UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

SCHEDULE 14A

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Leidos Holdings, Inc.

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Notice of Annual Meeting of Shareholders 2021 PROXY STATEMENT April 30, 2021 Making the world safer, healthier, and more efficient.

Solve something important. Leidos is a FORTUNE 500(R) information technology, engineering, and science solutions and services leader working to solve the worlds toughest challenges in the defense, intelligence, homeland security, civil, and health markets. Our mission is to make the world safer, healthier, and more efficient with IT, engineering, and science. Were driven by the impact and legacy of our work. We bring domain-specific capability and innovations to customers in each of these markets by leveraging seven core capabilities: cyber; digital modernization; integrated systems; mission software systems; mission support; operations and logistics; and sensors, collection and phenomenology. Applying our technically advanced solutions to help solve our customers' most difficult problems has enabled us to build strong relationships with key customers. Our domestic customers include the U.S. Department of Defense, the U.S. Intelligence Community, the U.S. Department of Homeland Security, the Federal Aviation Administration, the Department of Veterans Affairs and many other U.S. government civilian agencies, as well as state and local government agencies. With a focus on delivering mission-critical solutions, Leidos generated 87% of fiscal 2020 revenues from U.S. government contracts. Leidos also serves international customers, including foreign governments and their agencies, primarily located in Australia and the United Kingdom. CIVIL We are helping to modernize infrastructure, systems, and security by offering transformative information technology, expert logistics, and proven inspection technologies for government and highly regulated commercial customers. DEFENSE Our defense business provides global customers with an innovative portfolio of secure, seamless systems, solutions, and services for multi-domain dominance and informed decision-making in every environment. HEALTH Our formula to improve healthcare is simple fuse the worlds most advanced technologies with the brightest minds in science, research, and healthcare consulting. INTELLIGENCE We use cutting-edge technology and capabilities to support our customers critical mission and defend against evolving threats around the world. KEY STATISTICS Headquarters: Reston, Virginia 39,000 +/- employees worldwide MARKETS CIVIL $3.0B DEFENSE $4.7B 2020 $12.3B REVENUE HEALTH $2.0B INTELLIGENCE $2.6B WORKFORCE 19k 20%+ Cleared Employees are Employees Military Veterans Operation MVP is 53% our company-wide of cleared initiative to hire, train, employees Top Secret + and support returning veterans. HONORS 1.1k 7.2k Employees with PhDs Employees with Master's Degrees

 

Dear Fellow Shareholders,

On behalf of Leidos and our Board of Directors, I would like to thank you for your continued support. 2020 was a challenging and unprecedented year, and the impact of COVID-19 on our economy and way of life has been fundamental. We are only beginning to understand and process the long-term consequences of the coronavirus pandemic. Everything – from work and travel to social interactions and communities – has been disrupted in some way.

This time last year, Leidos was opening a state-of-the-art global headquarters in Reston, Virginia. Shortly after, we adapted to an evolving crisis with agility – quickly shifting to remote work for many employees and prioritizing health and safety above all. Our committed employees’ resolve during this challenging time is a source of pride and inspiration for us.

As a company, Leidos has embodied its reputation as a trusted provider of information technology, science, and engineering solutions for the government and highly-regulated commercial customers throughout the pandemic. At the onset of the crisis, our employees deployed to the front lines to help address evolving customer needs. They provided laptops and technical assistance to entire government agencies, ensured customers could function in remote-work environments, and enabled seamless transitions to new ways of working without disruption. From providing IT support to emergency field hospitals in New York City’s Central Park to helping the Navy track COVID-19 supply chain risks in real-time, we provided proven and secure technology solutions at a rapid pace to keep missions moving forward. Our work at Frederick National Labs, developing therapies and assisting with trials directly related to COVID-19, further contributed, giving even more meaning to the words in our mission – making the world safer, healthier, and more efficient.

Consistent with our corporate strategy and to bolster core capabilities, in 2020, we completed the acquisition of two businesses. First, Dynetics – a high-technology, mission-critical services and solutions company in the national security, space, and intelligence sectors – and a long-time trusted partner of Leidos. Dynetics had impressive organic growth in 2020 and has a long history of addressing challenging and technologically advanced missions. Second, we acquired L3Harris’ Security, Detection and Automation business, adding significant capabilities to our existing airport and critical infrastructure screening technology, automated tray return systems, and other industrial automation products. These two deals tie strongly to our core business strategy and will help drive innovation and growth in the years ahead.

With 39,000 employees and growing, Leidos continues to serve as a leader in the industry, focusing on our people and their continued success. This year the company doubled down on our commitment to integrity and diversity by adding ‘inclusion’ to our core values. We demonstrated this by caring for employees during this unprecedented year. Outside observers have taken note, with Newsweek naming Leidos to their “Most Responsible Companies” list for 2020 and, for the fourth year in a row, Leidos earned a place on Ethisphere’s list of World’s Most Ethical Companies^®.

We also maintain a firm resolve to be responsible stewards of the environment and the resources we consume. This commitment is vital given the trust placed in us by many government agencies to support critical environmental and sustainability-driven missions. In addition to our internal efforts, our engineers and scientists perform work for customers in all aspects of environmental remediation, including modernizing aging energy infrastructure and designing, implementing, and managing energy efficiency programs. These programs helped utilities save more than 700,000 net megawatt-hours annually, equivalent to 55 million gallons of gasoline or enough to power more than 66,000 homes. For our own internal goals, in 2010 we pledged to reduce greenhouse gas (GHG) emissions by 25% with a 2020 deadline. We exceeded that goal, reducing GHG emissions by more than 50%, and we are on track to set additional targets in 2021.

Leidos remains committed to serving all stakeholders, including employees, customers, supplier partners, communities, and shareholders. As part of this, we continue to enhance our disclosures and maintain transparency throughout the business. This strong sense of purpose and commitment to stakeholders enables Leidos to connect more deeply to our customers and adjust to society’s changing demands.

At the end of the year, Leidos achieved fiscal year revenue of $12.3 billion, a 10.8% increase from the prior year. Our business development team did an outstanding job pursuing business with NASA, the U.S. Navy, the Department of Energy, the Federal Aviation Administration (FAA), and the Defense Information Systems Agency (DISA). These are just a few of the many new business lines that have bolstered our position in the market and earned our place as a world-renowned industry leader.

I look forward to another solid year of performance and service to our stakeholders in 2021 and demonstrating value as a purposeful and profitable organization to you, our shareholders.

Roger Krone

Chairman and Chief

Executive Officer

 

 

Notice of Annual Meeting of Stockholders

 

 

 

Friday, April 30, 2021       9:00 a.m. ET		Leidos Holdings, Inc. www.virtualshareholdermeeting.com/LDOS2021

This proxy statement is being furnished to the stockholders of Leidos Holdings, Inc. in connection with the solicitation of proxies by our Board of Directors for use at our annual meeting of stockholders to be held exclusively via live webcast at www.virtualshareholdermeeting.com/LDOS2021, on Friday, April 30, 2021, at 9:00 a.m. ET. and at any and all adjournments, postponements or continuations of the meeting. This proxy statement and the proxy and voting instruction card are first being sent or made available to our stockholders on or about March 19, 2021.

2021 Virtual Stockholder Meeting:

Due to the continued public health impact of the COVID-19 outbreak and advisories issued by government authorities limiting public gatherings, and to support the health and well-being of our stockholders and employees, we will hold our annual meeting in a virtual-only format via the internet. You will be able to attend the annual meeting online. We are committed to ensuring that stockholders will be afforded the same rights and opportunities to participate as they would at an in-person meeting. We encourage you to access the meeting prior to the start time. If you experience technical difficulties during the check-in process or during the meeting please call 1-844-986-0822 (U.S.) or 303-562-9302 (International) for assistance.

To be admitted to the annual meeting and access the stockholder list, go to www.virtualshareholdermeeting.com/LDOS2021 and enter the control number found on your proxy card, voting instruction form or notice you previously received. You may ask questions or vote during the annual meeting by following the instructions available on the meeting website during the meeting. If you are not eligible to participate in the meeting as a stockholder or you do not have your control number, you may listen to a webcast of the meeting by visiting www.virtualshareholdermeeting.com/LDOS2021 and logging on as a guest. Guests will not be able to ask questions or vote at the meeting.

Items of Business:

 

 

 

1.	Elect twelve directors;

 

2.	Approve, by a non-binding, advisory vote, the compensation of our named executive officers; and

 

3.	Ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2021.

Stockholders will also transact such other business as may properly come before the meeting or any adjournments, postponements or continuations of the meeting.

Record Date: March 10, 2021

 

 

 

Annual Report:		The Leidos 2020 Annual Report on Form 10-K and the Leidos Proxy Statement are available at www.proxyvote.com.

 

 

YOUR VOTE IS IMPORTANT! You may vote your shares in advance of the meeting via the Internet, by telephone by mail, or by attending and voting online at the annual meeting of stockholders. Please refer to the section “How do I vote my shares?” in the proxy statement for detailed voting instructions. If you vote via the Internet, by telephone or plan to vote online at the annual meeting of stockholders, you do not need to mail in a proxy card.

 

				By Order of the Board of Directors,
				Benjamin A. Winter
				Corporate Secretary
				March 19, 2021

 

 

2021 Proxy Statement    |    i

 

 

 

ii    |    2021 Proxy Statement

 

 

 

2021 Proxy Statement    |    iii

 

 

LEIDOS HOLDINGS, INC.

Proxy Statement

Table of Contents

 

Proxy Summary			i
Proposal 1 — Election of Directors			1
Recommendation of the Board of Directors			1
Majority Voting Standard in Uncontested Director Elections			1
Nominees for Election to the Board of Directors			1
Corporate Governance			8
Corporate Governance Guidelines			8
Codes of Conduct			8
Director Independence			8
Criteria for Board Membership			9
Process Review and Additional Criteria			9
Board Leadership Structure			9
The Board’s Role in Corporate Oversight			10
Board of Directors Meetings			11
Board Committees			11
Committee Responsibilities			12
Director Compensation			14
Related Party Transactions			17
Communications with the Board of Directors and Investor Relations			18
Proposal 2 — Advisory Vote on Executive Compensation			19
Vote Required			19
Recommendation of the Board of Directors			19
Compensation Discussion and Analysis			20
Human Resources and Compensation Committee Report			33
Summary Compensation Table			34
Grants of Plan-Based Awards			35
Outstanding Equity Awards at Fiscal Year-End			36
Option Exercises and Stock Vested			37
Nonqualified Deferred Compensation			37
Potential Payments upon Termination or a Change in Control			38
Treatment of Equity Awards upon Termination			42
Pay Ratio Disclosure			42
Proposal 3 — Ratification of Appointment of Independent Registered Public Accounting Firm			44
Vote Required			44
Recommendation of the Board of Directors			44
Audit Matters			45
Audit and Finance Committee Report			45
Independent Registered Public Accounting Firm			46
Audit and Non-Audit Fees			46
Other Information			48
Delinquent Section 16(a) Reports			48
Stock Ownership and Certain Beneficial Owners			48
Stock Ownership of Directors and Officers			49
Stockholder Proposals for the 2022 Annual Meeting			50
Frequently Asked Questions			51
Internet Availability of Proxy Materials			54

 

 

 

Proposal 1 — Election of Directors

 

 

 

At the annual meeting, stockholders will vote on the election of twelve directors to serve for one-year terms to hold such position until their successors are elected and qualified unless any such director resigns or is removed prior to the end of such term. All nominees have been nominated by the Board of Directors (the “Board”) based on the recommendation of the Corporate Governance and Ethics Committee. Each nominee has consented to be named in this proxy statement and to serve if elected.

Recommendation of the Board of Directors

The Board of Directors unanimously recommends a vote FOR each nominee.

Majority Voting Standard in Uncontested Director Elections

We have adopted majority voting procedures for the election of directors in uncontested elections. In an uncontested election, nominees must receive more “for” than “against” votes to be elected. Abstentions are not counted as votes cast. As provided in our bylaws, a “contested election” is one in which the number of nominees exceeds the number of directors to be elected. The election of directors at the 2021 annual meeting is an uncontested election.

If an incumbent director receives more “against” than “for” votes, he or she is expected to tender his or her resignation in accordance with our Corporate Governance Guidelines. The Corporate Governance and Ethics Committee will consider the offer of resignation and recommend to the Board the action to be taken. The Board will disclose its decision as to whether to accept or reject the tendered resignation in a press release, Current Report on Form 8-K or some other public announcement.

