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Boeing Company DEF 14A 2012
DEF 14A
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

(Rule 14a-101)

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant  x                             Filed by a Party other than the Registrant  ¨

Check the appropriate box:

 

¨

Preliminary Proxy Statement

 

¨

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

x

Definitive Proxy Statement

 

¨

Definitive Additional Materials

 

¨

Soliciting Material Pursuant to §240.14a-12


THE BOEING COMPANY

(Name of registrant as specified in its charter)


 

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Table of Contents

 

LOGO

March 16, 2012

Dear Fellow Shareholder,

You are cordially invited to attend The Boeing Company’s 2012 Annual Meeting of Shareholders to be held on Monday, April 30, 2012, at 10:00 a.m., Central Daylight Time, at The Field Museum, 1400 South Lake Shore Drive, Chicago, Illinois.

The annual meeting will begin with a report on our operations, followed by consideration of the matters set forth in the accompanying notice of annual meeting and proxy statement.

We are extremely grateful for the valuable contributions of Mr. John F. McDonnell, who will retire at the meeting after more than 38 years of combined service on the Boards of Directors of The Boeing Company and the McDonnell Douglas Corporation, and Mr. John E. Bryson, who resigned from our Board of Directors in June after being nominated to serve as U.S. Secretary of Commerce. We are very pleased that Mr. Lawrence W. Kellner, President of Emerald Creek Group and former Chairman and Chief Executive Officer of Continental Airlines, is a new nominee for the Board this year.

Your vote is important. Please vote by internet, telephone or mail as soon as possible to ensure your vote is recorded promptly. Thank you for your ongoing support of The Boeing Company.

Very Truly Yours,

 

LOGO

W. James McNerney, Jr.

Chairman of the Board,

President and Chief

Executive Officer


Table of Contents

LOGO

Notice of 2012 Annual Meeting of Shareholders

The Boeing Company’s 2012 Annual Meeting of Shareholders will be held on Monday, April 30, 2012, at 10:00 a.m., Central Daylight Time, at The Field Museum, 1400 South Lake Shore Drive in Chicago, Illinois 60605-2496. At the meeting, our shareholders will be asked to:

 

1)

Elect the 11 directors named in the proxy statement;

 

2)

Approve, by advisory vote, named executive officer compensation;

 

3)

Ratify the appointment of our independent auditor for 2012;

 

4)

Consider such shareholder proposals as are properly presented at the meeting; and

 

5)

Transact such other business as may properly come before the meeting and any postponement or adjournment thereof.

Holders of our common stock of record at the close of business on March 1, 2012 are entitled to vote at the annual meeting and any postponement or adjournment thereof.

Your vote is important and we encourage you to vote your shares promptly, whether or not you plan to attend the meeting. You may vote by internet, telephone or mail. Please see “Frequently Asked Questions about Voting” beginning on page 1 of the proxy statement for more information on how to vote.

By Order of the Board of Directors,

 

LOGO

Michael F. Lohr

Corporate Secretary

March 16, 2012

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on April 30, 2012: This Notice of Annual Meeting and Proxy Statement and the 2011 Annual Report are available at www.edocumentview.com/ba.


Table of Contents

Table of Contents

 

General Information

     1   

Frequently Asked Questions about Voting

     1   

Election of Directors (Item 1)

     3   

Corporate Governance

     10   

Corporate Governance Principles

     10   

Board Composition, Responsibilities and Leadership Structure

     10   

Board Committees

     10   

Risk Oversight

     12   

Communications with the Board

     12   

Director Independence

     13   

Codes of Conduct

     14   

Outside Board Memberships

     14   

Director Compensation

     15   

Compensation Consultants

     18   

Related Person Transactions

     18   

Advisory Vote to Approve Named Executive Officer Compensation (Item 2)

     20   

Executive Compensation

     21   

Compensation Discussion and Analysis

     21   

Compensation Committee Report

     33   

Compensation Committee Interlocks and Insider Participation

     34   

Compensation and Risk

     34   

Summary Compensation Table

     35   

2011 Grants of Plan-Based Awards

     38   

Outstanding Equity Awards at 2011 Fiscal Year-End

     40   

Option Exercises and Stock Vested

     42   

2011 Pension Benefits

     42   

2011 Nonqualified Deferred Compensation

     45   

Potential Payments upon Termination

     47   

Stock Ownership Information

     52   

Audit Committee

     54   

Audit Committee Report

     54   

Principal Accountant Fees and Services

     55   

Ratification of Selection of Independent Auditor (Item 3)

     56   

Shareholder Proposals (Items 4 through 7)

     57   

Additional Information

     63   

Appendix 1: The Boeing Company Corporate Governance Principles

     A-1   


Table of Contents

General Information

This proxy statement is issued in connection with the solicitation of proxies by the Board of Directors of The Boeing Company for use at the 2012 Annual Meeting of Shareholders and at any adjournment or postponement thereof. On or about March 16, 2012, we will begin distributing this proxy statement, a form of proxy and our 2011 annual report to shareholders entitled to vote at the meeting. Shares represented by a properly executed proxy will be voted in accordance with instructions provided by the shareholder.

Frequently Asked Questions about Voting

How does the Board of Directors recommend that I vote?

The Board of Directors recommends that you vote:

 

 

FOR the election of each of the 11 director nominees named in this proxy statement (Item 1);

 

 

FOR the approval of named executive officer compensation (Item 2);

 

 

FOR the ratification of the appointment of Deloitte & Touche LLP as independent auditor for 2012 (Item 3); and

 

 

AGAINST each of the shareholder proposals (Items 4 through 7).

Why is it so important that I promptly vote my shares?

We value the input of our shareholders on important questions facing the Company. Regardless of the number of shares you hold and whether you plan to attend the annual meeting, we encourage you to vote your shares as soon as possible to ensure that your vote is recorded promptly and so that we can avoid additional solicitation costs.

How may I vote my shares?

Beneficial Shareholders. If you own shares through a broker, bank or other holder of record, you must instruct the holder of record how to vote your shares. In order to provide voting instructions to the holder of record of your shares, please refer to the materials forwarded by your broker, bank or other holder of record. Many brokers provide the option of voting by internet at www.proxyvote.com or by calling 1-800-454-8683. You will need your control number which can be found on the voting instruction form.

Registered Shareholders. If you own shares that are registered in your name, you may vote by proxy before the annual meeting by internet at www.envisionreports.com/ba, calling 1-800-652-VOTE (8683) or signing and returning your proxy card. Proxies submitted by internet or telephone must be received by 10:00 a.m., Central Daylight Time, on Monday, April 30, 2012. If you return a signed proxy card but do not provide voting instructions for some or all of the matters to be voted on, your shares will be voted on all uninstructed matters in accordance with the recommendations of the Board of Directors.

The Boeing Company Voluntary Investment Plan Participants. If you have an interest in Boeing stock through participation in The Boeing Company Voluntary Investment Plan (the “VIP”), which is a 401(k) plan, you do not have actual ownership of the shares held in the VIP (the “Plan Shares”). The Plan Shares are registered in the name of the trustee. As a VIP participant, you have been allocated interests in the Plan Shares and may instruct the trustee how to vote those interests by submitting a proxy by internet at www.envisionreports.com/ba, calling 1-800-652-VOTE (8683) or signing and returning your proxy card. However, you may not vote Plan Shares in person at the annual meeting. The number of shares of Boeing stock shown on your proxy card includes all shares registered in your name and all Plan Shares in which you have an interest. In order to allow sufficient time for the trustee to tabulate the vote of the Plan Shares, your proxy instructions must be received no later than 10:59 p.m., Central Daylight Time, on Wednesday, April 25, 2012.

If you do not timely submit voting instructions, the trustee will vote your Plan Shares in the same manner and proportion as the Plan Shares with respect to which voting instructions have been timely received, unless contrary to applicable law. If you return a signed proxy card that covers Plan Shares but do not provide voting instructions for some or all of the matters to be voted on, your shares will be voted on all uninstructed matters in accordance with the recommendations of the Board of Directors.

 

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May I change or revoke my vote?

Beneficial Shareholders. Beneficial shareholders should contact their broker, bank or other holder of record for instructions on how to change their vote.

Registered Shareholders. Registered shareholders may change a properly executed proxy by delivering written notice of revocation to the Corporate Secretary; delivering another proxy by internet, telephone or mail that is dated later than the original proxy; or attending the annual meeting and voting by ballot.

The Boeing Company Voluntary Investment Plan Participants. VIP participants may change a properly executed proxy at any time before 10:59 p.m., Central Daylight Time, on Wednesday, April 25, 2012 by submitting a proxy that is dated later than the original proxy by internet, telephone or mail. VIP participants cannot change their voting instructions in person at the annual meeting because the trustee will not be present.

What vote is required to approve each proposal?

Each share of Boeing stock entitles the holder to one vote on each proposal presented for shareholder action.

Election of Directors (Item 1). The Board of Directors has adopted a majority vote standard in uncontested director elections. Because we did not receive advance notice under our By-Laws of any shareholder nominees for director, this election of directors is an uncontested election. To be elected in an uncontested election, a director nominee must receive more “For” votes than “Against” votes. Abstentions and “broker non-votes” will have no effect on the election of directors.

All Other Proposals (Items 2 through 7). Shareholders may vote “For” or “Against” each of the other proposals, or may abstain from voting. Delaware law requires the affirmative vote of the majority of shares present in person or by proxy and entitled to vote at the annual meeting for the approval of Items 2 through 7. Votes on these items are advisory and therefore not binding on the Company. However, our Board of Directors will consider the outcome of these votes in its future deliberations. A shareholder who signs and submits a proxy is “present,” so an abstention will have the same effect as a vote “Against” Items 2 through 7. “Broker non-votes,” if any, will have no effect on Items 2 through 7.

What are “broker non-votes”?

If a broker or other financial institution holds your shares in its name and you do not provide voting instructions to it, New York Stock Exchange, or NYSE, rules allow that firm to vote your shares only on routine matters. Item 3, the ratification of the appointment of our independent auditor for 2012, is the only matter for consideration at the meeting that NYSE rules deem to be routine. For all matters other than Item 3, you must submit voting instructions to the firm that holds your shares if you want your vote to count on such matters. When a firm votes a client’s shares on some but not all of the proposals, the missing votes are referred to as “broker non-votes.”

 

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Election of Directors (Item 1)

Upon the recommendation of our Governance, Organization and Nominating Committee, which we refer to as the GON Committee, our Board has nominated each of the 11 persons listed below to serve as director for a one-year term or until his or her successor has been duly elected and qualified or until his or her earlier resignation or removal. Each of the nominees currently serves as a Boeing director. Mr. Kellner joined our Board in October 2011 and was referred to the GON Committee by one of our nonemployee directors. Each director nominee in this uncontested election will be elected if he or she receives more “For” votes than “Against” votes. If any nominee becomes unable to serve, proxies will be voted for the election of such other person as the Board of Directors may designate, unless the Board chooses to reduce the number of directors.

When assessing a director candidate’s qualifications, the GON Committee considers the candidate’s experience in areas such as operations, international business, manufacturing, finance, government, marketing, technology and public policy, as well as other factors such as independence, absence of conflicts of interest, diversity and age. As required by our Corporate Governance Principles, directors should have a reputation for personal and professional integrity, honesty and adherence to the highest ethical standards, and be committed to acting in the long-term interests of all shareholders. The GON Committee also assesses the overall composition of the Board and whether a potential director candidate would contribute to the collaborative process of the Board. When evaluating the suitability of an incumbent director for re-election, the GON Committee also considers the ongoing contributions of the director to the Board. Our Corporate Governance Principles provide that no one may be nominated for election or otherwise be eligible for service on the Board if he or she would be 74 or older at time of election. In accordance with this provision of our Corporate Governance Principles, John F. McDonnell will retire at the end of his term upon the election of directors at the annual meeting. See our Corporate Governance Principles, which are set forth in Appendix 1 to this proxy statement, for additional information on the selection of director candidates.

The GON Committee considers diversity in its evaluation of candidates for Board membership and in its annual review of the composition of the Board as a whole. The Board believes that diversity with respect to background, experience and other factors as set forth in our Corporate Governance Principles is an important consideration in board composition. In addition, both the GON Committee and the Board conduct formal self-evaluations each year that include an assessment of whether the GON Committee and the Board have adequately considered diversity, among other factors, in identifying and discussing director candidates. The GON Committee believes that, as a group, the nominees listed below bring a diverse range of backgrounds, experiences and perspectives to the Board’s deliberations.

Set forth below is information with respect to the nominees, including their principal occupation and business experience for at least the past five years, a summary of their specific experience, qualifications, attributes or skills that led to the conclusion that they are qualified to serve as a director, the names of other public companies for which they currently serve as a director or have served as a director within the past five years, their period of service as a Boeing director and their age as of March 16, 2012.

 

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David L. Calhoun

 

LOGO

 

Age 54

Director since 2009

  

Chief Executive Officer and Executive Director, Nielsen Holdings. Mr. Calhoun has served as Chief Executive Officer of Nielsen Holdings N.V. (marketing and media information) since May 2010, as Executive Director of Nielsen Holdings N.V. since its initial public offering in January 2011 and as Chairman of the Executive Board and Chief Executive Officer of The Nielsen Company since September 2006. Previously, Mr. Calhoun served as Vice Chairman of General Electric Company and President and Chief Executive Officer of GE Infrastructure. Before that, Mr. Calhoun served as President and Chief Executive Officer of GE Transportation; President and Chief Executive Officer of GE Aircraft Engines; President and Chief Executive Officer of Employers Reinsurance Corporation; President and Chief Executive Officer of GE Lighting; and President and Chief Executive Officer of GE Transportation Systems. Mr. Calhoun also serves on the boards of Caterpillar Inc. and Medtronic, Inc. In February 2012, Medtronic announced in a filing with the SEC that Mr. Calhoun has chosen not to stand for re-election at its 2012 annual meeting.

 

Mr. Calhoun provides valuable insight and perspective on general strategic and business matters, stemming from his vast executive and management experience with Nielsen and GE. Mr. Calhoun also has significant aerospace, aircraft and high-technology industry expertise as evidenced by his leadership of GE’s aircraft engines and transportation businesses, as well as his membership on Caterpillar’s board. Mr. Calhoun’s executive leadership in corporate governance matters at Nielsen and his service on Caterpillar’s compensation committee enable him to serve a crucial role on our GON and Compensation Committees.

 

Mr. Calhoun is a member of the Compensation Committee and the Governance, Organization and Nominating Committee.

Arthur D. Collins, Jr.

 

LOGO

 

Age 64

Director since 2007

  

Senior Advisor, Oak Hill Capital Partners; Former Chairman and Chief Executive Officer, Medtronic. Mr. Collins has served since April 2009 as Senior Advisor to Oak Hill Capital Partners (private equity). Previously, he served as Chairman of Medtronic, Inc. (medical device and technology) from April 2002 to August 2008. At Medtronic, Mr. Collins was also Chairman and Chief Executive Officer from April 2002 to August 2007, President and Chief Executive Officer from May 2001 to April 2002, President and Chief Operating Officer from August 1996 to April 2001, Chief Operating Officer from January 1994 to August 1996, and Executive Vice President of Medtronic and President of Medtronic International from June 1992 to January 1994. He was Corporate Vice President of Abbott Laboratories (health care products) from October 1989 to May 1992 and Divisional Vice President of Abbott from May 1984 to October 1989. Mr. Collins also serves on the boards of Alcoa Inc., Cargill, Inc. and U.S. Bancorp. He is a member of the Board of Overseers of The Wharton School at the University of Pennsylvania.

 

Mr. Collins provides guidance to our Board on a wide variety of general corporate and strategic matters based on his extensive executive and business experience. Mr. Collins brings the perspective of a member of several corporate boards, including as chair of U.S. Bancorp’s governance committee and a member of Alcoa’s audit committee. In addition, Mr. Collins’ years of executive leadership at Medtronic allow us to benefit from his experience managing the operations of a large, global, high-technology company. In recognition of Mr. Collins’ skills in corporate finance, strategic and accounting matters, the Board has elected Mr. Collins to serve as Chair of the Finance Committee and determined that he is an audit committee financial expert as defined by SEC rules.

 

Mr. Collins is Chair of the Finance Committee and a member of the Audit Committee.

 

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Linda Z. Cook

 

LOGO

 

Age 53

Director since 2003

  

Former Executive Director, Royal Dutch Shell. Ms. Cook served as Executive Director of Royal Dutch Shell plc (oil, gas and petroleum) from August 2004 to December 2009 with executive responsibilities for global natural gas, trading and technology. She also served as a member of the Royal Dutch Shell board of directors. Previously, she served as President and Chief Executive Officer and a member of the board of directors of Shell Canada Limited from August 2003 to August 2004. She served as Chief Executive Officer for Shell Gas & Power from January 2000 to July 2003. Ms. Cook also serves on the boards of Cargill, Inc., KBR, Inc. and Marathon Oil Corporation. She is a member of the Society of Petroleum Engineers, the Board of Trustees for the University of Kansas Endowment Association and the Advisory Board for the University of Texas Energy Institute.

 

Ms. Cook’s extensive senior management and board experience at Royal Dutch Shell, and her extensive experience on other company boards, enables her to advise management on a wide range of strategic, financial and governance matters. Ms. Cook also has vast international business experience, which has proven to be valuable given Boeing’s numerous relationships with non-U.S. suppliers and customers. Ms. Cook has an engineering background, and her expertise in this area is invaluable to the Board’s deliberations with respect to project management and the many technical and high-technology aspects of our businesses. As a result of Ms. Cook’s financial and accounting skills, the Board has determined that she is an audit committee financial expert as defined by SEC rules.

 

Ms. Cook is a member of the Audit Committee and the Finance Committee.

Kenneth M. Duberstein

 

LOGO

 

Age 67

Director since 1997

  

Chairman and Chief Executive Officer, The Duberstein Group. Mr. Duberstein has served as Chairman and Chief Executive Officer of The Duberstein Group (consulting) since 1989. He was White House Chief of Staff from 1988 to 1989. Mr. Duberstein also serves on the boards of ConocoPhillips, Dell Inc., Mack-Cali Realty Corporation and The Travelers Companies, Inc.

 

Mr. Duberstein has been a member of our Board for more than 14 years and provides independent leadership to our Board as our Lead Director. In addition to having extensive knowledge of Boeing and its businesses, Mr. Duberstein brings to the Board a wide range of experience in U.S. government and international matters and as a member of other Fortune 500 boards. Mr. Duberstein’s experience both in the highest levels of the U.S. government and as an outside strategic advisor allows him to advise the Board and senior management on key issues of corporate strategy, as well as a wide range of issues related to Boeing’s government interactions. In recognition of Mr. Duberstein’s skills in overseeing Boeing’s corporate governance policies and practices as well as his overall leadership abilities, his fellow directors elected him both as Lead Director and as Chair of the Governance, Organization and Nominating Committee.

 

Mr. Duberstein is the Lead Director, Chair of the Governance, Organization and Nominating Committee and a member of the Compensation Committee.

 

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Edmund P. Giambastiani, Jr.

 

LOGO

 

Age 63

Director since 2009

  

Seventh Vice Chairman of the U.S. Joint Chiefs of Staff (2005-2007); Former NATO Supreme Allied Commander Transformation (2003-2005); Former Commander, U.S. Joint Forces Command (2002-2005). Admiral Giambastiani is a career U.S. Navy nuclear submarine officer with extensive operational experience, including command at the submarine, squadron and fleet level. His staff experience includes service as Co-Chairman of the Defense Acquisition Board and Chairman of the Joint Requirements Oversight Council. Admiral Giambastiani also serves on the boards of Mercury Federal Systems and Monster Worldwide. He served on the boards of SRA International, Inc. from 2008 to 2010, Alenia North America, Inc. from 2008 to 2009 and QuinetiQ from 2008 to 2011.

 

During his distinguished U.S. military career of over 40 years, Admiral Giambastiani developed extensive operational and engineering experience that complements Boeing’s high-technology business needs. Admiral Giambastiani has a wealth of experience with program development, program resourcing and other aspects of managing major U.S. armed forces acquisition programs. Each of these skills enables him to provide expert advice to senior management and his fellow directors on a range of technical and operational matters, including in his capacity as a member of the Special Programs Committee. Admiral Giambastiani also has extensive experience as a senior military leader in strategy development, which enhances the Board’s strategic and management oversight resources.

