Document





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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Preliminary Proxy Statement  
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))  
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Definitive Proxy Statement  
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Definitive Additional Materials  
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Soliciting Material Pursuant to §240.14a-12  
Northrop Grumman Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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April 2, 2021
On behalf of the Board of Directors and management team, we cordially invite you to attend Northrop Grumman Corporation's 2021 Annual Meeting of Shareholders. In light of the ongoing COVID-19 pandemic we have scheduled this year's meeting to be held in a virtual only format on Wednesday, May 19, 2021 beginning at 8:00 a.m., Eastern Daylight Time, to help protect the health and well-being of all our stakeholders.
We look forward to engaging with those of you who are able to attend our virtual meeting. At this meeting, shareholders will vote on matters set forth in the accompanying Notice of 2021 Annual Meeting of Shareholders and Proxy Statement. We will also provide a report on our Company.
Together with our suppliers and partners, we operated through the pandemic, executed well on our programs, and won new business that strengthens our foundation for the future. We began the year operating in a new sector structure that aligned our unique capabilities in space, missiles, advanced weapons, mission systems, and aeronautics. Our 2020 results demonstrate that our strategy is creating value. We captured approximately $53 billion in new awards, which increased total backlog by 25% to $81 billion; sales rose 9%, diluted EPS increased 44%, MTM-adjusted diluted EPS* increased 11.5%, cash provided by operating activities totaled $4.3 billion after a $750 million discretionary pension contribution, and adjusted free cash flow* increased 18% to $3.7 billion.
We continued to execute a balanced capital deployment strategy that prioritizes investing in our business, maintaining a strong balance sheet, and returning cash to our shareholders. We increased internal R&D spending to $1.1 billion and capital expenditures rose to $1.4 billion to support continued innovation and affordability for our customers. We again strengthened our balance sheet by making a $750 million voluntary contribution to our pension plans. Our robust cash generation also enabled the return of $1.4 billion to our shareholders through dividends and share repurchases, and we raised our quarterly dividend by approximately 10%, our 17th consecutive annual increase, a notable accomplishment in last year's challenging environment.
In December, we announced the divestiture of our IT services business for $3.4 billion. This latest portfolio shaping action sharpens our focus on growing core businesses where technology and innovation are key differentiators to address our customers' most challenging national security missions. The proceeds from this sale, along with substantial cash on our balance sheet, will enable continued investment in our business, deleveraging of our balance sheet and return of cash to shareholders.
While delivering strong financial results is a primary focus of our Company, we continue to strengthen our culture through leading environmental, social and governance practices. Female representation on our Board continues to exceed more than 30%. During the period from 2010 to 2020, women on our senior executive team increased from 8% to 55%, and at the vice president level from 16% to 32%. DiversityInc named us one of their Top 50 Companies for Diversity for the 11th year in a row; we were named as one of Equileap's top 25 companies on the S&P 500 for gender equality; and were included on the 2020 Best of the Best Top Supplier Diversity Programs by U.S. Veterans magazine. In addition, we were included for the fifth consecutive year in the Dow Jones Sustainability Index for North America; and we maintained our leadership score in CDP's 2020 climate change program for the ninth consecutive year. We continue to be actively engaged with our shareholders to ensure our governance, compensation and sustainability practices are well designed to support long-term profitable growth and value creation for all our stakeholders.
Your vote is important. Your proxy or voting instruction card includes specific information regarding the several ways to vote your shares. We encourage you to vote as soon as possible. You may vote over the internet, by telephone or mobile device, or by mailing a proxy or voting instruction card.
Thank you for your support and continued interest in Northrop Grumman Corporation.
Kathy Warden
Donald E. Felsinger
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Chairman, Chief Executive Officer and President
Lead Independent Director
 * This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures."    
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I


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Notice of 2021 Annual
Meeting of Shareholders

Wednesday, May 19, 2021
8:00 a.m., Eastern Daylight Time

The 2021 Annual Meeting of Shareholders (Annual Meeting) of Northrop Grumman Corporation (Company) will be held on Wednesday, May 19, 2021 at 8:00 a.m., Eastern Daylight Time.
In light of the COVID-19 pandemic, we will hold our Annual Meeting in a virtual only format to help protect the health and well-being of all our stakeholders.
You will be able to vote at, and participate in, the Annual Meeting by visiting www.meetingcenter.io/241697037.
Certain materials customarily made available at shareholder meetings (including the proxy materials and our shareholder list) will be available during the virtual meeting.
Additional details regarding the logistics of the meeting can be found in the accompanying Proxy Statement, on the Investor Relations section of our website (www.northropgrumman.com) and www.edocumentview.com/noc.
Shareholders of record at the close of business on March 23, 2021 are entitled to vote at the Annual Meeting. The following items are on the agenda:
1.The election of the 12 nominees named in the accompanying Proxy Statement;
2.A proposal to approve, on an advisory basis, the compensation of our Named Executive Officers;
3.A proposal to ratify the appointment of Deloitte & Touche LLP as our Independent Auditor for the year ending December 31, 2021;
4.A shareholder proposal that the Company assess and report on potential human rights impacts that could result from governments' use of our products and services, including in conflict-affected areas;
5.A shareholder proposal to move to a 10% ownership threshold for shareholders to request action by written consent; and
6.Any other business as may properly come before the Annual Meeting or any adjournment or postponement thereof by or at the direction of the Board of Directors.
We encourage all shareholders to vote on the matters described in the accompanying Proxy Statement prior to the Annual Meeting. Please see the section entitled "Questions and Answers About the Annual Meeting" on page 84 for information about voting over the internet, by telephone or mobile device, or by mailing a proxy or voting instruction card.
By order of the Board of Directors,
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Jennifer C. McGarey
Corporate Vice President and Secretary
April 2, 2021 
Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to be held on May 19, 2021: The Proxy Statement for the 2021 Annual Meeting of Shareholders and the Annual Report for the year ended December 31, 2020 are available at: www.edocumentview.com/noc.
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT l    


TABLE OF CONTENTS
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I i


TABLE OF CONTENTS



ii I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this Proxy Statement, reflecting certain business, compensation and corporate governance highlights. For additional information about these topics, please refer to the discussions contained in this Proxy Statement and in our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission (SEC) on January 28, 2021. Please also refer to our Sustainability Report which can be found on our website at www.northropgrumman.com/sustainabilityreport. This Proxy Statement contains certain non-GAAP financial measures, which are identified with asterisks. For more information, including definitions, reconciliations to the most directly comparable GAAP (accounting principles generally accepted in the United States of America) measure and why we believe these measures may be useful to investors, see "Appendix A - Use of Non-GAAP Financial Measures." We intend to mail a Notice of Internet Availability of Proxy Materials to shareholders of record and to make this Proxy Statement and accompanying materials available on the internet on or about April 2, 2021.
2020 Performance Highlights (page 41)
2020 was an outstanding year for our Company. We began the year operating in a new sector structure that aligned our unique capabilities in space, missiles, advanced weapons, mission systems and aeronautics. Our financial results demonstrate that our strategy is creating value for our shareholders, customers and employees.
2020 sales rose 9%, operating income increased 2%, segment operating income* increased 5%, diluted earnings per share increased 44% and MTM-adjusted diluted earnings per share* increased 11.5%. Sales growth reflects higher revenue at all four of our sectors, with topline increases of 18% at Space Systems and 9% at Aeronautics Systems. We captured nearly $53 billion in new business, 1.4 times 2020 sales, and our total backlog increased 25% to approximately $81 billion. 2020 was the third consecutive year that our new awards exceeded sales. Cash provided by operating activities totaled $4.3 billion after the $750 million discretionary pension contribution, and adjusted free cash flow* increased 18% to $3.7 billion.
Our strong cash generation enabled us to continue deploying cash for the benefit of our customers, shareholders and employees. In 2020, our capital expenditures totaled $1.4 billion, and we invested $1.1 billion in R&D. We are investing to strengthen the foundation for long-term profitable growth and drive affordability for our customers. We returned $1.4 billion to our shareholders through dividends and share repurchases. We increased our quarterly dividend by approximately 10% to $1.45 per share, and reduced our weighted average share count by 1%.
Diluted EPS increases 44% to $19.03; MTM-adjusted diluted EPS* increases 11.5% to $23.65
9% Sales increase to $36.8 billion

Total backlog increases 25% to ~$81 billion
Share repurchases and dividends total $1.4 billion; ~10% increase in quarterly dividend per share
$1.4 billion Capital Expenditures

Internal R&D spending of $1.1 billion
$4.3 billion Cash Provided by Operations after pension contribution

$3.7 billion Adjusted Free Cash Flow*
* This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures."

NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 1


PROXY STATEMENT SUMMARY

2020 Executive Compensation Highlights (page 40)
We are committed to performance-based executive compensation programs that align with shareholders' interests and our strategy of investing for and delivering long-term profitable growth. In 2020, despite the unique and challenging conditions that stemmed from the COVID-19 pandemic, we have continued to maintain robust pay-for-performance practices. All incentive plan performance payouts reflect our performance against our 2020 goals, with no adjustments for COVID-19 impacts. Consistent with prior years, we continued to tie compensation outcomes with critical non-financial metrics such as diversity, inclusion, environmental sustainability and safety.
We sustained strong financial performance in 2020. Our 2020 Annual Incentive Plan (AIP) payout was 143%. Our 2020 Long-Term Incentive Plan (LTIP) payout was 105% for our named executive officers (NEOs). These payouts resulted from excellent execution even during a period of economic volatility driven by COVID-19 impacts on the broader market.

The following highlights the governing principles of our 2020 executive compensation programs:
Over 80% of Executive Compensation is Variable Based
Stock Ownership Guidelines for All Officers:
CEO 7x
Other NEOs 3x
3-Year Mandatory
Holding Period for 50% of Vested Shares
Recoupment Policy
on Cash and Equity Incentive Payouts
No Individual Change in Control Agreements
Non-financial Metrics in Annual Incentives

Board Nominees (pages 7-13)
NameAge (1)Director
since
Professional BackgroundCommittee Memberships Other Public
Company Boards
AuditCompGovPolicy
David P. Abney 6506/2020Former Executive Chairman of the Board of Directors and Chief Executive Officer of United Parcel Service, Inc. (UPS)
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1
Marianne C. Brown6203/2015Former Chief Operating Officer, Global Financial Solutions, Fidelity National Information Services, Inc.
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3
Donald E. Felsinger7302/2007Lead Independent Director, Northrop Grumman Corporation; Former Chairman and CEO, Sempra Energy
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1
Ann M. Fudge6903/2016Former Chairman and Chief Executive Officer, Young & Rubicam Brands
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1
William H. Hernandez7309/2013Former Senior Vice President and CFO, PPG Industries, Inc.
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Madeleine A. Kleiner6910/2008Former Executive Vice President and General Counsel, Hilton Hotels Corporation
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1
Karl J. Krapek7209/2008Former President and COO, United Technologies Corporation
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2
Gary Roughead6902/2012Retired Admiral, United States Navy and Former Chief of Naval Operations
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Thomas M. Schoewe6808/2011Former Executive Vice President and CFO, Wal-Mart Stores, Inc.
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2
James S. Turley6502/2015Former Chairman and Chief Executive Officer, Ernst & Young
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3
Kathy J. Warden4907/2018Chairman, Chief Executive Officer and President, Northrop Grumman Corporation1
Mark A. Welsh III6712/2016Dean of the Bush School of Government and Public Service, Texas A&M University; Retired General, United States Air Force and Former Chief of Staff, United States Air Force
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(1)Age as of April 2, 2021. https://cdn.kscope.io/7c959b85fd025150ba69e2aa1b0e330a-iconcblkwhitebkgd2.jpg = Chair https://cdn.kscope.io/7c959b85fd025150ba69e2aa1b0e330a-iconnocblkwhitebkgd6.jpg = Member
2 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


PROXY STATEMENT SUMMARY

Board Nominee Highlights
The charts below reflect the tenure, independence and broad experience of our board nominees.
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PROXY STATEMENT SUMMARY

Governance Highlights (pages 14-28)
We are committed to high standards of corporate governance and have a robust corporate governance program intended to promote the long-term success of our Company. Some highlights of our corporate governance practices are listed below.
Board Structure and Governance
The Board is approximately 92% independent.
Of the 12 directors standing for election, 4 are women (including our Chair) and 2 are people of color.
Each of the Audit and Risk, Compensation, Governance and Policy Committees is comprised entirely of independent directors.
Our policy limits the number of boards on which our directors serve (no more than three other public company boards without special approval) to avoid overboarding.
The independent directors regularly hold both executive sessions led by our Chairman and independent sessions led by our Lead Independent Director.
Our Lead Independent Director, appointed annually by the independent directors, is empowered with a robust set of responsibilities and provides additional independent oversight of senior management and Board leadership.
All directors are elected annually based on a majority voting standard in uncontested elections, with a director resignation policy if a director fails to receive a majority of votes cast "for" his or her election.
The Board nominees reflect a balanced mix of directors with deep Company and industry knowledge, and fresh and diverse perspectives, with an average director tenure of 7.3 years.
The Board and each Committee annually conduct a thorough self-assessment process focused on Board or Committee performance, respectively. In addition, each director completes an individual director evaluation for each of the other directors and receives feedback on his or her own performance.
We are committed to Board refreshment and have a director retirement policy for directors who reach the age of 75; we have added six new directors to the Board since the beginning of 2015.
One of our directors - Thomas Schoewe - was selected for the 2020 NACD Directorship 100 list. Another of our directors - William Hernandez - was selected as one of the 15 Most Relevant Hispanic Directors by Latino Leaders Magazine.
Shareholder Rights
The Board has long adopted a progressive governance structure that includes a proxy access bylaw provision, allowing eligible shareholders to include their own director nominees in the Company's proxy materials.
Shareholders holding at least 25% of our common stock also have the right to call a special meeting.
Shareholders holding at least 25% of our common stock also have the right to take action by written consent.
Shareholders have the ability to communicate and meet directly with our management and directors as needed.
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PROXY STATEMENT SUMMARY

Corporate Responsibility and Sustainability
We have a robust corporate responsibility and sustainability program and publish an annual report detailing numerous aspects of our social, environmental and governance performance, with an independent external review panel engaged to provide feedback and advice.
We have a strong ethics program with standards of business conduct that help guide and promote good governance, responsible business practices and the highest standards of integrity throughout the Company.
We have a strong corporate culture, focused on ethics, trusted relationships, respect, diversity, equity and inclusion, performance, innovation and delivering extraordinary results for all our stakeholders.
We have extensive and long-standing programs to fulfill our commitment to diversity, equity and inclusion throughout the Company and support diverse communities.
We have a human rights policy that was revised in 2020 to emphasize our strong commitment to human rights. We have a Human Rights Working Group comprised of senior representatives from different functions and operations, and led by our General Counsel. Our Policy Committee receives regular reports on our human rights practices as part of its oversight role.
We integrate our environmental program into our organizational culture, reducing our environmental footprint and driving affordability. Our executive officers are accountable for achieving environmental sustainability goals, which is one of our seven non-financial corporate performance metrics. We are further enhancing our environmental goals consistent with evolving standards.
We disclose our political contributions policy and various trade association memberships on our website. After a pause in spending, we updated the criteria we use for making ENGPAC contributions, clarifying they need to be consistent with our business objectives and Company values.
We have a robust recoupment policy which provides the Board of Directors with the ability to recoup the incentive compensation of elected officers and others under various circumstances.
Stock Ownership We have stock ownership guidelines of 7x base salary for the CEO and 3x base salary for other named executive officers, as well as stock holding requirements of three years from the vesting date.
We have stock ownership guidelines of 5x the annual cash retainer for our non-employee directors.
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 5


PROXY STATEMENT SUMMARY

Shareholder Engagement
We regularly engage with our shareholders to understand their perspectives on our Company, including our strategies, performance, and executive compensation, as well as our cash deployment and our environmental, social and governance practices. This ongoing dialogue, in which both members of management and directors participate, has helped inform the Board's decision-making and ensures we remain well-aligned as we work to promote the long-term interests of our shareholders.
Since our 2020 annual meeting, we have offered to engage on governance-related and other sustainability topics with shareholders representing approximately 60% of our outstanding shares. We have engaged with shareholders representing approximately 30% of our outstanding shares to learn their perspectives on the Company and these topics. While a number of our shareholders declined engagement, we believe it is a best practice to offer engagement to shareholders representing a majority of our shares outstanding. These efforts are in addition to normal course outreach conducted by our Investor Relations team and members of senior management with portfolio managers and analysts. We also meet with shareholders at investor conferences held throughout the year.
The Company has a substantial record of adopting provisions or modifying practices with the benefit of, and to reflect, shareholder input. Examples include provisions regarding proxy access, the right of shareholders to call a special meeting and the right of shareholders to act by written consent, as well as the use of full value shares and performance-based long-term incentives for our executives.
Annual Shareholders' Meeting
Time: May 19, 2021, 8:00 a.m., Eastern Daylight Time
Record Date: You can vote if you were a shareholder of record at the close of business on March 23, 2021.
Place: Virtual Annual Meeting which can be accessed by visiting www.meetingcenter.io/241697037
Admission: You will need your control number to attend as a shareholder. See "Questions and Answers About the Annual Meeting" in this Proxy Statement for more information.
Voting Matters and Board Recommendations
Board Vote RecommendationPage Reference
Proposal One: Election of Directors
FOR each Director Nominee
Proposal Two: Advisory Vote on Compensation of Named Executive OfficersFOR38 
Proposal Three: Ratification of Appointment of Independent AuditorFOR75 
Proposal Four: Shareholder Proposal That the Company Assess and Report on Potential Human Rights Impacts That Could Result from Governments' Use of Our Products and Services, Including in Conflict Affected AreasAGAINST78 
Proposal Five: Shareholder Proposal to Move to a 10% Ownership Threshold for Shareholders to Request Action by Written Consent
AGAINST81 

6 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


PROPOSAL ONE: ELECTION OF DIRECTORS


2021 Nominees for Director
Our Board has nominated 12 directors for election at the Annual Meeting. Each of the director nominees has consented to serve, and we do not know of any reason why any of them would be unable to serve, if elected. If a nominee becomes unavailable or unable to serve before the Annual Meeting (for example, due to serious illness), the Board may determine to leave the position vacant, reduce the number of authorized directors or designate a substitute nominee. If any nominee becomes unavailable for election to the Board, an event which is not anticipated, the proxyholders will have full discretion and authority to vote, or refrain from voting, for any other nominee in accordance with their judgment.
The following pages contain biographical and other information about each of the nominees. In addition, we have provided information regarding some of the particular experiences, qualifications, attributes and skills that led the Board to conclude that each nominee should serve as a director.
Unless instructed otherwise, the proxyholders will vote the proxies received by them "FOR" the election of the director nominees listed below.
KATHY J. WARDEN, 49
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Chairman, Chief Executive Officer and President, Northrop Grumman Corporation.
 
