UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]

Filed by a Party other than the Registrant [    ]

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Preliminary Proxy Statement
 
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Definitive Proxy Statement
[     ]
Definitive Additional Materials
[     ]
Soliciting Material Pursuant to Rule 14a-12
[     ]
Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Vectrus, Inc.

(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
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(2)
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
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FINAL2020PROXYFRONT001.JPG




March 26, 2020


Vectrus, Inc.
2424 Garden of the Gods Road
Suite 300
Colorado Springs, CO 80919

Dear Fellow Shareholders:

Enclosed are the Notice of Annual Meeting of Shareholders and Proxy Statement for the Vectrus, Inc. 2020 Annual Meeting of Shareholders. This year’s meeting is intended to address only the business included on the agenda. Details of the business to be conducted at the 2020 Annual Meeting are given in the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement, which provides information required by applicable laws and regulations.

Your vote is important and we encourage you to vote whether you are a registered owner or a beneficial owner. In accordance with U.S. Securities and Exchange Commission rules, we are using the Internet as our primary means of furnishing proxy materials to shareholders. Because we are using the Internet, most shareholders will not receive paper copies of our proxy materials. We will instead send these shareholders a notice with instructions for accessing the proxy materials and voting via the Internet. This notice also provides information on how shareholders may obtain paper copies of our proxy materials if they so choose. We believe use of the Internet makes the proxy distribution process more efficient, less costly and helps in conserving natural resources.

If you are the registered owner of Vectrus common stock and do not plan to vote in person at the 2020 Annual Meeting, you may vote your shares by making a toll-free telephone call or using the Internet. Details of these voting options are explained in the Proxy Statement. If you choose to receive paper copies of our proxy materials, you can vote by completing and returning the enclosed proxy card by mail as soon as possible.

If you are a beneficial owner and someone else, such as your bank, broker or trustee, is the owner of record, the owner of record will communicate with you about how to vote your shares.

Whether or not you plan to attend the 2020 Annual Meeting, please vote as soon as possible. Voting by any of the methods described above will ensure your representation at the Annual Meeting of Shareholders.


Sincerely,

IMAGE1A01.JPG
CHARLES L. PROW
PRESIDENT AND CHIEF EXECUTIVE OFFICER

IMAGE2A01.GIF
LOUIS J. GIULIANO
NON-EXECUTIVE CHAIRMAN OF
THE BOARD OF DIRECTORS






NOTICE OF 2020 ANNUAL MEETING OF SHAREHOLDERS
LOCATION DETAILS
 
 
 
 
 
 
 
TIME:
8:00 a.m. Eastern Time, on Thursday, May 7, 2020
 
 
 
 
 
PLACE:
Hyatt Regency Tysons Corner Center, 7901 Tysons One Place, Tysons Corner, VA 22102
 
 
 
 
 
ITEMS OF BUSINESS
 
 
 
 
 
 
 
ITEM 1
To elect three Class III Directors as members of the Board of Directors for a three-year term, each as named in the attached Proxy Statement.
 
 
 
 
 
ITEM 2
To ratify the appointment of Deloitte & Touche LLP as the Vectrus, Inc. Independent Registered Public Accounting Firm for 2020.
ITEM 3
To approve an amendment and restatement of the Vectrus, Inc. 2014 Omnibus Incentive Plan.
ITEM 4
To approve, on an advisory basis, the compensation paid to our named executive officers, as described herein.
 
 
 
 
 
ITEM 5
To transact such other business as may properly come before the meeting.
 
 
 
 
 
WHO CAN VOTE?
 
 
 
You can vote if you were a shareholder at the close of business on March 12, 2020, the record date.
 
 
 
 
 
ANNUAL REPORT TO SHAREHOLDERS AND ANNUAL REPORT ON FORM 10-K
Copies of our Annual Report to Shareholders and 2019 Annual Report on Form 10-K are provided to shareholders.
 