 

Admiral Giambastiani is a member of the Audit Committee, the Finance Committee and the Special Programs Committee.

Lawrence W. Kellner

 

LOGO

 

Age 53

Director since 2011

  

President, Emerald Creek Group; Former Chairman and Chief Executive Officer, Continental Airlines. Mr. Kellner has served as President of Emerald Creek Group LLC (private equity) since 2010. Mr. Kellner served as Chairman and Chief Executive Officer of Continental Airlines, Inc. (commercial airline) from December 2004 to December 2009. Mr. Kellner joined Continental as Chief Financial Officer in 1995 and served as President and Chief Operating Officer from March 2003 to December 2004 and as President from May 2001 to March 2003, and was a member of the board of directors from May 2001 to December 2009. Mr. Kellner also serves of the boards of The Chubb Corporation and Marriott International, Inc.

 

Mr. Kellner is the newest member of our Board and brings to our Board his experience as the former CEO of one of the largest airline companies in the world, together with significant management, strategic and operational responsibilities in the global travel and leisure industries. Mr. Kellner also provides extensive knowledge in the fields of finance and accounting, gained principally from his background as Chief Financial Officer at Continental Airlines and American Savings Bank. The Board has determined that Mr. Kellner is an audit committee financial expert as defined by SEC rules.

 

Mr. Kellner is a member of the Audit Committee and the Finance Committee.

 

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Edward M. Liddy

 

LOGO

 

Age 66

Director since 2010

  

Partner, Clayton, Dubilier & Rice; Former Chairman and Chief Executive Officer, Allstate. Mr. Liddy served as a partner at Clayton, Dubilier & Rice, LLC (private equity) from April to September 2008 and rejoined the firm in January 2010. At the request of the Secretary of the U.S. Department of the Treasury, Mr. Liddy served as Interim Chairman and Chief Executive Officer of American International Group, Inc. (insurance and financial services holding company) from September 2008 to August 2009. He served as Chairman of the Board of The Allstate Corporation (insurance) from January 1999 to April 2008. At Allstate, Mr. Liddy also served as Chief Executive Officer from January 1999 to December 2006 and as President and Chief Operating Officer from August 1994 to December 1998. Before joining Allstate, Mr. Liddy held a number of financial and operating positions at Sears, Roebuck and Co. before being named Chief Financial Officer in 1992. Mr. Liddy also serves on the boards of 3M Company and Abbott Laboratories and served on the boards of Boeing from 2007 to 2008 and The Goldman Sachs Group, Inc. from 2003 to 2008.

 

Mr. Liddy brings to our Board the benefits of his vast experience as a senior executive and board member of several Fortune 100 companies across a range of industries. Mr. Liddy’s executive leadership experience at Allstate, American International Group and Sears, Roebuck and Co. enables him to provide our Board with valuable insights on corporate strategy, risk management, corporate governance and many other issues facing large, global enterprises. In addition, Mr. Liddy’s service as Chief Financial Officer of Sears, Roebuck and Co., chair of the audit committee of Goldman Sachs and a member of the audit committee of 3M gives him particular expertise in accounting, corporate finance, and financial reporting. In recognition of this expertise, the Board has elected Mr. Liddy to serve as Chair of the Audit Committee and has determined that he is an audit committee financial expert as defined by SEC rules.

 

Mr. Liddy is Chair of the Audit Committee and a member of the Finance Committee.

W. James McNerney, Jr.

 

LOGO

 

Age 62

Director since 2001

  

Chairman, President and Chief Executive Officer, Boeing. Mr. McNerney has served as Chairman, President and Chief Executive Officer of The Boeing Company since July 2005. Previously, he served as Chairman and Chief Executive Officer of 3M Company (diversified technology) from January 2001 to June 2005. Beginning in 1982, he served in management positions at General Electric Company, his most recent being President and Chief Executive Officer of GE Aircraft Engines from 1997 to 2000. Mr. McNerney also serves on the boards of The Procter & Gamble Company and International Business Machines Corporation. He is Chair of the Business Roundtable and President Obama’s Export Council.

 

Mr. McNerney serves a key leadership role on the Board, communicates management’s perspective on important matters to the Board, and provides the Board with in-depth knowledge of each of Boeing’s businesses, as well as industry and international challenges and opportunities. In addition to his extensive senior management experience at Boeing, 3M and GE, Mr. McNerney brings to the Board experience as the presiding director at Procter & Gamble and as a director at IBM. This extensive leadership experience on other Fortune 100 boards of directors and as a member of senior management teams enables Mr. McNerney to play a key role in all matters involving our Board, and positions him well to act not only as the Board’s Chairman, but also as the principal intermediary between management and the independent directors of our Board.

 

Mr. McNerney is Chair of the Special Programs Committee.

 

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Susan C. Schwab

 

LOGO

 

Age 56

Director since 2010

  

Professor, University of Maryland School of Public Policy; Former U.S. Trade Representative. Ambassador Schwab has been a Professor at the University of Maryland School of Public Policy since January 2009 and a strategic advisor to Mayer Brown, LLP (global law firm) since March 2010. Ambassador Schwab served as U.S. Trade Representative from June 2006 to January 2009 and as Deputy U.S. Trade Representative from October 2005 to June 2006. Prior to her service as Deputy U.S. Trade Representative, Ambassador Schwab served as President and Chief Executive Officer of the University System of Maryland Foundation from June 2004 to October 2005, as a consultant for the U.S. Department of Treasury from July 2003 to December 2003 and as Dean of the University of Maryland School of Public Policy from July 1995 to July 2003. Ambassador Schwab also serves on the boards of Caterpillar Inc. and FedEx Corporation.

 

Ambassador Schwab brings unique global and governmental perspectives to the Board’s deliberations. Ambassador Schwab’s extensive experience leading large international trade negotiations positions her well to advise her fellow directors and our senior management on a wide range of key issues facing Boeing through its relationships with non-U.S. companies and governments. Ambassador Schwab’s experience in the U.S. government also allows her to advise Boeing on the many challenges and opportunities that relate to government relations. As a result of Ambassador Schwab’s prior business experience and current service on other Fortune 100 corporate boards, including as a member of the compensation committee of FedEx Corporation, she brings expertise to the Board on a wide range of strategic, operational, corporate governance and compensation matters.

 

Ambassador Schwab is a member of the Audit Committee and the Finance Committee.

Ronald A. Williams

 

LOGO

 

Age 62

Director since 2010

  

Former Chairman and Chief Executive Officer, Aetna. Mr. Williams served as Chairman of Aetna Inc. (managed care and health insurance) from October 2006 until April 2011, having previously served as Chief Executive Officer from February 2006 until November 2010, President from May 2002 until July 2007 and Executive Vice President and Chief of Health Operations from March 2001 until May 2002. Following his retirement in April 2011, he provided consulting services to Aetna until February 2012. Mr. Williams also serves on the boards of American Express Company and Johnson & Johnson and is chairman of the board of Emergency Medical Services Corporation.

 

Mr. Williams brings to our Board significant leadership, operations and management experience from his tenure at Aetna, including as Chairman and Chief Executive Officer. With more than 25 years of experience in the health care industry, Mr. Williams provides valuable insight into the health insurance and employee benefits industry. In addition, his service as chairman of the audit and risk committee of American Express has enhanced his expertise in the areas of financial reporting, internal controls and risk management for large, complex companies, which led to the Board’s determination that he is an audit committee financial expert as defined by SEC rules.

 

Mr. Williams is a member of the Audit Committee, the Finance Committee and the Special Programs Committee.

 

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Mike S. Zafirovski

 

LOGO

 

Age 58

Director since 2004

  

Senior Advisor, The Blackstone Group; Former President and Chief Executive Officer, Nortel. Mr. Zafirovski has served as Senior Advisor to The Blackstone Group (private equity) since October 2011. Previously, Mr. Zafirovski served as Director, President and Chief Executive Officer of Nortel Networks Corporation (telecommunications) from November 2005 to August 2009. Prior to that, Mr. Zafirovski was Director, President and Chief Operating Officer of Motorola, Inc. (global communications) from July 2002 to January 2005, and remained a consultant to and a director of Motorola until May 2005. He served as Executive Vice President and President of the Personal Communications Sector (mobile devices) of Motorola from June 2000 to July 2002. Prior to joining Motorola, Mr. Zafirovski spent nearly 25 years with General Electric Company, where he served in management positions, including 13 years as President and Chief Executive Officer of five businesses in the consumer, industrial and financial services arenas, his most recent being President and Chief Executive Officer of GE Lighting from July 1999 to May 2000. Mr. Zafirovski also serves as chairman of the board of DJO Global, Inc. and as a member of the board of Apria Healthcare Group Inc.

 

Mr. Zafirovski provides guidance to our Board on a wide variety of strategic and business matters based on his vast experience leading high-technology enterprises with significant international operations. Mr. Zafirovski’s executive leadership at Nortel, Motorola and GE enable him to provide unique perspectives on strategic planning, technology development, manufacturing, and security and financial matters. Mr. Zafirovski has emphasized corporate governance and quality leadership teams throughout his career, which is particularly valuable given his service as a member of our Governance, Organization and Nominating Committee.

 

Mr. Zafirovski is a member of the Compensation Committee and the Governance, Organization and Nominating Committee.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE

FOR EACH OF THE ABOVE NOMINEES FOR ELECTION AS DIRECTOR.

 

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Corporate Governance

Corporate Governance Principles

The Board of Directors has adopted policies and procedures to ensure effective governance of the Company. Our corporate governance materials, including our Corporate Governance Principles, the charters of each of the Board’s standing committees, our Director Independence Standards and our codes of conduct for directors, finance employees and all employees, as well as information regarding securities transactions by our directors and officers, may be viewed in the corporate governance section of our website at www.boeing.com/corp_gov/. We will also provide written copies of any of the foregoing without charge upon written request to the Office of the Corporate Secretary, Boeing Corporate Offices, 100 North Riverside Plaza, MC 5003-1001, Chicago, Illinois 60606-1596.

The GON Committee periodically reviews our Corporate Governance Principles and proposes modifications to the principles and other key governance practices for adoption by the Board. A copy of our Corporate Governance Principles is included in Appendix 1 to this proxy statement.

Board Composition, Responsibilities and Leadership Structure

The Board of Directors is responsible for overseeing the affairs of the Company. During 2011, the Board held eight meetings, and the five standing committees held a total of 33 meetings. Each director attended more than 88% of the meetings of the Board and the committees on which he or she served during 2011, and average attendance at these meetings exceeded 97%. Absent extenuating circumstances, directors are required to attend our annual meetings of shareholders, and all but one director then serving attended our 2011 Annual Meeting. Following the retirement of Mr. McDonnell and upon the election of directors at the 2012 Annual Meeting, the Board will be reduced to 11 directors.

We do not have a policy requiring that our Chief Executive Officer, or any other member of management, serve as Chairman of the Board. The Board has determined that the appropriate leadership structure for the Board at this time is for Mr. McNerney, our President and Chief Executive Officer, to serve as Chairman of the Board, while also selecting a Lead Director—currently, Mr. Duberstein—to provide independent leadership. Our Lead Director is elected annually by a majority of the independent directors upon a recommendation from the GON Committee. Our Lead Director presides over executive sessions of the nonemployee directors following every regularly scheduled Board meeting (which sessions are not attended by management) and advises the Chairman, in consultation with the other nonemployee directors, as to Board schedules and agendas. The Board has also determined that our Lead Director shall be available to consult with shareholders and call meetings of the nonemployee directors when appropriate. The independent directors believe that our President and Chief Executive Officer’s in-depth knowledge of each of our businesses and the competitive challenges each business faces, as well as his extensive experience as a director and senior member of management at other Fortune 100 companies, make him the director best qualified to serve as Chairman. The Board may subsequently decide, however, to change its leadership structure. See our Corporate Governance Principles, which are set forth in Appendix 1 to this proxy statement, for additional information on the leadership structure of the Board.

Board Committees

The Board has five standing committees. Each committee operates under a charter that has been approved by the Board. A copy of each committee charter is posted in the corporate governance section of our website at www.boeing.com/corp_gov/. The biographical information of each of our directors beginning on page 4 includes the standing committees on which he or she serves. Mr. McDonnell, who will retire at this meeting, serves as Chair of the Compensation Committee and is a member of the GON Committee. The Board also has established a Stock Plan Committee composed of the Chairman, to which the Compensation Committee may delegate certain of its responsibilities.

Audit Committee

The Audit Committee met 11 times in 2011. The Audit Committee oversees our independent auditor and accounting and internal control matters. Its principal responsibilities include oversight of:

 

 

the integrity of our financial statements;

 

 

our compliance with legal and regulatory requirements;

 

 

our independent auditor’s qualifications and independence;

 

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the performance of our internal audit function;

 

 

the performance of our independent auditor; and

 

 

our risk assessment and risk management processes.

The Audit Committee also prepares the Audit Committee Report included on page 54 of this proxy statement.

The Audit Committee is composed entirely of directors who satisfy NYSE director independence standards and our Director Independence Standards, as well as additional independence standards applicable to audit committee members established pursuant to applicable law. The Board has determined that each Audit Committee member is financially literate as defined by NYSE listing standards, and that Ms. Cook and Messrs. Collins, Kellner, Liddy and Williams are audit committee financial experts as defined by the rules of the Securities and Exchange Commission (SEC).

Compensation Committee

The Compensation Committee met seven times in 2011. The Compensation Committee oversees our executive and equity compensation programs. Its principal responsibilities include:

 

 

annually reviewing and approving the salary, incentive awards, equity-based awards and any other long-term incentive awards for our CEO and other corporate officers elected by the Board;

 

 

reviewing employment and severance agreements, change-in-control provisions affecting compensation, and special or supplemental arrangements such as supplemental retirement benefits, if any, and perquisites for elected officers;

 

 

reviewing and approving corporate goals and objectives relevant to CEO compensation and evaluating the CEO’s performance in light of those goals and objectives (in each case, together with the GON Committee) and, together with the other independent directors, determining and approving the CEO’s compensation based on such evaluation;

 

 

reviewing, approving and monitoring compliance with stock ownership requirements applicable to our CEO and other senior executives;

 

 

reviewing periodic reports on our compensation programs as they affect all employees, including management’s assessments as to whether risks arising from such programs are reasonably likely to have a material adverse effect on the Company; and

 

 

approving and overseeing all incentive compensation plans and other equity-based plans and approving, or recommending to the Board to approve, changes to such plans.

The Compensation Committee also prepares the Compensation Committee Report included on page 33 of this proxy statement. The Compensation Committee is composed entirely of directors who satisfy NYSE director independence standards and our Director Independence Standards.

Finance Committee

The Finance Committee met six times in 2011. The Finance Committee’s principal responsibilities include reviewing and, where appropriate, making recommendations to the Board with respect to:

 

 

proposed dividend actions, stock splits and repurchases, and issuances of debt or equity securities;

 

 

strategic plans and transactions, including mergers, acquisitions and divestitures, as well as joint ventures and other equity investments;

 

 

customer financing activities;

 

 

our funding plans and funding plans of our subsidiaries;

 

 

our significant financial exposures, contingent liabilities and major insurance programs;

 

 

our credit agreements and short-term investment policies; and

 

 

employee benefit plan trust investment policies, administration and performance.

In addition, the Finance Committee is responsible for managing risks related to our capital structure, significant financial exposures, major insurance programs and our employee pension plan policies and performance and regularly evaluates financial risks associated with such programs.

 

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The Finance Committee is composed entirely of directors who satisfy NYSE director independence standards and our Director Independence Standards.

Governance, Organization and Nominating Committee

The GON Committee met six times in 2011. The GON Committee’s principal responsibilities include:

 

 

making recommendations to the Board concerning the organization, leadership, structure, size and composition of the Board, as well as the compensation and benefits of nonemployee directors;

 

 

identifying and recommending to the Board candidates who are qualified to become directors under the criteria set forth in our Corporate Governance Principles;

 

 

assessing the independence of directors on an annual basis and making recommendations to the Board with respect to such assessments;

 

 

overseeing the annual performance evaluation process for the Board;

 

 

monitoring and reviewing at least annually the performance of our CEO and plans for senior management succession;

 

 

monitoring compliance with stock ownership requirements for directors;

 

 

considering possible conflicts of interest of directors and officers; and

 

 

reviewing corporate governance developments and, where appropriate, making recommendations to the Board on corporate governance.

The GON Committee works with a third-party search firm to identify potential candidates to serve on the Board. The GON Committee is composed entirely of directors who satisfy NYSE director independence standards and our Director Independence Standards.

Special Programs Committee

The Special Programs Committee met three times in 2011. The Special Programs Committee reviews Company programs that the U.S. government has designated as classified for purposes of national security.

Risk Oversight

Senior management is responsible for day-to-day management of risks facing Boeing, including the creation of appropriate risk management policies and procedures. The Board is responsible for overseeing management in the execution of its responsibilities and for assessing the Company’s approach to risk management. As part of its responsibilities in this area, the Board and its standing committees regularly review material strategic, operational, financial, compensation and compliance risks with senior management. For example, our Senior Vice President, Office of Internal Governance reports to the Audit Committee on a regular basis with respect to compliance with our risk management policies. The Audit Committee is responsible for discussing our overall risk assessment and risk management practices. The Audit Committee also performs a central oversight role with respect to financial and compliance risks, and reports on its findings at each regularly scheduled meeting of the full Board after meeting with our Senior Vice President, Office of Internal Governance, Vice President, Corporate Audit and our independent auditor, Deloitte & Touche LLP. The Compensation Committee considers risk in connection with its design of compensation programs, and has engaged an independent compensation consultant to provide assistance in mitigating compensation-related risk. For more information on the Board’s oversight of risks relating to our compensation practices, see “Executive Compensation—Compensation and Risk” on page 34. In addition, the Finance Committee is responsible for managing risks related to our capital structure, significant financial exposures, major insurance programs and our employee pension plan policies and performance and regularly evaluates financial risks associated with such programs. The full Board also regularly assesses significant risks to the Company in the course of reviews of corporate strategy and the Company’s long-range business plan, including significant new development programs. Additional information about the Board’s responsibilities related to the management of risk is set forth in our Corporate Governance Principles.

Communications with the Board

The Board of Directors has established a process whereby shareholders and other interested parties can send communications to our Lead Director or to the nonemployee directors as a group. This process is described on our website at www.boeing.com/corp_gov/email_the_board.html.

 

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Director Independence

Our Corporate Governance Principles require that at least 75% of the Board satisfy the NYSE criteria for independence. The Board of Directors has adopted Director Independence Standards to assist in assessing director independence. The Director Independence Standards are based on NYSE independence standards. To be considered “independent,” the Board of Directors must affirmatively determine that a director has no material relationship with us other than as a director, either directly or indirectly (such as a partner, shareholder or executive officer of another entity that has a relationship with Boeing). In each case, the Board broadly considers all relevant facts and circumstances.

Under the Director Independence Standards, a director will not be deemed to be “independent” if:

 

 

the director is, or within the last three years has been, employed by us;

 

 

an immediate family member of the director is, or within the last three years has been, an executive officer of Boeing;

 

 

the director, or an immediate family member of the director, is a partner of our internal or external auditor, or within the last three years has been a partner or employee of such a firm and personally worked on our audit within that time;

 

 

the director is an employee of our internal or external auditor;

 

 

an immediate family member of the director is an employee of our internal or external auditor and personally works on our audit;

 

 

the director, or an immediate family member of the director, received more than $120,000 over a twelve-month period in direct compensation from us within the last three years, other than director and committee fees and pensions or other forms of deferred compensation, so long as such compensation is not contingent on continued service;

 

 

the director is, or within the last three years has been, an executive officer of another company where any of our current executive officers serve or served on that company’s compensation committee;

 

 

an immediate family member of the director is, or within the last three years has been, an executive officer of another company where any of our current executive officers serve or served on that company’s compensation committee;

 

 

the director is an employee of a company that makes payments to or receives payments from us for property or services in an amount that exceeds in any of the last three fiscal years $1 million or 2% of that company’s consolidated gross revenues, whichever is greater; or

 

 

an immediate family member of the director is an executive officer of a company that makes payments to or receives payments from us for property or services in an amount that exceeds in any of the last three fiscal years $1 million or 2% of that company’s consolidated gross revenues, whichever is greater.

