Item 11. EXECUTIVE COMPENSATION

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Item 11. EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The 2021 compensation of our named executive officers appropriately reflects and rewards their significant contributions to TransDigm’s strong performance in another year that presented unique and unprecedented challenges for our executive team to manage. This Compensation Discussion and Analysis explains the guiding principles and practices upon which our executive compensation program is based and the compensation paid to our named executive officers:

Kevin Stein, President, Chief Executive Officer and Director
Michael Lisman, Chief Financial Officer
Jorge L. Valladares III, Chief Operating Officer
Sarah Wynne, Chief Accounting Officer
Robert Henderson, former Vice Chairman
W. Nicholas Howley, former Executive Chair

Mr. Howley transitioned from Executive Chair to non-executive Chair in August 2021 as described elsewhere in this Compensation Discussion and Analysis; Mr. Howley was no longer an employee after such date. Mr. Henderson retired as Vice Chairman in December 2021.

Guiding Principles

Performance Expectations. We establish clear, quantitative, robust financial goals focused on TransDigm’s overall success and impact.

Stockholder Alignment. We establish ownership policies that encourage long-term equity retention and, due to our unique capital allocation philosophy, have dividend equivalent rights to “make whole” executives who hold vested performance options.

Focus on Long-Term Equity Incentives. We have limited fixed cash compensation (i.e., salary and annual incentive) and emphasize long-term performance and retention by significantly weighting our named executive officers toward long-term equity awards.

Executive Compensation Policies and Practices

We are committed to sound executive compensation policies and practices, as highlighted in the following table:


Equity compensation limited to performance-based options						Our stock option plans do not authorize the issuance of any full value awards, such as stock, restricted stock or other stock-based units. Our option program relies on performance-vested options with robust performance criteria; we do not issue time-vested options.
Prohibition on hedging, pledging and short sales						We prohibit hedging, pledging, transactions in derivatives and short sales in TransDigm securities by all employees and directors, including our named executive officers.
Equity ownership guidelines						We have robust equity ownership guidelines for all of our option holders, including our named executive officers.
No tax gross-ups						We do not provide for gross-ups of taxes, including in the event of a change in control or under Section 409A.
No evergeen employment contracts						Executive employment agreements do not contain automatic renewal provisions.
No perquisites						We do not provide perquisites.
Annual compensation risk assessment						The Compensation Committee conducts an annual risk assessment of our compensation program.
Independent compensation consultant						The Compensation Committee directly retains an independent compensation consultant.

Compensation Committee Judgment and Discretion

The Compensation Committee, consisting entirely of independent directors, reviews and approves the compensation of TransDigm’s named executive officers and acts as the administrator for TransDigm’s equity compensation plans.

The Compensation Committee’s executive compensation determinations are subjective and the result of the Compensation Committee’s business judgment, which is informed by the experience of its members and input provided by its independent compensation consultant, our Chief Executive Officer (other than with respect to his own compensation), other members of management, and investors.

The Compensation Committee regularly evaluates TransDigm’s executive compensation program to determine if changes are appropriate. In so doing, the Compensation Committee may consult with its independent compensation consultant and management; however, the Compensation Committee makes final decisions regarding the compensation paid to our named executive officers based on its own judgment. The Compensation may consider factors such as individual performance, company performance, market conditions, financial goals, retention and shareholder interests in determining compensation.

The Role of the Compensation Consultant. The Compensation Committee selects and retains the services of an independent compensation consultant. The independent compensation consultant is independent in accordance with SEC and NYSE rules. During 2021, the Compensation Committee’s independent compensation consultant, Veritas Executive Compensation Consultants, provided no services to TransDigm other than services for the Compensation Committee and worked with TransDigm’s management only on matters for which the Compensation Committee is responsible.

The Role of the Chief Executive Officer. At the Compensation Committee’s request, for 2021, Mr. Howley provided input regarding the performance and compensation of Mr. Stein and Mr. Stein provided input regarding the performance and compensation of the other named executive officers. The Compensation Committee considered Mr. Howley’s and Mr. Stein’s evaluation and direct knowledge of each named executive officer’s performance and contributions when making compensation decisions. Mr. Stein is not present during Compensation Committee voting and deliberations regarding his own compensation and, when he was formerly an employee, Mr. Howley was not present during Compensation Committee voting and deliberations regarding his own compensation.

The Role of Investors. Stockholders are provided the opportunity to cast an annual advisory vote on the compensation of our named executive officers. Last year, investors did not support the compensation of our named executive officers, with only 43% of votes cast on the say-on-pay proposal at the 2021 annual meeting voted in favor of our executive compensation program. Accordingly, we have made a number of changes to our executive compensation program for 2022. We have ongoing discussions with many of our investors regarding various corporate governance topics, including environment, social and governance topics and executive compensation. The Compensation Committee considers these discussions while reviewing our executive compensation program.

The Role of Peer Companies. With the assistance of Veritas Executive Compensation Consultants, the Compensation Committee identifies companies to serve as market reference points for compensation comparison purposes at least every other year. In May 2021, the Compensation Committee engaged Veritas Executive Compensation Consultants to do a survey of total standard compensation components for the certain executives, including the named executive officers, other than the Chief Accounting Officer. In doing so, we specifically asked that they exclude dividend equivalent payments (“DEPs”) for two reasons—first, because we view DEPs as putting the executive in the place of the stockholder without requiring an exercise (and typically accompanying sale to, for example, offset taxes) and second, because including episodic DEPs in a compensation review is not going to be as insightful as the anomalies of DEPs will distort any peer analysis.

Veritas used a peer group based on revenue, market capitalization and enterprise value. We use a size based peer group because we manage our business based on EBITDA As Defined growth and enterprise value. The Compensation Committee previously rejected a peer group based solely on revenue as being not comparable with TransDigm because TransDigm’s market capitalization and enterprise value far exceeded those of the potential revenue-based peers. TransDigm used as its peer group the following companies:


Allison Transmission Holdings, Inc.	Emerson Electric	Northrup Grumman Corporation
Ametek, Inc.	Fastenal Company	PACCAR Inc.
Amphenol Corporation	Flowserve Corporation	Parker-Hannifin Corporation
AO Smith Corp.	Fortive Corp.	Raytheon Technologies Corp.
Ball Corporation	General Dynamics Corporation	Rockwell Automation, Inc.
BorgWarner Inc.	HEICO Corporation	Roper Technologies, Inc.
Colfax Corporation	Illinois Tool Works	Stanley Black & Decker, Inc.
Cummins Inc.	L3Harris Technologies, Inc.	Textron Inc.
Dover Corporation	Masco Corporation	The Boeing Company

The survey determined that the named executive officers as a whole were positioned at the low end of the peer group in terms of cash compensation, but in the high end of the peer group in terms of total standard compensation and opportunities, but that the chief operating officer received cash compensation above the median compared to peers.

The Compensation Committee considers peer group data provided by its independent compensation consultant to inform its decision-making process so it can set total compensation levels that it believes are commensurate with the relative size, scope, and success of TransDigm. The Compensation Committee generally targets to pay salary and annual incentive to most executives below the median of our peers.

2021 Named Executive Officer Compensation

Our executive compensation program is designed to motivate and reward performance in a straightforward and effective way, while recognizing TransDigm’s private equity philosophy, management style and targeted returns. The compensation of our named executive officers has three primary components: (i) annual base salary, (ii) annual cash incentive and (iii) long-term equity awards in the form of performance-based options. In addition, our options have attendant to them dividend equivalent rights.

2021 Annual Base Salary. Base salary is a customary, fixed element of compensation intended to attract and retain executives. When setting the annual base salaries of our named executive officers, the Compensation Committee considers market data provided by its independent compensation consultant, internal pay equity, and TransDigm’s financial results. The Compensation Committee determined that, effective January 1, 2021, the base salaries of Messrs. Stein, Lisman and Valladares and Ms. Wynne should be $1,225,000, $600,000, $680,000 and $450,000 per year, respectively. As discussed elsewhere in this Form 10-K, pursuant to the terms of their respective employment agreements, Mr. Howley and Mr. Henderson did not receive a cash salary for 2021. The only annual cash salary each was entitled to was in the amount of $7,000 and $10,000, respectively, and was for health insurance and related taxes. The remaining compensation of each was paid in performance-based stock options. More specifically, in accordance with his employment agreement, the Compensation Committee granted Mr. Henderson options to purchase 4,013 shares in lieu of 2021 salary (482 of which were forfeited upon his retirement in December 2021). Mr. Howley received options to purchase 11,484 shares in lieu of 2021 salary, calculated in accordance with his employment agreement.

