COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors establishes and administers
the Company's executive compensation programs. The goals of the Company's
integrated executive compensation programs are to:
- Align executive compensation with shareholder interests;
- Attract, retain, and motivate a highly competent executive team;
- Link pay to individual, operating group, and Company performance; and
- Achieve a balance between short-term and long-term results.
The full Board of Directors reviews the Committee's recommendations and approves
the salaries of all elected officers, including the executive officers named in
the Summary Compensation Table. The Committee is responsible for all other elements of executive compensation, including annual incentive awards,
stock options, and the Long-Term Incentive Program for key executives.
Boeing executive officers are assigned to pay grades with established salary
ranges, annual incentive award target percentages, and stock option grant
guidelines. Assignment to a pay grade is determined by comparing individual
responsibilities with industry survey data and internal executive job
relationships. It is the Committee's objective to maintain a competitive
compensation structure for Boeing executives.
Boeing executive compensation programs are designed to provide awards based on
individual, operating group, and overall Company performance measures. To the
extent that there is no adverse effect on this performance-related approach or on
the Company's ability to provide competitive compensation, it is the Committee's
policy to minimize executive compensation expense that is non-deductible by the
Company for tax purposes. In 1995, none of the named executive officers received
compensation that was non-deductible by the Company.
Salaries
The Committee annually reviews the salary levels of executive officers, utilizing
data provided by an outside consulting firm, and comparing Boeing salaries to
those for comparable jobs in major aerospace and large industrial corporations.
These companies are selected on the basis of their comparable size and operating
performance, and include approximately half of the aerospace and defense
companies in the Standard & Poor's Aerospace Index used in the performance comparison graphs. Boeing executive officer salary levels are targeted
for the median position of this benchmark company group.
Executive officer salary adjustments are determined by a subjective evaluation of
performance and by comparisons to peers inside and outside the Company. Survey
data indicate that 1995 base salaries of the named executive officers, including
Mr. Shrontz, are on average slightly below the median of the benchmark companies.
Annual Incentive Awards
Annual incentive awards are designed to focus management attention on Company
performance. Each pay grade has an assigned incentive award percentage (which is
a percentage of annual salary) that provides an incentive opportunity based on
Company, operating group, and individual performance. The 1995 incentive award
percentages assigned to the named executive officers' pay grades range from 60%
to 80% of salary. The annual incentive award an executive officer is eligible to
receive can range from zero to two times the incentive award percentage assigned
to that officer's pay grade. The 1995 annual incentive awards for the named
executive officers were paid out approximately 70% in cash and 30% in Boeing
Stock Units ("BSUs"), which are discussed below.
The actual incentive awards approved by the Committee were based on evaluation of
Company and operating group performance, coupled with a subjective evaluation of
individual performance. Company performance was evaluated based on the
achievement of operating group goals, as well as progress toward specific
long-term goals of quality, profitability, and growth. Operating group
performance was evaluated based primarily on operating plan measures of (a)
customer, employee, and community satisfaction; (b) productivity and cost
performance; (c) specified profit contributions; and (d) market share or new
product orders.
Evaluation of Company performance each year takes into consideration a comparison
with the performance of peer and premier companies and the overall industry
environment. The resulting performance evaluation produces a percentage factor
that may increase or decrease the incentive awards for executive officers. For
1995, the Committee assessment was that the Company performed well, with major
productivity gains in a year in which a significant number of experienced
employees accepted an early retirement offer and operations were affected by a
fourth-quarter labor dispute and strike by production and maintenance workers.
Awards for the named executive officers other than Mr. Shrontz averaged 124% of
their assigned percentages.
Cash Awards
The cash portion of each incentive award is shown in the
Bonus column of the Summary Compensation Table.
The cash portion of Mr. Shrontz's annual incentive award was based on his
leadership and contributions to the Company's operating performance, including
excellent results in commercial aircraft market share and solid technical and
cost performance in all sectors of the business. With regard to shareholder
value, the Company in 1995 outperformed the S&P Aerospace Index and
significantly outperformed the S&P 500. The cash portion of the incentive
award made by the Committee for Mr. Shrontz's outstanding leadership over all
operations is shown in the Bonus column of the Summary Compensation Table.
