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
Filed by the Registrant 
Filed by a Party other than the Registrant
Check the appropriate box:
| Preliminary Proxy Statement | ||||
 | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||||
| Definitive Proxy Statement | ||||
| Definitive Additional Materials | ||||
| 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)
Payment of Filing Fee:
| No fee required. | |||||||
| Fee paid previously with preliminary materials. | |||||||
| Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11 | |||||||
Our Values
Our Values form the foundation of our pioneering culture and enable us to deliver for our shareholders. Our Values define our operating principles as we face an increasingly complex world. They reflect who we are and how we behave, and they articulate what is important to us.
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 outcomes. | ||||
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. | ||||
We Pioneer | We pioneer with fierce curiosity, dedication and innovation, we seek to solve the world’s most challenging problems. | ||||
Letter from the Board of Directors
March 31, 2023
Dear Fellow Shareholders,
We invite you to attend Northrop Grumman Corporation’s 2023 Annual Meeting of Shareholders on Wednesday, May 17, 2023 beginning at 8:00 a.m., Eastern Daylight Time. The accompanying Proxy Statement explains more about the matters to be voted on at the Annual Meeting, proxy voting and other information regarding participation.
2022 was a memorable year. From the James Webb Space Telescope’s first images to the B-21 reveal, we made significant progress in our mission to develop technology which pushes the boundaries of human exploration while connecting and protecting our world.
Continued focus on growing our business, generating strong margins through operational excellence, and taking a disciplined approach to capital deployment has positioned us well for 2023, and beyond. Growing global demand, amplified by the teams’ successful ability to capture competitive programs, drove exceptional bookings. We achieved a book to bill ratio of 1.07 and ended the year with nearly $79 billion in backlog.
In 2022, our annual sales grew by 3 percent and totaled $36.6 billion. Operating margins remained solid despite the challenging macroeconomic environment. Diluted EPS was $31.47 and our Transaction-Adjusted EPS* was $25.54. We generated $2.9 billion of net cash provided by operating activities and $1.6 billion of Transaction-Adjusted Free Cash Flow* for the year.
Our share price performance reflects strong financial results. Total shareholder return for the year was 43%. Relative to our peers and the S&P 500, these results were exceptional.
Executing a robust capital deployment strategy, we prioritized investments addressing our customers’ highest priority missions while maintaining our strong balance sheet. In 2022, we returned $2.6 billion to shareholders through dividends and share repurchases. Our dividend increased by 10%, our 19th consecutive annual increase. And we retired over three million shares as part of our repurchase plans.
Driven by solid demand and strong business performance, we increased our sales guidance for 2023. Over the next three years, we expect to generate significant compound annual Free Cash Flow* growth to support continued investments in our solutions, as well as provide significant returns of capital to our shareholders.
Anchored by our Company’s values, our culture of belonging empowers our team and attracts new talent. Leading groups in diversity, equity, and inclusion including DiversityInc, Human Rights Campaign, Disability Equality Index, Military Friendly, and others continue to recognize our focus and long-standing efforts to ensure all employees can thrive. In 2022, we built upon that legacy with the appointment of a new Chief Diversity Officer.
Last year, we released six sustainability goals, including Net Zero greenhouse gas emissions in our operations by 2035. We were named one of America’s Most JUST Companies for our work making a more equitable business environment and named to the Dow Jones Sustainability North America Index for the seventh year in a row. We remain focused on our Company's performance and culture. We encourage you to learn more about our commitment to sustainability by reading both the 2022 ESG Report as well as our Human Rights Report.
* This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures."
| 2023 Proxy Statement | 1 | ||||
Letter from the Board of Directors
Your vote is important. We encourage you to vote as soon as possible. Your proxy or voting instruction card includes specific information regarding several ways to vote your shares - virtually or by mail.
On behalf of the entire leadership team, thank you for your continued support of Northrop Grumman.
Sincerely,
 |  |  | ||||||||||||
| David P. Abney | Marianne C. Brown | Donald E. Felsinger | ||||||||||||
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| Ann M. Fudge | Madeleine A. Kleiner | Karl J. Krapek | ||||||||||||
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| Arvind Krishna | Graham N. Robinson | Kimberly A. Ross | ||||||||||||
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| Gary Roughead | Thomas M. Schoewe | James S. Turley | ||||||||||||
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| Kathy J. Warden | Mark A. Welsh III | Mary A. Winston | ||||||||||||
2 | Northrop Grumman | ||||
Notice of 2023 Annual Meeting of Shareholders
 | DATE AND TIME May 17, 2023 (Wednesday) 8:00 AM Eastern Daylight Time |  | LOCATION Northrop Grumman Corporation, Principal Executive Office 2980 Fairview Park Drive Falls Church, Virginia 22042 |  | WHO CAN VOTE Shareholders of record at the close of business on March 21, 2023 are entitled to vote at the Annual Meeting | ||||||||||||
| Proposals | Board Vote Recommendations | For Further Details | |||||||||
| 1. | Election of Directors | “FOR” each Director Nominee | Page 16 | ||||||||
| 2. | Advisory Vote on Compensation of Named Executive Officers | “FOR” | Page 49 | ||||||||
| 3. | Advisory Vote on Preferred Frequency of Vote on Compensation of Named Executive Officers | EVERY “ONE YEAR” | Page 50 | ||||||||
| 4. | Ratification of Appointment of Independent Auditor | “FOR” | Page 92 | ||||||||
| 5. | Management Proposal to Reduce Threshold to Request Special Meeting | “FOR” | Page 95 | ||||||||
| 6. | Shareholder Proposal to Annually Conduct an Evaluation and Issue a Report Describing the Alignment of the Company’s Political Activities With Its Human Rights Policy | “AGAINST” | Page 97 | ||||||||
| 7. | Shareholder Proposal to Provide for an Independent Board Chair | “AGAINST” | Page 102 | ||||||||
We look forward to meeting those of you who are able to attend the meeting. For those who are unable to attend in person, the meeting will be webcast on the Northrop Grumman website at www.northropgrumman.com. Additional details regarding the logistics of the meeting can be found in the accompanying Proxy Statement, on the Investor Relations section of our website and www.edocumentview.com/noc.
While we currently intend to hold our Annual Meeting in person, if we conclude it is not advisable to do so, we will announce alternative arrangements for the meeting as promptly as practicable, which may include holding the meeting solely by means of remote communication. Please monitor the Investor Relations section of our website (www.northropgrumman.com) and www.edocumentview.com/noc for updated information. If you are planning to attend the Annual Meeting, please check the website prior to the meeting date.
We encourage all shareholders to vote on the matters described in the accompanying Proxy Statement prior to the Annual Meeting.
By order of the Board of Directors,
Jennifer C. McGarey
Corporate Vice President and Secretary
Corporate Vice President and Secretary
| 2023 Proxy Statement | 3 | ||||
| How to Vote | Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to be held on May 17, 2023: The Proxy Statement for the 2023 Annual Meeting of Shareholders and the Annual Report for the year ended December 31, 2022 are available at: www.edocumentview.com/noc. | |||||||||||||
 | INTERNET www.envisionreports.com/noc |  | TELEPHONE 800-652-VOTE (800-652-8683) (toll-free) | |||||||||||
 | MAIL Mark, sign, date and promptly mail the enclosed proxy card in the postage-paid envelope | |||||||||||||
4 | Northrop Grumman | ||||
Table of Contents
| Our Values | IFC* | |||||||
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| 2023 Proxy Statement | 5 | ||||
Table of Contents
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| Related Person Transactions | ||||||||
| Indemnification Agreements | ||||||||
| Voting on Other Matters | ||||||||
* Inside Front Cover
6 | Northrop Grumman | ||||
Proxy Statement Summary
This summary highlights information contained elsewhere in this Proxy Statement. 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, 2022 (2022 Form 10-K) filed with the United States (U.S.) Securities and Exchange Commission (SEC) on January 26, 2023. Please also refer to our ESG Report which is available on our website at www.northropgrumman.com/corporate-responsibility/sustainability-reports-and-esg-information/ and our Human Rights Report which is available on the Investor Relations section of our website at www.northropgrumman.com.
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 March 31, 2023.
2022 Performance Highlights
2022 was another strong year for our Company as we continued to deliver on our value-creating strategy. Our financial results reflect the robust demand we see for our products and capabilities in our customers' highest priority missions. In 2022, our backlog grew by 4% to nearly $79 billion, and we posted industry leading sales growth of 3%. We also continued to execute on our capital deployment strategy of investing in our business and returning cash to shareholders.
| Financial Highlights | ||||||||||||||
43% Total Shareholder Return | Sales grew 3% to $36.6 billion | Operating margin rate of 9.8%; Segment Operating Margin Rate* of 11.6% | Diluted EPS of $31.47 Transaction-Adjusted EPS* of $25.54 | Net cash provided by operating activities of $2.9 billion | ||||||||||
Total backlog of $79 billion or more than 2x our annual sales | We invested over 7% of sales into R&D and capital expenditures | Capital expenditures totaled $1.4 billion, and R&D totaled $1.2 billion | We increased our quarterly dividend by 10% to $1.73 per share, our 19th consecutive annual increase | We returned $2.6B to our shareholders through dividends and share repurchases | ||||||||||
* This metric is a non-GAAP financial measure. For more information, see "Appendix A - Use of Non-GAAP Financial Measures."
| 2023 Proxy Statement | 7 | ||||
Proxy Statement Summary
Executive Compensation Highlights
We are committed to performance-based executive compensation programs that align with our shareholders’ interests, reflecting our Company's objectives and our strategy of investing for and delivering long-term profitable growth.
Compensation Snapshot
| CEO | Other Named Executive Officers (NEOs) | ||||
 |  | ||||
Paying For Performance
In 2022, we continued to maintain robust pay-for-performance practices. All incentive plan performance payouts reflect our performance against our 2022 goals.
We delivered strong financial performance in 2022 | 134% 2022 ANNUAL INCENTIVE PLAN (AIP) PAY FOR OUR NEOs | 2022 LONG-TERM INCENTIVE PLAN (LTIP) PAYOUT FOR OUR NEOs | ||||||
We are committed to a fair and equitable workplace for our employees, environmental sustainability and an unrelenting focus on our customers. To reinforce these commitments we include related non-financial metrics in our executive compensation program. | Non-financial Metrics in Annual Incentives | |||||||
 | People Diversity | Employee Experience | |||||||
 | Environment Environmental Sustainability | |||||||
 | Customer Quality | Customer Satisfaction | |||||||
8 | Northrop Grumman | ||||
Proxy Statement Summary
High Say-on-Pay
Consistent Shareholder Approval 96% 3-YEAR AVERAGE OF SHAREHOLDER VOTES IN FAVOR OF SAY-ON-PAY | Highlights of our 2022 executive compensation programs: | |||||||||||||||||||
Over 80% of Executive Compensation is Variable | 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 | No Hedging or Pledging of Company Stock | ||||||||||||||||||
| 2023 Proxy Statement | 9 | ||||
Proxy Statement Summary
Board Nominee Highlights
| Age* | Director Since | Committee Memberships | |||||||||||||||||||||
| Name and Professional Background | AR | C | G | P | |||||||||||||||||||
 | David P. Abney Former Executive Chairman of the Board of Directors and Chief Executive Officer of United Parcel Service, Inc. (UPS) | 67 | 06/2020 |  |  | ||||||||||||||||||
 | Marianne C. Brown Former Chief Operating Officer, Global Financial Solutions, Fidelity National Information Services, Inc. | 64 | 03/2015 | | | ||||||||||||||||||
 | Ann M. Fudge Former Chairman and Chief Executive Officer, Young & Rubicam Brands | 71 | 03/2016 | | | ||||||||||||||||||
 | Madeleine A. Kleiner Lead Independent Director, Northrop Grumman Corporation; Former Executive Vice President and General Counsel, Hilton Hotels Corporation | 71 | 10/2008 | | | ||||||||||||||||||
 | Arvind Krishna Chairman and Chief Executive Officer, International Business Machines Corporation (IBM) | 60 | 11/2022 | | | ||||||||||||||||||
 | Graham N. Robinson Senior Vice President, Stanley Black & Decker, Inc., and President of STANLEY Industrial | 54 | 08/2021 | | | ||||||||||||||||||
 | Kimberly A. Ross Former Chief Financial Officer, WeWork and Baker Hughes Company | 57 | 03/2023 | | | ||||||||||||||||||
 | Gary Roughead Retired Admiral, United States Navy and Former Chief of Naval Operations | 71 | 02/2012 | | | ||||||||||||||||||
 | Thomas M. Schoewe Former Executive Vice President and CFO, Wal-Mart Stores, Inc. | 70 | 08/2011 | | | ||||||||||||||||||
 | James S. Turley Former Chairman and Chief Executive Officer, Ernst & Young | 67 | 02/2015 | | | ||||||||||||||||||
 | Kathy J. Warden Chair, Chief Executive Officer and President, Northrop Grumman Corporation | 51 | 07/2018 | ||||||||||||||||||||
 | Mark A. Welsh III Dean 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 | 69 | 12/2016 | | | ||||||||||||||||||
 | Mary A. Winston President and Founder of WinsCo Enterprises, Inc. | 61 | 03/2023 | | | ||||||||||||||||||
| AR | Audit and Risk Committee | G | Governance Committee | | Chair | | Member | ||||||||||||||||
| C | Compensation Committee | P | Policy Committee | ||||||||||||||||||||
* Age as of March 31, 2023. | |||||||||||||||||||||||
In December 2022, Ms. Madeleine A. Kleiner was designated as the Lead Independent Director, succeeding Mr. Donald E. Felsinger. For more information on the role of the Lead Independent Director, see page 31.