2021 Annual Incentives. Our annual cash incentive program is a variable, at-risk component of our named executive officers’ compensation that is aligned with TransDigm’s annual financial results. For fiscal year 2021, our annual incentives were based on EBITDA As Defined and EBITDA As Defined margin(1). This was a change from prior years that was originally in response to investor concern over overlapping metrics in TransDigm’s annual incentive and stock option plans, although the inability to establish annual operating performance targets in 2021 did result in overlap of metrics under the two plans for 2021. That will not be the case in 2022 and beyond. The Compensation Committee has eliminated the overlapping metric in the long-term incentive plan and commits that it will not use overlapping metrics going forward. The Committee retains the authority to increase or decrease the award by up to 20%, based on assessment of individual performance, including without limitation, degree of difficulty of the achievement of metrics and the individual’s job effectiveness; the effectiveness of TransDigm’s value drivers; a pattern of clear, open, honest and regular communication with the Board and investors, as applicable; effective succession planning and organizational development; support, maintenance and regular evaluation of the effectiveness of TransDigm’s long term value focused strategy; or other factors.

Annual cash incentive payouts are determined based on an equal weighting for the EBITDA As Defined and EBITDA As Defined margin performance measures, as approved by the Compensation Committee, and are linearly interpolated for achievement between threshold, target, and maximum goals. If the threshold performance level is reached, the total payout opportunity is 70% of the target payout opportunity, and if the maximum performance level is reached, the payout opportunity is 130% of the target payout opportunity. Unless the threshold goal is achieved for a performance measure, there is no payout for that performance measure.

When setting the goals focused on EBITDA As Defined and EBITDA As Defined margin for fiscal 2021, the Compensation Committee considered many factors, including the uncertainty caused by the COVID-19 pandemic and its impact on worldwide travel and the aerospace industry and the extent of management’s ability to predict and influence performance. The Compensation Committee considered the likelihood of a range of scenarios for EBITDA As Defined and EBITDA As Defined margin and factors that were projected to have an impact on fiscal 2021 EBITDA As Defined and EBITDA As Defined margin. Based on these considerations, in the first quarter of fiscal 2021, the Compensation Committee set annual threshold, target and maximum cash incentive plan goals at levels they considered appropriately rigorous for the year, and that represented strong financial performance under challenging business conditions. If the threshold goal was met, management would receive 70% of the target incentive; if the target goal was met, management would receive 100% of the target incentive; and if the maximum goal was met, management would receive 130% of the target incentive. The threshold for EBITDA As Defined was $1,873 million, the target goal was $2,177 million and the maximum goal was $2,481 million. The threshold for EBITDA As Defined margin was 40.5%, the target goal was 44.5% and the maximum goal was 48.5%. Amounts in between the threshold and target or target and maximum goals would be determined by linear interpolation.

(1) References made within Item 11. Executive Compensation to “EBITDA As Defined” means EBITDA plus, as applicable for each relevant period, certain adjustments, on a pro forma basis, which is defined in the same manner as the Consolidated EBITDA used to measure the ratio of our secured indebtedness required under a financial covenant of our senior secured credit facility. “EBITDA As Defined margin” refers to the percentage calculated by dividing EBITDA As Defined by net sales, on a pro forma basis, for the applicable period. Reference reconciliation to pro forma EBITDA As Defined and pro forma EBITDA As Defined margin included below for additional details and ‘Non-GAAP Financial Measures' under Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 Form 10-K, filed on November 16, 2021, for reconciliation to the relevant US GAAP measures, including the usefulness and inherent limitations over non-GAAP financial measures.

For fiscal 2021, our EBITDA As Defined was $2,183 million and our EBITDA As Defined margin was 46.1%. These results exceeded our targets and resulted in a payout of 106.2%. The following sets forth a reconciliation of EBITDA As Defined to pro forma EBITDA As Defined and pro forma EBITDA As Defined margin (amounts in millions):


	Fiscal Year Ended September 30, 2021
Net sales - GAAP basis	$	4,798
Pro forma adjustments (1)	(67)
Pro forma Net sales	$	4,731

EBITDA As Defined and Margin (2)	$	2,189	45.6	%
Pro forma adjustments (1)	(6)
Pro forma EBITDA As Defined and Margin	$	2,183	46.1	%

(1)Represents management’s estimates of the impact of the acquisition of Cobham Aero Connectivity and divestitures of Avista, Racal Acoustics, Technical Airborne Components, ScioTeq and TREALITY, had such transactions occurred at the beginning of the fiscal year ended September 30, 2021.

(2)Reference ‘Non-GAAP Financial Measures' under Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2021 Form 10-K, filed on November 16, 2021, for the reconciliation to the relevant US GAAP measures.

For fiscal 2021, Messrs. Stein, Lisman, Valladares and Henderson’s and Ms. Wynne’s target incentives were set at 125%, 80%, 80%, 80% and 65%, respectively, of their base salaries. The target incentives, the calculated incentives based on the plan as described above, and the actual amounts awarded are set forth in the table below (in dollars):


Name	Target Annual Incentive		Calculated Annual Incentive		Actual Annual Incentive Awarded
Kevin Stein	$	1,531,250	$	1,626,188	$	1,800,000
Michael Lisman	480,000		509,760		611,712
Jorge L. Valladares III	544,000		577,728		664,387
Sarah Wynne	292,500		310,635		325,000
Robert Henderson	340,000		361,080		365,000

Mr. Howley did not receive an annual incentive, as the remainder of any compensation owed to him under his employment agreement was forfeited in connection with the grant he received in connection with his transition to non-executive Chairman.

We will continue to use EBITDA As Defined and EBITDA As Defined margin, with threshold, target and maximum goals, for 2022. We have eliminated the overlapping metrics in our annual incentive program and our long-term equity incentive program.

2021 Equity Based Incentives

In 2021, Mr. Stein received a grant of 68,000 options that vest based on performance conditions in fiscal 2025. Mr. Lisman and Ms. Wynne received grants of 57,700 and 18,000 options, respectively, that vest based on performance conditions equally over five years. Mr. Valladares and Mr. Henderson received grants of 58,300 and 22,125 options, respectively, that vest based on performance conditions equally in fiscal 2024 and fiscal 2025. 80% of Mr. Henderson’s options were forfeited upon his retirement in December 2021.

Mr. Howley received a grant of 71,039 options that vest based on performance conditions in 2022 - 2024, a 2021 salary grant of 21,891 options that vest based on performance conditions in 2022 and 2023 and, in August 2021, a grant of 105,000 options in exchange for termination of his employment agreement and transition to non-executive Chairman that vest based on performance conditions in 2022 - 2024. In his role as Chairman of the Board, Mr. Howley will continue to primarily focus his efforts on matters relating to significant mergers and acquisitions, capital allocation and deployment, major strategic initiatives and issues, and leadership of the Board of Directors. The option grant will be the sole compensation for Mr. Howley’s service on the Board through 2024.

Performance-Based Stock Option Program

Overview

The equity component of our management’s compensation emphasizes long-term stockholder value creation through performance-based options. This is a substantial, at-risk component of our management’s compensation that is tied to performance. We believe that performance-based stock option grants motivate and incentivize management to focus on long-term performance and align the interests of our management with the interests of stockholders by reinforcing the long-term goal of increasing stockholder value and yielding returns comparable to or higher than well-performing private equity funds and promoting the stability and retention of our high-performing executive team over the long-term. Our stock option program covers management at the corporate level and our 46 operating units, for a total of approximately 270 people.

Generally, executives other than the CEO do not receive annual grants of options. Rather, executives and other plan participants receive options that vest over five years in connection with hirings, promotions and the assumption of increased responsibilities. Thereafter, unless there has been an intervening five-year award because of a promotion, executives and other plan participants receive biennial extension awards that vest in the fourth and fifth year following the award. These grants are generally made in the third year of vesting under the initial award so that the employee has four or five years of future option vesting in order to promote maximizing long-term value and retention.