In addition, the Board of Directors has determined that the following relationships are not considered to be material and would not impair a director’s independence:

 

 

the director’s service as an employee of an organization that has purchased property or services from us, or provided property or services to us, if (1) payments for such property or services have not exceeded the greater of $1 million or 1% of that organization’s or our consolidated gross revenues in each of the past three fiscal years and (2) the director is not compensated directly or indirectly as a result of this relationship other than that the payments add to the revenue of the organization or Boeing; or

 

 

the director’s service as an executive officer of a tax-exempt or charitable organization if, within the preceding three years, our discretionary contributions to the organization (other than employee and director matching contributions under our gift matching programs) in any single fiscal year have not exceeded the greater of $1 million or 2% of that organization’s consolidated gross revenues.

The Board of Directors reviews commercial and charitable relationships of directors on an annual basis. The ownership of a significant amount of stock is not in and of itself a bar to an independence determination but rather one factor that the Board considers.

 

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The Board determines and discloses on an annual basis whether each director satisfies the independence standards. For relationships not covered by the Director Independence Standards, the determination of whether the relationship is material or not, and therefore whether the director may be considered independent, is made by the directors who themselves satisfy the independence standards.

The Board of Directors has reviewed the direct and indirect relationships between us and each of our directors and has determined that David L. Calhoun, Arthur D. Collins, Jr., Linda Z. Cook, Kenneth M. Duberstein, Edmund P. Giambastiani, Jr., Lawrence W. Kellner, Edward M. Liddy, John F. McDonnell, Susan C. Schwab, Ronald A. Williams and Mike S. Zafirovski are independent under NYSE director independence standards and our Director Independence Standards and have either no relationships with us (other than as a director and shareholder) or only immaterial relationships with us. The Board reached the same determination with respect to John H. Biggs who served as a director until May 2011, John E. Bryson who served as a director until June 2011, and William M. Daley who served as a director until January 2011. W. James McNerney, Jr. is not an independent director because he is our President and Chief Executive Officer.

In making the independence determination with respect to Mr. Williams, our other independent directors considered payments we made to Aetna Inc., Mr. Williams’ former employer. The services Aetna provides to us consist of third-party administration services and employee programs in connection with certain Boeing employee benefit plans, including health care claim administration, leave of absence management services and long-term disability insurance. In addition, several of our defined benefit plans hold long-standing annuity contracts with Aetna. The aggregate amount of payments made to Aetna is significantly less than the thresholds described above.

In making the independence determination with respect to Mr. Daley, our independent directors considered payments we made to and received from JPMorgan Chase & Co., Mr. Daley’s former employer. The aggregate amount of such payments is significantly less than the thresholds described above. Mr. Daley resigned from our Board and JPMorgan Chase effective as of January 7, 2011 in order to serve as White House Chief of Staff.

Codes of Conduct

The Board expects directors, officers and employees to act ethically at all times and adhere to all relevant codes of conduct. Shareholders may view codes of conduct applicable to our directors and employees at www.boeing.com/corp_gov/. Only the Board may grant a waiver of any code of conduct provision for a director or executive officer and any such waiver will be promptly disclosed. If an actual or potential conflict of interest arises for a director, the director shall promptly inform the Chairman of the Board or the Chair of the GON Committee. All directors are required to recuse themselves from any discussion or decision affecting their personal, business or professional interests.

Outside Board Memberships

Our CEO and other officers elected by the Board must obtain the approval of the GON Committee before accepting an invitation to serve on the board of any other public company or other for-profit entity. Directors must notify the GON Committee before accepting an invitation to serve on the board of any other public company or other for-profit entity, and must not accept such service until being advised by the Chair of the GON Committee that the GON Committee has determined that service on such other board would not create regulatory issues or potential conflicts of interest and would not conflict with Boeing policies. A director may not serve on the boards of more than four other public companies or, if the director is an active chief executive officer or equivalent of another public company, on the boards of more than two other public companies. While we acknowledge the value in having directors and officers with significant experience in other businesses and activities, directors are expected to ensure that other commitments, including outside board memberships, do not interfere with their duties and responsibilities as members of the Board.

In January 2009, Nortel Networks Corporation, for which Mr. Zafirovski served as Director, President and Chief Executive Officer, and subsidiary companies filed for bankruptcy protection in the United States, Canada and Europe. The Board has concluded that these events do not impair Mr. Zafirovski’s ability to continue to serve as an independent director. Mr. Zafirovski resigned from Nortel on August 9, 2009.

 

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Director Compensation

We provide compensation to our nonemployee directors in order to:

 

 

align their interests with the long-term interests of our shareholders,

 

 

attract and retain outstanding director candidates who have the requisite experience and background as set forth in our Corporate Governance Principles, and

 

 

recognize the substantial time commitments required to exercise oversight of the Company and fulfill the other responsibilities required of our directors.

Mr. McNerney, our sole employee director, does not receive additional compensation for his Board service.

The GON Committee annually assesses the form and amount of compensation and benefits for nonemployee directors, and makes appropriate recommendations to the Board. When making its recommendations, the GON Committee considers director compensation levels at companies that are also benchmarks for our executive compensation program. See “Executive Compensation—Compensation Discussion and Analysis—Governance of Pay Setting Process—Benchmarking Against Our Peer Group” beginning on page 31 for more information. Compensation Advisory Partners LLC serves as the GON Committee’s independent consultant with respect to the compensation and benefits of nonemployee directors. See “Compensation Consultants” on page 18 for more information. Independent directors may not receive, directly or indirectly, any consulting, advisory or other compensatory fees from us.

Our nonemployee director compensation program consists of cash (board, committee chair and lead director annual retainer fees) and equity (retainer stock units). Our directors are also eligible to participate in our Board Member Leadership Gift Match Program, which matches dollar-for-dollar charitable contributions made by the director to non-profit organizations or educational institutions with which the director is substantially involved, with a maximum match of $31,000 per director on an annual basis.

 

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2011 Director Compensation Table

The following table sets forth information regarding compensation for each of our nonemployee directors in 2011.

 

Name    Fees Earned
or Paid in
Cash ($)(10)
    

Stock

Awards
($)(11)

     All Other
Compensation
($)(12)
    

Total

($)

 

John H. Biggs(1)

   $ 62,500       $ 70,000       $ 31,000       $ 163,500   

John E. Bryson(2)

     55,000         70,000         -         125,000   

David L. Calhoun

     110,000         140,000         30,000         280,000   

Arthur D. Collins, Jr.(3)

     125,000         140,000         31,500         296,500   

Linda Z. Cook

     110,000         140,000         41,500         291,500   

William M. Daley(4)

     2,139         2,722         -         4,861   

Kenneth M. Duberstein(5)

     150,000         140,000         31,500         321,500   

Edmund P. Giambastiani, Jr.

     110,000         140,000         3,750         253,750   

Lawrence W. Kellner(6)

     -         -         500         500   

Edward M. Liddy(7)

     117,500         140,000         15,000         272,500   

John F. McDonnell(8)

     125,000         140,000         31,500         296,500   

Susan C. Schwab

     110,000         140,000         11,850         261,850   

Ronald A. Williams(9)

     118,219         150,685         30,500         299,404   

Mike S. Zafirovski

     110,000         140,000         31,500         281,500   

 

(1)

Mr. Biggs retired from the Board effective May 2, 2011. Audit Committee Chair through May 1, 2011.

 

(2)

Mr. Bryson resigned from the Board effective June 13, 2011 following his nomination to serve as United States Secretary of Commerce.

 

(3)

Finance Committee Chair.

 

(4)

Mr. Daley resigned from the Board effective January 7, 2011 to serve as White House Chief of Staff. Mr. Daley’s cash and retainer stock units were pro-rated based on active service.

 

(5)

Lead Director; Governance, Organization and Nominating Committee Chair.

 

(6)

Mr. Kellner joined the Board on October 3, 2011, after the payment date for the fourth quarter 2011 installment of retainer fees. Compensation earned in connection with his service as a director in 2011 will be paid in 2012 and will be reported in the 2012 Director Compensation Table.

 

(7)

Audit Committee Chair effective May 2, 2011.

 

(8)

Compensation Committee Chair.

 

(9)

Mr. Williams joined the Board on December 2, 2010, after the payment date for the fourth quarter 2010 installment of retainer fees. The amounts shown include $8,219 cash compensation earned in 2010 but paid in 2011 and the grant date fair value of $10,685 for 161 retainer stock units earned in 2010 but awarded in 2011.

 

(10)

Reflects total cash compensation paid to each director in 2011 and includes amounts deferred at the director’s election pursuant to our Deferred Compensation Plan for Directors.

 

(11)

Reflects the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for the retainer stock units awarded to each director in 2011. Such grant date fair value for these awards is equal to the Fair Market Value of the underlying Boeing stock on the grant date. The “Fair Market Value” for a single trading day is the average of the high and low per share trading prices for Boeing stock as reported by The Wall Street Journal for the New York Stock Exchange Composite Transactions. As of December 31, 2011, the following nonemployee directors had the aggregate number of deferred stock units accumulated in their deferral accounts for all years of service as a director from deferrals of cash compensation and awards of retainer stock units, including additional deferred stock units credited as a result of dividend equivalents earned with respect to the deferred stock units, as follows: Mr. Biggs, 38,657 units; Mr. Bryson, 45,128 units; Mr. Calhoun, 5,879 units; Mr. Collins, 19,205 units; Ms. Cook, 22,106 units; Mr. Duberstein, 41,764 units; Admiral Giambastiani, 4,786 units; Mr. Liddy, 5,825 units; Mr. McDonnell, 27,229 units; Ambassador Schwab, 3,848 units; Mr. Williams, 2,251 units; and Mr. Zafirovski, 26,146 units.

 

(12)

Consists of gift matching of charitable contributions under the Board Member Leadership Gift Match Program as follows: $31,000 for each of Messrs. Biggs, Collins, Duberstein, McDonnell and Zafirovski; $30,000 for each of Messrs. Calhoun and Williams; $15,000 for Mr. Liddy; $11,350 for Ambassador Schwab; $3,250 for Admiral Giambastiani; and $41,000 for Ms. Cook (consisting of $31,000 attributable to 2011 and $10,000 attributable to 2010) and a $500 donation made by the Company to a charity of each nonemployee director’s choice (other than Messrs. Calhoun and Liddy). Directors derive no financial benefit from any of these charitable contributions.

 

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Cash Compensation

In 2011, nonemployee directors received a cash annual retainer fee of $110,000. Our Lead Director received an additional annual retainer fee of $25,000. Chairs of the Audit Committee, the Compensation Committee, the GON Committee and the Finance Committee received an additional annual retainer fee of $15,000. We do not pay additional fees for attending Board or committee meetings. All retainer fees are payable in four quarterly installments as of the first business day of each quarter and are pro-rated for directors who join the Board during a quarter. We reimburse nonemployee directors for actual travel and out-of-pocket expenses incurred in connection with their services.

Deferred Compensation

Pursuant to our Deferred Compensation Plan for Directors, nonemployee directors may elect to defer all or part of their cash compensation into an interest-bearing, cash-based account or a stock unit account as deferred stock units. The number of deferred stock units is calculated by dividing the amount of the deferred fees by the Fair Market Value of Boeing stock on each of the four quarterly dates on which the annual retainer fee is paid. Directors do not have the right to vote or transfer deferred stock units. Deferred stock units earn the equivalent of dividends, which are credited as additional deferred stock units, and will be distributed as shares of Boeing stock. Directors may elect to receive the distribution in a lump sum or in annual payments over a maximum of 15 years beginning no earlier than the January following the year of the director’s termination of Board service. For the 2011 deferrals, the Fair Market Value on each of January 3, April 1, July 1 and October 3, 2011 was $66.34, $74.40, $74.27 and $59.69, respectively. The following directors elected to defer cash compensation into deferred stock units as follows: Mr. Bryson, $55,000 for 784 units; Mr. Collins, $125,000 for 1,835 units; Mr. Daley, $2,139 for 32 units; Mr. Liddy, $117,500 for 1,729 units; and Mr. Zafirovski, $110,000 for 1,615 units. Mr. Calhoun and Ambassador Schwab each elected to defer $110,000 of their respective 2011 cash compensation into an interest-bearing, cash-based account. Due to Mr. Daley’s immediate assumption of responsibilities as White House Chief of Staff following his resignation from the Board and to comply with federal conflicts of interest requirements, the Compensation Committee authorized a lump sum distribution of Mr. Daley’s deferred stock units.

Stock-Based Compensation

Our nonemployee directors receive equity compensation in the form of retainer stock units, which are credited to the account of the director pursuant to our Deferred Compensation Plan for Directors and are not distributed as shares of Boeing stock until after termination of Board service. The Board believes that retainer stock units align directors’ interests with the long-term interests of our shareholders. During 2011, each nonemployee director was entitled to receive retainer stock units valued at $140,000. Retainer stock units are awarded in four quarterly installments as of the first business day of each quarter and are pro-rated for directors who join the Board during a quarter. Each nonemployee director received an aggregate of 2,056 retainer stock units during 2011, except for (a) Mr. Biggs, Mr. Bryson, and Mr. Daley, who left the Board during 2011 and were awarded 998, 998, and 41 retainer stock units, respectively, representing units earned for service during 2011; (b) Mr. Kellner, who did not receive any retainer stock units because he joined the Board after the award date for the fourth quarter 2011 retainer stock units; and (c) Mr. Williams, who received an additional 161 units representing units earned during 2010 but not awarded until 2011 because he joined the Board after the award date for the fourth quarter 2010 retainer stock units. The retainer stock units are credited to the director’s account (an unfunded stock unit account) in our Deferred Compensation Plan for Directors. Directors do not have the right to vote or transfer retainer stock units. Retainer stock units earn the equivalent of dividends, which are credited as additional retainer stock units. Directors may elect to receive the distribution of shares in respect of these units in a lump sum or in annual payments over a maximum of 15 years beginning no earlier than the January following the year of the director’s termination of Board service. Before 2005, nonemployee directors received annual option grants. As of December 31, 2011, each of Messrs. Biggs, Duberstein and McDonnell had 7,200 outstanding stock options, all of which are fully vested.

Director Stock Ownership Requirements

In order to further align the interests of nonemployee directors with the long-term interests of our shareholders, the Board has determined that, by the end of his or her third and sixth year as a director, each nonemployee director should own stock or stock equivalents with a value equal to three and five times, respectively, the annual cash retainer fee. The GON Committee annually reviews nonemployee directors’ ownership relative to the stock ownership requirements, and makes recommendations as appropriate. See our Corporate Governance Principles, which are set forth in Appendix 1 to this proxy statement, for additional information. All directors currently meet the applicable equity ownership requirements.

 

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Compensation Consultants

In July 2010, the Compensation Committee engaged Compensation Advisory Partners LLC to serve as independent consultant to both the Compensation Committee and GON Committee. In this capacity, Compensation Advisory Partners provides peer group pay practices and other relevant benchmarks with respect to chief executive officer and nonemployee director compensation to the Compensation Committee and the GON Committee, respectively, as well as an ongoing overview of regulatory developments and compensation trends. In addition, Compensation Advisory Partners reviews and advises the Compensation Committee concerning management’s compensation data and recommendations. Compensation Advisory Partners takes direction from the Compensation and GON Committees, as appropriate, reports directly to the committees and does not provide any other services to Boeing. See discussion beginning on page 30 under “Executive Compensation—Compensation Discussion and Analysis—Governance of Pay Setting Process—Role of Board, Management and Consultants.”

Related Person Transactions

Some of our directors, executive officers, greater than 5% shareholders and their immediate family members may be directors, officers, partners, employees or shareholders of entities with which we do business in the ordinary course. We carry out transactions with these firms on customary terms, and, in many instances, our directors and executive officers may not have knowledge of them.

Policies and Procedures

We regularly review transactions with related persons, including sales, purchases, transfers of realty and personal property, services received or furnished, use of property and equipment by lease or otherwise, borrowings and lendings, guarantees, filings of consolidated tax returns and employment arrangements. Under our policies and procedures, related persons include our executive officers, directors, director nominees and holders of more than 5% of our stock, as well as their immediate family members. The findings of our departments are furnished to the Vice President, Accounting and Financial Reporting, who reviews any potential related person transactions identified for materiality and evaluates the need for disclosure under SEC rules.

In addition, the GON Committee assesses possible conflicts of interest of directors and executive officers, and considers for review and approval or ratification of any transaction or proposed transaction required to be disclosed under SEC rules in which Boeing is or is to be a participant and the amount involved exceeds $120,000, and in which a director, director nominee, executive officer or an immediate family member of such persons has or will have an interest.

Executive officers are also subject to our policies and procedures applicable to all employees, which require them to disclose potential conflicts of interest and us to conduct reviews and make determinations with respect to specified transactions. Our Vice President, Ethics and Business Conduct, oversees this review and determination, and refers to the GON Committee for review and approval or ratification possible conflicts of interest involving executive officers. The factors considered in making the determination include:

 

 

the executive officer’s duties and responsibilities toward us; and

 

 

if the transaction includes another company:

 

  -  

the company or business involved in the transaction, including the product lines and market of the company or business;

 

  -  

the relationship between us and the other company or business, if any (for example, if the other company is one of our suppliers, customers or competitors); and

 

  -  

the relationship between the executive officer or his or her immediate family and the other company or business (for example, owner, co-owner, employee or representative).

Directors are required to disclose to the Chairman of the Board or the Chair of the GON Committee any situation that involves, or may reasonably be expected to involve, a conflict of interest with us, including:

 

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engaging in any conduct or activities that would impair our relationship with any person or entity with which we have proposed or propose to enter into a business or contractual relationship;

 

 

accepting compensation from us other than compensation associated with his or her activities as a nonemployee director unless such compensation is approved in advance by the Chair of the GON Committee;

 

 

receiving improper gifts from persons or entities that deal with us; and

 

 

using our assets, labor or information for personal use except as outlined in our policies and procedures or unless approved by the Chair of the GON Committee or as part of a compensation or expense reimbursement program available to all directors.

Directors must recuse themselves from any discussion or decision affecting their personal, business or professional interests.

Finally, pursuant to our Corporate Governance Principles, we may not, directly or indirectly, extend or maintain credit or arrange for or renew an extension of credit in the form of a personal loan to or for any director or executive officer.

Certain Transactions

Evercore Trust Company, N.A. (“Evercore”), is a beneficial holder of more than 5% of our outstanding common stock according to Amendment No. 4 to Schedule 13G filed by Evercore with the SEC on February 13, 2012. Evercore is the investment manager for shares of our common stock held by The Boeing Company Employee Savings Plans Master Trust (the “Savings Plans Trust”) and is entitled to an annual fee based on the market value of our common stock in the Savings Plans Trust. In 2010 and 2011, these fees totaled approximately $878,000 and $930,000, respectively. During 2011, Evercore also served as the investment manager for shares of our common stock held by The Boeing Company Employee Retirement Plans Master Trust (the “Retirement Plans Trust”) on behalf of certain of our retirement plans and received fees of approximately $211,000 for such services.

State Street Bank and Trust Company (“State Street”) is a beneficial holder of more than 5% of our outstanding common stock according to a Schedule 13G filed by State Street Corporation with the SEC on February 13, 2012. State Street is the trustee of the Savings Plans Trust. During 2011, the Savings Plans Trust paid State Street approximately $2.4 million for its services as trustee of the Savings Plans Trust and for services relating to the Savings Plans Trust’s custody accounts held at State Street containing cash and investable securities. In addition, State Street Global Advisors, a division of State Street, acted as investment manager for various investment fund options within the Savings Plans Trust and received approximately $3.8 million for such services in 2011.

BlackRock, Inc. (“BlackRock”) is a beneficial holder of more than 5% of our outstanding common stock according to a Schedule 13G filed by BlackRock with the SEC on February 9, 2012. BlackRock acted as an investment manager for certain investment fund options within the Savings Plans Trust and received approximately $7.7 million for such services in 2011. BlackRock also provided investment management and investment analytics services to the Retirement Plans Trust and received approximately $6.6 million for such services in 2011.

We, from time to time, enter into customary commercial and investment banking relationships with Evercore, State Street, BlackRock and their respective affiliates.

 

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Advisory Vote to Approve Named Executive Officer Compensation (Item 2)

Our Board, pursuant to Section 14A of the Securities Exchange Act of 1934, seeks your advisory vote approving the compensation of our named executive officers as set forth in this proxy statement under the heading “Executive Compensation,” including the Compensation Discussion and Analysis and the accompanying compensation tables and related material.