In accordance with our retirement policy, Mr. Felsinger, a director who has served since February 2007, will not stand for re-election at the 2023 Annual Meeting as he will have attained his 75th birthday prior to the Annual Meeting. Mr. Karl J. Krapek, a director who has served since September 2008 and has attained his 74th birthday, has decided not to stand for re-election at the 2023 Annual Meeting. Mr. William H. Hernandez, who had served as a director since 2013, died in January 2023. The Board intends to reduce the number of members of the Board from 15 to 13 directors effective upon the retirements of Mr. Felsinger and Mr. Krapek.
10 | Northrop Grumman | ||||
Proxy Statement Summary
We have a diverse and highly qualified slate of Board nominees
AVERAGE AGE
64.1 YEARS
| 50s | |||||
 | 3 | ||||
| 60s | |||||
 | 6 | ||||
| 70s | |||||
 | 4 | ||||
GENDER
6/13
| Female | |||||
 | 6 | ||||
INDEPENDENT
12/13
| Independent | |||||
 | 12 | ||||
AVERAGE TENURE
5.9 YEARS
| ≤5 | |||||
 | 6 | ||||
| 6-10 | |||||
 | 4 | ||||
| >10 | |||||
 | 3 | ||||
RACIAL/ ETHNIC DIVERSITY
4/13
| Racially/Ethnically Diverse | |||||
 | 4 | ||||
Our Board brings a vast array of experience and talents that help foster the long-term success of the Company, and benefit all of its stakeholders:
 | Senior Leadership Experience |  | Senior Government/Military Experience | ||||||||
 | Corporate Governance Expertise |  | International Experience | ||||||||
 | Financial Expertise/Literacy |  | Human Capital Strategy/ Talent Management | ||||||||
 | Risk Oversight |  | Cyber/Technology Expertise | ||||||||
 | Aerospace/Defense Industry Experience |  | Environmental Sustainability/Corporate Responsibility | ||||||||
| 2023 Proxy Statement | 11 | ||||
Proxy Statement Summary
Governance Highlights
STRONG INDEPENDENT OVERSIGHT | COMMITMENT TO BOARD EFFECTIVENESS | ROBUST SHAREHOLDER RIGHTS | ||||||||||||
 93% independent Board Fully independent Board committees Lead Independent Director with robust responsibilities and oversight Regular executive sessions | Thorough annual self-assessment of Board, Committee and individual director performance Overboarding policy (no more than three other public company boards) without the consent of the Chair, Governance Committee Focus on ability to devote appropriate time and resources | Annual director elections with majority voting standard in uncontested elections Proxy access Right to call special meeting Right to act by written consent Shareholder engagement program that provides for regular shareholder access to management and directors | ||||||||||||
BOARD REFRESHMENT AND DIVERSITY | DIRECTOR RECOGNITION | |||||||||||||
| Sustained history of gender and racial/ethnic diversity on our Board, including current slate of director nominees (8 of 13 nominees) Mandatory retirement at 75 8 new directors have been added, including 4 people of color/2 women of color, and 5 directors have left our Board since the beginning of 2016 | Our Chair, CEO and President, Kathy Warden, was awarded the prestigious Deming Cup for operational excellence Our directors, Ann Fudge, Graham Robinson and Mary Winston, have been recognized as three of Savoy Magazine’s Most Influential Black Corporate Directors Our former Lead Independent Director was recognized as Director of the Year by NACD James Turley and Thomas Schoewe have been honored as members of the NACD Directors 100 Four of our female directors have been honored by Women's Inc. as the most influential corporate directors | |||||||||||||
| SUSTAINABILITY AND CORPORATE RESPONSIBILITY | ||||||||||||||
| Strong ethics program and corporate culture Extensive and long-standing diversity, equity and inclusion (DEI) programs, widely applauded Human Rights Policy with robust oversight Long-standing commitment to effective corporate governance and shareholder rights | Environmental program integrated into organizational culture to reduce our environmental footprint Transparent political contributions policy and trade association activity aligned with our business objectives and Company values Increased focus on climate change and environmental efficiency (e.g. water, waste); new Chief Sustainability Officer focused on environmental component of ESG | Far-reaching engagement with local communities For more information on our corporate responsibility and sustainability program, see pages 38-41 and our latest ESG Report and Human Rights Report | ||||||||||||
12 | Northrop Grumman | ||||
Management and Shareholder Proposals
| PROPOSAL 1 | |||||
| Election of Directors | > See page 16 for more details | ||||
 The Board of Directors unanimously recommends that you vote “FOR” the 13 nominees for director listed below. | |||||
| PROPOSAL 2 | |||||
| Advisory Vote on Compensation of Named Executive Officers | > See page 49 for more details | ||||
| The Board of Directors unanimously recommends that you vote “FOR” this proposal. | |||||
| PROPOSAL 3 | |||||
| Advisory Vote on Preferred Frequency of Vote on Compensation of Named Executive Officers | > See page 50 for more details | ||||
| The Board of Directors unanimously recommends that you vote for every “ONE YEAR." | |||||
| PROPOSAL 4 | |||||
| Ratification of Appointment of Independent Auditor | > See page 92 for more details | ||||
| The Board of Directors unanimously recommends that you vote “FOR” this proposal. | |||||
Based on its recent evaluation, the Audit and Risk Committee of the Board of Directors believes that the appointment of Deloitte & Touche LLP (Deloitte) is in the best interests of the Company and its shareholders. Deloitte served as our independent auditor for 2022, and Deloitte or its predecessors have served as the independent auditor for the Company (including certain of its predecessor companies) since 1975.
| PROPOSAL 5 | |||||
| Reduce the Threshold Required to Call a Special Meeting of Shareholders | > See page 95 for more details | ||||
| The Board of Directors unanimously recommends that you vote “FOR” this proposal. | |||||
| 2023 Proxy Statement | 13 | ||||
Management and Shareholder Proposals
Additional Proposals
| PROPOSAL 6 | |||||
Shareholder Proposal to Annually Conduct an Evaluation and Issue a Report Describing the Alignment of the Company’s Political Activities With Its Human Rights Policy | > See page 97 for more details | ||||
 The Board of Directors unanimously recommends that you vote “AGAINST” this proposal. | |||||
| PROPOSAL 7 | |||||
| Shareholder Proposal to Provide for an Independent Board Chair | > See page 102 for more details | ||||
| The Board of Directors unanimously recommends that you vote “AGAINST” this proposal. | |||||
14 | Northrop Grumman | ||||
Shareholder Engagement
Northrop Grumman has an extensive shareholder outreach program that enables regular, ongoing engagement with our shareholders throughout the year. Our leadership team, other key executives and directors participate in these discussions to help us better understand our shareholders’ priorities, and to inform and shape our decision-making, to ensure we remain well-aligned to shareholder interests.
We have a proven record of adopting provisions or modifying practices as a result of shareholder feedback. We carefully consider all shareholder input, including the results of shareholder votes. Examples include provisions regarding the right of shareholders to call a special meeting, proxy access, and the use of performance-based long-term incentives and non-financial metrics in our executive compensation plans. Every spring in advance of our annual meeting, as well as each fall in the off-season, we offer engagement to our top shareholders as part of our proxy-related outreach. These efforts are in addition to various other ongoing forms of shareholder engagement, including those highlighted below.
WHO WE ENGAGED | |||||||||||||||||
 |  | ||||||||||||||||
COMPANY REPRESENTATIVES | •Chief Executive Officer •Lead Independent Director •Chief Financial Officer •VP, Investor Relations | •General Counsel •Corporate Secretary •Chief Sustainability Officer •Business Sector Leadership | |||||||||||||||
TOPICS DISCUSSED | Governance Topics •Shareholder Proposals/Votes •Executive Compensation •Board Composition and Oversight | Sustainability Topics •Diversity •Environmental Goals •Human Rights | |||||||||||||||
Financial Topics •Financial Performance •Portfolio Mix •Capital Deployment | Company Strategy •Digital Transformation •Customer Priorities •Competitive Landscape | ||||||||||||||||
HOW WE ENGAGED | •Proxy Discussions •Investor Conferences •Site Visits & Facility Tours •1x1 calls/meetings | •Annual Meeting •Fireside Chats •Quarterly Earnings Calls •ESG Focused Discussions | |||||||||||||||
| 2023 Proxy Statement | 15 | ||||
Proposal 1: Election of Directors
Our Board has nominated 13 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.
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. See page 27 for additional information on our Director Election Process.
 | THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE 13 NOMINEES FOR DIRECTOR LISTED BELOW. | ||||
Director Qualifications and Experience
In considering Board nominees, the Governance Committee considers each individual’s background and personal and professional experiences in addition to general qualifications. Nominees are evaluated in the context of the Board as a whole, with a focus on achieving a diverse mix of skills and attributes needed to provide effective governance and oversight, advancing the long-term interests of our shareholders. The Governance Committee is focused on ensuring a diverse, talented, and inclusive board, with members who have both the skills and experience, and the time and resources necessary to devote to their service for our Company and our shareholders. The Governance Committee regularly assesses and communicates with the Board about the current and future skills and backgrounds to ensure the Board maintains an appropriate mix, taking into account anticipated retirement dates. Select critical skills are reflected in the following table. Each nominee also possesses additional skills, experience and attributes that are not highlighted among those listed below. We believe the combination of qualifications, including, as shown below, demonstrates how the Board is well-positioned to provide strategic oversight and guidance to management and serve our shareholders.