Director since July 2018

Ms. Kathy J. Warden has served as Chairman since August 2019 and as Chief Executive Officer and President of the Company since January 2019. She has served on the Board of Directors since July 2018. Prior to becoming CEO and President, Ms. Warden served as President and Chief Operating Officer of the Company from January 2018 through December 2018, as Corporate Vice President and President of the Company's Mission Systems Sector from 2016 through 2017, as Corporate Vice President and President of the Company's former Information Systems Sector from 2013 to 2015, and as Vice President of the Company's Cyber Intelligence Division from 2011 to 2012. Prior to joining the Company in 2008, Ms. Warden held leadership roles at General Dynamics and Veridian Corporation. Earlier, she was a principal in a venture internet firm and also spent nearly a decade with General Electric Company working in commercial industries. Ms. Warden is a member of the Board of Directors of Merck & Co., Inc. She also serves as Chair of the Aerospace Industries Association and is a member of the Board of Directors of Catalyst. Ms. Warden is also a member of the Board of Visitors of James Madison University. Ms. Warden previously served as Chair of the Board of Directors of the Federal Reserve Bank of Richmond.
Attributes, Skills and Qualifications
Extensive experience in operational leadership, strategy, performance and business development in government and commercial markets, including cyber expertise
Prior leadership positions within Northrop Grumman (including as President, Chief Operating Officer and President of two business sectors)
Significant aerospace and defense industry experience
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PROPOSAL ONE: ELECTION OF DIRECTORS


DAVID P. ABNEY, 65
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Former Executive Chairman of the Board of Directors and Chief Executive Officer of United Parcel Service, Inc. (UPS), a multinational package delivery and supply chain management company.
 
Director since June 2020
 
Member of the Audit and Risk Committee and Policy Committee
 
Mr. David P. Abney served as the Executive Chairman of the UPS Board of Directors from March 2016 through September 2020. From September 2014 to June 2020, he was the Chief Executive Officer of UPS. Prior to that, Mr. Abney was UPS's Chief Operating Officer from 2007 to 2014. From 2003 to 2007, he was Senior Vice President and President of UPS International. Mr. Abney began his UPS career in 1974. Mr. Abney serves on the Board of Directors of Macy's, Inc. and served as a director of Johnson Controls International plc during the last five years.
Attributes, Skills and Qualifications
Extensive leadership and business experience as a former Executive Chairman, Chief Executive Officer and Chief Operating Officer of a large multinational enterprise
Significant expertise in international operations and global logistics
Broad experience with talent management and leading global teams
Significant board experience, including as non-executive chair
Audit committee financial expert
MARIANNE C. BROWN, 62
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Former Chief Operating Officer, Global Financial Solutions, Fidelity National Information Services, Inc., a financial services technology solutions provider.
 
Director since March 2015
 
Member of the Audit and Risk Committee and Policy Committee
 
Ms. Marianne C. Brown served as the Chief Operating Officer of Fidelity National Information Services, Inc.'s (FIS) Global Financial Solutions organization from January 2018 until June 2019. Prior to that, Ms. Brown served as Chief Operating Officer, Institutional and Wholesale Business of FIS since December 2015, when it acquired SunGard Financial Systems. Ms. Brown was the Chief Operating Officer of SunGard Financial Systems, a software and IT services provider, from February 2014 to November 2015. Prior to that, Ms. Brown was the CEO and president of Omgeo, a global financial services technology company, from March 2006 to February 2014. Before joining Omgeo, she was the CEO of the Securities Industry Automation Corporation. Ms. Brown began her career at Automatic Data Processing (ADP) and progressed through a series of positions of increasing responsibility culminating in her role as general manager of ADP’s Brokerage Processing Services business, which was subsequently spun off to become Broadridge Financial Solutions. Ms. Brown serves on the Boards of Directors of Akamai Technologies, Inc., The Charles Schwab Corporation and VMWare, Inc.
Attributes, Skills and Qualifications
Substantial business experience as Chief Operating Officer and as a former Chief Executive Officer
Significant experience in IT goods and services, cyber protection and business management
Community and philanthropic leader
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PROPOSAL ONE: ELECTION OF DIRECTORS


DONALD E. FELSINGER, 73
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Lead Independent Director of the Board of Directors, Northrop Grumman Corporation.
 
Former Chairman and Chief Executive Officer, Sempra Energy, an energy services holding company. 
 
Director since February 2007
 
Member of the Compensation Committee and Governance Committee
Mr. Donald E. Felsinger is the former Chairman and Chief Executive Officer of Sempra Energy. From July 2011 through his retirement in November 2012, he served as Executive Chairman of the Board of Directors of Sempra Energy, and from February 2006 through June 2011, he was Sempra's Chairman and CEO. Prior to that, Mr. Felsinger was President and Chief Operating Officer of Sempra Energy from January 2005 to February 2006 and a member of the Board of Directors. From 1998 through 2004, he was Group President and CEO of Sempra Global. Prior to the merger that formed Sempra Energy, he served as President and Chief Operating Officer of Enova Corporation, the parent company of San Diego Gas & Electric (SDG&E). Prior positions included President and Chief Executive Officer of SDG&E, Executive Vice President of Enova Corporation and Executive Vice President of SDG&E. Mr. Felsinger is a member of the Board of Directors of Archer-Daniels-Midland (Lead Independent Director) and served as a director of Gannett Co., Inc. during the last five years.
Attributes, Skills and Qualifications
Extensive business experience as Chief Executive Officer, a board member and Chairman of other Fortune 500 companies in regulated industries
Significant experience in corporate governance and strategy, and as Lead Independent Director of a Fortune 250 company
In-depth knowledge of executive compensation and benefits
ANN M. FUDGE, 69
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Former Chairman and Chief Executive Officer, Young & Rubicam Brands, a marketing communications company.
 
Director since March 2016
 
Member of the Audit and Risk Committee and Governance Committee
Ms. Ann M. Fudge served as Chairman and Chief Executive Officer of Young & Rubicam Brands at WPP Group PLC from May 2003 to December 2006. Prior to that, she served in various leadership positions at Kraft Foods from 1986 to 2001, including President of Beverages, Desserts and Post Divisions, and President of Maxwell House Coffee and Kraft General Foods. From 1977 to 1986, Ms. Fudge held a variety of marketing positions at General Mills. She is a director of Novartis AG, and served as a director of Unilever during the last five years. Ms. Fudge is the Chair of the Board of Trustees of WGBH Public Media and a senior trustee of the Brookings Institution.
Attributes, Skills and Qualifications
Extensive business experience as former Chief Executive Officer and former president of leading consumer products business units
Substantial international experience through service as an executive and director of a large multinational company and a director of other large multinational companies
Significant public company board experience
Experience with talent development and acquisition

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PROPOSAL ONE: ELECTION OF DIRECTORS


WILLIAM H. HERNANDEZ, 73
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Former Senior Vice President and Chief Financial Officer, PPG Industries, Inc., a manufacturer of chemical and industrial products.
 
Director since September 2013
 
Member of the Audit and Risk Committee (Chair) and Governance Committee 
Mr. William H. Hernandez served as Senior Vice President, Finance, and Chief Financial Officer of PPG Industries, Inc. (PPG), from 1995 until his retirement in 2009. Prior to that, he was PPG's corporate controller from 1990 to 1994. Mr. Hernandez previously held a number of positions with Borg-Warner Corporation and Ford Motor Company. Mr. Hernandez is a certified management accountant and has taught finance and management courses at Marietta College. He served as a director of Albemarle Corporation, Black Box Corporation, and USG Corporation during the last five years.
Attributes, Skills and Qualifications
Extensive experience and expertise in areas of finance, accounting and business management acquired as Chief Financial Officer of PPG Industries
Significant experience in areas of risk management
Audit committee financial expert
MADELEINE A. KLEINER, 69
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Former Executive Vice President and General Counsel, Hilton Hotels Corporation, a hotel and resort company.
 
Director since October 2008
 
Member of the Compensation Committee and Governance Committee (Chair)
 
Ms. Madeleine A. Kleiner served as Executive Vice President, General Counsel and Corporate Secretary for Hilton Hotels Corporation from January 2001 until February 2008. From 1999 through 2001, she served as a director of a number of Merrill Lynch mutual funds operating under the Hotchkis and Wiley name. Ms. Kleiner served as Senior Executive Vice President, Chief Administrative Officer and General Counsel of H.F. Ahmanson & Company and its subsidiary, Home Savings of America, until the company was acquired in 1998, and prior to that was a partner at the law firm of Gibson, Dunn and Crutcher where she advised corporations and their boards primarily in the areas of mergers and acquisitions, corporate governance and securities transactions and compliance. Ms. Kleiner currently serves on the Board of Directors of Jack in the Box Inc.
Attributes, Skills and Qualifications
Expertise in corporate governance, Sarbanes-Oxley controls, risk management, securities transactions and mergers and acquisitions
Significant experience from past roles as general counsel for two public companies, outside counsel to numerous public companies and through service on another public company board
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PROPOSAL ONE: ELECTION OF DIRECTORS


KARL J. KRAPEK, 72
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Former President and Chief Operating Officer, United Technologies Corporation, an aerospace and building systems company.
 
Director since September 2008
 
Member of the Compensation Committee and Governance Committee
 
Mr. Karl J. Krapek served as President and Chief Operating Officer of United Technologies Corporation from 1999 until his retirement in January 2002. At United Technologies Corporation, he served for 20 years in various leadership positions, including as Executive Vice President and director in 1997, President and Chief Executive Officer of Pratt & Whitney in 1992, Chairman, President and Chief Executive Officer of Carrier Corporation in 1990 and President of Otis Elevator Company in 1989. Prior to joining United Technologies Corporation, he was Manager of Car Assembly Operations for the Pontiac Motor Car Division of General Motors Corporation. In 2002, Mr. Krapek became a co-founder of The Keystone Companies, which develops residential and commercial real estate. He serves on the Board of Directors of Trinity Health of New England. Mr. Krapek is a member of the Boards of Directors of Prudential Financial, Inc. and American Virtual Cloud Technologies, Inc.
Attributes, Skills and Qualifications
Extensive industry experience and leadership skills
Deep operational experience in aerospace and defense, domestic and international business operations and technology and lean manufacturing
Significant public company board experience, including serving as Lead Independent Director for two public companies
GARY ROUGHEAD, 69
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Admiral, United States Navy (Ret.) and Former Chief of Naval Operations.
 
Director since February 2012
 
Member of the Compensation Committee and Policy Committee (Chair)
 
Admiral Gary Roughead retired from his position as the 29th Chief of Naval Operations in September 2011, after serving in that position for four years. The Chief of Naval Operations is the senior military position in the United States Navy. As Chief of Naval Operations, Admiral Roughead stabilized and accelerated ship and aircraft procurement plans and the Navy's capability and capacity in ballistic missile defense and unmanned air and underwater systems. He restructured the Navy to address the challenges and opportunities in cyber operations. Prior to becoming the Chief of Naval Operations, he held six operational commands (including commanding both the Atlantic and Pacific Fleets). Admiral Roughead is a Robert and Marion Oster Distinguished Military Fellow at the Hoover Institution. He is a director of Maersk Line, Limited and Chairman of the Board of Directors of Fincantieri Marinette Marine Corporation. He also serves as a trustee of the Dodge and Cox Funds. In addition, Admiral Roughead is a trustee of Johns Hopkins University and serves on the Board of Managers of the Johns Hopkins University Applied Physics Laboratory.
Attributes, Skills and Qualifications
Extensive career as a senior military officer with the United States Navy, including numerous operational commands, as well as leadership positions, most recently as the 29th Chief of Naval Operations
Significant expertise in national security, information warfare, cyber operations and global security issues
Broad experience in leadership and matters of global relations, particularly in the Pacific region, Europe and the Middle East
Experience with talent development and management
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PROPOSAL ONE: ELECTION OF DIRECTORS


THOMAS M. SCHOEWE, 68
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Former Executive Vice President and Chief Financial Officer, Wal-Mart Stores, Inc., an operator of retail stores.
 
Director since August 2011
 
Member of the Compensation Committee (Chair) and Policy Committee
Mr. Thomas M. Schoewe was Executive Vice President and Chief Financial Officer of Wal-Mart Stores, Inc. from 2000 to 2011. Prior to his employment with Wal-Mart, he held several roles at the Black and Decker Corporation, including Senior Vice President and Chief Financial Officer from 1996 to 1999, Vice President and Chief Financial Officer from 1993 to 1999, Vice President of Finance from 1989 to 1993 and Vice President of Business Planning and Analysis from 1986 to 1989. Before joining Black and Decker, Mr. Schoewe worked for Beatrice Companies, where he was Chief Financial Officer and Controller of one of its subsidiaries, Beatrice Consumer Durables Inc. Mr. Schoewe serves on the Boards of Directors of General Motors Corporation and KKR & Co. Inc. Mr. Schoewe also serves on the board of the Ladies Professional Golf Association.
Attributes, Skills and Qualifications
Extensive financial experience acquired through positions held as the Chief Financial Officer of large public companies, as well as expertise in Sarbanes-Oxley controls, risk management and mergers and acquisitions
Significant international experience through his service as an executive of large public companies with substantial international operations
Experience at Wal-Mart and Black and Decker on large-scale transformational enterprise information technology implementations
Extensive experience as a member of the audit, risk, compensation and policy committees of other public companies
JAMES S. TURLEY, 65
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Former Chairman and Chief Executive Officer, Ernst & Young, a professional services organization.
 
Director since February 2015
 
Member of the Audit and Risk Committee and Governance Committee
Mr. James S. Turley served as Chairman and Chief Executive Officer of Ernst & Young from 2001 until his retirement in 2013. Mr. Turley joined Ernst & Young in 1977 and held various positions there until being named regional managing partner for the Upper Midwest in 1994, and for New York in 1998. He was named Deputy Chairman in 2000. He currently serves on the Boards of Directors of Citigroup, Emerson Electric Company and Precigen, Inc. He also serves on the Board of Directors of the Boy Scouts of America. Mr. Turley is a board member of Kohler Co. and the St. Louis Trust Company and serves as Non-Executive Chair of Sita Capital Partners LLP.
Attributes, Skills and Qualifications
Extensive experience and expertise in areas of finance, accounting and business management acquired over 36-year career at Ernst & Young, including serving as Chairman and Chief Executive Officer of Ernst & Young
Significant experience in areas of risk management
Extensive experience as a member of the audit committee of other public companies
Audit committee financial expert
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PROPOSAL ONE: ELECTION OF DIRECTORS


MARK A. WELSH III, 67
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Dean of the Bush School of Government and Public Service, Texas A&M University; General, United States Air Force (Ret.); Former Chief of Staff, United States Air Force.
 
Director since December 2016
 
Member of the Audit and Risk Committee and Policy Committee
General Mark A. Welsh III has been the Dean of the Bush School of Government and Public Service at Texas A&M University since August 2016. Prior to his current position, General Welsh served as Chief of Staff of the United States Air Force, the senior uniformed Air Force officer responsible for the organization, training and equipping of active-duty, Guard, Reserve and civilian forces serving in the United States and overseas. During his long career, General Welsh also served as a member of the Joint Chiefs of Staff, Commander of the United States Air Forces in Europe and Commander of NATO's Air Command, Associate Director for Military Affairs at the Central Intelligence Agency and Commandant of the United States Air Force Academy. General Welsh is a member of the Board of Managers of Peak NanoSystems, LLC.
Attributes, Skills and Qualifications
Extensive career as a senior military officer and member of the Joint Chiefs of Staff, having held leadership positions at the highest levels of the United States Air Force
Extensive experience and in-depth knowledge of issues related to global security and the intelligence community
Broad leadership experience and international experience, particularly in Europe
Experience with talent development and management
Vote Required
To be elected, a nominee must receive more votes cast "for" than votes cast "against" his or her election. Abstentions and broker non-votes will have no effect on this proposal. If a nominee is not re-elected, he or she will remain in office until a successor is elected or until his or her earlier resignation or removal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE 12 NOMINEES FOR DIRECTOR LISTED ABOVE.
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 13


CORPORATE GOVERNANCE

Overview
We are committed to maintaining high standards of corporate governance, aligned with our focus on performance and long-term, profitable growth, and our core values of ethics and integrity. With strong oversight from the Board, our corporate governance regime is intended to promote the long-term success of our Company to benefit our shareholders, customers, employees, communities and suppliers.
  
Our Company has adopted Values, Principles of Corporate Governance, and Standards of Business Conduct to help guide and promote our good corporate governance and responsible business practices.

In 2020, we restated the values that guide our Company and provide the foundation for our culture and success. They are:
we do the right thing - we earn trust, act with ethics, integrity and transparency, treat everyone with respect, value diversity and foster safe and inclusive environments;
we do what we promise - we own the delivery of results, focused on quality;
we commit to shared success - we work together to focus on the mission and take accountability for the sustainable success of our people, customers, shareholders, suppliers and communities; and
we pioneer - with fierce curiosity, dedication and innovation, we seek to solve the world's most challenging problems.
Our Principles of Corporate Governance outline the role and responsibilities of our Board and the high standards our directors maintain. They set forth additional independence requirements for our directors and provide guidelines for Board leadership and Board and Committee membership, among other items. The Board reviews these principles at least annually and considers opportunities for improvement and modification. Our Principles of Corporate Governance are available at https://investor.northropgrumman.com/principles-corporate-governance.
Our Standards of Business Conduct reflect and reinforce our commitment to our core values. They apply to our directors, officers and employees. We also require our suppliers to meet similar standards through our Supplier Code of Conduct. Our Standards of Business Conduct are available at https://www.northropgrumman.com/corporate-responsibility/ethics-and-business-conduct/standards-of-business-conduct/. Our Supplier Standards of Business Conduct are available at https://www2.northropgrumman.com/suppliers/Pages/SSBC.aspx.
Among other things, our Standards of Business Conduct:
require high ethical standards in all aspects of our business;
require strict adherence to all applicable laws and regulations;
reflect our commitment to maintaining a culture that values and promotes diversity, equity and inclusion;
reinforce our commitment to being a responsible corporate citizen;
reflect our commitment to our work environment and the global communities where we live, work and serve;
reflect our broad and deep commitment to sustainability, including especially our people and environmental responsibility;
require a focus on performance and the consistent production of quality results;
reflect our commitment to the safety of our people and products; and
call upon all employees to raise any questions or issues of concern (including on an anonymous basis).
We report amendments to provisions of our Standards of Business Conduct on our website.
Role of the Board
The primary responsibility of our Board is to foster the long-term success of the Company, promoting the interests of our shareholders. Our directors exercise their business judgment in a manner they reasonably believe to be in the best interests of the Company and our shareholders and in a manner consistent with their fiduciary responsibilities. The responsibilities of the Board include, but are not limited to, the following:
oversee our long-term business strategies, operations and performance;
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CORPORATE GOVERNANCE

execute robust succession planning, including selecting the Chief Executive Officer, and electing officers of the Company;
oversee management of each of our major risks and the enterprise risk management processes overall, including audit functions;
oversee human capital strategy;
ensure a strong culture;
ensure an effective corporate governance practice;
elect directors to fill vacant positions between Annual Meetings;
review and approve executive compensation;
review and approve significant corporate actions;
review and enhance Board performance;
oversee our ethics and compliance programs;
oversee our diversity, equity and inclusion programs;
oversee effective management of cyber and other security risks;
oversee a strong focus on sustainability; and
provide advice to management.
Board's Role in Risk Oversight
As noted above, the Board is responsible for overseeing our enterprise risk management activities, among other duties. Each of our Board committees assists the Board in this role.
The Audit and Risk Committee focuses on risks tied most directly to our financial performance, and those related to the environment, disasters and security, including cybersecurity. The Audit and Risk Committee is also responsible for assisting the Board in its oversight of enterprise risk management overall. The Audit and Risk Committee receives multiple regular reports, including (1) from the Chief Financial Officer and members of the Finance Department addressing our financial risk management processes and systems, the nature of the material financial risks the Company faces and how the Company responds to and mitigates these risks; (2) from our Vice President, Internal Audit addressing certain financial internal controls; (3) from our independent auditors on their review of our internal controls over financial reporting; (4) from our General Counsel on legal and other compliance risks and how the Company is addressing and mitigating those risks; (5) from our Chief Compliance Officer on the Company's compliance program overall; (6) from the Vice President, Global Corporate Responsibility on complaints filed with the Company's OpenLine; (7) from the Company's Vice President and Chief Information Security Officer addressing information security and cybersecurity matters, at least four times a year; and (8) from the Company's Treasurer, addressing the Company's insurance program, including coverage with respect to property and casualty, information security and cybersecurity, among others.
The Compensation Committee reviews at least annually a risk assessment of the Company's compensation programs and, together with its independent compensation consultant, evaluates the mix of at-risk compensation linked to stock appreciation. The Compensation Committee reviews the Company's diversity, equity and inclusion program, and oversees management of its human capital risk.
The Policy Committee assists the Board in identifying and evaluating global security, political, budgetary and technological issues and trends that could impact the Company's business. The Policy Committee reviews the Company's external relations and receives regular reports from the Vice President, Global Corporate Responsibility on the Company’s ethics and corporate responsibility programs. The Policy Committee reviews and oversees the Company's commitment to environmental and social aspects of sustainability, including the Company's human rights policy.
The Governance Committee regularly reviews the Company's policies and practices on issues of corporate governance, and considers issues of succession and composition of the Board, recommending proposed changes to the full Board for approval.
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CORPORATE GOVERNANCE