Performance-based Option Vesting at Rigorous Targets

Option vesting is subject to rigorous performance hurdles. After a hiatus of using our historical performance metric, annual operating performance (“AOP”) due to COVID, we have returned to that metric for all options granted in 2020 – 2022 and intend to continue to use it going forward. The minimum threshold for any option vesting requires a 10% cumulative growth in AOP. For maximum vesting, the growth rate required is 17.5% for each performance period. TransDigm uses this compound annual growth rate range because it will incent management to create value for stockholders at a rate that outperforms the typical private equity model. The AOP metric focuses management on EBITDA As Defined growth, management of capital structure, cash generation, and acquisition performance. Through these performance-based options with five-year performance periods, we believe we have optimized management incentive to drive stockholder value creation over the long term and appropriately linked compensation with financial performance.

Specifically, AOP targets are set at the time of grant and represent an intrinsic share price. They are set by taking the prior year’s AOP and increasing such amount by 10% and 17.5%, respectively, to establish the minimum and maximum targets. In other words, as demonstrated in the chart below, the intrinsic share price must grow at a compound annual growth rate of 10% for any vesting to even occur at all; for 100% vesting, the intrinsic share price must grow at a compound annual growth rate of 17.5%. Targets are thus robust, requiring 17.5% compound annual growth from the most recently completed year for maximum vesting in an effort to achieve growth at or above the long-term returns of top performing private equity funds. This is consistent with our objective of providing stockholders with returns at or above those of well-performing private equity funds.

Targets are calculated based on a ratio of (a) the excess of (i) EBITDA As Defined multiplied by an acquisition-weighted market multiple over (ii) net debt to (b) the Company’s number of diluted shares based on the treasury stock method of accounting. The targets are adjusted for dividends and share repurchases. Hence, AOP takes into consideration the following:

growth in EBITDA As Defined;
management of capital structure;
cash generation;
acquisition performance, including the acquisition price paid; and
the impact of option dilution on common shares outstanding.

We use AOP growth (i.e., growth in intrinsic equity value) as the performance-based metric for many reasons:

It focuses management on the fundamentals of stockholder value creation (e.g., EBITDA As Defined, cash generation, capital structure management and return of capital, as appropriate).
This is the basic private equity formula for value that management has focused on achieving since its inception in 1993.
Over the long term, we believe that market value of our stock will generally follow intrinsic value.

Targets are adjusted for dividends paid to stockholders and share repurchases. We believe the adjustments are appropriate and necessary to account for the early return of value to stockholders because if a portion of the investment is returned early via special dividend or return of capital, the subsequent years’ targets must be adjusted to reflect the revised capital structure and maintain the same IRR-based performance requirements. Adjustment of the targets does not make the targets any easier to achieve but rather maintains the IRR targets.

As previously disclosed, for 2021 (limited solely to options granted in 2020 and 2021 with vesting in 2021), we determined we were unable to establish AOP targets due to the ongoing impact of the COVID-19 pandemic on the aviation industry. 10% to 17.5% AOP growth from 2020 was unattainable for 2021 because of the record performance in the first half of fiscal 2020 and the pandemic’s continuing impact. The Compensation Committee considered using the latter half of the year as a baseline but ultimately concluded that it had no visibility into whether those targets would be too easy or unreasonably unattainable. The Compensation Committee strongly believed that in order to provide appropriate incentive, the performance goals needed to be based on matters within management’s control. Therefore, the Compensation Committee determined to measure 2021 performance against the primary metric to which management had been managing – EBITDA As Defined margin percentage – and also, as incentive to maintain earnings, EBITDA As Defined. These metrics were temporarily used for certain grants under the Company’s option program – those being options granted in 2020 with vesting in 2021 (predominantly those are for promotion and new hire grants) and options granted in 2021 with vesting in 2021 (again, predominantly those are for promotion and new hire grants). The performance criteria for vesting in 2022 and beyond (including in previously granted options) has reverted back to the AOP metric and requires cumulative growth of 10% to 17.5%.

Other Option Terms

Because we view our performance on a long-term basis and the targets are set to achieve long-term compound annual and cumulative growth, if the annual performance per share exceeds the maximum target in an applicable year, such excess may be treated as having been achieved in the following two fiscal years and/or the prior two fiscal years (without duplication) if less than the full amount of options would otherwise have vested for such years. This allows management to focus on long-term value without having to make short-term decisions to maximize vesting in a particular year. We believe this feature acts similarly to long-term incentive plans that take into account performance over a multi-year period. We also believe this plan feature mitigates compensation risk, because if performance were measured in only one-year “snap-shot” increments, management could be incentivized to sacrifice longer term goals to achieve vesting in the short term. Because the Compensation Committee did not want the pandemic market recovery to result in growth targets that might be too easily achieved, the AOP carryover for options granted in 2020, 2021 and 2022 is limited to a cap of $100.

In addition to vesting based on operational targets, in the event of a change in control, options become fully vested. We do not provide for any gross up to any payments that would be deemed to be “excess parachute payments” under Section 280G of the Internal Revenue Code.

Treatment of Options for Executives Upon Termination

Option agreements for certain officers, including all of the named executive officers, provide that if the officer’s employment terminates by reason of death, disability, without cause, for good reason or retirement (after age 65 with 10 years of service or after age 60 and 15 years of service), vesting of the options will continue after termination generally as follows:


Termination Date						Percent of Remaining Options Vesting (1)
During the first fiscal year after date of grant						0%
During the second fiscal year after date of grant						20%
During the third fiscal year after date of grant						40%
During the fourth fiscal year after date of grant						60%
During the fifth fiscal year after date of grant						80%
After the fifth fiscal year end after date of grant						100%

(1)Options will continue to vest in accordance with their terms if, and only if, the performance criteria are met. Remaining unvested options would vest ratably over the remaining performance vesting schedule.

Treatment of Options for Executives Upon Termination

Option are granted generally at regularly scheduled board meetings during November through April. Because all options vest based on performance criteria and vesting occurs at the end of each fiscal year, grants for any new hire or promoted employee who would otherwise receive a grant after April in any year are deferred until November. Mr. Howley’s grant in connection with the termination of his employment agreement and transition to chairman was made in August 2021, but no vesting will occur thereunder until the end of fiscal 2022 and performance targets were set using fiscal 2022 criteria.

Options to purchase 811,308 shares of common stock were granted under the program in fiscal 2021. The number of shares subject to the 2014 Stock Option Plan is 5,000,000, of which 626,294 shares remained available for granting under the plan as of September 30, 2021. The number of shares subject to the 2019 Stock Option Plan is 4,000,000, of which all shares remain available for granting under the plan as of September 30, 2021.

Dividends and Dividend Equivalents

Dividends

Dividend decisions, like at other companies, are a capital structure decision made by the Board. We do not have a policy of paying regular dividends. Instead, the Board regularly evaluates our capital allocation optionality and will declare a special dividend based on an assessment of availability of cash or borrowing capacity, outlook for acquisitions and other operating needs, favorable capital market conditions, and the availability of surplus under applicable law as well as certain operating performance covenants under our credit facilities.

Our preference for capital allocation is to invest in existing businesses or make accretive acquisitions. But, when internal business needs are met and acquisitions are not available, we elect to allocate capital to return to stockholders. Because of the constantly dynamic state of acquisition opportunities, as well as other external forces such as the health of credit markets, geo-political activity, competitive industry opportunities and pressures, these special dividends are unpredictable, episodic, and, unlike other companies, have historically been very large. Most recently, we paid a dividend of $30.00 per share in fiscal 2019 and a $32.50 dividend in fiscal 2020. We also paid two dividends, totaling $46.00 per share, in fiscal 2017. However, we paid no dividends in fiscal 2015, 2016, 2018 or 2021.

Dividend decisions are made exclusive of compensatory impact. And compensation decisions are made without regard to the possibility of dividend equivalent payments. However, due to the unique structure of our executive compensation program, which targets significantly less cash compensation relative to peers in the short term but provides extraordinary upside in the long term, the Compensation Committee believes our use of DEPs are critical to the understanding of what motivates our executive team and assures alignment between management and investors on capital allocation decisions.

Dividend Equivalent Payments (“DEPs”)

In order to closely align management and stockholder interests in all aspects of our operations and capital structure, we have dividend equivalent plans that provide option holders the right to receive dividend equivalent payments if the Board declares a dividend on our common stock. Maintaining an even playing field between constituencies is important to and consistent with our private equity compensation philosophy. As such, the Compensation Committee strongly believes that absent the DEPs, the option holders would be at a clear disadvantage to stockholders, which would incentivize the exercise and sale (e.g., to satisfy tax obligations) of vested options and could undermine the alignment of their interests with those of stockholders. We believe that failure to align management and stockholders could create incentives for management to deploy cash flow and utilize borrowing capacity in a manner other than the return of capital in the form of extraordinary dividends, which might not be in the best interests of stockholders. Further, management may be incentivized to seek short-term market gains rather than focusing on long-term equity value and stockholder returns. Dividend equivalents align management with the stockholders to permit the best allocation of capital resources and incentivize long-term share value growth without a hyper focus on short term stock price fluctuations.