16 | Northrop Grumman | ||||
Proposal 1: Election of Directors
| Skills and Significant Experience: |  |  |  |  |  |  |  |  |  |  |  |  |  |  | |||||||||||||||||||||||||||||||||
 | SENIOR LEADERSHIP EXPERIENCE | n | n | n | n | n | n | n | n | n | n | n | n | n | 13 | ||||||||||||||||||||||||||||||||
| Directors with this experience possess strong leadership qualities that contribute to their understanding of large complex organizations and their ability to identify and develop the quality in others | |||||||||||||||||||||||||||||||||||||||||||||||
 | CORPORATE GOVERNANCE | n | n | n | n | n | n | n | n | n | n | n | n | n | 13 | ||||||||||||||||||||||||||||||||
| Supports our goals of strong Board and management accountability, transparency and protection of shareholder interests | |||||||||||||||||||||||||||||||||||||||||||||||
 | FINANCIAL EXPERTISE/LITERACY | n | n | n | n | n | n | n | n | n | n | n | n | n | 13 | ||||||||||||||||||||||||||||||||
| Assists directors in understanding and overseeing our financial reporting and internal controls | |||||||||||||||||||||||||||||||||||||||||||||||
 | RISK OVERSIGHT/MANAGEMENT | n | n | n | n | n | n | n | n | n | n | n | n | n | 13 | ||||||||||||||||||||||||||||||||
| Critical to the Board's role in overseeing the risks facing the Company | |||||||||||||||||||||||||||||||||||||||||||||||
 | AEROSPACE/DEFENSE INDUSTRY EXPERIENCE | n | n | n | 3 | ||||||||||||||||||||||||||||||||||||||||||
| Supports oversight of the Company’s strategy, performance and product development, with an understanding of strategic developments in our industry | |||||||||||||||||||||||||||||||||||||||||||||||
 | INTERNATIONAL EXPERIENCE | n | n | n | n | n | n | n | n | n | n | n | n | n | 13 | ||||||||||||||||||||||||||||||||
| Supports an understanding of geographically diverse business environments, regulatory matters, and cultural perspective that informs global business strategy | |||||||||||||||||||||||||||||||||||||||||||||||
 | HUMAN CAPITAL STRATEGY/TALENT MANAGEMENT | n | n | n | n | n | n | n | n | n | n | n | n | n | 13 | ||||||||||||||||||||||||||||||||
| Helps oversee our strategy to recruit, retain and develop top candidates with diverse skills and backgrounds | |||||||||||||||||||||||||||||||||||||||||||||||
 | CYBER EXPERTISE | n | n | n | n | n | 5 | ||||||||||||||||||||||||||||||||||||||||
| Supports our business in enhancing internal operations and providing oversight of cybersecurity risk and digital transformation | |||||||||||||||||||||||||||||||||||||||||||||||
 | ENVIRONMENTAL SUSTAINABILITY/ CORPORATE RESPONSIBILITY | n | n | n | n | n | n | n | n | n | 9 | ||||||||||||||||||||||||||||||||||||
| Strengthens the Board’s oversight and assures that strategic business imperatives and long-term value creation are achieved consistent with our commitment to sustainability initiatives and corporate responsibility | |||||||||||||||||||||||||||||||||||||||||||||||
| 2023 Proxy Statement | 17 | ||||
Proposal 1: Election of Directors
2023 Nominees for Director
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 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.
 | Ms. Kathy J. Warden has served as Chair 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. EXPERIENCE AND SKILLS •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 OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS •Member of the Board of Directors of Merck & Co., Inc. SELECTED DIRECTORSHIPS AND MEMBERSHIPS •Member and former Chair of the Aerospace Industries Association •Member of the Board of Directors of Catalyst •Former Chair of the Board of Directors of the Federal Reserve Bank of Richmond •Former member of the Board of Visitors of James Madison University | |||||||
Kathy J. Warden Chair, Chief Executive Officer and President, Northrop Grumman Corporation Age: 51 Director since: July 2018 | ||||||||
18 | Northrop Grumman | ||||
Proposal 1: Election of Directors
 | 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. EXPERIENCE AND SKILLS •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 OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS •Member of the Board of Directors of Freeport-McMoRan Inc. •Member of the Board of Directors of Target Corporation FORMER PUBLIC COMPANY DIRECTORSHIPS WITHIN THE LAST FIVE YEARS •Executive Chairman of the Board of Directors of UPS •Member of the Board of Directors of Johnson Controls International plc •Member of the Board of Directors of Macy's, Inc. | |||||||
David P. Abney Former Executive Chairman of the Board of Directors and Chief Executive Officer of United Parcel Service, Inc. (UPS) Age: 67 Director since: June 2020 Committee membership: Compensation Committee (Chair), Governance 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. EXPERIENCE AND SKILLS •Substantial business experience as a former Chief Operating Officer and Chief Executive Officer •Significant experience in IT goods and services, cyber protection and business management •Community and philanthropic leader OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS •Member of the Board of Directors of Akamai Technologies, Inc. •Member of the Board of Directors of The Charles Schwab Corporation •Member of the Board of Directors of VMWare, Inc. | |||||||
Marianne C. Brown Former Chief Operating Officer, Global Financial Solutions, Fidelity National Information Services, Inc. Age: 64 Director since: March 2015 Committee membership: Audit and Risk Committee, Governance Committee (Chair) | ||||||||
| 2023 Proxy Statement | 19 | ||||
Proposal 1: Election of Directors
 | 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. EXPERIENCE AND SKILLS •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 SELECTED DIRECTORSHIPS AND MEMBERSHIPS •Chair of the Board of Trustees of WGBH Public Media •Senior trustee of the Brookings Institution FORMER PUBLIC COMPANY DIRECTORSHIPS WITHIN THE LAST FIVE YEARS •Member of the Board of Directors of Catalyst Partners Acquisition Corp. •Member of the Board of Directors of Novartis AG •Member of the Board of Directors of Unilever | |||||||
Ann M. Fudge Former Chairman and Chief Executive Officer, Young & Rubicam Brands Age: 71 Director since: March 2016 Committee membership: Audit and Risk Committee, Policy Committee | ||||||||
 | Ms. Madeleine A. Kleiner has served as the Lead Independent Director of the Board of Directors of Northrop Grumman Corporation since December 2022. She 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. From 1995 to 1998, she served as Senior Executive Vice President, Chief Administrative Officer and General Counsel of H. F. Ahmanson & Company and its subsidiary, Home Savings of America. Prior to that, she was a partner at the law firm of Gibson, Dunn & Crutcher, where she advised corporations and their boards primarily in the areas of mergers and acquisitions, corporate governance, and securities transactions and compliance. EXPERIENCE AND SKILLS •Expertise in corporate governance and corporate responsibility, 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 •Substantial international experience as an executive officer of a large company with global operations OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS •Member of the Board of Directors of Jack in the Box Inc. SELECTED DIRECTORSHIPS AND MEMBERSHIPS •Member of the Board of the Ladies Professional Golf Association | |||||||
Madeleine A. Kleiner Former Executive Vice President and General Counsel, Hilton Hotels Corporation Age: 71 Director since: October 2008 Committee membership: Compensation Committee, Governance Committee | ||||||||
20 | Northrop Grumman | ||||
Proposal 1: Election of Directors
| Mr. Arvind Krishna has served as Chief Executive Officer of IBM and a member of IBM’s Board of Directors since April 2020. He was elected Chairman of IBM’s Board of Directors in December 2020. He joined IBM in 1990. Mr. Krishna led the IBM Cloud and Cognitive Software business unit from 2017 to April 2020 and was a principal architect of the acquisition of Red Hat, the largest acquisition in IBM’s history. Mr. Krishna also served as the director of IBM’s Research division from 2015 to 2020. Previously, he was general manager of IBM’s Systems and Technology Group, IBM’s development and manufacturing organization. Prior to that, he built and led many of IBM’s data-related businesses. EXPERIENCE AND SKILLS •Extensive global business and organizational leadership experience as the Chairman and Chief Executive Officer of a large multinational corporation •Deep knowledge of manufacturing and research, including in artificial intelligence and computing •Significant experience in cyber and digital transformation •Significant technology experience OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS •Chairman of the Board of Directors of IBM SELECTED DIRECTORSHIPS AND MEMBERSHIPS •Member of the Board of Directors of the Federal Reserve Bank of New York | |||||||
Arvind Krishna Chairman and Chief Executive Officer, International Business Machines Corporation (IBM) Age: 60 Director since: November 2022 Committee membership: Compensation Committee, Policy Committee | ||||||||
 | Mr. Graham N. Robinson has served as Senior Vice President & President of STANLEY Industrial, a business segment of Stanley Black & Decker, Inc., since April 2020. Prior to joining Stanley Black & Decker, Mr. Robinson served as an executive with Honeywell for seven years, including roles as President of Honeywell Industrial Safety from 2018 to 2020, President of Honeywell Sensing and Internet of Things from 2016 to 2018, and Chief Marketing Officer of Honeywell’s Automation and Controls Solution division from 2014 to 2016. EXPERIENCE AND SKILLS •Broad industrial and technical experience, including his current and former roles as President of divisions of large public companies •Significant international experience as an executive of large multinational companies •Extensive senior leadership skills SELECTED DIRECTORSHIPS AND MEMBERSHIPS •Member of the Board of Directors of the Connecticut Business & Industry Association •Member of the Board of Trustees of the Manufacturers Alliance for Productivity and Innovation | |||||||
Graham N. Robinson Senior Vice President, Stanley Black & Decker, Inc., and President of STANLEY Industrial Age: 54 Director since: August 2021 Committee membership: Compensation Committee, Policy Committee | ||||||||
| 2023 Proxy Statement | 21 | ||||
Proposal 1: Election of Directors
 | Ms. Kimberly A. Ross served as Chief Financial Officer of WeWork from March through November 2020. She served as Senior Vice President and Chief Financial Officer of Baker Hughes Company from September 2014 to July 2017. Ms. Ross was Executive Vice President and Chief Financial Officer of Avon Products, Inc. from November 2011 to November 2014. Prior to that, she served as the Executive Vice President and Chief Financial Officer of Royal Ahold N.V. from 2007 to 2011 and previously held a variety of senior management positions at Royal Ahold. EXPERIENCE AND SKILLS •Extensive experience through service as the Chief Financial Officer of large public companies, including expertise in financial reporting, internal auditing processes and managing corporate finance for global companies •Significant international business experience through her service as an executive of large public companies with extensive international operations •Substantial senior leadership skills OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS •Member of the Board of Directors of The Cigna Group •Member of the Board of Directors of Nestlé S.A. FORMER PUBLIC COMPANY DIRECTORSHIPS WITHIN THE LAST FIVE YEARS •Member of the Board of Directors of Chubb Limited •Member of the Board of Directors of KKR Acquisition Holdings I Corp. •Member of the Board of Directors of PQ Group Holdings Inc. | |||||||
Kimberly A. Ross Former Chief Financial Officer, WeWork and Baker Hughes Company Age: 57 Director since: March 2023 Committee membership: Audit and Risk Committee, Policy Committee | ||||||||
 | 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. EXPERIENCE AND SKILLS •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 SELECTED DIRECTORSHIPS AND MEMBERSHIPS •Member of the Board of Directors of Maersk Line, Limited •Chairman of the Board of Directors of Fincantieri Marinette Marine Corporation •Trustee of the Dodge and Cox Funds •Trustee of Johns Hopkins University •Member of the Board of Managers of the Johns Hopkins University Applied Physics Laboratory | |||||||
Gary Roughead Admiral, United States Navy (Ret.) and Former Chief of Naval Operations Age: 71 Director since: February 2012 Committee membership: Compensation Committee, Policy Committee (Chair) | ||||||||
22 | Northrop Grumman | ||||
Proposal 1: Election of Directors
 | 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 leadership roles at the Black & Decker Corporation. EXPERIENCE AND SKILLS •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 & Decker on large-scale transformational enterprise information technology •Extensive experience as a member of the audit, risk, compensation and policy committees of other public companies OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS •Member of the Board of Directors of General Motors Corporation SELECTED DIRECTORSHIPS AND MEMBERSHIPS •Member of the Board of the Ladies Professional Golf Association FORMER PUBLIC COMPANY DIRECTORSHIPS WITHIN THE LAST FIVE YEARS •Member of the Board of Directors of KKR & Co. Inc. | |||||||
Thomas M. Schoewe Former Executive Vice President and Chief Financial Officer, Wal-Mart Stores, Inc. Age: 70 Director since: August 2011 Committee membership: Audit and Risk Committee (Chair), 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. He was named Deputy Chairman in 2000. EXPERIENCE AND SKILLS •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 OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS •Member of the Board of Directors of Citigroup •Independent Chair of the Board of Directors of Emerson Electric Company •Member of the Board of Directors of Precigen, Inc. SELECTED DIRECTORSHIPS AND MEMBERSHIPS •Member of the Board of Directors of the Boy Scouts of America •Member of the Board of Directors of Kohler Co. •Member of the Board of Directors of St. Louis Trust & Family Office | |||||||
James S. Turley Former Chairman and Chief Executive Officer, Ernst & Young Age: 67 Director since: February 2015 Committee membership: Audit and Risk Committee, Governance Committee | ||||||||
| 2023 Proxy Statement | 23 | ||||
Proposal 1: Election of Directors
 | 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 (USAF), 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. EXPERIENCE AND SKILLS •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 | |||||||
Mark A. Welsh III Dean of the Bush School of Government and Public Service, Texas A&M University; General, USAF (Ret.); Former Chief of Staff, USAF Age: 69 Director since: December 2016 Committee membership: Audit and Risk Committee, Policy Committee | ||||||||
 | Ms. Mary A. Winston is the President and Founder of WinsCo Enterprises, a consulting firm providing financial and board governance advisory services since 2016. She served as interim Chief Executive Officer of Bed Bath & Beyond from May 2019 to November 2019, and as Executive Vice President and Chief Financial Officer of Family Dollar Stores from 2012 to 2015. Prior to that, Ms. Winston served as Senior Vice President and Chief Financial Officer of Giant Eagle, Inc. from 2008 to 2012, and as Executive Vice President and Chief Financial Officer of Scholastic Corporation from 2004 to 2007. EXPERIENCE AND SKILLS •Substantial financial expertise acquired through positions held as the Chief Financial Officer of large public and private companies, as well as expertise in risk management, and mergers and acquisitions •Significant senior leadership and international experience as an executive officer or director of large companies with global operations •Extensive expertise in corporate governance •Broad operations, manufacturing and supply chain experience OTHER CURRENT PUBLIC COMPANY DIRECTORSHIPS •Member of the Board of Directors of Acuity Brands, Inc. •Member of the Board of Directors of Chipotle Mexican Grill •Member of the Board of Directors of Dover Corporation (to May 2023) •Member of the Board of Directors of The Toronto-Dominion Bank FORMER PUBLIC COMPANY DIRECTORSHIPS WITHIN THE LAST FIVE YEARS •Member of the Board of Directors of Bed Bath & Beyond, Inc. •Member of the Board of Directors of Domtar Corporation •Member of the Board of Directors of SUPERVALU Inc. | |||||||
Mary A. Winston President and Founder of WinsCo Enterprises, Inc. Age: 61 Director since: March 2023 Committee membership: Compensation Committee, Policy Committee | ||||||||
24 | Northrop Grumman | ||||
Proposal 1: Election of Directors
Director Nomination Process
Assessment of Board Composition
The Governance Committee actively considers the composition, capabilities 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 changing environment and evolving needs of the Company. The Committee strives to achieve a diverse and effective balance, with strong and varied capabilities, including experience and new perspectives. The Committee also considers other commitments of our directors, including service on other public company boards, and leadership positions. 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. Information regarding Board changes and the diversity, skills and tenure of our Board nominees is provided below.