The Governance Committee oversees and reviews the Company's management of its governance related risks, including risks related to corporate culture.
The Board and its Committees provide oversight of the Company's risk management processes, including the Enterprise Risk Management Council (ERMC). The ERMC is comprised of all members of the Executive Leadership Team, the Chief Accounting Officer, Chief Compliance Officer, Corporate Secretary, head of Internal Audit and Treasurer. The Chief Technology Officer and Vice President, Supply Chain also attend each ERMC meeting. The ERMC seeks to ensure that the Company has identified the most significant risks and implemented effective mitigation plans for each. The General Counsel and Chief Financial Officer provide an update at least annually to the Audit and Risk Committee on the deliberations of the ERMC, and any significant changes the ERMC has identified. The full Board has ultimate responsibility for the Company's oversight of risk, and receives updates from each of the committees, as well as periodic reports from management addressing the various risks, including those related to financial and other performance, cybersecurity, human capital and culture.
Board Leadership Structure
Chairman of the Board
Our Bylaws provide that our directors will designate a Chairman of the Board from among its members. The Chairman presides at all Board and shareholder meetings. The Chairman interacts directly with all members of the Board and assists the Board to fulfill its responsibilities. As the Principles of Corporate Governance provide, the Board believes it is in the best interests of the Company and the shareholders for the Board to have flexibility to determine the best director to serve as Chairman of the Board at the time, based on consideration of all relevant factors.
At least once every year, the Board considers who will best serve as Chairman, and whether that person should be an independent director, given the environment and needs of the Company. The Board has concluded that having Ms. Warden, our Chief Executive Officer, serve as Chairman is the most appropriate leadership structure for the Company and best positions the Company to be innovative, compete successfully, present one face to our customer and advance shareholder interests in today's environment. The Board believes that Ms. Warden's deep understanding of the Company's business, day-to-day operations, growth opportunities, challenges and risk management practices gained through various leadership positions enables her to provide strong and effective leadership to the Board and to ensure that the Board is informed of important issues facing the Company. The Board consists entirely of independent directors, other than Ms. Warden, and continues to exercise a strong, independent oversight function, with fully independent Board Committees and a strong Lead Independent Director with clearly articulated responsibilities. The Board will continue to review and discuss the leadership structure of the Board and determine the leadership structure, including the Chairman, that best meets the needs of the Company.
Lead Independent Director
If the Chairman is not independent, the independent directors will designate annually from among them a Lead Independent Director. Following our 2020 Annual Meeting, the independent directors designated Mr. Felsinger as Lead Independent Director.
Our Principles of Corporate Governance set forth specific duties and responsibilities of the Lead Independent Director, which include the following:
preside at meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors, and advise the Chairman and CEO on decisions reached and suggestions made;
advise the Chairman on and approve meeting agendas and information sent to the Board;
advise the Chairman on and approve the schedule of Board meetings, assuring there is sufficient time for discussion of all agenda items;
provide the Chairman with input as to the preparation of Board and committee meeting agendas, taking into account the requests of the other Board and committee members;
interview, along with the Chairman and the Chairman of the Governance Committee, Board candidates and make recommendations to the Governance Committee and the Board;
call meetings of the independent directors;
support and facilitate engagement between the Chairman and the independent directors; and
if requested by major shareholders, ensure that he or she is available for consultation and direct communication.
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CORPORATE GOVERNANCE

Our Lead Independent Director is empowered to and does actively engage with our Chairman and Chief Executive Officer to help enable a strong and effective Board of Directors.
Committees of the Board of Directors
The Board has four standing committees: the Audit and Risk Committee, the Compensation Committee, the Governance Committee and the Policy Committee. The membership of these committees is typically determined at the organizational meeting of the Board held in conjunction with the annual meeting. All the committees are composed entirely of independent directors. The primary responsibilities of each of the committees, as of the date of this Proxy Statement, are summarized below, together with a table listing the membership and Chairman of each committee. The charters for each standing committee can be found on the Investor Relations section of our website (www.northropgrumman.com).
Audit and Risk Committee
Roles and Responsibilities
Committee Members
Assist the Board in overseeing the Company's financial and enterprise-related risk activities by:
William H. Hernandez (chair)
David P. Abney
Marianne C. Brown
Ann M. Fudge
James S. Turley
Mark A. Welsh III
 
Number of meetings in 2020: 9
 
Independence, Financial Literacy and Audit Committee Financial Experts
  
All members are independent and financially literate
 
Messrs. Abney, Hernandez and Turley each qualifies as an Audit Committee Financial Expert

assisting the Board in its oversight of enterprise risk management (including through the different board committees), including reviewing at least annually the overall risk management process at the Company level
appointing, retaining, overseeing, evaluating and terminating, if necessary, the independent auditor
reviewing and pre-approving audit and permitted non-audit services and related fees for the independent auditor
reviewing and discussing the Company's Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q
reviewing and discussing management's assessment of, and report on, the effectiveness of the Company's internal control over financial reporting at least annually and the independent auditor's related report
reviewing and discussing with the independent auditor any critical audit matters identified by the independent auditor, the Company's critical accounting policies, and material written communications with management
reviewing with the General Counsel, at least annually, the status of significant pending litigation and various other significant legal, compliance or regulatory matters
reviewing with the Chief Compliance Officer, at least annually, the Company's compliance program, and implementation of global compliance policies, practices and programs
providing oversight and reviewing periodically the Company's management of its financial risks, as well as the Company's management of its risks related to cybersecurity, insurance, supplier, nuclear, natural and environmental matters
reviewing any significant issues raised by the internal audit function and, as appropriate, management's actions for remediation
establishing and periodically reviewing and discussing with management the Company's procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters
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CORPORATE GOVERNANCE

Compensation Committee
Roles and Responsibilities
Committee Members
Assist the Board in overseeing the Company's compensation policies and practices by:
Thomas M. Schoewe (chair)
Donald E. Felsinger
Bruce S. Gordon
Madeleine A. Kleiner
Karl J. Krapek
Gary Roughead
 
Number of meetings in 2020: 7
 
Independence
 
All members are independent
overseeing and reviewing at least annually a risk assessment of the Company's compensation plans
approving the compensation for elected officers (other than the Chief Executive Officer, whose compensation is recommended by the Committee and approved by all the independent directors)
administering incentive and equity compensation plans and approving payments or grants under these plans for elected officers (other than the Chief Executive Officer, whose payments or grants are recommended by the Committee and approved by all the independent directors)
recommending for approval compensation for the non-employee directors, after consultation with the independent compensation consultant
overseeing and reviewing the Company's management of its human capital risk
reviewing and monitoring the Company's diversity, equity and inclusion programs
conducting an annual evaluation of the compensation consultant and reporting results of the evaluation to the Board
producing an annual report on executive compensation for inclusion in the proxy statement
establishing stock ownership guidelines and reviewing ownership levels on an annual basis
Governance Committee
Roles and Responsibilities
Committee Members
Assist the Board in overseeing the Company's corporate governance practices by:
Madeleine A. Kleiner (chair)
Donald E. Felsinger
Ann M. Fudge
William H. Hernandez
Karl J. Krapek
James S. Turley
 
Number of meetings in 2020: 5
 
Independence
 
All members are independent

overseeing and reviewing the Company's management of governance-related risks, including the risks related to corporate culture
regularly reviewing the Company's corporate governance policies and practices, including the Company's Bylaws and other corporate documents
regularly reviewing and considering corporate governance developments, emerging trends and best practices and recommending changes to the Board
reviewing and making recommendations to the Board with respect to the corporate governance section of the proxy statement, including proposed responses to shareholder proposals
meeting with shareholders and proxy advisory groups, as needed, to discuss issues of corporate governance
regularly reviewing and making recommendations to the Board regarding the composition and size of the Board and the criteria for Board membership, which should include, among other things, diversity, experience and integrity
providing effective board succession planning, identifying and recommending to the Board qualified potential candidates to serve on the Board and its committees and, if applicable, meeting with proxy access nominees nominated through the Company's proxy access bylaw provision
reviewing and determining whether a director's service on another board or elsewhere is likely to interfere with the director's duties and responsibilities as a member of the Board
reviewing and recommending board, director and committee evaluation processes and coordinating the process for the Board to evaluate its performance
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Policy Committee
Roles and Responsibilities
Committee Members
Assist the Board in overseeing policy, government relations and corporate responsibility by:
Gary Roughead (chair)
David P. Abney
Marianne C. Brown
Bruce S. Gordon
Thomas M. Schoewe
Mark A. Welsh III
  
Number of meetings in 2020: 5
  
Independence
 
All members are independent
identifying and evaluating global security, political, budgetary, technological and other issues and trends that could impact the Company's business activities and performance
reviewing and providing oversight of the Company's programs regarding environmental and social aspects of sustainability, including environmental matters, human rights, health and safety
reviewing and providing oversight over the Company's ethics and corporate social responsibility policies and programs
reviewing the Company's public relations strategy
reviewing and monitoring the Company's government relations strategy and political action committee policies
reviewing the Company's community relations and charitable activities
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CORPORATE GOVERNANCE

Board Meetings and Executive Sessions
The Board meets no fewer than nine times each year (including via telephonic meetings). Special meetings of the Board may be called from time to time as appropriate. On an annual basis, the Board holds an extended meeting to review our long-term strategy.
The Board generally holds its meetings at Company locations other than our corporate headquarters on a regular basis to provide the directors with a first-hand view of different elements of our business and an opportunity to interact with local management and employees at various levels. Due to the COVID-19 pandemic, the Company was able to hold only one meeting at a business location outside of the Company's headquarters during 2020.
The Board meets in executive session (with the directors only and then with the independent directors only) following each in-person Board meeting and on other occasions as needed. The non-executive Chairman or the Lead Independent Director presides over the executive sessions of the independent directors. The Audit and Risk Committee meets in executive session at least five times each year, and regularly requests separate executive sessions with representatives of our independent auditor and our senior management, including our Chief Financial Officer, General Counsel and our Vice President, Internal Audit. The Compensation Committee also meets in executive session from time to time and regularly receives a report from the Compensation Committee's independent compensation consultant. The Governance and Policy Committees also meet in executive session as they deem necessary.
In 2020, the Board held two of its regularly scheduled meetings virtually because of the COVID-19 pandemic. The Board also met more frequently by telephone, including in executive session, to receive updates and to provide oversight on the impact of the pandemic and issues of social justice and the Company's responses to both.
Meeting Attendance
In 2020, the Board held 14 meetings. Each incumbent director serving in 2020 attended 75% or more of the total number of Board and committee meetings he or she was eligible to attend. Board members are expected to attend each annual meeting, except where the failure to attend is due to unavoidable circumstances. All of our then-serving directors attended the 2020 Annual Meeting.
Director Independence
The Board and the Governance Committee annually review the relevant relationships or arrangements between the Company and our directors or parties related to the directors in determining whether such directors are independent. No director is considered independent unless the Board has determined that the director meets the independence requirements under applicable New York Stock Exchange (NYSE) and SEC rules and under our categorical independence standards, which are described in our Principles of Corporate Governance. For a director to be considered independent, the Board must determine that a director has no material relationship with the Company other than as a director.
Our Principles of Corporate Governance provide that a director may be found not to qualify as an independent director if the director:
has within the prior three years been a director, executive officer or trustee of a charitable organization that received annual contributions from the Company exceeding the greater of $1 million or 2% of the charitable organization's annual gross revenues, where the gifts were not normal matching charitable gifts, did not go through normal corporate charitable donation approval processes or were made "on behalf of" a director;
has, or has an immediate family member who has, within the prior three years been employed by, a partner in or otherwise affiliated with any law firm or investment bank in which the director's or the immediate family member's compensation was contingent on the services performed for the Company or in which the director or the immediate family member personally performed services for the Company and the annual fees paid by the Company during the preceding fiscal year exceeded the greater of $1 million or 2% of the gross annual revenues of such firm; or
has, or has an immediate family member who has, within the prior three years owned, either directly or indirectly as a partner, shareholder or officer of another company, more than 5% of the equity of an organization that has a material business relationship with (including significant purchasers of goods or services), or more than 5% ownership in, the Company.
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Independence Determination
In connection with their annual independence review, the Board and Governance Committee considered the following relationships with organizations to which we have made payments or from which we have received payments in the usual course of our business in 2020.
Mr. Abney's service as a member of the Board of Directors of United Parcel Service;
Ms. Brown's service as a member of the Board of Directors of VMWare;
Ms. Fudge's service as a trustee of the Brookings Institution;
Mr. Hernandez's service as a member of the Board of Directors of Albemarle Corporation;
Admiral Roughead's service as a trustee of Johns Hopkins University and a member of the Board of Managers of Johns Hopkins University Applied Physics Laboratory;
Mr. Schoewe's service as a member of the Board of Directors of General Motors;
Mr. Turley's service as a member of the Board of Directors of Citigroup; and
General Welsh's service as a member of the Board of Directors of the Air Force Association and the Board of Trustees of the Falcon Foundation.
The Board of Directors considered that Mr. Abney, Ms. Fudge, Admiral Roughead, Mr. Turley and General Welsh served as members of the boards of organizations to which the Company made contributions during 2020 in the usual course of our charitable contributions program, as well as in connection with our matching gifts program (which limits the contributions to $10,000 per year per director). The amounts paid were below the applicable thresholds under NYSE rules and our Principles of Corporate Governance.
Following its review and the recommendation of the Governance Committee, the Board affirmatively determined that all of the directors, except Ms. Warden, are independent. The independent directors constitute approximately 92% of the members of our Board.
Board Composition and Director Nominations
The Governance Committee actively considers the composition and diversity of the Board to ensure it is well positioned to serve the best interests of the Company and its shareholders. The Governance Committee regularly assesses what skills, experiences and other attributes can best contribute to the effective operation of the Board, particularly in light of the evolving needs of the Company. The Committee also seeks to balance experience and new perspectives. The Governance Committee identifies director candidates from a wide range of sources and often employs a third-party search firm to assist in the process.  
The Governance Committee evaluates potential director candidates on the basis of the candidate's background, qualifications and experience. The Governance Committee carefully considers whether each potential candidate would be able to fulfill his or her duties to the Company consistent with Delaware law and the Company’s governing documents, including the Principles of Corporate Governance and security requirements. The Committee recommends to the full Board nominees for election.
Shareholders may recommend director candidates for consideration by the Governance Committee pursuant to our Principles of Corporate Governance. The Governance Committee considers such director candidates recommended by shareholders similarly to other potential director candidates brought to the attention of the Governance Committee. Shareholder recommendations for director candidates under our Principles of Corporate Governance must be addressed to the Governance Committee in care of the Corporate Secretary. In addition, and as discussed immediately below, shareholders may also directly nominate director candidates in accordance with our Bylaws.
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Proxy Access 
In 2015, the Board amended our Bylaws explicitly to provide our shareholders the right to nominate directors through access to our proxy materials. The Board did so consistent with and to reflect shareholder input. Under the Company’s proxy access bylaws, a shareholder, or a group of up to 20 shareholders, that has maintained continuous ownership of 3% or more of the Company's outstanding common stock for at least three years may include in the Company's proxy materials director nominees constituting up to the greater of two nominees or nominees constituting 20% of the number of directors in office. Director nominees may receive compensation from third parties for their candidacy, up to the total annual compensation paid to directors of the Company, as well as reimbursement for reasonable expenses, provided there is full disclosure of such compensation. Under the Company’s bylaw provisions, directors are treated similarly, whether nominated through proxy access or otherwise, and held to the same high fiduciary standards to serve all shareholders. 
The Company's Bylaws provide our shareholders with broad and meaningful access to the Company’s proxy materials while enhancing transparency, protecting the interests of all shareholders and ensuring good governance. The terms of the Company’s proxy access bylaw provisions are also broadly consistent with the terms of proxy access bylaws adopted by other Fortune 500 companies, reflecting best practices.  
Director Election Process
Our Bylaws and Certificate of Incorporation provide for the annual election of directors. Each director will hold office until the next annual meeting of shareholders or until his or her earlier resignation or removal. Generally, in order to be elected, a director must receive more votes cast "for" than "against" his or her election, unless one or more shareholders provide notice of an intention to nominate one or more candidates to compete with the Board's nominees for election in accordance with the procedures set forth in the Company's corporate governance documents.
Director Qualifications
The Governance Committee is responsible for establishing the criteria for Board membership. In nominating directors, the Governance Committee bears in mind that the foremost responsibility of a director is to represent the interests of our shareholders as a whole. The activities and associations of candidates are reviewed for any legal impediment, conflict of interest or other consideration that might prevent or interfere with service on our Board.
In evaluating candidates, the Governance Committee considers:
the personal integrity and the professional reputation of the individual;
the education, professional background and particular skills and experience most beneficial to service on our Board;
how the nominee brings diversity, experience and skills valuable to the Company and Board at the time; and
whether a director candidate is willing to submit to and obtain a background check necessary for obtaining and retaining a top secret security clearance.
In evaluating director candidates, the Governance Committee aims to foster diversity of thought on our Board. The Governance Committee seeks to ensure diversity, including in race and gender, as well as in perspective, professional experience, education, skill and other qualities that contribute to our Board and the long-term interests of our Company and shareholders.
Director Orientation and Continuing Education
All new directors to the Board receive in-person orientation and training that is individually tailored, taking into account the director's experience, background, education and committee assignments. The orientation program is led by members of senior management and covers a review of our strategy and operating plans, financial statements, corporate governance and key policies and practices, as well as the roles and responsibilities of our directors.
All directors receive regular in-person training regarding our Company policies and procedures, and broad exposure to our operations and the teams. Members of senior management review with the Board the operating plan for each of our business sectors and the Company as a whole. The Board also conducts periodic site visits to our facilities as part of its regularly scheduled Board meetings. These visits allow directors to interact with a broader group of our executives and employees and gain firsthand insights into our operations.
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Directors may also attend outside director and other continuing education programs to assist them in staying current on developments in corporate governance, our industry, the global environment and issues critical to the operation of public company boards.
Board Membership and External Relationships
Directors are required to ensure that their other commitments, including for example, other board memberships, employment, partnerships and consulting arrangements, do not interfere with their duties and responsibilities as members of the Board. Directors provide notice to the General Counsel prior to accepting an invitation to serve on the board of any other organization or agreeing to other new commitments that could interfere with their duties and responsibilities as a member of the Board, and the General Counsel advises the Chairman of the Governance Committee (or the Chairman of the Board, if notice is from the Chairman of the Governance Committee). A director should not accept the new commitment until advised by the Chairman of the Governance Committee (or Chairman of the Board, as appropriate) that such engagement will not unacceptably create conflicts of interest or regulatory issues, conflict with Company policies or otherwise interfere with the director's duties and responsibilities as a member of the Board. Directors are also required promptly to inform the General Counsel if a conflict of interest arises, or they are concerned that a conflict may arise or circumstances could otherwise interfere with their duties and responsibilities as a director. Directors are required to seek to avoid even an appearance of an improper conflict of interest.
Directors may not serve on more than three other boards of publicly traded companies in addition to our Board without the written approval of the Chairman of the Governance Committee (or Chairman of the Board, as appropriate). A director who is a full-time employee of our Company may not serve on the board of more than one other public company unless approved by the Board. When a director's principal occupation or business association changes substantially during his or her tenure as a director, the Board expects the director to tender his or her resignation for consideration by the Governance Committee, which subsequently will recommend to the Board what action to take.
We have a retirement policy whereby a director will retire at the annual meeting following his or her 75th birthday, unless the Board determines, based on special circumstances, that it is in the Company's best interest to request that the director serve beyond such date.
Effect of Failure to Receive the Required Vote or Obtain and Retain Security Clearance
Each director is required to tender a resignation that will be effective upon (i) the failure to receive the required vote at any future meeting at which such director faces re-election, the failure to obtain top secret security clearance within 12 months of election or appointment to the Board or the failure to retain a top secret security clearance once obtained and (ii) the Board's acceptance of such resignation. If an incumbent director fails to receive the required vote for re-election or fails to obtain and retain a top secret security clearance, the Governance Committee will consider whether the Board should accept the director's resignation and will submit a recommendation for prompt consideration by the Board. The Board will decide whether to accept or reject a resignation within 90 days, unless the Board determines that compelling circumstances require additional time. The Governance Committee and the Board may consider any factor they deem relevant in deciding whether to accept a resignation, including, without limitation, any harm to our Company that may result from accepting the resignation, and the underlying reasons for the action at issue.
Board Self-Evaluation
The Board conducts annually thorough self-assessment processes at the full board level, within each committee, and at the individual director level. These processes are intended to ensure and enhance the effective operation of the Board.
The self-assessment of the full Board is overseen by the Governance Committee. As part of this assessment, the Lead Independent Director and Chairman of the Governance Committee facilitate a broad discussion of Board performance, held in executive session. Among other topics, the Board considers:
the Board's effectiveness in evaluating and monitoring the Company's business plan, long-term strategy and risks;
whether strategic and critical issues are being addressed by the Board in a timely manner;
whether the Board’s expectations and concerns are openly communicated to and discussed with the Chief Executive Officer;
whether there is adequate contact between the Board and members of senior management;
whether the directors collectively operate effectively as a Board;
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whether the individual directors have the appropriate mix of attributes and skills to fulfill their duties as directors of the Company;
whether there are adequate opportunities to raise questions and comments on issues, both inside and outside of Board meetings;
whether the Board has focused adequately on succession planning; and
whether the Board is adequately responsive to shareholder communication.
Following this review, the Board discusses the results and identifies opportunities for improvement, including any necessary steps to implement such improvements.
Each of the Committees also conducts an annual self-assessment. During an executive session led by the Committee chairperson, each Committee discusses, among other topics: whether the quality of participation and discussion at the Committee meetings is effective in facilitating the Committee’s obligations under its charter; the opportunity to engage in strategic discussion; and whether the Committee is covering the right topics in the right amount of detail. Following this discussion, the Committee develops and implements a list of action items, as appropriate.
Also as part of the annual self-assessment process, each non-employee director completes an individual director evaluation for each of the other non-employee directors. These assessments include, among other topics, each non-employee director’s:
understanding of the Company’s overall business and risk profile and its significant financial opportunities and plans;
engagement during meetings and other Board functions;
analysis of benefits and risks of courses of action considered by the Board; and
appropriate respect for the views of other Board members.
The Lead Independent Director or the Chairman of the Governance Committee meets with each non-employee director individually to discuss the results of his or her assessment, including comments provided by other non-employee directors. The Lead Independent Director or the Chairman of the Governance Committee reports generally on the overall results of these discussions to the Board in executive session. These evaluations also assist the Governance Committee with its recommendation for directors to be renominated for election to the Board of Directors.
Succession Planning
The Board believes that providing for strong and effective continuity of leadership is critical to the success of our Company. The Board commits significant resources to succession planning, with processes in place for the Board:
to evaluate the Chief Executive Officer annually based on a specific set of performance objectives;
to work with the Chief Executive Officer to support and ensure the development of potential succession candidates for the Chief Executive Officer and other leadership positions;
to discuss with the Chief Executive Officer annually an assessment of persons considered potential successors to various senior management positions; and
robustly to consider, plan for and ensure successful transitions of leadership.
Departure and Election of Directors
On June 10, 2020, David P. Abney was elected to the Board.
In accordance with the retirement policy described above, Mr. Gordon, a director who served during 2021, will not stand for re-election at the 2021 Annual Meeting, as he will have attained his 75th birthday prior to the Annual Meeting. The Board intends to reduce the number of members on the Board from 13 to 12 directors effective upon Mr. Gordon's retirement.

