The Board of Directors currently consists of 12 members. Ten of them are non-employee directors and two are members of management. In accordance with the Company's By-Laws, directors are divided into three classes, each of which is composed of approximately one-third of the directors. At the Annual Meeting, three directors will be elected for terms of three years, expiring on the date of the annual meeting of shareholders in 2004. Each director elected will continue in office until a successor has been elected or until resignation or removal in the manner provided by the By-Laws of the Company.

Board policy requires a non-employee director to resign at the annual meeting of shareholders following that director's 72nd birthday. Accordingly, Charles M. Pigott has announced his intention to retire from the Board at the Annual Meeting.

The Governance and Nominating Committee of the Board has recommended three nominees, all of whom are currently serving as directors. In accordance with the By-Laws, the Board has reduced the size of the Board to 11, effective at the time of the Annual Meeting. The nominees and the directors whose terms will continue after the Annual Meeting are listed below.

Shares represented by a properly executed proxy card will be voted for the nominees unless such authority is withheld. Should any nominee become unavailable for election, the persons named on the proxy card may vote all proxies given in response to this solicitation for the election of a substitute nominee chosen by the Board, or the Board, in its discretion, may reduce the size of the Board rather than nominate a substitute.

John H. Biggs

Director since 1997

Chairman, President and Chief Executive Officer, Teachers Insurance and Annuity Association-College Retirement Equities Fund (“TIAA-CREF”), age 64. Mr. Biggs has served as Chairman and Chief Executive Officer of TIAA-CREF (national teachers’ pension fund) since January 1993 and as President since November 1997. He is also a Trustee of TIAA-CREF, a Trustee of Washington University in St. Louis, an At-Large Trustee of the Financial Accounting Foundation and a director of Ralston Purina Company. 

Total shares and share interests

33,780

John E. Bryson

Director since 1995

Chairman of the Board, President and Chief Executive Officer, Edison International, age 57. Mr. Bryson has served as Chairman of the Board and Chief Executive Officer of Edison International (electric power and structured finance) since 1990 and as President since January 2000. He is a director of The Walt Disney Company, Pacific American Income Shares, Inc., LM Institutional Fund Advisors I, Inc. and the Council on Foreign Relations. Mr. Bryson is a graduate of Stanford University and Yale Law School. 

Total shares and share interests

17,739

Rozanne L. Ridgway

Director since 1992

Former Assistant Secretary of State for Europe and Canada, age 65. Ms. Ridgway served as Co-Chair of The Atlantic Council of the United States (an association to promote better understanding of international issues) from 1993 to 1996 and was its President from 1989 through 1992. She served 32 years with the U.S. State Department, including service as Ambassador to the German Democratic Republic and to Finland, and, from 1985 until her retirement in 1989, as Assistant Secretary of State for Europe and Canada. She is also a director of Emerson Electric Company, 3M Corporation, The Sara Lee Corporation, and the New Perspective Fund, and a Trustee of National Geographic Society and the Center for Naval Analyses. 

Total shares and share interests

28,508

 

The Company pays each non-employee director an annual board retainer fee of $65,000. An additional annual amount of $20,000 is paid in deferred stock units under the Deferred Compensation Plan for Directors. Deferred stock units will be distributed as shares of Boeing stock after retirement or the termination of Board service.

Additionally, the Company pays each non-employee director who serves as chairman of a committee an annual retainer of $4,000. No additional fees are paid for attending meetings of the Board or its committees.

In order to further align the Company's performance with compensation, non-employee directors are given the opportunity to defer additional amounts of their cash compensation to a cash-based account or to their deferred stock unit account under the Deferred Compensation Plan for Directors. The Company matches all deferrals by non-employee directors to stock unit accounts with a contribution of an additional 25% of such stock units.

The number of deferred stock units credited to each director's account is the number of shares of Boeing stock that could be purchased with the retainer, based on the Fair Market Value of the stock as of the day on which the retainer is earned. "Fair Market Value" for a single trading day is the mean of the high and low per share trading prices for Boeing stock as reported in The Wall Street Journal for the New York Stock Exchange Composite Transactions.