| Board Changes since 2016 | Diversity of newly added Directors | Skills of newly added Directors | |||||||||||||||
8 new directors have been added to the Board | 4 new directors are racially/ ethnically diverse |  | operations and logistics | ||||||||||||||
5 directors have left the Board | 4 new directors are female |  | senior military experience | ||||||||||||||
For more details on our Board’s robust self-evaluation process, see page 43. |  | cyber expertise | |||||||||||||||
AVERAGE AGE 64.1 YEARS n 3 50’s n 6 60’s n 4 70’s | AVERAGE TENURE 5.9 YEARS n 6 ≤5 years n 4 6-10 years n 3 >10 years | ||||||||||
GENDER 6/13 n 6 Female n 7 Male | RACIAL/ ETHNIC DIVERSITY 4/13 n 4 Racially/Ethnically Diverse n 9 White/Caucasian | ||||||||||
INDEPENDENT 12/13 n 12 Independent n 1 Non-Independent | |||||||||||
We have a retirement policy that provides for a director to 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.
| 2023 Proxy Statement | 25 | ||||
Proposal 1: Election of Directors
Identification and Consideration of New Nominees
| 1 | ESTABLISH NOMINEE CRITERIA | The Governance Committee is responsible for establishing the criteria for Board membership. In establishing criteria and nominating directors, the Governance Committee focuses on the responsibility of a director to represent the long-term interests of our shareholders as a whole. | |||||||||
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| 2 | REVIEW OF CANDIDATE’S HISTORY | 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. | |||||||||
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| 3 | CANDIDATE EVALUATION | 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; •a director candidate's ability and willingness to devote appropriate time and resources to Board service, taking account of a director candidate's outside time commitments, including service on other public company boards of directors and leadership positions held on such boards; and •a director candidate must be willing to submit to and obtain a background check necessary for obtaining and retaining the required top secret security clearance; The Governance Committee evaluates potential director candidates on the basis of the candidate’s background, qualifications and experience. The Governance Committee is committed to enhancing diversity on the Board, including diversity of 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 Governance Committee seeks to ensure each candidate will enhance the effectiveness of the Board overall. | |||||||||
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| 4 | RECOMMENDATION FOR ELECTION | The Governance Committee recommends to the full Board nominees for election. | |||||||||
Commitment to Diversity
In evaluating director candidates, the Governance Committee aims to ensure a diverse, inclusive and effective board, benefiting from diversity of thought and perspective. The Governance Committee seeks to ensure broad diversity, including in race and gender, as well as in professional experience, education, skill and other qualities that contribute to our Board and the long-term interests of our Company and our shareholders.
26 | Northrop Grumman | ||||
Proposal 1: Election of Directors
Shareholder Nominations
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.
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.
Effect of Failure to Obtain and Retain Security Clearance or Receive the Required Vote
Each director is required to tender a resignation in the event of and effective upon 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. If an incumbent director 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. In addition, each director is required to tender a resignation in the event of and effective upon the failure to receive the required vote at any future meeting at which such director faces re-election. The Governance Committee and the Board will consider relevant facts in deciding whether to accept a resignation, including, without limitation, any harm to our Company that may result from accepting the resignation.
| 2023 Proxy Statement | 27 | ||||
Corporate Governance
Overview
We are committed to maintaining high standards of corporate governance, reflecting on our values, protecting the interests of our shareholders, and promoting long-term, profitable growth. 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, employees, customers, partners and communities.
Our strong corporate governance and responsible business practices reflect and are built on our:
 | Values |  | Principles of Corporate Governance |  | Standards of Business Conduct | ||||||||||||||||||||||||
Our values provide the foundation for our culture and success: •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 outcomes; •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 investor.northropgrumman.com/principles-corporate-governance. | Our Standards of Business Conduct outline how we do business. They 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 Standards of Business Conduct for Suppliers and Other Trading Partners. Our Standards of Business Conduct and our Standards of Business Conduct for Suppliers and Other Trading Partners are available at www.northropgrumman.com/corporate-responsibility/ethics-and-business-conduct/standards-of-business-conduct/. | |||||||||||||||||||||||||||
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.
28 | Northrop Grumman | ||||
Corporate Governance
Role of the Board and Key Areas of Board Oversight
The primary responsibility of our Board is to foster the long-term success of the Company, promoting the interests of our shareholders. Our directors are well informed and 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 role of the Board includes, but is not limited to, the following:
 | Strategy and Risk |  | Culture and Human Capital |  | Governance | ||||||||||||||||||
Oversee our long-term business strategies, operations and performance ______ Review and approve significant corporate actions ______ Oversee management of each of our major risks and the enterprise risk management processes overall, including management of cyber and other security risks | Ensure a strong culture ______ Oversee human capital strategy ______ Execute robust succession planning, including selecting the Chief Executive Officer, and electing officers of the Company ______ Oversee our diversity, equity and inclusion programs ______ Review and approve executive compensation | Ensure an effective corporate governance practice ______ Oversee our ethics and compliance programs ______ Review and enhance Board performance ______ Elect directors to fill vacant positions between Annual Meetings ______ Oversee our commitment to ESG/sustainability ______ Provide advice to management | |||||||||||||||||||||
| 2023 Proxy Statement | 29 | ||||
Corporate Governance
Risk Oversight
As noted above, the Board is responsible for overseeing our enterprise risk management activities, with a particular focus on the Company's significant risks set forth in the Company's 10-K and other public filings. For each such risk, the Company has identified a senior executive, responsible for managing the risk and a Board committee (or the full Board), responsible for providing oversight. The Enterprise Risk Management Council (ERMC) helps management to consider and address these risks across the enterprise. The senior executive and other members of management regularly update the responsible committee or the full Board on the nature of the risk and mitigation measures, including their effectiveness. Management and the Board also regularly consider emerging or potentially emerging risks, and steps necessary to address them.
As discussed below, each of our Board committees assists the Board in the role of risk oversight.
| BOARD OF DIRECTORS | ||||||||||||||
•The full Board has ultimate responsibility for the oversight of risk, and receives updates from each of the committees, as well as directly from management addressing the range of risks, including those related to financial and other performance, cybersecurity, climate, human capital and culture. •The Audit and Risk Committee is responsible for assisting the Board in its oversight of enterprise risk management overall. •Each enterprise risk is assigned to and provided oversight by at least one committee or the full board. The Board reviews and approves all committee charters and the agenda of topics to be covered by the Board each year to help ensure effective oversight. •The Committee chairs provide updates to the full Board of risk discussions at the Committee meetings. •Management briefs the full Board directly on select risks, including financial risks, cybersecurity, and risks associated with significant programs, long-term strategy and annual plan, culture and human capital. •The Board meets regularly with employees across the enterprise at various sites. •The Board reviews and/or approves annually and quarterly SEC filings, including risk factors, and receives quarterly reports and certifications from senior management. •The Lead Independent Director helps enable the Board's exercise of governance and oversight responsibilities, including regarding risk matters. •The Board and its Committees provide oversight of the Company’s risk management processes, including the Enterprise Risk Management Council (ERMC). | ||||||||||||||
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| AUDIT AND RISK COMMITTEE | ||||||||||||||
•Responsible for assisting the Board in its oversight of enterprise risk management overall; reviews Company process for effective management of enterprise risks and disclosures, including annual briefing by Chief Financial Officer, General Counsel and Corporate Vice President, Global Operations. •Provides opportunity for regular discussion of new and emerging risks. •Focuses on risks tied most directly to our financial performance, and those related to natural disasters and security, including cybersecurity. •Receives multiple regular reports, including, among others, (1)from the Chief Financial Officer and members of the corporate and sector Finance Department addressing the nature of the material financial risks the Company faces and how the Company responds to and mitigates these risks; (2)from our Controller and Chief Accounting Officer, on our internal controls and SEC filings; (3)from our Vice President, Internal Audit addressing the internal audits; (4)from our independent auditors on their review of our internal controls over financial reporting; (5)from our General Counsel on legal and other compliance risks and how the Company is addressing and mitigating those risks; (6)from our Chief Compliance Officer on the Company’s compliance program overall; (7)from the Vice President, Global Corporate Responsibility and Chief Diversity Officer on matters communicated through the Company’s OpenLine; (8)from the Company’s Vice President and Chief Information Security Officer addressing information security and cybersecurity matters, at least four times a year; (9)from the Company’s Treasurer, addressing the Company’s insurance program, including coverage with respect to property and casualty, information security and cybersecurity; (10)from the Chief Sustainability Officer, on climate-related risks; and (11)from the Chief Financial Officer, General Counsel and Corporate Vice President, Global Operations, a review of the Company’s process for effective management of enterprise risks and disclosures. | ||||||||||||||
| COMPENSATION COMMITTEE | POLICY COMMITTEE | GOVERNANCE COMMITTEE | ||||||||||||
•Oversees management of human capital risk, including talent management, diversity, equity and inclusion, and engagement. •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. | •Assists the Board in identifying and evaluating geopolitical risks, including global security, political, budgetary and technological issues and trends that could impact the Company’s business. •Reviews the Company’s external relations and receives regular reports from the Vice President, Global Corporate Responsibility and Chief Diversity Officer on the Company’s ethics and corporate responsibility programs. •Reviews and oversees the Company’s commitment to environmental sustainability, climate change, health and safety and human rights, including review of the ESG report. | •Oversees and reviews the Company’s management of its governance-related risks, including risks related to corporate culture. •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. •Oversees the roles and responsibilities of the Committees and Committee assignments. | ||||||||||||
| ||||||||||||||
| ENTERPRISE RISK MANAGEMENT COUNCIL (ERMC) | ||||||||||||||
•The ERMC seeks to ensure that the Company has identified significant risks and implemented effective mitigation plans for each risk. •The ERMC is comprised of all members of the Executive Leadership Team, as well as the Chief Accounting Officer, Chief Compliance Officer, Corporate Secretary, Chief Sustainability Officer, Vice President, Internal Audit and Treasurer. •The Chief Information Officer and Vice President, Supply Chain also attend each ERMC meeting. •Meets at least twice each year to oversee, review and ensure effective management of enterprise risks. •At each meeting, receive updates from management lead, with particular focus on any significant changes in the risk profile or necessary mitigations; discuss changes in the environment and potential new and emerging risks; take actions to address; ensure any material changes to risks are reflected in SEC filings. •The General Counsel and Chief Financial Officer and Corporate Vice President, Global Operations provide an update at least annually to the Audit and Risk Committee on the deliberations of the ERMC and significant areas of concern. | ||||||||||||||
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Corporate Governance
Board Leadership Structure
Chair of the Board
Our Bylaws provide that our directors will designate a Chair of the Board from among its members. The Chair presides at all Board and shareholder meetings. The Chair interacts directly with all members of the Board and assists the Board to fulfill its responsibilities, including those related to risk oversight. 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 Chair 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 Chair 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 Chair is the most appropriate leadership structure for the Company at this time, and best positions the Company to be innovative, compete successfully, present one face to our customers and advance shareholder interests in today’s environment. The Board believes that Ms. Warden’s years of experience and her deep understanding of the Company’s business, day-to-day operations, growth opportunities, challenges and risk management practices gained through various leadership positions enable 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 Chair, that best meets the needs of the Company.