Shares of common stock represented by properly executed, timely received and unrevoked proxies will be voted as instructed in the proxy. In the absence of specific instructions, the shares represented by properly executed, timely received and unrevoked proxies will be voted “for” each nominee. If any of the nominees listed below becomes unable to stand for election at the annual meeting, the proxy holders intend to vote for any person designated by the Board to replace the nominee unable to serve or the Board may reduce its size.

Nominees for Election to the Board of Directors

Set forth below is a brief biography of each nominee for election as a director and discussion of the specific experience, qualifications, attributes or skills that led to the Board’s conclusion that the nominee should serve as a director of our company. The Board evaluates each individual in the context of the Board as a whole, with the objective of recommending to stockholders a group of nominees with complementary skills and a diverse mix of backgrounds, perspectives and expertise beneficial to the broad business diversity of our company. Our board membership criteria and director nomination process are described in the “Corporate Governance” section of this proxy statement.

 

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Proposal 1 — Election of Directors

 

 

 

		GREGORY R. DAHLBERG   Director Since 2016   Age: 69   Leidos Committees: Audit & Finance Human Resources & Compensation

Mr. Dahlberg has nearly 40 years of experience in federal budgeting, congressional legislation, executive management and military affairs with congressional committees, federal agencies, and private industry. As Lockheed Martin Corporation’s Senior Vice President for Washington Operations between 2009 and 2015, he was responsible for devising and implementing advocacy, marketing, and legislative strategies for the corporation’s largest programs and for directing the Corporation’s liaison activities with Congress, the White House, federal departments, industry associations, state governments and foreign embassies. Mr. Dahlberg also served for over 20 years as a senior House Appropriations Committee staff member including seven years as Minority Staff Director of the House Appropriations Defense Subcommittee with jurisdiction over programs of the Department of Defense and intelligence Agencies. Mr. Dahlberg also was confirmed as the 26th Under Secretary of the Army serving as the principal advisor to the Secretary of the Army on all matters related to management and operation of the United States Army including programming and budgeting, weapons systems, manpower, personnel, reserve affairs, installations and logistics. He was appointed Acting Secretary of the Army in early 2001.

Mr. Dahlberg’s executive management background in government and industry and his expertise in federal budgeting and congressional affairs provides the Board with experience that is highly relevant and valuable to our business as a government contractor.

 

		DAVID G. FUBINI   Director Since 2013   Age: 67   Leidos Committees: Human Resources & Compensation Technology & Information Security		Current Public Company Directorships Bain Capital Specialty Finance, Inc.       Former Directorships During Past 5 Years Compuware Corporation

Mr. Fubini is a Senior Lecturer at Harvard Business School and a Director Emeritus at McKinsey & Company, a global management consulting company. Previously, he was a Senior Director of McKinsey where he worked for over 33 years. He was McKinsey’s Managing Director of the Boston Office, the past leader of the North American Organization Practice and the founder and leader of the Firm’s Worldwide Merger Integration Practice.

Mr. Fubini’s expertise in architecting and executing organizational transformations, his extensive involvement in a wide array of corporate transactions and his executive management experience at McKinsey offer valuable insights to our Board.

 

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Proposal 1 — Election of Directors

 

 

 

		MIRIAM E. JOHN   Director Since 2007   Age: 72   Leidos Committees: Corporate Governance & Ethics Technology & Information Security (Chair)

Dr. John retired from Sandia National Laboratories, a science and engineering laboratory, after serving since 1982 in a number of managerial and technical roles, most recently of which was as Vice President of Sandia’s California Division. Dr. John has been a long-time member of the Department of Defense’s Defense Science Board (“DSB”) and Chair of the DSB’s Threat Reduction Standing Committee. She is the past chair of the National Academies’ Naval Studies Board and a member of its Intelligence Community Studies Board and the Board on Chemical Sciences and Technology. She also serves on the boards of a number of federally funded national security laboratories, including MIT Lincoln Lab. She is a Senior Fellow and past Chair of the California Council on Science and Technology. She has also been elected a National Associate of the National Academies and is the recipient of the Department of Defense’s prestigious Eugene G. Fubini Award and the Navy’s Superior Public Service Award for her advisory contributions.

Dr. John is a highly respected scientist, speaker and consultant on both technical and leadership topics and brings to our Board her diverse experience managing multi-disciplinary science and engineering organizations supporting national security, energy and defense. Our Board believes that Dr. John’s scientific background and leadership experience enable her to provide critical perspectives on technical, cybersecurity, national security and organizational issues important to our business.

 

		FRANK KENDALL III   Director Since 2017   Age: 72   Leidos Committees: Corporate Governance & Ethics Technology & Information Security

Mr. Kendall has over 40 years of experience in engineering, management, defense acquisition, and national security affairs in private industry, government, and the military. From 2012 to 2017, Mr. Kendall served as the Under Secretary of Defense for Acquisition, Technology and Logistics. He has been a consultant to defense industry firms, non-profit research organizations, and the Department of Defense in the areas of strategic planning, engineering management, and technology assessment. Mr. Kendall was Vice President of Engineering for Raytheon Company. He was also a Managing Partner at Renaissance Strategic Advisors, a Virginia-based aerospace and defense sector consulting firm.

Mr. Kendall’s vast experience in government and the defense industry, his knowledge of military affairs and his technical, cybersecurity, business and strategic planning background provide our Board with unique insights into key areas of our business as a provider of services and solutions to U.S. government customers, as well as international governments and broader commercial markets.

 

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Proposal 1 — Election of Directors

 

 

 

		ROBERT C. KOVARIK, JR.   Director Since 2018   Age: 71   Leidos Committees: Audit & Finance (Chair) Human Resources & Compensation

Mr. Kovarik has held various leadership positions at companies and globally recognized accounting and consulting firms. Mr. Kovarik currently sits on the CareFirst, Inc. Board of Trustees and serves as the Chair of its Investment and Finance Committee. He also served as a member of the Alliance Bankshares Corporation Board of Directors from 2011 to 2012, where he served as its Audit Committee Chair. Mr. Kovarik served as a partner at Ernst & Young LLP from 2002 to 2008. He was also part of the National Professional Practice group from 2005 to 2008, where he was a practice director for the Mid-Atlantic Area. From 2002 to 2005, Mr. Kovarik was an engagement partner for a wide range of corporate clients operating in both the government services and commercial markets. Prior to Ernst & Young, Mr. Kovarik was with Arthur Andersen, LLP for over 25 years. At Andersen he held a variety of leadership positions, and served as engagement partner for many large public and private companies with operations in the United States and around the world. Mr. Kovarik has served as an adjunct professor at both the University of Maryland and the University of Virginia.

Mr. Kovarik’s broad experience advising government and commercial clients, and his financial and accounting expertise, are important to our Board in fulfilling its oversight responsibilities. Mr. Kovarik is an “audit committee financial expert” as defined by SEC rules.

 

		HARRY M.J. KRAEMER, JR.   Director Since 1997   Age: 66   Leidos Committees: Audit & Finance Corporate Governance & Ethics		Current Public Company Directorships Dentsply Sirona Inc. Option Care Health, Inc.     Former Directorships During Past 5 Years Catamaran Corporation VWR Corporation

Mr. Kraemer has been an executive partner of Madison Dearborn Partners, LLC, a private equity investment firm, since April 2005, and has served as a professor at the Kellogg School of Management at Northwestern University since January 2005. Mr. Kraemer previously served as the Chairman of Baxter International, Inc., a healthcare products, systems and services company, from 2000 until 2004, as Chief Executive Officer of Baxter from 1999 until 2004, and as President of Baxter from 1997 until 2004. Mr. Kraemer also served as the Senior Vice President and Chief Financial Officer of Baxter from 1993 to 1997.

Mr. Kraemer brings comprehensive executive management experience to our Board as a former Chairman, Chief Executive Officer and Chief Financial Officer of a major global corporation. His investment and health expertise, background in commercial and international business, qualification as an “audit committee financial expert” as defined by SEC rules, and thought leadership as a distinguished educator at a leading business school provide valuable contributions to our Board.

 

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Proposal 1 — Election of Directors

 

 

 

		ROGER A. KRONE Chair of the Board   Director Since 2014   Age: 64   Leidos Committees: Technology & Information Security		Current Public Company Directorships Lear Corporation     Former Directorships During Past 5 Years BorgWarner Inc.

Mr. Krone has served as our Chief Executive Officer since July 2014 and as the Chair of the Board since March 2015. Prior to his appointment as our Chief Executive Officer, Mr. Krone served as President of Network and Space Systems for The Boeing Company since 2006. Mr. Krone previously held various senior program management and finance positions at Boeing, McDonnell Douglas Corp. and General Dynamics. Mr. Krone is also a certified public accountant (inactive).

Mr. Krone’s in-depth knowledge of our industry gained by decades of experience in a variety of roles at leading companies provides valuable insights and leadership for our Board. In addition, our Board believes that the Chief Executive Officer should serve on the Board to help communicate the Board’s priorities to management and management’s perspective to the Board.

 

		GARY S. MAY   Director Since 2015   Age: 56   Leidos Committees: Human Resources & Compensation Technology & Information Security

Dr. May has served as the 7th Chancellor of the University of California at Davis since August 2017. He previously served as the Dean of the College of Engineering at the Georgia Institute of Technology from 2011 to 2017. Prior to this, Dr. May served as the Chair of the School of Electrical and Computer Engineering from 2005 to 2011 and was the executive assistant to Georgia Tech President G. Wayne Clough from 2002 to 2005. Dr. May was a National Science Foundation graduate fellow and an AT&T Bell Laboratories graduate fellow and worked as a member of the technical staff at AT&T Bell Laboratories. He is a member of the National Advisory Board of the National Society of Black Engineers.

Dr. May is a distinguished researcher in the field of computer-aided manufacturing of integrated circuits (IC). He has authored over 200 articles and technical presentations in the area of IC computer-aided manufacturing and has been honored with numerous awards and distinctions for his work. As an accomplished engineer with leadership experience at a prominent academic institution and expertise in areas relevant to our business, including technology and cybersecurity, Dr. May provides special insight and perspectives that the Board views as important to us as a leading science and technology company.

 

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Proposal 1 — Election of Directors

 

 

 

		SURYA N. MOHAPATRA   Director Since 2016   Age: 71   Leidos Committees: Human Resources & Compensation Technology & Information Security		Current Public Company Directorships Xylem Inc.

Dr. Mohapatra has held senior leadership positions in the health care industry for more than 30 years, most recently as the Chairman, President and Chief Executive Officer of Quest Diagnostics Incorporated, a leading provider of diagnostic testing, information and services where he had been a senior executive since 1999. Dr. Mohapatra is a past Board member of the ITT Corporation and is currently a member of the board of Xylem Inc., a leading global water technology and transport company. He is also a Trustee of The Rockefeller University and an Executive in Residence at the Columbia Business School.

Dr. Mohapatra’s extensive executive leadership experience in the health care industry, his service on other major public company boards and experience in technology and cybersecurity provide valuable perspectives to our Board.

 

		ROBERT S. SHAPARD Lead Director   Director Since 2013   Age: 65   Leidos Committees: Audit & Finance Corporate Governance & Ethics (Chair)		Current Public Company Directorships NACCO Industries, Inc.

Mr. Shapard currently serves as Chairman of the board of directors of Oncor Electric Delivery Company LLC, where he also served as Chief Executive Officer from April 2007 until March 2018. He previously served as a strategic advisor to Oncor, helping to implement and execute growth and development strategies. Between March and October 2005, he served as Chief Financial Officer of Tenet Healthcare Corporation, one of the largest for-profit hospital groups in the United States, and was Executive Vice President and Chief Financial Officer of Exelon Corporation, a large electricity generator and utility operator, from 2002 to February 2005. Before joining Exelon, Mr. Shapard was Executive Vice President and Chief Financial Officer of Ultramar Diamond Shamrock, a North American refining and marketing company. Previously, from 1998 to 2000, Mr. Shapard was CEO and managing director of TXU Australia Pty. Ltd., a subsidiary of the former TXU Corp., which owned and operated electric generation, wholesale trading, retail, and electric and gas regulated utility businesses.

