8-KLeadership Changes

LOCKHEED MARTIN CORP 8-K Report, Executive Changes (Jan 28, 2009)

Filed January 28, 2009For Securities:LMT

Summary

Lockheed Martin Corporation (LMT) filed an 8-K on January 28, 2009, detailing executive compensation arrangements for 2009. Notably, CEO Robert J. Stevens voluntarily requested his base salary remain unchanged from 2008, demonstrating a commitment to cost containment. However, his target award percentage under the Management Incentive Compensation Plan (MICP) was increased from 125% to 150% of base salary, bringing it closer to market benchmarks for similar executive roles. This adjustment aims to align compensation with competitive practices while still allowing for performance-based payouts. Furthermore, the company announced special retention grants of restricted stock units (RSUs) to several Named Executive Officers (NEOs), excluding the CEO who had previously received a retention grant. These RSU grants are designed to incentivize key executives to remain with the company during a challenging economic period and are subject to a three-year vesting period and corporate cash flow performance caps. These measures reflect a strategic approach to executive compensation, balancing cost-consciousness with the need to retain critical talent and incentivize performance.

Key Highlights

  • 1CEO Robert J. Stevens voluntarily froze his base salary for 2009 at 2008 levels.
  • 2CEO's target incentive compensation award percentage increased from 125% to 150% of base salary, aligning with market data.
  • 3Other Named Executive Officers (NEOs) retained their target award percentage of 75% of base salary.
  • 4Special retention grants of Restricted Stock Units (RSUs) were awarded to several NEOs.
  • 5RSU retention grants are subject to a three-year vesting period and forfeiture conditions.
  • 6The RSU retention grants include a performance component tied to corporate cash flow to ensure they qualify as 'performance-based compensation' under IRS Section 162(m).
  • 7CEO did not receive a new RSU retention grant as he has a prior long-term retention grant.

Frequently Asked Questions

The CEO, Robert J. Stevens, voluntarily requested his base salary be frozen. The increase in his target award percentage for the Management Incentive Compensation Plan (MICP) was made to bring his potential bonus compensation more in line with market benchmarks for CEO positions, as his previous target was below market. This allows for greater performance-based upside potential.

The RSU retention grants are a strategic tool to incentivize key executives (Named Executive Officers, excluding the CEO) to remain with Lockheed Martin during a challenging economic environment. These grants are designed to mitigate the risk of these executives being recruited by competitors and are subject to a three-year vesting period.

No, the RSU retention grants are not guaranteed. They are subject to forfeiture if the executive does not remain employed by Lockheed Martin for the entire three-year vesting period (unless employment separation is due to specific reasons like retirement, death, disability, etc.). Additionally, the value of the grant is capped based on a percentage of the company's 2009 corporate cash flow, meaning the NEO could forfeit RSUs if the grant's value exceeds this cap. This ensures the awards are 'performance-based'.

Both the MICP bonus payouts and the RSU retention grants are structured to qualify as 'performance-based compensation.' This is intended to exempt them from the $1 million deductibility limit imposed by Internal Revenue Code Section 162(m). For the MICP, bonus payouts are tied to individual and corporate performance, with limits based on cash flow. For the RSUs, vesting and value are tied to continued employment and corporate cash flow performance.