Deferred stock units earn the equivalent of dividends, which are credited as additional stock units. Directors do not have the right to vote or transfer deferred stock units. Cash-based accounts earn interest.

The Company reimburses non-employee directors for actual travel and out-of-pocket expenses incurred in connection with service to the Company.

At the time of a non-employee director's first annual meeting, the director receives an initial option to purchase 3,000 shares of stock. After each subsequent annual meeting during the non-employee director's term, the director receives an option to purchase an additional 2,400 shares. The exercise price of an option is equal to the average of the Fair Market Values for the fifth through ninth business days following the date of grant. Options vest one year after grant, provided the recipient remains a director. Options become exercisable in installments one, three, and five years after the date of grant.

Directors who are employees of the Company do not receive any compensation for their service as directors.

The retirement policy of the Board of Directors is as follows: (a) each director who is not an officer of the Company will resign permanently as a director at the annual meeting of shareholders following that director's 72nd birthday and (b) each director who is an officer of the Company will tender to the Governance and Nominating Committee a resignation as a director on the first to occur of the following: (i) the officer retires under a Boeing employee retirement plan or (ii) the officer no longer fulfills a primary role in the Company, as determined by the Governance and Nominating Committee. In any case, such director will retire permanently as a director no later than the annual meeting of shareholders following that director's 72nd birthday. This policy applies without regard to whether a director has completed his or her term.

The Company does not provide any retirement benefits to non-employee directors.

The charter of the Audit Committee, as adopted by the Board of Directors and amended May 1, 2000, is set forth as Appendix A to this proxy statement. The Audit Committee held six meetings in 2000.

Compensation Committee

The Compensation Committee establishes and administers the Company's executive compensation plans. It sets policy for employee benefit programs and plans. The committee oversees administration of the employee retirement plans and various other benefit plans. The committee makes recommendations to the Board of Directors concerning the salaries of elected Company officers. The committee determines the number of performance shares, stock options and restricted stock units awarded to certain officers of the Company and the terms and conditions on which they are granted. It administers the incentive compensation plans and the deferred compensation plans for employees. The Compensation Committee held six meetings in 2000.

Finance Committee

The Finance Committee reviews and makes recommendations concerning proposed dividend actions, current and projected capital requirements, and issuance of debt or equity securities. It reviews the Company's credit agreements and short-term investment policy. The committee also reviews the investment policies, administration, and performance of the trust investments of the Company's employee benefit plans. The Finance Committee held six meetings in 2000.

Governance and Nominating Committee

The Governance and Nominating Committee reviews and makes recommendations to the Board of Directors with respect to the responsibilities and functions of the Board and Board committees, and with respect to Board compensation. The committee makes recommendations to the Board of Directors concerning the composition and governance of the Board, including recommending candidates to fill vacancies on, or to be elected or re-elected to, the Board. The committee will consider the names and qualifications of candidates for the Board submitted by shareholders in accordance with the procedures referred to in Shareholder Proposals for 2002 of this proxy statement. The committee oversees evaluation of the directors, Board committees and the Board. The committee also makes recommendations to the Board concerning candidates for election as Chief Executive Officer and other corporate officers. At least once each year, the committee reviews the performance of the Chief Executive Officer and the Company's plans for senior management succession. The Governance and Nominating Committee held six meetings in 2000.

During 2000, the Board of Directors held eight meetings and the committees described above held a total of 24 meetings. Average attendance at all such meetings was 98%. Each continuing director attended at least 90% of the Board and committee meetings he or she was eligible to attend.

The Audit Committee of the Board of Directors of The Boeing Company serves as the representative of the Board of Directors for general oversight of the Company's financial accounting and reporting, systems of internal control, audit process, and monitoring compliance with laws and regulations and standards of business conduct. The Board of Directors has adopted a charter for the Audit Committee, which is set out in full in Appendix A to this proxy statement. Management of The Boeing Company has primary responsibility for preparing financial statements of the Company as well as the Company's financial reporting process. Deloitte & Touche LLP, acting as independent auditors, are responsible for expressing an opinion on the conformity of Boeing's audited financial statements with generally accepted accounting principles.