Importantly, pursuant to the dividend equivalent plans, employees receive DEPs on options (i) that have vested based on rigorous performance criteria, and (ii) that the option holder has chosen not to exercise even though vested. Option holders who hold vested stock options at the time a dividend is paid will receive a cash DEP equal to the amount that he or she would otherwise have been entitled to receive had his or her vested stock option been exercised immediately prior to payment of the dividend. Option holders who hold unvested stock options will receive a cash DEP equal to the amount he or she would otherwise have been entitled to receive had his or her unvested stock option been vested and exercised immediately prior to payment of the dividend, but only if and when such stock option vests pursuant to its terms. We believe that we have structured DEPs under the Company’s dividend equivalent plans such that they are not subject to any excise tax under Section 409A of the Internal Revenue Code. Certain investors and proxy advisory firms have raised the issue as to whether the Company should pay dividend equivalents only upon an exercise of the options; however, we believe that tying payment of the dividend equivalents to the exercise of an option would result in excise taxes under Section 409A.

Prohibition on Hedging, Pledging and Short Sales. No director, officer or employee is permitted to pledge TransDigm stock or engage in short sales or other transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of the TransDigm’s stock. We allow for certain portfolio diversification transactions, such as investments in exchange funds. All of the directors and executive officers are in compliance with this policy.

Equity Ownership Guidelines. We require management to maintain a significant personal investment in the Company. All of the Company’s existing option holders are required to maintain ownership of a minimum value of stock or vested options. Elected officers must retain half of their retention limit in stock. Mr. Howley is required to hold $10 million in aggregate value, Mr. Stein is required to retain $6 million in aggregate value and the other named executive officers are required to hold $1.5 to $2.5 million in aggregate value of stock or vested options. Each executive officer currently holds shares in excess of these guidelines. Shares may be owned directly by the individual, owned jointly with or separately by the individual’s spouse, or held in trust for the benefit of the individual, the individual’s spouse, or the individual’s children.

Compensation Risk

The Compensation Committee has reviewed and evaluated the incentive compensation policies and practices that cover all employees. On the basis of that review, the Compensation Committee does not believe that its compensation policies and practices pose risks that are reasonably likely to have a material adverse effect on TransDigm.

Results of Say-On-Pay Vote

Overview of Say-On-Pay Vote History & Advisory Firm Recommendation Effect

Our Board and management recognize that solicitation and stockholder feedback is important to creating stockholder value. As a result, we regularly engage with our stockholders.

Preceding our annual meetings in 2018 and 2019, we engaged with shareholders representing approximately 75% of our shares. Most of the stockholders were satisfied with the overall design of our program. Of the stockholders that voted against Say-on-Pay, there was no consistent reason cited.

Outreach prior to our 2020 annual meeting had the following results:

We reached out to our top 31 stockholders representing 73% of our shares outstanding to discuss compensation matters. Eight of those stockholders elected to have a discussion while the others declined because they were satisfied with the design of our plan and/or we have had prior discussions and they had no questions.
We continued to find that most actively managed funds generally liked the design of our compensation plan. The few who had objections continued to not cite a consistent reason. However, we heard several issues from more than one firm. The following is a summary of those issues and our response:


Issues Raised		Response
Overlapping metric—AOP used in both the Company’s stock option plan and used, in part, in the Company’s short-term incentive plan.	✓	The Committee has eliminated the overlapping metric commencing in fiscal 2022.
Alternate vesting—referring to the following market vesting provision: The closing price of the Company’s common stock on the New York Stock Exchange exceeds two times the Exercise Price of the Options less the amount of any dividends per share paid after the date hereof on any 60 trading days during any consecutive 12-month period.	✓	This feature was eliminated for all options commencing in fiscal 2021.
Carryforward / carryback—if the annual performance per share exceeds the maximum target in an applicable year, such excess may be treated as having been achieved in the following two fiscal years and/or the prior two fiscal years (without duplication) if less than the full amount of options would otherwise have vested for such years.		The Committee evaluates performance on a long-term basis and the targets are set to achieve long-term compound annual growth. The Committee does not want to entirely remove this feature because it believes it is important to allow management to focus on long-term value without being incentivized to make short-term decisions to maximize vesting in a particular year. This feature acts similarly to long-term incentive plans that take into account performance over a multi-year period. This feature mitigates compensation risk, because if performance were measured in only one-year “snap-shot” increments, management could be incentivized to sacrifice longer term goals to achieve vesting in the short term. Despite that view, in order to ensure rigorous targets, performance for options granted in fiscal 2022, the carryforward and carryback was limited to $100 in the aggregate over the life of the option.
Board discretion in bonus.		The Committee reviewed but chose to maintain this feature at this time. The Committee felt it was important to have the flexibility to reward exemplary individual performance or to decrement substandard individual performance and believes that the 20% limitation on discretion is a sufficient limit on its authority.
Lack of response to previous low SOP votes.	✓	The Committee listened to this concern and considered the various issues raised and determined to make changes to the overlapping metric and alternate vesting.

Outreach for the 2021 annual meeting had the following results:

We reached out 47 of our top 50 shareholders representing 77% of our shares outstanding to discuss compensation matters for our 2021 annual meeting. Twelve of those shareholders elected to have a discussion while many of the others declined because they were satisfied with the design of our plan and/or we have had prior discussions and they had no questions.
While shareholders were encouraged by the responsive compensation plan changes that were implemented since the 2020 annual meeting, two additional concerns, which arose primarily due the COVID-19 pandemic, were mentioned several times:


Issues Raised		Response
Vesting of 2020 Options and Change in Approach to Performance Criteria—Due to the unprecedented disruption to the aviation industry by the COVID-19 pandemic, the Committee decided to vest options that were granted in 2020 and scheduled to vest in 2020 notwithstanding that the AOP targets were not met. In addition, the Committee modified the performance criteria for options granted in 2020 and in 2021 for vesting in 2021; while they were still based on performance, they were based on EBITDA As Defined margin and EBITDA As Defined.	✓	The Committee listened to shareholder concerns and reverted to using traditional AOP performance targets for stock options vesting in fiscal 2022 and beyond. For options granted in 2022, the carryforward and carryback was limited to $100 to ensure rigorous performance targets. Short-term incentive plan metrics will also be performance based going forward. Overlapping metrics will not be used.
Magnitude of Executive Compensation Despite Performance.		Our compensation philosophy and means of compensation have remained consistent over time. As more fully reflected in this Compensation Discussion and Analysis, we believe in paying below our peers in salary and bonus compensation and above our peers in equity compensation—in the form of options that vest on performance criteria. We pay DEPs because of our unusual capital allocation strategy and we do not want dividend decisions to negatively impact our management. The Committee considers the ability of option holders to share in the benefits of value creation alongside our stockholders as essentially making them whole for keeping fully vested options. The Committee does not consider the amount of DEPs when considering compensation. None of these features or philosophies have changed in over a decade. The dividend paid in 2020 was paid prior to the start of the COVID-19 pandemic at a time when the Company was on track to have a record-breaking year. Despite this philosophy, the Committee has taken shareholder feedback into consideration and is actively exploring compensation plan changes to address this concern.

Vote Results

The Say- On-Pay vote result for the 2021 annual meeting was 42.98%, in favor of SOP. The vote reflected stockholder dissent with the vesting of 2020 options and change in approach to performance criteria. The Committee addressed both of these concerns by adopting the changes to our compensation program described herein.