As an experienced executive in the energy industry, Mr. Shapard brings to our Board a unique perspective on issues that are important to our business. In addition, his previous experience as a Chief Financial Officer provides expertise critical to his role as a member on our Board’s Audit & Finance Committee. He is an “audit committee financial expert” as defined by SEC rules.

 

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Proposal 1 — Election of Directors

 

 

 

		SUSAN M. STALNECKER   Director Since 2016   Age: 68   Leidos Committees: Audit & Finance Technology & Information Security		Current Public Company Directorships Bioventus Inc. The Macquarie Optimum Funds

Ms. Stalnecker was employed by E.I. du Pont de Nemours & Co. (currently DuPont de Nemours, Inc.) from 1977 to 2016, serving in numerous senior roles during her tenure, including 10 years as Vice President and Treasurer and most recently as Vice President, Corporate Productivity and Hospitality. Ms. Stalnecker previously served on the board of directors of PPL Corporation, a public holding company of PPL Electric Utilities Corporation from December 2001 to January 2009, and on the board of trustees of Duke University from 2003 to 2015. She currently serves on the board of directors of Bioventus Inc., where she is also the chair of the Audit and Risk Committee. In addition, Ms. Stalnecker serves on the board of directors of The Macquarie Optimum Funds, where she is the chair of the Audit Committee, and on the board of directors of the Duke University Health System, Inc. She is also a Senior Adviser to the Boston Consulting Group, specializing in restructuring, finance transactions, activism and executive coaching.

Ms. Stalnecker brings to our Board diverse business experience, including financial acumen important to our Board’s Audit & Finance Committee. She is an “audit committee financial expert” as defined by SEC rules.

 

		NOEL B. WILLIAMS   Director Since 2013   Age: 66   Leidos Committees Corporate Governance & Ethics Human Resources & Compensation (Chair)

Ms. Williams is the retired President of HCA Information Technology & Services, Inc., a wholly owned subsidiary of Nashville-based Hospital Corporation of America. Ms. Williams has over 35 years of experience in healthcare IT. She spent 30 years in HCA’s Information Service Department in a variety of positions. Ms. Williams has previously served on the boards of Franklin Road Academy, the United Way of Middle Tennessee, The Nashville Alliance for Public Education, the National Alliance for Health Information Technology (NAHIT), The HCA Foundation and the American Hospital Association Working Group for Health IT Standards. Ms. Williams is an emeritus member of the Vanderbilt University School of Engineering Committee of Visitors and a member of the Leadership Nashville class of 2010. She also served as an adjunct professor in the Owen School of Management of Vanderbilt University for several years.

Ms. Williams brings to our Board extensive leadership experience in healthcare information technology. She provides insights and perspectives that our Board views as important to us as a provider of information technology services and solutions.

 

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Corporate Governance

 

 

 

Corporate Governance Guidelines

Our Board recognizes the importance of strong corporate governance to address the interests of our stockholders, employees, customers and other stakeholders. As a result, our Board has adopted Corporate Governance Guidelines which, together with our certificate of incorporation, bylaws, committee charters and other key governance practices and policies, provide the framework for our corporate governance. Our Corporate Governance Guidelines cover a wide range of subjects, including criteria for determining the independence and qualification of our directors. These guidelines are available on our website at www.leidos.com by clicking on the links entitled “Investors” followed by “Corporate Governance.” The Board recognizes that observing good corporate governance practices is an ongoing responsibility. The Corporate Governance and Ethics Committee regularly reviews corporate governance developments and recommends revisions to these Corporate Governance Guidelines and other corporate governance documents as necessary to promote our stockholders’ best interests and to support our compliance with all applicable laws, regulations and stock exchange requirements.

Codes of Conduct

All of our employees, including our executive officers, are required to comply with our Code of Conduct, which describes our standards for protecting company and customer assets, fostering a safe and healthy work environment, dealing fairly with customers and others, conducting international business properly, reporting misconduct and protecting employees from retaliation. This code forms the foundation of our corporate policies and procedures designed to promote ethical behavior in all aspects of our business.

Our directors are required to comply with our Code of Business Conduct of the Board of Directors, which describes areas of ethical risk, provides guidance to directors and helps foster a culture of honesty and accountability. This code addresses areas of professional conduct relating to service on our Board, including conflicts of interest, protection of confidential information, fair dealing and compliance with all applicable laws and regulations.

These documents are available on our website at www.leidos.com by clicking on the links entitled “Investors” followed by “Corporate Governance.” We intend to post on our website any material changes to or waivers from our Code of Conduct and Code of Business Conduct of the Board of Directors.

Director Independence

The Board annually determines the independence of each of our directors and nominees in accordance with the Corporate Governance Guidelines. These guidelines provide that “independent” directors are those who are independent of management and free from any relationship that, in the judgment of the Board, would interfere with their exercise of independent judgment. No director qualifies as independent unless the Board affirmatively determines that the director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization with which we have a relationship). The Board has established independence standards set forth in the Corporate Governance Guidelines that include all elements of independence required by the listing standards of the New York Stock Exchange, or NYSE.

All members of the Audit and Finance, Human Resources and Compensation and Corporate Governance and Ethics Committees must be independent directors as defined by the Corporate Governance Guidelines. Members of the Audit and Finance Committee and the Human Resources and Compensation Committee must also satisfy separate independence requirements which require that they may not accept directly or indirectly any consulting, advisory or other compensatory fee from us or any of our subsidiaries other than their directors’ compensation or be an affiliated person of ours or any of our subsidiaries.

Each year, our directors are obligated to complete a questionnaire which requires them to disclose any transactions with us in which the director or any member of his or her immediate family might have a direct or potential conflict of interest. We also conduct internal diligence on our businesses related to transactions, relationships or arrangements between the company and our directors. Based on its review of an analysis of this information, the Board determined that all directors are independent under its guidelines and free from any relationship that would interfere with the exercise of their independent judgment, except for Roger A. Krone because of his role as our Chief Executive Officer. The Board has also

 

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determined that our former director Lawrence C. Nussdorf was independent under those standards during the period in 2020 that he served on the Board. Mr. Nussdorf resigned from the Board effective October 15, 2020 for medical reasons.

Criteria for Board Membership

To fulfill its responsibility to identify and recommend to the full Board nominees for election as directors, the Corporate Governance and Ethics Committee reviews the composition of the Board to assess the qualifications and areas of expertise needed in directors to further enhance the Board’s exercise of its duties. In evaluating potential nominees, the Committee and the Board consider each individual in the context of the Board as a whole, with the objective of recommending to stockholders a slate of individual director nominees that can best continue the success of our business and advance stockholders’ interests. In evaluating the suitability of individual nominees, the Corporate Governance and Ethics Committee and the Board consider many factors, including:

 

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Expertise and involvement in areas relevant to our business such as defense, intelligence, science, finance, government or commercial and international business;

 

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Interpersonal skills, substantial personal accomplishments and diversity as to race, gender, age, ethnic background and experience;

 

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Commitment to business ethics, professional reputation, independence and understanding of the responsibilities of a director and the governance processes of a public company;

 

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Demonstrated leadership, with the ability to exercise sound judgment informed by diversity of experience and perspectives; and

 

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Benefits from the continuing service of qualified incumbent directors in promoting stability and continuity, contributing to the Board’s ability to work together as a collective body and giving the company the benefit of experience and insight that its directors have accumulated during their tenure.

In addition, the Corporate Governance and Ethics Committee will consider candidates with a diversity of race, ethnicity and/or gender and will ensure that such candidates are included in each pool from which Board nominees are chosen.

Process Review and Additional Criteria

The Corporate Governance and Ethics Committee reviews the director selection process annually and the Committee and the Board assess the Board’s effectiveness through an annual written evaluation process. The Board expects a high level of commitment from its members and will review a candidate’s other commitments and service on other boards to ensure that the candidate has sufficient time to devote to us. In addition, non-employee directors may not serve on the boards of directors of more than two other publicly-traded companies. Employee directors may not serve on the board of more than one other public company and any board membership of employee directors must be approved in advance by the Chief Executive Officer, the Chair of the Board or the Independent Lead Director, as appropriate. Moreover, directors are expected to act ethically at all times and adhere to our Code of Business Conduct of the Board of Directors.

Board Leadership Structure

The Board is currently led by Roger A. Krone as Chair and Robert S. Shapard as Independent Lead Director. Our Board believes that it is in the best interests of stockholders for the Board to have the flexibility to determine the most qualified and appropriate individual to serve as Chair of the Board, whether that person is an independent director or the Chief Executive Officer. We believe that our Board leadership structure provides for an effective governance framework and allows us to benefit from Mr. Krone’s talent, knowledge, and leadership as Chief Executive Officer to efficiently lead our Board. We also maintain strong independent and effective oversight of our business through our Independent Lead Director, independent Board committee chairs, experienced and committed directors and frequent executive sessions without management in attendance.

The Board selects the Chair annually and may decide to separate or combine the roles of Chair of the Board and Chief Executive Officer, if appropriate, at any time in the future. In cases where the Board determines it is in the best interests of our stockholders to combine the positions of Chair and Chief Executive Officer, the Corporate Governance and Ethics Committee nominates an independent director to serve as “Independent Lead Director,” who then must be approved by at least a majority of the independent directors.

 

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The Lead Director has specifically delineated duties, which include:

 

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Reviewing and approving meeting agendas and the annual schedule of meetings;

 

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Providing input to the Chair on the quantity, quality and timeliness of information provided to the Board;

 

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Calling and chairing all meetings of the independent directors and apprising the Chair of the issues considered, as appropriate;

 

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Presiding, in the Chair’s absence, at Board meetings and the annual meeting of stockholders;

 

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Helping the Chair facilitate full and candid Board discussions, ensuring all directors express their views on key Board matters and assisting the Board in achieving a consensus;

 

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Being authorized to attend all committee meetings, as appropriate;

 

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Serving as the liaison between the independent directors and the Chair and Chief Executive Officer;

 

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Being available for consultation and direct communication with significant stockholders and other interested parties, if requested;

 

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Collaborating with the Human Resources and Compensation Committee on the annual performance evaluation of the Chief Executive Officer;

 

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Collaborating with the Corporate Governance and Ethics Committee on the performance and structure of the Board and its committees, including the performance of individual directors;

 

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On behalf of the independent directors, retaining such counsel or other advisors as they deem appropriate in the conduct of their duties and responsibilities; and

 

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Performing such other duties as the Board may determine from time to time.

Our Board is committed to strong corporate governance and believes that Board independence and oversight of management are effectively maintained through the Board’s current composition, committee structure and the position of Independent Lead Director. The Board’s Audit and Finance, Human Resources and Compensation and Corporate Governance and Ethics Committees are each comprised entirely of independent directors.

The Board’s Role in Corporate Oversight

Risk Oversight

As part of its oversight function, the Board and its committees monitor risk as part of their regular deliberations throughout the year. When granting authority to management, approving strategies, making decisions and receiving management reports, the Board considers, among other things, the risks facing the company. The Board also oversees risk in particular areas through its committee structure. The Audit and Finance Committee evaluates the company’s guidelines and policies regarding risk assessment and risk management, including risks related to internal control over financial reporting, the company’s major financial risk exposures, including financial, capital investment and insurance risks, and the steps management has taken to monitor and control such exposures. The Human Resources and Compensation Committee evaluates risks potentially arising from the company’s human resources and compensation policies and practices. The Corporate Governance and Ethics Committee oversees risks associated with unethical conduct and political, social, environmental and reputational risks. The Technology and Information Security Committee assists the Board in overseeing the company’s risk posture as it relates to technology development and application activities and information security and related exposures. Company management also maintains an Enterprise Risk Management Committee, comprised of the Chief Executive Officer and senior executives that, among other things, establishes the overall corporate risk strategy and ensures that policies, systems, processes and training are established to identify and address appropriate risk matters within the company. This management committee reports regularly to the Audit and Finance Committee, and annually to the full Board, on its activities and findings, highlighting the key risks we face and management’s actions for managing those risks.

Cybersecurity and Related Risks

Information security is critical to maintaining the trust of our customers and business partners, and we are committed to mitigating risks and protecting our data and systems. As a government contractor and a provider of information technology services, we are entrusted with highly sensitive information, and we are continuously exposed to unauthorized attempts to

 

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compromise this information through cyberattacks, the risk of insider threats and other information security risks. Management provides our Board and the Technology and Information Security Committee with regular updates about our cybersecurity and related risk exposures, our policies and procedures to mitigate such exposures and the status of projects to strengthen our information security infrastructure and defend against and respond to threats at least quarterly.