In this context, the Audit Committee hereby reports as follows:

(1) The Audit Committee has reviewed and discussed the audited financial statements for fiscal year 2000 with Boeing's management.

(2) The Audit Committee has discussed with the independent auditors the matters required to be discussed by Statement on Auditing Standards No. 61, Communications with Audit Committees.

(3) The Audit Committee has received the written disclosures and the letter from the independent auditors required by Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees, and has discussed with Deloitte & Touche LLP the matter of that firm's independence.

(4) Based on the review and discussion referred to in paragraphs (1) through (3) above, the Audit Committee recommended to the Board of Directors of The Boeing Company, and the Board of Directors has approved, that the audited financial statements be included in The Boeing Company Annual Report on Form 10-K for the year ended December 31, 2000, for filing with the Securities and Exchange Commission.

Each of the members of the Audit Committee is independent as defined under the listing standards of the New York Stock Exchange.

Audit Fees

The aggregate fees billed by Deloitte & Touche LLP, for professional services rendered for the audit of the Company's annual financial statements for the fiscal year ended December 31, 2000 and for the reviews of the financial statements included in the Company's Quarterly Reports on Form 10-Q for that fiscal year were $10.5 million.

Financial Information Systems Design and Implementation Fees

There were no fees billed by Deloitte & Touche LLP for professional services rendered for information technology services relating to financial information systems design and implementation for the fiscal year ended December 31, 2000.

All Other Fees

The aggregate fees billed by Deloitte & Touche LLP, for services rendered to the Company for the fiscal year ended December 31, 2000, other than for services described above under "Audit Fees," were $24.3 million.

The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal accountant's independence.

CEO Performance Evaluation

At the end of each year, the CEO presents his performance objectives for the upcoming year to the non-employee directors for their approval. The non-employee directors then meet privately to discuss the CEO's performance for the current year against his performance objectives and review that evaluation with the CEO. The Compensation Committee uses this performance evaluation in the course of its deliberations when considering the compensation of the CEO.

Board Performance Evaluation

With the goal of increasing the effectiveness of the Board and its relationship to management, the Governance and Nominating Committee evaluates the Board's performance as a whole. The evaluation process, which occurs at least every two years, includes a survey of the individual views of all non-employee directors, which are then shared with the full Board and with management.

CEO Succession

The Board views CEO selection as one of its most important responsibilities. The CEO reports annually to the Governance and Nominating Committee on planning for CEO succession either in the event of a sudden emergency or, longer range, when it is time for the CEO's retirement. When a succession of the CEO occurs, this committee manages the process of identifying and selecting the new CEO with the full participation of each of the non-employee directors.

Board Size and Composition

The Board believes that approximately 10 to 15 members is an appropriate size for the Boeing Board. The Board also believes that it should be made up of a substantial majority of independent, non-employee directors. The Governance and Nominating Committee reviews annually the appropriate skills and characteristics required of Board members in light of the current makeup of the Board. This assessment includes issues of diversity, age, international expertise, and skills such as understanding of manufacturing, finance, marketing, technology and public policy, etc. The principal qualification for a director is the ability to act on behalf of all the shareholders. The Board currently has 12 members, two of whom are employees of the Company.

Selection of Directors

Under the By-Laws, the Board has authority to fill vacancies in the Board and to nominate candidates for election by the shareholders. The screening process is handled by the Governance and Nominating Committee with direct input from the Chairman and Chief Executive Officer and from the other directors. This committee reviews employment and other relationships of directors, and the Board believes there is no current relationship between any non-employee director and Boeing that would be construed in any way as compromising the independence of any director.

Director Retirement

Each non-employee director must retire at the annual meeting following his or her 72nd birthday. Directors who change the occupation they held when initially elected are expected to offer to resign from the Board. At that time, the Governance and Nominating Committee reviews the continued appropriateness of Board membership under the new circumstances. The Board has adopted a policy calling for employee directors, including the CEO, to retire from the Board at the time of a change in their status as an officer of Boeing.