For the reasons discussed below, our Board recommends that you vote FOR the resolution approving the compensation of our named executive officers.

We have designed our executive compensation program to attract and retain highly qualified, superior leaders, reward performance, and align our executives’ interests with the long-term interests of our shareholders. We believe that our recent performance validates this approach, as evidenced in part by total one- and three-year annualized shareholder returns of 15% and 23% as of December 31, 2011. Our Compensation Discussion and Analysis, which begins on page 21, describes in detail the components of our executive compensation program and the process by which our Board makes executive compensation decisions. Highlights of our program include the following:

Pay for Performance

 

 

no guaranteed bonuses;

 

 

our annual and long-term incentive metrics drive competitive behavior by focusing our executives on the balanced objectives of increasing revenues, reducing costs and effectively managing net assets;

 

 

our executives received below-target long-term incentive performance award payouts for the 2009-2011 cycle, but received above-target annual incentive payments due to strong core operating performance across each of our businesses in 2011;

 

 

89% of our Chief Executive Officer’s 2011 target compensation was variable and tied to performance, and we have not increased his base salary since March 2008;

Alignment with Shareholder Interests

 

 

no accelerated vesting of equity awards upon a change-in-control;

 

 

no accelerated vesting of annual or long-term incentive program awards, other than on a pro-rated basis based on active employment during the vesting period for performance awards and restricted stock units;

 

 

substantial stock ownership requirements, including 6x base salary for our CEO, ensuring that our senior executives maintain a significant stake in our long-term success;

Responsible Pay Practices

 

 

beginning January 1, 2012, no tax gross-ups to our executives other than for relocation expenses;

 

 

voluntary adoption of key governance reforms anticipated in future SEC rulemaking, such as clawbacks, prohibiting hedging, and engaging an independent compensation consultant; and

 

 

our equity plans prohibit repricing and buybacks of stock options.

We believe that our executive compensation program plays a key role in driving Boeing’s long-term performance, as evidenced by Boeing’s strong financial and operating performance in 2011 despite challenging economic conditions. In future years, we expect to continue to drive performance in our businesses by rewarding executives who deliver strong results and tying executive compensation levels to demonstrated individual and business-level performance.

In 2011, shareholders approved the compensation of our named executive officers with a FOR vote of 93.5%. This year, we once again request your vote on the following nonbinding resolution:

RESOLVED: That the compensation paid to the named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.

 

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Executive Compensation

Compensation Discussion and Analysis

Executive Summary

Boeing’s Executive Compensation Program.    We design our executive compensation program to attract and retain the talent needed to achieve our business and financial objectives, reward executives who achieve our objectives, and align executives’ interests with the long-term interests of our shareholders. The principal elements of our executive compensation program are base salary, an annual incentive award opportunity, and long-term incentive compensation, which consists of performance awards, restricted stock units and stock options. Most of our executives’ compensation, including all elements of our annual and long-term incentive programs, is variable and tied to individual, business unit and/or Company performance during the relevant performance period. Individual performance is measured against an individual’s achievements with respect to business goals and objectives and an assessment relative to our six leadership attributes. Other key features of our executive compensation program include:

 

 

no guaranteed bonuses;

 

 

no accelerated vesting of equity awards in connection with a change-in-control;

 

 

no accelerated vesting of long-term incentive program awards, other than pro-rated vesting of performance awards and restricted stock units based on active employment during the vesting period;

 

 

forfeiture of all unvested stock options upon termination of employment for any reason;

 

 

beginning January 1, 2012, no tax gross-ups other than for relocation expenses;

 

 

substantial stock ownership requirements, including six times base salary for our CEO, that align the interests of our senior executives with the long-term interests of shareholders; and

 

 

voluntary adoption of key governance reforms anticipated in future SEC rulemaking, such as clawbacks, prohibiting hedging, and engaging an independent compensation consultant.

2011 Performance Highlights.    Our executives’ realized compensation is directly tied to financial and operating performance that drives sustained, long-term increases in shareholder value and meets or exceeds the expectations set by our Board of Directors. In 2011, Boeing delivered strong core operating performance across each of its businesses, resulting in:

 

 

total revenues of $68.7 billion, compared with $64.3 billion in 2010;

 

 

earned net income of $5.34 per share, compared with $4.46 per share in 2010;

 

 

operating cash flow of $4.0 billion, compared with $3.0 billion in 2010; and

 

 

total backlog at year-end of $355.5 billion, compared with $320.8 billion at year-end 2010.

In addition, in December 2011 the Board increased the quarterly dividend from $0.42 to $0.44 per share. Other 2011 performance highlights include:

 

Achievement

  

Business Unit

 

Strong Shareholder Returns. Yielded 15% one-year return and 23% annualized three-year
return

   Enterprise-wide

 

U.S. Air Force Tanker Win. Selected by the U.S. government to supply the KC-46A, the
U.S. Air Force’s next-generation aerial refueling tanker

   Defense (BDS) and
Commercial (BCA)

 

Certification and Delivery of 787 and 747-8. Delivered 787 Dreamliner, world’s first
composite aircraft, and 747-8 Freighter to launch customers

   Commercial
(BCA)

 

737 MAX Launch and Record 777 Orders. Launched the 737 MAX program, the new
variant of the best-selling single-aisle aircraft, and received record orders for 777 aircraft

   Commercial
(BCA)

 

Saudi F-15 Win. Completed a U.S. agreement with Saudi Arabia for new and upgraded F-15
fighters, and pending agreements involving Apache and AH-6 helicopters

   Defense (BDS)

 

Ground-based Midcourse Defense (GMD) System Award. Selected by U.S. Missile
Defense Agency to lead industry team for GMD development, integration, testing, operations
and sustainment activities

   Defense (BDS)

 

 

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How We Measure Performance. When evaluating potential performance metrics, the Board’s Compensation Committee considers factors such as historical correlation to long-term shareholder value, the cyclical nature of our business, Boeing’s substantial long-term investments in property, plant and equipment, the substantial costs and risks associated with product development activity, how potential metrics incorporate both corporate earnings and efficient use of net assets, and the extent to which potential metrics are clear and straightforward to employees, shareholders and other stakeholders. The Compensation Committee believes that economic profit (net operating profit after tax, less a capital charge) remains the most effective performance metric for each of our incentive plans. For additional information on economic profit, see “Program Design and Principal Elements of Executive Compensation—Performance Metric for Incentive Plans” on page 24.

In order to better reflect the core operating performance of the Company and its businesses, the Compensation Committee may adjust economic profit to account for certain items not contemplated at the outset of a performance period such as (1) significant external events outside management’s control, (2) management decisions intended to drive long-term value but with short-term financial impacts, such as major acquisitions or dispositions, and (3) significant changes to market conditions. Any references to economic profit in this proxy statement shall mean economic profit if and as adjusted to account for such items. See “Annual Incentive Plan—2011 Annual Incentive Assessment” beginning on page 26 and “Long Term Incentive Program—2009-2011 Performance Award Assessment” on page 28.

The following table sets forth our economic profit goals and actual performance as measured against those goals for the 2011 annual incentive plan and performance awards under the 2009-2011 long-term performance program.

 

Compensation
Element
   Goal    Actual Performance      Key Drivers of Actual Performance
            ($)                %           
2011 Annual Incentive Plan    $1.252B    $1.932B    160%    Above-target performance due to strong, integrated performance across the Company and better-than-expected mitigation of risks

2009-2011 Performance Awards

   $9.099B    $8.119B    68%    Below-target performance primarily due to delays and performance issues on development programs, the unexpected worldwide economic downturn beginning in late 2008, and continued challenges with the current U.S. defense budget and contracting environment

2011 CEO Compensation.    In 2011, our Chief Executive Officer, W. James McNerney, Jr., received a base salary of $1.93 million, which has not increased since March 2008. In 2011, Mr. McNerney’s target annual incentive payout remained at 170% of base salary with a maximum potential payout of 230% of base salary. Mr. McNerney received an annual incentive payout of $4,439,000 for 2011. In addition, Mr. McNerney received a 2009-2011 performance award of $4,265,300, or 68% of the target set at the beginning of the performance period in 2009. In 2011, the Compensation Committee increased Mr. McNerney’s aggregate target awards under our long-term incentive program to 590.7% of base salary. Mr. McNerney’s aggregate long-term incentive target awards were 650% of base salary in 2009 and 570% of base salary in 2010.

2011 Say-on-Pay Advisory Vote Outcome

In 2011, our executive compensation program received 93.5% approval from our shareholders. We believe that this result demonstrates our shareholders’ strong endorsement of the Compensation Committee’s executive compensation decisions and policies. Our shareholder vote was one of many factors contributing to the Compensation Committee’s decision to refrain from making significant changes to our compensation mix, peer group, target levels, performance metrics or other compensation policies. The Compensation Committee will continue to consider results from future shareholder advisory votes, which will be held annually until the next shareholder advisory vote on the frequency of future votes on executive compensation, in its ongoing evaluation of our executive compensation programs and practices.

 

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Executive Compensation Program Objectives

 

   
Program Objective    Achievement of Objective
Link compensation to achievement of business objectives   

•   Most of executives’ pay is not guaranteed, and is tied to individual and business performance.

•   Economic profit, the metric for the annual incentive plan and performance awards under the long-term incentive program, is tied to our annual and long-term strategic, financial and operational objectives.

Attract and retain world-class talent   

•   Compensation elements and award opportunities are designed to enable us to compete effectively for talent.

•   High-performers are rewarded with above-target pay when Company, business unit and/or individual goals are exceeded.

Shareholder alignment   

•   Senior executives are required to meet and maintain significant stock ownership requirements.

•   We do not accelerate vesting of equity awards in connection with a change-in-control.

•   Approximately 80-90% of named executive officer pay opportunity is variable (delivered through the combination of annual and long-term incentive awards) where the value is linked to share price appreciation and achievement of economic profit targets.

Risk oversight   

•   Our annual incentive awards and performance awards are capped.

•   Each of our named executive officers is subject to substantial stock ownership requirements, as well as clawback provisions and prohibitions against hedging and other speculative activity.

•   Risk considerations are discussed in additional detail on page 34.

Program Design and Principal Elements of Executive Compensation

2011 Named Executive Officers and Annualized Target Compensation.    We design our executive compensation program to attract and retain the talent needed to achieve our business and financial objectives, reward executives who achieve our objectives, and align executives’ interests with the long-term interests of our shareholders. The Board’s Compensation Committee reviews our executive compensation program on at least an annual basis and, with the assistance of its independent compensation consultant, compares our executive compensation practices to those of our peers.

The table below sets forth our 2011 named executive officers (NEOs) with their annualized target compensation elements and target total compensation. Base salary is the pay rate in effect on March 1, 2011 and annualized to represent a full year of earnings. In each case, “target” amounts are those amounts that would have been earned by the executive assuming that the Company and the executive achieved target performance set by the Compensation Committee for the award payout. 2011 Target Long-Term Incentive Compensation reflects target value of all awards under our long-term incentive program, which consists of performance awards, stock options and RSUs. We believe the target compensation levels described below provide for competitive pay based on the market value of the executive’s position and attract and retain the executive talent needed to run the business.

 

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(Dollars in thousands)

Name

 

2011
Annualized
Base
Salary

(a)

   

2011 Target
Annual
Incentive as a
% of Base
Salary

(b)

   

2011 Target
Annual
Incentive
Compensation

(c)=(a) x (b)

   

2011 Target
Long-Term
Incentive as a
% of Base
Salary

(d)

   

2011 Target
Long-Term
Incentive
Compensation

(e)=(a) x (d)

    2011 Total
Annualized
Target Direct
Compensation
(f)=(a)+(c)+(e)
 

W. James McNerney, Jr.

Chairman, President and CEO

  $ 1,930        170   $ 3,281        590.7   $ 11,401      $ 16,612   

James A. Bell

Executive V.P., Corporate President and CFO

    896        100     896        425     3,808        5,600   

James F. Albaugh

Executive V.P., President and CEO, Commercial Airplanes

    1,004        100     1,004        425     4,267        6,275   

J. Michael Luttig

Executive V.P. and General Counsel

    779        95     740        350     2,727        4,246   

Dennis A. Muilenburg

Executive V.P., President and CEO, Defense, Space & Security

    800        90     720        350     2,800        4,320   

Performance Metric for Incentive Plans.    We use economic profit as the performance metric throughout our incentive compensation programs for employees at all levels. Economic profit measures our ability to generate earnings after covering the capital expenses associated with our net assets. More specifically, we believe that economic profit effectively integrates the key drivers of our profitability and long-term growth, including earnings and cash generation, ongoing productivity, and efficient use of net assets, while also taking into account Boeing’s cost of capital. Another advantage of economic profit as a performance metric for Boeing is its historical correlation to shareholder value. For these reasons, the Compensation Committee has determined that economic profit is the most appropriate metric for both our annual and long-term incentive programs. Economic profit is calculated as follows:

 

 

Net operating profit after tax (operating earnings, adjusted to exclude share-based plans expense and Boeing Capital Corporation interest expense, and reduced for taxes using an effective tax rate), less

 

 

Capital charge (average net assets multiplied by a targeted cost of capital, where average net assets excludes cash, marketable securities, debt and certain pension and other post-retirement benefit obligations).

Economic profit is aligned with our enterprise financial performance targets and is the sole financial metric for our broad-based, annual non-executive employee incentive plan. This alignment between executives and non-executives encourages all of our employees to work towards the same financial goals.

We also measure our Adjusted Operating Cash Flow, which determines the limits above which annual and long-term incentive awards for our NEOs (except for the CFO) may no longer be excluded from Internal Revenue Code Section 162(m) deductibility limits as “qualified performance-based compensation.” “Adjusted Operating Cash Flow” means the net cash provided by operating activities of the Company as reported in the Company’s consolidated statement of cash flows included in its Annual Report on Form 10-K, adjusted to eliminate the effect on operating cash flows of net customer financing cash flows, as reported in the Company’s consolidated statement of cash flows included in its Annual Report on Form 10-K. Incentive deductibility is discussed in more detail on page 33.

Determination of Performance Goals (Economic Profit) and Awards.    Economic profit goals are based on the Company’s Board-approved long-range business plan. These goals take into account expectations regarding the probability of achieving performance goals and consider applicable enterprise-wide and business unit risks. Our goals also incorporate a degree of “stretch” to push our executives to achieve a higher level of performance. Specific probabilities of achievement are not assigned to the economic profit goals. Goals are set at the beginning of the performance period (one year for annual incentive awards and three years for long-term performance awards). This process is summarized below.

 

 

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Beginning of Performance Period

  

During Performance Period

  

End of Performance Period

•   Economic profit goals and corresponding award opportunities are developed by management and approved by the Compensation Committee based on the Company’s long-range business plan

  

•   Economic profit performance is monitored relative to goals

 

•   Economic profit goals cannot be changed

  

•   Management presents actual economic profit results relative to goals

 

•   Compensation Committee evaluates results and approves final awards

As part of its evaluation of results, the Compensation Committee may make adjustments in its sole discretion to better reflect the core operating performance of the Company and its businesses. Any adjustments at the end of the performance period will be based on the Compensation Committee’s judgment. Adjustments considered for the annual awards in a given year may or may not be applied to the long-term performance awards.

Mix of Pay.    Approximately 80% to 90% of target NEO compensation is variable and tied to internal financial, strategic, operational, stock price and/or individual performance. If performance is at or above target levels, the executive’s compensation will be at or above target levels. Conversely, if performance is below target levels, the executive’s compensation will be below target levels. When setting performance goals for annual incentive and long-term performance awards, the Committee seeks to ensure that the target payout is achievable if the Company executes according to its long-range business plan during the applicable period. It is expected that maximum performance and less-than-threshold (i.e., zero payout) performance would each be infrequent.

The Compensation Committee determines the portion of each executive’s compensation that will be performance-based, with the variable portion increasing as the executive’s responsibilities and contributions to the Company increase. Variable compensation consisted of the target annual incentive and the target value of performance awards, stock options and restricted stock units granted in 2011. The percentages below are calculated by dividing (1) each compensation element by (2) target total compensation, which consists of base salary plus variable compensation.

2011 Target Total Direct Compensation

 

 

LOGO

Base Salary.     Base salaries are designed to attract and retain talented executives and to provide a fixed base of cash compensation for each executive. Salaries are reviewed annually. Salaries may be adjusted based on individual factors, such as competencies, skills, experience, performance, and competitive considerations, as well as in connection with the assumption of new responsibilities or promotions. There are no specific weightings assigned to these individual factors. Annual salary adjustments are generally effective in March. When setting base salaries, the Compensation Committee also considers the impact of base salary on other compensation elements, such as the size of target incentive awards.

During 2011, the Compensation Committee did not change Mr. McNerney’s base salary. Effective as of March 1, 2011, the Compensation Committee increased the base salaries of the other NEOs by between 2.0% and 3.0% with the exception of Mr. Muilenburg. Mr. Muilenburg received an increase of 14.3% due to his base salary being significantly below market upon promotion to his current position.

 

 

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Annual Incentive Plan.    The annual incentive plan is designed to reward executives based on the achievement of Company and individual goals for the performance year. Executives are assigned a target incentive award based on their pay grade. Actual incentive awards are determined by Company, business unit (if applicable) and individual performance scores (with targets of 1.0) and paid 100% in cash. Our CEO’s employment agreement provides for a maximum award of 230% of his base salary. The mechanics of the annual incentive plan are as follows:

 

Target Annual

Incentive Award

  X  

Company/Business Unit

Performance Score

  X  

Individual

Performance Score

  =  

Actual Annual

Incentive Award

•   % of base salary (based on pay grade)

 

•   CEO annual incentive target of 170% of salary

 

•   Other NEO annual incentive targets range from 90% to 100% of salary

   

•   Based on economic profit

 

•   Score can range from 0.0 to 2.0 (target of 1.0)

 

•   For executives in the two principal business units, including Messrs. Albaugh and Muilenburg, Company results are weighted 75% and business unit results are weighted 25%

   

•   Measures business performance and leadership attributes

•   Scores can range from 0.0 to 2.0 (target of 1.0)

•   Scores recommended by management (CEO score determined by the Compensation Committee)

   

•   Maximum award of 200% of target (for CEO, subject to cap of 230% of salary)

Individual performance scores for elected officers other than the CEO are initially assigned by the CEO, subject to review and approval by the Compensation Committee. The CEO’s individual performance score is determined by the Compensation Committee. Individual performance scores generally fall between 0.80 and 1.20 and generally average to 1.0 for each executive grade. Two components make up the individual performance score:

 

 

Business Performance Score (weighted 70%)—A qualitative and quantitative assessment of an executive’s individual performance goals and contributions, value of contributions relative to peers and overall organization performance throughout the performance period; and

 

 

Leadership Attribute Score (weighted 30%)—A qualitative and quantitative assessment of an executive’s performance with respect to six leadership attributes applicable to all Company executives and managers.

2011 Annual Incentive Assessment.    Economic profit for 2011 was $1.932 billion versus a target of $1.252 billion. This above-target performance resulted in a Company performance score of 1.6. The Boeing Commercial Airplanes performance score was 1.2, and the Boeing Defense, Space & Security performance score was 1.2, yielding a combined score of 1.5 for executives in the two principal business units, including Messrs. Albaugh and Muilenburg.

The above-target performance scores were primarily due to strong integrated performance across the Company, including better-than-expected mitigation of risks. In order to better reflect the Company’s core operating performance, the Compensation Committee, consistent with its authority and past practices, decreased economic profit for the 2011 annual incentive plan to exclude the impact of lower tax rates, including an IRS audit settlement that resulted in a one-time increase in our earnings.

Individual performance scores for the NEOs ranged from 1.034 to 1.10, averaging 1.057. The above-target performance scores were primarily the result of the Company’s significant financial, operational and business achievements, as well as the executives’ progress on key initiatives, leadership strength, and overall contributions to the Company during 2011. In addition to these factors, the individual performance scores also reflect the following:

 

 

Mr. McNerney’s continued strong leadership of the Company and successful implementation of its business strategy;

 

 

Mr. Bell’s strong financial management, strategic direction and success in reducing costs and improving efficiency throughout our businesses;

 

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Mr. Albaugh’s achievements as leader of the Boeing Commercial Airplanes (BCA) business, including those described on page 21 under “—Executive Summary—2011 Performance Highlights;”

 

 

Mr. Luttig’s critical role in key litigation wins and successful mitigation of legal risks across each of our businesses and corporate functions; and

 

 

Mr. Muilenburg’s achievements as leader of the Boeing Defense, Space & Security (BDS) business, including those described on page 21 under “—Executive Summary—2011 Performance Highlights.”

