | | | Proposal 5:
Shareholder Proposal
| | This proposal requires an affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote at the Annual Meeting to be approved. You may vote for, vote against or abstain from voting on this matter.
| | | | Abstentions will have the effect of a vote against the proposal. Brokernon-votes will have no effect on the proposal.
| | |
Who will count the votes?Representatives of American Election Services, LLC, will tabulate the vote at the Annual Meeting. 80 General Dynamics
Table of Contents Information Regarding the Annual Meeting and Voting Who is soliciting votes for the Annual Meeting?The Board of Directors is soliciting proxies from shareholders. Directors, officers and other employees of General Dynamics may solicit proxies from our shareholders by mail,e-mail, telephone, facsimile or in person. In addition, Innisfree M&A Incorporated (Innisfree), 501 Madison Avenue, New York, New York, is soliciting brokerage firms, dealers, banks, voting trustees and their nominees. We will pay Innisfree approximately $15,000 for soliciting proxies for the Annual Meeting and will reimburse brokerage firms, dealers, banks, voting trustees, their nominees and other record holders for theirout-of-pocket expenses in forwarding proxy materials to the beneficial owners of Common Stock. We will not provide compensation, other than their usual compensation, to our directors, officers and other employees who solicit proxies. General Dynamics 20192020 Proxy Statement 6781
Table of ContentsOTHER INFORMATION ADDITIONAL SHAREHOLDER MATTERS Other Information
Additional Shareholder Matters If any other matters properly come before the Annual Meeting, the individuals named in the proxy card will have discretionary authority to vote the shares they represent on those matters, except to the extent their discretion may be limited under Rule14a-4(c) of the Exchange Act. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEDelinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our officers and directors, as well as anyone who is a beneficial owner of more than 10 percent10% of a registered class of our stock, to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the SEC and the New York Stock Exchange, and to furnish us with copies of these forms.Exchange. To our knowledge, based solely on a review of the copies of Forms 3, 4 and 5 submitted to us,that are publicly available on the SEC’s EDGAR filing system, all of our executive officers and directors complied with all filing requirements imposed by Section 16(a) of the Exchange Act during 2018.2019, except that Mr. Mattis, Kevin Graney and Robert Smith each filed one untimely report on Form 4. SHAREHOLDER PROPOSALSAND DIRECTOR NOMINEESFOR 2020 ANNUAL MEETINGOF SHAREHOLDERSShareholder Proposals and Director Nominees For 2021 Annual Meeting of Shareholders
If you wish to submit a proposal for inclusion in our proxy materials to be distributed in connection with the 20202021 annual meeting, your written proposal must comply with the rules of the SEC and be received by us no later than November 22, 2019.26, 2020. The proposal should be sent to the Corporate Secretary, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church,11011 Sunset Hills Road, Reston, Virginia 22042.20190. If you intend to present a proposal at the 20202021 annual meeting that is not to be included in our proxy materials, including director nominations, you must comply with the various requirements established in our Bylaws. Among other things, the Bylaws require that a shareholder submit a written notice to our Corporate Secretary at the address in the preceding paragraph no earlier than January 2, 2020,6, 2021, and no later than February 1, 2020.5, 2021. In addition, our Bylaws permit a shareholder or a group of up to 20 shareholders who have owned 3 percent3% or more of our outstanding shares of capital stock continuously for three years to submit director nominees for inclusion in our proxy statement if the shareholder(s) and nominee(s) satisfy the requirements specified in our Bylaws. These requirements can be found in Article II, Section 10 of our Bylaws, and include the requirement that the applicable notice be received by the company no earlier than October 23, 2019,27, 2020, and no later than November 22, 2019.26, 2020. ANNUAL REPORTON FORMAnnual Report on Form 10-K
The Annual Report, which includes our Form10-K and accompanies this Proxy Statement, is not considered a part of the proxy solicitation material. We will furnish to any shareholder, without charge, a copy of our 20182019 Annual Report, as filed with the SEC. A request for the report can be made verbally or in writing to Investor Relations, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church,11011 Sunset Hills Road, Reston, Virginia 22042,20190, (703)876-3000 or through our website. The Form10-K and other public filings are also available through the SEC’s website at www.sec.gov and on our website at www.gd.com/SECFilings. DELIVERYOF DOCUMENTSTO SHAREHOLDERS SHARINGAN ADDRESSDelivery of Documents to Shareholders Sharing an Address
We will deliver only one Annual Report and Proxy Statement to shareholders who share a single address unless we have received contrary instructions from any shareholder at the address. In that case, we will deliver promptly a separate copy of the Annual Report and Proxy Statement. For future deliveries, shareholders who share a single address can request a separate copy of our Annual Report and Proxy Statement. Similarly, if multiple copies of the Annual Report and Proxy Statement are being delivered to a single address, shareholders can request a single copy of the Annual Report and Proxy Statement for future deliveries. To make a request, please call703-876-3000 or write to the Corporate Secretary, General Dynamics Corporation, 2941 Fairview Park Drive, Suite 100, Falls Church,11011 Sunset Hills Road, Reston, Virginia 22042.20190. 68 82 General Dynamics 2019 Proxy Statement
APPENDIX A
USEOF NON-GAAP FINANCIAL MEASURESTable of Contents
Appendix A: Use of Non-GAAP Financial Measures (DOLLARSINMILLIONS) MILLIONS) This Proxy Statement containsnon-GAAP financial measures, as defined by Regulation G of the SEC. We emphasize the efficient conversion of net earnings into cash and the deployment of that cash to maximize shareholder returns. As described below, we use free cash flow from operations and ROIC to measure our performance in these areas. While we believe these metrics provide useful information, they are not defined operating measures under U.S. generally accepted accounting principles (GAAP), and there are limitations associated with their use. Our calculation of these metrics may not be completely comparable to similarly titled measures of other companies due to potential differences in the method of calculation. As a result, the use of these metrics should not be considered in isolation from, or as a substitute for, other GAAP measures. Free Cash Flow.We define free cash flow from operations as net cash provided by operating activities less capital expenditures. We believe free cash flow from operations is a useful measure for investors because it portrays our ability to generate cash from our businesses for purposes such as repaying maturing debt, funding business acquisitions, repurchasing our Common Stock and paying dividends. We use free cash flow from operations to assess the quality of our earnings and as a performance measure in evaluating management. The following table reconciles the free cash flow from operations with net cash provided by operating activities: | Year Ended December 31 | | | 2018 | | | | 2017 | | | | 2016 | �� | | 2019 | | | 2018 | | | 2017 | | Net cash provided by operating activities | | $ | 3,148 | | | $ | 3,876 | | | $ | 2,163 | | | $ | 2,981 | | $ | 3,148 | | $ | 3,876 | | Capital expenditures | | | (690 | ) | | | (428 | ) | | | (392 | ) | | (987 | ) | | | (690 | ) | | | (428 | ) | Free cash flow from operations | | $ | 2,458 | | | $ | 3,448 | | | $ | 1,771 | | | $ | 1,994 | | $ | 2,458 | | $ | 3,448 | |