Director Compensation and Stock Ownership

The Governance and Nominating Committee periodically reviews and compares Boeing Board compensation to director compensation at peer companies, which are benchmarks for the Company's financial performance. It is the Board's policy that a significant portion of director compensation be in the form of Boeing stock or stock equivalents.

Board Agenda and Meetings

The Chairman and Chief Executive Officer establishes the agendas for Board meetings. Each director is free to suggest items for the agenda, and each director is free to raise at any Board meeting subjects that are not on the agenda for that meeting. The Board reviews and approves Boeing's yearly operating plan and specific financial goals at the start of each year, and the Board monitors performance throughout the year. The Board also reviews long-range strategic issues at regular Board meetings.

Executive Sessions of Non-employee Directors

The non-employee directors meet privately in executive sessions to review the performance of the CEO and to review recommendations of the Compensation Committee concerning compensation for the employee directors and other members of senior management. The non-employee directors meet in executive session at least twice a year to consider such matters as they deem appropriate without management present.

Committees of the Board

The Board has the following committees: Audit, Compensation, Finance, and Governance and Nominating. Only non-employee directors serve on these committees. Chairpersons and members of these four committees are rotated periodically, as appropriate. At each meeting of the Audit Committee, committee members meet privately with representatives of Deloitte & Touche LLP, the Company's independent auditors, and with the Company vice president responsible for carrying out the internal audit function.

It is the policy of the Company that the chairs of the Audit, Compensation, Finance and Governance and Nominating Committees of the Board each act as the chair at meetings or executive sessions of the non-employee directors at which the principal items to be considered are within the scope of the authority of his or her committee. This factor provides for leadership at all meetings or executive sessions without the need to designate a lead director.

Confidential Voting

The Company's policy is that all proxy, ballot, and voting materials that identify the vote of a specific shareholder on any matter submitted for a vote of shareholders will be kept secret from directors and executive officers of the Company, except (a) when disclosure is required by applicable law or regulation, (b) when a shareholder expressly requests such disclosure, or (c) in a contested proxy solicitation. If the shareholder is an employee of the Company or a participant in the Boeing stock fund of one of the Company's retirement, savings or employee stock ownership plans, the information will not be disclosed to management unless clause (a) or (b) above applies.

During 2000:

• None of the members of the Compensation Committee was an officer (or former officer) or employee of the Company or any of its subsidiaries;
• None of the members of the Compensation Committee entered into (or agreed to enter into) any transaction or series of transactions with the Company or any of its subsidiaries in which the amount involved exceeds $60,000;
• None of the Company’s executive officers served on the compensation committee (or another board committee with similar functions) of any entity where one of that entity’s executive officers served on the Company’s Compensation Committee;
• None of the Company’s executive officers was a director of another entity where one of that entity’s executive officers served on the Company’s Compensation Committee; and
• None of the Company’s executive officers served on the compensation committee (or another board committee with similar functions) of another entity where one of that entity’s executive officers served as a director on the Company’s Board.

The Company and its subsidiaries have transactions in the ordinary course of business with other corporations of which Boeing directors are executive officers. The Company does not consider the amounts involved in such transactions to be material in relation to its business and believes that such amounts are not material in relation to the business of such other corporations or the interests of the directors involved.

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors and certain of its officers to send reports of their ownership of Boeing stock and of changes in such ownership to the Securities and Exchange Commission (the "SEC") and the New York Stock Exchange. SEC regulations also require the Company to identify in this proxy statement any person subject to this requirement who failed to file any such report on a timely basis. Based on the Company's review of the reports it has received, the Company believes that all of its directors and officers complied with all reporting requirements applicable to them with respect to transactions during 2000.

The table below shows ownership of Boeing stock as of February 26, 2001, by (a) each director and nominee, (b) the Chief Executive Officer, and each of the other four most highly compensated executive officers (collectively, the "Named Executive Officers"), (c) all directors, nominees and executive officers as a group, and (d) the entities known by the Company to be beneficial owners of more than 5% of the outstanding shares of stock (as of December 31, 2000).