Lead Independent Director
If the Chair is not independent, the independent directors will designate annually from among them a Lead Independent Director. In December 2022, the independent directors designated Ms. Kleiner as Lead Independent Director.
Our Principles of Corporate Governance set forth specific duties and responsibilities of the Lead Independent Director, which include the following:
•call, establish the agenda for, and chair all meetings of the Independent Directors, including executive sessions regularly scheduled at each full Board meeting, and special sessions of Independent directors called in case of crisis or matters requiring their separate consideration or decision;
•chair all other meetings of the Board at which the Chair is not present;
•regularly meet with the Chair to provide independent oversight, as well as guidance and requests from Independent Directors; to review the agenda for upcoming Board and committee meetings, and materials provided to Directors; to review the results of recently held Board meetings and to agree to next steps; to advise the Chair on decisions made by the Independent Directors in executive session and ensure implementation; and to consult with the Chair more broadly to help ensure the Board's effective exercise of governance, risk and oversight responsibilities;
•approve the schedule of Board and committee meetings to assure there is significant opportunity for the Board to consider properly all necessary agenda items;
•serve as a liaison between the Chair and the Independent Directors;
•meet with shareholders and other stakeholders as appropriate;
•interview, along with the Chair and the Chair of the Governance Committee, Board candidates and make recommendations to the Governance Committee and the Board, helping to prioritize the specific skill sets, diversity, experience and values that candidates for consideration should possess;
•coordinate with Chair on the structure of Committee membership and leadership;
•help to enable confidence in the Company's leadership;
•support the chair to facilitate succession planning and management development;
•lead the annual evaluation of the Chair and CEO;
•meet with independent directors to discuss results of director peer evaluations: and
•perform such other duties as may be assigned by the Board.
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Corporate Governance
Our Lead Independent Director plays a critical role in reviewing director feedback received through the annual director evaluation process and providing feedback to each director on their individual performance. Our Lead Independent Director is empowered to and does actively engage with our Chair and Chief Executive Officer to help enable a strong and effective Board of Directors.
Committees of the Board
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 as of December 31, 2022, and Chair of each committee. The charters for each standing committee can be found on the Investor Relations section of our website (www.northropgrumman.com).
ROLES AND RESPONSIBILITIES Assist the Board in overseeing the Company’s financial and enterprise-related risk activities, including by: •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 independent auditor's related report •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 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 •reviewing, at least quarterly, matters that are communicated through the Company’s OpenLine reporting system •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, nuclear, natural and environmental (including climate change) matters •providing oversight of internal controls over publicly reported data in environmental, social and governance (ESG) and in Task Force on Climate-related Financial Disclosures reports, and oversight of audit and assurance processes for ESG reporting •reviewing any significant issues raised by the internal audit function and, as appropriate, management’s actions for remediation | ||||||||
Audit and Risk Committee COMMITTEE MEMBERS: Thomas M. Schoewe* (chair) Marianne C. Brown Ann M. Fudge William H. Hernandez** Graham N. Robinson*** James S. Turley* Mark A. Welsh III Number of meetings in 2022: 8 | ||||||||
* Qualifies as Audit Committee Financial Expert; all members are financially literate. Ms. Kimberly A. Ross, who joined the Board and Audit and Risk Committee in March 2023, also qualifies as an Audit Committee Financial Expert. ** Mr. Hernandez died in January, 2023. Mr. Hernandez was also qualified as an Audit Committee Financial Expert. *** Mr. Robinson rotated off the Committee in March 2023. | ||||||||
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ROLES AND RESPONSIBILITIES Assist the Board in overseeing the Company’s compensation policies and practices, including by: •overseeing and reviewing at least annually a risk assessment of the Company’s compensation programs, ensuring, among other factors, that compensation appropriately reflects ESG priorities •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) •reviewing incentive and equity compensation plans (including performance metrics under such plans), approving financial and non-financial metrics (incorporating diversity, equity and inclusion (DE&I), environmental and other goals), 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, including talent acquisition and retention •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 | ||||||||
Compensation Committee* COMMITTEE MEMBERS: David P. Abney (chair) Donald E. Felsinger Madeleine A. Kleiner Karl J. Krapek Arvind Krishna Gary Roughead Number of meetings in 2022: 6 *Graham N. Robinson and Mary A. Winston joined the Compensation Committee in March 2023. | ||||||||
Compensation Committee Interlocks and Insider Participation
During 2022, Ms. Kleiner and Messrs. Abney, Felsinger, Krapek, Krishna, Roughead and Schoewe served as members of the Compensation Committee. During 2022, 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.
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Corporate Governance
ROLES AND RESPONSIBILITIES Assist the Board in overseeing the Company’s corporate governance practices, including by: •overseeing and reviewing the Company’s management of governance-related risks, including the risks related to corporate culture •assisting the Board in ensuring a comprehensive and effective framework for Board oversight, including of ESG matters •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 •developing, recommending to the Board, and overseeing an annual performance evaluation process for the Board, each of its committees and the directors, taking into account other commitments | ||||||||
Governance Committee* COMMITTEE MEMBERS: Marianne C. Brown (chair) David P. Abney Donald E. Felsinger Madeleine A. Kleiner Karl J. Krapek James S. Turley Number of meetings in 2022: 6 *Thomas M. Schoewe joined the Governance Committee in March 2023. | ||||||||
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Corporate Governance
ROLES AND RESPONSIBILITIES Assist the Board in overseeing policy, government relations and corporate responsibility, including by: •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 and recommendations regarding the Company’s environmental policies and programs (including climate change, net-zero, water and waste reduction, and other environmental initiatives and matters), and reviewing with the Company's Chief Sustainability Officer at least annually the status of such programs •reviewing and providing oversight and recommendations regarding the Company's ESG Report and Task Force on Climate-Related Financial Disclosures reports •reviewing and providing oversight and recommendations regarding the Company's policies and practices supporting human rights and health and safety, and receiving an update from the Company's General Counsel at least annually on the Company's Human Rights Working Group •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 programs and support of charitable organizations | ||||||||
Policy Committee* COMMITTEE MEMBERS: Gary Roughead (chair) Ann M. Fudge William H. Hernandez** Arvind Krishna Graham N. Robinson Thomas M. Schoewe*** Mark A. Welsh III Number of meetings in 2022: 4 *Kimberly A. Ross and Mary A. Winston joined the Committee in March 2023. ** Mr. Hernandez died in January, 2023. ***Mr. Schoewe rotated off the Committee in March 2023. | ||||||||
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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 often holds its meetings at Company locations other than our corporate headquarters 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.
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 Lead Independent Director presides over the executive sessions of the independent directors. The Audit and Risk Committee meets in executive session at least four 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.
Meeting Attendance
 | 98% AVERAGE ATTENDANCE In 2022, the Board held nine meetings. Each incumbent director serving in 2022 attended 86% or more of the total number of Board and committee meetings he or she was eligible to attend, other than Mr. Krishna who did not join the Board until November 2022. The average attendance for all Board and committee meetings in 2022 was 98%. |  | 100% SHAREHOLDER MEETING ATTENDANCE 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 2022 Annual Meeting. | |||||||||||
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Corporate Governance
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.
Independence Determination
In connection with their annual independence review, the Board and Governance Committee considered certain relationships with organizations to which we have made payments or from which we have received payments in the usual course of our business in 2022. The Board of Directors considered that Ms. Brown, Ms. Fudge, Mr. Krishna, Mr. Robinson, Ms. Ross, Adm.. Roughead, Mr. Schoewe, Mr. Turley, Gen. Welsh and Ms. Winston served as members of the board of directors or trustees and/or employees or executive officers of companies with which we do business or have made payments in the ordinary course.
The Board of Directors considered that Ms. Fudge, Ms. Ross, Adm. Roughead and Mr. Turley served as members of the boards of organizations to which the Company made contributions during 2022 in the usual course of our charitable contributions program, or 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, including Mr. Felsinger and Mr. Krapek, who are not standing for re-election at the 2023 Annual Meeting, constitute approximately 93% of the members of our Board. The Board also determined that Mr. Hernandez, who served as a director until his death in January 2023, was independent during the time he was a director.
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Corporate Governance
Our Culture
Our strong culture — founded on our values; reflecting our commitment to ethics, integrity, inclusion and respect; and focused on enduring performance, innovation, agility and accountability — enables our success and long-term sustainable growth. Culture is critical to who we are and how we do business. In 2020, we restated the values that guide our Company and provide the foundation for our culture. Our culture is critical to our ability to do business, to attract and retain talent, to perform, to earn trust, to serve our customers and to deliver long-term value for our shareholders. We all have a shared responsibility to maintain and enhance it.
Our culture is reflected in our commitment to corporate responsibility and sustainability. We are proud of our long-standing advancement of diversity, equity and inclusion, our service to our communities and the progress we have driven across the various aspects of sustainability. Corporate responsibility and sustainability are critical to our business and long-term value creation for our shareholders, customers, employees and suppliers, and the communities we serve.
Management establishes and reinforces the Company’s culture, and our Board is actively engaged in providing oversight. The Board is committed to sustaining and enhancing the Company’s strong culture. For example:
•The Company conducts an annual employee engagement survey, which gives our employees the opportunity to provide feedback on our Company culture and the environment that enables their success. 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 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 across four business sectors.
•Members of our Board often share their time by generously participating as speakers in Company leadership programs.