Summary Compensation Table

The following information is set forth with respect to our President, Chief Executive Officer and Director, Chief Financial Officer, and three of TransDigm’s other most highly compensated executive officers serving as an executive officer at September 30, 2021, as well as Mr. Howley who was not serving as an executive officer at September 30, 2021 (collectively, the “named executive officers”) in the table below (in dollars):


Name and Principal Position	Fiscal Year	Salary (1)		Bonus (2)		Option Awards (3)		Non-Equity Incentive Compensation (2)		All Other Compensation (4)		Total
Kevin Stein, President, Chief Executive Officer and Director	2021	$	1,200,000	$	173,812	$	12,798,804	$	1,626,188	$	5,685,700	$	21,484,504
2020	991,563	—		7,460,000		—		13,608,900		22,060,463
2019	1,045,000	65,925		—		1,684,075		10,340,200		13,135,200
Michael Lisman, Chief Financial Officer	2021	583,750		101,952		10,860,161		509,760		1,650,775		13,706,398
2020	496,458	2,580		—		327,420		2,653,957		3,480,415
2019	467,500	22,104		12,411,600		477,896		937,673		14,316,773
Jorge L. Valladares III, Chief Operating Officer	2021	672,500		86,659		10,973,092		577,728		3,147,950		15,457,929
2020	614,917	2,200		5,296,498		397,800		7,430,025		13,741,440
2019	613,500	11,618		7,451,630		628,382		4,626,100		13,331,230
Sarah Wynne, Chief Accounting Officer	2021	437,500		14,365		3,387,919		310,635		269,400		4,419,819
2020	365,000	1,700		1,491,971		168,300		265,683		2,292,654
2019	260,000	54,167		605,066		95,833		133,640		1,148,706
Robert Henderson, former Vice Chairman	2021	10,000		3,920		4,919,634		361,080		3,747,933		9,042,567
2020	10,000	—		1,695,486		—		11,916,135		13,621,621
2019	10,000	—		15,229,768		—		9,187,020		24,426,788
W. Nicholas Howley, former Executive Chair	2021	6,306		—		38,084,417		—		2,168,388		40,259,111
2020	7,000	—		11,880,431		—		56,235,370		68,122,801
2019	7,000	—		13,577,620		—		47,058,288		60,642,908

(1)Mr. Howley received all but $6,306 of his fiscal 2021 salary in options. The grant of options in lieu of salary for calendar 2021 made during fiscal 2021 is included in the Option Awards column and represents $2,161,492 of the total. Mr. Henderson received all but $10,000 of his fiscal 2021 salary in options. The grant of options in lieu of salary for calendar 2021 made during fiscal 2021 is included in the Option Awards column and represents $755,318 of the total. Upon his retirement, Mr. Henderson forfeited options received in lieu of salary valued at $90,721 (based on date of grant Black-Scholes value).

(2)TransDigm has a performance-based annual incentive plan, with discretion to adjust awards by up to 20%. The calculated amount is disclosed in the Non-equity Incentive Compensation column and any additional amount is disclosed in the Bonus column.

(3)The amount reported represents the grant date fair value of stock options awarded during the applicable fiscal year under TransDigm’s stock option plans. Refer to Note 18, “Stock-Based Compensation,” in the Notes to the Consolidated Financial Statements included in TransDigm’s Annual Report on Form 10-K for fiscal year 2021 for information on the grant date fair value of awards and a description of the assumptions used in that computation. The actual value of the stock options will depend on whether the options vest, the trading price of the stock at the time of exercise and at the time the underlying stock is ultimately sold. Upon his retirement on December 31, 2021, Mr. Henderson forfeited options received in 2021 valued at $3,422,174 (based on date of grant Black-Scholes value) (inclusive of the $90,721 salary options referenced in note (1) above).

(4)Represents amounts paid pursuant to TransDigm’s 401(k) plan equal to $17,200, $15,150, $17,200, $17,200, $400 and $280 for Mr. Stein, Mr. Lisman, Mr. Valladares, Ms. Wynne, Mr. Henderson and Mr. Howley, respectively, and dividend equivalents from prior year dividends paid on vested options equal to $5,668,500, $1,635,625, $3,130,750, $252,200, $3,747,533 and $2,168,108 for Mr. Stein, Mr. Lisman, Mr. Valladares, Ms. Wynne, Mr. Henderson and Mr. Howley, respectively.

Grants of Plan Based Awards in Last Fiscal Year

The following table sets forth information concerning options granted and short term cash incentive award targets set in fiscal 2021 to the named executive officers (in dollars, except for estimated future payouts under equity incentive plan awards data):


Name	Award Type	Grant Date	Estimated Payouts Under Non-Equity Incentive Plan Awards Target (1)	Estimated Future Payouts Under Equity Incentive Plan Awards			Exercise Price of Option Awards ($/Sh)	Grant Date Fair Value of Option Awards
Threshold (2)	Target (3)	Maximum
Kevin Stein	Annual Incentive	11/11/2020	$1,531,250
Performance-based Option (4)	11/11/2020		17,000	68,000	68,000	$560.81	$12,798,804
Michael Lisman	Annual Incentive	11/11/2020	480,000
Performance-based Option (5)	11/11/2020		14,425	57,700	57,700	560.81	10,860,161
Jorge L. Valladares III	Annual Incentive	11/11/2020	544,000
Performance-based Option (6)	11/11/2020		14,575	58,300	58,300	560.81	10,973,092
Sarah Wynne	Annual Incentive	11/11/2020	292,500
Performance-based Option (5)	11/11/2020		4,500	18,000	18,000	560.81	3,387,919
Robert Henderson	Annual Incentive	11/11/2020	340,000
Performance-based Option (6)(7)	11/11/2020		5,531	22,125	22,125	560.81	4,164,317
Performance-based Option in lieu of 2020 incentive and 2021 salary (8)	11/11/2020		3,794	8,718	8,718	560.81	1,640,862
W. Nicholas Howley	Annual Incentive	11/11/2020	1,923,699
Performance-based Option (9)	11/11/2020		17,760	71,039	71,039	560.81	13,370,797
Performance-based Option in lieu of 2020 incentive and 2021 salary (10)	11/11/2020		5,473	21,891	21,891	560.81	4,120,274
Performance-based Option in connection with transition to non-executive Chair (11)	8/6/2021		26,250	105,000	105,000	629.11	19,762,859

(1)Represents target amount of annual cash incentive.

(2)Calculated to represent the amount that would vest if the minimum performance criteria were met in the applicable years. If the minimum performance criteria is between the amount required to vest the minimum annual amount and the amount required to vest the maximum annual amount, the percent of options that vest will be determined by linear interpolation. Any options that do not vest in because of a shortfall of AOP (as defined in note (4) below) may vest in the following two years if there is an excess of AOP in such years. In addition, any excess in AOP in a year may be carried forward in the following two years to make up deficiencies in AOP in such year. In no event may more than $100 of AOP be carried forward or carried back and any amounts used in calculating current year, prior year or future year AOP be used more than once.

(3)Target amounts are not established under the grant but are disclosed at the maximum amount. Actual amounts could be lower if annual or cumulative performance requirements are not met.

(4)Options vest in 2025 as follows: 25% if annual operating performance (AOP) is $260.04 in 2025 and 100% if AOP is $338.55 in 2025. “AOP” is EBITDA As Defined times 11.58 (as adjusted by the weighted EBITDA As Defined acquisition multiple of future acquisitions) minus net debt divided by diluted shares.

(5)Options vest equally in 2021-2025 as follows: 2.5% if EBITDA As Defined margin is at least 40.5% and 10% if EBITDA As Defined margin is at least 44.5%, plus 2.5% if EBITDA As Defined is at least $1,873 million and 10% if EBITDA As Defined is at least $2,177 million in 2021 (in 2021, EBITDA As Defined margin was 46.1% and EBITDA As Defined was $2,183 million so 20% of the options vested), 5% if the AOP is at least $195.37 and 20% if the AOP is at least $208.69 per diluted share in 2022, 5% if the AOP is at least $214.91 and 20% if the AOP is at least $245.21 per diluted share in 2023, 5% if the AOP is at least $236.40 and 20% if the AOP is at least $288.12 per diluted share in 2024 and 5% if the AOP is at least $260.04 and 20% if the AOP is at least $338.55 per diluted share in 2025.

(6)Options vest equally in 2024-2025 as follows: 12.5% if the AOP is at least $236.40 and 50% if the AOP is at least $288.12 per diluted share in 2024 and 12.5% if the AOP is at least $260.04 and 50% if the AOP is at least $338.55 per diluted share in 2025.

(7)Upon his retirement on December 31, 2021, Mr. Henderson forfeited 80% of these options.