Return on Invested Capital.We believe ROIC is a useful measure for investors because it reflects our ability to generate returns from the capital we have deployed in our operations. We use ROIC to evaluate investment decisions and as a performance measure in evaluating management. We define ROIC as net operating profit after taxes divided by average invested capital. Net operating profit after taxes is defined as earnings from continuing operations plusafter-tax interest and amortization expense, calculated using the statutory federal income tax rate. Average invested capital is defined as the sum of the average debt and shareholders’ equity excluding accumulated other comprehensive loss. ROIC excludes goodwill impairments andnon-economic accounting changes as they are not reflective of company performance. ROIC is calculated as follows: | Year Ended December 31 | | 2019 | | | 2018 | | | 2017 | | | Earnings from continuing operations | | $ | 3,484 | | | $ | 3,358 | | | $ | 2,912 | | | After-tax interest expense | | | 373 | | | | 295 | | | | 76 | | | After-tax amortization expense | | | 287 | | | | 258 | | | | 51 | | | Net operating profit after taxes | | $ | 4,144 | | | $ | 3,911 | | | $ | 3,039 | | | Average invested capital | | $ | 29,620 | | | $ | 25,367 | | | $ | 18,099 | | | Return on invested capital | | | 14.0 | % | | | 15.4 | % | | | 16.8 | % |
2020 Proxy Statement 83
Table of Contents Appendix A: Use of Non-GAAP Financial Measures | | | | | | | | | | | | | Year Ended December 31 | | | 2018 | | | | 2017 | | | | 2016 | | Earnings from continuing operations | | $ | 3,358 | | | $ | 2,912 | | | $ | 2,679 | | After-tax interest expense | | | 295 | | | | 76 | | | | 64 | | After-tax amortization expense | | | 213 | | | | 51 | | | | 57 | | Net operating profit after taxes | | $ | 3,866 | | | $ | 3,039 | | | $ | 2,800 | | Average invested capital | | $ | 25,367 | | | $ | 18,099 | | | $ | 17,168 | | Return on invested capital | | | 15.2 | % | | | 16.8 | % | | | 16.3 | % |
In evaluating the company’s ROIC performance for the 20162017 – 20182019 period, the Compensation Committee excluded the effects of the early 2018 CSRA acquisition since the acquisition was not contemplated at the time the target ROIC was set in 2016. Additionally, the calculation of 2016 ROIC for purposes of the PSU performance evaluation reflects ROIC as reported in the company’s Form10-K for the year ended December 31, 2016, as filed with the SEC on February 6, 2017, which did not include the effects of the company’s adoption of ASC Topic 606,Revenue from Contracts with Customers.2017. Accordingly, the following table shows the calculation of ROIC as used by the Compensation Committee in determining the appropriate ROIC performance over the three-year 20162017 – 2018 period.2019 period for an average of 17.6%. | Year Ended December 31 | | 2019 | | | 2018 | | | 2017 | | | Earnings from continuing operations | | $ | 3,477 | | | $ | 3,399 | | | $ | 2,912 | | | After-tax interest expense | | | 117 | | | | 104 | | | | 76 | | | After-tax amortization expense | | | 59 | | | | 64 | | | | 51 | | | Net operating profit after taxes | | $ | 3,653 | | | $ | 3,567 | | | $ | 3,039 | | | Average invested capital | | $ | 20,931 | | | $ | 19,328 | | | $ | 18,099 | | | Return on invested capital | | | 17.5 | % | | | 18.5 | % | | | 16.8 | % |
84 General Dynamics 2019 Proxy Statement A-1
Table of Contents
Appendix A
| | | | | | | | | | | | | Year Ended December 31 | | | 2018 | | | | 2017 | | | | 2016 | | Earnings from continuing operations | | $ | 3,399 | | | $ | 2,912 | | | $ | 3,062 | | After-tax interest expense | | | 104 | | | | 76 | | | | 64 | | After-tax amortization expense | | | 64 | | | | 51 | | | | 57 | | Net operating profit after taxes | | $ | 3,567 | | | $ | 3,039 | | | $ | 3,183 | | Average invested capital | | $ | 19,328 | | | $ | 18,099 | | | $ | 17,619 | | Return on invested capital | | | 18.5 | % | | | 16.8 | % | | | 18.1 | % |
A-2 General Dynamics 2019 Proxy Statement
Table of ContentsAPPENDIX B GENERAL DYNAMICS UNITED KINGDOM
SHARE SAVE PLAN
(as amended and restated on February 9, 2019)
HM Revenue and Customs Reference: SRS 104410
Adopted by the Company on March 4, 2009
Approved by HM Revenue and Customs on August 11, 2009
Renewed by the Company for a further ten year period from March 4, 2019 on February 9, 2019, incorporating, inter alia, (a) amendments that took effect automatically from July 17, 2013 by virtue of section 14 of and Schedule 2 to the Finance Act 2013 and (b) amendments that took effect automatically from April 6, 2014 by virtue of section 51 of and Schedule 8 to the Finance Act 2014
In these Rules the following words and expressions shall have, where the context so admits, the following meanings:
| | | | | | | | “Accounting Period”
| | —
| | an accounting reference period of the Company;
| | | | “Act”
| | —
| | the Income Tax (Earnings and Pensions) Act 2003;
| | | | “Acquiring Company”
| | —
| | where the conditions of paragraph 38 of Schedule 3 are met, such company as shall be at any time the “acquiring company” as defined in that paragraph;
| | | | “Adoption Date”
| | —
| | the date on which the Plan is adopted by a resolution of the Board;
| | | | “Announcement Date”
| | —
| | the date on which the results of the Company are announced for any period;
| | | | “Application”
| | —
| | an application for an Option in the form as approved by the Committee from time to time;
| | | | “Approval Date”
| | —
| | the date upon which HM Revenue and Customs approves the Plan;
| | | | “Associated Company”
| | —
| | has the same meaning as in paragraph 47 of Schedule 3;
| | | | “Auditors”
| | —
| | the auditors for the time being of the Company (acting as experts and not as arbitrators);
| | | | “Board”
| | —
| | the board of directors of the Company or a duly constituted committee thereof at which a quorum is present;
| | | | “Bonus Date”
| | —
| | where repayments under the relevant Savings Contract are taken as including the Maximum Bonus, the earliest date on which the Maximum Bonus is payable and in any other case the earliest date on which a bonus is payable under the relevant Savings Contract;