 
 
 
 
MAILING OR AVAILABILITY DATE
Beginning on or about March 26, 2020, this Notice of the 2020 Annual Meeting of Shareholders and the 2020 Proxy Statement are being mailed or made available, as the case may be, to shareholders of record on March 12, 2020.
 
 
 
 
 
ABOUT PROXY VOTING
Your vote is important. Proxy voting permits shareholders unable to attend the Annual Meeting of Shareholders to vote their shares through a proxy. By appointing a proxy, your shares will be represented and voted in accordance with your instructions. If you do not provide instructions on how to vote, the proxies will vote as recommended by the Board of Directors. Most shareholders will not receive paper copies of our proxy materials and can vote their shares by following the Internet voting instructions provided on the Notice of Internet Availability of Proxy Materials. If you are a registered owner and requested a paper copy of the proxy materials, you can vote your shares by completing and returning your proxy card or by following the Internet or telephone voting instructions provided on the proxy card. Beneficial owners who received or requested a paper copy of the proxy materials can vote their shares by completing and returning their voting instruction form or by following the Internet or telephone voting instructions provided on the voting instruction form. You can change your voting instructions or revoke your proxy at any time prior to the Annual Meeting of Shareholders by following the instructions on page 6 of this proxy statement and on the proxy card.

This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on Thursday, May 7, 2020 at 8:00 a.m. Eastern Time. The Company’s 2020 Proxy Statement, 2019 Annual Report on Form 10-K and Annual Report to Shareholders are available online at www.proxyvote.com.

If you want to receive a paper or email copy of these documents, you must request a copy. There is no charge to you for requesting a copy. Please make your request for a copy as instructed in this proxy statement on or before April 23, 2020 to facilitate timely delivery.

By order of the Board of Directors,
KATHRYNSIGNATUREA01.JPG
KATHRYN S. LAMPING
DEPUTY GENERAL COUNSEL AND CORPORATE SECRETARY
March 26, 2020




TABLE OF CONTENTS
 
 
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1
2
3
4
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

i



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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VECTRUS QUICK FACTS
ANNUAL MEETING OF SHAREHOLDERS INFORMATION
 
 
 
 
DATE
May 7, 2020
CORPORATE WEBSITE
www.vectrus.com
TIME
8:00 a.m. Eastern Time
INVESTOR RELATIONS WEBSITE
http://investors.vectrus.com/
LOCATION
Hyatt Regency Tysons Corner Center, 7901 Tysons One Place, Tysons Corner, VA 22102

ANNUAL REPORT ON FORM 10-K
http://investors.vectrus.com/Doc/index?did=57400702

RECORD DATE
March 12, 2020
CODE OF CONDUCT
http://investors.vectrus.com/govdocs
TRANSFER AGENT
Computershare Trust Company, N.A.
CORPORATE HEADQUARTERS
2424 Garden of the Gods Road, Suite 300, Colorado Springs, CO 80919
 
ANNUAL MEETING OF SHAREHOLDERS AGENDA ITEMS TO BE VOTED ON
 
MANAGEMENT RECOMMENDATION
ITEM 1. ELECTION OF DIRECTORS
To elect Class III Directors:
- William F. Murdy
- Melvin F. Parker
- Stephen L. Waechter
FOR EACH CLASS III DIRECTOR NOMINEE
ITEM 2. RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To ratify the appointment of Deloitte & Touche LLP as the Company’s Independent Registered Public Accounting Firm for 2020.
FOR
ITEM 3. APPROVAL OF AN AMENDMENT AND RESTATEMENT OF THE VECTRUS, Inc. 2014 Omnibus incentive plan
To approve an amendment and restatement of the Vectrus, Inc. 2014 Omnibus Incentive Plan.
FOR
ITEM 4. ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
 
To approve, on an advisory basis, the compensation of our named executive officers, as described in the 2020 Proxy Statement.
FOR