(8)Options vest in 2021-2022 as follows: 40% vested on the date of grant, 5% if EBITDA As Defined margin is at least 40.5% and 20% if EBITDA As Defined margin is at least 44.5%, plus 5% if EBITDA As Defined is at least $1,873 million and 20% if EBITDA As Defined is at least $2,177 million in 2021 (in 2021, EBITDA As Defined margin was 46.1% and EBITDA As Defined was $2,183 million so 40% of the options vested), and 5% if the AOP is at least $195.37 and 20% if the AOP is at least $208.69 per diluted share in 2022. Upon his retirement on December 31, 2021, Mr, Henderson forfeited 1,394 of these options.

(9)Options vest in 2021-2023 as follows: 5% if EBITDA As Defined margin is at least 40.5% and 20% if EBITDA As Defined margin is at least 44.5%, plus 5% if EBITDA As Defined is at least $1,873 million and 20% if EBITDA As Defined is at least $2,177 million in 2021 (in 2021, EBITDA As Defined margin was 46.1% and EBITDA As Defined was $2,183 million so 40% of the options vested), 10% if the AOP is at least $195.37 and 40% if the AOP is at least $208.69 per diluted share in 2022, and 5% if the AOP is at least $214.91 and 20% if the AOP is at least $245.21 per diluted share in 2023.

(10)Options vest in 2021 as follows: 12.5% if EBITDA As Defined margin is at least 40.5% and 50% if EBITDA As Defined margin is at least 44.5%, plus 12.5% if EBITDA As Defined is at least $1,873 million and 50% if EBITDA As Defined is at least $2,177 million in 2021 (in 2021, EBITDA As Defined margin was 46.1% and EBITDA As Defined was $2,183 million so all of the options vested).

(11)Options vest equally in 2022-2024 as follows: 10% if the AOP is at least $195.37 and 40% if the AOP is at least $208.69 per diluted share in 2022, 10% if the AOP is at least $214.91 and 40% if the AOP is at least $245.21 per diluted share in 2023, and 5% if the AOP is at least $236.40 and 20% if the AOP is at least $288.12 per diluted share in 2024.

Outstanding Equity Awards at Fiscal Year End

The following table sets forth information concerning unexercised options as of September 30, 2021 with respect to the named executive officers:


Name	Number of Securities Underlying Unexercised Options that are Exercisable	Number of Securities Underlying Unexercised Unearned Options		Option Exercise Price ($/Sh)	Option Expiration Date
Kevin Stein	78,800	—		$191.79	11/13/2024
71,000	—		269.42	11/10/2026
170,800	42,700	(1)	324.38	4/25/2028
—	50,000	(2)	559.78	11/15/2029
—	68,000	(3)	560.81	11/11/2030
Michael Lisman	3,200	—		217.70	1/20/2026
550	550	(4)	284.97	11/8/2027
6,480	1,620	(1)	303.90	1/24/2028
72,000	48,000	(5)	347.17	11/5/2028
11,540	46,160	(6)	560.81	11/11/2030
Jorge L. Valladares III	52,000	—		148.45	11/15/2023
45,000	—	(7)	226.34	11/6/2025
32,500	32,500	(8)	284.97	11/8/2027
36,600	24,400	(5)	347.17	11/5/2028
5,100	3,400	(5)	476.81	4/25/2029
14,200	21,300	(9)	559.78	11/15/2029
—	58,300	(10)	560.81	11/11/2030
Sarah Wynne	2,250	—		148.45	11/15/2023
5,700	—		221.81	4/22/2025
2,700	—		269.42	11/10/2026
3,510	2,340	(5)	347.14	11/5/2028
4,000	6,000	(9)	559.78	11/15/2029
3,600	14,400	(6)	560.81	11/11/2030
Robert Henderson (11)	92,000	—		191.79	11/13/2024
44,000	—		269.42	11/10/2026
8,500	—		250.79	12/14/2026
8,500	8,500	(8)	284.97	11/8/2027
13,854	—		284.97	11/8/2027
710	—		273.81	12/27/2027
—	60,000	(12)	347.17	11/5/2028
21,162	—		347.17	11/5/2028
50,000	—		476.81	4/25/2029
16,787	—		559.78	11/15/2029
—	22,125	(10)	560.81	11/11/2030
5,092	1,274	(13)	560.81	11/11/2030
W. Nicholas Howley (14)	149,500	—		130.09	11/19/2022
156,190	—		191.79	11/13/2024
133,517	—		226.34	11/6/2025
45,912	—		230.72	12/10/2025
41,888	—		269.42	11/10/2026
116,786	—		269.42	11/10/2026
119,884	—		284.97	11/8/2027
42,571	—		284.97	11/8/2027
93,864	—		347.17	11/5/2028
33,484	—		347.17	11/5/2028
51,794	12,949	(13)	559.78	11/15/2029
23,573	—		559.78	11/15/2029
28,416	42,623	(15)	560.81	11/11/2030
16,489	—		560.81	11/11/2030
—	105,000	(16)	629.11	8/6/2031

(1)Remaining unvested options vest as follows: 5% of the total award if the AOP is at least $127.06 and 20% of the total award if the AOP is at least $192.10 per diluted share on September 30, 2022. “AOP” is EBITDA As Defined times an acquisition-weighted EBITDA As Defined multiple minus net debt divided by diluted shares.

(2)Options vest as follows: 25% if AOP is at least $236.40 2024 and 100% if AOP is at least $288.12 met in 2024.

(3)Options vest as follows 25% if AOP is at least $260.04 in 2025 and 100% if AOP is at least $338.55 in 2025.

(4)Remaining unvested options vest as follows: 12.5% of the total award if the AOP is at least $127.06 and 20% of the total award if the AOP is at least $192.10 per diluted share in 2022.

(5)Remaining unvested options vest as follows: 5% of the total award if the AOP is at least $195.37 and 20% of the total award if the AOP is at least $208.69 per diluted share in 2022 and 5% of the total award if the AOP is at least $214.91 and 20% of the total award if the AOP is at least $245.21 per diluted share in 2023.

(6)Remaining unvested options vest as follows: 5% of the total award if the AOP is at least $195.37 and 20% of the total award if the AOP is at least $208.69 per diluted share in 2022, 5% of the total award if the AOP is at least $214.91 and 20% of the total award if the AOP is at least $245.21 per diluted share in 2023, 5% of the total award if the AOP is at least $236.40 and 20% of the total award if the AOP is at least $288.12 per diluted share in 2024 and 5% of the total award if the AOP is at least $260.04 and 20% of the total award if the AOP is at least $338.55 per diluted share in 2025.

(7)12,600 options are held in trust for the benefit of Mr. Valladares’ children.

(8)Remaining unvested options vest as follows: 12.5% of the total award if the AOP is at least $195.37 and 50% of the total award if the AOP is at least $208.69 in 2022. Upon Mr. Henderson’s retirement on December 31, 2021, he forfeited 1,700 of the 8,500 options reported as unvested.

(9)Remaining unvested options vest as follows: 5% of the total award if the AOP is at least $195.37 and 20% of the total award if the AOP is at least $208.69 in 2022, 5% of the total award if the AOP is at least $214.91 and 20% of the total award if the AOP is at least $245.21 in 2023 and 5% of the total award if the AOP is at least $236.40 and 20% of the total award if the AOP is at least $288.12 in 2024.

(10)Options vest as follows: 12.5% if the AOP is at least $236.40 and 50% if the AOP is at least $288.12 per diluted share in 2024 and 12.5% if the AOP is at least $260.04 and 50% if the AOP is at least $338.55 per diluted share in 2025. Upon Mr. Henderson’s retirement on December 31, 2021, he forfeited 17,700 of the 22,125 options reported as unvested.

(11)All options held in trust for the benefit of Mr. Henderson’s family.

(12)Options vest as follows: 12.5% if the AOP is at least $195.37 and 50% if the AOP is at least $208.69 per diluted share in 2022 and 12.5% if the AOP is at least $214.91 and 50% if the AOP is at least $245.21 per diluted share in 2023. Upon Mr. Henderson’s retirement on December 31, 2021, he forfeited 12,000 of the 60,000 unvested options.

(13)Remaining unvested options vest as follows: 5% of the total award if the AOP is at least $195.37 and 20% of the total award if the AOP is at least $208.69 per diluted share in 2022. Upon Mr. Henderson’s retirement on December 31, 2021, he forfeited 764 of the 1,274 options reported as unvested.

(14)Held in trust for the benefit of Mr. Howley’s family.