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Communications with the Board of Directors
Any interested person may communicate with any of our directors, our Board as a group, our non-employee directors as a group or our Lead Independent Director through the Corporate Secretary by writing to the following address: Office of the Corporate Secretary, Northrop Grumman Corporation, 2980 Fairview Park Drive, Falls Church, Virginia 22042. The Corporate Secretary will forward correspondence to the director or directors to whom it is addressed, except for job inquiries, surveys, business solicitations or advertisements and other inappropriate material. The Corporate Secretary may forward certain correspondence elsewhere within our Company for review and possible response.
The Board has met with, and looks forward to the opportunity to meet with, interested shareholders to address concerns and to receive input.
Interested persons may also report any concerns relating to accounting matters, internal accounting controls or auditing matters to non-management directors (including anonymously) by writing to the Chairman of the Audit Committee, Northrop Grumman Board of Directors c/o Corporate Ethics Office, 2980 Fairview Park Drive, Falls Church, Virginia 22042.
Corporate Responsibility and Sustainability
Corporate responsibility and sustainability are critical to our business and long-term value creation for our shareholders, customers, employees, communities and suppliers. Our strong culture — founded in ethics, integrity, diversity, equity and inclusion, and focused on enduring performance, innovation, accountability and long-term profitable growth — enables our success. Strong environmental, social and governance (ESG) programs and practices help us attract and retain the best talent, perform for our customers, serve as responsible corporate citizens in the communities we operate, and create long-term value for our stakeholders. We are particularly proud of our longstanding focus on and commitment to diversity, equity and inclusion.
Our Board of Directors provides leadership and oversight with respect to ESG practices, and regularly receives reports from management on these issues. The Policy Committee reviews, monitors and provides oversight of the Company's policies and programs for ethics and standards of business conduct, corporate responsibility, environmental matters, human rights, employee health and safety, and corporate citizenship and charitable programs. The Governance Committee oversees matters related to corporate governance, the board and shareholder rights, and our corporate culture. The Compensation Committee provides oversight of compensation programs and the Company's management of its human capital, including the Company's focus on diversity, equity and inclusion. The full Board regularly receives reports from the Committees and management, meets with employees across our business, and addresses in depth a full range of issues referred to broadly as sustainability. The Enterprise Risk Management Council also reviews risks related to corporate responsibility and sustainability, including risks related to climate change and natural disasters that may affect operations, especially in regions prone to hurricanes, earthquakes, damaging storms and other natural disasters.
Our commitment to strong corporate responsibility and sustainability is demonstrated by the incorporation of non-financial ESG performance metrics into our annual incentive compensation program. See page 50 in the Compensation Discussion and Analysis section. We engage with a variety of stakeholders — including shareholders, employees, customers and community advocates — and regularly obtain feedback on our ESG performance.
As a responsible corporate citizen, we understand the importance of environmental stewardship for local and global communities and we recognize the role we must play in protecting our planet. By managing and reducing our environmental footprint, we improve operational efficiencies, realize long-term cost savings and enhance our understanding of climate-related risks and opportunities. In 2020, we took bold steps on renewable energy and completed the last year of our 2020 Environmental Sustainability Goals.
Our Sustainability Report provides our stakeholders detailed information on various ESG programs, goals, and achievements. The report, our ESG Performance Data Matrix, and other ESG-related disclosures are available at https://www.northropgrumman.com/corporate-responsibility/reports-disclosures/.
We are proud that our corporate responsibility and sustainability programs received various notable recognitions in 2020. They include:
Dow Jones Sustainability North America Index for the fifth consecutive year;
an AA rating from MSCI for environmental, social and governance management and performance;
achieved a perfect score on the CPA-Zicklin Index of Corporate Political Disclosure and Accountability;
named as one of Corporate Responsibility Magazine's 100 Best Corporate Citizens;
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one of DiversityInc's Top 50 Companies for Diversity for the 11th year in a row as well as a top company for veterans and people with disabilities, employee resource groups, executive diversity councils, philanthropy and ESG;
named as one of Equileap’s top 25 companies on the S&P 500 for gender equality;
named as one of the top 10 industry supporters for engineering programs at HBCUs by Career Communications Group, Inc.;
received the highest ranking for the sixth year in a row on the Disability Equality Index and named a “Best Place to Work For Disability Inclusion”;
achieved a perfect score on the Corporate Equality Index and designated a “Best Place to Work for LGBTQ Equality”;
named as one of the 2020 Best of the Best Top Supplier Diversity Programs and Top Veteran-Friendly Employers by U.S. Veterans magazine;
received the Pledge to America’s Workers Presidential Award, highlighting our workforce development program, and Northrop Grumman subsidiary Park Air Systems Limited achieved Platinum accreditation for Investors in People, a national standard of good practice for people management; and
a leadership score of A- in CDP’s 2020 climate change program for the ninth consecutive year.
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Human Rights
Northrop Grumman is committed to maintaining a strong culture with a deep respect for individuals and human rights. We have adopted numerous policies, procedures and practices to reflect and implement this broad commitment. The Company enhanced its Human Rights Policy last year to reflect better the Company's commitment. (The Policy is available on the Company's website at https://www.northropgrumman.com/corporate-responsibility/northrop-grumman-human-rights-policy/). The Company has also established a Human Rights Working Group to help ensure our human rights program is being implemented effectively and achieving our goals.
The Board of Directors oversees the Company's commitment to human rights. The Policy Committee has specific responsibility to provide oversight of the Company's human rights program, including reviewing and making recommendations for enhancements, as appropriate. The Policy Committee receives reports from our Vice President, Global Corporate Responsibility, and our Corporate Vice President and General Counsel, who is chair of the Human Rights Working Group, on how we are implementing our Human Rights Policy and to discuss any areas of concern.
The Company’s Human Rights Policy starts with our culture and core values, including our commitment to ethics and integrity, treating everyone with respect, valuing diversity and equity, and fostering safe and inclusive environments. We work hard to nurture a culture in which each person can thrive. The Human Rights Policy makes clear our commitment to people, including our respect for the rights of employees to work in a positive work environment that treats employees with respect and dignity. As an employer, the Company strives to provide a culture where the differing points of view that we each bring to the workplace challenge us to think more broadly and enhance the overall results. The Company has 14 employee resource networks with 25,000 diverse colleagues participating that inform and implement strategies and initiatives that align with the Company's business goals and its values. The Company does not tolerate any discrimination in employment based on an individual’s protected status. We do not tolerate the use of child labor, forced labor, bonded labor, human trafficking or any other such violations of human rights. We respect the privacy of employees and business partners who trust us with their personal information.
The Human Rights Policy addresses explicitly the Company's supply chain, making clear both that we treat our suppliers with respect and dignity, and that we require our suppliers to follow similar policies protecting human rights. We require suppliers to adhere to a detailed Supplier Code of Conduct, which articulates our requirement for ethical conduct and social responsibility at all tiers of our supply base. The Supplier Code of Conduct specifically requires our suppliers to protect the rights of workers and prohibits the use of forced labor of any kind. Before entering into supply agreements, we undertake due diligence on potential suppliers to assess whether they will be able to meet our requirements, and we continue to monitor their performance during the contract period.
The Human Rights Policy also addresses various processes the Company follows to consider a wide range of potential risks – including risks to human rights – as it develops products and determines whether to undertake certain business opportunities. For example, the Company has robust procedures to help ensure we do not do business in countries or sell products to customers that are not properly approved by our government, or, even if permissible, where the risk – to human rights or, more broadly, the reputation of the Company – is too significant. The Company is mindful of both intended and unintended uses of its products. The Company may exit programs and/or decline to pursue others because of concerns related to potential impacts on human rights.
For Northrop Grumman and its employees, being a good corporate citizen means improving the lives of the people in the communities where we live and work. As the Human Rights Policy makes clear, we invest in our communities, supporting a wide range of activities and causes around the globe. Our current efforts are focused on issues of education/STEM, diversity, equity and inclusion, human dignity, veterans and environmental stewardship, to name a few.
As noted above, the Human Rights Policy provides for a Human Rights Working Group, tasked to help ensure that our Human Rights Policy is being implemented effectively and achieving our goals. The Working Group is led by the Company’s General Counsel (or her designee) and includes senior representatives from, among others, the Office of Global Corporate Responsibility, Global Supply Chain, Investor Relations, Contracts, EHS, Global Business Office, Government Relations, Communications and our Sectors.
The Human Rights Policy provides employees with various well-defined reporting channels when they believe there may have been a violation of the Policy. Concerns are investigated and corrective actions are taken.
The Policy is also reinforced through communications and with robust training. Our Sustainability Report provides additional background and information on our human rights programs.
Company Culture
We have a strong corporate culture, which is founded in ethics and integrity and respect. We value diversity, equity and inclusion and generate trust. We work together to deliver on our commitments to our customers, employees, shareholders and those with whom we work. Our culture is focused on breaking barriers and doing what others think is impossible. We are responsible
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environmental stewards and seek to give back to the communities in which we operate. Our culture enables long-term profitable growth and value creation for our shareholders and other stakeholders, while also maintaining a focus on safety and sustainability.
As discussed previously on page 14, we recently restated the values that guide our Company and provide the foundation for our culture. We all have a shared responsibility to maintain and enhance those values and our culture. We work to ensure our employees feel that it is safe to speak up, to challenge how things are done and raise concerns without fear of retribution. There are many avenues to report concerns, including through one's manager, to ethics officers or members of our human resources and law departments, or through the OpenLine reporting system, which give employees, business partners, suppliers and other stakeholders resources to seek guidance on ethics questions or report suspected violations of law or Company policy.
The Company promotes giving back to the community. The Company continually strives to be a good corporate citizen and encourages volunteerism, including honoring employees who have demonstrated commitment to volunteerism. The Company annually contributes to numerous charitable organizations, including those with a focus on STEM education and veterans.
During 2020, amidst the COVID-19 pandemic and drive for greater social justice, we focused in particular on keeping our employees safe as we continued to serve our customers and stakeholders, helping those most in need, and advancing social justice across our Company and our communities. The Company, our Foundation and our employees, individually and together, contributed time, skill and financial resources. We contributed to global, national and local efforts supporting healthcare, addressing food insecurity, advancing opportunity for all and increasing student access to technology, combating systemic discrimination, providing disaster relief, and serving some of our most vulnerable populations.
Management establishes and reinforces the Company's culture, and our Board and its Committees are actively engaged in providing oversight. The Board is committed to sustaining and enhancing the Company's strong culture with an engaged, diverse and inclusive workforce. The Company conducts an annual employee engagement survey, which gives our employees the opportunity to provide feedback on our Company culture. This survey is managed by a third-party vendor to encourage candor and solicit feedback on many aspects of engagement, including how our employees perceive Company leadership, and issues of accountability, inclusion and career development. The results of this survey are reported to and discussed with the full Board annually. The Board also meets regularly with employees at all levels to reaffirm the health of our culture. The Board meets with employees during site visits that are a critical part of Board meetings, and also during "Sector Days," when our directors visit the operations without members of senior leadership present. Members of our Board also often share their time by generously participating as speakers in Company leadership programs.
The Committees of the Board oversee elements of the Company's culture associated with their respective area of responsibility. The Audit and Risk Committee reviews and discusses the Company's global compliance policies and programs with our General Counsel and Chief Compliance Officer, including the tone set by leaders throughout the organization, and meets quarterly with our Vice President, Global Corporate Responsibility to receive a report on issues that are received through the Company's OpenLine reporting system. The Compensation Committee reviews with the Chief Human Resources Officer the Company's human capital management, monitors policies and practices with respect to diversity and equal employment opportunity, and reviews a risk assessment of the Company's compensation programs. The Governance Committee provides the board oversight of the Company's corporate culture, with a focus on governance-related risks. The Policy Committee receives at least annually a report from our Vice President, Global Corporate Responsibility regarding our ethics and corporate responsibility programs, including our Standards of Business Conduct, and reviews and monitors practices with respect to sustainability and environmental matters, human rights, health and safety, and charitable organizations.
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The Compensation Committee, with the assistance of its independent compensation consultant, is responsible for reviewing and recommending for approval the compensation of the non-employee directors. At the request of the Compensation Committee, the independent compensation consultant prepares annually a comprehensive benchmarking of our non-employee director compensation program against the compensation programs offered by our Target Industry Peer Group (the same peer group against which executive compensation is compared). Consistent with this benchmarking, the overarching approach for non-employee director compensation is to target approximately the 50th percentile of the Target Industry Peer Group and to align our director compensation with our shareholders' interests.
In May 2019, the Compensation Committee recommended to the Board, and the Board approved, the current non-employee director fee structure, effective May 15, 2019. In May 2020, the Compensation Committee recommended to the Board, and the Board approved, maintaining the current non-employee director fee structure. There was no increase to director compensation in 2020. The table below lists the annual fees payable to our non-employee directors under the current fee structure effective since May 15, 2019.

Compensation Element
Amount ($)
Annual Cash Retainer130,000
Lead Independent Director Retainer35,000
Audit and Risk Committee Retainer10,000
Audit and Risk Committee Chair Retainer20,000
Compensation Committee Chair Retainer20,000
Governance Committee Chair Retainer20,000
Policy Committee Chair Retainer20,000
Annual Equity Grant (1)160,000
(1)The annual equity grant is deferred into a stock unit account pursuant to the 2011 Long-Term Incentive Stock Plan (2011 Plan) as described below. The Northrop Grumman Equity Grant Program for Non-Employee Directors (Director Program) sets forth the terms and conditions of the equity awards granted to non-employee directors under the 2011 Plan.