Based on 2011 Company, business unit and individual performance results (as detailed above), the Compensation Committee believes the annual incentive compensation awarded to the NEOs for 2011 was appropriate and achieved the executive compensation program’s objectives.

Long-Term Incentive Program.    In 2009, long-term incentive awards were made using a mix of 50% performance awards, 25% stock options, and 25% restricted stock units. Beginning in 2010, long-term incentive awards are made in the following mix (based on the target expected value at grant):

 

 

Performance awards: 40%

 

 

Stock options: 30%

 

 

Restricted stock units: 30%

The long-term incentive program is designed to drive achievement of long-term operational and financial goals and increased shareholder value. Payouts are determined by stock price performance and achievement of economic profit goals. Performance awards are strictly performance-based, with payout conditioned upon the Company’s achievement of economic profit goals over the applicable three-year performance period. Stock options have value only if our stock price increases after the options are granted. Restricted stock units change in value together with our stock price, and the three-year vesting requirement supports executive share ownership and discourages excessive focus on short-term results at the expense of sustainable long-term growth. The long-term incentive program is also designed to encourage retention of key talent over a sustained time period.

Long-Term Incentive—Performance Awards.    Performance awards reward executives to the extent that the Company meets or exceeds target economic profit thresholds for the relevant three-year performance period. Three-year economic profit targets are set by the Compensation Committee at the beginning of each performance period based on the Company’s long-range business plan. Individual target awards are based on a multiple of base salary and final awards may range from 0% to 200% of an individual’s target. Performance awards are designed to pay 100% of target at the end of the three-year performance cycle if planned economic profit is achieved. Payment, if earned, is made in cash, stock or a combination of both, at the Compensation Committee’s discretion. It is expected that maximum performance and less than threshold (i.e., zero payout) performance would each be infrequent.

Long-Term Incentive—Stock Options.    Stock options align executives’ interests with those of shareholders since our stock options have realizable value only if the price of Boeing stock increases after the options are granted. Stock option grant levels are set annually based on the target expected value. The size of future awards is evaluated and determined annually based on a consideration of competitive compensation practices and changes in our stock price year over year. All options granted have an exercise price equal to the fair market value (average of high and low price) of Boeing stock on the grant date. We do not reprice options.

Long-Term Incentive—Restricted Stock Units.    Restricted stock units reward continued and sustained performance. Restricted stock units are granted annually, and vest three years after grant. Restricted stock units:

 

 

Maintain strong shareholder alignment by linking the value of each vested award to long-term stock price appreciation.

 

 

Provide an immediate sense of ownership since the value of these units is equal to Boeing’s stock price. As such, the ultimate value realized upon vesting (three years after grant) will be based on the stock price at that point in time. The use of restricted stock units is consistent with our objective of facilitating meaningful stock ownership through a mix of equity and cash-settled awards.

 

 

Are less dilutive to shareholders than stock options because fewer shares are required to deliver an equivalent value.

 

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2009-2011 Performance Award Assessment.    The Compensation Committee determined that our 2009-2011 cumulative economic profit was $8.119 billion versus a target of $9.099 billion. This resulted in an award payout factor for the three-year period of $68 per unit, which is 32% below the target amount of $100 per unit. The below-target performance was primarily the result of delays and performance issues on development programs, the unexpected worldwide economic downturn beginning in late 2008, and continued challenges with the current U.S. defense budget and contracting environment. The performance awards were paid to executives in cash.

In order to better reflect the core operating performance of the Company and its businesses, the Compensation Committee may adjust economic profit for any three-year performance period to account for certain items not contemplated at the outset of the period such as (1) significant external events outside management’s control, (2) management decisions intended to drive long-term value but with short-term financial impacts, such as major acquisitions or dispositions, and (3) significant changes to market conditions. For the 2009-2011 performance period, the Compensation Committee adjusted economic profit upward to exclude or partially exclude the financial impact of: the reclassification in 2009 of certain 787 production costs to research and development expense, slower growth in commercial markets, changed acquisition priorities at the U.S. Department of Defense, higher pension expense, the Patient Protection and Affordable Care Act, acquisitions by our defense business, the construction of our North Charleston, South Carolina production facility, write-offs related to the Sea Launch venture, and disruption costs related to a strike. The Compensation Committee adjusted economic profit downward to eliminate the financial impact of two IRS audit settlements and lower than planned tax rates.

Supplemental Equity Awards.    From time to time the Compensation Committee may grant supplemental equity awards to executives to retain high-performing leaders, reward exceptional performance, or recognize expanded responsibility. Supplemental equity awards have vesting and other provisions designed to promote retention of the services and skills of the recipient. These restricted stock unit grants encourage retention because they generally do not vest until the third anniversary of the grant date and will be forfeited in full if the executive resigns, retires, or is terminated for cause prior to vesting. No supplemental equity awards were granted to our NEOs in 2011.

No Accelerated Vesting Upon Change-In-Control.    The Company does not accelerate the vesting of any equity awards in connection with a change-in-control. In addition, performance awards and restricted stock units granted under our long-term incentive program provide for accelerated vesting only on a pro-rated basis based on active employment during the vesting period and any unvested stock options granted under that program are forfeited upon cessation of employment.

Other Design Elements

As part of a comprehensive and competitive executive compensation package, executives (including NEOs) receive additional benefits as summarized below. These benefits are designed to attract and retain the executive talent needed to achieve our business and financial objectives.

Perquisites and Other Executive Benefits.    Consistent with our executive compensation philosophy, we limit the perquisites and other benefits that we provide to executives, and any such benefits are provided to help achieve our business objectives. In 2011, these perquisites (by primary objective achieved) included:

 

 

Security—Our CEO is required, and certain senior executives are encouraged, to use company aircraft for business and personal travel for security reasons. We provide ground transportation services to the CEO so that he may conduct business during his commute and for security purposes. In addition, home security is provided to the CEO and certain other NEOs.

 

 

Productivity—Relocation assistance services (when applicable), use of a company vehicle, and tax preparation services.

 

 

Health—Annual physical exam.

 

 

Other—Supplemental life insurance; charitable gift matching program.

The Compensation Committee annually reviews perquisites and other executive benefits to ensure that they are reasonable and consistent with the practices of companies within our peer group. As a result of the 2011 review the Compensation Committee elected to eliminate the following perquisites:

 

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Tax gross-ups (non-relocation)—Effective January 1, 2012, tax gross-ups will no longer be provided to executives except in connection with relocation expenses.

 

 

Executive vehicle program—Effective April 1, 2012, we will no longer provide company vehicles to NEOs.

Retirement Benefits.    Executives are eligible to participate in the Company’s retirement benefit package, as described below.

Defined Benefit Plans. Executives hired before January 1, 2009 are eligible to participate in the following defined benefit plans:

 

 

The Boeing Pension Value Plan (“PVP”), a tax-qualified defined benefit plan generally provided to all salaried U.S. employees hired before January 1, 2009, other than employees covered by certain collective bargaining agreements.

 

 

Supplemental Executive Retirement Plan for Employees of The Boeing Company (“SERP”), a nonqualified defined benefit plan that provides a makeup for benefits not accrued under the PVP due to Internal Revenue Code limits. The SERP also provides a supplemental target benefit that may enhance the benefits received under the PVP for certain executives.

The SERP was amended to eliminate supplemental target benefits to executives who are hired or rehired between January 1, 2008 and December 31, 2008. Under the amended SERP, executives are eligible to receive the same retirement benefits payable to non-executives without Internal Revenue Code limits, which do not include the supplemental target benefit. For employees hired or rehired on or after January 1, 2009, the PVP and SERP have been replaced by an enhanced defined contribution plan.

We also provide a supplemental retirement benefit to Mr. McNerney to compensate him for retirement benefits provided by his prior employer that he forfeited when he accepted his role at Boeing and a supplemental pension benefit to Mr. Luttig per the terms of his initial employment.

The defined benefit plans described above do not require employee contributions.

Deferred Compensation Plans.     Executives are eligible to participate in the following voluntary deferral programs:

 

 

Deferred Compensation Plan for Employees that allows executives to voluntarily defer the receipt of a portion of salary, earned annual incentive awards and earned performance awards.

 

 

The Voluntary Investment Plan (“VIP”), a tax-qualified defined contribution plan in which participating employees receive a company match.

 

 

Supplemental Benefit Plan (“SBP”), a nonqualified defined contribution plan that allows eligible employees to save and receive a company match on amounts above those permitted under the VIP due to Internal Revenue Code limits.

The VIP and SBP were amended effective January 1, 2009, to provide executives who are not eligible to participate in the PVP or the SERP with market competitive benefits. For eligible employees, we make additional company contributions of 3%, 4%, or 5% of eligible earnings (depending on age) above those permitted under the VIP due to Internal Revenue Code limits and with respect to the executive’s annual incentive compensation. The SBP also provides a supplemental retirement benefit (a Defined Contribution SERP Benefit) to certain executives who are hired or rehired on or after January 1, 2009.

Severance Benefits.

We have maintained an Executive Layoff Benefit Plan since 1997 to provide a reasonable separation package for executives who are involuntarily laid off and do not become employed elsewhere within the Company. The plan provides a layoff benefit equal to one year of base salary plus an amount equal to the executive’s target annual incentive multiplied by the company performance score (and business unit score, as applicable) for the year in which the layoff occurs. The plan does not provide enhanced change-in-control benefits or tax gross-ups. The Compensation Committee believes that the benefits provided under the plan are consistent with those provided by our peers and other companies with whom we compete for executive talent. In addition to the benefits under the plan, executives may continue to participate in certain incentive award programs after a separation based on service and the terms and conditions of the award.

 

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Pursuant to his employment agreement, Mr. McNerney is also entitled to certain severance benefits if his employment is terminated in connection with a change-in-control. The level and nature of these benefits were reviewed against market data and set by a negotiated employment agreement to attract Mr. McNerney, who had similar arrangements with his prior employer, to join Boeing. Mr. McNerney would receive these severance benefits if his employment were terminated by us without cause or by him for good reason (e.g., adverse change in responsibilities, pay, reporting relationships or our – or our successor’s – failure to abide by the agreement) within two years of or in connection with a change-in-control. These benefits include a cash severance payment, credit for severance and related service for purposes of his supplemental retirement benefit, and medical coverage. The cash severance payment is three times the sum of base salary plus target annual incentive. The agreement does not provide for any tax gross-ups.

Governance of Pay Setting Process

The Company applies the following approach in setting compensation for its executives:

 

 

All executives are assigned to pay grades by comparing position-specific duties and responsibilities with market data and our internal management structure.

 

 

Each pay grade has a salary range with corresponding target annual and long-term incentive award opportunities, executive benefits and perquisites.

 

 

Salary ranges and incentive opportunities by pay grade are benchmarked annually against our peer group to ensure they are competitive.

 

 

Individual executive pay positioning varies based on the requirements of the job (competencies and skills), the executive’s experience and performance, and the organizational structure (internal alignment and pay relationships).

 

 

The Compensation Committee may make exceptions to normal practices based on critical business and people needs.

Role of Board, Management and Consultants.    The Compensation Committee establishes, reviews and approves all elements of the executive compensation program. The Compensation Committee works with an independent executive compensation consultant engaged by the Compensation Committee for advice and perspective regarding market trends that may impact decisions we make about our executive compensation program and practices. Effective July 2010, the Compensation Committee selected Compensation Advisory Partners as its independent consultant. Compensation Advisory Partners also advises the GON Committee in connection with nonemployee director compensation matters. Compensation Advisory Partners provided no services to Boeing outside of its duties as the independent consultant to the Compensation and GON Committees.

Boeing management has the responsibility for effectively implementing the executive compensation program. Aon Hewitt has served as management’s compensation consultant since July 2010.

Additional responsibilities of the Board of Directors, Compensation Committee and management include:

Board of Directors and Compensation Committee.

 

The Compensation Committee reviews and approves business goals and objectives relevant to executive compensation, evaluates the performance of the CEO in light of those goals and objectives (CEO goals/objectives and performance are reviewed in coordination with the GON Committee) and recommends the CEO’s compensation level to independent members of the Board of Directors based on this evaluation.

 

 

Based on a review of peer data, pay tally sheets (as described below), individual performance and internal pay comparisons, the Compensation Committee sets pay for the CEO and reviews and approves all NEO pay arrangements with the exception of base salaries, which are approved by the Board of Directors as required by our By-Laws.

 

 

The Board of Directors reviews all components of compensation and approves all executive officer base salaries.

 

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A supermajority (two-thirds) of the Board of Directors must approve any incentive awards for our NEOs that are granted under a plan not previously approved by a supermajority of the Board.

Management.

 

The CEO, Senior Vice President, Human Resources and Administration, and Vice President, Strategy, Compensation and Benefits make recommendations on program design and pay levels, where appropriate, and implement the program approved by the Compensation Committee.

 

 

The CEO makes recommendations with respect to the compensation of other officers, including the other NEOs, and is assisted in pay administration by the Senior Vice President, Human Resources and Administration.

 

 

The Chief Financial Officer provides the financial information used by the Compensation Committee to make decisions with respect to incentive compensation goals based on achievement of economic profit targets and related payouts, if any.

Responsibilities of the Compensation Committee’s independent consultant and management’s consultant include:

 

Compensation Committee’s Independent Consultant    Management’s Consultant

•    Presents peer group pay practices and other relevant benchmarks for CEO and nonemployee director compensation to the Compensation Committee and GON Committee, respectively, as well as management.

 

•    Reviews and provides comments concerning management’s data and work product and compensation-related practices and proposals.

 

•    Advises the Compensation Committee Chairman and the Compensation Committee with respect to management’s proposals.

  

•    Presents peer group pay practices and other relevant benchmarks (except for the CEO and nonemployee directors) to the Compensation Committee and management.

 

•    Prepares comprehensive pay tally sheets for elected officers for Compensation Committee review. The pay tally sheets provide total annual compensation and accumulated wealth (value of equity holdings, outstanding long-term incentives, deferred compensation and pension).

 

•    Provides periodic updates to the Compensation Committee regarding various tax, accounting and regulatory issues that may impact executive compensation design, administration and/or disclosure.

Benchmarking Against Our Peer Group.     Peer group benchmarking is one of several factors considered in the pay setting process. Peer group practices are analyzed annually for target total direct compensation and for other pay elements (such as executive benefits and perquisites). We benchmark executive compensation against a peer group of leading U.S.-based companies (with an emphasis on aerospace and industrial manufacturing companies) that have a technology focus, large, global operations, a diversified business, and comparable annual sales and market capitalizations. Each year the Compensation Committee, working with its independent consultant, reviews the composition of the peer group and determines whether any changes should be made. The Compensation Committee did not make any changes to the peer group in 2011, which consists of the following 24 companies:

 

        3M

        AT&T

        Caterpillar

        Chevron

        Cisco Systems

        Dell

  

DuPont

Exxon Mobil

Ford

General Dynamics

General Electric

Hewlett-Packard

   Honeywell

IBM

Intel

Johnson & Johnson

Johnson Controls

Lockheed Martin

   Northrop Grumman

Procter & Gamble

Raytheon

United Parcel Service

United Technologies

Verizon Communications

 

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The Compensation Committee annually reviews peer group benchmark data for target total direct compensation for each of the NEOs. Market data is presented to the Compensation Committee for the peer group data at the 25th percentile, median and 75th percentile to understand how our compensation positioning compares to the peer group. In making decisions on compensation changes, the Compensation Committee considers the positioning of Boeing executives relative to the peer group and market data, while also considering the individual’s tenure in the role and other factors to the extent information is available, such as the executive’s roles and responsibilities at Boeing relative to the benchmark positions.

Additional Considerations

Executive Stock Ownership.    In order to further align the interests of our senior executives with the long-term interests of shareholders, we require NEOs and other senior executives to own significant amounts of Boeing stock. Senior executives are required to attain and maintain the following investment position in Boeing stock and stock equivalents:

 

 

CEO: 6x base salary

 

 

Executive Vice Presidents: 4x base salary

 

 

Senior Vice Presidents: 3x base salary

 

 

Vice Presidents: 1x or 2x base salary based on executive grade

Each senior executive must meet the applicable stock ownership requirement within five years of the later of January 1, 2009, or January 1 after the executive enters the relevant executive grade. During the five-year period, executives are expected to accumulate qualifying equity until they meet the minimum stock ownership requirement. As of December 2011, each NEO’s stock ownership exceeded the stock ownership requirement.

Each year, the Compensation Committee reviews the ownership position of each elected officer as well as a summary covering all senior executives. In assessing stock ownership, the average daily closing stock price over a one-year period (ending September 30 of each year) is used. This approach mitigates the effect of stock price volatility and is consistent with the objective of requiring long-term, sustained stock ownership. The Compensation Committee may, in its discretion, elect at any time to pay some or all performance awards in stock, including for executives who are currently not in compliance with the applicable ownership requirement.

Shares owned directly by the executive as well as stock units, restricted stock units, deferred stock units and shares held through our savings plans are included in calculating ownership levels. Shares underlying stock options do not count toward the ownership guidelines.

Granting Practices.     The Compensation Committee grants annual and long-term incentive awards in February of each year at a regular meeting of the Compensation Committee. The Compensation Committee meeting date, or the next business day if the meeting falls on a day where the NYSE is closed for trading, is the effective grant date for the grants. The stock option exercise price is the fair market value of Boeing stock on that date.

New executives hired or internally promoted after the February grant date but before December 31 will receive a pro-rated long-term incentive award, if any, for that year. Grants are pro-rated based on the number of months remaining in the 36-month performance or vesting period as of the date of hire or promotion. This approach was adopted to better align the Company’s program with peer practices and provide the executive with an immediate tie to Boeing’s long-term performance.

We also may grant supplemental equity awards (e.g., options, restricted stock units) to retain high-performing leaders, reward exceptional performance or recognize expanded responsibility. The effective date of these grants is determined based on the timing of the recognition or new hire and approved on or in advance of the effective date of the grant by the Compensation Committee. The exercise/grant price is the fair market value of Boeing stock on the effective date.

Accounting and Tax Implications.    The Compensation Committee considers the accounting and tax impact reflected in our financial statements when establishing the amount and forms of long-term and equity compensation. The forms of long-term compensation selected are intended to be cost-efficient.

 

 

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Stock Options and Restricted Stock Units—We account for stock option and restricted stock unit awards in accordance with FASB ASC Topic 718, pursuant to which the fair value of the grant, net of estimated forfeitures, is expensed over the service/vesting period based on the number of options, shares or units, as applicable, that vest.

 

 

Performance Awards—The estimated payout amount of performance awards, along with any changes in that estimate, is recognized over the performance period under “liability” accounting. Our ultimate expense will equal the value earned by/paid to the executives. As such, the ultimate expense is not determinable until the end of the three-year performance period.

Securities Trading Policy.    We have a policy that prohibits executive officers and directors from (1) trading in Boeing securities while aware of material nonpublic information and (2) engaging in hedging transactions or short sales and trading in “puts” and “calls” involving Boeing securities. This policy is contained in our Corporate Governance Principles, which are set forth in Appendix 1 to this proxy statement.

Clawback Policy.     We will require reimbursement of any incentive payments to an executive officer if the Board determines that the executive engaged in intentional misconduct that caused or substantially caused the need for a substantial restatement of financial results and a lower payment would have been made to the executive based on the restated financial results. This policy is contained in our Corporate Governance Principles, which are set forth in Appendix 1 to this proxy statement.

Tax Gross-Ups.    In 2011, we provided tax gross-ups to certain NEOs for travel costs for the NEO’s guest to attend a company meeting. Beginning in 2012, we will not provide tax gross-ups to executive officers other than for relocation expenses.

Limitations on Deductibility of Compensation.    Section 162(m) of the Internal Revenue Code limits the tax deductibility of compensation paid by a public company to its CEO and certain other highly compensated executive officers to $1 million. There is an exception to the limit on deductibility for performance-based compensation that meets certain requirements.