Environmental and Social Issues

We promote environmental stewardship as a key element of corporate responsibility, contributing to the environmental well-being of the communities we are a part of. We aim to contribute to our high-performance culture by creating a greener, more cost-effective company that is consistent with our corporate values to be a good environmental steward in the communities where we live and work. We are also committed to operating a sustainable business that protects the health and safety of our employees, our communities, our customers and the environment. Through our philanthropic efforts, we strive to create a sustainable future, including working side-by-side with community organizations providing critically important services and opportunities to those most in need. Our Board and the Corporate Governance and Ethics Committee regularly review with management environmental, social and governance issues that may significantly impact our business operations, reputation or relations with employees, customers, stockholders and other constituents at least quarterly.

Diversity and Inclusion

At Leidos, we believe that a focus on inclusion and diversity improves team performance, supports innovative business strategies and drives positive results by advancing our workforce, cultivating an inclusive workplace and advancing our reputation in the marketplace. Our commitment to inclusion and diversity is reflected in the way we engage our people, our customers and our external partnerships through our innovative programs, sponsorships and engagement.

In 2020, we formed the Leidos Enterprise Inclusion Council, which is championed by our director Dr. Gary S. May, in partnership with our Office of Inclusion and Diversity. The council includes employees from across the enterprise nominated by their executive leaders for their passion for the advancement of diversity and equity in the workplace. This group will help identify and champion innovative actions that create a more inclusive work environment. The council will support initiatives that build a culture that embraces differences in all aspects of diversity, including age, gender, race, ethnicity, sexual orientation, religion, and physical ability. In addition, the council’s mission is to promote diversity of thought and perspectives and to support initiatives that further advance an inclusive culture, as well as collaborating to address emerging challenges, propose new initiatives and share inclusion best practices across Leidos.

Our Board and the Human Resources and Compensation Committee regularly review with management our diversity and inclusion initiatives, including recruitment, training and development, as well as employee benefits and resources, and discusses metrics relating to such initiatives at least quarterly.

Board of Directors Meetings

During fiscal 2020, the Board held seven meetings of the entire Board. The independent directors met six times during the year, either in executive session of regular board meetings or in separate meetings. Mr. Shapard, the Independent Lead Director, presides at all executive sessions of our independent directors as provided by our Corporate Governance Guidelines. During fiscal 2020, no director attended fewer than 75% of the aggregate of the meetings of the Board and committees of the Board on which they served. It is our policy to encourage all directors to attend our annual meeting, and 12 of our 13 then serving directors attended our 2020 annual meeting.

Board Committees

The Board has delegated certain duties to committees, which assist the Board in carrying out its responsibilities. There are four standing committees of the Board. Each independent director serves on at least two committees. The key oversight responsibilities of the committees, the current committee memberships, and the number of meetings held during 2020 are described below.

The Board has adopted charters for each of the Audit and Finance Committee, the Corporate Governance and Ethics Committee, the Human Resources and Compensation Committee, and the Technology and Information Security

 

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Committee. The charters of these committees are available on our website at www.leidos.com by clicking on the links entitled “Investor Relations,” “Corporate Governance” and then “Board Committees.” You may also obtain printed copies of these charters by writing to our Corporate Secretary at the Company’s headquarters.

Listed below are the members of each of the four standing committees as of the date of this proxy statement:

 

		Audit & Finance		Human Resources & Compensation		Corporate Governance & Ethics		Technology & Information Security
Gregory R. Dahlberg
David G. Fubini
Miriam E. John
Frank Kendall III
Robert C. Kovarik, Jr.
Harry M. J. Kraemer, Jr.
Roger A. Krone
Gary S. May
Surya N. Mohapatra
Robert S. Shapard
Susan M. Stalnecker
Noel B. Williams
Committee Chair     Audit Committee Financial Expert

Committee Responsibilities

Following are descriptions of the primary areas of responsibility for each of the four standing committees:

 

Audit & Finance Committee		Number of Meetings in Last Fiscal Year: 5

 

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Appoints and evaluates independent auditor and pre-approves fees;

 

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Pre-approves audit and permitted non-audit services;

 

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Reviews any audit problems;

 

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Reviews adequacy of internal controls over financial reporting and disclosure controls and procedures;

 

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Reviews and updates the internal audit plan;

 

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Reviews any significant risks and exposures and steps taken to minimize risks;

 

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Reviews quarterly and annual financial statements prior to public release;

 

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Reviews critical accounting policies or changes in accounting policies;

 

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Reviews periodically legal matters that may significantly impact the financial statements; and

 

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Reviews and makes any necessary recommendations to the Board and management concerning:

 

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capital structure, including the issuance of equity and debt securities and the incurrence of indebtedness;

 

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–

payment of dividends, stock splits and stock repurchases;

 

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financial projections, plans and strategies;

 

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general financial planning, cash flow and working capital management, capital budgeting and expenditures;

 

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tax planning and compliance;

 

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mergers, acquisitions and strategic transactions; and

 

–

investor relations programs and policies.

 

Corporate Governance & Ethics Committee		Number of Meetings in Last Fiscal Year: 4

 

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Evaluates, identifies and recommends director nominees;

 

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Reviews the composition and procedures of the Board;

 

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Makes recommendations regarding the size, composition and charters of the Board’s committees;

 

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Reviews and develops long-range plans for CEO and management succession;

 

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Develops a set of corporate governance principles;

 

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Recommends an independent director to serve as non-executive Chair of the Board or as Independent Lead Director;

 

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Reviews policies and practices regarding ethical responsibilities and monitors the effectiveness of our ethics, compliance and training programs;

 

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Reviews our approach to corporate responsibility including political, social and environmental issues that may affect our business operations, performance, public image or reputation; and

 

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Develops and oversees an annual self-evaluation process of the Board and its committees.

 

Human Resources & Compensation Committee		Number of Meetings in Last Fiscal Year: 4

 

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Determines CEO compensation and approves compensation of our other executive officers;

 

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Exercises all rights, authority and functions under our stock, retirement and other compensation plans;

 

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Approves non-employee director compensation;

 

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Reviews and approves the annual report on executive compensation for inclusion in our proxy statement;

 

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Reviews compensation risk; and

 

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Periodically reviews our human resources strategy, policies and programs.

Role of Independent Consultant

The Human Resources and Compensation Committee has retained Frederic W. Cook & Co. (“FW Cook”), as its independent compensation consultant to assist the Committee in evaluating executive compensation programs and in setting executive officer compensation. The consultant serves the Committee in an advisory role only and does not decide or approve any compensation actions. The consultant reports directly to the Committee and does not perform any services for management. The consultant’s duties include the following:

 

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Reviewing our total compensation philosophy, compensation peer group, and target competitive positioning for reasonableness and appropriateness;

 

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Reviewing our overall executive compensation program and advising the Committee on evolving best practices;

 

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Providing independent analyses and recommendations to the Committee on executive officers’ compensation and new programs that management submits to the Committee for approval; and

 

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Reviewing the Compensation Discussion and Analysis for our Proxy Statement.

 

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The consultant interacts directly with members of management only on matters under the Committee’s oversight and with the knowledge and permission of the Committee. The Committee has assessed the independence of FW Cook pursuant to applicable SEC and NYSE listing rules and concluded that the firm’s work for the Committee does not raise any conflict of interest.

 

Technology & Information Security Committee		Number of Meetings in Last Fiscal Year: 5

 

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Reviews our approach to integration of technology and innovation;

 

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Assesses trends or potential disruptions, including emerging technologies, that may influence our strategy with respect to technology and innovation; and

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Assists the Board in overseeing risks relating to technology development, information security and the effectiveness of our processes to identify, monitor and mitigate these risks.

Director Nominations Process

The Corporate Governance and Ethics Committee utilizes a variety of methods for identifying and evaluating nominees for director. The Committee regularly assesses the Board’s current and projected strengths and needs by, among other things, reviewing the Board’s current profile, the criteria for board membership described in this proxy under the caption “Corporate Governance—Criteria for Board Membership” and our current and future needs.

When vacancies on the Board are anticipated or otherwise arise, the Committee prepares a target candidate profile and develops an initial list of director candidates identified by the current members of the Board, business contacts, community leaders and members of management. The Committee will consider candidates with a diversity of race, ethnicity and/or gender and will ensure that such candidates are included in each pool from which Board nominees are chosen. The Committee may also retain a professional search firm to assist in developing a list of qualified candidates. The Corporate Governance and Ethics Committee would also consider any stockholder recommendations for director nominees that are properly received. The Committee screens and evaluates the resulting slate of director candidates to identify those individuals who best fit the target candidate profile and Board membership criteria and provides the Board with its recommendations. The Board then considers the recommendations and votes on whether to nominate the director candidate for election by the stockholders at the annual meeting or to appoint the director candidate to fill a vacancy on the Board.

Stockholder Recommendations and Nominations of Director Candidates

The Corporate Governance and Ethics Committee considers stockholder recommendations for candidates for the Board of Directors using the same criteria described above under “Corporate Governance — Criteria for Board Membership.” The name of any recommended candidate for director, together with a brief biographical sketch, a document indicating the candidate’s willingness to serve if elected, and a description of any ownership of shares of our common stock must be sent to: Leidos Holdings, Inc., Office of the Corporate Secretary, 1750 Presidents Street, Reston, Virginia 20190.

Any stockholder may also nominate a person for election as a director by complying with the procedures set forth in our bylaws.

Mandatory Retirement Policy

Employee directors are expected to retire from the Board upon their retirement or resignation as an employee of the company. It is the general policy of the Corporate Governance and Ethics Committee not to nominate candidates for re-election at any annual stockholder meeting to be held after he or she has attained the age of 75.

Director Compensation

We use a combination of cash and stock-based incentives to attract and retain qualified candidates to serve as directors. In determining director compensation, we consider the significant amount of time required of our directors in fulfilling their duties, as well as the skill and expertise of our directors. FW Cook provides competitive compensation data and director compensation program recommendations to the Human Resources and Compensation Committee for review to assist in

 

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determining its recommendation. The competitive compensation data includes information regarding the compensation (cash, equity and other benefits) of the non-employee directors within our compensation peer group. The Human Resources and Compensation Committee considers this information and recommends to the Board the form and amount of compensation to be provided. The director compensation described below represents the total compensation received by our directors for their service as directors for both Leidos Holdings, Inc. and Leidos, Inc.

The following is a summary of our annual compensation program for our non-employee directors, as paid for service in 2020:

Cash Compensation

In 2020, our non-employee directors received an annual cash retainer of $125,000. The Chair of the Audit and Finance Committee received an additional annual retainer of $25,000, and the chair of each other committee received an additional annual retainer of $15,000. The Independent Lead Director also received an additional annual retainer of $35,000. These annual retainer amounts are prorated based on time served on the Board or in a committee Chair role during the year. We also reimburse our directors for expenses incurred while attending meetings or otherwise performing services as a director. We do not pay separate meeting fees. Our employee director does not receive additional compensation for service as a director.

Equity Compensation

Non-employee directors receive annual equity awards under our equity incentive plan. Each of our non-employee directors receives an annual equity award valued at approximately $155,000 of which $105,000 are granted in the form of restricted stock units and $50,000 in the form of stock options. These equity awards vest on the earlier of one year from the date of grant or on the date of the next annual meeting of stockholders following the date of grant. If a non-employee director retires due to our mandatory retirement policy, the non-employee director’s equity awards continue to vest as scheduled and options remain exercisable for the remainder of the option term.

On May 1, 2020, in light of the impact of the COVID-19 pandemic, our Board unanimously approved a reduction in the equity compensation awarded to our non-employee directors. The compensation program for non-employee directors was modified only for fiscal year 2020 to eliminate the annual grants of stock options valued at $50,000 per non-employee director. In lieu of the annual option grants for directors, we contributed $500,000 to the Leidos Relief Foundation’s Keith W. Redding Memorial Fund to assist Leidos employees impacted by COVID-19.

Deferral Plans

Non-employee directors are eligible to defer all or any portion of their cash retainers or certain equity compensation into our Keystaff Deferral Plan or Key Executive Stock Deferral Plan, or both. These plans are described in further detail under the caption “Executive Compensation—Nonqualified Deferred Compensation” below.