|
General Dynamics 2019 Proxy Statement B-1
Appendix B
| | | | | “Committee”
| | —
| | the Compensation Committee of the Board of Directors of the Company comprising two or more members of the Board of Directors, all of whom shall be“non-employee directors” or the Board of Directors of any Participating Company to which such authority is delegated by the Compensation Committee;
| | | | “Company”
| | —
| | General Dynamics Corporation or save for Rules 2, 3, 4, 5 and 10.2;
| | | | | | (i)
| | the Acquiring Company; or
| | | | | | (ii)
| | some other company falling withinsub-paragraph (b) orsub-paragraph (c) of paragraph 10 of Schedule 3 over whose shares a New Option has been granted;
| | | | “Common Stock”
| | —
| | General Dynamics Corporation Common Stock;
| | | | “Control”
| | —
| | has the same meaning as in section 719 of the Act;
| | | | “Date of Grant”
| | —
| | the date on which an Option is, was or is to be granted under the Plan, pursuant to Rule 4.1, or on which an Option is or was treated as being granted pursuant to Rule 4.3;
| | | | “Dealing Day”
| | —
| | a day on which The New York Stock Exchange is open for the transaction of business;
| | | | “Eligible Employee”
| | —
| | any employee or director of any Participating Company who:
| | | | (a)
| | (i)
| | in the case of a director, normally devotes more than 25 hours per week to his duties (exclusive of meal breaks);
| | | | | | (ii)
| | has earnings from his office or employment which meet (or would meet if there were any) the requirements set out in paragraphs 6(2)(c) of Schedule 3;
| | | | | | (iii)
| | is employed by any Participating Company on the date on which the Committee grants an Option pursuant to Rule 4.1 below;
| | | | (b)
| | —
| | has been nominated by the Committee either individually or as a member of a category of directors or employees for participation in the Plan;
| | | | (c)
| | —
| | is not prohibited from participating by the provisions of Paragraph 8 of Schedule 3 (whether falling within (a) or (b) above);
| | | | “Exercise Price”
| | —
| | the amount as determined by the Board and expressed in dollars, which a Participant shall pay to acquire Common Stock on the exercise of an Option being, subject to Rule 4.3 and Rule 8 not less than 80% or other such percentage as is for the time being permitted by statute or other statutory provision of Fair Market Value of Common Stock on the day the Invitation was issued pursuant to Rule 2 if the Exercise Price is specified in the Invitation or, if the Exercise Price is notified to the Eligible Employees after the Invitations are issued but before the Options are granted in accordance with Rule 2.2, on the date the Eligible Employees are so notified;
|
B-2 General Dynamics 2019 Proxy Statement
Appendix B
| | | | | “Fair Market Value”
| | —
| | on any day an amount equal to the closing middle market quotation of Common Stock on the New York Stock Exchange for the immediately preceding Dealing Day or if on that day the Shares are not so listed, the market value of Common Stock determined in accordance with the provisions of Part VIII of the Taxation of Chargeable Gains Act 1992 and agreed with HM Revenue and Customs Shares and Assets Valuation on or before that day, in either case determining (if so required for the purposes of any relevant provisions in Schedule 3) the market value of Common Stock that is subject to a Restriction as if it was not subject to any Restriction;
| | | | “Group”
| | —
| | the Company and its Subsidiary companies and the phrase “Group Company” shall be construed accordingly;
| | | | “Group Employee”
| | —
| | a director or employee of any Group Company;
| | | | “ICTA”
| | —
| | means the Income and Corporate Taxes Act 1988;
| | | | “Injury or Disability”
| | —
| | the cessation of employment or office by reason of injury or disability provided the Committee are satisfied, on production of such evidence as it may reasonably require:
| | | | | | (i)
| | that the individual has ceased to exercise and, by reason of injury or disability, is incapable of exercising that office or employment; and
| | | | | | (ii)
| | that the individual is likely to remain so incapable for the foreseeable future;
| | | | “Invitation”
| | —
| | a letter of invitation to participate in the Plan in a form approved by the Committee from time to time;
| | | | “Invitation Period”
| | —
| | subject to Rule 10.6 any time following the Approval Date;
| | | | “Maximum Bonus”
| | —
| | the bonus payable to the Participant at the maturity of a Savings Contract which matures after seven years;
| | | | “New Option”
| | —
| | an option over shares meeting the requirements ofsub-paragraphs 39 (4)(a) to (d) of Schedule 3, granted in consideration for the release of a Subsisting Option within the relevant period specified in paragraph 58(3) of Schedule 3;
| | | | “Nominated Savings Authority”
| | —
| | the savings authority or the savings authorities (as the case may be) nominated by the Company for the purposes of the Plan;
| | | | “Non-UK Company Reorganisation Arrangement”
| | —
| | has the same meaning as in paragraph 47A of Schedule 3;
| | | | “Option”
| | —
| | a right to purchase Common Stock granted or to be granted pursuant to Rules 4.1, 4.2 or 4.3;
| | | | “Option Certificate”
| | —
| | an option certificate in a form approved by the Committee from time to time;
| | | | “Participant”
| | —
| | a person who has been granted an Option or (where the context admits) his legal personal representative(s);
| | | | “Participating Company”
| | —
| | any Group Company nominated by the Committee to participate in the Scheme from time to time;
|
General Dynamics 2019 Proxy Statement B-3
Appendix B
| | | | | “Recognised Exchange”
| | —
| | a recognised stock exchange within the meaning of section 109 of the Finance Act 2007 or a recognised investment exchange within the meaning of the Financial Services and Markets Act 2000;
| | | | “this Plan” or “the Plan”
| | —
| | the General Dynamics United Kingdom Share Save Plan constituted and governed by the Rules with, and subject to any amendments thereto properly effected;
| | | | “Redundancy”
| | —
| | the cessation of employment or office by reason of redundancy within the meaning of the Employment Rights Act 1996;
| | | | “Renewal Date”
| | —
| | March 4, 2019;
| | | | “Restriction”
| | —
| | a restriction within the meaning given to that term by paragraph 48(3) of Schedule 3;
| | | | “Retirement”
| | —
| | the cessation of employment or office by reason of retirement
| | | | “Rules”
| | —
| | the rules of the Plan as the same may be amended from time to time and “Rule” shall be construed accordingly;
| | | | “Savings Contract”
| | —
| | a 3 or 5 year contract under a certified contractual savings scheme (within the meaning of section 702 of the Income Tax (Trading and Other Income) Act 2005 entered into by an Eligible Employee with a Nominated Savings Authority;
| | | | “Schedule 3”
| | —
| | Schedule 3 to the Act;
| | | | “Schedule 3 SAYE Option Scheme”
| | —
| | has the same meaning as in paragraph 1 of Schedule 3;
| | | | “Specified Age”
| | —
| | age 65;