(15)Remaining options vest as follows: 10% if the AOP is at least $195.37 and 40% if the AOP is at least $208.69 per diluted share in 2022, and 5% if the AOP is at least $214.91 and 20% if the AOP is at least $245.21 per diluted share in 2023.

(16)Options vest as follows: 10% if the AOP is at least $195.37 and 40% if the AOP is at least $208.69 per diluted share in 2022, 10% if the AOP is at least $214.91 and 40% if the AOP is at least $245.21 per diluted share in 2023, and 5% if the AOP is at least $236.40 and 20% if the AOP is at least $288.12 per diluted share in 2024.

Option Exercises in Last Fiscal Year

The following table sets forth information with respect to the number of shares acquired by the named executive officers upon exercise of options and the value realized through such exercise during fiscal 2021 (in dollars, except for number of shares acquired on exercise data):


	Option Awards
Name	Number of Shares Acquired on Exercise	Value Realized on Exercise
Kevin Stein	79,600	$	34,663,764
Michael Lisman	—	—
Jorge L. Valladares III	10,000	4,665,506
Sarah Wynne	—	—
Robert Henderson (1)	57,500	26,356,725
W. Nicholas Howley (2)	209,694	100,745,391

(1)All options exercised were held by a trust for the benefit of Mr. Henderson’s family.

(2)All options exercised were held by a trust for the benefit of Mr. Howley’s family.

Potential Payments Upon Termination or Change in Control

All of the named executive officers have severance benefits governed by their employment agreements.

Pursuant to the terms of his employment agreement, if Mr. Stein is terminated for cause (as defined in his employment agreement), he will receive only any unpaid but accrued base salary and benefits. As of September 30, 2021, Mr. Stein had no unpaid but accrued salary and benefits. If Mr. Stein is terminated for death or disability or without cause by TransDigm or voluntarily resigns for good reason, he will receive (a) two times his annual salary, (b) two times the greater of (i) all bonuses paid or payable for the fiscal year immediately prior to the date of termination or (ii) bonuses for the fiscal year in which the date of termination occurs, determined in accordance with TransDigm’s annual incentive program, if any, and (c) 18 times the monthly cost of the difference between his employee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, and in each case the payments will be payable in equal monthly installments over the two-year period following his termination.

Pursuant to the terms of their respective employment agreements, if Mr. Lisman, Mr. Valladares or Ms. Wynne is terminated for cause (as defined in the applicable employment agreement), he or she will receive only any unpaid but accrued base salary and benefits. As of September 30, 2021, none of Mr. Lisman, Mr. Valladares or Ms. Wynne had unpaid but accrued base salary or benefits. If Mr. Lisman, Mr. Valladares or Ms. Wynne is terminated by reason of death or disability or without cause by the Company or voluntarily resigns for good reason, he or she will receive 1.25 times his or her annual salary, (b) 1.25 times the greater of (i) all bonuses paid or payable to him or her for the fiscal year immediately prior to the date of termination or (ii) the target bonus for the fiscal year in which the date of termination occurs, determined in accordance with the Company’s bonus program, if any, and (c) 18 times the monthly cost of the difference between his or her employee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, and in each case the payments will be payable in equal monthly installments over the two-year period following his or her termination. As of September 30, 2021, the severance provisions for Mr. Lisman and Ms. Wynne were slightly different and they would have received 15 times the amount described in clause (c) of the previous sentence, rather than 18 times. As of September 30, 2021, the severance provisions for Mr. Valladares were different and were the same as those described in the following paragraph with respect to Mr. Henderson.

Mr. Henderson retired on December 31, 2021. However, his prior employment agreement provided that if he were terminated for cause, he would have received only any unpaid but accrued base salary and benefits. As of September 30, 2021, Mr. Henderson had no unpaid but accrued base salary or benefits. If Mr. Henderson had been terminated by reason of death or disability or without cause by the Company or voluntarily resigned for good reason, he would have received, after 90 days’ notice in the case of termination without cause, (a) one times his annual salary, (b) one times the greater of (i) all bonuses paid or payable to the executive for the fiscal year immediately prior to the date of termination or (ii) bonuses for the fiscal year in which the date of termination occurs, determined in accordance with the Company’s bonus program, if any, and (c) 18 times the monthly cost of the difference between his employee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, and in each case the payments will be payable in equal monthly installments over the two-year period following his termination.

Mr. Howley was not an employee on September 30, 2021.

In addition, certain option grants for Mr. Stein, Mr. Lisman, Mr. Valladares, Ms. Wynne and Mr. Henderson have post-employment vesting provisions. If any of them had died, become disabled, been terminated by TransDigm without cause or resigned his or her employment for good reason on September 30, 2021, he or she would have had options be permitted to vest in accordance with their terms as set forth in the table below. Mr. Howley has similar provisions in his option agreement that would apply if he were no longer on the Board or serving as Chairman.


Name	Number of Unvested Options		Option Expiration Date		Number of Options Permitted to Continue to Vest Upon Termination (9/30/2021)
Kevin Stein	42,700		4/25/2028		25,620
50,000		11/15/2029		10,000
68,000		11/11/2030		—
Michael Lisman	550		11/8/2027		—
1,620		1/24/2028		—
48,000		11/5/2028		19,200
46,160		11/11/2030		—
Jorge L. Valladares III	32,500		11/8/2027		19,500
24,400		11/5/2028		9,760
3,400		4/25/2029		1,360
21,300		11/15/2029		4,260
58,300		11/11/2030		—
Sarah Wynne	2,340		11/5/2028		936
6,000		11/15/2029		1,200
14,400		11/11/2030		—
Robert Henderson	8,500		11/8/2027		5,100
60,000		11/5/2028		24,000
22,125		11/11/2030		—
1,274		11/11/2030		—
W. Nicholas Howley	12,949		11/15/2029		10,359
42,623		11/11/2030		—
105,000		8/6/2031		—

TransDigm’s equity plans have provisions for accelerated vesting in certain circumstances on a change in control. If a change in control had occurred on September 30, 2021, Mr. Stein, Mr. Lisman, Mr. Valladares, Ms. Wynne, Mr. Henderson and Mr. Howley would have had 160,700, 96,330, 139,900, 22,700, 91,899 and 160,572 options, respectively, vest, with a realized value of $20,383,293, $16,964,627, $23,405,179, $1,956,000, $21,022,520 and $3,556,608, respectively (assuming the change in control price was $624.57, the closing price of our stock on the New York Stock Exchange on September 30, 2021).

In sum, had a change in control or termination for the various reasons set forth below occurred on September 30, 2021, the named executive officers would have been entitled to receive the following aggregate amounts (in dollars):


Name	Change in Control (1)		Termination for Cause		Termination Without Cause		Termination for Death/ Disability		Voluntary Termination for Good Reason		Voluntary Termination without Good Reason
Kevin Stein	$	20,383,923	$	—	$	6,083,501	$	6,083,501	$	6,083,501	$	—
Michael Lisman	16,964,627		—		1,521,775		1,521,775		1,521,775		—
Jorge L. Valladares III	23,405,179		—		1,384,168		1,384,168		1,384,168		—
Sarah Wynne	1,956,000		—		984,987		984,987		984,987		—
Robert Henderson	21,022,520		—		873,384		873,384		873,384		—
W. Nicholas Howley	3,556,608		—		—		—		—		—

(1)Amounts assume that the named executive officer was not terminated in connection with the change in control. If the named executive was terminated without Cause in connection with a change in control, his compensation would also include amounts listed in the column for “Termination Without Cause.”

Director Compensation

Mr. Stein, the only director who is also a TransDigm employee, does not receive any director fees. Mr. Howley also does not receive any director fees, as he received an option grant in connection with the early termination of his employment agreement and transition to non-executive Chairman.

Compensation for non-employee directors for 2021 was as follows:

An annual retainer fee of $75,000, with such fee being paid, at the option of each director, either in cash or shares of TransDigm’s common stock, paid semi-annually in arrears (typically in March and September). No additional Board or committee meeting fees were paid.
An additional retainer of $15,000 to the chairman of the Audit Committee, paid semi-annually in arrears.
An additional retainer of $5,000 to the chairmen of the Compensation and Nominating & Governance Committees, paid semi-annually in arrears.