The first column to the right of the name includes the number of shares beneficially owned, directly and indirectly, including shares owned by, or jointly with, his or her spouse and shares owned by, or held in custody for, minor children.

The second column shows the total number of stock units and interests in shares held pursuant to the Company's compensation and benefit plans or pursuant to contract. While these interests may not be transferred, some are vested. They are listed below because they represent a significant part of the total economic interest of the directors and executive officers in Boeing stock.

The third column shows the total of the first and second columns.

The final column shows for each owner the percentage of all shares outstanding represented by that owner's total. An asterisk in that column indicates that the person's total interests are less than 1% of the shares of stock outstanding at February 26, 2001.

All numbers in the table are rounded to the nearest whole share. No family relationship existed among any of the directors or executive officers of the Company.

No options or stock appreciation rights ("SARs") were granted to the Named Executive Officers in 2000. No SARs remained outstanding at year-end. The table below sets forth information with respect to the number and assumed value of outstanding options held by the Named Executive Officers at year-end.

Performance Shares vest at such time as the average daily closing price of a share of Boeing stock on the NYSE over a 20-consecutive-day period achieves a specified hurdle. The Performance Shares will be distributed in Boeing stock on the date the specified performance hurdle is met. The Performance Shares earn dividend equivalents, which will be accrued in the form of additional Performance Shares and distributed in Boeing stock when and to the extent that the related Performance Shares are distributed.

The total number of shares delivered by the end of the five-year cycle will range from zero to 125% of the contingent grant. If the threshold price is achieved, 25% of the Performance Shares will vest. If stock price milestones between threshold and target are met, the Performance Shares will vest in increments of 40%, 55%, and 75%, up to 100% if the target price is achieved and 125% if the superior price is achieved. If the Company's stock price does not achieve the specified performance hurdles, the Compensation Committee of the Board of Directors may, in its discretion, allow vesting of up to 100% of the target Performance Shares if the Company's total shareholder return ("TSR" = stock price appreciation plus dividends) during the five-year performance period exceeds the average TSR of the S&P 500 over the same period.

During 2000, the Company's stock price achieved the stated performance hurdles required for vesting of 75% of the Performance Shares granted in 1999, and 55% of the Performance Shares granted in 2000. The values of the stock at the times of vesting are shown in the LTIP Payouts column of the Summary Compensation Table. The table below sets forth information with respect to Performance Shares granted to the Named Executive Officers in 2000.

Under the Supplemental Executive Retirement Plan, pension benefits are based on years of credited service times 1.6% of average annual salary plus average annual incentive compensation for the last five years of employment. Annual incentive compensation includes the amounts shown in the Bonus column of the Summary Compensation Table and the values of BSUs, which are shown in footnote (2) to the Summary Compensation Table. Benefits calculated under the Supplemental Executive Retirement Plan are limited to 100% of a participant's annual salary at termination and are reduced by the amount of benefits received under the Pension Value Plan.(1) The total annual averages for the current Named Executive Officers are now as follows:

Mr. Stonecipher has an agreement that may increase the amount of retirement benefits received from the Company. (See Employment Contracts and Termination of Employment Arrangements.) Pursuant to Mr. Stonecipher's agreement, he will receive credit for twice as many years of service as he actually works for the Company, which is reflected in the credited service shown above. In addition, the Company will provide a supplemental pension payment equal to the difference between: (a) what Mr. Stonecipher would have received from an employer prior to his employment with McDonnell Douglas had he stayed with that employer through the end of the Employment Period and (b) the pension payments he is actually entitled to receive from the prior employer, McDonnell Douglas, and the Company. Had Mr. Stonecipher attained age 65 and retired on January 1, 2001, the supplemental payment under the agreement would have been approximately $150,000 per year.