| | | | “Standard 3 Year Bonus”
| | —
| | the bonus (if any) payable to the Participant under a Savings Contract which matures after three years;
| | | | “Standard 5 Year Bonus”
| | —
| | the bonus (if any) payable to the Participant under a Savings Contract which matures after five years;
| | | | “Subsidiary”
| | —
| | a company which is under the Control of the Company and which is a subsidiary of the Company within the meaning of section 1159 of the Companies Act 2006;
| | | | “Subsisting Option”
| | —
| | an Option which has been granted and which has not lapsed, been surrendered, renounced or been exercised in full.
|
1.1 | In these Rules, except insofar as the context otherwise requires:
|
| (i) | words denoting the singular shall include the plural and vice versa;
|
| (ii) | words importing a gender shall include every gender and references to a person shall include bodies corporate and unincorporated and vice versa;
|
| (iii) | reference to any enactment shall be construed as a reference to that enactment as from time to time amended, modified, extended orre-enacted and shall include any orders, regulations, instruments or othersub-ordinate legislation made under the relevant enactment;
|
B-4 General Dynamics 2019 Proxy Statement
Appendix B
| (iv) | words have the same meanings as in Schedule 3 unless the context otherwise requires; and
|
| (v) | headings and captions are provided for reference only and shall not be considered as part of the Plan.
|
1.2 | This Plan is intended to be a Schedule 3 SAYE Option Scheme for the purposes of the Act and this Plan and any Option granted under it shall be interpreted, operated and administered in a manner that is consistent with that intention and in the case of any conflict between the Rules and the provisions of sections 516 to 519 and Schedule 3 (the “legislation”), the legislation shall prevail so that this Plan may be treated as a Schedule 3 SAYE Option Scheme.
|
2. | Invitation to apply for Options
|
2.1 | The Committee may during any Invitation Period but not later than the tenth anniversary of the Renewal Date invite every Eligible Employee by issuing an Invitation to apply for the grant of an Option, providing that at the intended Date of Grant the Common Stock satisfies the conditions of paragraphs 18 to 22 inclusive of Schedule 3.
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2.2 | Each Invitation shall specify:
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| (i) | the date, being not less than 14 days after the issue of the Invitation, by which an application must be made;
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| (ii) | whether or not the Eligible Employee may take out a 3 or 5 year Savings Contract;
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| (iii) | the Exercise Price or that the Exercise Price will be notified to Eligible Employees at a reasonable time prior to the closing date for Applications;
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| (iv) | whether or not for the purpose of determining the number of shares of Common Stock over which an Option may be exercised, the repayment under the Savings Contract is to be taken:
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| (a) | as including the Maximum Bonus;
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| (b) | as including only the Standard 5 Year Bonus or the Standard 3 Year Bonus;
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| (c) | as not including a bonus;
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| (v) | the maximum permitted aggregate monthly savings contribution being the lesser of the maximum amount specified in Paragraph 25 of Schedule 3 or such other maximum as may be determined by the Committee, and be permitted by HM Revenue and Customs pursuant to Schedule 3 and by the Nominated Savings Authority;
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and the Committee may determine and include in the Invitations details of the maximum value on the date of the issue of the Invitation of shares of Common Stock over which Options may be granted on that occasion and a statement that in the event of excess Applications, each Application may be scaled down in accordance with the Rules.
2.3 | Each Invitation shall be accompanied by an Application which shall provide for the applicant to state:
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| (i) | the monthly savings contribution being a multiple of £1 and not less than £5 which he wishes to make under the related Savings Contract;
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| (ii) | whether or not he wishes to take out a 3 or 5 year Savings Contract;
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| (iii) | that his proposed monthly savings contribution, when added to any monthly savings contributions then being made under any other Savings Contract will not exceed the maximum permitted aggregate monthly savings contribution specified in the Invitation;
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| (iv) | his election as to whether for the purpose of determining the maximum value of shares of Common Stock over which an Option is to be granted, the repayment under the Savings Contract is to be taken as including the Maximum Bonus, the Standard 5 Year Bonus, or the Standard 3 Year Bonus or as not including a bonus,
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and shall authorise the Committee to enter on the Savings Contract such monthly savings contributions, not exceeding the maximum stated on the Application, as shall be determined pursuant to Rule 3 below.
2.4 | Each Application shall be deemed to be for an Option to acquire such number of shares of Common Stock as can be bought at the Exercise Price with the repayment under the related Savings Contract.
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General Dynamics 2019 Proxy Statement B-5
Appendix B
3.1 | If the Committee receives valid Applications over an aggregate value of Common Stock which exceeds the amount stated pursuant to Rule 2.2 or any limitation determined pursuant to Rule 5, then the following steps shall be carried out successively to the extent necessary to eliminate the excess:
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| (i) | the excess over £5 of the monthly savings contribution chosen by each applicant shall be reduced pro rata to the extent necessary;
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| (ii) | each election for a Maximum Bonus to be included in the repayment under the Savings Contract shall be deemed to be an election for the Standard 5 Year Bonus to be included;
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| (iii) | each election for a Standard 5 Year Bonus or a Standard 3 Year Bonus to be included in the repayment under the Savings Contract shall be deemed to be an election for the bonus to be excluded;
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| (iv) | applications will be selected by lot, each based on a monthly savings contribution of £5 and the inclusion of no bonus in the repayment under the Savings Contract.