1



DIRECTORS STANDING FOR ELECTION
 
INDEPENDENT
COMMITTEE ASSIGNMENT
William F. Murdy
YES
Member of the Nominating and Governance Committee, the Audit Committee and the Strategy Committee
Melvin F. Parker
YES
Member of the Compensation and Personnel Committee, the Nominating and Governance Committee and the Strategy Committee
Stephen L. Waechter
YES
Audit Committee Chair and Member of the Nominating and Governance Committee
NUMBER OF 2019 BOARD AND COMMITTEE MEETINGS
Board Meetings
8
Audit Committee Meetings
7
Compensation and Personnel Committee Meetings
7
Nominating and Governance Committee Meetings
6
Strategy Committee Meetings
3
INDEPENDENT NON-EXECUTIVE CHAIR
Louis J. Giuliano
ANNUAL DIRECTOR COMPENSATION AND OWNERSHIP GUIDELINES
Cash Retainer
$85,000
Restricted Stock Units
$115,000
Audit Committee Chair – Incremental Compensation
$15,000 Cash Retainer
Compensation and Personnel Committee Chair – Incremental Compensation
$10,000 Cash Retainer
Nominating and Governance Committee Chair – Incremental Compensation
$10,000 Cash Retainer
Strategy Committee Chair – Incremental Compensation
$10,000 Cash Retainer
Non-Executive Chair – Incremental Compensation
$50,000 Cash Retainer and
$50,000 in Restricted Stock Units
Director Share Ownership Guidelines
5 X the Annual Cash Retainer Amount
BOARD SIZE
9 Directors

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KEY PRINCIPLES AND PRACTICES
 
 
þ
Independent Chairman of the Board
þ
Committees 100% independent
 
w
Audit
w
Compensation and Personnel
w
Nominating and Governance
w
Strategy
þ
Majority vote standard in uncontested elections
þ
Restriction on the number of boards on which Directors may serve to avoid overboarding, including the number of boards on which a Director who is a CEO may serve (See "Information About the Board of Directors and Other Matters - Corporate Governance Principles")
þ
Annual Board and Committee evaluations
þ
Compensation tied to performance
þ
Limited perquisites
þ
No tax gross-ups on perquisites or in connection with a change in control. Tax protection may be provided for amounts associated with relocation.
þ
Policy against hedging, pledging or speculating in Company stock
þ
Share ownership guidelines for directors and officers
þ
Clawback policy
þ
No poison pill
þ
Regular executive sessions of the Board and each Committee without management present
þ
Board regularly reviews Board size and composition, including diversity and tenure, as well as Committee structure through its Nominating and Governance Committee

3



WE DO...
þ
Use an independent compensation consultant.
þ
Pay for performance.
þ
Have meaningful stock ownership guidelines for Vectrus corporate officers and directors.
þ
Have an annual Say-on-Pay vote.
þ
Mitigate compensation risk through oversight, controls and appropriate incentives in our balanced compensation programs.
þ
Have double trigger change in control provisions in our equity award agreements and our equity incentive plan that require both consummation of a change in control transaction and termination of employment for accelerated vesting.
þ
Provide in our equity incentive plan for a minimum vesting period of one year for employee equity grants, and generally provide in our employee award agreements for vesting in equal annual installments over a three-year period for our restricted stock unit and stock option awards.
þ
Provide for clawback or recoupment of incentive awards and related payments under certain circumstances.
WE DO NOT...
û
Reprice stock options.
û
Provide tax gross-ups for perquisites or in connection with a change in control; however, tax protection may be provided for costs associated with relocation.
û
Guarantee minimum bonus payments.
û
Provide for automatic base salary increases.
û
Have fixed-term employment arrangements with our named executive officers ("NEOs"). All NEOs are at-will employees.
û
Provide a traditional pension plan or a supplemental executive retirement plan.

