We consider the impact of this rule when developing and implementing our executive compensation program. Annual incentive awards, performance awards and stock options generally are designed to meet the deductibility requirements. We also believe that it is important to preserve flexibility in administering compensation programs in a manner designed to promote varying corporate goals. Accordingly, we have not adopted a policy that all compensation must qualify as deductible under Section 162(m). Amounts paid under any of our compensation programs, including salaries, annual incentive awards, performance awards and grants of restricted stock units, may not qualify as performance-based compensation that is excluded from the limitation on deductibility.

There are different means by which the Board may pay executives. One such means is the Elected Officer Annual Incentive Plan, which was established to allow for the payment of annual incentive awards that would be deductible under Section 162(m). However, that plan is not the exclusive means by which annual and long-term incentive payments may be made to NEOs. The Board in its discretion may make such awards. When awards are made outside the Elected Officer Annual Incentive Plan, however, they may not be tax deductible. For 2011, we met the plan requirements for the Elected Officer Annual Incentive Plan. As a result, this payment is considered performance-based compensation under Section 162(m).

Compensation Committee Report

Management has prepared the Compensation Discussion and Analysis, beginning on page 21 of this proxy statement. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

Compensation Committee

John F. McDonnell, Chair

David L. Calhoun

Kenneth M. Duberstein

Mike S. Zafirovski

 

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Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee during 2011 had a relationship that requires disclosure as a Compensation Committee interlock.

Compensation and Risk

We believe that our compensation programs create appropriate incentives to increase long-term shareholder value. These programs have been designed and administered in a manner that discourages undue risk-taking by employees. Relevant features of these programs include:

 

 

Compensation Committee-approved limits on annual incentive and long-term performance awards;

 

 

with each increase in executive pay level, a proportionately greater award opportunity is derived from the long-term incentive program, creating a greater focus on sustained company performance over time;

 

 

the use of economic profit as our performance metric, which incents employees to increase revenues, reduce costs and manage net assets efficiently;

 

 

use of three distinct long-term incentive vehicles—performance awards, restricted stock units and stock options—that vest over up to three years, thereby providing strong incentives for sustained operational and financial, including stock price, performance;

 

 

a long-term incentive program that has overlapping performance periods, such that at any one time three separate and distinct potential long-term awards are affected by current year performance, thereby requiring sustained high levels of performance year over year to achieve a payout;

 

 

robust share ownership guidelines for senior executives, monitored by the Compensation Committee, that ensure alignment with shareholder interests over the long term;

 

 

Compensation Committee discretion to adjust economic profit to reflect the core operating performance of the Company and its businesses, but no payouts above stated maximum awards;

 

 

incorporation of an individual performance score as a critical factor in the annual incentive calculation, thereby enabling the Compensation Committee to direct a zero payout to any executive in any year if the individual executive is deemed to have sufficiently poor performance or is found to have engaged in activities that pose a financial, operational or other undue risk to the Company; and

 

 

formal clawback/recoupment policies applicable to both cash and equity compensation of senior executives, along with robust restrictions on trading by senior executives to reduce insider trading compliance risk, as well as a prohibition on hedging Company equities.

In light of these features of our compensation program, we conclude that the risks arising from our employee compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

 

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Summary Compensation Table

The following table sets forth information regarding 2011 compensation for each of our 2011 Named Executive Officers; 2010 and 2009 compensation is presented for executives who were also Named Executive Officers in 2010 and 2009. The Summary Compensation Table and the 2011 Grants of Plan-Based Awards table should be viewed together for a more complete representation of both the annual and long-term incentive compensation elements of our program. In addition, we have provided a supplemental table on page 37 showing elements of our CEO’s realized compensation in 2011 and 2010.

 

Name and

Principal Position

  Year     Salary
($)(1)
    Stock
Awards
($)(2)
    Option
Awards
($)(3)
    Non-Equity
Incentive Plan
Compensation
($)(4)
   

Change in
Pension
Value

($)(5)

    All Other
Compensation
($)(6)
   

Total

($)

 

W. James McNerney, Jr.

    2011      $ 1,930,000      $ 3,420,165      $ 3,420,159      $ 8,704,300      $ 4,555,010      $ 928,679      $ 22,958,313   

Chairman, President and

    2010        1,930,000        3,300,330        3,300,297        4,439,000        5,972,004        798,392        19,740,023   

Chief Executive Officer

    2009        1,930,000        3,136,242        3,136,251        4,500,300        5,738,037        1,002,642        19,443,472   

James A. Bell

    2011        890,880        1,109,243        1,109,246        2,648,724        1,058,850        249,384        7,066,327   

Executive V.P., Corporate

    2010        864,547        985,344        985,379        1,332,900        921,295        308,739        5,398,204   

President and Chief

    2009        836,619        2,779,149        793,401        1,099,400        996,055        273,658        6,778,282   

Financial Officer

               

James F. Albaugh

    2011        999,550        1,249,470        1,249,441        2,794,704        1,971,684        230,052        8,494,901   

Executive V.P., President

    2010        975,262        4,310,057        1,118,578        1,335,300        1,343,578        205,244        9,288,019   

and Chief Executive Officer,

    2009        952,382        967,276        913,919        1,314,068        1,248,588        206,145        5,602,378   

Commercial Airplanes

               

J. Michael Luttig

    2011        776,240        802,215        802,201        1,864,396        1,045,138        175,812        5,466,002   

Executive V.P. and

    2010        759,636        734,364        734,336        1,025,200        444,049        152,360        3,849,945   

General Counsel

    2009        736,160        1,175,019        463,615        752,800        523,039        93,014        3,743,647   

Dennis A. Muilenburg

    2011        780,000        734,995        734,995        1,342,900        1,101,761        109,580        4,804,231   
Executive V.P., President and Chief Executive Officer,                

Defense, Space and Security

                                                               

 

(1)

Amounts reflect base salary paid in the year, before any deferrals at the officer’s election and including salary increases effective during the year, if any.

 

(2)

Amounts reflect the aggregate grant date fair value of stock-based awards (other than stock options) granted in the year computed in accordance with FASB ASC Topic 718. These amounts are not paid to or realized by the officer. The fair values of stock-based awards are estimated using the average price of our stock on the grant date. The grant date fair value of each award of restricted stock units (RSUs) in 2011 is set forth in the 2011 Grants of Plan-Based Awards table on page 38. Additional information about these values is included in Note 16 to our audited financial statements included in our 2011 Annual Report on Form 10-K. A description of RSUs appears on page 39.

 

(3)

Amounts reflect the aggregate grant date fair value of stock options granted in the year computed in accordance with FASB ASC Topic 718. These amounts are not paid to or realized by the officer. Assumptions used in the calculation of these values are included in Note 16 to our audited financial statements included in our 2011 Annual Report on Form 10-K. A description of stock options appears on page 39.

 

(4)

Amounts reflect (a) annual incentive compensation, which is based on performance during the relevant year, pursuant to the annual incentive plan, and (b) any payout of performance awards for the three-year performance period that ended in the relevant year, pursuant to the long-term incentive program. Because the applicable performance goal was not met, there was no payout of performance awards for the 2008-2010 performance period. Annual cash incentive compensation and performance award payouts for our NEOs (before taking into account any elective deferrals of such compensation) were as follows:

 

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Name    Year     

Annual Incentive

Compensation ($)

     Long-Term Incentive
Performance Awards ($)
     Total Non-Equity Incentive
Plan Compensation ($)
 

W. James McNerney, Jr.

     2011       $ 4,439,000       $ 4,265,300       $ 8,704,300   
     2010         4,439,000                 4,439,000   
     2009         2,340,300         2,160,000         4,500,300   

James A. Bell

     2011         1,569,700         1,079,024         2,648,724   
     2010         1,332,900                 1,332,900   
     2009         608,000         491,400         1,099,400   

James F. Albaugh

     2011         1,551,800         1,242,904         2,794,704   
     2010         1,335,300                 1,335,300   
     2009         699,800         614,268         1,314,068   

J. Michael Luttig

     2011         1,233,900         630,496         1,864,396   
     2010         1,025,200                 1,025,200   
     2009         448,600         304,200         752,800   

Dennis A. Muilenburg

     2011         1,118,500         224,400         1,342,900   

Annual incentive compensation and performance awards are discussed in further detail under Compensation Discussion and Analysis beginning on page 21. The estimated target and maximum amounts for annual incentive awards for 2011 and for performance awards granted in 2011 are reflected in the 2011 Grants of Plan-Based Awards table on page 38.

 

(5)

Amounts reflect the aggregate increase in the actuarial present value of the officer’s accumulated benefits under all pension plans (including supplemental retirement benefits under individual agreements with Messrs. McNerney and Luttig) during the year. These amounts were determined using interest rate and mortality rate assumptions consistent with those used in our audited financial statements. There are many assumptions that are used to determine the present value of accumulated benefits with interest rates being one of the key assumptions. A decrease in the interest rate generally increases the present value of pension benefits. The degree of change in the present value depends on the age of the employee, when the benefit payments begin, and how long the benefits are expected to last. Information regarding our pension plans is set forth in further detail under the 2011 Pension Benefits table beginning on page 42.

 

(6)

The table below sets forth the elements of “All Other Compensation” provided in 2011 to our NEOs:

 

Name   Perquisites and
Other Personal
Benefits ($)(a)
   

Life Insurance
Premiums

($)(b)

    Tax
Reimbursements
($)(c)
    Company
Contributions to
Retirement Plans
($)(d)
    Total All Other
Compensation
($)
 

W. James McNerney, Jr.

  $     544,860      $     268,019             $     115,800      $     928,679   

James A. Bell

    192,046        3,885               53,453        249,384   

James F. Albaugh

    165,721        4,358               59,973        230,052   

J. Michael Luttig

    125,758        3,384      $ 95        46,575        175,812   

Dennis A. Muilenburg

    57,384        3,412        1,984        46,800        109,580   

 

  (a)

Perquisites and personal benefits provided to our NEOs in 2011 included use of company aircraft for personal travel or to attend outside board meetings, personal use of a company vehicle and ground transportation services, tax preparation services, charitable donations, home security expenses, home office costs, family transportation in connection with company events, and small commemorative items. Not all of the above-listed perquisites or personal benefits were provided to each NEO. We determine the incremental cost to us for these benefits based on the actual costs or charges incurred by us for the benefits. For purposes of the Summary Compensation Table, we determine the aggregate incremental cost to us for use of company aircraft using a method that takes into account only the variable operating cost, such as the cost of fuel, trip-related maintenance, crew travel expenses, on-board meals, landing fees and parking costs. Since our aircraft are used predominately for business travel, the calculation does not include the fixed costs that do not change based on usage, such as pilots’ salaries, aircraft acquisition costs and the cost of maintenance not related to trips.

The cost of any category of the listed perquisites and personal benefits did not exceed the greater of $25,000 or 10% of total perquisites and personal benefits for any NEO, except as follows: (i) $324,504 for use of company aircraft for personal travel, $80,633 for use of company aircraft associated with attendance at outside board meetings, $47,039 for personal use of ground transportation services, $41,923 for tax preparation services, and $31,000 in gift matching donations for Mr. McNerney; (ii) $106,453 for use of company aircraft for personal travel, $31,544 for use of company aircraft associated with attendance at outside board meetings, and $30,330 for personal use of a company vehicle and ground transportation services for Mr. Bell; (iii) $84,618 for use of company aircraft for personal travel, $20,069 for use of company aircraft associated with attendance at outside board meetings, and $24,696 for personal use of a company vehicle and ground transportation services for Mr. Albaugh: (iv) $45,229 for use of company aircraft for

 

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personal travel, $43,354 for use of company aircraft associated with attendance at outside board meetings, and $26,427 for personal use of a company vehicle and ground transportation services for Mr. Luttig; and (v) $11,627 for use of company aircraft for personal travel, $8,113 for use of company aircraft associated with attendance at outside board meetings, and $26,454 for personal use of a company vehicle and ground transportation services for Mr. Muilenburg.

 

  (b)

These amounts represent premiums paid by us for term life insurance for the benefit of the insured executive. The amount for Mr. McNerney includes supplemental life insurance premiums paid pursuant to the terms of his employment agreement.

 

  (c)

These amounts represent tax reimbursements associated with (i) imputed income due to travel by a guest to company meetings for Messrs. Luttig and Muilenburg; and (ii) a raffle prize won by Mr. Muilenburg in a contest open to all employees (all raffle prize winners received such tax reimbursement). Effective January 1, 2012, tax gross-ups will no longer be provided to executives except in connection with relocation expenses.

 

  (d)

These amounts represent matching contributions allocated by us to the NEO under our qualified and nonqualified retirement plans.

CEO Comparison of Actual Compensation Realized

The supplemental table below, which sets forth our CEO’s actual compensation realized in 2011 and 2010, is not a substitute for the Summary Compensation Table above. “Total Actual Compensation Realized” differs substantially from “Total Compensation” as set forth in the Summary Compensation Table. The principal differences between the tables are that the table below (i) does not include “Change in Pension Value” or “All Other Compensation” and (ii) reports the value realized on equity compensation during 2011 in lieu of the grant date fair market value of awards that were granted in 2011.

 

Year   

Salary

(1)

   

Annual

Incentive

Award

    Long-Term
Incentive Plan
Performance
Award Payout
     Equity Compensation     Total Actual
Compensation
Realized
 
          Stock Option
Exercises
     Stock Award
Vesting (2)
   

2011

   $ 1,930,000        $ 4,439,000        $ 4,265,300           —         $ 1,792,800        $ 12,427,100     

2010

     1,930,000          4,439,000          —           —           3,774,660          10,143,660     

Change from Prior Year

     0%        0%        n/a         —           -53%        23%   

 

(1)

The CEO’s last base salary increase was effective March 1, 2008.

 

(2)

The amounts reported in this column represent the value of restricted stock awards that vested in 2011 and 2010. Mr. McNerney received three restricted stock awards in 2005 as new hire (replacement) grants, with annual vesting schedules of 17% (ratably over six years), 20% (ratably over five years) and 33% (ratably over three years).

 

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2011 Grants of Plan-Based Awards

The following table provides information for each of our NEOs regarding 2011 annual and long-term incentive award opportunities, including the range of potential payouts under non-equity incentive plans. Specifically, the table presents the 2011 grants of annual incentive awards, performance awards, stock options, and RSUs.

 

              Number
of Units
   

Estimated Future

Payouts Under Non-

Equity Incentive Plan

Awards (1)

 

    All Other
Stock
Awards:
Number of
Shares of
Stock or
    All Option
Awards:
Number of
Securities
Underlying
    Exercise
Price of
Option
   

Grant
Date Fair
Value of
Stock and

Option

 
Name   Type of Award   Grant
Date
   

Granted

(#)

   

Target

($)

   

Maximum

($)

   

Units

(#)

   

Options

(#)

    Awards
($/Sh)
    Awards
($)
 

W. James McNerney, Jr.

  Annual Incentive Award                  $ 3,281,000      $ 4,439,000                               
 

Performance Award

      45,602        4,560,200        9,120,400                               
 

Stock Options

    2/22/2011                                    190,432      $ 71.44      $ 3,420,159   
 

RSUs

    2/22/2011                             47,878                      3,420,165   

James A. Bell

  Annual Incentive Award              891,881        1,783,762                               
 

Performance Award

      14,790        1,479,000        2,958,000                               
 

Stock Options

    2/22/2011                                    61,762        71.44        1,109,246   
 

RSUs

    2/22/2011                             15,528                      1,109,243   

James F. Albaugh

  Annual Incentive Award              1,000,490        2,000,979                               
 

Performance Award

      16,659        1,665,900        3,331,800                               
 

Stock Options

    2/22/2011                                    69,568        71.44        1,249,441   
 

RSUs

    2/22/2011                             17,491                      1,249,470   

J. Michael Luttig

  Annual Incentive Award              737,986        1,475,972                               
 

Performance Award

      10,696        1,069,600        2,139,200                               
 

Stock Options

    2/22/2011                                    44,666        71.44        802,201   
 

RSUs

    2/22/2011                             11,230                      802,215   

Dennis A. Muilenburg

  Annual Incentive Award              705,452        1,410,904                               
 

Performance Award

      9,800        980,000        1,960,000                               
 

Stock Options

    2/22/2011                                    40,924        71.44        734,995   
   

RSUs

    2/22/2011                             10,289                      734,995   

 

(1)

Payouts of annual incentive awards and performance awards may range from $0 to the maximum as described above. Therefore, in accordance with SEC rules, we have omitted the “Threshold” column.

Annual Incentive Awards

The amounts shown for annual incentive awards represent the target and maximum amounts of annual cash incentive compensation that, depending on performance results, might have been paid to each officer for 2011 performance. The actual amount paid for 2011 is included in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 35. If employment is terminated due to death, disability, layoff or retirement during the year, the executive (or beneficiary) remains eligible under the award and, if the award is earned, will receive a pro-rated payout, based on the number of days employed during the year, at the same time payment is made to other participants. These awards may be deferred at the election of the executive. These awards are described in further detail on page 26.

Performance Awards

The amounts shown for performance awards represent the target and maximum amounts that, depending on performance results, might be paid to each officer pursuant to performance awards granted in 2011. The performance awards shown are units that pay out based on the achievement of internal financial goals (economic profit) for the three-year period ending December 31, 2013. Individual target awards are based on a multiple of base salary, which is then converted into a number of units. Each unit has an initial value of $100. The amount payable at the end of the three-year performance period may be from $0 to $100 at target and $200 at maximum per unit, depending on our performance against plan for the three-year period. If employment is terminated due to death, disability, layoff or retirement during the performance period, the executive (or beneficiary) remains eligible under the award and, if the award is earned, will receive a pro-rated payout, based on the number of full and partial calendar months employed during the period, at the same time payment is made to other participants. The Compensation Committee has the discretion to pay these awards in cash, stock or a combination of both after the three-year performance period. These awards may be deferred at the election of the executive. Performance awards are described in further detail on page 27.

 

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Stock Options

The amounts shown for stock options represent the number of nonqualified stock options granted to each officer in 2011, the option exercise price and the grant date fair value of the options determined in accordance with FASB ASC Topic 718. The stock options vest over a period of three years, with 34% vesting on the first anniversary of the grant date and 33% vesting on each of the second and third anniversaries of the grant date. The exercise price per share is the fair market value (average of high and low prices) of Boeing stock on the grant date. The options expire ten years after the grant date. If an executive’s employment is terminated for any reason, the unvested portion of the stock option will not vest and all rights to the unvested portion will terminate completely. Vested options are generally exercisable for 90 days after termination of employment, except for terminations due to death, disability, layoff or retirement, in which case vested options remain exercisable for the earlier of five years from the date of termination or the end of the ten-year term of the option. Stock options are described in further detail on page 27.

Restricted Stock Units (RSUs)

The amounts shown for RSUs represent the number of RSUs awarded to the officer in 2011 and the grant date fair value of the RSUs determined in accordance with FASB ASC Topic 718. RSUs generally vest and settle on a one-for-one basis in shares of stock on the third anniversary of the grant date. For RSUs granted annually as part of our long-term incentive program, if an executive terminates employment due to death, disability, layoff or retirement, the executive (or beneficiary) will vest immediately in a pro-rated amount of stock units based on active employment during the three-year performance period. Upon any other type of termination, the RSUs will not vest and all rights to the stock units will terminate completely. RSUs that are granted in order to retain or attract the services of a senior leader, reward exceptional performance, or recognize expanded responsibility (supplemental equity awards) generally vest in full upon death, disability or layoff, but are forfeited in their entirety if the executive retires prior to the end of the vesting period. Except as described above, the Company does not provide for accelerated vesting of equity awards. No supplemental equity awards were granted to our NEOs in 2011. RSUs are described in further detail on page 27.

Employment Agreement with Mr. McNerney

We entered into an employment agreement with Mr. McNerney effective July 1, 2005 (which was amended and restated effective January 1, 2008 to conform with Section 409A of the Internal Revenue Code) providing for his employment as President and Chief Executive Officer and for his election as Chairman of the Board of Directors. The initial term of the agreement ended on July 1, 2008, but the term of the agreement automatically extends so that the remaining term is always two years. Either the Board of Directors or Mr. McNerney may give notice that the term will not be extended. The agreement provides for a minimum annual base salary of $1,750,000 and participation in incentive compensation plans and programs that are extended to other senior executives. Mr. McNerney most recently received a base salary increase on March 1, 2008 from $1,855,000 to $1,930,000. He is eligible to earn a target annual incentive award measured against internal financial goals (economic profit) of at least 170% of base salary, with a maximum annual incentive award of 230% of base salary and a potential reduced annual incentive award for achievements below target in accordance with the annual incentive plan. The employment agreement also provides for a retirement benefit, which is described on page 45 under “Employment Agreement Retirement Benefit.”