The Board's Committees 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 programs with our General Counsel and Chief Compliance Officer, including the tone set by leaders throughout the organization, and they meet quarterly with our Vice President, Global Corporate Responsibility and Chief Diversity Officer to receive a report on matters that are communicated through the 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, equity and inclusion, and reviews a risk assessment of the Company’s compensation programs.
•The Governance Committee provides the Board oversight of the Company’s corporate culture and governance-related risks.
•The Policy Committee receives at least annually a report from our Vice President, Global Corporate Responsibility and Chief Diversity Officer 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.
Environmental, Social and Governance
Our strong environmental, social and governance (ESG) programs and practices reflect and enhance our culture. They help us attract and retain the best talent, perform for our customers, serve as responsible corporate citizens in the communities where we live and operate and create long-term value for our stakeholders.
Our annual ESG Report provides our stakeholders with detailed information on various ESG programs, goals and achievements. The ESG Report, our ESG Performance Data Matrix and other ESG-related disclosures, including reporting aligned with the Task Force on Climate-related Financial Disclosures, are available at www.northropgrumman.com/corporate-responsibility/sustainability-reports-and-esg-information/. Our Human Rights Report is available on the Investor Relations section of our website at www.northropgrumman.com.
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Corporate Governance
Environmental
We are proud of our long-standing commitment to environmental stewardship, and our record of setting and achieving robust goals. As described in our 2022 ESG Report, we announced our next generation of environmental sustainability goals in 2022. These goals focus on the Company's facilities, as well as supply chain partners and customers:
•Net zero greenhouse gas emissions in our operations by 2035.
•Source 50% of total electricity from renewable sources by 2030.
•Strengthen leadership in our operational footprint reduction through setting and achieving pioneering targets in environmental stewardship by 2025, including potable water use and solid waste to landfill.
•In collaboration with key customers, work to develop a pioneering product stewardship program focused on material efficiency, product design and life cycle assessment.
•Update the company’s "Standards of Business Conduct for Suppliers and Other Trading Partners" to include industry-leading sustainability practices by 2023.
•Expand Technology for Conservation initiatives in proximity to Northrop Grumman's U.S. locations by 2030, in collaboration with external partners.
As described in our 2022 ESG Report, our Board of Directors, and its committees, are involved in the oversight of our environmental sustainability strategy, the management of environmental risks, including climate-change, and reviewing environmental policies and goals (including net-zero operations, water and waste reductions and other footprint plans).
Social
People are our most valued resource. We work hard to provide an environment in which our employees can thrive and stay safe. We are proud to have long been, and to be, a leader in advancing diversity, equity and inclusion (DEI). Indeed, we believe that our success depends on our ability to provide an environment in which our employees are not only enabled, but expected to bring their differing perspectives to work, challenging us all to think more broadly and enhancing outcomes. Among many other initiatives, the Company maintains 14 employee resource groups, including over 28,000 diverse colleagues, which meet regularly to identify and address concerns and opportunities. These networks are an industry-leading example of workforce inclusion and contribute to our overarching DEI strategy.
As described in our 2022 ESG Report and our 2022 Human Rights Report, our Board of Directors, and the Compensation Committee in particular, are deeply engaged in our strategy for enhancing DEI, reviewing workforce diversity plans, setting objectives, including non-financial metrics in our compensation programs, and understanding the outcome of our employee engagement surveys.
We are proud that our employees continue to volunteer their time and talents to help those most in need. The Company, our Northrop Grumman Foundation and our employees contributed to global, national and local efforts addressing food insecurity, advancing opportunity for all, increasing student access to technology, and providing disaster relief to help some of our most vulnerable populations. During 2022, our Company and the Company's Foundation contributed a total of approximately $33 million in philanthropic giving.
Governance
We have long enjoyed a robust and progressive governance regime, carefully designed to promote the long-term success of our Company by providing for effective and efficient oversight by a strong board of directors engaged with and informed by our shareholders. We are committed to continuing to maintain these high standards of corporate governance, in service to our shareholders, employees and customers.
Our governance policies include our Principles of Corporate Governance, our corporate Bylaws, Policy and Procedure Regarding Company Transactions with Related Persons and our Standards of Business Conduct, among others. As discussed in our 2022 ESG Report, our exemplary governance practices include:
•A diverse, informed and engaged Board of Directors who are committed to thoughtful debate and collaboration;
•All Board committees are fully comprised of independent members;
•A Lead Independent Director with significant and clearly established responsibilities, who also serves as a resource for our CEO, other directors and our shareholders;
•Deliberate and effective ongoing Board refreshment and succession planning, with mandatory retirement at age 75;
| 2023 Proxy Statement | 39 | ||||
Corporate Governance
•Multiple and varied opportunities for shareholder engagement, including: right to act by written consent, right to call a special meeting, and right to nominate through proxy access, as well as less formal opportunities to meet with management and directors throughout the year;
•Annual re-assessments of the effectiveness of the full Board, each committee and each director, with a focus on opportunities for further improvement;
•Overboarding policy limiting service on more than three other public company boards;
•Robust recoupment policy for incentive compensation;
•Stock ownership requirements for directors and executive officers; and
•Policy prohibiting hedging, pledging and other related actions related to Company stock.
Oversight
Our Board of Directors provides leadership and oversight with respect to ESG practices, and regularly receives reports from management on these varied issues.
•The Audit and Risk Committee assists the Board of Directors in its oversight of effective internal controls; approves auditors; reviews and approves publicly filed data in annual and quarterly reports and earnings releases.
•The Compensation Committee provides oversight of compensation programs, including approving environmental goals and diversity, equity and inclusion goals; and the Company’s management of its human capital and talent, including the Company’s focus on diversity, equity and inclusion.
•The Governance Committee oversees matters related to corporate governance, the Board (including diversity, equity and inclusion for Board members), shareholder rights, and our corporate culture.
•The Policy Committee provides oversight of the Company’s policies and programs for environmental matters and climate change-related risks (including among other things, Scope 1 and 2 greenhouse gas emissions, and targets for emissions reductions); ethics and standards of business conduct, corporate responsibility, human rights, employee health and safety and corporate citizenship and charitable programs. The Committee receives periodic updates from the Chief Sustainability Officer and Vice President, Global Corporate Responsibility.
The Enterprise Risk Management Council also reviews risks related to 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 63 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.
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Corporate Governance
Awards and Recognitions
We are proud that our corporate responsibility and sustainability programs received various notable recognitions in 2022. They include:
 | Dow Jones Sustainability North America Index for the seventh 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 JUST Capital’s 100 Most Just Companies _____ one of DiversityInc’s Top 50 Companies for Diversity for the 13th year in a row as well as a top company for veterans, employee resource groups, Native American/Pacific Islander executives, people with disabilities, executive diversity councils, Black executives and ESG | 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 eighth 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 2022 Best of the Best Top Supplier Diversity Programs and Top Veteran-Friendly Employers by U.S. Veterans magazine _____ participated in the CDP Climate Survey for the 11th consecutive year, receiving a B score | |||||||||
Human Rights
Northrop Grumman is committed to maintaining a strong culture with a deep respect for individuals and human rights. The Company has a robust and wide-reaching Human Rights Policy that reflects this commitment. (The Policy is available on the Company’s website at 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 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, Treasury, Contracts, Environmental, Health and Safety, Global Business Office, Government Relations, Communications and each of our Sectors. Among other things our 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.
•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 our Standards of Business Conduct for Suppliers and Other Trading Partners
•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. In recent years, for example, the Company has exited or begun to exit legacy programs related to cluster munitions, recognition software, and depleted uranium.
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 regular reports from our Vice President, Global Corporate Responsibility and Chief Diversity Officer, and our Corporate Vice President and General Counsel (or her designee), 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.
In 2023, we published our Human Rights Report. This report provides a review of our human rights policies and practices and provides insights into our program for our shareholders and other stakeholders. The report is available on the Company's Investor Relations section on our website at www.northropgrumman.com.
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Corporate Governance
Director Orientation and Continuing Education
NEW DIRECTOR ORIENTATION | •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, including the Standards of Business Conduct, 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. | ||||
CONTINUING DIRECTOR EDUCATION AND SITE VISITS | •Directors 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. •The Board also conducts periodic site visits to our facilities as part of its regularly scheduled Board meetings, and during “Sector Days,” when our directors visit our business operations to meet with local employees and management. These visits allow directors to interact with a broader group of our executives and employees and gain firsthand insights into our operations. | ||||
Board Memberships 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 Chair of the Governance Committee (or the Chair of the Board, if notice is from the Chair of the Governance Committee). A director should not accept the new commitment until advised by the Chair of the Governance Committee (or Chair 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.
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.
| Director Overboarding | ||
The Board regularly reviews the ability of our directors to devote the necessary time and resources to their service on the Board. At least annually, the Board considers the outside time commitments of all directors, including their service on other public company boards and any leadership roles on those boards. Independent directors may not serve on more than three other boards of publicly traded companies in addition to our Board, and a director who is a full-time employee of our Company may not serve on the board of more than one other public company, absent special approval. As discussed above, the Board and its Governance Committee have a robust process for assessing whether a director's service on another board could create conflicts or otherwise potentially interfere with their responsibilities as a Northrop Grumman director, before the director accepts service on such other board. In 2022, the Board conducted its regular review of directors’ other commitments and determined each director was in compliance with applicable policies. | ||
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Corporate Governance
Annual Self-Assessment Process
The Board conducts annually thorough self-assessment processes at each of 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.
BOARD EVALUATION | The self-assessment of the full Board is overseen by the Governance Committee. As part of this assessment, the Lead Independent Director and Chair of the Governance Committee facilitate a broad discussion of Board performance, held in executive session. Among other topics, the Board considers: •the Board’s effectiveness in evaluating and monitoring the Company’s business plan, long-term strategy and risks; •whether strategic and critical issues are being addressed by the Board in a timely manner; •whether the Board’s expectations and concerns are openly communicated to and discussed with the Chief Executive Officer; •whether there is adequate contact between the Board and members of senior management; •whether the directors collectively operate effectively as a Board; •whether the individual directors have the appropriate mix of attributes and skills to fulfill their duties as directors of the Company; •whether there are adequate opportunities to raise questions and comments on issues, both inside and outside of Board meetings; •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. | ||||
COMMITTEE EVALUATION | Each of the Committees also conducts an annual self-assessment. During an executive session led by the Committee chair, each Committee considers, 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; whether the Committee has sufficient 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. | ||||
INDIVIDUAL DIRECTOR EVALUATION | 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 evaluations address various aspects of how each director contributes to the Board and serves our shareholders. The evaluation process is overseen by an independent third-party who compiles the results and provides them directly to the Chair, the Lead Independent Director and the Chair of the Governance Committee. 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 Chair 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, and opportunities for growth. | ||||
SELF-ASSESSMENT FEEDBACK | The Lead Independent Director or the Chair 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. | ||||
| 2023 Proxy Statement | 43 | ||||
Corporate Governance
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 ongoing 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.
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 Chair of the Audit and Risk Committee, Northrop Grumman Board of Directors c/o Corporate Ethics Office, 2980 Fairview Park Drive, Falls Church, Virginia 22042.
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Compensation of Directors
In May 2022, the Compensation Committee recommended to the Board, and the Board approved, the current non-employee director fee structure, effective May 18, 2022. The table below lists the annual fees payable to our non-employee directors from January 1, 2022 to May 17, 2022 under the prior fee structure and the annual fees payable under the current fee structure effective since May 18, 2022.
| Name | Amount ($) (1/1/22 - 5/17/22) | Amount ($) (5/18/22 - 12/31/22) | ||||||
| Annual Cash Retainer | 135,000 | 140,000 | ||||||
| Lead Independent Director Retainer | 50,000 | 50,000 | ||||||
| Committee Chair Retainer | 25,000 | 25,000 | ||||||
| Audit and Risk Committee Retainer | 15,000 | 15,000 | ||||||
Annual Equity Grant(1) | 170,000 | 175,000 | ||||||
(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.
| Current Non-Employee Director Fees | Current Additional Annual Fees | ||||
 |  | ||||
Retainer fees are paid in arrears 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 $175,000 in the form of deferred stock units (Automatic Stock Units).