4



2020 PROXY STATEMENT
 
INFORMATION ABOUT THIS PROXY STATEMENT AND VOTING
Your vote is very important to us. For this reason, the Board of Directors of Vectrus, Inc. (“Vectrus” or the “Company”) is requesting that you allow your common stock to be represented at the 2020 Annual Meeting of Shareholders (the "2020 Annual Meeting") by voting your shares after reviewing this Proxy Statement. This Proxy Statement is being sent or made available to you in connection with this request and has been prepared on behalf of the Board of Directors by our management team.

WHY DID I RECEIVE THESE PROXY MATERIALS?
Beginning on or about March 26, 2020, this Proxy Statement is being mailed or made available, as the case may be, to shareholders who were Vectrus shareholders as of the March 12, 2020 record date (the “Record Date”), as part of the Board of Directors’ solicitation of proxies for the 2020 Annual Meeting and any postponements or adjournments thereof. This Proxy Statement and the 2019 Annual Report on Form 10-K (which have been furnished or made available to shareholders eligible to vote at the 2020 Annual Meeting) contain information that the Board of Directors believes offers an informed view of Vectrus.

WHO IS ENTITLED TO VOTE?
You can vote if you owned shares of the Company’s common stock as of the close of business on the Record Date.

WHAT ITEMS OF BUSINESS WILL I BE VOTING ON?
You are voting on the following items of business:
1
To elect three Class III Directors as members of the Board of Directors for a three-year term, each as named in this Proxy Statement.
2
To ratify the appointment of Deloitte & Touche LLP (“Deloitte”) as the Company’s Independent Registered Public Accounting Firm for 2020.
3
To approve an amendment and restatement of the Vectrus, Inc. 2014 Omnibus Incentive Plan.
4
To approve, on an advisory basis, the compensation paid to our NEOs, as described herein.
5
To transact such other business as may properly come before the meeting.


HOW DO I VOTE?
If you are a registered owner, you can either vote in person at the 2020 Annual Meeting or by proxy, whether or not you attend the 2020 Annual Meeting. Beneficial owners may vote by submitting their voting instructions. If you are a beneficial owner and your shares are held in a bank or brokerage account, you will need to obtain a proxy, executed in your favor, from your bank or broker to be able to vote in person at the 2020 Annual Meeting.

 


WHAT IS THE DIFFERENCE BETWEEN A REGISTERED OWNER AND A BENEFICIAL OWNER?
If the shares you own are registered in your name directly with Computershare, our transfer agent, you are the registered owner and the “shareholder of record.” If the shares you own are held in a stock brokerage account, bank or by another holder of record, you are considered the “beneficial owner” because someone else holds the shares on your behalf.

WHAT ARE THE PROXY VOTING PROCEDURES?
Your vote is important. After reviewing this Proxy Statement, please vote your shares right away to make sure that your shares are represented at the 2020 Annual Meeting. Please follow the voting instructions on the proxy card (if you are a shareholder of record) or the voting instruction form (if you are a beneficial owner). You may vote:
 
8
 
(
 
+
 
 
BY INTERNET
 
BY TELEPHONE (FROM U.S.)
 
BY MAIL


WHY DOES THE BOARD SOLICIT PROXIES FROM SHAREHOLDERS?
Since it is impractical for all shareholders to attend the 2020 Annual Meeting and vote in person, the Board of Directors recommends that you appoint the two people named on the accompanying proxy card to act as your proxies at the 2020 Annual Meeting.

HOW DO THE PROXIES VOTE?
The proxies vote your shares in accordance with your voting instructions. If you appoint the proxies but do not provide voting instructions, they will vote as recommended by the Board of Directors, except as discussed below under “What is a broker non-vote?" If any other matters not described in this Proxy Statement are properly brought before the meeting for a vote, the proxies will use their discretion in deciding how to vote on those matters.

HOW MANY VOTES DO I HAVE?
You have one vote for every share of Vectrus common stock that you owned on the Record Date.