 

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Table of Contents

Outstanding Equity Awards at 2011 Fiscal Year-End

The following table provides information for each of our NEOs regarding outstanding stock options and unvested stock awards held by the officers as of December 31, 2011. Market values for outstanding stock awards, which include 2011 grants and prior-year grants, are based on the closing price of Boeing stock on December 30, 2011 (the last trading day of the year) of $73.35. Performance awards, which are not stock-based, are not presented in this table.

 

    Option Awards         Stock Awards  
    Number of Securities Underlying
Unexercised Options (#)
              Service-Based Equity Awards  
Name   Grant
Year
    Exercisable     Unexercisable    

Option
Exercise
Price

($)

    Option
Expiration
Date
       

Number of
Shares or Units
of Stock That
Have Not
Vested

(#)(1)

   

Market Value of
Shares or Units
of Stock That
Have Not Vested

($)(1)

 

W. James McNerney, Jr.

                                                         

Equity Awards

                                         197,670 (2)    $ 14,499,095   

Stock Options

    2011               190,432 (3)    $ 71.44        2/22/2021         
    2010        71,471        138,739 (4)      63.83        2/22/2020         
    2009        188,964        93,073 (5)      35.57        2/23/2019         
    2008        252,000               83.93        2/25/2018         
    2007        215,000               89.65        2/26/2017         
    2006        261,000               74.45        2/27/2016         
    2004        2,400 (6)             43.12        5/03/2014         
    2003        2,400 (6)             28.22        4/28/2013         
    2002        3,000 (6)             44.13        4/29/2012         

James A. Bell

               

Equity Awards

                                         68,075 (7)      4,993,302   

Stock Options

    2011               61,762 (8)      71.44        2/22/2021         
    2010        21,339        41,424 (9)      63.83        2/22/2020         
    2009        47,803        23,546 (5)      35.57        2/23/2019         
    2008        62,000               83.93        2/25/2018         
    2007        52,000               89.65        2/26/2017         
    2006        66,000               74.45        2/27/2016         

James F. Albaugh

               

Equity Awards

                                         165,806 (10)      12,161,869   

Stock Options

    2011               69,568 (11)      71.44        2/22/2021         
    2010        24,223        47,024 (12)      63.83        2/22/2020         
    2009        55,064        27,123 (5)      35.57        2/23/2019         
    2008        62,000               83.93        2/25/2018         
    2007        52,000               89.65        2/26/2017         
    2006        66,000               74.45        2/27/2016         

J. Michael Luttig

               

Equity Awards

                                         59,014 (13)      4,328,677   

Stock Options

    2011               44,666 (14)      71.44        2/22/2021         
    2010        15,902        30,871 (15)      63.83        2/22/2020         
    2009        13,758        13,759 (5)      35.57        2/23/2019         
    2008        18,150               84.96        4/28/2018         
    2008        26,000               83.93        2/25/2018         
    2007        38,000               89.65        2/26/2017         
    2006        47,050               88.73        5/11/2016         

Dennis A. Muilenburg

               

Equity Awards

                                         34,780 (16)      2,551,114   

Stock Options

    2011               40,924 (17)      71.44        2/22/2021         
    2010        11,694        22,701 (18)      63.83        2/22/2020         
    2009        9,940        4,898 (5)      35.57        2/23/2019         
    2008        10,100               83.93        2/25/2018         
    2007        8,700               89.65        2/26/2017         
      2006        10,800               74.45        2/27/2016                       

 

(1)

The following table shows the aggregate number and market value of unvested Career Shares, RSUs and Matching Deferred Stock Units (MDSUs) held by each of the NEOs as of December 31, 2011.

 

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Table of Contents
   

Number of Shares or Units of Stock

That Have Not Vested (#)

         Market Value of Shares or Units of Stock
That Have Not Vested ($)
 
Name  

Career

Shares

(a)

    RSUs    

MDSUs

(b)

    Total          

Career

Shares

(a)

    RSUs    

MDSUs

(b)

    Total  

W. James McNerney, Jr.

           197,670               197,670                $ 14,499,095             $ 14,499,095   

James A. Bell

    12,130        55,945               68,075         $ 889,736        4,103,566               4,993,302   

James F. Albaugh

    25,095        115,987        24,724        165,806           1,840,718        8,507,646      $ 1,813,505        12,161,869   

J. Michael Luttig

           59,014               59,014                  4,328,677               4,328,677   

Dennis A. Muilenburg

    4,219        24,305        6,256        34,780             309,464        1,782,772        458,878        2,551,114   

 

  (a)

Career Shares, which were granted prior to 2006, are stock units that earn dividend equivalents, which accrue in the form of additional Career Shares. Career Shares vest upon termination of employment due to retirement, death, disability or layoff and are paid out in stock upon vesting.

 

  (b)

Under the Matching Deferred Stock Units program, which was discontinued in 2005, if an executive elected to defer certain compensation into Boeing deferred stock units (an unfunded stock unit account), we provided a 25% matching contribution when the awards vested that will be paid out in stock upon termination of employment due to retirement, death, disability or layoff. MDSUs earn dividend equivalents, which accrue in the form of additional MDSUs. MDSUs are paid under our Deferred Compensation Plan for Employees, which is described in further detail under 2011 Nonqualified Deferred Compensation beginning on page 45.

 

(2)

Reflects (a) 94,927 RSUs that vested on February 23, 2012; (b) 53,997 RSUs that vest on February 22, 2013; and (c) 48,746 RSUs that vest on February 22, 2014.

 

(3)

Unexercisable options vest in three annual installments: 64,746 options that vested on February 22, 2012; 62,842 options that vest on February 22, 2013; and 62,844 options that vest on February 22, 2014.

 

(4)

Unexercisable options vest in two annual installments: 69,369 options that vested on February 22, 2012; and 69,370 options that vest on February 22, 2013.

 

(5)

Unexercisable options vested on February 23, 2012.

 

(6)

Options received for service as a nonemployee director.

 

(7)

Reflects (a) 12,130 Career Shares that vest upon retirement; (b) 24,014 RSUs that vested on February 23, 2012; (c) 16,121 RSUs that vest on February 22, 2013; and (d) 15,810 RSUs that vest on February 22, 2014.

 

(8)

Unexercisable options vest in three annual installments: 20,999 options that vested on February 22, 2012; 20,381 options that vest on February 22, 2013; and 20,382 options that vest on February 22, 2014.

 

(9)

Unexercisable options vest in two annual installments: 20,711 options that vested on February 22, 2012; and 20,713 options that vest on February 22, 2013.

 

(10)

Reflects (a) 25,095 Career Shares that vest upon retirement; (b) 27,724 MDSUs that vest upon retirement; (c) 27,662 RSUs that vested on February 23, 2012; (d) 70,517 RSUs that vest on February 22, 2013; and (e) 17,808 RSUs that vest on February 22, 2014.

 

(11)

Unexercisable options vest in three annual installments: 23,653 options that vested on February 22, 2012; 22,957 options that vest on February 22, 2013; and 22,958 options that vest on February 22, 2014.

 

(12)

Unexercisable options vest in two annual installments: 23,511 options that vested on February 22, 2012; and 23,513 options that vest on February 22, 2013.

 

(13)

Reflects (a) 35,565 RSUs that vested on February 23, 2012; (b) 12,015 RSUs that vest on February 22, 2013; and (c) 11,434 RSUs that vest on February 22, 2014.

 

(14)

Unexercisable options vest in three annual installments: 15,186 options that vested on February 22, 2012; 14,739 options that vest on February 22, 2013; and 14,741 options that vest on February 22, 2014.

 

(15)

Unexercisable options vest in two annual installments: 15,435 options that vested on February 22, 2012; and 15,436 options that vest on February 22, 2013.

 

(16)

Reflects (a) 4,219 Career Shares that vest upon retirement; (b) 6,256 MDSUs that vest upon retirement; (c) 4,994 RSUs that vested on February 23, 2012; (d) 8,835 RSUs that vest on February 22, 2013; and (e) 10,476 RSUs that vest on February 22, 2014.

 

(17)

Unexercisable options vest in three annual installments: 13,914 options that vested on February 22, 2012; 13,504 options that vest on February 22, 2013; and 13,506 options that vest on February 22, 2014.

 

(18)

Unexercisable options vest in two annual installments: 11,350 options that vested on February 22, 2012; and 11,351 options that vest on February 22, 2013.

 

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Option Exercises and Stock Vested

The following table provides information for each of our NEOs regarding stock option exercises and vesting of stock awards during 2011.

 

     Stock Options         Stock Awards  
Name    Number of Shares
Acquired on Exercise (#)
  

Value Realized

on Exercise ($)

        Number of Shares
Acquired on Vesting (#)
    Value Realized on
Vesting ($)
 

W. James McNerney, Jr.

                   27,000 (1)    $ 1,792,800 (1) 

James A. Bell

                   44,934 (2)      3,350,260 (2) 

James F. Albaugh

                            

J. Michael Luttig

                            

Dennis A. Muilenburg

                              

 

(1)

Consists of shares of restricted stock granted to Mr. McNerney in 2005. Pursuant to his employment agreement, Mr. McNerney was granted 391,000 shares of restricted stock designed to compensate him for unvested equity awards he forfeited upon leaving his prior employer, as follows: (a) for forfeited stock options, restricted stock with vesting and restrictions lapsing in five equal annual installments beginning on May 10, 2006; (b) for forfeited restricted stock awards, restricted stock with vesting and restrictions lapsing in six equal annual installments beginning on January 1, 2006; and (c) for forfeited restricted stock awards, restricted stock with vesting and restrictions lapsing in three equal annual installments beginning on July 1, 2006. The final installment of restricted stock vested on January 1, 2011, and, as of such date, all 391,000 shares of restricted stock had fully vested. Amounts shown include amounts surrendered by Mr. McNerney to us for payment of income tax withholding associated with the vesting. The value realized is based on the closing price of the stock on the vesting date.

 

(2)

Consists of RSUs granted to Mr. Bell in 2009 as a supplemental grant. Such RSUs vested on December 31, 2011 and the value realized for such RSUs is based on the Fair Market Value (average of high and low prices) of the underlying stock on January 3, 2012 (the date of distribution of such RSUs).

2011 Pension Benefits

The following table provides information as of December 31, 2011 (the pension measurement date for purposes of our 2011 audited financial statements) for each of our NEOs regarding the actuarial present value of the officer’s total accumulated benefit under each of our defined benefit plans, the Pension Value Plan and the Supplemental Executive Retirement Plan (SERP). The SERP benefit is payable only in the form of a monthly annuity. For Mr. McNerney, the table also includes the actuarial present value of his retirement benefit under his employment agreement in the form of a 15-year certain annuity. For Mr. Luttig, the table also includes the actuarial present value of his retirement benefit under his supplemental pension agreement in the form of a lump sum. The actuarial values were determined using interest rate and mortality rate assumptions consistent with those used in our 2011 audited financial statements.

 

Name    Plan Name    Number of Years of
Credited Service (#)(1)
     Present Value of
Accumulated Benefit
($)(2)
    

Payments

During Last

Fiscal Year ($)

 

W. James McNerney, Jr.

   Pension Value Plan      6.51       $ 239,390       $ 0   
   SERP      6.51         6,954,251         0   
   Employment Agreement      6.00         29,350,339         0   

James A. Bell

   Pension Value Plan      40.75         1,738,299         0   
   SERP      40.75         9,652,662         0   

James F. Albaugh

   Pension Value Plan      27.67         1,324,580         0   
   SERP      27.67         9,944,816         0   

J. Michael Luttig

   Pension Value Plan      5.64         213,195         0   
   SERP      5.64         1,211,574         0   
   Supplemental Pension Agreement      5.64         2,270,596         0   

Dennis A. Muilenburg

   Pension Value Plan      26.00         520,856         0   
     SERP      26.00         1,938,248         0   

 

 

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(1)

Credited service for purposes of calculating benefits under the Pension Value Plan and the SERP (called “benefit service” under the plans) is counted in the same manner and determined pursuant to such plans uniformly for all plan participants. The years of company service for each NEO for the Pension Value Plan and SERP are as follows: Mr. McNerney, six years; Mr. Bell, 39 years; Mr. Albaugh, 36 years; Mr. Luttig, five years; and Mr. Muilenburg, 25 years. The credited service is slightly higher than years of company service for each officer (except Mr. Albaugh) for reasons such as service counting methods and the transition of benefits from our Employee Retirement Plan to the Pension Value Plan, which provided up to one year of additional credited service. Mr. Albaugh’s credited service is less than his years of company service because for part of his company service he, in connection with a government contract, participated in a pension plan that is not currently sponsored by us. Under the terms of Mr. McNerney’s employment agreement retirement benefit, described below, his years of credited service are counted from January 1, 2006. Under the terms of Mr. Luttig’s supplemental pension agreement, described below, he became vested in a supplemental retirement benefit after three years of service with us. Granting extra years of credited service under the SERP requires the approval of the Compensation Committee.

 

(2)

The amounts reported in this column for each officer were calculated assuming no future service or compensation increases. Present values were calculated assuming no pre-retirement mortality or termination. The values under the Pension Value Plan and the SERP are the actuarial present values as of December 31, 2011 of the benefits earned as of that date and payable at age 65 for the Pension Value Plan and age 62 (or current age, if older) for the SERP. The discount assumption is 4.5% for both the Pension Value Plan and the SERP. The post-retirement mortality assumption of the Pension Value Plan and SERP is the Internal Revenue Service specified generational mortality for funding purposes. The value set forth for Mr. McNerney’s employment agreement retirement benefit is a 15-year certain annuity equal in value to one that could have commenced at age 62, and the value set forth for Mr. Luttig’s supplemental pension agreement retirement benefit is a lump sum payable at age 65. The Pension Benefit Guaranty Corporation interest rate used to convert Mr. McNerney’s benefit to a 15-year certain annuity is 1.25%. Both Mr. McNerney’s 15-year certain annuity and Mr. Luttig’s lump sum are discounted with the same interest rate used for the SERP.

In order to determine changes in pension values for the Summary Compensation Table on page 35, the values of the Pension Value Plan, the SERP, Mr. McNerney’s employment agreement retirement benefit and Mr. Luttig’s supplemental pension agreement retirement benefit were also calculated as of December 31, 2010 for the benefits earned as of that date. The discount assumption used for the Pension Value Plan, the SERP, Mr. McNerney’s employment agreement retirement benefit and Mr. Luttig’s supplemental pension agreement retirement benefit was 5.40%, which was the assumption used for financial reporting purposes for 2010. The Pension Benefit Guaranty Corporation interest rate used to convert Mr. McNerney’s benefit to a 15-year certain annuity as of December 31, 2010 was 2.25%. Other assumptions used to determine the value as of December 31, 2010 were the same as those used for December 31, 2011. The assumptions reflected in this footnote are the same as the ones used for the Pension Value Plan and the SERP for financial reporting purposes.

For all participants in the Pension Value Plan and the SERP, the life annuity is the normal form of payment for unmarried participants, and a 50% joint and survivor benefit is the normal form of payment for those who are married at the time of benefit commencement; alternative annuity forms may also be available. The benefits shown in the table are not subject to any deduction for Social Security benefits.

Pension Value Plan

Under the Pension Value Plan, each year a bookkeeping account in a participant’s name is credited with an amount equal to a percentage of the participant’s annual base salary and annual incentive compensation depending on the participant’s age, ranging from 3% for those younger than age 30 to 11% for those age 50 and older. Each of the NEOs, except Mr. Muilenburg, is older than age 50. Mr. Muilenburg receives a credit of 9% which is the same rate received by all other participants in the plan who are between age 45 and 49. Each participant’s account also receives interest credits based on the yield of the 30-year U.S. Treasury bond in effect during November of the previous year, except that the rate may be no lower than 5.25% or higher than 10%. Benefits are earned after one year of service, which is retroactively credited upon completion. Benefits generally vest after three years of service or, if earlier, when a participant reaches age 62. When a participant retires, the amount credited to the participant’s account is converted into an annuity by dividing the account balance by a fixed factor of 11 in order to determine the annual benefit for employees retiring from active employment. If a participant terminates employment with a vested benefit before becoming eligible for retirement, annuity benefits can begin on or after age 55. However, the factor used to determine the annuity is 0.4 higher (and therefore the benefit is lower) for each year before age 65 that the benefit commences. For example, the factor for benefit commencement at age 60 for a participant whose employment terminates before retirement is 13 rather than 11. Benefits under the Pension Value Plan are pre-funded and are paid out of the assets of the plan.

 

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In addition, certain benefits earned by participants under prior retirement plans of Boeing calculated as of December 31, 1998 were transferred to the Pension Value Plan when it became effective as of January 1, 1999. Certain benefits earned by participants under prior retirement plans of Boeing North American were also transferred as of July 1, 1999. These benefits will increase each year at the same rate the participant’s salary increases, and the benefits retain early retirement subsidies. At retirement, participants will receive these benefits in addition to the Pension Value Plan annuity described above.

Supplemental Executive Retirement Plan

In addition to the pension benefit under the Pension Value Plan, NEOs may also receive a pension benefit under the SERP, which is a nonqualified defined benefit plan. For those employees whose benefit under the Pension Value Plan is limited by applicable federal tax laws and regulations, the SERP provides an excess benefit equal to additional amounts the Pension Value Plan would have paid absent limitation by applicable federal tax laws and regulations. For executives hired before January 1, 2008, the SERP pays the greater of the excess benefit or a supplemental target benefit that may enhance the benefits received under the Pension Value Plan. The Compensation Committee amended the SERP to eliminate the supplemental target benefit for employees hired or rehired between January 1, 2008 and December 31, 2008. For these employees, the SERP will provide only an excess benefit. For employees hired or rehired on or after January 1, 2009, the Pension Value Plan and the SERP have been replaced with an enhanced defined contribution plan. Benefits under the SERP are not pre-funded and are paid out of our general assets.

Under the SERP, credited service is the same as the credited service recognized under the Pension Value Plan. Supplemental pension benefits are based on years of Pension Value Plan credited service times 1.6% of average annual compensation for the five consecutive years of employment with the highest base compensation and the five consecutive years of employment with the highest incentive awards. For the NEOs, this typically has been the average annual compensation over the last five years of employment. Compensation includes annual base salary plus annual incentive compensation and does not include any other forms of remuneration. The supplemental target benefit formula is limited to 100% of a participant’s annual base salary at termination and is reduced by the amount of qualified benefits received under the Pension Value Plan. Supplemental pension benefits vest at the later of being vested in the Pension Value Plan or 36 consecutive months on the executive payroll. The SERP benefits are subject to forfeiture if the executive leaves the Company to work in a capacity that is determined to be in competition with a significant aspect of our business, or commits one of a number of felonies against us or our interests. SERP benefits accrued after 2007 are also subject to forfeiture if the executive solicits or attempts to solicit our employees, representatives or consultants to work for the executive or a third party without our consent, or if the executive disparages us, our products or our employees.

Early Retirement

Pension benefits generally are reduced for early retirement by a certain percentage from the amount that would have been paid upon benefit commencement at normal retirement age. This is to account for early commencement of the benefit, which results in additional years of benefit payment. The Pension Value Plan has early retirement eligibility provisions and early retirement reduction factors that apply in the same manner to executives (including the NEOs) and to other employees. This section describes those provisions and factors that apply to the NEOs based on their age and years of service and the applicable provisions of prior plans.

For early retirement (prior to age 65), the Pension Value Plan benefit is based on the balance as of that early retirement age and does not reflect the future interest credits that would have been earned through age 65. The Pension Value Plan benefits earned under prior Boeing plans by Mr. Muilenburg would be reduced 2% for each year prior to age 60 that he retires. Under the SERP, the supplemental target benefit would be reduced 3% for each year the employee retires prior to age 62 and 6% for each year the benefit commences prior to age 65 if the employee terminates employment prior to being eligible for retirement; otherwise, payments and benefits for early retirement are calculated the same as normal retirement benefits, as described above.