Stock Ownership Guidelines and Policies

The Board believes that its members should acquire and hold shares of our stock in an amount that is meaningful and appropriate. To encourage directors to have a material investment in our stock, the Board has adopted stock ownership guidelines that call for directors to hold shares of our stock earned from their service on our Board until attaining stock ownership with a value of at least five times the amount of their annual cash retainer. All of our directors continue to observe this holding requirement. In addition to these ownership guidelines, our directors are also subject to policies that prohibit certain short-term or speculative transactions in our securities that we believe carry a greater risk of liability for insider trading violations or may create an appearance of impropriety. Our policy requires directors to obtain preclearance for all transactions in our securities. In 2020, no directors were granted an exception to these requirements.

 

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The following table sets forth information regarding the compensation paid to our directors for service in fiscal 2020.

 

Name(1)		Fees earned or     paid in cash (2)				Stock awards ($) (3)				Option awards ($) (4)				Total ($)
Gregory R. Dahlberg			125,000				105,098				—				230,098
David G. Fubini			125,000				105,098				—				230,098
Miriam E. John			140,000				105,098				—				245,098
Frank Kendall III			125,000				105,098				—				230,098
Robert C. Kovarik, Jr.			137,500				105,098				—				242,598
Harry M.J. Kraemer, Jr.			125,000				105,098				—				230,098
Gary S. May			125,000				105,098				—				230,098
Surya N. Mohapatra			125,000				105,098				—				230,098
Lawrence C. Nussdorf(5)			137,500				105,098				—				242,598
Robert S. Shapard			175,000				105,098				—				280,098
Susan M. Stalnecker			125,000				105,098				—				230,098
Noel B. Williams			140,000				105,098				—				245,098

 

(1)	Roger A. Krone, our Chief Executive Officer, is not included in this table because he did not receive additional compensation for his services as a director.

 

(2)

Amounts in this column represent the aggregate dollar amount of all fees earned or paid in cash for services as a director for annual retainer fees, independent lead director fees, and committee and/or chair fees. The non-employee directors are eligible to defer such cash fees into our Keystaff Deferral Plan and Key Executive Stock Deferral Plan. Mr. Kendall and Mr. Kraemer elected to defer all of their fees earned in fiscal 2020 into our Keystaff Deferral Plan. Dr. John elected to defer all of her fees earned in fiscal 2020 into our Key Executive Stock Deferral Plan.

 

(3)

Amounts in this column reflect the grant date fair value of awards granted in 2020 computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718). For more information regarding our application of FASB ASC Topic 718, including the assumptions used in the calculations of these amounts, see Note 19 of Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K as filed with the SEC on February 23, 2021. The non-employee directors are eligible to defer such awards into our Key Executive Stock Deferral Plan. Dr. John, Mr. Kendall and Mr. Kraemer elected to defer all of their restricted stock units granted in fiscal 2020 into our Key Executive Stock Deferral Plan.

At the end of fiscal 2020, the following non-employee directors held the following number of unvested stock units, including unvested stock units in our Key Executive Stock Deferral Plan:

 

 

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(4)

On May 1, 2020, our Board unanimously approved a reduction in the equity compensation awarded to non-employee directors. The compensation program for non-employee directors was modified only for the 2020 fiscal year to eliminate the annual grants of stock options valued at $50,000 per director. In lieu of the annual option grants for directors, we contributed $500,000 to the Leidos Relief Foundation’s Keith W. Redding Memorial Fund to assist Leidos employees impacted by the COVID-19 pandemic. At the end of fiscal 2020, our non-employee directors held vested options to purchase the following number of shares of our common stock:

 

 

(5)	Mr. Nussdorf resigned from the Board effective October 15, 2020 for medical reasons.

Related Party Transactions

The Board has adopted written policies and procedures for the review and approval of transactions between us and certain “related parties,” which are generally considered to be our directors and executive officers, nominees for director, holders of five percent or more of our outstanding capital stock and members of their immediate families. The Board has delegated to the Audit and Finance Committee the authority to review and approve the material terms of any proposed related party transaction. If a proposed related party transaction involves a non-employee director or nominee for election as a director and may be material to a consideration of that person’s independence, the matter is also considered by the Chair of the Board and the Chair of the Audit and Finance Committee.

In determining whether to approve or ratify a related party transaction, the Audit and Finance Committee considers, among other factors it deems appropriate, the potential benefits to us, the impact on a director’s or nominee’s independence or an executive officer’s relationship with or service to us, whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. In deciding to approve a transaction, the Committee may, in its sole discretion, impose such conditions as it deems appropriate on us or the related party. Any transactions involving the compensation of executive officers, however, are to be reviewed and approved by the Human Resources and Compensation Committee. If a related party transaction will be ongoing, the Audit and Finance Committee may establish guidelines to be followed in our ongoing dealings with the related party. Thereafter, the Audit and Finance Committee will review and assess ongoing relationships with the related party on at least an annual basis to determine whether they are in compliance with the Committee’s guidelines and that the related party transaction remains appropriate.

We engage in transactions and have relationships with many entities, including educational, charitable and professional organizations, in the ordinary course of our business. Some of our directors, executive officers or their immediate family members may be directors, officers, partners, employees or stockholders of these entities. We carry out transactions with these firms on customary terms.

Gerard A. Fasano is Leidos’ Group President for our Defense Group. Mr. Fasano’s brother, Matthew Fasano, is a program manager at Leidos and received compensation of approximately $258,000 in 2020, including annual salary and incentive

 

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awards commensurate with his qualifications, responsibilities and other employees holding similar positions. This relationship was ratified by the Audit and Finance Committee.

Communications with the Board of Directors and Investor Relations

Stockholders and other interested parties may communicate with the Board of Directors, the independent directors as a group or any of the independent directors, including Committee Chairs and the Independent Lead Director, by using the following address:

Leidos Holdings, Inc.

Office of the Corporate Secretary

1750 Presidents Street

Reston, Virginia 20190

Each communication should specify the intended recipient(s). The Office of the Corporate Secretary will initially process the communications, summarize lengthy or repetitive communications and forward them to the applicable member(s) of the Board as appropriate. Communications may also be referred to other departments within the company for action and resolution. The company will refrain from forwarding to the Board any communication that it determines to be primarily commercial in nature, mass mailings, resumes or job inquiries, any communication that relates to an improper or irrelevant topic, or that requests general information about the company.

To reach out to our Investor Relations department, please send us an e-mail at ir@leidos.com. Please continue to share your thoughts or concerns with us.

 

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Proposal 2 — Advisory Vote on Executive Compensation

 

 

 

We are providing our stockholders with the opportunity to vote to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with the compensation disclosure rules of the SEC.

We urge stockholders to read our Compensation Discussion and Analysis (“CD&A”), which describes in detail how we seek to closely align the interests of our named executive officers with the interests of our stockholders. As described in the CD&A, our compensation programs are designed to:

 

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Pay for performance by tying a substantial majority of an executive’s compensation to the achievement of financial and other performance measures that the Board believes promote the creation of long-term stockholder value and position the company for long-term success;

 

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Target total direct compensation at approximately the median among companies with which we compete for executive talent;

 

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Enable us to recover, or “clawback,” incentive compensation if there is any material restatement of our financial results or if an executive is involved in misconduct;

 

u

Require our executives to own a significant amount of our stock;

 

u

Avoid incentives that encourage unnecessary or excessive risk-taking; and

 

u

Compete effectively for talented executives who will contribute to our long-term success.

The Human Resources and Compensation Committee of the Board believes that these programs and policies are effective in implementing our pay for performance philosophy and achieving its goals. This advisory stockholder vote, commonly known as “Say-on-Pay,” gives you, as a stockholder, the opportunity to advise whether or not you approve of our executive compensation program and policies by voting on the following resolution:

RESOLVED, that the stockholders approve, on a non-binding, advisory basis, the compensation of the named executive officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC, including the CD&A, compensation tables and narrative discussion contained in the “Executive Compensation” section.

The vote on this resolution is not intended to address any specific element of compensation; rather, the vote relates to the compensation of our named executive officers, as described in the CD&A and Executive Compensation sections of this proxy statement in accordance with the compensation disclosure rules of the SEC. The vote is advisory, which means that the vote is not binding on the company, our Board or the Human Resources and Compensation Committee of the Board. Our Board values the opinions of our stockholders. To the extent there is any significant vote against our named executive officer compensation as disclosed in this proxy statement, the Human Resources and Compensation Committee will evaluate whether any actions are necessary to address the concerns of stockholders.

Vote Required

The affirmative vote of a majority of the shares present or represented either in person or by proxy and entitled to vote is required to approve this proposal. Abstentions will have the effect of a vote against the proposal and broker non-votes will not be counted in evaluating the results of the vote. This advisory vote on executive compensation is non-binding on the Board.

Shares of common stock represented by properly executed, timely received and unrevoked proxies will be voted as instructed. In the absence of specific instructions, properly executed, timely received and unrevoked proxies will be voted “FOR” the proposal.

Recommendation of the Board of Directors

The Board of Directors unanimously recommends a vote FOR the approval of the compensation of our named executive officers, as disclosed in this proxy statement.

 

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Compensation Discussion & Analysis

 

 

 

This Compensation Discussion and Analysis, or CD&A, and the tables and narrative that follow provide important information about our executive compensation programs for the prior fiscal year. In this proxy statement, the term “named executive officers” refers to the following executive officers:

 

u

Roger A. Krone—Chairman and Chief Executive Officer

 

u

James C. Reagan—Executive Vice President and Chief Financial Officer

 

u

David A. King—President, Dynetics(1)

 

u

Gerard A. Fasano—President, Defense Group

 

u

Jerald S. Howe, Jr.—Executive Vice President and General Counsel

 

(1)	Mr. King was elected as a Group President of Leidos with responsibility for the Dynetics business in February 2020, following Leidos’ acquisition of Dynetics, Inc. on January 31, 2020 (the “Dynetics Transaction”).

In this CD&A, the “Committee” refers to the Human Resources and Compensation Committee of the Board of Directors, which is responsible for overseeing the compensation programs for all of our executives. The tabular disclosures following this CD&A provide data on all of our named executive officers.

Our executive compensation programs are designed to align the interests of senior management with stockholders by tying a significant portion of their potential compensation to the achievement of challenging financial performance goals, which include adjusted operating income, total backlog, free cash flow, revenue and relative total shareholder return. A small portion is also contingent on personal and leadership goals. We believe these factors contribute to a top-tier workplace environment, improve our efficiency and effectiveness, help us to win key business opportunities and ultimately drive long-term value for stockholders.

 

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Compensation Discussion & Analysis

 

 

 

Pay at a Glance

The following table summarizes the elements of our executive compensation program for 2020:

 

Pay Element		Description and Purpose		Time Period		Metrics
Base Salary		u       Fixed cash compensation recognizing individual performance, time in role, scope of responsibility, leadership skills and experience.		Current pay		u       Pay aligned to experience and job scope, generally targeted to median of applicable market data
		u       Reviewed annually and adjusted when appropriate.
Annual  Cash Incentive		u       Variable cash compensation based on performance against annually established targets and individual performance.		1-year performance period		u       Financial (80%) - Adjusted Operating Income (40%) - Total Backlog (40%) - Free Cash Flow (20%)
		u       Designed to reward executives for annual performance on key operational and financial measures, as well as individual performance.				u       Personal (20%) Personal Achievements—Adjustment factor of 0% to 150% applied based on evaluation of leadership values such as ethics and integrity, personal development and engagement
Long-Term  Equity Incentive
Performance Shares (50%)		u       Distributed in shares of our common stock and designed to encourage and reward longer-term growth, profitability and stock price appreciation by tying share payouts to the achievement of key financial goals.		3-year performance period		u       Relative Total Stockholder Return (50%) Revenue (50%)
Performance Restricted Stock Units (PRSUs) (30%)		u       Distributed in shares of Leidos common stock and designed to drive sustainable performance that delivers long-term value to stockholders while directly aligning interests of executives and stockholders; enhances executive retention.		4-year pro-rata vesting subject to performance hurdle		u       Adjusted earnings per share hurdle must be met with respect to the first year for units to be eligible for vesting
Stock Options (20%)		u       Rewards longer-term stock price appreciation.		4-year pro-rata vesting with a 7-year term		u       Stock price appreciation (100%)

 

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Compensation Discussion & Analysis

 

 

 

Pay Composition

We believe that executive pay should be largely variable, equity-based, and tied to pre-set performance goals, and this is demonstrated in our pay mix and design.