HOW DOES THE BOARD OF DIRECTORS RECOMMEND THAT I VOTE ON THE PROPOSALS?
The Board of Directors recommends a vote “FOR” the election of each of the Class III Director nominees of the Board of Directors (Item 1), “FOR” the ratification of the appointment of Deloitte as the Company's independent registered public accounting firm for 2020 (Item 2), "FOR" the approval of an amendment and restatement of the Vectrus, Inc. 2014

5



Omnibus Incentive Plan (Item 3), and “FOR” the approval on an advisory basis of the compensation of our NEOs (Item 4).

WHAT IF I CHANGE MY MIND?
Shareholders of Record: You can revoke your proxy at any time before it is exercised by mailing a new proxy card with a later date or casting a new vote via the Internet or by telephone, as applicable. You can also send a written revocation to the Corporate Secretary at the Vectrus Corporate Headquarters, 2424 Garden of the Gods Road, Suite 300, Colorado Springs, CO 80919. If you come to the 2020 Annual Meeting, you can ask that the proxy you submitted earlier not be used and may vote in person.

Beneficial Owners: You must contact the bank, broker or other nominee holding your shares and follow its instructions for changing your vote.

WHAT IS A "BROKER NON-VOTE"?
The New York Stock Exchange ("NYSE") has rules that govern brokers who have record ownership of listed company stock held in brokerage accounts for their clients who beneficially own the shares. Under these rules, brokers who do not receive voting instructions from their clients have the discretion to vote uninstructed shares on certain matters (“discretionary matters”) but do not have discretion to vote uninstructed shares as to certain other matters (“non-discretionary matters”). A broker may cast a vote on behalf of a beneficial owner from whom the broker has not received instructions with regard to discretionary matters but not non-discretionary matters. The broker’s inability to vote with respect to the non-discretionary matters to which the broker has not received instructions from the beneficial owner is referred to as a “broker non-vote.” Under current NYSE interpretations, agenda Item 2, the ratification of Deloitte as the Company’s independent registered public accounting firm, is considered a discretionary item. Your broker does not have discretion to vote your shares regarding Items 1, 3, or 4, each of which is considered a non-discretionary item.

Under Indiana law, the law of the state where the Company is incorporated, broker non-votes and abstentions are counted to determine whether there is a quorum present, but broker non-votes and abstentions will have no effect on the outcome of the proposals. There are four formal items scheduled to be voted upon at the 2020 Annual Meeting as described in this Proxy Statement. As of the date of this Proxy Statement, the Board of Directors is not aware of any business other than as described in this Proxy Statement that will be presented for a vote at the 2020 Annual Meeting.

HOW MANY VOTES ARE REQUIRED TO ELECT DIRECTORS OR APPROVE A PROPOSAL? HOW MANY VOTES ARE REQUIRED FOR AN AGENDA ITEM TO PASS?
The Amended and Restated Articles of the Company (the "Articles") and the Amended and Restated By-Laws of the Company (the "By-Laws") provide that in uncontested elections, Directors shall be elected by a majority of the votes
 
cast (that is, the number of votes cast “for” a Director nominee must exceed the number of votes cast “against” that nominee). Accordingly, broker non-votes and abstentions will not have any effect on the election of a Director. Cumulative voting in the election of Directors is not permitted. Items 2 and 4 are advisory in nature and non-binding. Items 2, 3 and 4 will be considered to have passed if the votes cast in favor of the proposal exceed the votes cast against the proposal.

WHAT HAPPENS IF A DIRECTOR NOMINEE FAILS TO RECEIVE A MAJORITY OF THE VOTES CAST IN AN UNCONTESTED ELECTION?
Our By-Laws provide that in uncontested elections, any Director nominee who fails to be elected by a majority of the votes cast, but who also is a Director at the time, shall promptly provide a written resignation, as a holdover Director, to the Chairman of the Board or the Corporate Secretary. The Nominating and Governance Committee (or the equivalent committee then in existence) shall promptly consider the resignation and all relevant facts and circumstances concerning any vote and the best interests of the Company and its shareholders and make a recommendation to the Board regarding whether to accept or reject the tendered resignation or whether other action should be taken. The Board will act on the Nominating and Governance Committee’s recommendation no later than its next regularly scheduled Board meeting or within 90 days after certification of the shareholder vote, whichever is earlier, and the Board will promptly publicly disclose its decision and the reasons for its decision.