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3.2 | If after applying the provisions of Rule 3.1(i) to (iii) inclusive the value of Common Stock available is still insufficient to enable an Option based on monthly savings contributions of £5 to be granted to each Eligible Employee who made a valid Application the Committee may, as an alternative to selecting by lot as in (iv) above, determine in its absolute discretion that no Options shall be granted.
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3.3 | If the Committee so determines the provision in Rule 3.1(i) to (iv) inclusive may be modified or applied in any manner as may be permitted by Schedule 3.
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3.4 | Each Application shall be deemed to have been modified or withdrawn in accordance with the application of the foregoing provisions and the Committee shall complete each Savings Contract proposal form to reflect any reduction in monthly savings contributions resulting therefrom.
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4.1 | Within 30 days of the first day by reference to which the Fair Market Value of the Common Stock is determined (or within 42 days of that day when Rule 3 applies and Options cannot be granted within the 30 day period), the Committee shall grant to each applicant who is still an Eligible Employee an Option over such number of shares of Common Stock as can be purchased on the date of exercise of that Option with the repayment under the relevant Savings Contract.
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4.2 | If the Company is prevented by statute, order, regulation or government directive from granting Options within any such periods, then the Committee may grant Options within twenty one days of the lifting of such restrictions providing the grant takes place not more than 30 days following the date on which Fair Market Value was determined for the purposes of the Option grant in question or not later than 42 days following the date Fair Market Value was determined if Applications have been scaled down pursuant to Rule 3.1.
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4.3 | Where the circumstances noted in Rule 7.4 apply New Options may be granted within the terms of paragraph 38(1) Schedule 3 in consideration for the release of Options previously granted under this Plan. Such New Options are deemed to be equivalent to the old Options and to have been granted within the terms of this Plan.
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4.4 | No Option may be transferred, assigned or charged and any purported transfer, assignment or charge shall be void ab initio. Each Option Certificate shall carry a statement to this effect. For the avoidance of doubt, this Rule 4.4 shall not prevent the Option of a deceased Participant being exercised by his personal representative(s) within the terms of these Rules.
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4.5 | As soon as possible after Options have been granted the Committee shall issue an Option Certificate specifying the Date of Grant and the Exercise Price. If the shares of Common Stock which are the subject of an Option are subject to any Restriction, the Committee shall as soon as practicable after the Date of Grant notify Participants of that fact and the details of any such Restriction.
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5.1 | Before Invitations are issued on any occasion, the Committee may determine a limit on the value of shares of Common Stock which are to be available in respect of that issue of Invitations.
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B-6 General Dynamics 2019 Proxy Statement
Appendix B
5.2 | Further, subject to any adjustment as contemplated by Rule 8, the total number of shares of Common Stock which may be issued and/or delivered under this Plan is (a) 600,000 in respect of theten-year period from the Adoption Date, and (b) 450,000 in respect of theten-year period from the Renewal Date. The Committee may not grant Options which would cause this limit to be exceeded. In determining this limit, no account shall be taken of any Options to the extent they have ceased to be exercisable.
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6.1 | Subject to each of the succeeding sections of this Rule 6 and Rule 9 any Subsisting Option may be exercised by the Participant or, if deceased, by his personal representatives in whole or in part at the time of or at any time following the occurrence of the earliest of the following events:
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| (ii) | the death of the Participant;
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| (iii) | upon the Participant ceasing to be a Group Employee where that cessation was by reason of Injury, Disability, Redundancy,or Retirement or by reason of a relevant transfer within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006;
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| (iv) | an opportunity to exercise the Option pursuant to Rule 7;
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| (v) | upon the Participant ceasing to be a Group Employee, where that cessation was by reason only that his employing company which is an associated company of the Company (within the meaning given to that term in paragraph 35(4) of Schedule 3) ceases to be such an associated company by reason of a change of control (as determined in accordance with sections 450 and 451 of the Corporation Tax Act 2010), or that the office or employment relates to a business or part of a business which is transferred to a person who is neither an Associated Company of the Company nor a company of which the Company has Control where the transfer is not a relevant transfer within the meaning of the Transfer of Undertaking (Protection of Employment) Regulations 2006.
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6.2 | An Option shall lapse and become thereafter incapable of exercise on the earliest of the following events:
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| (i) | except where the Participant has died, the expiry of six months following the Bonus Date;
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| (ii) | where the Participant has died within six months following the Bonus Date, the first anniversary of the Bonus Date;
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| (iii) | where the Participant has died before the Bonus Date, the first anniversary of his death;
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| (iv) | unless the Participant has died, on the expiry of six months after the Option has become exercisable by virtue of Paragraph (iii) or (v) of Rule 6.1;
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| (v) | immediately following the Participant ceasing to be a Group Employee save when the Participant ceases to be a Group Employee in the circumstances in Rule 6.1(ii), (iii), (iv) and (v) above, and save when the Participant ceases to be a Group Employee but continues to be an employee or director of any Associated Company or company of which the Company has Control;
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| (vi) | the expiry of six months after the Option has first become exercisable in accordance with Rule 7;
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| (vii) | the Participant being adjudicated bankrupt;
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| (viii) | upon the Participant giving notice, (or under the terms of his Savings Contract being deemed to have given notice), to the Nominated Savings Authority that he intends to stop paying monthly contributions under his Savings Contract prior to the date upon which a right to exercise the Option shall arise;
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| (ix) | on the winding up other than a voluntary winding up of the Company; and
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| (x) | six months following a voluntary winding up of the Company.
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6.3 | If a Participant continues to be employed by a Group Company after the date on which he reaches the Specified Age he may exercise any Subsisting Option which was granted before July 17, 2013 within six months following that date.
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6.4 | No person shall be treated for the purposes of this Rule 6 as ceasing to be a Group Employee until he is no longer a director or employee of the Company, and Associated Company of the Company or a company of which the Company has Control.