The Compensation Committee, with the assistance of its independent compensation consultant, is responsible for reviewing and recommending for Board 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.
| 2023 Proxy Statement | 45 | ||||
Compensation of Directors
The Director Program was amended and restated effective January 1, 2016 (the Amended Director Program). Non-employee directors other than Mr. Robinson and Mr. Krishna received an annual equity grant of Automatic Stock Units on May 19, 2021 which vested on May 19, 2022; and non-employee directors received an annual equity grant of Automatic Stock Units on May 18, 2022 which will vest on May 18, 2023. Mr. Robinson received a pro-rated annual equity grant of Automatic Stock Units upon his election to the Board on August 11, 2021 which vested on May 19, 2022. Mr. Krishna, Ms. Ross and Ms. Winston each received a pro-rated annual equity grant upon their respective elections to the Board in November 2022 and March 2023, respectively, which will vest on May 18, 2023. Under the Amended Director Program, directors may elect to have all or any portion of their Automatic Stock Units paid on (A) the earlier of (i) the beginning of a specified calendar year after the vesting date or (ii) their separation from service as a member of the Board, or (B) the vesting date. Directors may elect to defer to a later year all or a portion of their remaining cash retainer or committee retainer fees into a stock unit account as Elective Stock Units or in alternative investment options. Elective Stock Units are awarded on a calendar quarterly basis. Directors may elect to have all or a portion of their Elective Stock Units paid on the earlier of (i) the beginning of a specified calendar year or (ii) their separation from service as a member of the Board. Stock units awarded under the Amended Director Program will be paid out in an equivalent number of shares of our common stock. Deferral elections are made prior to the beginning of the year for which the retainer fees will be paid. Directors are credited with dividend equivalents in connection with the accumulated stock units until the shares of common stock related to such stock units are issued.
Non-employee directors are eligible to participate in our Matching Gifts Program for Education. Under this program, the Northrop Grumman Foundation matches director contributions, up to $10,000 per year per director, to eligible educational programs in accordance with the program.
Stock Ownership Requirements Non-employee directors are required to own common stock of the Company in an amount equal to five times the annual cash retainer, with such ownership to be achieved within five years of the director’s election to the Board. Deferred stock units and Company stock owned outright by the director count towards this requirement. Anti-Hedging and Pledging Policy Company policy prohibits our directors, NEOs, other elected and appointed officers, designated employees who are subject to specific preclearance procedures under the Company’s insider trading policy and any other employees who receive performance-based compensation, from engaging in hedging, pledging or other specified transactions. Specifically, this policy prohibits such persons from: engaging in hedging or derivative transactions, such as “cashless” collars, forward contracts, equity swaps or other similar or related transactions; entering into margin transactions involving Company stock; pledging Company securities as collateral for loans or other transactions; trading in puts, calls, options, warrants or other similar derivative instruments involving Company securities; or engaging in short sales of Company securities. None of the shares of Company common stock held by our directors are pledged or subject to any hedging transaction. | ||
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Compensation of Directors
2022 Director Compensation
The table below provides information on the compensation of our non-employee directors for the year ended December 31, 2022.
| Name | Fees Earned or Paid in Cash(1) ($) | Stock Awards(2) ($) | All Other Compensation(3) ($) | Total ($) | ||||||||||
| David P. Abney | 153,525 | 175,000 | 17 | 328,542 | ||||||||||
| Marianne C. Brown | 154,713 | 175,000 | 13,251 | 342,964 | ||||||||||
| Donald E. Felsinger | 184,838 | 175,000 | 50,056 | 409,894 | ||||||||||
| Ann M. Fudge | 153,088 | 175,000 | 11,425 | 339,513 | ||||||||||
| William H. Hernandez | 176,463 | 175,000 | 13,560 | 365,023 | ||||||||||
| Madeleine A. Kleiner | 164,713 | 175,000 | 21,409 | 361,122 | ||||||||||
| Karl J. Krapek | 138,088 | 175,000 | 25,872 | 338,960 | ||||||||||
| Arvind Krishna | 17,150 | 87,500 | — | 104,650 | ||||||||||
| Graham N. Robinson | 153,088 | 175,000 | 42 | 328,130 | ||||||||||
| Kimberly A. Ross (4) | — | — | — | — | ||||||||||
Gary Roughead | 163,088 | 175,000 | 17,182 | 355,270 | ||||||||||
| Thomas M. Schoewe | 158,538 | 175,000 | 8,769 | 342,307 | ||||||||||
| James S. Turley | 153,088 | 175,000 | 1,836 | 329,924 | ||||||||||
| Mark A. Welsh III | 153,088 | 175,000 | 1,140 | 329,228 | ||||||||||
| Mary A. Winston (5) | — | — | — | — | ||||||||||
(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 Chair 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 or alternative investment options. 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 2022 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 Accounting Standards Codification 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, 2022 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 as follows: Ms. Brown, $10,000; Ms. Fudge, $10,000; Mr. Hernandez, $10,000; and Mr. Roughead, $10,000.
(4)Ms. Ross was elected to the Board of Directors effective March 15, 2023.
(5)Ms. Winston was elected to the Board of Directors effective March 15, 2023.
| 2023 Proxy Statement | 47 | ||||
Compensation of Directors
Deferred Stock Units
As of December 31, 2022, the non-employee directors had the following aggregate number of deferred stock units accumulated in their deferral accounts for all years of service as a director, including additional stock units credited as a result of dividend equivalents earned on the stock units.
| Name | Automatic Stock Units | Elective Stock Units | Total | ||||||||
| David P. Abney | 389 | — | 389 | ||||||||
| Marianne C. Brown | 4,920 | 3,297 | 8,217 | ||||||||
| Donald E. Felsinger | 23,805 | 16,448 | 40,253 | ||||||||
| Ann M. Fudge | 2,802 | 515 | 3,317 | ||||||||
| William H. Hernandez | 6,655 | — | 6,655 | ||||||||
| Madeleine A. Kleiner | 19,104 | — | 19,104 | ||||||||
| Karl J. Krapek | 17,962 | 4,458 | 22,420 | ||||||||
| Arvind Krishna | 175 | — | 175 | ||||||||
| Graham N. Robinson | 755 | — | 755 | ||||||||
| Kimberly A. Ross (1) | — | — | — | ||||||||
Gary Roughead | 10,115 | — | 10,115 | ||||||||
| Thomas M. Schoewe | 11,412 | — | 11,412 | ||||||||
| James S. Turley | 4,326 | — | 4,326 | ||||||||
| Mark A. Welsh III | 3,445 | — | 3,445 | ||||||||
| Mary A. Winston (2) | — | — | — | ||||||||
(1)Ms. Ross was elected to the Board of Directors effective March 15, 2023.
(2)Ms. Winston was elected to the Board of Directors effective March 15, 2023.
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Proposal 2: 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 views on our 2022 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 55 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 2022 Form 10-K, which describes our business and 2022 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 2. | ||||
| 2023 Proxy Statement | 49 | ||||
Proposal 3: Advisory Vote on Preferred Frequency of Vote on Compensation of Named Executive Officers
We are providing our shareholders with the opportunity to cast a non-binding, advisory vote on the preferred frequency of future advisory votes on the compensation of our named executive officers in accordance with Section 14A of the Exchange Act. Shareholders may indicate whether they would prefer that we conduct future advisory votes on the compensation of our named executive officers every one year, every two years or every three years.
After careful consideration, the Board has concluded that an advisory vote on the compensation of our named executive officers that occurs every year is the most appropriate alternative for the Company and therefore the Board recommends that you vote for every “one year” as the preferred frequency.
An annual advisory vote on the compensation of our named executive officers will allow our shareholders to provide direct input on the Company’s executive compensation philosophy, policies and practices as disclosed in the proxy statement each year, which is consistent with our efforts to engage in an ongoing dialogue with our shareholders on executive compensation, corporate governance and other matters of importance to the Company. We believe an annual advisory vote on the compensation of our named executive officers will benefit shareholder engagement by providing a clear, simple means for the Company to obtain information on investor sentiment about our executive compensation philosophy. We currently provide for an annual advisory vote on the compensation of our named executive officers.
This vote is advisory, which means that the vote is not binding on the Company, the Board or the Compensation Committee. Notwithstanding the advisory nature of the vote, the Board values the opinions of shareholders and will review and consider seriously the outcome of this vote in determining how frequently the Company conducts an advisory vote on the compensation of our named executive officers.
Shareholders may cast a vote on the preferred voting frequency by selecting every one year, every two years or every three years or abstaining when voting in response to the resolution set forth below:
“RESOLVED, that the shareholders determine, on an advisory basis, whether the preferred frequency of an advisory vote on the compensation of the Company’s named executive officers as set forth in the Company’s proxy statement should be every one year, every two years or every three years.”
Vote Required
Approval of this advisory proposal requires that the votes cast for one of the three frequency alternatives exceed the votes cast against that frequency alternative. For this purpose, when considering whether a particular frequency alternative is adopted by shareholders, votes cast for one of the other two frequency alternatives will be deemed votes cast against the frequency alternative under consideration. This means that a particular frequency alternative will be adopted by shareholders only if it receives more affirmative votes than the total affirmative votes of the two other alternatives combined. Abstentions and broker non-votes will not have any effect on this proposal. If the resolution is not adopted by the required vote of the shareholders, the Compensation Committee and the Board will nonetheless consider the votes cast for each frequency alternative presented in determining the frequency for future advisory votes on the compensation of our named executive officers.
| THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EVERY “ONE YEAR” AS THE PREFERRED FREQUENCY FOR FUTURE ADVISORY VOTES ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS. | ||||
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Executive Compensation
Compensation Discussion & Analysis
2022 Named Executive Officers
 | Kathy J. Warden Chair, Chief Executive Officer and President |  | David F. Keffer Corporate Vice President and Chief Financial Officer |  | Matthew F. Bromberg Corporate Vice President Global Operations | ||||||||||||
 | Mark A. Caylor Corporate Vice President and President, Mission Systems |  | Thomas H. Jones Corporate Vice President and President, Aeronautics Systems | ||||||||||||||
Compensation Philosophy and Objectives
We provide attractive, flexible and market-based total compensation programs 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. For our performance-based plans, we select metrics that drive shareholder value and benchmark our performance against peers, the market and our long-range strategic plan (LRSP). Our executive compensation and benefit programs are guided by the following principles:
 | Pay for Performance •Our incentive plans are based on peer performance and benchmarks, the market and our LRSP. •Above-target incentive payouts are awarded when we outperform our peers, market and LRSP benchmarks. | ||||
 | Leadership Recruitment, Retention and Succession •Compensation is designed to be competitive with our peers and retain top talent. •Programs are structured to attract, motivate and reward NEOs for delivering operational and strategic performance over time. | ||||
 | Sustainable Performance •Our Annual Incentive Plan includes both financial and non-financial metrics to ensure we are building a strong foundation for long-term sustainable performance and shareholder value creation, and we are consistent with our commitment to environmental, social and governance (ESG) responsibilities. | ||||
| 2023 Proxy Statement | 51 | ||||
Executive Compensation
 | 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 Total Shareholder Return (rTSR). Payouts under the rTSR portion of the plan are capped at target if the Company's TSR is negative over the three-year performance period. •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 •Our compensation programs' provisions and financial objectives are evaluated on an annual basis and modified in accordance with industry and business conditions (e.g., divestitures, unforeseen impacts, etc.). •Benchmarks are set using a hybrid approach of peer, market and LRSP data. •We seek to outperform our peers (a group of top global defense companies identified as the Performance Peer Group on page 57). •We use a Target Industry Peer Group (TIPG) (identified on page 58) for broader market executive compensation analyses that includes companies based on a peer-of-peers analysis. | ||||
In the Compensation Discussion and Analysis (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 2022 Named Executive Officers (NEOs) and explain how and why our Board’s Compensation Committee determined certain 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 these measures may be useful to investors, see “Appendix A - Use of Non-GAAP Financial Measures.” The 2022 NEO compensation is in the Summary Compensation Table on page 72 and other compensation tables contained in this Proxy Statement.