Boeing Stock Units
The number of BSUs awarded was determined by crediting each executive with the number of shares that could
be purchased with 30% of that officer's target incentive award, adjusted for
Company performance, based on the Fair Market Value of Boeing stock (as defined in Compensation of Directors) on the day of the award. The BSUs vest three years after the award and each executive may choose to have them paid out in either shares of Boeing stock
or cash. The values of the BSUs at the time of grant to Mr. Shrontz and the other
named executive officers are shown in the Restricted Stock column of the Summary Compensation Table.
Stock Options
Stock options are granted to provide a long-term incentive that is directly
linked to shareholder value. To recognize the different levels of
responsibilities within the Company, the number of stock options an executive
officer is granted is determined by the officer's pay grade, salary, and the
price of Boeing stock. However, all stock option grants are subject to
discretionary adjustments based on individual performance or for purposes of
retention.
Stock options are granted with an exercise price equal to the Fair Market Value
of Boeing stock on the date of grant, and become exercisable in 40%, 30%, and 30%
increments after one, three, and five years, respectively. To encourage stock
retention, and consistent with past practice, stock options are granted as
incentive stock options to the extent permitted under the Internal Revenue Code.
Mr. Shrontz's stock option grant in 1995 was consistent with these guidelines.
In approving annual stock option grants, the number of outstanding stock options
held by an individual did not influence the Committee's decision.
Long-Term Incentive Program
Prior to 1994, certain senior executives were chosen by the Committee to
participate in the Long-Term Incentive Program. Under the Program, executive
investment performance shares were allocated in the first year of a seven-year
performance cycle. After completion of the third year of the cycle, the
Committee, in its discretion, could award additional performance shares in an
amount from 0% to 200% of the number of each participant's initial shares for the
cycle, depending on the Committee's assessment of management's achievement of
certain performance targets. Each performance share is converted into one share
of Boeing stock four years after it is awarded and earns dividend equivalents and
interest on dividend equivalents, which are payable when the performance share is
converted into stock.
New performance cycles under the Long-Term Incentive Program were discontinued in
1994, although the Committee will consider awards in 1996 for the final
performance cycle. The size of the performance-based awards will be based on an
assessment of overall performance against the Company's long-range strategic plan
for that performance cycle. The performance measures used are return on equity,
real sales growth, and quality improvement as measured by customer, employee, and
community satisfaction, as well as consideration of total shareholder return.
Although the Committee does not assign relative weights to these factors, each
factor has specific targets and measures.
In evaluating performance for the three-year period that ended December 31, 1994,
the Committee concluded that the Company produced excellent results for most of
the performance cycle. The Committee decided that management responded well to
dramatic changes in the external environment, achieved very favorable performance
in the defense and aerospace programs, successfully implemented the 777 program,
took appropriate steps in consolidating the workforce, positioned the Company
well for future success, and significantly influenced the strong improvement in
shareholder value. As a result, the Committee, based on its subjective assessment
of Company performance, awarded performance-based shares at 1.4 times the number
of executive investment performance shares awarded at the beginning of the cycle
in 1992. The percentage awarded is the same for all participants.
This formula, applied to Mr. Shrontz's 1992 executive investment performance
shares, produced an award to him of 6,350 performance shares. The value at the
time of grant of the additional performance shares awarded to Mr. Shrontz and the
other named executive officers is shown on the line for 1994 in the LTIP Payouts
column of the Summary Compensation Table.
COMPENSATION COMMITTEE:
- George M. Keller, Chairman
- Robert A. Beck
- Harold J. Haynes
- Donald E. Petersen
- Charles M. Pigott
- George H. Weyerhaeuser
The following graphs show changes in the value of $100 invested at year-end 1990
and 1985, respectively, in (1) the Company's stock, (2) Standard & Poor's 500
Stock Index, and (3) Standard & Poor's 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.
Five-Year Cumulative Total Returns
Ten-Year Cumulative Total Returns
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