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General Dynamics 2019 Proxy Statement B-7
Appendix B
7. | Take-overs, Reconstructions and Liquidations
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7.1 | If any person obtains Control of the Company as a result of making:
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| (i) | a general offer to acquire the whole of the issued share capital of the Company (other than that which is already owned by him) which is unconditional or which is made on a condition such that if it is satisfied the person making the offer will have Control of the Company; or
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| (ii) | a general offer to acquire all the shares (other than shares which are already owned by him) in the Company which are of the same class as Common Stock subject to a Subsisting Option
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then the Committee shall notify all Participants as soon as is practicable of the offer in accordance with Rule 10.4. Any Subsisting Option may be exercised from the date of the receipt of that notification up to the expiry of a period ending six months from the time when the person making the offer has obtained Control of the Company and any condition subject to which the offer is made has been satisfied.
7.2 | If under Section 900 of the Companies Act 2006 it is proposed that the Court sanctions a compromise or arrangement applicable to or affecting (i) all of the ordinary share capital of the Company or all of the shares in the Company which are of the same class as Common Stock which may be acquired by exercise of Options, or (ii) all the shares, or all the shares of the same class which are held by a class of shareholders identified otherwise than by reference to their employment or directorships or their participation in a Schedule 3 SAYE Option Scheme, then the Company shall give notice thereof to all Participants at the same time as it sends notices to members of the Company calling the meeting to consider such a compromise or arrangement. Any Subsisting Option may be exercised by a Participant subject to the terms of this Rule before the expiry of six months from the date on which the Court sanctions such compromise or arrangement. Subject to Rule 7.6, at the end of the relevant period an unexercised Option shall lapse. If any person obtains Control of the Company as a result of aNon-UK Company Reorganisation Arrangement which becomes binding on the shareholders covered by it any Subsisting Options may be exercised before the expiry of six months from the date on which suchNon-UK Company Reorganisation Arrangement becomes binding. For the purposes of this Rule 7.2, the reference to the ordinary share capital of the Company does not include any capital already held by the person making the offer or a person connected with that person, and the reference to the shares does not include any shares already held by the person making the offer or a person connected with that person.
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7.3 | If any person becomes bound or entitled to acquire Common Stock under sections 976 to 981 or 983 to 985 of the Companies Act 2006 (or similar circumstances occur which are acceptable to HM Revenue and Customs) any Subsisting Option may be exercised at any time when that person remains so bound or entitled.
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7.4 | If as a result of the events specified in Rules 7.1 or 7.2 an Acquiring Company has obtained Control of the Company, or if an Acquiring Company has become bound or entitled as mentioned in Rule 7.3, the Participant may, if the Acquiring Company so agrees, release any Subsisting Option he holds in consideration for the grant of a New Option. A New Option issued in consideration of the release of an Option shall be evidenced by an Option Certificate which shall import the relevant provisions of these Rules. A New Option shall, for all other purposes of this Plan, be treated as having been acquired at the same time as the corresponding released Option. An exchange of Options pursuant to this Rule 7.4 shall not alter the fact that this Plan remains that of the Company as the original scheme organiser.
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7.5 | If a resolution is passed at a general meeting for the voluntarywinding-up of the Company, an Option shall notwithstanding Rule 6.1(i) be exercisable in whole or in part for a period of six months after which the Option shall to the extent unexercised thereupon lapse.
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7.6 | An Option whether or not exercisable prior to or as a result of the occurrence of an event specified in Rule 7.1, 7.2, 7.3 or 7.5 shall if an event so specified occurs lapse in accordance with the relevantsub-rule of Rule 7, or if earlier, as determined by Rule 6.2(i) to (x), save that in the case of any Option granted on or after April 6, 2014 which has become exercisable under Rules 6.2(ii) and (iii), such Option shall not lapse in accordance with Rules 7.1, 7.2 or 7.3 but shall lapse only on the expiry of the relevant 12 month period under Rules 6.2(ii) and (iii). Where prior to the date an Option lapses there occurs one or more further events specified in Rules 7.1, 7.2, 7.3 or 7.5 an Option shall lapse on the earlier of the date determined by the preceding part of this Rule 7.6 and the date of lapse relevant to the further event or events.
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7.7 | For the purpose of this Rule 7 other than Rule 7.4 a person shall be deemed to have obtained Control of a Company if he and others acting in concert with him have together obtained Control of it.
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B-8 General Dynamics 2019 Proxy Statement
Appendix B
7.8 | The exercise of an Option pursuant to the preceding provisions of this Rule 7 shall be subject to the provisions of Rule 9.
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7.9 | A New Option shall not be exercisable by virtue of the event pursuant to which it was granted.
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7.10 | Notwithstanding any provision to the contrary, where this Rule 7 applies or is expected to apply, and in consequences of an event specified in Rule 7.1, 7.2, 7.3 or 7.5, the Common Stock no longer meets, or is not expected to meet, the requirements of paragraphs 17 to 20 and 22 of Part 4 of Schedule 3, the Committee may determine that Options may be exercised within a period of 20 days ending on such specified event (conditional upon and with effect from that event occurring) or a period of 20 days after such event. The Committee shall act fairly and reasonably in exercising its discretion under this Rule.
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8. | Variation of Share Capital
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8.1 | In the event of any variation of the share capital of the Company affecting the Common Stock, including, but without prejudice to the generality of the preceding words, any capitalisation or rights issue or any consolidation,sub-division or reduction of capital by the Company, the number and nominal amount of Common Stock subject to any Option and the Exercise Price may be adjusted by the Committee in such manner as the Auditors confirm in writing to be, in their opinion, fair and reasonable provided that:
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| (i) | the aggregate amount payable on the exercise of an Option in full is neither materially changed nor increased beyond the expected repayment under the Saving Contract at the Bonus Date;
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| (ii) | at any time when the Plan remains approved by HM Revenue and Customs no adjustment shall take effect without the prior approval of HM Revenue and Customs;
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| (iii) | following the adjustment the Common Stock shall continue to satisfy the conditions specified in paragraphs 10 to 14 inclusive of Schedule 3; and
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| (iv) | the total Fair Market Value of Common Stock subject to any Option is immediately after the adjustment or adjustments substantially the same as what it was immediately before the adjustment or adjustments.