 

u

Limited fixed compensation. Base salary is the only component of “fixed” compensation for our named executive officers and represents a significantly smaller portion of executive pay than “variable” compensation—representing a range between 10% for our Chief Executive Officer and 35% for the other named executive officers.

 

u

Predominantly equity-based pay. The majority of executive pay takes the form of long-term equity incentives—a mix of performance shares, PRSUs, and stock options-ranging from 34% to 74% of target total direct compensation. This reflects our belief that equity should comprise the largest component of executive pay.

 

u

Focus on pre-set financial performance goals and stock price appreciation. The vast majority of the annual cash incentive—80% of the target opportunity—is tied to pre-set quantifiable goals. Similarly, 80% of the target opportunity for long-term incentives are tied to preset goals: 50% in the form of three-year performance share program awards, and 30% in the form of PRSUs. The remaining 20% of the target opportunity for long-term incentives is in the form of stock options, which will not yield value unless the stock price increases from the grant date.

The chart below depicts each principal element of target compensation as a percentage of total direct compensation for each of our named executive officers for 2020.

 

 

 

(1)

Percentages shown for Mr. King do not include a retention award of restricted stock units valued at approximately $575,000 granted in March 2020 in connection with the Dynetics Transaction. These restricted stock units vest in full on the third anniversary of the grant date, subject to continued employment through the vesting date.

Business Performance Highlights for 2020 Relating to Pay

Our business performance in 2020 was strong, meeting or exceeding our expectations and resulting in above-target payouts for our named executive officers under our annual cash incentive program. Successful business development efforts enabled us to achieve new record levels of revenue and backlog, as well as margin expansion and further balance sheet optimization. Revenues for fiscal year 2020 were $12.30 billion, compared to $11.09 billion in the prior year, reflecting a 10.8% increase (including $937 million and $243 million related to the acquisitions of Dynetics and L3Harris Technologies’ security detection and automation businesses (the “SD&A Businesses”), respectively). We achieved record total backlog of $31,912 million and 111% of our target for the year. We achieved 138% of our free cash flow target and 102% of our adjusted operating income target.

Compensation Decisions for Fiscal 2020

Base Salary

The Committee reviews executive officers’ base salaries annually or at the time of promotion or a substantial change in responsibilities based on the criteria described above. For fiscal 2020, the Committee considered its independent consultant’s analysis of salary levels for comparable positions in the compensation peer group based on proxy and survey

 

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Compensation Discussion & Analysis

 

 

 

data. Individual base salary amounts also reflect the Committee’s judgment with respect to each executive officer’s level of responsibility, individual performance, experience and other factors, including internal equity considerations, the individual’s historical compensation and any retention concerns.

At the beginning of 2020 the Committee approved increases in the base salaries for all of our named executive officers in order to bring them closer to the market median of our compensation peer group.

 

		2019 Salary				2020 Salary(2)				% Increase				$ Increase
Roger A. Krone			$1,165,000				$1,200,000				3%				$35,000
James C. Reagan			$640,000				$660,000				3%				$20,000
David A. King(1)			N/A				$574,808				N/A				N/A
Gerard A. Fasano			$525,000				$560,000				7%				$35,000
Jerald S. Howe, Jr.			$590,000				$610,000				3%				$20,000

 

(1)	David A. King was elected as a Group President of Leidos with responsibility for the Dynetics business in February 2020, following the Dynetics Transaction.

 

(2)	Salary increases become effective in March of each year. Accordingly, amounts shown may differ from the annual salary information included in the “Summary Compensation Table” on page 34.

Annual Cash Incentive Awards for Fiscal 2020

We provided annual cash incentive awards to executives for performance during fiscal 2020 based on the achievement of pre-established financial and personal performance goals and other relevant factors.

Performance Measures and Weightings. Our annual cash incentive plan for fiscal 2020 was designed to incentivize and reward both company financial performance and individual contributions to enterprise goals. The intended purpose and relative weightings of the performance goals are shown below:

 

 

 

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Compensation Discussion & Analysis

 

 

 

Financial Performance Targets. Because our financial results are considered the most important factors in setting pay and are objectively measurable, we weight these metrics most heavily; financial goals represent 80% of the target opportunity under our annual cash incentive program. To the extent that performance for a financial metric is less than 80% of target (threshold performance) no bonus amount would be paid with respect to that metric. Maximum payout (150% of target) for each component is provided for performance at or above 125% of target. The Committee generally seeks to set financial performance goals for the annual cash incentive program at levels that reflect improvement over the prior year’s results. For 2020, the Committee established and approved goals that generally targeted improvement over 2019 results. Targets originally approved for adjusted operating income and free cash flow included amounts for Dynetics and the SD&A Businesses. The target for total backlog was subsequently adjusted to account for these acquisitions. Free cash flow target reflects an anticipated one-time capital expenditure investment in our new corporate headquarters.

 

($ in millions)		2019 Results				2020 Target				% Change
Total Backlog			$24,090				$26,534			10.15%
Adjusted Operating Income			$1,099				$1,225			11.46%
Free Cash Flow			$871				$834			(4.25)%

Personal Goals. We believe that individual contributions towards other enterprise goals are responsible for the achievement of our financial goals over time. Accordingly, non-formulaic personal goals represent 20% of the target opportunity under our annual cash incentive program, in order to encourage individual efforts in an array of areas that we believe will ultimately lead to improved financial performance for the company.

Award Payout Ranges. Payout opportunities for our named executive officers for fiscal 2020 ranged from 80% to 150% of base salary rates. Potential for each financial goal ranged from 60% at threshold performance (paid only when at least 80% of the objective is achieved) to 150% at maximum performance (paid when 125% or more of the objective is achieved), with the payout for performance between these levels interpolated on a straight-line basis. In addition, failure to achieve threshold performance of at least 70% of our annual adjusted operating income goal for the fiscal year would result in no payout for the financial goals portion of the annual cash incentive.

Annual Incentive Payout Determination for Fiscal 2020

Financial Achievement Levels. The Committee established the performance targets for our annual cash incentive program at the beginning of the fiscal year. For our named executive officers the targeted enterprise financial performance and actual performance for fiscal 2020 were:

 

($ in millions)		Target				Actual				Achievement Level
Total Backlog			$28,800				$31,912			111%
Adjusted Operating Income (1)			$1,225				$1,246			102%
Free Cash Flow			$834				$1,151			138%
Weighted Financial Performance Achievement Level:										113%

 

(1)

Adjusted operating income is not a measure of financial performance under generally accepted accounting principles (“GAAP”) in the United States. We believe that adjusted operating income provides useful information to management and stockholders as it provides another measure of the company’s profitability after adjusting for the impact of discrete events. A reconciliation of adjusted operating income to the most comparable GAAP measure is set forth below:

 

 

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Compensation Discussion & Analysis

 

 

 

Personal Performance Results. In analyzing personal performance results, the Committee reviewed each individual’s level of achievement and also considered input from the Chief Executive Officer—or the independent directors with respect to the Chief Executive Officer’s performance. Any circumstance considered relevant by Committee members—or by the independent directors, or in the case of named executive officers other than the CEO, by the CEO—can be a factor in the determination, including the degree of success, the difficulty of achieving personal performance goals and his or her leadership behavior.

Total Executive Payouts. The chart below provides the target annual cash incentive amounts established for each named executive officer by the Committee, at the beginning of the year, as well as their actual payout amounts determined by the Committee at the end of the year. Because we surpassed the adjusted operating income goal threshold of 70% of target by achieving 102%, the Committee approved the payout of awards under the annual incentive plan. Actual payout amounts for fiscal 2020 ranged between 59% and 122% of target (or 118% and 122% of target when considering Mr. King’s target on a pro-rata basis). Information on all of the annual cash incentive payouts for fiscal 2020 is provided below:

 

		Target				Payout from Financial Score				Payout from Personal Score				Total Payout
Roger A. Krone			$1,800,000				$1,729,296				$468,000				$2,197,296
James C. Reagan			$660,000				$634,076				$158,400				$792,476
David A. King (1)			$517,327				$243,289				$62,079				$305,368
Gerard A. Fasano			$504,000				$486,481				$120,960				$607,441
Jerald S. Howe, Jr.			$488,000				$468,832				$117,120				$585,952

 

(1)

Amount shown for Mr. King includes a partial year payout under the Leidos incentive plan from July 2020 through the end of the fiscal year. In addition, Mr. King participated in the Dynetics annual bonus program, with a performance period beginning in July 2019 and ending in June 2020. Based on the achievement of the applicable performance measures pursuant to the terms of the Dynetics annual bonus program, Mr. King was paid a bonus of $600,000.

Long-Term Incentive Award Grants in 2020

Long-term incentive awards are granted to motivate future performance, create long-term alignment with stockholders, and for retention purposes. For fiscal 2020, each named executive officer received a mix of long-term incentive awards comprised of performance shares (50%), performance restricted stock units (30%) and stock options (20%). The grant date fair value of each award was determined based on market data and consideration of each executive officer’s level of experience, position and responsibilities. We do not generally consider an executive officer’s current stock holdings or outstanding awards in making annual grants.

Performance Share Awards. For all of our named executive officers, 50% of the targeted total value of long-term incentive awards granted was in the form of three-year performance share awards. Shares are issued under those awards at the end of the three-year performance period (from fiscal 2020 through fiscal 2022 for awards granted in fiscal 2020) only to the extent that the company achieves two specific three-year financial performance goals:

 

u

50% of the award is tied to the achievement of relative total stockholder return goals, a measurement of growth in stockholder value; and

 

u

50% of the award is tied to achievement of revenue goals.

Performance for each of these goals is measured on a cumulative basis over the total performance period rather than annually for each year of the performance period.

PRSUs. Performance restricted stock units (PRSUs) comprise 30% of the targeted total value of long-term incentive awards granted to our named executive officers. PRSUs vest 25% each year on the anniversary of the grant date, but are forfeited if we fail to achieve a pre-established performance goal for the first year. The performance goal for fiscal 2020 was adjusted earnings per share of at least $2.79. The Committee determined that this goal was met and therefore the PRSUs granted in fiscal 2020 will be eligible to vest over four years.

 

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Compensation Discussion & Analysis

 

 

 

Stock Options. The final 20% of targeted total long-term incentive award value granted to our named executive officers is in stock options. Stock options are an effective means of linking rewards to the creation of stockholder value over a longer term. We believe that stock options motivate our executives to build stockholder value because they may realize value only if our stock appreciates during the option term. The options vest 25% each year on the anniversary of the grant date and expire on the seventh anniversary of the grant date.

Restricted Stock Units. In March 2020, Mr. King received a retention award of restricted stock units valued at approximately $575,000 granted in connection with the Dynetics Transaction. These restricted stock units vest in full on the third anniversary of the grant date, subject to Mr. King’s continued employment through the applicable vesting date.

Total 2020 Equity Grant Values. The following table sets forth the target value and corresponding number of shares for the long-term incentive awards granted to our named executive officers in 2020. Details about these grants can be found in the “Grants of Plan-Based Awards” table in the “Executive Compensation” section of this proxy statement.

 

		Performance Shares										Performance RSUs										Stock Options
		Target Value					Target Shares					Target Value					Shares Granted					Target Value					Shares Granted					Total 2020  Equity Value
Roger A. Krone			$	4,250,000					39,510				$	2,550,000					23,706				$	1,700,000					83,252					$8,500,000
James C. Reagan				$907,500					8,437					$544,500					5,062					$363,000					17,777					$1,815,000
David A. King				$287,500					2,673					$172,500					1,604					$115,000					5,632					$575,000
Gerard A. Fasano				$560,000					5,206					$336,000					3,124					$224,000					10,970					$1,120,000
Jerald S. Howe, Jr.				$533,750					4,962					$320,250					2,978					$213,500					10,455					$1,067,500

Performance Equity Vesting in 2020

Determination of Performance Shares Earned for the 2018—2020 Performance Period. In December 2017, the Committee established the long-term performance goals for the performance share program measuring the three-year performance period covering fiscal years 2018 through 2020. The vesting and payout for these performance shares was contingent on the achievement of a relative total shareholder return metric (weighted 50%), an adjusted operating income goal (weighted 25%), and a revenue goal (weighted 25%) with all metrics measuring cumulative results over the three-year performance period.

