Boeing Company DEF 14A 2012
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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:
THE BOEING COMPANY
(Name of registrant as specified in its charter)
Payment of Filing Fee (Check the appropriate box):
March 16, 2012
Dear Fellow Shareholder,
You are cordially invited to attend The Boeing Companys 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,
W. James McNerney, Jr.
Chairman of the Board,
President and Chief
Notice of 2012 Annual Meeting of Shareholders
The Boeing Companys 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:
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,
Michael F. Lohr
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
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.
How does the Board of Directors recommend that I vote?
The Board of Directors recommends that you vote:
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.
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 clients shares on some but not all of the proposals, the missing votes are referred to as broker non-votes.
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 candidates qualifications, the GON Committee considers the candidates 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 Boards 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.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR EACH OF THE ABOVE NOMINEES FOR ELECTION AS DIRECTOR.
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 Boards 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 Directorcurrently, Mr. Dubersteinto 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 Officers 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.
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.
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 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).
The Compensation Committee met seven times in 2011. The Compensation Committee oversees our executive and equity compensation programs. Its principal responsibilities include:
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.
The Finance Committee met six times in 2011. The Finance Committees principal responsibilities include reviewing and, where appropriate, making recommendations to the Board with respect to:
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 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 Committees principal responsibilities include:
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.
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 Companys 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 Boards oversight of risks relating to our compensation practices, see Executive CompensationCompensation 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 Companys long-range business plan, including significant new development programs. Additional information about the Boards 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.
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:
In addition, the Board of Directors has determined that the following relationships are not considered to be material and would not impair a directors independence:
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.
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. Daleys 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. Zafirovskis ability to continue to serve as an independent director. Mr. Zafirovski resigned from Nortel on August 9, 2009.
We provide compensation to our nonemployee directors in order to:
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 CompensationCompensation Discussion and AnalysisGovernance of Pay Setting ProcessBenchmarking Against Our Peer Group beginning on page 31 for more information. Compensation Advisory Partners LLC serves as the GON Committees 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.
2011 Director Compensation Table
The following table sets forth information regarding compensation for each of our nonemployee directors in 2011.
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.
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 directors 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. Daleys 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. Daleys deferred stock units.
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 directors 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 directors 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.
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 managements 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 CompensationCompensation Discussion and AnalysisGovernance of Pay Setting ProcessRole 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:
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:
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.
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 Trusts 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.
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
Alignment with Shareholder Interests
Responsible Pay Practices
We believe that our executive compensation program plays a key role in driving Boeings long-term performance, as evidenced by Boeings 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.
Boeings 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 individuals 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:
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:
In addition, in December 2011 the Board increased the quarterly dividend from $0.42 to $0.44 per share. Other 2011 performance highlights include:
How We Measure Performance. When evaluating potential performance metrics, the Boards Compensation Committee considers factors such as historical correlation to long-term shareholder value, the cyclical nature of our business, Boeings 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 CompensationPerformance 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 managements 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 Plan2011 Annual Incentive Assessment beginning on page 26 and Long Term Incentive Program2009-2011 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.
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. McNerneys 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. McNerneys aggregate target awards under our long-term incentive program to 590.7% of base salary. Mr. McNerneys 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 Committees executive compensation decisions and policies. Our shareholder vote was one of many factors contributing to the Compensation Committees 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.
Executive Compensation Program Objectives
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 Boards 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 executives position and attract and retain the executive talent needed to run the business.
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 Boeings 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:
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 Companys 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 Companys 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 Companys 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.
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 Committees 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 executives compensation will be at or above target levels. Conversely, if performance is below target levels, the executives 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 executives compensation that will be performance-based, with the variable portion increasing as the executives 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
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. McNerneys 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.
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 CEOs employment agreement provides for a maximum award of 230% of his base salary. The mechanics of the annual incentive plan are as follows:
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 CEOs 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:
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 Companys 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 Companys 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:
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 programs 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):
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 Companys 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 IncentivePerformance 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 Companys 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 individuals 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 Committees discretion. It is expected that maximum performance and less than threshold (i.e., zero payout) performance would each be infrequent.
Long-Term IncentiveStock 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 IncentiveRestricted 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:
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 managements 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:
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:
Retirement Benefits. Executives are eligible to participate in the Companys 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 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:
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 executives 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.
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 executives 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.
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 successors 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:
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 managements compensation consultant since July 2010.
Additional responsibilities of the Board of Directors, Compensation Committee and management include:
Board of Directors and Compensation Committee.
Responsibilities of the Compensation Committees independent consultant and managements consultant include:
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:
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 individuals tenure in the role and other factors to the extent information is available, such as the executives roles and responsibilities at Boeing relative to the benchmark positions.
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:
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 NEOs 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 Companys program with peer practices and provide the executive with an immediate tie to Boeings 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.
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 NEOs 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.
John F. McDonnell, Chair
David L. Calhoun
Kenneth M. Duberstein
Mike S. Zafirovski
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:
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.
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 CEOs realized compensation in 2011 and 2010.
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.
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
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.
CEO Comparison of Actual Compensation Realized
The supplemental table below, which sets forth our CEOs 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.
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.
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.
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.
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 executives 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.
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 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.
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 officers 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.
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. McNerneys employment agreement retirement benefit and Mr. Luttigs 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. McNerneys employment agreement retirement benefit and Mr. Luttigs 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. McNerneys 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 participants name is credited with an amount equal to a percentage of the participants annual base salary and annual incentive compensation depending on the participants 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 participants 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 participants 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.
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 participants 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 participants 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.
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.
Estimated SERP benefits that could be paid as a result of various terminations as of December 31, 2011 are shown under Table IIEstimated Potential Annual Supplemental Executive Retirement Plan (SERP) Payments Upon Termination on page 51.
Employment Agreement Retirement Benefit
Mr. McNerneys 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. McNerneys 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. McNerneys 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.
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 Moodys 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 executives employment with us ends).
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 executives 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 executives 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 executives account under our 401(k) plan and the amount that, in the absence of such limiting legislation, would have been allocated to the executives 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 Moodys 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 executives 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 executives 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.
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 officers 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 officers 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:
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 executives prior base salary and target incentive compensation and is located within 70 miles of the executives 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 executives 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. McNerneys Employment Agreement
Mr. McNerneys 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:
Mr. McNerneys 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
premium level not to exceed $262,937 annually. Under Mr. McNerneys 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. McNerneys 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. McNerneys 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. Luttigs Supplemental Pension Agreement
As described on page 45, Mr. Luttigs supplemental pension agreement provides for a retirement benefit if his employment terminates. If Mr. Luttigs 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:
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:
Table I: Estimated Potential Incremental Payments Upon Termination