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Executive Compensation
2022 Compensation Elements
Our executive compensation philosophy provides 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 and our business objectives. The key elements of our compensation programs for our NEOs are summarized below.
In 2022 the Company revised the Annual Incentive Plan (AIP) and Long-Term Incentive Plan (LTIP) Restricted Performance Stock Rights (RPSR) metrics. For AIP, the non-financial metrics were incorporated directly into the AIP goals to reflect our continued focus on ESG and to bring greater alignment for employees, shareholders and other stakeholders. The Company modified the AIP financial metrics to adjust the Cash Flow from Operations metric from a conversion-based to dollar-based metric. This change helps to align both the sector and enterprise cash-generating goals. Additionally, Pension-Adjusted Net Income was removed as a metric. The remaining financial metrics better align with the Company’s sector growth strategy. Weights for non-financial and financial AIP metrics were reallocated based on the above changes, as approved by the Compensation Committee.
For the long-term incentive RPSR metrics, Return on Invested Capital* (ROIC) replaced Operating RONA* to better align with long-term shareholder considerations and to provide a link to value creation relative to our invested capital base.
Compensation Element | CEO | Other NEOs (Average) | Purpose | Key Characteristics | ||||||||||
| Fixed | 9% | 18% | ||||||||||||
| Base Salary |  |  | Compensate equitably and competitively | •Determined by level of responsibility, competitive market pay assessment and individual performance | ||||||||||
| Variable | 91% | 82% | ||||||||||||
Annual Incentive Plan (AIP) |  |  | Motivate and reward achievement of annual business objectives | •Financial Metrics •35% Adjusted Cash Flow from Operations* •35% Adjusted Segment Operating Income* Growth •20% Pension-Adjusted Operating Margin (OM) Rate* •10% Non-financial Metrics | ||||||||||
| Long-Term Incentive Plan (LTIP) Restricted Stock Rights (RSRs) |  |  | Tie our executive officers’ priorities 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 TSR, Adjusted Cumulative Free Cash Flow* (Adjusted Cumulative FCF*) and Return on Invested Capital* (ROIC) | ||||||||||
* This metric is a non-GAAP financial measure. For more information, see “Appendix A - Use of Non-GAAP Financial Measures.”
| 2023 Proxy Statement | 53 | ||||
Executive Compensation
2022 Performance Highlights
Strong demand drove backlog of $79B | Sales grew 3% to $36.6B | |||||||
Diluted EPS of $31.47 Transaction-Adjusted EPS* of $25.54 | Delivered strong return to Shareholders of over $2.6B in dividends & share repurchases | |||||||
| Earnings Per Share | 3-Year Cumulative Total Shareholder Return | |||||||
 |  | |||||||
* This metric is a non-GAAP financial measure. For more information, see “Appendix A - Use of Non-GAAP Financial Measures.”
Consideration of Say-On-Pay Vote
The Company annually asks shareholders to approve, on an advisory basis, the compensation paid to our NEOs. We regularly engage with our shareholders to address their questions regarding executive compensation and emphasize our philosophy and competitive pay practices. The Compensation Committee annually reviews and discusses the results of the say-on-pay vote. In 2022, our executive compensation programs continued to receive strong support from shareholders with 97% approval at our 2022 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. |  % of votes in favor of Say-on-Pay Proposal in 2022 | ||||
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Executive Compensation
Our Compensation Best Practices
Our compensation programs incorporate best practices across all industries, including the following:
| What We Do | What We Don’t Do | ||||||||||||||||||||||
| Pay for Performance | Annual Peer Group Review | Long-Term Incentives Focused on Performance | No Individual Change in Control Agreements | ||||||||||||||||||||
Compensation Elements Benchmarked at Market Median | Above-Target Annual Incentive Payouts When We Outperform Our Peer Benchmarks | Independent Consultant Reports Directly to Compensation Committee | No Employment Contracts for Chief Executive Officer (CEO) or Other NEOs | ||||||||||||||||||||
Recoupment Policy on Cash and Equity Incentive Compensation Payments | Dividends Paid Upon Vesting of Equity Awards | Stock Ownership Guidelines and Stock Holding Requirements | No Excise Tax Gross-ups for Payments Received Upon Termination After a Change in Control | ||||||||||||||||||||
LTIP Double Trigger Provisions for Change in Control | Regular Risk Assessments Performed | Cap on Annual Bonuses and RPSR Payouts | No Hedging or Pledging of Company Stock | ||||||||||||||||||||
How We Make Executive Compensation Decisions
Our Compensation Committee leads a rigorous and continuous process evaluating our thoughtfully designed programs throughout the year to ensure that we maintain executive compensation programs that align with the interests of our shareholders.
| Assess | Establish | ||||||||||
•Feedback from annual say-on-pay vote from shareholder outreach •Market data with Independent Compensation Consultant •Alignment of our financial and non-financial performance metrics with our overall strategy •Annual independent risk review of compensation structure | •Performance metrics for AIP and RPSRs •Relevant compensation and performance peer groups •Annual salary, target AIP and target LTIP awards | ||||||||||
| Rigorous Committee Oversight | |||||||||||
| Approve | Monitor | ||||||||||
•AIP and RPSR performance metric results •Final total compensation for NEOs (recommend CEO compensation to independent board members for approval) | •Progress against AIP and RPSR performance metrics •NEO performance •Company policies and practices with respect to human capital risks | ||||||||||
| 2023 Proxy Statement | 55 | ||||
Executive Compensation
Roles and Responsibilities
COMPENSATION COMMITTEE | •Oversees our compensation policies, incentive and equity compensation plans and approves payments or grants under these plans and the compensation for the elected officers, other than the CEO. •Recommends the base, bonus, and equity compensation for the CEO to the independent directors of the Board for approval. •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. •Reviews and monitors the results of the Company’s diversity, equity and inclusion programs. •Oversees the Company’s management of its human capital risk. •Conducts an annual evaluation of the Independent Compensation Consultant. •Evaluates the performance of elected officers against their respective goals and objectives. •Reviews and discusses with management the CD&A and provides a Compensation Committee Report for inclusion in the proxy statement. | ||||
INDEPENDENT DIRECTORS | •Evaluate the performance and determine the compensation of the CEO (upon recommendation of the Compensation Committee). | ||||
INDEPENDENT COMPENSATION CONSULTANT (Frederic W. Cook & Co.) | •Reports directly to the Compensation Committee. •Regularly participates in meetings of the Compensation Committee and communicates with the Compensation Committee Chair between meetings as needed. •Participates in executive session with the Compensation Committee. •Provides proactive advice to the Compensation Committee on best practices for Board governance of executive compensation, compensation-related risk management and areas for program design to most appropriately support the Company’s business strategy and organizational values. •Provides a review of market data and advises the Compensation Committee on the levels and structure of our executive compensation policies and procedures, including compensation matters for NEOs. •Reviews and advises the Compensation Committee on our total compensation philosophy, peer groups and target competitive positioning. •Identifies market trends and practices and advises the Compensation Committee on program design implications. •Serves as a resource to the Compensation Committee Chair on setting agenda items for Compensation Committee meetings and researches special projects. •Receives compensation only for engagement with the Compensation Committee and does not receive any fees or income from the Company. | ||||
MANAGEMENT (CEO with assistance from the Corporate Vice President and Chief Human Resources Officer and other Company employees) | •Makes compensation-related recommendations for elected officers, other than the CEO, to the Compensation Committee for its review and approval. •Assesses each executive’s performance, skills and industry knowledge, market compensation benchmarks, and succession and retention considerations. •Provides recommendations to the Compensation Committee regarding executive incentive and benefit plan designs and strategies, other than with respect to the CEO. These recommendations include financial and non-financial operational goals and criteria for our annual and long-term incentive plans. | ||||
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Executive Compensation
Use of Competitive Data
PERFORMANCE PEER GROUP: SET PERFORMANCE TARGETS AND EVALUATE PERFORMANCE
The Compensation Committee uses the Performance Peer Group and LRSP data for the purpose of setting performance targets and evaluating performance of our AIP and LTIP. The LRSP is our five-year strategic operating and financial plan. The Performance Peer Group encompasses the largest global defense companies by government revenues within the aerospace and defense market space. In 2022, the Compensation Committee used the peer group data from The Boeing Company, General Dynamics Corporation, L3Harris Technologies, Inc., Lockheed Martin Corporation and Raytheon Technologies Corporation for the purpose of setting performance targets.
TSR PEER GROUP: 2020-2022 LONG-TERM INCENTIVE AWARDS
Earned awards from the 2020-2022 performance cycle were contingent on our ranking compared to the S&P Industrials and the following TSR peer group:
| 2020 TSR PEER GROUP | ||||||||
| BAE Systems | L3Harris Technologies, Inc. | Raytheon Technologies Corporation(2) | ||||||
| The Boeing Company | Leidos Holdings, Inc. | Thales Group | ||||||
Booz Allen Hamilton Holding Corporation(1) | Leonardo | |||||||
| General Dynamics Corporation | Lockheed Martin Corporation | |||||||
(1)For the 2021-2023 performance cycle, Booz Allen Hamilton Holding Corporation was replaced by Huntington Ingalls Industries, Inc.
(2)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 the TIPG of 14 companies, including a subset containing six direct peers. Prior to the beginning of the year, the Compensation Committee sets the TIPG used to benchmark compensation for the following year. To identify peer companies for compensation benchmarking purposes, the Independent Compensation Consultant employs an objective criteria-based methodology where:
•the peer company was identified as a peer by at least two aerospace and defense peers or proxy advisory services;
•the peer 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.
| 2023 Proxy Statement | 57 | ||||
Executive Compensation
While the Compensation Committee reviews the TIPG annually with the Independent Compensation Consultant, our goal is to keep it as consistent as reasonably possible on a year-over-year basis. The companies that comprise the 2022 TIPG are listed in the following table:
| 2022 TARGET INDUSTRY PEER GROUP | |||||
| 3M Company | Honeywell International, Inc.(1) | ||||
The Boeing Company(1) | Johnson Controls International | ||||
| Caterpillar, Inc. | L3Harris Technologies, Inc.(1) | ||||
Deere & Company(2) | Lockheed Martin Corporation(1) | ||||
| Eaton Corporation | Parker-Hannifin Corporation | ||||
| Emerson Electric Company | Raytheon Technologies Corporation(1) | ||||
General Dynamics Corporation(1) | Textron, Inc. | ||||
(1)Included in the subset of six direct peers also used for compensation benchmarking
(2)Deere & Company was added as a peer in 2022 to enhance our compensation peer group. Deere meets all of the Company’s standard selection criteria.
It is the Company’s pay philosophy to provide the CEO a compensation package that includes competitive elements of base salary and target variable pay relative to the TIPG and the direct six peers noted in the table above.
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 the 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 establishes the TIPG median as the benchmark. The Compensation Committee also considers several factors in determining their compensation, including executive compensation levels and practices of the TIPG, 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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Executive Compensation
Key Components of Our Executive Compensation Programs
Base Salary
The Compensation Committee believes that competitive base salaries are necessary to attract and retain our NEOs. Base salaries are evaluated each year and determined by level of responsibility, competitive market pay assessment and individual performance.
| Name | 2022 Base Salary | 2021 Base Salary | Increase to Base Salary | ||||||||
Kathy J. Warden | $ | 1,650,000 | $ | 1,600,000 | 3 | % | |||||
| David F. Keffer | $ | 824,000 | $ | 800,000 | 3 | % | |||||
| Matthew F. Bromberg | $ | 680,000 | $ | — | N/A | ||||||
| Mark A. Caylor | $ | 855,000 | $ | 855,000 | 0 | % | |||||
| Thomas H. Jones | $ | ||||||||||