Mr. Sears has a Supplemental Pension Agreement that may increase his retirement benefit from the Company. The Agreement provides that upon his retirement, the Company will supplement his benefit under the Supplemental Executive Retirement Plan by the amount necessary to equal the amounts he would have received under retirement plans of McDonnell Douglas, if they had continued in effect until his retirement. Had Mr. Sears attained age 65 and retired on January 1, 2001, the supplemental payment under the Agreement would have been approximately $12,000 per year.

Had Mr. Condit attained age 65 and retired on January 1, 2001, his benefit calculated under the Supplemental Executive Retirement Plan formula would have exceeded his annual salary by approximately $12,000 per year. Because the Plan limits pension benefits to 100% of annual salary, Mr. Condit's benefit would have been reduced accordingly.

Employment Agreement With Mr. Stonecipher. Effective August 1, 1997, the Company entered into an employment agreement (the "Employment Agreement") with Mr. Stonecipher to secure his services as President and Chief Operating Officer of the Company. The Employment Agreement amends and restates Mr. Stonecipher's prior employment agreement with McDonnell Douglas and supersedes all prior agreements between McDonnell Douglas and Mr. Stonecipher. While the "Employment Period" under the Employment Agreement was to expire on May 16, 2001, the Employment Agreement was amended effective June 26, 2000, to extend the expiration to May 16, 2002.

During the Employment Period, Mr. Stonecipher is to receive both annual and long-term equity incentive compensation. Annual compensation includes a minimum base salary of $900,000 per year, reviewed annually by the Compensation Committee of the Board of Directors. He received incentive compensation for 1997 of $635,000, paid 70% in cash and 30% in BSUs. Beginning with 1998, Mr. Stonecipher's incentive compensation is determined under the Company's Incentive Compensation Plan. Pursuant to the Employment Agreement, the following long-term equity incentive compensation previously awarded to Mr. Stonecipher by McDonnell Douglas was converted into similar awards with respect to Boeing stock in accordance with the terms of the Agreement and Plan of Merger between the Company and McDonnell Douglas Corporation: 477,415 Boeing stock equivalents ("BSEs"), 140,400 of which, together with related dividend equivalents, remain subject to vesting by no later than March 31, 2002; 78,000 shares of restricted stock, 31,200 of which vested at the end of 1999 and 15,600 of which vested or will vest at the end of each of 2000, 2001, and 2002; and options to purchase 1,170,000 shares of Boeing stock, which vested and became exercisable in increments of 234,000 shares on September 24 in each of 1996, 1997, 1998, 1999, and 2000. Mr. Stonecipher receives dividends and voting rights on his shares of restricted stock; the BSEs do not have voting rights, and dividend equivalent payments on the BSEs are reinvested into additional BSEs. All converted restricted stock and stock options will be issued under and subject to the terms and conditions of the McDonnell Douglas Corporation 1994 Performance and Equity Incentive Plan. Additional long-term incentive awards will be granted to Mr. Stonecipher at the sole discretion of the Compensation Committee.

For the purposes of calculating Mr. Stonecipher's benefits under the retirement plans of the Company and McDonnell Douglas, he will receive credit for twice as many years of service as he actually worked for the Company and McDonnell Douglas. In addition, the Company will provide a supplemental pension payment equal to the difference between (a) what Mr. Stonecipher would have received from an employer prior to his employment with McDonnell Douglas had he stayed with that employer through the end of the Employment Period and (b) the pension payments he is actually entitled to receive from the prior employer, McDonnell Douglas, and the Company.

Pursuant to the Employment Agreement, Mr. Stonecipher is also entitled to at least four weeks paid vacation each year, fringe benefits and perquisites in accordance with the policies of McDonnell Douglas as in effect immediately prior to the acquisition of McDonnell Douglas by Boeing, moving and relocation expenses incurred in moving to Seattle, and participation in the Company's other employee benefit plans available to senior Boeing executives.