At its February 2021 meeting, the Committee approved a payout score of 114.85% for the 2018 through 2020 performance period. The tables below show the relative total shareholder return, adjusted operating income and revenue goals at target, and the actual results for the three-year performance period:

 

Payout Level

Total Stockholder Return Relative to Compensation Peer Group Median

Results (1)

% Achieved

No Payout:

0%

Less than 50 percentage points below compensation peer group

Threshold Pay:

50%

50 percentage points below compensation peer group

Target Pay:

100%

At compensation peer group median

29% above compensation peer group median

129%

Maximum Pay:

150%

50 percentage points above compensation peer group

 

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Compensation Discussion & Analysis

 

 

 

 

Payout Level

Achievement of Adjusted Operating Income Goals

Results (2)

% Achieved

No Payout:

0%

Below 50% of Three-Year AOI Target:        $1.586B

Threshold Pay:

50%

50% of Three-Year AOI Target:        $1.586B

Target Pay:

100%

100% of Three-Year AOI Target:        $3.171B

$

3.264B

103%

Maximum Pay:

150%

150% of Three-Year AOI Target:        $4.757B

 

Payout Level

Achievement of Revenue Goals

Results (3)

% Achieved

No Payout:

0%

Below 50% of Three-Year Revenue Target         $16.550B

Threshold Pay:

50%

50% of Three-Year Revenue Target        $16.550B

Target Pay:

100%

100% of Three-Year Revenue Target        $33.101B

$

32.405B

98%

Maximum Pay:

150%

150% of Three-Year Revenue Target        $49.652B

 

(1)

Our relative TSR score reflects the aggregate change in the 20-day average closing price of our stock compared to the median of our compensation peer group, as measured at the beginning and end of the three-year performance period, taking into account the value returned to stockholders in the form of dividends, assumed to be reinvested on the distribution date on a pre-tax basis. Our total stockholder return during the three-year period from 2018 to 2020 was 65.56%, compared to 36.27% for the median of our compensation peer group, resulting in a payout factor of 129.28%.

 

(2)

Adjusted operating income is not a measure of financial performance under U.S. GAAP. We determined adjusted operating income for purposes of this 2018 through 2020 performance period by starting with GAAP operating income and adding back amortization of acquired intangibles, acquisition, integration and restructuring costs, amortization of equity method investments and asset impairment.

 

(3)	Revenue reported in publicly filed financial statements.

Dynetics Transaction Bonus

In connection with the Dynetics Transaction, Mr. King was entitled to receive a one-time cash bonus equal to $874,808. The cash bonus was paid shortly following the closing of the Dynetics Transaction.

Other Benefits

In addition to the elements of direct compensation described above, we also provide our executive officers with the following benefits:

Health and Welfare Benefits

Our executive officers are entitled to participate in all health and welfare plans that we generally offer to all of our eligible employees, which provide medical, dental, health, group term life insurance and disability benefits. Beginning in 2020, the Committee approved a program that extends to our executives officers the ability to participate in a comprehensive voluntary annual health screening program. We believe that these health and welfare benefits are reasonable in scope and amount and are of the kind typically offered by other companies against which we compete for executive talent. For 2020, Mr. King has waived participation in the medical coverage plan.

Retirement and Financial Advisory Benefits

Our executive officers are entitled to participate in the same tax-qualified defined contribution retirement plan that is generally available to all of our eligible employees, subject to certain limits on the amounts that each participant may contribute each year. We make matching contributions to eligible participants’ retirement plan accounts based on a percentage of their “eligible compensation” under applicable rules. We believe that this retirement program assists our executives in saving for their retirement in a tax-effective manner. Beginning in 2020, the Committee approved a program that provides financial advisory services to our executive officers.

 

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Compensation Discussion & Analysis

 

 

 

Deferred Compensation Plans

To provide other tax-deferred means to save for retirement, we maintain certain deferred compensation plans that allow our named executive officers and other eligible participants to elect to defer all or a portion of any cash or certain equity incentive awards granted to them under our cash incentive or stock plans. In addition, we maintain a deferred compensation plan that allows our named executive officers and other eligible participants to elect to defer a portion of their eligible salary. The deferred balances under the plans are fully vested and will be paid upon retirement or termination or are held in specified date accounts, which pay out in the year specified by the participant, including years prior to termination. These plans are described in more detail under “Nonqualified Deferred Compensation.” Mr. King is currently not eligible to defer salary into our deferred compensation plans.

How We Determine Direct Compensation

In determining the amounts of direct compensation (base salary, annual and long-term incentives) to be awarded to our executive officers, we considered the company’s overall performance, the performance of operating units under the executive officer’s management, individual performance as measured against performance goals and criteria, and competitive market data for our compensation peer group as well as third-party survey data for the general industry and the technology industry. The Committee reviews and approves the amounts of direct compensation to be provided to our executive officers for each fiscal year. Executive officers do not propose their own compensation.

At the beginning of each fiscal year, the Committee reviews and approves:

 

u

The amount of base salary and target incentive opportunities to be provided for the upcoming year;

 

u

The payout range for the annual cash incentive awards that may be earned for the year and the performance goals and criteria upon which the amounts of the awards will be determined;

 

u

The payout range for performance share awards that may be earned for the performance period beginning in that fiscal year and the performance goals and criteria upon which the amounts of the performance share and PRSU awards for the relevant performance period will be determined; and

 

u

The mix and amount of long-term incentive awards (including performance share awards, PRSUs and stock options) to be granted to our executive officers.

In approving payout ranges for our incentive programs, we determine the levels of performance that must be achieved in order to receive a threshold, target and maximum payout amount for each goal. Upon completion of each fiscal year, the Committee approves the payment, if any, of cash incentive awards and the number of performance shares, if any, that are earned based upon the achievement of the predetermined performance goals and criteria for the performance cycles just completed.

Company and Operational Sector Performance

Our overall enterprise performance (or a combination of company enterprise and business group performance for executive officers with operational responsibilities) determines the payout for 80% of the target amount of any annual cash incentive awards and for 100% of any performance share program awards and PRSUs. Payout amounts are principally determined based upon the company’s or group’s achievement of financial and operating objectives set at the beginning of the fiscal year, but the Committee retains the discretion to reduce the payouts when appropriate. The maximum score for performance on any of the financial metrics for the cash incentive awards and the performance share program awards is 150%. The earnings per share metric for the PRSUs is a hurdle that, when met, results only in continued vesting of the PRSUs; results for this metric do not result in an adjustment to the amount of the PRSUs.

Individual Performance

Individual performance is a factor in setting base salaries, and individual leadership behaviors and the achievement of personal goals determine 20% of the target amount of any annual cash incentive award to be paid upon completion of the fiscal year for all of our named executive officers. In determining base salaries, the Committee reviews a performance assessment for each of our executive officers, as well as compensation recommendations provided by the Chief Executive Officer for the other named executive officers.

 

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Compensation Discussion & Analysis

 

 

 

The Committee also considers market data and information provided by its independent compensation consultant. In addition, in determining annual incentive amounts, the Committee considers whether the executive officer has achieved predetermined personal goals applicable to his or her organization, and the way in which those personal goals were achieved, as demonstrated through leadership behaviors.

Personal performance goals and leadership behaviors relate to ethics and integrity, maintaining a top-tier workplace environment, collaboration, customer satisfaction and retention, business development in strategic areas and other financial and operating goals as appropriate. For purposes of the 2020 annual cash incentive, personal performance is scored on a range from 0% to 150% with a threshold of 50%. Performance below threshold with respect to personal goals would result in no payout (0%) related to the portion of the cash incentive based on personal performance. Performance of between 50% and 150% with respect to these goals for 2020 would result in a payout that is interpolated linearly between the 50% and 150% payout opportunity. Performance above the 150% level would not result in any additional payout.

Assessing Chief Executive Officer Performance

In determining compensation for our Chief Executive Officer, the Committee meets in executive session and evaluates his performance based on his achievement of performance objectives that were established and agreed upon at the beginning of the fiscal year. Input is received from the independent directors. The Committee also considers the Chief Executive Officer’s general leadership contributions towards the company’s performance, including financial and operating results, development and achievement of strategic objectives, progress in building capability among the senior management team and leadership in corporate governance, environmental sustainability and social issues of importance to our stockholders, customers and employees. The Committee also considers market data and information provided by the Committee’s independent compensation consultant. The Committee determines the Chief Executive Officer’s compensation and then reviews his evaluation and compensation with the Board’s independent directors. The Independent Lead Director and the Chair of the Committee then present the Committee’s evaluation and compensation determination to the Chief Executive Officer.

Comparable Market Compensation

The Committee compares the amount of direct compensation that we provide to our executive officers to that provided by companies with whom we compete for executive talent in similar roles and with similar responsibilities. To assist with this effort, the Committee’s independent compensation consultant, FW Cook, conducts an annual review and benchmarking analysis of each element of target total direct compensation (including salary, cash and equity incentives) provided to our executive officers. In October 2019, FW Cook compared the target compensation provided to members of senior management against that provided by other publicly traded engineering, information technology, consulting and defense companies, which we refer to as our “compensation peer group,” as well as third-party survey data for the general industry and the technology industry.

Compensation peer group companies are chosen for having a similar industry focus as ours and for competing with us for talent as well as business and stockholder investment. Furthermore, the compensation peer group is initially structured so that no company within the group has annual revenues smaller than 40% or greater than 250% of ours and a market capitalization within a reasonable range.

Our compensation peer group is periodically reviewed and updated to ensure the companies in our compensation peer group are strong business and talent competitors and are comparable in size. In July 2019, the Committee consulted with FW Cook and reviewed the compensation peer group to be used for setting fiscal 2020 target compensation. CSRA and Orbital ATK were removed from the compensation peer group due to their acquisitions by General Dynamics and Northrop Grumman, respectively. There were no other adjustments from the compensation peer group from the prior year. At the time the compensation peer group for fiscal 2020 was approved, the company was at the 52^nd percentile for revenue and the 40^th percentile for market capitalization as compared to the new compensation peer group.

 

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Compensation Discussion & Analysis

 

 

 

Our Fiscal 2020 Compensation Peer Group

 

u  AECOM		u  Collins Aerospace		u  L-3 Technologies
u  Booz Allen Hamilton		u  Fluor		u  Northrop Grumman
u  CACI International		u  Harris		u  Raytheon Technologies
u  Cerner		u  Huntington Ingalls Industries		u  SAIC
u  CGI		u  Jacobs Engineering		u  Textron
u  Cognizant Technology

The Committee considers market data and analysis when evaluating appropriate levels of target total direct compensation. To be competitive in the market for our executive-level talent, we generally:

 

u

Target overall compensation for our executive officers at the market median, although the actual cash paid and equity incentive awards earned will vary based on actual financial and individual performance and may therefore generate compensation that is higher or lower than the market median; and

 

u

Award higher levels of compensation, when appropriate, in recognition of the importance or uniqueness of the role of an executive officer or to address retention concerns.

Other Policies and Considerations

Stockholder Advisory Vote

At our last annual stockholders’ meeting in May 2020, we held a non-binding stockholder advisory vote on the compensation of our named executive officers, commonly referred to as a say-on-pay vote. Our stockholders overwhelmingly approved the compensation of our named executive officers, with approximately 94% of stockholder votes cast in favor of our say-on-pay resolution. As we evaluated our compensation practices during fiscal 2020, we considered the support our stockholders expressed for our pay for performance compensation philosophy and that influenced our decision not to make any significant changes to our executive compensation programs this year. We continued to emphasize short- and long-term incentive compensation, targeted at competitive market median levels, with a substantial majority of total compensation based on the achievement of financial performance goals designed to deliver value for our stockholders.

At our 2017 annual meeting of stockholders, our stockholders expressed a preference for an annual non-binding advisory vote on executive compensation, in accordance with our Board’s recommendation. Consistent with our stockholders’ preference in this regard, we expect to continue holding an advisory stockholder vote on the compensation of our named executive officers each year.