Retainer fees are paid on a quarterly basis at the end of each quarter. To encourage directors to have a direct and material investment in shares of our common stock, non-employee directors are awarded an annual equity grant of $160,000 in the form of deferred stock units (Automatic Stock Units).
The Director Program was amended and restated effective January 1, 2016 (the Amended Director Program). Non-employee directors other than Mr. Abney received an annual equity grant of Automatic Stock Units on May 15, 2019, which vested on May 15, 2020, and received an annual equity grant of Automatic Stock Units on May 20, 2020 which will vest on May 20, 2021. Mr. Abney received an annual equity grant of Automatic Stock Units upon his election to the Board on June 10, 2020 which will vest on May 20, 2021. Under the Amended Director Program, directors may elect to have all or any portion of their Automatic Stock Units paid on (A) the earlier of (i) the beginning of a specified calendar year after the vesting date or (ii) their separation from service as a member of the Board, or (B) the vesting date. Directors may elect to defer to a later year all or a portion of their remaining cash retainer or committee retainer fees into a stock unit account as Elective Stock Units or in alternative investment options. Elective Stock Units are awarded on a calendar quarterly basis. Directors may elect to have all or a portion of their Elective Stock Units paid on the earlier of (i) the beginning of a specified calendar year or (ii) their separation from service as a member of the Board. Stock units awarded under the Amended Director Program will be paid out in an equivalent number of shares of our common stock. Deferral elections are made prior to the beginning of the year for which the retainer fees will be paid. Directors are credited with dividend equivalents in connection with the accumulated stock units until the shares of common stock related to such stock units are issued.
Non-employee directors are eligible to participate in our Matching Gifts Program for Education. Under this program, the Northrop Grumman Foundation matches director contributions, up to $10,000 per year per director, to eligible educational programs in accordance with the program.
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COMPENSATION OF DIRECTORS

Stock Ownership Requirements and Anti-Hedging and Pledging Policy
Non-employee directors are required to own common stock of the Company in an amount equal to five times the annual cash retainer, with such ownership to be achieved within five years of the director's election to the Board. Deferred stock units and Company stock owned outright by the director count towards this requirement.
Anti-Hedging and Pledging Policy
Company policy prohibits our directors, NEOs, other elected and appointed officers, designated employees who are subject to specific preclearance procedures under the Company’s insider trading policy and any other employees who receive performance-based compensation, from engaging in hedging, pledging or other specified transactions.  Specifically, this policy prohibits such persons from: engaging in hedging or derivative transactions, such as “cashless” collars, forward contracts, equity swaps or other similar or related transactions; entering into margin transactions involving Company stock; pledging Company securities as collateral for loans or other transactions; trading in puts, calls, options, warrants or other similar derivative instruments involving Company securities; or engaging in short sales of Company securities.
None of the shares of Company common stock held by our directors are pledged or subject to any hedging transaction.
30 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


COMPENSATION OF DIRECTORS

2020 Director Compensation
The table below provides information on the compensation of our non-employee directors for the year ended December 31, 2020.
NameFees Earned or Paid in Cash (1)
($)
Stock
Awards (2)
($)
All Other
Compensation (3)
($)
Total
($)
David P. Abney77,700150,4003228,103
Marianne C. Brown136,125160,00011,402307,527
Donald E. Felsinger165,000160,00034,479359,479
Ann M. Fudge140,000160,00010,740310,740
Bruce S. Gordon130,000160,00034,814324,814
William H. Hernandez160,000160,0001,835321,835
Madeleine A. Kleiner153,875160,00019,446333,321
Karl J. Krapek130,000160,00028,143318,143
Gary Roughead150,000160,0004,217314,217
Thomas M. Schoewe150,000160,0005,303315,303
James S. Turley140,000160,00010,830310,830
Mark A. Welsh III140,000160,000414300,414

(1)Amounts reflect the annual cash retainer paid to each director, including any applicable annual committee and committee chair retainers and any applicable Lead Independent Director or Chairman retainer. As described above, a director may elect to defer all or a portion of his or her annual cash retainer into a deferred stock unit account. Amounts deferred as Elective Stock Units or deferred into alternative investment options are reflected in this column.
(2)Amounts represent the target value of Automatic Stock Units awarded to each of our non-employee directors in 2020 under the 2011 Plan pursuant to the Amended Director Program. The amount reported for each director reflects the aggregate fair value of the Automatic Stock Units on the grant date, as determined under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation, excluding any assumed forfeitures. The grant date fair value assumes the value of dividend equivalents accrued directly on the awarded units. The aggregate number of Automatic Stock Units and Elective Stock Units held by each director as of December 31, 2020 is provided in the Deferred Stock Units table below.
(3)Amounts reflect (i) the estimated dollar value of additional stock units credited to each non-employee director as a result of dividend equivalents earned, directly or indirectly, on reinvested dividend equivalents as such amounts are not assumed in the grant date fair value of the Automatic Stock Units shown in the "Stock Awards" column, and (ii) matching contributions made through our Matching Gifts Program for Education discussed above and to non-profit organizations under a Company program as follows: Ms. Brown, $10,000; Ms. Fudge, $10,000; Mr. Gordon, $20,000; Ms. Kleiner, $5,000; Mr. Krapek, $10,000; and Mr. Turley, $10,000.







NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 31


COMPENSATION OF DIRECTORS

Deferred Stock Units
As of December 31, 2020, the non-employee directors had the following aggregate number of deferred stock units accumulated in their deferral accounts for all years of service as a director, including additional stock units credited as a result of dividend equivalents earned on the stock units.
NameAutomatic Stock
Units
Elective Stock
Units
Total
David P. Abney445445
Marianne C. Brown3,9322,4796,411
Donald E. Felsinger22,22415,93038,154
Ann M. Fudge2,9474983,445
Bruce S. Gordon18,70618,706
William H. Hernandez5,6135,613
Madeleine A. Kleiner17,67117,671
Karl J. Krapek17,7154,69022,405
Gary Roughead8,9658,965
Thomas M. Schoewe10,22010,220
James S. Turley3,3583,358
Mark A. Welsh III2,5042,504


32 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


TRANSACTIONS WITH RELATED PERSONS AND CONTROL PERSONS
Related Person Transactions
The Company has a written policy approved by the Board, for the review, approval and ratification of transactions between our Company and our directors, executive officers and other related persons (Related Person Transactions Policy). A copy of the policy is available on the Investor Relations section of our website (www.northropgrumman.com). The policy provides for related person transactions to be reviewed in advance and approved or ratified, as applicable, by the Board of Directors, the Governance Committee or the Chairman of the Governance Committee. A related person transaction may be approved if, after reviewing the relevant facts and circumstances, the reviewing party concludes that approving the related person transaction is in the best interests of the Company and its shareholders.
The policy defines a related person transaction as any transaction in which the Company was, is or will be a participant, where the amount involved exceeds $120,000, and in which a related person had, has or is expected to have a direct or indirect material interest. A "related person" includes:
any of our directors or executive officers;
any person who is known to be the beneficial owner of more than 5% of our common stock;
an immediate family member of any such persons; or
any firm, corporation, or other entity controlled by any such persons.
The Corporate Secretary may determine that, based on facts and circumstances, a transaction in an amount less than $120,000 should nonetheless be deemed a related person transaction. If this occurs, the transaction would be submitted for review and approval or ratification in accordance with the policy. Under exceptional circumstances, if a related person transaction has not been approved in advance, the Governance Committee will recommend to the Board of Directors such action as the Governance Committee deems appropriate, including ratification, amendment or termination of the transaction.
The policy requires each director and executive officer to complete an annual questionnaire to identify his or her related interests and to notify the Corporate Secretary of any changes in their information.
In the ordinary course of business, the Company purchases logistical services from UPS. One of our directors, David P. Abney, served as the Chief Executive Officer of UPS until June 2020 and the Executive Chairman of the UPS Board of Directors through September 2020. For the year ended December 31, 2020, amounts paid for these services accounted for less than 0.1% of either company's revenues for the 2020 fiscal year.
During 2020, the Company employed one family member of an executive officer who received compensation in excess of the reporting threshold. The spouse of our Corporate Vice President and President, Enterprise Services, Shawn Purvis, was employed by the Company as a Consulting Chief Engineer in our Mission Systems sector. He received cash compensation (base salary and bonus) of approximately $262,000 and participated in the Company’s benefit plans, commensurate with his position at the Company. Effective January 30, 2021, he transferred to a new company pursuant to the sale of our IT services business and he is no longer employed by the Company.
State Street Corporation (State Street), acting in various fiduciary capacities, filed a Schedule 13G/A with the SEC reporting that as of December 31, 2020, State Street and certain of its subsidiaries collectively were the beneficial owners of more than 5% of our outstanding common stock. A subsidiary of State Street is the trustee for various Northrop Grumman defined benefit and defined contribution plan trusts. Two other State Street subsidiaries provide investment management services. During 2020, those State Street subsidiaries received approximately $5.75 million for such services, with over 99% of that amount paid by the plan trusts.
BlackRock, Inc. (BlackRock) filed a Schedule 13G/A with the SEC reporting that as of December 31, 2020, BlackRock and certain of its subsidiaries collectively were the beneficial owners of more than 5% of our outstanding common stock. A subsidiary of BlackRock provides investment management services for the Northrop Grumman Rabbi Trust II and certain assets within various Northrop Grumman defined benefit trusts. During 2020, the trusts paid that BlackRock subsidiary approximately $528,000 for such services.
Wellington Management Group LLP (Wellington) filed a Schedule 13G with the SEC reporting that as of December 31, 2020, Wellington and certain of its subsidiaries collectively were the beneficial owners of more than 5% of our outstanding common stock. A subsidiary of Wellington provides investment management services for certain assets within various Northrop Grumman defined benefit and defined contribution plan trusts. During 2020, the trusts paid that Wellington subsidiary approximately $1.14 million for such services.

NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 33


TRANSACTIONS WITH RELATED PERSONS AND CONTROL PERSONS
Compensation Committee Interlocks and Insider Participation
During 2020, Ms. Brown, Ms. Kleiner and Messrs. Felsinger, Gordon, Krapek, Roughead and Schoewe served as members of the Compensation Committee. During 2020, no member of the Compensation Committee had a relationship with the Company or any of our subsidiaries, other than as directors and shareholders, and no member was an officer or employee of the Company or any of our subsidiaries, a participant in a related person transaction or an executive officer of another entity, where one of our executive officers serves on the board of directors that would constitute a related person transaction or raise concerns of a Compensation Committee interlock.
Indemnification Agreements
Our Bylaws require us generally to indemnify our directors and executive officers to the fullest extent permitted by Delaware law. Additionally, as permitted by Delaware law, we have entered into indemnification agreements with each of our directors and elected officers. Under the indemnification agreements, we have agreed to hold harmless and indemnify each indemnitee, generally to the fullest extent permitted by Delaware law, against expenses, liabilities and loss incurred in connection with threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative to which the indemnitee is made a party by reason of the fact that the indemnitee is or was a director or officer of the Company or any other entity at our request, provided however, that the indemnitee acted in good faith and in a manner reasonably believed to be in the best interests of our Company.
34 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


VOTING SECURITIES AND PRINCIPAL HOLDERS

Stock Ownership of Certain Beneficial Owners
The following entities beneficially owned, to the best of our knowledge, more than five percent of the outstanding common stock as of the dates indicated in the footnotes below. All information shown is based on information reported by the filer on a Schedule 13G filed with the SEC on the dates indicated in the footnotes below.
Name and Address of Beneficial OwnerAmount and Nature of
Beneficial Ownership of
Common Stock
Percent
of  Class
State Street Corporation
One Lincoln Street, Boston, MA 02111
16,098,467(1)9.7%
Capital International Investors
333 South Hope Street, 55th Floor,
Los Angeles, CA 90071
14,658,627(2)8.8%
The Vanguard Group
100 Vanguard Blvd., Malvern, PA 19355
12,540,325(3)7.5%
BlackRock, Inc.
55 East 52nd Street, New York, NY 10055
9,489,573(4)5.7%
Wellington Management Group LLP
280 Congress Street, Boston, MA 02210
9,025,016(5)5.4%

(1)This information was provided by State Street Corporation (State Street) in a Schedule 13G/A filed with the SEC on February 24, 2021. According to State Street, as of December 31, 2020, State Street had shared voting power over 15,636,757 shares and shared dispositive power over 16,097,110 shares. This total includes 9,983,272 shares held as of December 31, 2020 in the Defined Contribution Plans Master Trust for the Northrop Grumman Savings Plan and the Northrop Grumman Financial Security and Savings Program, for which State Street Bank and Trust Company acts as trustee and State Street Global Advisors Trust Company acts as investment manager.
(2)This information was provided by Capital International Investors (Capital International), a division of Capital Research and Management Company, in a Schedule 13G/A filed with the SEC on February 16, 2021. According to Capital International, as of December 31, 2020, Capital International had sole voting power over 14,636,652 shares and sole dispositive power over 14,658,627 shares.
(3)This information was provided by The Vanguard Group (Vanguard) in a Schedule 13G/A filed with the SEC on February 10, 2021. According to Vanguard, as of December 31, 2020, Vanguard had shared voting power over 258,121 shares, sole dispositive power over 11,887,639 shares and shared dispositive power over 652,686 shares.
(4)This information was provided by BlackRock, Inc. (BlackRock) in a Schedule 13G/A filed with the SEC on January 29, 2021. According to BlackRock, as of December 31, 2020, BlackRock had sole voting power over 8,627,438 shares and sole dispositive power over 9,489,573 shares.
(5)This information was provided in a Schedule 13G jointly filed with the SEC on February 4, 2021 by Wellington Management Group LLP, a parent holding company, and three of its affiliates: Wellington Group Holdings LLP, owned by Wellington Management Group LLP; Wellington Investment Advisors Holdings LLP, owned by Wellington Group Holdings LLP; and Wellington Management Company LLP, an investment adviser controlled by Wellington Investment Advisors Holdings LLP (the four joint filers collectively, "Wellington"). Wellington reported that the shares as to which the Schedule 13G was filed are owned of record by clients of Wellington Management Company LLP. According to Wellington, as of December 31, 2020, each of the joint filers except Wellington Management Company LLP had shared voting power over 8,950,082 shares and shared dispositive power over 9,025,016 shares; and Wellington Management Company LLP had shared voting power over 8,865,582 shares and shared dispositive power over 8,919,050 shares.
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 35


VOTING SECURITIES AND PRINCIPAL HOLDERS

Stock Ownership of Officers and Directors
The following table shows beneficial ownership of our common stock as of March 23, 2021 by each of our current directors, our named executive officers and all directors and executive officers as a group. As of March 23, 2021, there were 160,962,047 shares of our common stock outstanding. None of the persons named below beneficially owns in excess of 1% of our outstanding common stock. Unless otherwise indicated, each individual has sole investment power and sole voting power with respect to the shares owned by such person.
Shares of Common  Stock
Beneficially Owned
Share
Equivalents (1)
Total
Non-Employee Directors
David P. Abney447447
Marianne C. Brown6,4436,443
Donald E. Felsinger38,34338,343
Ann M. Fudge933,4623,555
Bruce S. Gordon  18,79818,798
William H. Hernandez1,0005,6416,641
Madeleine A. Kleiner  17,75817,758
Karl J. Krapek4,445  21,30525,750
Gary Roughead  9,0099,009
Thomas M. Schoewe3,160  10,27113,431
James S. Turley6353,3744,009
Mark A. Welsh III2,5162,516
Named Executive Officers
Kathy J. Warden (2)118,956118,956
David F. Keffer
Kenneth L. Bedingfield10,15310,153
Mark A. Caylor20,3383620,374
Blake E. Larson11,26311,263
Janis G. Pamiljans7,9486,91414,862
Other Executive Officers77,909  3,34381,252
All Directors and Executive Officers as a Group (27 persons)
255,900  147,660403,560(3)

(1)Share equivalents for directors represent non-voting deferred stock units acquired under the 2011 Plan, some of which are paid out in shares of common stock at the conclusion of a director-specified deferral period, and others are paid out upon termination of the director's service on the Board. Certain of the NEOs hold share equivalents with pass-through voting rights in the Northrop Grumman Savings Plan or the Northrop Grumman Financial Security and Savings Program.
(2)Ms. Warden also serves on the Company's Board of Directors.
(3)Total represents 0.25% of the outstanding common stock as of March 23, 2021. 
36 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


EQUITY COMPENSATION PLAN INFORMATION

We currently maintain two equity compensation plans: the 2011 Plan and the 1993 Stock Plan for Non-Employee Directors, as amended (1993 Directors Plan). Each of these plans has been approved by our shareholders.
The following table sets forth the number of shares of our common stock to be issued upon payout of outstanding awards and the number of shares remaining available for future award grants under these equity compensation plans as of December 31, 2020.
Plan categoryNumber of shares  of
common stock to be
issued upon exercise
of outstanding options and
payout of outstanding
awards (1)
(#)
Weighted-average
exercise price of
outstanding options (2)
($)
Number of shares of 
common stock remaining available for future issuance under equity compensation plans (excluding shares reflected in the first column) (3)
(#)
Equity compensation plans approved by shareholders1,255,949N/A5,246,915  
Equity compensation plans not approved by shareholdersN/AN/AN/A  
Total1,255,949N/A5,246,915(4)

(1)This number includes 603,275 shares that were subject to outstanding stock awards granted under the 2011 Plan, 224,275 awards earned at year end but pending distribution subject to final performance adjustments, 137,897 shares subject to outstanding stock units credited under the 2011 Plan and 1993 Directors Plan, and additional performance shares of 290,502, which reflect the number of shares deliverable under payment of outstanding restricted performance stock rights, assuming maximum performance criteria have been achieved.
(2)There were no options outstanding as of December 31, 2020.
(3)Of the aggregate number of shares that remained available for future issuance, 5,246,915 were available under the 2011 Plan as of December 31, 2020. No new awards may be granted under the 1993 Directors Plan.
(4)After giving effect to our February 2021 awards, the number of shares of common stock remaining available for future issuance would be 4,746,454 (assuming maximum payout of such awards).

NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 37


PROPOSAL TWO: ADVISORY VOTE ON COMPENSATION OF NAMED EXECUTIVE OFFICERS
Consistent with Section 14A of the Exchange Act, we are providing our shareholders with the opportunity to cast a non-binding, advisory vote on the compensation of our NEOs. This advisory vote, commonly known as "say-on-pay," gives our shareholders the opportunity to express their view on our 2020 executive compensation programs and policies for our NEOs. The vote does not address any specific item of compensation and is not binding on the Board; however, as an expression of our shareholders' views, the Compensation Committee seriously considers the vote when making future executive compensation decisions. The Board has adopted a policy of providing for annual advisory votes on the compensation of our NEOs.
We believe our compensation programs reflect responsible, measured practices that effectively incentivize our executives to dedicate themselves fully to value creation for our shareholders, customers and employees. Our pay practices are aligned with our shareholders' interests and with leading industry practice and are governed by a set of strong policies. Examples include:
Double-trigger provisions for change in control situations, and no excise tax gross-ups for payments upon termination after a change in control;
A recoupment policy applicable to cash and equity incentive compensation payments;
Stock ownership guidelines of 7x base salary for the CEO and 3x base salary for other NEOs, and stock holding requirements of three years from the vesting date for equity awards; and
Prohibitions on hedging or pledging of Company stock.
For a more extensive list of our best practices, refer to page 40 of this Proxy Statement. In addition, our Compensation Discussion and Analysis (CD&A) provides a detailed discussion of our performance-based approach to executive compensation. We encourage you to read the CD&A, the rest of this Proxy Statement and our 2020 Form 10-K, which describes our business and 2020 results in more detail.
Recommendation
The compensation of our executives is aligned to performance, is sensitive to shareholder returns, appropriately motivates and retains our executives, and is a competitive advantage in attracting and retaining the high caliber talent necessary to drive our business forward and build sustainable value for our shareholders. Accordingly, the Board recommends that shareholders approve the following resolution:
"RESOLVED, that, as an advisory matter, the shareholders of Northrop Grumman Corporation approve the compensation paid to the Company's named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion."
Vote Required
Approval of this proposal requires that the votes cast "for" the proposal exceed the votes cast "against" the proposal. Abstentions and broker non-votes will have no effect on this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" PROPOSAL TWO.
 