The Employment Agreement terminates upon the earliest of May 16, 2002, termination by the Company of Mr. Stonecipher's services for cause, termination of his employment by Mr. Stonecipher for good reason, or Mr. Stonecipher's death or inability to render services for 180 days during any 12-month period. Under the Employment Agreement, "good reason" means a breach of the Employment Agreement by the Company,
removal from the Company's Board of Directors for reasons other than voluntary resignation, removal from his position as President and Chief Operating Officer for reasons other than for cause, diminution in responsibilities or assignment of duties reasonably deemed by Mr. Stonecipher to be inappropriate for someone in his position.

In the event Mr. Stonecipher terminates his employment for good reason, he will be entitled to receive the present value of the salary and target annual incentive compensation he would have received if his employment had continued for the remainder of the Employment Period. In the event of such a termination, all of Mr. Stonecipher's BSEs would be paid upon termination of employment, stock options would continue to vest for the remainder of the Employment Period and for one year following termination of the Employment Period and would be exercisable only within three years of that time, and grants of performance-based restricted shares would be ratably adjusted. Payments of amounts due upon termination of the Employment Agreement will be deferred to the extent necessary to permit the Company a full deduction for all such payments under Section 162(m) of the Internal Revenue Code of 1986, as amended.

The Employment Agreement prohibits Mr. Stonecipher from disclosing at any time confidential information or trade secrets concerning the Company without the Company's express written consent. Mr. Stonecipher also may not be employed or affiliated with a competitor of the Company as long as any restricted stock, BSEs or stock options under the Employment Agreement remain unvested or unexercised. The vesting of restricted stock and BSEs and the exercise of stock options are subject to Mr. Stonecipher's full compliance with the nondisclosure and non-compete provisions of the Employment Agreement.

The Compensation Committee (the "Committee") of the Board of Directors establishes and administers the Company's executive compensation programs. During 2000, the Committee was composed of five non-employee members of the Board-Messrs. Biggs, Duberstein, Fery, and McDonnell and Ms. Ridgway. Dr. William J. Perry served on the Committee until his retirement from the Board on May 1, 2000.

The goals of the Company's integrated executive compensation programs are to 

Boeing executive officers are assigned to pay grades, each with an established salary range, a percentage of salary that establishes a target award for the annual incentive, and a factor of salary on which long-term incentive awards are based. Assignment to a pay grade is determined by comparing individual responsibilities with industry survey data and internal executive job relationships. The survey data compares Boeing pay levels with those for comparable jobs in a stable group of benchmark companies, which includes major aerospace and other large industrial corporations. The group includes two of the aerospace and defense companies in the S&P Aerospace Index used in the performance comparison graph.

Salaries

The Committee annually reviews the competitive salary levels of executive officers. Boeing executive officer salary levels for the year 2000 were generally targeted for the average of salaries of corresponding positions at the benchmark companies, as adjusted for company size.

Salary Determination. Executive officer salary adjustments are determined by a subjective evaluation of individual performance, and by objective comparisons to internal peer data and external market data. Mr. Stonecipher's salary was determined in part in accordance with the terms of his employment agreement with the Company.

After considering Boeing's overall performance, Mr. Condit's performance as CEO and competitive practices for CEOs at other major industrial corporations, the Compensation Committee recommended, and the Board approved, an increase to his annual base salary effective March 1, 2000.

Annual Incentive Awards

Annual incentive awards are designed to focus management attention on annual Company performance. Each executive pay grade has an assigned incentive target award. The incentive target award percentages assigned to the Named Executive Officers' pay grades range from 80% to 100% of salary. The target award is adjusted based on Company and individual performance. Executive bonuses are paid in a combination of cash and Boeing Stock Units which are described in greater detail below. For the Named Executive officers, including the CEO, the year 2000 awards were paid out approximately 60% in cash and 40% in Boeing Stock Units.

Incentive Award Determination. Each officer's target incentive award is adjusted first based on company performance against a pre-established goal of economic profit, which reflects operating profit as well as cost of capital. The award is adjusted further based on an evaluation of individual performance. The Committee believes that the Company's financial performance for the year 2000 exceeded expected levels.