Assessment of Risks in Our Compensation Programs

During fiscal 2020, management undertook a risk assessment of our compensation programs, which FW Cook, the Committee’s independent compensation consultant, reviewed. In conducting the assessment, we reviewed our pay practices and incentive programs to identify any potential risks inherent in our compensation programs. We also reviewed the risks facing the company and evaluated whether our compensation practices and programs could be expected to increase or help mitigate these risks. The finding of the assessment, with which the Committee concurred, was that our compensation programs are effectively designed to help mitigate excessive risk-taking that could harm our value or inadvertently reward poor judgment by our executives or other employees. The factors considered in reaching this conclusion include:

 

u

Short-term incentive measures that are balanced among different financial measures, with targets that are intended to be achievable upon realistic levels of performance;

 

u

Significant weighting towards long-term incentive compensation that promotes long-term decision-making and discourages short-term risk-taking;

 

u

Maximum payouts that are capped at levels that do not reward excessive risk-taking;

 

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Compensation Discussion & Analysis

 

 

 

 

u

Goals that are based on company and group performance measures, which mitigates excessive risk-taking within any particular business unit;

 

u

Leadership behaviors, such as ethics and integrity, that are specifically addressed in our short-term incentive programs;

 

u

Our compensation recoupment policy that allows us to recover compensation based on financial results that are subsequently restated or if fraud or intentional misconduct is involved; and

 

u

Our stock ownership guidelines that encourage a long-term perspective.

Equity Award Grant Practices

The Committee is responsible for the administration of our equity incentive programs for our 2006 Equity Incentive Plan and 2017 Omnibus Incentive Plan in which our named executive officers participate. The Committee set the equity award fiscal 2020 grant dates for new and existing employees, including executive officers, in October 2019. These grant dates were selected to occur after the dates when we anticipate releasing our annual and quarterly financial results. We generally grant equity incentive awards to our executive officers and all other eligible employees on an annual basis shortly after we announce our financial results for the recently completed fiscal year. In addition to these annual grants, the Committee set four quarterly dates on which any additional equity incentive awards could be made to eligible executive officers or other employees in connection with a new hire, a promotion, for retention or otherwise.

The Committee approves all equity awards made to our directors and executive officers. The exercise price of any option grant is determined by reference to the fair market value of the shares on the grant date, which the 2006 Equity Incentive Plan and 2017 Omnibus Incentive Plan define as the closing sales price of our common stock on the NYSE on the previous trading day.

Stock Ownership Guidelines

We encourage our employees to own our stock so that they are motivated to maximize our long-term performance and stock value. Under our established stock ownership guidelines, our named executive officers are required to accumulate and maintain stock holdings in an amount of our stock with a value at least equal to five times their base salary. Because they must hold all after-tax shares acquired under our equity incentive programs until they meet this ownership requirement, which we expect will take several years, we do not have specific time-based holding periods following the exercise of stock options or vesting of other equity awards. In 2020, no executive officers were granted an exception to this requirement.

Policy on Hedging and Short-Term or Speculative Transactions

We have established policies applicable to all designated insiders under our Insider Trading Policy, including all of our directors and executive officers, that prohibit certain short-term or speculative transactions in our securities. We believe that these prohibited transactions carry a greater risk of liability for insider trading violations and may create an appearance of impropriety. With respect to our securities, our directors, executive officers and other designated insiders are prohibited from engaging in any short sales or any trading in puts, calls or other derivatives on an exchange or other organized market. They are also prohibited from engaging in hedging or other monetization transactions such as cashless collars, forward contracts, equity swaps or similar transactions involving our securities, and from holding company securities in a margin account or pledging securities as collateral for a loan. In addition, our executive officers are required to obtain preclearance for all transactions in our securities.

Compensation Recoupment Policy

Under our compensation recoupment policy, the Committee may require members of senior management to return incentive compensation if there is a material restatement of the financial results upon which the incentive compensation was originally based. Our recoupment policy applies to all incentive compensation, including both cash and equity. If the Committee determines that recovery is appropriate, the company will seek repayment of the difference between the incentive compensation paid and the incentive compensation that would have been paid, if any, based on the restated financial results.

 

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Compensation Discussion & Analysis

 

 

 

The policy also provides for recovery of incentive compensation from any employee involved in fraud or intentional misconduct, whether or not it results in a restatement of our financial results. In such a situation, the Committee would exercise its business judgment to determine what action it believes is appropriate under the circumstances.

We may seek to recover the applicable amount of compensation from incentive compensation paid or awarded after the adoption of the policy, from future payments of incentive compensation, cancellation of outstanding equity awards and reduction in or cancellation of future equity awards. In cases of fraud or misconduct, we may also seek recovery from incentive compensation paid or awarded prior to the adoption of the policy.

Post-Employment Benefits

We do not maintain a defined benefit or other supplemental retirement plan that would entitle our executive officers to receive company-funded payments if they leave the company.

Upon certain terminations of employment, including death, disability, retirement or a change in control, our named executive officers may be eligible for continued vesting of equity awards on the normal schedule or accelerated vesting in full or on a pro-rata basis, depending on the nature of event and the type of award. The purpose of these provisions is to recognize the executive’s service through the specified event, and, in the case of acceleration, the executive’s loss of an opportunity to continue serving the company through the vesting period. Because these termination provisions are contained in our standard award agreements for all recipients and relate to previously granted or earned awards, we do not consider these potential termination benefits as a separate item in compensation decisions for our named executive officers. Our long-term incentive plans do not provide for additional benefits or tax gross-ups. For more information about potential post-employment benefits, see “Executive Compensation—Potential Payments Upon Termination or a Change in Control.”

Potential Change in Control and Severance Benefits

We have adopted a severance plan that would provide our executive officers with payments and benefits if their employment is involuntarily terminated by the company or is terminated following an acquisition of our company. These severance benefits are further described in this Proxy Statement under “Executive Compensation—Potential Payments Upon Termination or a Change in Control.” We believe that our severance plan provides an important benefit to us by helping alleviate any concern the executive officers might have when contemplating a potential change in control of our company and permitting them to focus their attention on our business. In addition, we believe that this plan is an important recruiting and retention tool, as many of the companies with which we compete for talent have similar arrangements in place for their senior management.

Our named executive officers, other than Mr. Krone, do not have any employment agreements with us. Mr. Krone’s employment agreement provides that if his employment is terminated by us for reasons other than cause or by Mr. Krone for good reason, he would receive an amount equal to one times the sum of his base salary and target bonus. Such payment will be subject to Mr. Krone’s agreement to release us from any claims. However, if such termination is within three months prior to a change in control or within 24 months after a change in control, Mr. Krone would receive an amount equal to a maximum of two and one half times the sum of his base salary and target bonus and payment for certain benefits, depending on whether the termination occurs during a change in control period. The Committee approved these severance benefits after considering the potential costs, as an inducement for Mr. Krone to join the company.

We have described the change in control and other termination benefits offered to Mr. Krone and our other named executive officers in the section entitled “Executive Compensation—Potential Payments Upon Termination or a Change in Control” in the tables following this CD&A.

Tax Deductibility of Executive Compensation

Section 162(m) of the Internal Revenue Code, as amended by the Tax Cuts and Jobs Act of 2017, generally limits the deductibility of certain compensation in excess of $1 million paid in any one year to the Chief Executive Officer, the Chief Financial Officer and the three other most highly compensated named executive officers. Prior to the amendment, qualified performance-based compensation was not subject to this deduction limit if certain requirements were met. Under the Tax Cuts and Jobs Act of 2017, the performance-based exception has been repealed. The new rules generally apply to taxable years beginning after December 31, 2017, but do not apply to compensation provided pursuant to a written binding contract in effect on November 2, 2017 that is not modified in any material respect after that date.

 

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Compensation Discussion & Analysis

 

 

 

We do not expect the disallowance of a deduction for compensation paid to our named executive officers in excess of $1 million as a result of these changes to Section 162(m) to significantly alter our compensation programs. The Committee considers it important to design compensation programs that are in the best long-term interests of our company and our stockholders.

Human Resources and Compensation Committee Report

The Human Resources and Compensation Committee has reviewed and discussed with our management the CD&A included in this Proxy Statement. Based upon this review and discussion, the Committee recommended to the Board that the CD&A be included in this Proxy Statement.

Gregory R. Dahlberg

David G. Fubini

Robert C. Kovarik, Jr.

Gary S. May

Surya N. Mohapatra

Noel B. Williams (Chair)

 

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Executive Compensation

 

 

 

Summary Compensation Table

The following table sets forth information regarding compensation earned by our named executive officers for service to us during fiscal 2020 and, if applicable, fiscal 2019 and fiscal 2018:

 

Name and principal position		Year(1)				Salary($)(2)				Bonus($)				Stock awards($)(3)				Option awards($)(3)				Non-equity incentive plan compen- sation($)(4)				All other compen- sation($)(5)				Total($)
Roger A. Krone			2020				1,238,076				—				7,222,112				1,632,572				2,197,296				29,568				12,319,624
Chief Executive Officer			2019				1,179,327				—				5,871,934				1,425,814				2,178,923				15,273				10,671,271
			2018				1,123,077				—				5,397,367				1,300,002				2,000,778				13,750				9,834,974
James C. Reagan			2020				680,770				—				1,542,184				348,607				792,476				25,992				3,390,029
Executive Vice President,			2019				646,538				—				1,342,212				325,902				791,603				4,569				3,110,824
Chief Financial Officer			2018				608,077				—				1,149,067				276,757				725,946				3,600				2,763,447
David A. King			2020				589,626				—				1,063,683				110,444				905,368				887,287				3,556,408
Group President, Dynetics
Gerard A. Fasano			2020				577,770				—				951,659				215,122				607,441				64,646				2,416,638
Group President, Defense			2019				525,865				—				880,847				213,881				508,738				64,358				2,193,689
Jerald S. Howe, Jr.			2020				628,847				—				907,100				205,023				585,952				24,566				2,351,488
Executive Vice President, General Counsel			2019				597,884				—				866,184				210,308				579,087				15,367				2,268,830
			2018				575,000				—				716,254				172,502				538,384				11,231				2,013,371

(1)	Compensation is provided only for fiscal years for which an individual qualified as a named executive officer in accordance with SEC rules.

 

(2)	This column reflects $59,034 paid to Mr. King upon close of the Dynetics Transaction related to his vacation balance.

 

(3)

These columns reflect the grant date fair value of each award granted in the stated fiscal years computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718). The awards shown in the “Stock awards” column in the above table include restricted stock units and performance share awards. Values for all performance share awards are computed based upon the probable outcome of the performance conditions as of the grant date of the award. Assuming the highest level of the performance conditions is achieved, the value of the fiscal 2020 performance shares in the “Stock awards” column would be as follows: Mr. Krone, $9,558,141; Mr. Reagan, $2,041,016; Mr. King, $646,650; Mr. Fasano, $1,259,463, and Mr. Howe, $1,200,478. The awards shown in the “Option awards” column are not subject to performance conditions.

For more information regarding our application of FASB ASC Topic 718, including the assumptions used in the calculation of these amounts, please refer to Note 19 of the Notes to Consolidated Financial Statements contained in our Annual Report on Form 10-K filed with the SEC on February 23, 2021.

 

(4)

Amounts shown in this column represent the actual amounts paid to the named executive officers under our cash incentive award programs for the stated fiscal years. The threshold, target and maximum payouts are shown in the “Grants of Plan-Based Awards” table under the column headed “Estimated future payouts under non-equity incentive plan awards.” The amount listed for Mr. King includes his payment under Leidos’ cash incentive award program, in addition to a $600,000 bonus earned under the Dynetics annual bonus plan for the Dynetics fiscal year performance period beginning in July 2019 and ending in June 2020.

 

(5)

Amounts shown in this column for fiscal 2020 represent company contributions that we made on behalf of the named executive officers under the Leidos Retirement Plan as follows: Mr. Krone, $14,250; Mr. Reagan, $13,088; Mr. Fasano, $14,250, and Mr. Howe, $14,250. For Mr. King, the amount shown in this column represents $12,479 in company contributions that we made on his behalf under the Dynetics, Inc. 401(k) Plan and $874,808 paid as a bonus in connection with the Dynetics Transaction. The column also includes the value of executive financial planning and annual health screenings for Mr. Krone, Mr. Reagan, and Mr. Howe. In addition, the amount includes $49,846 paid to Mr. Fasano as a housing allowance.

 

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