Historically, every two years, TransDigm made a grant of stock options to each outside director to cover equity compensation for a two-year period. No option grants were made in fiscal 2021. In 2020, the grant was valued at $400,000 on a Black-Scholes basis and covered compensation for fiscal 2020 and 2021, granted on the same terms and conditions as those granted to TransDigm employees, including vesting over five years. The terms of the options are discussed in greater detail under “Executive Compensation – Equity Based Incentives–Options.” Commencing in fiscal 2022, outside directors other than Mr. Howley will instead receive a grant of stock options annually valued at $200,000 on a Black-Scholes basis. This will help avoid investor confusion over the magnitude of director compensation. Non-employee directors must maintain equity in TransDigm (i.e., stock or vested in-the-money options) equal to at least $250,000 (with a grace period to reach such limit). The following table sets forth the compensation paid to TransDigm’s non-employee directors during fiscal 2021 (in dollars):


Name	Fees Earned or Paid in Cash (1)	Stock Awards (1)	Option Awards	All Other Compensation (2)	Total
David Barr	$562	$74,438	$—	$78,250	$153,250
Jane Cronin (3)	361	18,389	—	—	18,750
Mervin Dunn	5,562	74,438	—	78,250	158,250
Michael Graff	5,562	74,438	—	78,250	158,250
Sean Hennessy	15,562	74,438	—	78,250	168,250
Raymond Laubenthal	562	74,438	—	78,250	153,250
Gary E. McCullough	562	74,438	—	78,250	153,250
Michele Santana	562	74,438	—	55,438	130,438
Robert Small	562	74,438	—	78,250	153,250
John Staer	75,000	—	—	78,250	153,250

(1)Messrs. Barr, Dunn, Graff, Hennessy, Laubenthal, McCullough and Small and Ms. Santana and Ms. Cronin elected to receive all of their semi-annual board retainer fees as stock. Ms. Cronin was appointed to the Board on June 30, 2021 and received one-quarter of the annual retainer. The shares were issued based on a value established on March 15, 2021 and September 15, 2021, on which dates the last closing price of the common stock on the New York Stock Exchange were $617.46 and $612.96, respectively.

(2)Represents amounts paid under TransDigm’s dividend equivalent plans.

(3)Ms. Cronin joined the Board on June 30, 2021.

Compensation Risk

Compensation Committee Interlocks and Insider Participation

Messrs. Graff, Dunn, Hennessy and Small comprise the Compensation Committee. There are no Compensation Committee interlocks.

Compensation Committee Report

The Compensation Committee has reviewed and discussed with TransDigm management the Compensation Discussion and Analysis set forth in this Item 11. Based on the review and discussions noted above, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Form 10-K/A for filing with the Securities and Exchange Commission.


			Compensation Committee
			Michael Graff, Chair
			Mervin Dunn
			Sean Hennessy
			Robert Small

Employment Agreements

On commencement of his employment in October 2014, Mr. Stein entered into an employment agreement with TransDigm to serve as Chief Operating Officer. The agreement, pursuant to which Mr. Stein currently serves as Chief Executive Officer, was most recently amended in April 2018. Unless earlier terminated by TransDigm or Mr. Stein, the current term of Mr. Stein’s employment expires October 1, 2024. The agreement does not have a provision for automatic renewal.

Mr. Lisman entered into an employment agreement with TransDigm in July 2018 in connection with his promotion to Chief Financial Officer. The agreement was amended in November 2021 to modify the severance provisions to include 18 times the monthly cost of the difference between his employee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, instead of 15 times such amount. Unless earlier terminated by TransDigm or Mr. Lisman the term of his agreement extends until December 31, 2023, with no automatic right of renewal.

Mr. Valladares entered into an employment agreement with TransDigm in October 2013, which has been amended most recently in November 2021. The most recent amendment: (1) removed the requirement for 90-day notice of termination, (2) modified the severance provisions from one times severance and bonus to 1.25 severance and bonus, (3) eliminated Mr. Valladares’ opportunity to cure a default in the event of a termination for cause, and (4) added a requirement for Mr. Valladares to sign a release in order to receive severance. Mr. Valladares currently serves as Chief Operating Officer. Unless earlier terminated by TransDigm or Mr. Valladares the term of his agreement extends until October 1, 2023, with no automatic right of renewal.

Ms. Wynne entered into an employment agreement with TransDigm in November 2018. The agreement was amended in November 2021 to modify the severance provisions to include 18 times the month cost of the difference between her employee co-premiums for health insurance at the time of termination and the COBRA cost for such coverage, instead of 15 times such amount. Unless earlier terminated by TransDigm or Ms. Wynne, the term of her agreement extends until December 31, 2024 with no automatic right of renewal.

Mr. Henderson and Mr. Howley are no longer employees. Mr. Henderson retired on December 31, 2021. Mr. Howley transitioned from an employee to a non-employee Chairman in August 2021. Mr. Howley’s employment agreement was terminated, other than the non-competition and non-solicitation covenants that were contained therein which will continue until September 30, 2023 and the non-disclosure obligations which will continue indefinitely.

The employment agreements provide that if a named executive officer is terminated for any reason, he or she will be entitled to payment of any accrued but unpaid base salary through the termination date, any unreimbursed expenses, an amount for accrued but unused sick and vacation days, and benefits owing to him under the benefit plans and programs sponsored by TransDigm. In addition, if his or her employment is terminated under the following circumstances, then TransDigm will pay the severance described elsewhere in this Form 10-K:

without cause (as defined in his or her employment agreement);
by the named executive officer for certain enumerated good reasons, which include: a material diminution in his or her title, duties or responsibilities, without his or her prior written consent; a reduction of his or her aggregate cash compensation (including bonus opportunities), benefits or perquisites, without his or her prior written consent; TransDigm requires him or her, without his or her prior written consent, to be based at any location that requires a relocation greater than 30 miles from his or her current office; or any material breach of this Agreement by TransDigm; or, solely in the case of Mr. Stein, TransDigm’s refusal to amend the agreement to extend the term or any renewal thereof at least one year or enter into a new agreement on substantially similar terms without providing him with comparable severance; or
due to his or her death or disability (as defined in his or her employment agreement).

During the term of each executive officer’s employment and following any termination of his employment, for a period of (a) 24 months in the case of Mr. Stein and (b) 12 months in the case of a termination without cause or for enumerated good reasons or 24 months in the event of voluntary termination without enumerated good reasons or termination for cause in the case of the other named executive officers, the executive officer will be prohibited from engaging in any business that competes with any business of TransDigm or its subsidiaries (and in the case of Mr. Stein, from rendering services to any person or entity designed to assist such person or entity to acquire a business that TransDigm has pursued or had demonstrable plans to pursue as an acquisition target within 24 months prior to his termination). In addition, during the term of employment and for the two-year period following the termination of each executive officer’s employment for any reason, he or she will be prohibited from soliciting or inducing any person who is or was employed by, or providing consulting services to, TransDigm during the 12-month period prior to the date of the termination of his or her employment, to terminate their employment or consulting relationship with TransDigm. Under the terms of his or her employment agreement, each executive officer is also subject to certain confidentiality and non-disclosure obligations, and TransDigm has agreed, so long as the executive officer is not in breach of certain of his or her obligations under his or her employment agreement, to, among other things, indemnify him to the fullest extent permitted by Delaware law against all costs, charges and expenses incurred or sustained by him or her in connection with any action, suit or proceeding to which he may be made a party by reason of being or having been a director, officer or employee of TransDigm or serving or having served any other enterprise as a director, officer or employee at TransDigm’s request.

2021 CEO Pay Ratio

The SEC requires us to disclose the annual total compensation of each of Mr. Stein (our Chief Executive Officer) and our median employee, as well as the ratio of their respective annual total compensation to each other (in each case, with annual total compensation calculated in accordance with SEC rules applicable to the Summary Compensation Table). In fiscal 2021, Mr. Stein’s annual total compensation was $21,484,504. Our median employee’s annual total compensation was $58,837. The ratio of Mr. Stein’s annual total compensation to our median employee’s annual total compensation was 365:1.

As permitted by SEC rules, we used the same median employee that we had identified in 2020, since there had been no change in our employee population or employee compensation arrangements that we reasonably believed would result in a significant change to the pay ratio disclosure. Last year, we identified the median employee by calculating total cash compensation (base salary, including overtime, and cash incentive compensation, where applicable) of all persons employed by us as of year-end 2020. Once we identified our median employee, we re-calculated such employee’s annual total compensation consistent with the summary compensation table for purposes of determining the ratio of Mr. Stein’s annual total compensation to such employee’s total compensation.

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