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8.2 | Such variation shall be deemed to be effective from the record date at which the respective variation applied to other stock of the same class as Common Stock. Any Options exercised within that period shall be treated as exercised with the benefit of the variation confirmed by the Auditors.
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8.3 | If an adjustment is made pursuant to Rule 8.1 above with the intention that the Plan shall cease to be approved by HM Revenue and Customs, the Company shall immediately notify HM Revenue and Customs.
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8.4 | The Committee shall take such steps as it considers necessary to notify Participants of any adjustment made under Rule 8.1 and may call in, cancel, endorse, issue or reissue any Option Certificate consequent upon such adjustment.
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9. | Manner of Exercise of Options
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9.1 | No Option may be exercised whilst the Plan is approved by HM Revenue and Customs unless the Common Stock satisfies the conditions specified in paragraphs 18 to 22 inclusive of Schedule 3.
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9.2 | An Option may only be exercised over as a maximum, the number of shares of Common Stock which may be acquired with the sum obtained by way of payment under the related Savings Contract converted into US dollars at the exchange rate prevailing on the day preceding the date on which the Option is exercised.
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9.3 | An Option shall be exercised by the Participant, or as the case may be by his personal representatives, delivering notice in writing to the Committee, detailing the number of shares of Common Stock in respect of which he wishes to exercise the Option accompanied by the appropriate payment (which shall not exceed the sum obtained by way of repayment under the related Savings Contract) or authority to the Company to withdraw and apply monies from the Savings Contract to acquire the Common Stock over which the Option is to be exercised and the relevant Option Certificate and shall be effective on the date of its receipt by the Committee. The Group Company which employs the Participant shall meet or procure the meeting of any stamp duty liability on the exercise of an Option.
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9.4 | Where an Option is exercised, the number of shares of Common Stock specified in the notice of exercise given in accordance with Rule 9.3 shall be transferred to the participant within 30 days of the date of exercise and the Company shall arrange for the delivery of evidence of title thereof. Save for any rights determined by reference to a record date preceding the date of transfer, such Common Stock shall rank pari passu with the other Common Stock of the same class in issue.
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General Dynamics 2019 Proxy Statement B-9
Appendix B
9.5 | When an Option is exercised only in part, it shall lapse to the extent of the unexercised balance.
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9.6 | For the purpose of Rules 9.2 and 9.3 above, any repayment under the Savings Contract shall exclude the repayment of any contribution the due date for payment of which falls after the date on which repayment is made unless provided for in the terms of the Savings Contract.
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9.7 | For so long as Common Stock is quoted on The New York Stock Exchange, the Company shall apply for Common Stock in respect of which an Option has been exercised to be quoted if it were not so quoted already.
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9.8 | Where Common Stock is listed or dealt in or any Recognised Exchange no Option may be exercised in contravention of any securities transactions rules of the Recognised Exchange as may from time to time be in force.
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10. | Administration and Amendment
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10.1 | The Plan shall be administered by the Committee whose decision on all disputes shall be final save where the Rules require the concurrence of the Auditors.
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10.2 | The Committee may from time to time amend these Rules provided that:
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| (i) | no amendment to a “key feature” (as defined in paragraph 40B(8) of Schedule 3) shall have effect whilst the Plan is and is intended to remain a Schedule 3 SAYE Option Scheme, and if such status is not to be maintained, this Rule shall not apply; and
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| (ii) | the Company shall provide such information and make such declarations to HM Revenue and Customs in relation to any amendment to “a “key feature” (as defined in paragraph 40B(8) of Schedule 3) as is required for the purposes of Schedule 3.
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10.3 | The cost of establishing and operating the Plan shall be borne by the Group Companies in such proportions as the Board shall determine.
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10.4 | Any notice or other communication under or in connection with the Plan may be given by the Committee either personally or by post, and to the Committee either personally or by post to the Secretary of the Committee; items sent by post shall bepre-paid and shall be deemed to have been received 72 hours after posting.
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10.5 | The Company shall at all times keep available sufficient Common Stock to satisfy the exercise to the full extent still possible of all Subsisting Options.
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10.6 | The Plan shall terminate upon the tenth anniversary of the Renewal Date or at any earlier time by the passing of a resolution of the Committee. Termination of the Plan shall be without prejudice to the subsisting rights of Participants.
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10.7 | The rights and obligations of any individual under terms of his office or employment with any Group Company shall not be affected by his participation in the Plan or any right which he may have to participate therein, and an individual who participates therein shall waive any and all rights to compensation or damages in consequence of the termination of his office or employment for any reason whatsoever insofar as those rights arise or may arise from his ceasing to have rights under or be entitled to exercise any Option under the Plan as a result of such termination.
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10.8 | Neither the grant of an Option nor any benefit which may accrue to a Participant on the exercise of an Option shall form part of that Participant’s pensionable remuneration for the purposes of any pension scheme or similar arrangement which may be operated by any Group Company.
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B-10 General Dynamics 2019 Proxy Statement
GENERAL DYNAMICS CORPORATION 2941 FAIRVIEW PARK DRIVE
FALLS CHURCH,
11011 SUNSET HILLS ROAD
RESTON, VA 2204220190
VOTE BY INTERNET -www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. Eastern Time on April 30, 2019May 5, 2020 for shares held directly and by 9:00 A.M. Eastern Time on April 29, 2019May 4, 2020 for shares held in a Plan. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. Eastern Time on April 30, 2019May 5, 2020 for shares held directly and by 9:00 A.M. Eastern Time on April 29, 2019May 4, 2020 for shares held in a Plan. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
SHAREHOLDER MEETING REGISTRATION
To vote and/or attend the meeting, go to the “Register for Meeting” link atwww.proxyvote.com.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
E55370-P17143-Z73849 KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | | E94453-P31414-Z76071 | KEEP THIS PORTION FOR YOUR RECORDS | | DETACH AND RETURN THIS PORTION ONLY | | THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
GENERAL DYNAMICS CORPORATION | | | | | | | | | | | | | | | | | | | | |
| | | GENERAL DYNAMICS CORPORATION
| | | | | | | | | | | | | | | | | | | | | | | The Board of Directors recommends you vote FOR the following proposal: |
| | | | 1. | Election of Directors | | | | | | | For | Against | Abstain | | | Nominees: | | | | | | | | | | | | | | | | | | | | 1. Election of Directors
1a. | James S. Crown | ☐ | ☐ | ☐ | | | | | | | | | | | | | | | | | | | | | | | | Nominees:
1b. | Rudy F. deLeon | ☐ | ☐ | ☐ | | | For | | Against | | Abstain | | | | | | | | | | | | | | | | | | | 1a. James S. Crown
1b. Rudy F. deLeon
1c. | Cecil D. Haney | ☐ | ☐ | ☐ | | | | | | | | | | 1d. Lester L. Lyles1e.