38 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


COMPENSATION DISCUSSION AND ANALYSIS

Compensation Discussion and Analysis
In the CD&A, we provide an overview of our executive compensation programs and the underlying philosophy used to develop the programs. We describe the material components of our executive compensation programs for our 2020 NEOs and explain how and why our Board's Compensation Committee determined certain specific compensation policies and decisions. We refer to certain non-GAAP financial measures, which are identified with asterisks. For more information, including definitions, reconciliations to the most directly comparable GAAP measure and why we believe these measures may be useful to investors, see "Appendix A - Use of Non-GAAP Financial Measures." The 2020 NEO compensation is in the Summary Compensation Table on page 58 and other compensation tables contained in this Proxy Statement.
2020 NEOs
KATHY J. WARDEN
DAVID F. KEFFER
MARK A. CAYLOR
BLAKE E. LARSON
JANIS G. PAMILJANS
KENNETH L. BEDINGFIELD
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 39


COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE SUMMARY


Summary of Our Executive Compensation Programs
Our executive compensation philosophy is to provide our NEOs with attractive, flexible and market-based total compensation tied to annual and long-term performance and aligned with the interests of our shareholders. The key elements of our compensation programs for our NEOs are summarized below.
Compensation ElementPurposeKey Characteristics
Base SalaryCompensate fairly and competitivelyDetermined by level of responsibility, competitive market pay assessment and individual performance
Annual Incentive Plan (AIP)Motivate and reward achievement of annual business objectives
Financial Metrics
35% Adjusted Cash Flow from Operations Conversion*
35% Segment Operating Income* Growth
15% Pension-adjusted Net Income* Growth
15% Pension-adjusted Operating Margin (OM) Rate*
Subject to downward adjustment for failure to achieve non-financial objectives
Long-Term Incentive Plan (LTIP)
Restricted Stock Rights (RSRs)
Link the interests of our executive officers to shareholders and retain executive talent
30% of annual LTIP grant
Three-year cliff vesting
LTIP
Restricted Performance Stock Rights (RPSRs)
Link the interests of our executive officers to shareholders, motivate and reward achievement of long-term strategic goals and retain executive talent
70% of annual LTIP grant
Three-year performance period
Equally weighted metrics of relative Total Shareholder Return (TSR), Adjusted Cumulative Free Cash Flow* (Adjusted Cumulative FCF*) and Operating Return on Net Assets* (Operating RONA*)
* This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures."
Our Compensation Pay Practices (pages 40 - 56)
Our compensation programs incorporate best practices, including the following:
Best Practices
Pay for Performance
Above-Target Annual Incentive Payouts Only When We Outperform Our Peer Benchmarks
Long-Term Incentives Focused on Performance
Cap on Annual Bonuses and RPSR Payouts
Compensation Elements Benchmarked at Market Median
Annual Peer Group Review
Independent Consultant Reports Directly to Compensation Committee
No Individual Change in Control Agreements
LTIP Double Trigger Provisions for Change in Control
No Excise Tax Gross-ups for Payments Received Upon Termination After a Change in Control
No Hedging or Pledging of Company Stock
Dividends Paid Upon Vesting of Equity Awards
Recoupment Policy on Cash and Equity Incentive Compensation Payments
Stock Ownership Guidelines and Stock Holding Requirements
Regular Risk Assessments Performed
No Employment Contracts for CEO or Other NEOs
40 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE SUMMARY

2020 Performance Highlights
We continued to generate strong financial results in 2020, including higher sales, operating income, segment operating income*, cash provided by operating activities and adjusted free cash flow*. 2020 diluted earnings per share were $19.03 and 2020 mark-to-market (MTM) adjusted diluted earnings per share* were $23.65. Our strong cash generation allowed us to invest $1.4B in our business and return approximately $1.4B to our shareholders through share repurchases and dividends. Throughout 2020, management and the Committee closely monitored the COVID-19-related impacts on our financial results. Our financial results were not significantly impacted and the performance results reflect the comparison to our peers.
Earnings Per Share
https://cdn.kscope.io/7c959b85fd025150ba69e2aa1b0e330a-chart-e51fbd604d7346d0a101.jpg
* This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures."
3-Year Total Shareholder Return
https://cdn.kscope.io/7c959b85fd025150ba69e2aa1b0e330a-chart-955b7c0fb11d40f7b771.jpg

NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 41


COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE SUMMARY


Management and the Compensation Committee believe our executive compensation programs are competitive and support achieving strong financial performance while investing for profitable growth and value creation over the long-term. A 96% shareholder majority approved last year's say-on-pay proposal, and our ongoing shareholder engagement indicates continued support for the structure and elements of our executive incentive compensation programs.
Compensation Mix and Incentive Metrics
We have a balanced pay for performance compensation structure that places an appropriate level of compensation at risk, based on our financial and non-financial performance measures and relative TSR. The following charts show variable-based compensation elements at target values.

https://cdn.kscope.io/7c959b85fd025150ba69e2aa1b0e330a-chart-donuts_draftx01x27x2.jpg
*Restricted Stock Rights (RSRs) have been reclassified as variable compensation. RSRs are subject to future vesting and are at risk due to fluctuations in the price of our common stock. The change aligns with peers and industry practice.
For AIP, following are the results for 2020 performance, which have been adjusted, as applicable, to include proceeds from sale of equipment to a customer, and to exclude transaction-related expenses (Orbital ATK purchase and IT Services divestiture expenses), Orbital ATK intangible asset amortization and property, plant and equipment (PP&E) step-up depreciation expense (impacts related to Innovation Systems) and certain impacts related to the MTM method of accounting for the Company's pension and other postretirement benefit (OPB) plans as detailed in "Appendix A - Use of Non-GAAP Financial Measures":
Adjusted Cash Flow from Operations Conversion*: 81.3%
Segment Operating Income* Growth: $4.2B
Pension-adjusted Net Income* Growth: $3.0B
Pension-adjusted OM Rate*: 10.7%
42 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


COMPENSATION DISCUSSION AND ANALYSIS | EXECUTIVE SUMMARY

For the RPSR, our score covering the three-year 2018-2020 performance period was weighted 50% to relative TSR and 50% to Adjusted Cumulative FCF*, maintaining strong alignment to shareholder interest and increased emphasis on operational performance. The results, where applicable, include the after-tax impact of total pension funding and proceeds from sale of equipment to a customer, and to exclude impacts related to Innovation Systems and transaction-related expenses. Transaction-related expenses are primarily comprised of advisory, legal and other costs related to the completion of any acquisition or disposition. The combined weighted score for the metrics generated an overall performance score of 105%. The full details of the LTIP program can be found on page 52.
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 43


COMPENSATION DISCUSSION AND ANALYSIS | KEY PRINCIPLES

Compensation Philosophy and Objectives
We provide an attractive, flexible and market-based total compensation program tied to performance and aligned with the interests of our shareholders. Our objective is to recruit and retain the caliber of executives and other key employees capable of achieving top performance and generating value for our shareholders, customers and employees.
Our goal is to lead our industry in sustainable performance and build on our strong, enduring values. The targets, thresholds and payout levels of our AIP are benchmarked against peers and the market. Our 2020 RPSR metrics are based on (1) TSR relative to our Performance Peer Group and the S&P Industrials, (2) Adjusted Cumulative FCF* and (3) Operating RONA*. For each plan, we selected metrics that drive shareholder value and benchmark our performance against our peers and the market. Our executive compensation and benefit programs are guided by the following principles:
Pay for Performance
Our incentive plans are based on peer and market benchmarked performance metrics.
Above-target incentive payouts are only awarded when we outperform our peer and market benchmarks.
Leadership Recruitment, Retention and Succession
Compensation is designed to be competitive within our industry and retain top talent.
Programs are designed to recruit, motivate and reward NEOs for delivering operational and strategic performance over time.
Sustainable Performance
Our AIP includes both financial and non-financial metrics to ensure we are building a strong foundation for long-term sustainable performance and shareholder value creation.
Alignment with Shareholder Interests
Our compensation structure places an appropriate amount of compensation at risk based on annual and long-term results.
At-risk compensation is based on financial and non-financial performance measures and relative TSR.
A significant portion of compensation is delivered in equity, the vesting and value of which provides alignment with shareholder returns.
Stock ownership guidelines, holding requirements for equity awards and our recoupment policy further align executive and shareholder interests.
Benchmarking
Compensation program provisions and financial objectives are evaluated on an annual basis and modified in accordance with industry and business conditions.
We seek to outperform our peers (a group of top global defense companies identified as the Performance Peer Group on page 46).
We use a Target Industry Peer Group (identified on page 46) for broader market executive compensation analyses that includes companies based on a peer-of-peers analysis.
Compensation Risk Management
The Compensation Committee, together with its independent compensation consultant, conducts an annual assessment of the compensation programs to determine if there are potential material risks to the Company.
Both the Compensation Committee and its independent compensation consultant evaluate the mix of variable compensation linked to financial and non-financial performance, as well as shareholder returns.
The assessment is to confirm there is an appropriate balance in the executive compensation programs, practices and policies.
44 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


COMPENSATION DISCUSSION AND ANALYSIS | KEY PRINCIPLES

How We Make Compensation Decisions
Role of the Compensation Committee
The Compensation Committee is responsible for overseeing our compensation policies, incentive and equity compensation plans and approving payments or grants under these plans for elected officers (other than the CEO). The Compensation Committee recommends the compensation for our CEO to the independent directors of the Board for approval and approves the compensation for the other NEOs. In performing its duties, the Compensation Committee:
receives advice from an independent compensation consultant who reports directly to the Compensation Committee and is discussed further below;
reviews market data and other input from its independent compensation consultant;
reviews and approves incentive goals and objectives (CEO goals and objectives are reviewed and approved by the independent directors);
evaluates and approves executive benefit and perquisite programs;
evaluates the competitiveness of each elected officer's total compensation package; and
conducts an annual evaluation of the independent compensation consultant.
In addition, the Compensation Committee annually reviews and discusses with management the CD&A and provides a Compensation Committee Report for inclusion in the proxy statement.
For more information regarding the composition of the Compensation Committee and its duties and responsibilities, see "Corporate Governance – Committees of the Board of Directors – Compensation Committee" on page 18.
Role of the Independent Compensation Consultant
The Compensation Committee retains an independent compensation consultant, Frederic W. Cook & Co. (the Compensation Consultant). The Compensation Consultant reports directly to the Compensation Committee, and the Compensation Committee may replace the Compensation Consultant or hire additional consultants at any time. A representative of the Compensation Consultant regularly participates in meetings of the Compensation Committee and communicates with the Compensation Committee Chairperson between meetings as needed; however, the Compensation Committee and the independent directors of the Board make final decisions on the compensation actions for the NEOs. The Compensation Consultant also participates in executive session with the Compensation Committee. Other than the fees paid to the Compensation Consultant pursuant to its engagement by the Compensation Committee for its advice on executive and director compensation, the Compensation Consultant does not receive any fees or income from the Company.
The responsibilities of the Compensation Consultant include:
providing a review of market data and advising the Compensation Committee on the levels and structure of our executive compensation policies and procedures, including compensation matters for NEOs;
reviewing and advising the Compensation Committee on our total compensation philosophy, peer groups and target competitive positioning;
identifying market trends and practices and advising the Compensation Committee on program design implications;
providing proactive advice to the Compensation Committee on best practices for Board governance of executive compensation, compensation-related risk management, and any areas for program design to most appropriately support the Company's business strategy and organizational values; and
serving as a resource to the Compensation Committee Chairperson on setting agenda items for Compensation Committee meetings and undertaking special projects.
In February 2021, the Compensation Committee determined that there were no relationships between the Compensation Consultant and the Company or any of the Company's directors or executive officers that raised a conflict of interest.
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COMPENSATION DISCUSSION AND ANALYSIS | KEY PRINCIPLES

Role of Management
Our CEO makes compensation-related recommendations for elected officers, other than the CEO, to the Compensation Committee for its review and approval. The CEO's evaluation is based on each officer's compensation relative to market and the overall framework, philosophy and objectives for our executive compensation programs approved by the Compensation Committee.
The recommendations for elected officers are based on an assessment of each executive's performance, skills and industry knowledge, market compensation benchmarks, and succession and retention considerations. The Corporate Vice President and Chief Human Resources Officer provides a summary of historical compensation and benefits-related data when compensation decisions are considered by the Compensation Committee to ensure compensation decisions are made within our total compensation framework.
Management also provides recommendations to the Compensation Committee regarding executive incentive and benefit plan designs and strategies. These recommendations include financial and non-financial operational goals and criteria for our annual and long-term incentive plans.
Use of Competitive Data
Performance Peer Group: Set Performance Targets and Evaluate Performance
The Compensation Committee uses the Performance Peer Group for purposes of setting performance targets and evaluating performance for our AIP and LTIP. The Performance Peer Group encompasses the largest global defense companies by government revenues within the domestic aerospace and defense market space. The same Performance Peer Group was used to establish the goals for the 2020 AIP and 2018 RPSR grants that vested at the end of 2020, and the 2020 RPSR grants that will vest in 2022.
PERFORMANCE PEER GROUP
BAE SystemsL3Harris Technologies, Inc.
Raytheon Technologies Corporation(1)
The Boeing CompanyLeidos Holdings, Inc.Thales Group
Booz Allen Hamilton Holding CorporationLeonardo
General Dynamics CorporationLockheed Martin Corporation
(1) Raytheon Company merged with United Technologies in 2020, forming Raytheon Technologies Corporation

Target Industry Peer Group: Benchmark Executive Compensation Practices
The Compensation Committee benchmarks our executive compensation levels and practices against a Target Industry Peer Group of 13 companies, including a subset containing six direct peers. Prior to the beginning of the year, the Compensation Committee sets the Target Industry Peer Group used to benchmark compensation for the following year. To identify peer companies for compensation benchmarking purposes, the Compensation Consultant employed an objective criteria-based methodology where:
the company was identified as a peer by at least two aerospace and defense peers or proxy advisory services;
the company participated in the annual Aon executive compensation study; and
revenues, total employees and market capitalization of the peer company were broadly similar to those of the Company.
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COMPENSATION DISCUSSION AND ANALYSIS | KEY PRINCIPLES

While the Target Industry Peer Group is reviewed annually by the Compensation Committee with the Compensation Consultant, our goal is to keep it as consistent as reasonably possible on a year-over-year basis. The companies that comprise the 2020 Target Industry Peer Group are listed in the following table:
2020 TARGET INDUSTRY PEER GROUP
3M CompanyJohnson Controls International
The Boeing Company (1)
L3Harris Technologies, Inc. (1)
Caterpillar, Inc.
Lockheed Martin Corporation (1)
Eaton Corporation
Parker-Hannifin Corporation
Emerson Electric Company
Raytheon Technologies Corporation (1)(2)
General Dynamics Corporation (1)
Textron, Inc.
Honeywell International, Inc. (1)
(1) Included in the subset of six direct peers also used for compensation benchmarking
(2) Raytheon Company merged with United Technologies in 2020, forming Raytheon Technologies Corporation
It is the Company's pay philosophy to provide the CEO a compensation package that comprises competitive elements of base salary and target variable pay relative to the Target Industry Peer Group and the direct six peers noted in the table above. In 2020, the CEO's target total direct compensation approximated the median of the Target Industry Peer Group and direct six peers.
Another element of the Company's pay philosophy is to tie a significant portion of the CEO's pay to performance. As a result, the CEO's actual compensation may differ from this market median based on the Company's actual performance.
In determining the base salary and target variable pay elements for the other NEOs, the Compensation Committee does not set any specific benchmark relative to the Target Industry Peer Group; rather, the Compensation Committee considers several factors in determining their compensation, including executive compensation levels and practices of the Target Industry Peer Group, NEO individual experience, growth in job as demonstrated through sustained performance, leadership impact, retention and pay relative to the CEO. Actual annual incentive awards and long-term incentive award opportunities reflect these factors, as well as Company performance.

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COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS

Annual Incentive Compensation
Under our shareholder-approved 2002 Incentive Compensation Plan (AIP), the Compensation Committee approves the annual incentive compensation target payout percentage for each NEO other than the CEO. For the CEO, such percentage is approved by the independent directors of the Board.
The target incentive award (target bonus) represents a percentage of each NEO's base salary. Following the completion of the fiscal year, the target bonus is used by the Compensation Committee, together with its assessment of Company performance against established performance criteria, to determine the final bonus award amount.
2020 Annual Incentive
The 2020 target bonus for the CEO was 180% of base salary, which was unchanged from 2019. For each of the other NEOs, the 2020 target bonus was 100% of base salary, which was also unchanged from 2019.
Final bonus awards for each NEO were determined by multiplying the Northrop Grumman Company Performance Factor (CPF) by the target bonus. The CPF can range from 0% to 200%.
Annual Incentive Formula for 2020:

Base Salary
X
Target Payout %
=
Target Bonus

Target Bonus
X
CPF
=
Final Bonus Award

Annual performance evaluations are conducted by the CEO for each NEO, other than the CEO, and reviewed with the Compensation Committee. The Compensation Committee considers this performance information as well as the comparison to market data.
The Compensation Committee approves bonus amounts for all NEOs except the CEO, whose annual bonus is recommended by the Compensation Committee to the independent members of the Board for approval. The Compensation Committee has discretion to make adjustments to the annual bonus payouts for NEOs, other than the CEO, if it determines such adjustment is warranted. For example, in instances where Company performance has been impacted by unforeseen or unusual events, the Compensation Committee has exercised its authority to increase the final awards as necessary to preserve the intended incentives and benefits. The Compensation Committee has also adjusted payouts downward in the past, despite performance targets having been met, when it determined that particular circumstances had a negative impact on the Company but were not reflected in the performance calculation.
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COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS

2020 Annual Incentive Goals and Results
For the AIP, we use a mix of financial and non-financial metrics to measure our performance. Our AIP metrics reflect our commitment to investing for and achieving long-term profitable growth; maintaining alignment with shareholders' interests; and incentivizing top performance against our industry peers.
FINANCIAL METRICS: For 2020, the Compensation Committee continued with Segment Operating Income* Growth and refined Pension-adjusted Cash Flow from Operations* to be Adjusted Cash Flow from Operations Conversion*, each weighted at 35%. The Committee remained consistent with Pension-adjusted Net Income* Growth and Pension-adjusted OM Rate*, each weighted at 15%. The metrics are defined as follows:
Adjusted Cash Flow from Operations Conversion*: calculated as Adjusted cash provided by operating activities* divided by earnings before interest, taxes, depreciation and amortization, excluding mark-to-market (MTM) expense and the MTM-related deferred state tax benefit (Adjusted EBITDA*). This metric emphasizes the importance of converting earnings into cash and enables management to make capital investment decisions that support long-term profitable growth without impacting performance-based incentive compensation.
Segment Operating Income* Growth: calculated as segment operating income* multiplied by a market-based growth rate. This metric incentivizes management to focus on profitable growth and enables management to evaluate the financial performance and operational trends of our sectors.
Pension-adjusted Net Income* Growth: calculated as net income before the after-tax impact of the total net FAS/CAS pension adjustment multiplied by a market-based growth rate. This metric incentivizes management to achieve relative long-term profitable growth greater than a projected industry growth rate.
Pension-adjusted OM Rate*: calculated as OM rate (operating margin divided by sales) before net FAS (service)/CAS pension adjustment. This metric establishes high program performance expectations for the Company.