Messrs. McNerney, Bell, and Albaugh are eligible for early retirement benefits under the Pension Value Plan and the SERP based on being at least age 55 with ten years of vesting service or at least 62 with one year of service at termination. Mr. Luttig is not currently eligible for early retirement; however, he is eligible to commence receiving vested benefits as can other vested employees who are at least age 55. Mr. Muilenburg is not currently eligible for early retirement nor can he commence benefits since he is under age 55. Vesting service is the service used under the Pension Value Plan and the SERP to determine eligibility for benefits, including eligibility for early retirement benefits.

 

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Estimated SERP benefits that could be paid as a result of various terminations as of December 31, 2011 are shown under Table II—Estimated Potential Annual Supplemental Executive Retirement Plan (SERP) Payments Upon Termination on page 51.

Employment Agreement Retirement Benefit

Mr. McNerney’s employment agreement requires us to provide Mr. McNerney a supplemental retirement benefit designed to compensate him for benefits provided by his former employer that he forfeited. Pursuant to the agreement, he has a “target benefit” calculated as a straight-life annuity commencing at age 62 payable from Boeing (including qualified pension benefits, nonqualified pension benefits and the employment agreement) that is offset by pension benefits payable by his previous employers, 3M and General Electric. This target benefit is 50% of Mr. McNerney’s highest average annual compensation (annual base salary plus annual incentive compensation). The average annual compensation is calculated based on the General Electric plan rules as of December 31, 2000 and is the highest three years out of ten including compensation at prior employers. For service accrued through December 31, 2011, the target benefit (before reduction for other provided pension benefits) was $2,933,527 per year. The present value of the accumulated benefit was payable as a 15-year certain annuity (assuming it is equal in value to the defined annuity commencing at age 62 using the Pension Benefit Guaranty Corporation interest and UP 84 mortality rates) on the assumed date of December 31, 2011 or an earlier change-in-control. Pursuant to his election made in December 2007, the benefit will be payable in 15 annual installments, beginning on the date of Mr. McNerney’s termination of employment or an earlier change-in-control or such later date as required by Section 409A of the Internal Revenue Code. The supplemental retirement benefit is 100% vested.

Supplemental Pension Agreement Retirement Benefit

Pursuant to a supplemental pension agreement between us and Mr. Luttig, Mr. Luttig will be paid a lump sum at the earlier of termination or age 65 or such later date as required by Section 409A of the Internal Revenue Code. The lump sum is the equivalent of a 20-year certain and continuous annuity of $225,000 per year that commences at age 65. The value of the lump sum is based on the same interest and mortality assumptions that are used for lump-sum payments in the Pension Value Plan. The benefit became fully vested in May 2009.

2011 Nonqualified Deferred Compensation

Deferred Compensation Plan

Our Deferred Compensation Plan for Employees is a nonqualified, unfunded defined contribution plan under which eligible executives may defer up to 50% of base salary, 100% of annual incentive awards and 100% of performance awards.

Deferred compensation investment elections available under the Deferred Compensation Plan include an interest-bearing account, a Boeing Stock Fund account and 17 other notional investment funds that track those available to employees under the Voluntary Investment Plan (a 401(k) plan). The interest-bearing account is credited with interest daily during the calendar year at a rate that is equal to the mean between the high and the low yields on AA-rated industrial bonds as reported by Moody’s Investors Service, Inc. during the first 11 months of the preceding year, rounded to the nearest 1/4 of 1 percent. The rate was 5.00% for 2011 and is 4.75% for 2012. Executives may change how deferrals are invested in the funds at any time, subject to insider trading rules and other Deferred Compensation Plan restrictions that limit the transfer of funds into or out of Boeing stock.

Executives choose how and when to receive payments under the Deferred Compensation Plan. Executives may elect either a lump-sum payment or annual payments over two to 15 years. Annual payments are calculated based on the number of years of remaining payments. Payments to an executive under the Deferred Compensation Plan begin on the later of (a) the January following the age the executive elected or (b) the January after the executive separates from service with us, as defined in the Deferred Compensation Plan (generally, when the executive’s employment with us ends).

 

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Supplemental Benefit Plan

Our Supplemental Benefit Plan is intended to supplement the retirement benefits of eligible executives to the extent that their benefits under our 401(k) plan are curtailed by legislation limiting contributions to the 401(k) plan and the earnings that may be considered in computing benefits under the 401(k) plan. The Internal Revenue Code currently caps certain contributions to an executive’s 401(k) plan accounts, such as company matching contributions, before-tax contributions made by us at the request of the participating executive and executive after-tax contributions. The Internal Revenue Code also caps the amount of compensation that may be considered when determining an executive’s retirement benefits under our 401(k) plan. The Supplemental Benefit Plan is therefore intended to pay, out of our general assets, an amount substantially equal to the difference between the amount actually allocated to an eligible executive’s account under our 401(k) plan and the amount that, in the absence of such limiting legislation, would have been allocated to the executive’s account as before-tax contributions plus our matching contributions.

Deferred compensation investment elections available under the Supplemental Benefit Plan include an interest-bearing account, a Boeing Stock Fund account and 17 other notional investment funds that track those available to employees under the Voluntary Investment Plan (a 401(k) plan). The interest-bearing account is credited with interest monthly during the calendar year at a rate that is equal to the mean between the high and the low yields on AA-rated industrial bonds as reported by Moody’s Investors Service, Inc. during the first 11 months of the preceding year, rounded to the nearest 1/4 of 1 percent. The rate was 5.0% for 2011 and is 4.75% for 2012. All investment funds are valued daily, and executives may change how deferrals are invested in the funds at any time, subject to insider trading rules and other Supplemental Benefit Plan restrictions that limit the transfer of funds into or out of Boeing stock.

Payments to an executive under the Supplemental Benefit Plan (which will be either one lump-sum payment or annual payments over two to 15 years based on the executive’s election) begin on the later of (a) the January following the age the executive elected or (b) the January after the executive separates from service with us, as defined in the Supplemental Benefit Plan (generally, when the executive’s employment with us ends). Annual payments are calculated based on the number of years of remaining payments.

As discussed under Compensation Discussion and Analysis on page 29, the Compensation Committee amended the Supplemental Benefit Plan effective January 1, 2009 to provide additional retirement benefits to certain executives hired or rehired on or after January 1, 2009 who are not eligible to participate in our Pension Value Plan or SERP.

2011 Deferred Compensation Table

The following table provides information for each of our NEOs regarding aggregate officer and company contributions, aggregate earnings for 2011 and year-end account balances under the Deferred Compensation Plan, the Supplemental Benefit Plan, and other nonqualified deferred compensation arrangements described below. As of December 31, 2011, Messrs. McNerney and Bell had not elected to participate in the Deferred Compensation Plan.

 

Name   Plan Name   Executive
Contributions
in Last FY
($)(1)
    Company
Contributions
in Last FY
($)(2)
   

Aggregate
Earnings in
Last FY

($)(3)

    Aggregate
Withdrawals/
Distributions ($)
    Aggregate
Balance at
Last FYE
($)(4)
 

W. James McNerney, Jr.(5)

  Deferred Compensation Plan   $ 0      $ 0      $ 0      $     0      $ 0   
  Supplemental Benefit Plan     134,800        101,100        75        0        1,553,647   
 

Deferred Compensation Plan for Directors

    0        0        130,261        0        992,266   
  Total     134,800        101,100        130,336        0        2,545,913   

James A. Bell

  Deferred Compensation Plan     0        0        0        0        0   
  Supplemental Benefit Plan     51,670        38,753        35,467        0        788,666   
 

Total

 

    51,670        38,753        35,467        0        788,666   

James F. Albaugh(6)

  Deferred Compensation Plan     0        0        1,754,963        0        25,377,982   
  Supplemental Benefit Plan     60,364        45,273        70,394        0        1,516,329   
  Special Retention Deferral     0        0        17,469        0        358,912   
  Total     60,364        45,273        1,842,826        0        27,253,223   

J. Michael Luttig

  Deferred Compensation Plan     0        0        (39,837     0        682,739   
  Supplemental Benefit Plan     42,499        31,875        20,011        0        461,395   
 

Total

 

    42,499        31,875        (19,826     0        1,144,134   

Dennis A. Muilenburg

  Deferred Compensation Plan     0        0        151,436        0        2,283,238   
  Supplemental Benefit Plan     59,154        35,492        (6,026     0        176,975   
    Total     59,154        35,492        145,410        0        2,460,213   

 

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(1)

Amounts reflect elective deferrals, all of which were deferrals of base salary.

 

(2)

Amounts reflect Company matches under the Supplemental Benefit Plan.

 

(3)

Amounts reflect dividends on deferred stock units and changes in the market value of the underlying stock, interest credited on interest account holdings and change in value of other investment holdings.

 

(4)

Reflects year-end account balances of deferred compensation, including deferrals of certain equity awards granted or earned prior to 2006. Of the amounts in this column, the following amounts were also included in the Total Compensation column of the Summary Compensation Table for 2011, 2010, and 2009:

 

Name    Plan Name   

Reported
for 2011

($)

    

Previously
Reported for
2010

($)

    

Previously
Reported
for 2009

($)

    

Total

($)

 

W. James McNerney, Jr.

   Supplemental Benefit Plan    $ 235,900       $ 235,900       $ 235,900       $ 707,700   

James A. Bell

   Supplemental Benefit Plan      90,423         86,736         82,827         259,986   

James F. Albaugh

   Supplemental Benefit Plan      105,637         102,237         99,033         306,907   

J. Michael Luttig

   Deferred Compensation Plan                      304,200         304,200   
   Supplemental Benefit Plan      74,374         72,049         68,763         215,186   
   Total for Mr. Luttig      74,374         72,049         372,963         519,386   

Dennis A. Muilenburg

   Supplemental Benefit Plan      94,646                         94,646   

 

(5)

Amounts for Mr. McNerney include earnings of $130,261 and a balance of $992,266 in the Deferred Compensation Plan for Directors resulting from deferrals made when Mr. McNerney served as a nonemployee director from 2001 through July 1, 2005. The Deferred Compensation Plan for Directors is described in more detail in “Director Compensation—Deferred Compensation” on page 17.

 

(6)

Amounts for Mr. Albaugh include earnings of $17,469 and a balance of $358,912 in a Special Retention Deferral account resulting from a special retention award that Mr. Albaugh received in 1998 for remaining with us after our acquisition in 1996 of certain Rockwell International aerospace and defense businesses.

Potential Payments upon Termination

Table I below, captioned “Estimated Potential Incremental Payments Upon Termination,” sets forth the estimated amount of incremental compensation payable to each of the NEOs upon termination of the officer’s employment in the event of (1) a termination by us without cause or by the officer for good reason in connection with a change-in-control; (2) layoff; (3) retirement; (4) disability; or (5) death. The amounts shown assume that the termination was effective as of December 31, 2011 and that the price of Boeing stock as of termination was the closing price of $73.35 on December 30, 2011 (the last trading day of the year). The actual amounts to be paid can be determined only following the officer’s termination and the conclusion of all relevant incentive plan performance periods. We do not provide any benefits to NEOs upon the occurrence of a change-in-control.

In the event of termination due to layoff, retirement, death or disability, in addition to the items identified above, the NEO will receive the estimated incremental benefits reflected in Table I as a result of the following:

 

 

Distribution of shares of Boeing stock represented by Career Shares;

 

 

Pro rata vesting of RSUs granted under the long-term incentive program based on the number of full and partial calendar months of active employment during the three-year service period (beginning with the first full calendar month after the grant date);

 

 

Continued eligibility for performance awards, which will be paid pro rata to the extent earned after the end of the three-year performance period based on the number of full and partial calendar months employed during the relevant performance periods. The performance awards earned and paid for 2009-2011 performance, which are reported in the Summary Compensation Table on page 35, are not included in Table I because as of December 31, 2011, the amounts had been earned;

 

 

Pro rata payment of annual incentive awards, which will be paid in the year following termination to the extent earned based on the number of days worked during the year. The annual incentive awards earned and paid for 2011 performance, which are reported in the Summary Compensation Table on page 35, are not included in Table I because as of December 31, 2011, the amounts had been earned; and

 

 

Continued eligibility for tax preparation services through the calendar year following year of termination.

 

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In the event of the disability or death of a NEO, the officer will receive benefits under our disability plan available generally to all salaried employees or our executive life insurance plan. The disability insurance amounts are not reflected in Table I. Our executive officers are eligible for a life insurance benefit that is equal to three times base salary up to $3.5 million. Mr. McNerney also is eligible for a supplemental life insurance benefit pursuant to his employment agreement. The life insurance benefits are reflected in Table I.

Executive Layoff Benefit Plan.    Our NEOs are eligible to participate in the Boeing Executive Layoff Benefit Plan (the “Layoff Plan”), which is an ongoing layoff benefits program for all executives who are laid off and who do not become employed elsewhere within the Company. If a layoff occurs because of a merger, sale, spin-off, reorganization or similar transfer of assets or stock, or because of a change in the operator of a facility or a party to a contract or an outsourcing of work, the executive is eligible for benefits under the Layoff Plan unless the executive either (1) continues in equivalent employment in the case of a stock sale or similar transaction or (2) rejects an offer of equivalent employment with the new employer. “Equivalent employment” means employment that is at no less than 90% of the executive’s prior base salary and target incentive compensation and is located within 70 miles of the executive’s pre-layoff work location.

Eligible participants under the Layoff Plan receive a layoff benefit equal to one year of base salary plus an amount equal to the executive’s target annual incentive multiplied by the company performance score (and business unit score, as applicable) for the year in which the layoff occurs, minus, if applicable, the total of all payments made, or to be made, pursuant to any individual employment, separation or severance agreement. Amounts payable under the Layoff Plan are included in Table I. The Layoff Plan does not provide enhanced change-in-control benefits or tax gross-ups.

Executives who are terminated due to layoff are also eligible for certain health and welfare benefits paid by us through the end of the month of layoff and outplacement services. In addition, any supplemental grants of RSUs, which are described under the heading “Supplemental Equity Awards” on page 28 will vest in full upon layoff.

Potential Payments Pursuant to Mr. McNerney’s Employment Agreement

Mr. McNerney’s employment agreement provides for the following termination benefits.

Upon termination by us without cause or by Mr. McNerney for good reason, Mr. McNerney will receive supplemental retirement benefits accrued to date, with additional credit for severance (including payments under the Executive Layoff Benefit Plan) and related service for purposes of his employment agreement retirement benefit. As of December 31, 2011, Mr. McNerney was no longer eligible to receive severance and/or medical benefit continuation pursuant to his employment agreement upon such a termination because he has attained the age of 62.

Upon a termination of employment by us without cause or by Mr. McNerney for good reason in contemplation of or within two years after a change-in-control, Mr. McNerney will receive the following:

 

(i)

Supplemental retirement benefit accrued to date, with additional credit for severance and related service for purposes of his employment agreement retirement benefit; and

 

(ii)

Severance and any medical benefit continuation provided in accordance with any company plan, but no less than the sum of (a) three times the sum of Mr. McNerney’s base salary and his then-current target bonus (annual incentive) amount; (b) a lump-sum cash payment equal to the product of 36 multiplied by the premium amount charged by us in providing continued medical benefit coverage under COBRA; and (c) a pro rata bonus (annual incentive) for the termination year based on actual performance for the year. An amount for the benefit specified in subclause (c) is not included in Table I because as of December 31, 2011, the amount had been earned.

Mr. McNerney’s agreement does not provide for tax gross-ups.

Effective in July 2010, Mr. McNerney became “retiree eligible” under all welfare benefit, equity and other incentive plans and programs applicable to our senior executives. During the term of the employment agreement, we will provide Mr. McNerney with universal life insurance with a death benefit of at least $16,400,000, at a

 

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premium level not to exceed $262,937 annually. Under Mr. McNerney’s employment agreement, a “change-in-control” is the first to occur of any of the following events: (1) any person becomes the beneficial owner of more than 30% of the outstanding securities of Boeing; (2) the incumbent directors (including those nominees subsequently nominated or elected by incumbent directors) cease for any reason to constitute at least a majority of the Board of Directors; (3) consummation of a reorganization, merger, consolidation, sale or other disposition of at least 80% of the assets of the Company, unless the beneficial shareholders of the Company immediately prior to the transaction retain at least 50% of the combined voting power of the outstanding shares entitled to vote on director elections; or (4) approval by shareholders of a complete liquidation or dissolution of the company.

“Good reason” is defined in the agreement to include: (1) any material adverse change in Mr. McNerney’s status, responsibilities or perquisites; (2) any diminution in his titles; (3) any failure to nominate or elect him as Chief Executive Officer, Chairman of the Board or a director; (4) causing or requiring him to report to anyone other than the Board; (5) assigning to him duties materially inconsistent with his positions and duties described in the agreement or giving a notice terminating the renewal feature of the agreement; (6) our failure to assign the agreement to a successor to the Company or failure of a successor to the Company to explicitly assume and agree to be bound by the agreement; or (7) requiring him to be principally based at any office or location more than 30 miles from our current corporate offices in Chicago, Illinois.

“Cause” is defined in the agreement to include: (1) conviction of a felony, or a misdemeanor (excluding a petty offense) involving fraud, dishonesty or moral turpitude; (2) a material breach of the agreement that is not cured within ten days after receiving notice from the Board; (3) willful or intentional material misconduct in the performance of the duties under the agreement, including a material breach of our Code of Conduct that is willful or intentional material misconduct; or (4) willful or intentional failure to comply materially with a specific, written direction of the Board that is consistent with normal business practice, not inconsistent with the agreement and not unlawful or unethical. Cause does not include bad judgment, negligence or any act or omission believed to be in good faith or to have been in or not opposed to the interest of the Company.

As described on page 45, Mr. McNerney’s employment agreement provides him with a supplemental retirement benefit if his employment terminates or upon an earlier change-in-control. If such an event had occurred on December 31, 2011, he (or his beneficiary) would have been entitled to 15 annual payments (calculated based on the annuity conversion basis set forth in his employment agreement) of $2,654,296.

Potential Payments Pursuant to Mr. Luttig’s Supplemental Pension Agreement

As described on page 45, Mr. Luttig’s supplemental pension agreement provides for a retirement benefit if his employment terminates. If Mr. Luttig’s employment had terminated on December 31, 2011, he (or his beneficiary) would have been entitled to a lump-sum retirement benefit of $2,286,610, payable as of July 1, 2012.

Estimated Potential Payments Presented in Table I

Table I below presents estimated incremental compensation payable to each of our NEOs as described above. The estimated incremental compensation is presented in the following benefit categories:

 

 

Cash severance: reflects cash severance (1) in the case of layoff, pursuant to the Executive Layoff Benefit Plan and (2) in the case of a termination without cause or for good reason in connection with a change-in-control, pursuant to Mr. McNerney’s employment agreement;

 

 

Service-based equity awards: market value, as of December 31, 2011, of (1) Career Shares that would be distributed and (2) unvested RSUs that would vest;

 

 

Performance awards: value of portions of the 2010-2012 and 2011-2013 performance awards that would be payable, assuming target Company performance;

 

 

Cash payment for medical coverage: estimated value of lump-sum payment for continued medical coverage under COBRA pursuant to the terms of Mr. McNerney’s employment agreement;

 

 

Life insurance death benefit: value of the executive’s life insurance payable following death;

 

 

Tax preparation: estimated value of continuation of this benefit; and

 

 

Outplacement services: estimated potential value of this service.

 

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In addition to the items described above, NEOs are entitled to receive amounts earned during the term of employment. These amounts, which are not included in Table I, include:

 

 

Amounts contributed under our qualified and nonqualified deferred compensation plans;

 

 

Vested retirement benefits;

 

 

Performance awards earned and paid for 2009-2011 performance; and

 

 

Annual incentive awards earned and paid for 2011 performance.

Table I: Estimated Potential Incremental Payments Upon Termination

 

Name and Benefits  

Termination in
Connection with a

Change-in-Control

    Layoff     Retirement     Disability     Death  

W. James McNerney, Jr.

         

  Cash Severance

  $ 15,633,000      $ 7,179,600      $ 0      $ 0      $ 0   

  Service-Based Equity Awards

    9,989,659        9,989,659        9,989,659        9,989,659        9,989,659   

  Performance Awards

    4,453,667        4,453,667        4,453,667        4,453,667        4,453,667   

  Cash Payment for Medical Coverage

    60,000