| Mark M. Malcolm | ☐ | ☐ | ☐ | | | | | | | | | | 1e. | James N. Mattis | ☐ | ☐ | ☐ | | | | | | | | | | 1f. | Phebe N. Novakovic | ☐ | ☐ | ☐ | | | | | | | | | | 1g. | C. Howard Nye | ☐ | ☐ | ☐ | | | | | | | | | | 1h. | William A. Osborn | ☐ | ☐ | ☐ | | | | | | | | | | 1i. | Catherine B. Reynolds | ☐ | ☐ | ☐ | | | | | | | | | | 1j. | Laura J. Schumacher | ☐ | ☐ | ☐ | | | | | | | | | | 1k. | John G. Stratton | ☐ | ☐ | ☐ | | | | | | | | | | 1l. | Peter A. Wall | ☐ | ☐ ☐
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| | | | The Board of Directors recommends you vote FOR the following proposals: | For | Against | Abstain | | | | | | 2. | Advisory Vote on the Selection of Independent Auditors | ☐ | ☐ | ☐ | | | | | | 3. | Advisory Vote to approve Executive Compensation 4. Approval of General Dynamics United Kingdom Share Save Plan
| ☐ | ☐ | ☐ | | | | | | The Board of Directors recommends you vote AGAINST the following proposal: 5.
| For | Against | Abstain | | | | | | 4. | Shareholder Proposal to require an Independent Board Chairmanreduce the ownership threshold required to call a Special Shareholder meeting | ☐ | ☐ | ☐ | | | | | | | NOTE:Such other business as may properly come before the meeting or any adjournment thereof. | | | | For
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| | | | | Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such.
Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
| | | | | | | | | | | | | | | | | | | | |
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | | | | | | | | | | | | | | | | | | | | | | | | Signature [PLEASE SIGN WITHIN BOX] | Date |
| | | | | | Signature (Joint Owners) Date | | | | | | | | Date |
Table of Contents
DIRECT DEPOSIT NOTICE General Dynamics Corporation and Computershare remind you of the opportunity to have your quarterly dividends electronically deposited into your checking or savings account. The main benefit of direct deposit to you is knowing that your dividends are in your account on the payable date. Telephone inquiries regarding stock, including registration for direct deposit of dividends, should be made to Computershare’s automated Toll-Free Telephone Response Center at 1-800-519-3111. General Dynamics Corporation encourages you to take advantage of one of the convenient ways by which you can vote these shares for matters to be covered at the 20192020 Annual Meeting of Shareholders. You can vote these shares electronically through the Internet or by telephone, either of which eliminates the need to return the proxy card. If you do not wish to vote through the Internet or by telephone, you can vote by mail by following the instructions on the proxy card on the reverse side. Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
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E55371-P17143-Z73849
| | Proxy — GENERAL DYNAMICS CORPORATION | PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 1, 2019 6, 2020
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION The undersigned hereby appoints PHEBE N. NOVAKOVIC, JASON W. AIKEN and GREGORY S. GALLOPOULOS, and each of them, as proxy or proxies, with full power of substitution, to vote all shares of common stock, par value $1.00 per share, of GENERAL DYNAMICS CORPORATION, a Delaware corporation, that the undersigned is entitled to vote at the 2019 Annual Meeting of Shareholders, and at any adjournment or postponement thereof, upon the matters set forth on the reverse side and upon such other matters as may properly come before the annual meeting, all as more fully described in the Proxy Statement for the 2019 Annual Meeting of Shareholders.
THIS PROXY WHEN PROPERLY EXECUTED AND TIMELY RETURNED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING, THIS PROXY WILL BE VOTED AT THE DISCRETION OF THE PROXIES NAMED ABOVE, AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IF THIS PROXY IS PROPERLY EXECUTED AND TIMELY RETURNED BUT NO DIRECTION IS MADE HEREON, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4, AND AGAINST PROPOSAL 5.
If you are a participant in the Company’s 401(k) plans, this proxy card constitutes your instructions to Fidelity, the trustee of the plans, as to the vote of the shares of Company common stock in your plan accounts. If you do not submit valid and timely voting instructions, Newport Trust Company, the independent fiduciary and investment manager for the Company common stock in your plan accounts, will direct the vote of your plan shares in its discretion.
PLEASE COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT IN THE POSTAGE-PAID ENVELOPE PROVIDED.
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The undersigned hereby appoints PHEBE N. NOVAKOVIC, JASON W. AIKEN and GREGORY S. GALLOPOULOS, and each of them, as proxy or proxies, with full power of substitution, to vote all shares of common stock, par value $1.00 per share, of GENERAL DYNAMICS CORPORATION, a Delaware corporation, that the undersigned is entitled to vote at the 2020 Annual Meeting of Shareholders, and at any adjournment or postponement thereof, upon the matters set forth on the reverse side and upon such other matters as may properly come before the annual meeting, all as more fully described in the Proxy Statement for the 2020 Annual Meeting of Shareholders. THIS PROXY WHEN PROPERLY EXECUTED AND TIMELY RETURNED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING, THIS PROXY WILL BE VOTED AT THE DISCRETION OF THE PROXIES NAMED ABOVE, AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IF THIS PROXY IS PROPERLY EXECUTED AND TIMELY RETURNED BUT NO DIRECTION IS MADE HEREON, THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 AND 3, AND AGAINST PROPOSAL 4. If you are a participant in the Company’s 401(k) plans, this proxy card constitutes your instructions to Fidelity, the trustee of the plans, as to the vote of the shares of Company common stock in your plan accounts. If you do not submit valid and timely voting instructions, Newport Trust Company, the independent fiduciary and investment manager for the Company common stock in your plan accounts, will direct the vote of your plan shares in its discretion. PLEASE COMPLETE, SIGN AND DATE YOUR PROXY CARD AND RETURN IT IN THE POSTAGE-PAIDENVELOPE PROVIDED.
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