* This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures."
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COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS

NON-FINANCIAL METRICS: In addition to the financial goals, various non-financial goals are used to align our objectives with all our stakeholders. Performance against these non-financial metrics can result only in a downward adjustment to the financial metric score. For 2020, we selected the following non-financial metrics:

Non-Financial MetricHow MeasuredHighlights
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QualityProgram-specific objectives, including defect rates, process quality, supplier quality, planning quality or other appropriate criteria for program type and phase.
Corporate quality metric was above target for the year
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Customer SatisfactionCustomer feedback, including customer-generated performance scores, award fees and verbal and written feedback.
Customer satisfaction metric was at target for the year
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Engagement & InclusionPerform at or above the Global High Performance (GHP) Norm, a Willis Towers Watson (WTW) index. Results derived from annual employee survey with a "percent favorable response" measurement scale.
86% favorable employee engagement and equal to the GHP norm
83% favorable on the inclusion index and above the GHP norm
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Operational EfficiencyReach or exceed the GHP Norm. Results derived from annual employee survey with a "percent favorable response" measurement scale.
75% favorable and equal to the goal
Company improved during a year when most other companies had a decline as noted in the WTW indices
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DiversityRepresentation of females and people of color in all management level positions with respect to internal and external benchmarks.
We met or exceeded our employee diversity goals in 2020, and since 2010, have made significant progress
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Environmental SustainabilityReductions in absolute greenhouse gas emissions and potable water consumption, and improvement in solid waste diversion (i.e., waste diverted from landfill disposal).
The company exceeded the annual target for the year, driving further progress towards our multi-year environmental sustainability goals that ended in 2020
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SafetyTotal case rate, defined as the number of Occupational Safety & Health Administration recordable injuries as well as by lost work day rate associated with those injuries.
The Company exceeded the annual target in 2020

PAYOUT: Our AIP provides for payout levels from 0% to 200% of target. The minimum, target and maximum performance levels are derived based on an analysis of the historical and forecasted performance of our Performance Peer Group (Pension-adjusted Net Income* Growth is based on projected market growth rates). Specific values are identified for each metric at selected points in the range between minimum and maximum and other values are determined by linear interpolation between these points. No payout is made if performance is below the minimum. Above-target payout can be earned only if the Company’s performance exceeds the performance threshold noted in the table on the following page. The maximum 200% payout is based upon approximate top quartile past performance of the Performance Peer Group. This structure rewards superior performance by aligning above-target payouts to outperforming our peer benchmarks and provides reduced awards for below target performance.
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COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS

As mentioned previously, the Committee monitored the impact of COVID-19 throughout the year, and taking into consideration the modest impacts to our operations and results, determined not to make any adjustments to the AIP framework or calculated outcome of performance and resulting payouts.

In determining the CPF, both financial and non-financial performance against goals are assessed. The 2020 Company financial performance for the four metrics shown in the table below was 143%. As approved by the Compensation Committee, Company performance calculations were adjusted, as applicable, to include proceeds from sale of equipment to a customer, and to exclude transaction-related expenses, Orbital ATK intangible asset amortization and property, plant and equipment (PP&E) step-up depreciation expense as well as certain accounting impacts related to the Company's pension, and OPB plans.

Consistent with prior years, GAAP earnings were adjusted for the after-tax impact of the Company's FAS/CAS pension adjustment recorded during the year and MTM pension and OPB expense and related tax impacts recognized at the end of the year. As such, during 2020 we removed $1.3B from earnings related to our FAS/CAS pension adjustment and added back earnings of $0.8B associated with our MTM pension and OPB expense and related tax impacts. The adjustments allowed us to more effectively compare the Company's financial performance against our peers. Details are outlined in Appendix A - Use of Non-GAAP Financial Measures.
Metric/GoalWeightingPerformance to Achieve Target Payout2020 Performance2020 Financial Score
Adjusted Cash Flow from Operations Conversion*35%72.0%81.3%64%
Segment Operating Income* Growth35%$4.2B$4.2B35%
Pension-adjusted Net Income* Growth15%$2.8B$3.0B29%
Pension-adjusted OM Rate*15%11.1%10.7%15%
143%
* This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures."
Performance against the annual non-financial metrics cannot exceed 100% and can result only in a downward adjustment to the financial performance score. The Company demonstrated strong performance in 2020 overall against the non-financial goals, and the Compensation Committee approved a non-financial score of 100%. In consideration of both the financial and non-financial performance, the 2020 Company Performance Factor was determined to be 143%.
Decisions for 2020
In February 2021, the Compensation Committee recommended, and the independent members of our Board approved, a 2020 annual incentive award of $3,977,000 for the CEO, Ms. Warden. Based on the CPF, Ms. Warden recommended, and the Compensation Committee approved, the other NEOs' annual incentive awards.
NameAIP Target % of SalaryAIP Payout Range %Performance Payout
Actual Payout (1)
Kathy J. Warden180%0% - 200%143%$3,977,000
David F. Keffer100%0% - 200%143%$928,000
Mark A. Caylor100%0% - 200%143%$1,223,000
Blake E. Larson100%0% - 200%143%$1,160,000
Janis G. Pamiljans100%0% - 200%143%$1,223,000
Kenneth L. Bedingfield(2)
100%0% - 200%143%$185,000
(1) The potential range of bonus payouts based on 2020 performance is disclosed in the Grants of Plan-Based Awards Table. Actual bonus payouts for 2020 performance are disclosed above and in the Summary Compensation Table.
(2) Mr. Bedingfield's payout represents the portion of his severance payment equal to the prorated bonus he would have received under the Company's AIP.
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COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS

Long-Term Incentive Compensation
2020 Long-Term Incentive Program
In determining the amount of the individual long-term incentive award for our NEOs (other than the CEO), the Compensation Committee considers an elected officer's individual performance during the preceding year, growth in job as demonstrated through sustained performance, leadership impact, retention and pay relative to the CEO, as well as market data for the elected officer's position based on the Target Industry Peer Group analysis.
In 2020, after determining the award value for the NEOs as described above, the Compensation Committee granted awards in the form of RPSRs to ensure sustainability and achievement of business goals over time and RSRs to provide retention value. The awards were comprised of 70% RPSRs and 30% RSRs. The Compensation Committee determined this long-term incentive mix would appropriately motivate and reward the NEOs to achieve our long-term objectives and further reinforce the link between their interests and the interests of our shareholders.
The RPSRs will vest and be distributed following the completion of the three-year performance period (commencing January 1, 2020 and ending December 31, 2022) if goals are met. The RSRs generally vest 100% after three years. Earned RPSRs and RSRs may be paid in shares, cash or a combination of shares and cash at the Compensation Committee's discretion. An executive generally must remain employed through the vesting period to earn an award. Vesting for termination due to death, disability, retirement or change in control is discussed in the "Termination Payments and Benefits" section on page 70. Dividend equivalents accrue on both RPSR and RSR awards earned and will be paid upon distribution of the RPSRs and RSRs.
The Compensation Committee evaluates RPSR performance requirements each year to ensure they are aligned with our business objectives. For the 2020 RPSR grant, the Compensation Committee determined that for the NEOs, performance metrics will continue to be relative TSR, Adjusted Cumulative FCF* and Operating RONA*, each equally weighted at 1/3. The current metrics and weightings reflect the Company's continued emphasis on operational performance directly impacted by management decisions and behaviors, while maintaining strong alignment with shareholder interests. Based on the performance against these metrics, shares earned for 2020 RPSR grants can vary from 0% to 150% of the rights awarded.
TSR is measured by comparing cumulative stock price appreciation with reinvestment of dividends over the three-year period to the Performance Peer Group (50% of relative TSR portion of award) and to the S&P Industrials (50% of relative TSR portion of award), which comprises companies within the S&P 500 classified as Industrials, reflecting the range of similar investment alternatives available to our shareholders. To smooth volatility in the market, the TSR calculation is based on the average of the three-year returns for each of the 30 calendar days, starting from the grant date, to the last 30 days of the performance period. The maximum relative TSR payout is capped at 100% of target shares if the absolute TSR is negative, even if the relative TSR would have resulted in a higher score.
Adjusted Cumulative FCF* focuses on cash generation after capital investments and is calculated as the aggregate Adjusted Free Cash Flow before after-tax total pension funding* over a three-year period. Adjusted Free Cash Flow* includes funds available to create shareholder value after investing in the business through capital expenditures.
Operating RONA* drives operational productivity through the efficient use of capital resources (net operating assets). The metric is calculated as Adjusted Net Operating Profit After-Tax* (adjusted NOPAT*) divided by the two-year average of net operating assets.
Recently Completed RPSR Performance Period (2018 – 2020)
In February 2018, when granting RPSRs to NEOs who were elected officers at the time of the grant, the Compensation Committee selected relative TSR and Adjusted Cumulative FCF*, equally weighted at 50%, as the performance metrics for the awards and established the performance criteria for the awards as set forth in the table below.
Performance Required to Score
Metric/GoalWeighting0%100%150%2020 Actual Performance2020 Score
Relative TSR - 2018 Performance Peer Group25%25th50th80th60th29%
Relative TSR - S&P Industrials25%25th50th80th32nd7%
Adjusted Cumulative FCF*50%$5.6B$6.8B$8.5B$8.1B69%
RPSR Performance Factor105%
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COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS

In February 2021, the Compensation Committee reviewed performance for the January 1, 2018 to December 31, 2020 RPSR performance period. The combined weighted score for the metrics generated an overall performance score of 105% (excluding the impact of legacy Innovation Systems as detailed in "Appendix A - Use of Non-GAAP Financial Measures").
In February 2021, the NEOs received payouts in stock with respect to the outstanding RPSR awards that were granted in February 2018 for the three-year performance period ending December 31, 2020 (as described further in footnote 3 to the Outstanding Equity Awards Table on page 61).
Other Benefits
This section describes other benefits the NEOs receive. These benefits are not performance related and are designed to provide a competitive package for purposes of attracting and retaining the executive talent needed to achieve our business objectives. These benefits include retirement benefits, certain perquisites and severance arrangements.
Retirement Benefits
We maintain tax-qualified retirement plans (both defined benefit pension plans and defined contribution savings plans) that cover most of our workforce, including the NEOs. We also maintain nonqualified retirement plans that are available to our NEOs, which are designed to restore benefits that were limited under the tax-qualified plans or to provide supplemental benefits. Compensation, age and years of service factor into the amount of benefits provided under the plans. Thus, the plans are structured to reward and retain employees of long service and recognize higher performance levels as evidenced by increases in annual pay. Additional information about these retirement plans and the NEO benefits under these plans can be found in the Pension Benefits Table and Nonqualified Deferred Compensation Table, on pages 63 and 68, respectively.
The Compensation Committee assesses aggregate benefits available to the NEOs and has previously imposed an overall cap, generally limited to no more than 60% of final average pay, on pension benefits for the NEOs (except for small variations due to contractual restrictions under the plans). The nonqualified supplemental defined benefit plans in which our NEOs participate were frozen as to pay and service as of December 31, 2014.
Perquisites
Our NEOs are eligible for certain limited executive perquisites that include financial planning, income tax preparation, physical exams and personal liability insurance. The Compensation Committee believes these perquisites are common within the competitive market for total compensation packages for executives and are useful in attracting, retaining and motivating talented executives. Perquisites provided to the NEOs in 2020 are detailed in the Summary Compensation Table on page 58.
Security Arrangements
Given the nature of our business, we maintain a comprehensive security program. As a component of that program, we provide residential and/or travel protection that we consider necessary to address our security requirements. In selecting the level and form of protection, we and the Board consider security risks faced by those in our industry in general and security risks specific to our Company and its individuals. Based on security threat information obtained and an ongoing dialogue with law enforcement and security specialists, the Board has required that Ms. Warden and other NEOs receive varying levels of residential and travel protection.
Since we require this protection under a comprehensive security program and it is not designed to provide a personal benefit (other than the intended security), we do not view these security arrangements as compensation to the individuals. We report these security arrangements as perquisites as required under applicable SEC rules. In addition, we report them as taxable compensation to the individuals if they are not excludable from income as working condition fringe benefits under Section 132 of the Internal Revenue Code.
The Board has determined that the CEO should avoid traveling by commercial aircraft for purposes of security, rapid availability and communications connectivity during travel, and should use Company-provided aircraft for all air travel. If, as a result, the CEO uses Company-provided aircraft for personal travel, the costs of such travel are imputed as income and are subject to the appropriate tax reporting according to Internal Revenue Code regulations.
We regularly review the nature of the security threat and associated vulnerabilities with law enforcement and security specialists and will continue to revise our security program as appropriate.
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COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS

Severance Benefits
We maintain the Severance Plan for Elected and Appointed Officers of Northrop Grumman Corporation (Severance Plan), which is available to Ms. Warden and other NEOs who qualify and are approved to receive such benefits. The purpose of the Severance Plan is to help bridge the gap in an executive's income and health coverage during a period of unemployment following termination, and to ensure certain benefits for the Company.
We do not maintain any change in control (CIC) severance plans. In addition, we do not provide excise tax gross-ups for any payments received upon termination after a change in control.
Upon a "qualifying termination" (defined below) the Company will provide severance benefits to eligible NEOs under the Severance Plan. Provided the NEO signs a release and agrees to certain restrictions, he or she may receive: (i) a lump sum severance benefit equal to one and one-half times annual base salary and target bonus, (ii) a prorated performance bonus for the year of termination, (iii) continued medical and dental coverage for the eighteen-month severance period, (iv) income tax preparation/financial planning fees for the year of termination and the following year and (v) outplacement expenses up to 15% of salary, all subject to management approval. The cost of providing continued medical and dental coverage is based upon current premium costs. The cost of providing income tax preparation and financial planning is capped for the year of termination and for the year following termination. The annual cap for the CEO is $30,000 and for the rest of the NEOs is $18,500.
A "qualifying termination" includes one of the following:
involuntary termination, other than for cause or mandatory retirement; or
election to terminate in lieu of accepting a downgrade to a non-officer position (i.e., good reason).
Change in Control Benefits
We do not maintain separate CIC programs or agreements. The only CIC benefits available to the NEOs are those described in the terms and conditions of the grants under the 2011 Long-Term Incentive Stock Plan (2011 Plan).
Policies and Procedures
Stock Ownership Guidelines
We maintain stock ownership guidelines for our NEOs to further promote alignment of management and shareholder interests. These guidelines require that NEOs own Company stock with a value denominated as a multiple of their annual salaries, which can be accumulated over a five-year period from the date of hire or promotion into an elected officer position.
The guidelines are as follows:
PositionStock Value as a Multiple of Base Salary
Chairman and Chief Executive Officer7x base salary
Other NEOs3x base salary

Shares that satisfy the stock ownership guidelines include:
Company stock owned outright;
unvested RSRs; and
the value of shares held in the Northrop Grumman Savings Plan or Northrop Grumman Financial Security and Savings Program.
Unvested RPSRs are not included in calculating ownership until they are converted to actual shares owned.
The Compensation Committee reviews compliance with our stock ownership guidelines on an annual basis. As of December 31, 2020, all NEOs were in compliance with the ownership guidelines. The Compensation Committee continues to monitor compliance and will conduct a full review again in 2021.
Stock Holding Requirements
We have holding period requirements for payouts from long-term incentive grants, further emphasizing the importance of sustainable performance and appropriate risk-management behaviors. Under this policy, NEOs are required to hold, for a period of three years, 50% of their net after-tax shares received from RPSR distributions and RSR vestings. These restrictions generally continue following termination and retirement; however, shares acquired from RPSR distributions more than one year after separation from the Company are not subject to the holding requirement.
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COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS

Anti-Hedging and Pledging Policy
Company policy prohibits our NEOs and other elected officers from hedging or entering into margin transactions involving Company stock, and pledging Company securities as collateral for loans or other transactions. Additional information about our policy can be found in "Compensation of Directors - Stock Ownership Requirements and Anti-Hedging and Pledging Policy" on page 30.
Recoupment Policy
The Company's recoupment policy provides that:
the Board has discretion to recoup incentive compensation paid to an elected officer in the event of a restatement or if an elected officer engages in illegal conduct that causes significant financial or reputational harm to the Company;
the Board has discretion to recoup incentive compensation paid to the elected officer in the event the elected officer fails to report such misconduct of another, or is grossly negligent in fulfilling his or her supervisory responsibilities to prevent such misconduct; and
the CEO has discretion to recoup under similar circumstances incentive compensation provided to non-elected officers or other employees.
The Company’s recoupment policy applies to a three-year look back of performance-based short- or long-term, cash or equity incentive payments. It provides for certain disclosure in the event of recoupment, consistent with SEC and other legal requirements.
Risk Management
The Compensation Committee annually reviews our compensation program and together with the independent Compensation Consultant assesses potential compensation-related risks to the Company. Based on this assessment for 2020, the Compensation Committee determined that the risk profile is appropriate and substantial risk management features are incorporated into our compensation program. This determination reflects the following conclusions from the detailed risk assessment:
there is appropriate balance to mitigate compensation-related risk in the executive compensation program's design between fixed and variable pay, cash and stock components, short- and long-term measures, financial and non-financial measures, and formulaic and discretionary decisions;
there are appropriate policies in place to mitigate compensation-related risk, including the Compensation Committee's and its advisor's independence, transparent disclosure, officer stock ownership guidelines and holding period requirements, and hedging and recoupment policies; and
there are no incentive or commission arrangements below the executive level that potentially encourage excessive risk-taking behavior.
Grant Date for Equity Awards
Annual grant cycles for equity awards occur in February at the same time salary increases and annual incentive targets are determined. This timing allows the Compensation Committee to make decisions on each of these compensation components at the same time, utilizing a total compensation philosophy. The Compensation Committee reviews and approves annual long-term incentive grants during its scheduled meeting, which occurs following the announcement of our year-end financial results. Equity grants may also be granted on an interim basis throughout the year for special situations, such as new executive hires, promotions or retention.
Tax Deductibility of Pay
Under prior law, Section 162(m) of the Internal Revenue Code generally limited the annual tax deduction to $1 million per person for compensation paid to the Company's CEO and the next three highest-paid NEOs, other than the Chief Financial Officer (collectively, covered employees). Certain compensation, including qualified performance-based compensation, was not subject to the deduction limit if certain requirements were met.
The 2017 Tax Act enacted on December 22, 2017, modified Section 162(m). The 2017 Tax Act expanded the definition of covered employees to include the Company's Chief Financial Officer and any employee who was a covered employee for any taxable year beginning after December 31, 2016. The 2017 Tax Act also repealed the performance-based compensation exception to the deduction limit. These amendments, effective January 1, 2018, do not apply to compensation paid pursuant to a written binding contract in effect on November 2, 2017, that was not materially modified after such date.
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COMPENSATION DISCUSSION AND ANALYSIS | KEY COMPONENTS OF OUR PROGRAMS

