DEFA14A: L3Harris Technologies Defends Executive Pay Practices Amidst Shareholder Vote

L3Harris Technologies releases an executive compensation supplement to justify its executive pay practices and encourage shareholders to approve named executive officer compensation.

Summary

• L3Harris Technologies has released an Executive Compensation Supplement to provide additional details on its executive compensation philosophy and programs.
• The document aims to garner shareholder support for the advisory vote on named executive officer compensation.
• The company emphasizes that its compensation program is designed to encourage and reward the creation of sustainable, long-term shareholder value.
• L3Harris highlights its proactive engagement with shareholders and responsiveness to their feedback, which has resulted in plan design changes.
• At the 2024 Annual Meeting, at least 92% of shares voted supported the executive compensation and related disclosures.
• Changes to long-term incentives include making TSR a core component of performance share unit awards.
• Short-term incentive changes include incorporating adjusted segment operating margin as a performance measure.
• The company's CEO's target total compensation for fiscal 2024 was aligned with the median of its compensation peer group.
• The 2022-2024 CEO long-term incentive grant had a grant date target value of $11.5M, and a realizable value of $8.1M as of the 2024 fiscal year-end.
• Fiscal 2024 results included significant accomplishments as the company delivered on its financial commitments.
• The average performance share unit payout over the past three fiscal years has been 106.8%, adjusted down by an average of 7% due to relative TSR performance.
• The company's Board of Directors and Compensation Committee review pay-for-performance alignment against its compensation peer group annually.
• The company discloses forward-looking performance measures, performance ranges, and resulting payout ranges.
• Following the end of the performance period, the company retrospectively discloses numerical financial performance targets.
• The President signed into law a full-year Continuing Resolution (CR) on March 15, 2025, comprising the third and final CR for GFY 2025.

Sentiment

Score: 7

Explanation: The document presents a balanced view, highlighting both achievements and challenges. While it advocates for the executive compensation plan, it also acknowledges market volatility and funding uncertainties. The overall tone is persuasive and confident, aiming to reassure shareholders.

Positives

• L3Harris actively seeks and responds to shareholder feedback on executive compensation.
• Executive compensation is closely aligned with TSR performance.
• The company has a history of strong shareholder support for its executive compensation program, with at least 92% approval in recent votes.
• The company discloses forward-looking performance measures, performance ranges, and resulting payout ranges.
• The company retrospectively discloses numerical financial performance targets.

Negatives

• The company's stock price declined nearly 20% between November 8, 2024, and the end of the fiscal year, impacting TSR.
• The CR provides funding at the account level, not the program level, creating uncertainty as to program funding.

Risks

• The company's future performance and forward-looking statements could be affected by various factors, risks, and uncertainties.
• The nature of the funding process creates uncertainty as to program funding.

Future Outlook

The document contains forward-looking statements regarding realizable pay, future financial performance, future payouts, government funding, and financial projections.

Management Comments

• Our Board of Directors and Compensation Committee believe that our target total compensation levels align with peers in our industry, and 2024 payouts show that our compensation program is working as intended to promote pay-for-performance and align our executive compensation with shareholder interests.
• This is why the Board of Directors recommends voting FOR approval of the Compensation of our Named Executive Officers.

Industry Context

The document references a compensation peer group and benchmarking data to demonstrate that L3Harris's compensation practices are in line with industry standards, particularly within the defense industry.

Comparison to Industry Standards

• The company benchmarks its TSR targets against its compensation peer group, noting that 10 of 11 companies use the 50th percentile as a target.
• L3Harris's threshold and maximum performance for relative TSR are set at the 20th and 80th percentiles, respectively, while other companies use 25th and 75th percentiles.

Stakeholder Impact

• The document aims to reassure shareholders that executive compensation is aligned with their interests.
• The document highlights the importance of attracting, retaining, and motivating top executive talent.

Next Steps

• Shareholders will vote on the advisory vote to approve named executive officer compensation at the Annual Meeting on April 18, 2025.
• The company will continue to engage with shareholders on compensation matters and consider modifications to the plan based on their feedback.

Key Dates

Keywords

executive compensation, shareholder value, TSR, performance share units, proxy statement, L3Harris, compensation, pay-for-performance