Based on their contributions to the above-target performance, the Named Executive Officers received annual incentive awards averaging 191% of base salary. Because of his leadership role and the Company's performance results, the Compensation Committee awarded the Chief Executive Officer an incentive award of 236% of base salary.

Boeing Stock Units. Forty percent of the annual incentive is awarded in Boeing Stock Units ("BSUs"), which serve to further tie the interests of the executives to those of the shareholders and balance short- and longer-term performance focus. BSUs are restricted stock units without voting rights but earning dividend equivalents. BSUs vest three years from the date of the award, assuming continued employment. The values of the BSUs at the time of grant to the Named Executive Officers, including the Chief Executive Officer, are shown in footnote (2) to the Summary Compensation Table.

Long-Term Incentives

Performance Shares. The Company's long-term incentive program is designed to link executive awards with shareholder returns. Under this program, executives are awarded Performance Shares, which are rights to receive Boeing stock contingent on the Company's attaining shareholder return goals within a specified time period. These performance goals represent predetermined annual five-year compounded growth rates from the stock price at the time the Performance Shares are granted. Any Performance Shares not achieving the stated performance hurdles within five years will expire. The terms of the Performance Shares granted to the Named Executive Officers, including the Chief Executive Officer, are stated in Performance Shares Under the Long-Term Incentive Plan.

During 2000, the Company's stock price achieved the stated performance hurdles required to vest 75% of the 1999 Performance Share grant, and 55% of the 2000 Performance Share grant. The dollar value of the shares awarded is shown in the "LTIP Payouts" column of the Summary Compensation Table.

Career Shares. The long-term incentive program also includes grants of Career Shares to certain executives who make substantial contributions to the management, growth, and success of major components of the Company's business. Career Shares are stock units that are distributed in Boeing stock and contingent on the participant's staying with the Company until retirement. Career Shares earn dividend equivalents, which accrue in the form of additional Career Shares and which will be distributed in Boeing stock when and to the extent the Career Shares are distributed. The number of Career Shares an executive is granted is based on the executive's pay grade and salary. The values of the Career Shares at the time of grant to the Named Executive Officers, including the Chief Executive Officer, are shown in footnote (2) to the Summary Compensation Table.

Stock Ownership

Stock ownership is a fundamental principle underlying the philosophy and structure of the Company's compensation programs. Stock ownership for executives ensures alignment with the interests of shareholders and a focus on growing shareholder value. The Committee has established stock ownership guidelines for executives that range from one to six times annual base salary, and from four to six times base salary for the Named Executive Officers.

Each element of the Company's incentive compensation program is designed to encourage and facilitate stock ownership, including payment of 40% of the annual incentive award in BSUs, Performance Shares as the primary long-term incentive compensation program, and Career Shares that invest the executives in stock units until retirement. As a further incentive to encourage long-term stock ownership, the Company provides a 25% matching contribution of any deferral of salary (up to 50%), annual incentive awards, and vested Performance Shares into an unfunded deferred stock unit account. The values of matching deferred stock units at the time of grant to the Named Executive Officers, including the Chief Executive Officer, are shown in footnote (2) to the Summary Compensation Table.

Tax Deductibility of Compensation

Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a $1 million limit on the amount that a publicly traded corporation may deduct for compensation paid to a Named Executive Officer who is employed on the last day of the fiscal year. "Performance-based compensation" is excluded from this $1 million limitation.

To the extent consistent with a performance-based approach and the Company's ability to provide competitive compensation, the Committee's policy is generally to provide executive compensation that is fully deductible by the Company for income tax purposes. The Company's annual incentive awards and certain long-term incentive awards other than Performance Shares awarded to the Named Executive Officers are designed to qualify as performance-based compensation that is fully deductible by the Company under Section 162(m).

The following graph shows changes in the value of $100 invested at year-end 1995 in (a) Boeing stock, (b) the S&P 500 Stock Index, and (c) the S&P Aerospace Index. The investment values are based on share price appreciation plus dividends paid in cash, assuming that dividends were reinvested on the date on which they were paid.

The stock price performance shown in the graph is not necessarily indicative of future price performance.