Say-on-Pay
Our shareholders are asked annually to approve, on an advisory basis, the compensation paid to our NEOs. We regularly engage with our shareholders to understand their concerns regarding executive compensation. The Compensation Committee annually reviews and discusses the results of the say-on-pay vote. In 2020, our executive compensation programs continued to receive strong support from shareholders with 96% approval at our 2020 Annual Meeting of Shareholders. Based on its review and feedback from shareholder engagement, the Compensation Committee determined that our programs are effective and aligned with shareholder interests, and no substantive changes were required.
56 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


COMPENSATION COMMITTEE REPORT
The Compensation Committee reviewed and discussed the CD&A with management. Based on such review and discussion, the Compensation Committee recommended to the Board that the CD&A be included in this Proxy Statement. The Board has approved the recommendation.
COMPENSATION COMMITTEE
THOMAS M. SCHOEWE, CHAIRPERSON
DONALD E. FELSINGER
BRUCE S. GORDON
MADELEINE A. KLEINER
KARL J. KRAPEK
GARY ROUGHEAD

NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 57


COMPENSATION TABLES | SUMMARY COMPENSATION TABLE

2020 Summary Compensation Table
Name & Principal PositionYear Salary (1)
($)
Bonus
($)
Stock
Awards (2)
($)
Non-Equity Incentive Plan Compensation (3)
($)
Change in Pension Value and Non-Qualified Deferred Compensation Earnings (4)
($)
All Other Compensation (5)
($)
Total
($)
Kathy J. Warden 20201,536,34613,499,8893,977,0001,144,248649,66120,807,144
Chairman, Chief Executive Officer and President20191,488,46213,000,1594,509,000687,615623,48420,308,720
2018963,4629,999,8691,920,000458,97613,342,307
David F. Keffer (6)2020634,6164,000,102928,00071,4945,634,212
Corporate Vice President and Chief Financial Officer
Mark A. Caylor 2020855,0003,000,2121,223,000870,818144,7156,093,745
Corporate Vice President and President, Mission Systems2019850,1923,499,7791,428,000886,646129,7276,794,344
2018790,5773,900,0961,328,000127,0176,145,690
Blake E. Larson 2020802,1543,500,2171,160,000326,767217,6766,006,814
Corporate Vice President and President, Space Systems
2019
746,3943,000,1631,278,000388,000189,5865,602,143
2018426,2166,499,9231,127,0005,29735,7178,094,153
Janis G. Pamiljans (7)2020855,0003,500,2171,223,000861,964239,0966,679,277
Corporate Vice President and President, Aeronautics Systems2019850,1923,499,7791,428,0001,088,160356,1257,222,256
2018826,1543,500,0081,328,000241,3185,895,480
Kenneth L. Bedingfield (8)2020145,2123,072,8893,218,101
Former Corporate Vice President and Chief Financial Officer2019834,3853,499,7791,401,000296,7566,031,920
2018811,1543,500,0081,304,000312,2145,927,376
(1)Includes amounts deferred under qualified savings and nonqualified deferred compensation plans.
(2)Represents the grant date aggregate fair value of RPSRs and RSRs granted during the periods presented. The fair value of awards was computed in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, excluding any assumed forfeitures. Assumptions used in the calculation of these amounts are disclosed in Note 14 of the Company's 2020 Form 10-K. The maximum grant date fair values of the 2020 RPSRs are as follows (grants assume a 150% maximum payout):
NameMaximum Grant Date Fair Value
($)
Ms. Warden14,174,991
Mr. Keffer4,199,931
Mr. Caylor3,150,413
Mr. Larson3,150,413
Mr. Pamiljans3,150,413
Mr. Bedingfield
(3)These amounts were paid pursuant to the Company's AIP. Includes amounts deferred under the qualified savings and nonqualified deferred compensation plans.
(4)These amounts relate solely to the increased present value of the NEO's pension plan benefits using mandatory SEC assumptions (see the descriptions of these plans under the Pension Benefits table on page 63). The amount accrued in each year differs from the amount accrued in prior years due to an increase in age, service and pay (salary and bonus). The change in pension value is also highly sensitive to changes in the interest rate used to determine the present value of the payments to be made over the life of the executive.
Mr. Bedingfield and Mr. Keffer were hired after the Company's defined benefit pension plans were closed to new entrants, and as a result, they do not participate in any defined benefit pension plans.
There were no above-market earnings in the nonqualified deferred compensation plans (see the descriptions of these plans under the Nonqualified Deferred Compensation table on page 68).
58 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


COMPENSATION TABLES | SUMMARY COMPENSATION TABLE

(5)Amounts include, as applicable, (a) the value of perquisites and personal benefits, (b) basic life insurance premiums, (c) matching contributions through the Northrop Grumman Foundation made to eligible educational institutions and to non-profit organizations under a Company program, and (d) Company contributions to defined contribution and deferred compensation plans. Where the value of the items reported in a particular category for an NEO exceeded $10,000 in 2020 (other than perquisites and personal benefits, which are subject to different thresholds as described below), those items are identified and quantified below.
Perquisites and Personal Benefits - Perquisites and other personal benefits provided to certain NEOs are as follows: security, travel-related perquisites (including use of Company aircraft or ground transportation services for personal travel and incidental expenses for family members if accompanying the NEO while on business travel), financial planning/income tax preparation services, insurance premiums paid by the Company on the NEO's behalf, executive physicals and other nominal perquisites or personal benefits. We determine the incremental cost for perquisites and personal benefits based on costs or charges incurred by the Company for the benefits.
As discussed in "Key Components of Our Programs - Security Arrangements," the Company provides NEOs with certain residential and travel security protection due to the nature of our business and security threat information. The amounts reflected in the "All Other Compensation" column include expenses for certain residential and travel security that we treat as perquisites under relevant SEC guidance, even though the need for such expenses arises from the risks attendant with their positions with the Company. The Company calculates the cost of travel security coverage based on the hourly rates and overhead fees charged directly to the Company by the firms providing security personnel. If Company security personnel are used, their hourly rates are used to calculate the cost of coverage. The Company calculates the value of personal use of Company aircraft based on the incremental cost of each element. Fixed costs that would be incurred in any event to operate Company aircraft (e.g., aircraft purchase costs, maintenance not related to personal trips and flight crew salaries) are not included.
The cost of any category of the listed perquisites and personal benefits did not exceed the greater of $25,000 or 10% of total perquisites and personal benefits for any NEO in 2020, except for the following:
i.Ms. Warden: costs attributable to security protection ($100,353), which includes personal travel on Company aircraft consistent with the Company's security program ($67,195), and matching gifts ($18,900);
ii.Mr. Caylor: costs attributable to matching gifts ($14,740);
iii.Mr. Larson: costs attributable to matching gifts ($13,310);
iv.Mr. Pamiljans: costs attributable to matching gifts ($13,000); and
v.Mr. Bedingfield: costs attributable to cash severance ($2,702,000) and vacation payout ($157,873).
Contributions to Plans - In 2020, we made the following Company contributions to the defined contribution and deferred compensation plans:
NameCompany Contributions
($)
Ms. Warden483,628
Mr. Keffer33,323
Mr. Caylor102,714
Mr. Larson175,451
Mr. Pamiljans182,628
Mr. Bedingfield185,561
(6)Mr. Keffer was appointed Corporate Vice President and Chief Financial Officer effective February 17, 2020.
(7)Mr. Pamiljans retired from the Company on February 26, 2021.
(8)Mr. Bedingfield was the Corporate Vice President and Chief Financial Officer in 2019. He stepped down from this position effective February 17, 2020 and left the Company February 21, 2020. On February 6, 2020, the Company filed a Form 8-K which included, as an exhibit, the Separation Agreement with Mr. Bedingfield.
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 59


COMPENSATION TABLES | GRANTS OF PLAN-BASED AWARDS TABLE

2020 Grants of Plan-Based Awards
   Estimated Future Payouts Under
Non-Equity Incentive
Plan Awards (1)
Estimated Future Payouts
Under Equity Incentive
Plan Awards (2)
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units (3)
(#)
Grant
Date Fair
Value of
Stock Awards (4)
($)
NameGrant TypeGrant DateThreshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Kathy J. WardenIncentive Plan2,781,0005,562,000
RPSR2/12/202027,03740,5569,449,994
RSR2/12/202011,4534,049,895
David F. KefferIncentive Plan649,0381,298,076
RPSR5/5/20206,5659,8482,100,050
RSR5/5/20202,885900,033
RPSR (5)5/5/20202,1883,282699,904
RSR (5)5/5/2020962300,115
Mark A. CaylorIncentive Plan855,0001,710,000
RPSR2/12/20206,0099,0142,100,275
RSR2/12/20202,545899,937
Blake E. LarsonIncentive Plan811,0001,622,000
RPSR2/12/20206,0099,0142,100,275
RSR2/12/20202,545899,937
RSR (6)2/12/20201,414500,005
Janis G. PamiljansIncentive Plan855,0001,710,000
RPSR2/12/20206,0099,0142,100,275
RSR2/12/20202,545899,937
RSR (6)2/12/20201,414500,005
Kenneth L. BedingfieldIncentive Plan (7)129,077258,154
RPSR2/12/2020
RSR2/12/2020
(1)Represents the potential range of payouts under the Company's AIP. Actual payouts are shown in the Summary Compensation Table column entitled "Non-Equity Incentive Plan Compensation" on page 58.
(2)These amounts relate to RPSRs granted in 2020 under the 2011 Plan. For additional details on our RPSRs, refer to "Key Components of Our Programs - Long-Term Incentive Compensation" on page 52.
(3)These amounts relate to RSRs granted in 2020 under the 2011 Plan. For additional details on our RSRs, refer to "Key Components of Our Programs - Long-Term Incentive Compensation" on page 52.
(4)The fair value of awards was computed in accordance with FASB ASC Topic 718.
(5)Mr. Keffer was granted a sign-on RPSR and RSR award on May 5, 2020. The RPSR grant vests based on performance for the three-year performance period ending on December 31, 2022. The RSR grant vests three years from the date of grant. Mr. Keffer must remain employed through the vesting period to earn the awards.
(6)Mr. Larson and Mr. Pamiljans were granted retention RSR awards on February 12, 2020. The awards do not include retirement provisions and will vest on December 31, 2021. However, Mr. Pamiljans retired on February 26, 2021 and forfeited the retention award.
(7)Mr. Bedingfield's non-equity incentive plan award represents the portion of his severance payment equal to the prorated bonus he would have received under the Company's AIP.

60 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


COMPENSATION TABLES | OUTSTANDING EQUITY AWARDS TABLE

Outstanding Equity Awards at 2020 Fiscal Year End
 NameGrant DateNumber of Shares or Units of Stock that Have Not Vested (1)
(#)
Market Value of Shares or Units of Stock that Have Not Vested (2)
($)
Equity Incentive Plan Awards: Number of Unearned 
Shares, Units or Other Rights that Have Not Vested (3)
(#)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested (2)
($)
Kathy J. Warden2/12/202011,4533,489,95827,0378,238,715
2/13/201914,2274,335,25133,57210,230,060
9/19/20184,9431,506,23113,0163,966,236
2/13/20184,5161,376,1169,9443,030,136
David F. Keffer5/5/20203,8471,172,2588,7532,667,214
Mark A. Caylor2/12/20202,545775,5126,0091,831,062
2/13/20193,8301,167,0789,0382,754,059
12/4/20181,655504,312
2/13/20183,161963,2206,9612,121,156
Blake E. Larson2/12/20203,9591,206,3866,0091,831,062
2/13/20193,2831,000,3967,7482,360,971
6/13/20182,831862,6626,6422,023,950
Janis G. Pamiljans2/12/20203,9591,206,3866,0091,831,062
2/13/20193,8301,167,0789,0382,754,059
2/13/20183,161963,2206,9612,121,156
Kenneth L. Bedingfield2/12/2020
2/13/2019
2/13/2018
(1)Outstanding RSRs generally vest three years from date of grant. Mr. Larson's and Mr. Pamiljans's February 12, 2020 RSR grants include a retention award in the amount of 1,414 shares for each executive. The retention awards will vest on December 31, 2021. However, Mr. Pamiljans retired on February 26, 2021 and forfeited the retention award.
(2)The value listed is based on the closing price of the Company's stock of $304.72 on December 31, 2020, the last trading day of the year.
(3)Outstanding RPSRs granted in 2020, 2019 and 2018 generally vest based on performance for the three-year performance period ending on December 31, 2022, 2021 and 2020, respectively. All RPSR grants are subject to the Compensation Committee's approval of the performance-based earnout percentage applicable to the grant following the end of the performance period. Amounts presented assume target level performance. The 2018 RPSRs were distributed in February 2021 upon the Compensation Committee's approval. The actual number of shares distributed to the NEOs in February 2021 as a result of the vesting RPSRs was as follows:
NameActual Shares Distributed
(#)
Ms. Warden24,108
Mr. Keffer
Mr. Caylor7,309
Mr. Larson6,974
Mr. Pamiljans7,309
Mr. Bedingfield
    
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 61


COMPENSATION TABLES | STOCK VESTED TABLE

2020 Stock Vested
 Stock Awards (1) (2)
NameNumber of Shares Acquired on Vesting
(#)
Value Realized on Vesting
($)
Kathy J. Warden17,1696,334,659
David F. Keffer
Mark A. Caylor12,2644,524,775
Blake E. Larson
Janis G. Pamiljans15,5175,709,673
Kenneth L. Bedingfield15,9445,882,407
(1)The number of shares and the amounts reflected in the table are reported on an aggregate basis and do not reflect shares sold or withheld to pay withholding taxes.
(2)Consists of RPSRs and RSRs granted in 2017. The RPSRs vested based on the three-year performance period which ended on December 31, 2019 and were distributed in February 2020. The RSRs vested three years from the date of grant and were distributed in February 2020.

62 I NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT


COMPENSATION TABLES | PENSION BENEFITS

2020 Pension Benefits
The following table provides information about the pension plans in which the NEOs participate (described in more detail on the following pages), including the present value of each NEO's accumulated benefits as of December 31, 2020, calculated pursuant to SEC specifications for this table. Our policy generally limits an executive's total benefit under these plans to be no more than 60% of final average pay.
Name (1)Plan NameNumber of Years Credited Service (2)
(#)
Present Value of
Accumulated
Benefit (3)
($)
Payments
During Last
Fiscal Year
($)
Kathy J. WardenOSERP II12.333,259,999
Mark A. CaylorS&MS Pension Plan18.50833,672
SRIP18.502,105,472
OSERP12.501,354,541
Blake E. LarsonPension Plan39.50814,875
NGIS DB SERP39.503,424,149
Janis G. PamiljansPension Plan34.002,356,168
ERISA 234.004,800,140
OSERP28.0019,986
(1)Mr. Bedingfield and Mr. Keffer were hired after the Company's defined benefit pension plans were closed to new entrants and as a result, they do not participate in any defined benefit pension plans.
(2)Credited service under OSERP for Mr. Caylor and Mr. Pamiljans is less than actual service because credited service under this plan stopped as of December 31, 2014. Each NEO's actual service is as follows: Ms. Warden: 12.33; Mr. Caylor: 18.50; Mr. Larson: 39.50; Mr. Pamiljans: 33.92.
(3)Amounts are calculated using the following assumptions:
The NEO retires on the earliest date he/she could receive an unreduced benefit under each plan;
The form of payment is a single life annuity except for Mr. Larson whose NGIS DB SERP benefit is paid as a lump sum; and
The discount rate is 2.65% for the Pension Plan, 2.73% for the S&MS Pension Plan and 2.68% for all other plans. The mortality table is the Pri-2012 White Collar mortality table projected generationally with Scale MP-2020 for all plans except the NGIS DB SERP which uses no mortality because the form of payment is a lump sum. These are the same assumptions used for the valuation of benefits in the Company's financial statements.
NOTICE OF 2021 ANNUAL MEETING OF SHAREHOLDERS AND PROXY STATEMENT I 63


COMPENSATION TABLES | PENSION BENEFITS

Pension Plans and Descriptions
Most of the pension plans were closed to new hires in 2008 or earlier. Prior to that time, the Company consolidated the pension plan provisions from diverse Heritage Formulas to various Cash Balance Formulas. Over time, the Company also transitioned officers, including NEOs, from SERPs to a deferred compensation plan, called the Officers Retirement Account Contribution Plan. In addition, all final average pay formulas were frozen as of December 31, 2014 or earlier.
The pension plans in which NEOs participate are listed below in alphabetical order.
ERISA 2 is the ERISA Supplemental Program 2. This plan makes participants whole for benefits they lose under the Pension Plan (excluding the Northrop Grumman Innovation Systems Pension and Retirement Plan (NGIS P&R Plan) participants) due to certain Internal Revenue Code limits.
NGIS DB SERP is the Northrop Grumman Innovation Systems Defined Benefit Supplemental Executive Retirement Plan. This plan provides a supplemental pension benefit for certain heritage NGIS executives. In addition, the plan makes participants whole for benefits they lose under the NGIS P&R Plan due to certain Internal Revenue Code limits.
OSERP is the Officers Supplemental Executive Retirement Program. This plan provides a supplemental pension benefit for certain Company officers.
OSERP II is the Officers Supplemental Executive Retirement Program II. This plan provides a pension benefit for certain Company officers.
Pension Plan is the Northrop Grumman Pension Plan. This is a tax qualified pension plan covering a broad base of Company employees.
S&MS Pension Plan is the Northrop Grumman Space & Mission Systems Salaried Pension Plan. This is a tax qualified pension plan covering a broad base of Company employees.
SRIP is the Northrop Grumman Supplementary Retirement Income Plan. This plan makes participants whole for benefits they lose under the S&MS Pension Plan due to certain Internal Revenue Code limits.
Pension Plan and S&MS Pension Plan (Tax Qualified Plans)
The Pension Plan (excluding NGIS P&R Plan) and the S&MS Pension Plan have heritage (non-cash balance) pension formulas (Heritage Formulas). These are described in detail in the Heritage Formulas table that follows. Prior to 2005, the Company transitioned the Heritage Formulas in these plans to a Cash Balance Formula. The Cash Balance Formula is a percentage of pay credited to a hypothetical account, which grows with interest. At retirement, the Cash Balance Account is converted to a monthly pension benefit (further information is included in the Cash Balance Formula section below). Except as provided below, the final benefit from each plan is the sum of the two formulas: the Heritage Formula benefit plus the Cash Balance Formula benefit.
The NGIS P&R Plan merged into the Pension Plan, effective January 1, 2020. Provisions and features of the NGIS P&R Plan were preserved upon the merger. Thus, the provisions of the NGIS P&R Plan in this section are noted separately from the Pension Plan. The NGIS P&R Plan also transitioned to the Cash Balance formulas, details of which are noted in the Cash Balance Formulas section.

The following explains the formulas applicable to each NEO:
Mr. Caylor receives a benefit under a Heritage Formula and a Cash Balance Formula in the S&MS Pension Plan.
Mr. Pamiljans receives a benefit under a Heritage Formula and a Cash Balance Formula in the Pension Plan.
Mr. Larson does not have a Heritage Formula benefit. He receives benefits from two distinct Cash Balance Formulas: the Old NGIS Cash Balance Formula which includes pay-based credits from April 1, 1992 through June 30, 2013 and the New NGIS Cash Balance Formula from July 1, 2013. The value of his pension benefit accrued prior to April 1, 1992 was converted to an opening balance in the Old NGIS Cash Balance Formula.