HOW MANY SHARES OF VECTRUS STOCK ARE OUTSTANDING?
As of the Record Date, 11,586,964 shares of Vectrus common stock were outstanding and entitled to vote at the Annual Meeting of Shareholders.

HOW MANY HOLDERS OF VECTRUS OUTSTANDING SHARES MUST BE PRESENT TO HOLD THE ANNUAL MEETING OF SHAREHOLDERS?
In order to conduct business at the 2020 Annual Meeting, it is necessary to have a quorum. The presence in person or by proxy of holders of a majority of the outstanding shares of common stock entitled to vote will constitute a quorum for the transaction of business at the 2020 Annual Meeting. Abstentions and broker non-votes will be considered present for quorum purposes.

WHO COUNTS THE VOTES? IS MY VOTE CONFIDENTIAL?
Votes will be counted by the Inspector of Election appointed for the 2020 Annual Meeting. The Inspector of Election monitors the voting and certifies the confidentiality of the votes of shareholders.

WHO WILL SOLICIT PROXIES?
Our Directors, officers and other regular employees may solicit proxies. In addition, we have appointed Okapi Partners LLC

6



to help with the solicitation effort. These persons and Okapi Partners LLC may solicit proxies in person, by mail, by telephone or other electronic communication. Our Directors, officers and other employees will not receive any additional compensation for these activities.

WHO WILL PAY FOR THE COSTS OF THIS PROXY SOLICITATION?
We will pay the full cost of soliciting proxies. We will pay Okapi Partners LLC a fee of $8,000 plus reimbursement of expenses to assist with the solicitation, and we will reimburse brokers, nominees, custodians and other fiduciaries for their costs in sending proxy materials to beneficial owners.

HOW CAN I SUBMIT A PROPOSAL FOR THE 2021 ANNUAL MEETING OF SHAREHOLDERS?
Rule 14a-8 of the Securities Exchange Act of 1934, or the “Exchange Act,” establishes the eligibility requirements and the procedures that must be followed for a shareholder proposal to be included in a public company’s proxy materials. If you want us to consider including a shareholder proposal in next year’s proxy statement, you must deliver such proposal, in writing, to Kathryn Lamping, our Deputy General Counsel and Corporate Secretary, at our principal executive offices on or before November 26, 2020 and comply with applicable eligibility requirements and procedures.

Any other matters proposed to be submitted for consideration at next year’s Annual Meeting of Shareholders (other than a shareholder proposal included in our proxy materials pursuant to Rule 14a-8 under the Exchange Act) must be given in writing to our Corporate Secretary and received at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the date we first sent or made these proxy materials available to shareholders.

Therefore, to be presented at our 2021 Annual Meeting of Shareholders, such a proposal must be received on or after November 26, 2020 but not later than December 28, 2020. Although the 90-day deadline is December 26, 2020, a Saturday, the Company will honor any requests for proposals received on December 28, 2020. The proposal must contain specific information required by our By-Laws, which are on file with the Securities and Exchange Commission ("SEC") and may be obtained from our Corporate Secretary upon written request. If a shareholder proposal is received before or after the range of dates specified above, our proxy materials for the next Annual Meeting of Shareholders may confer discretionary authority to vote on such matter without any discussion of the matter in the proxy materials.

CAN A SHAREHOLDER NOMINATE DIRECTOR CANDIDATES?
In accordance with procedures and requirements set forth in our By-Laws, shareholders may propose nominees for election to the Board of Directors only after providing timely written notice, as set forth in the preceding section. To be timely, notice of Director nomination or any other business for
 
consideration at the shareholders’ meeting must be received by our Corporate Secretary at our principal executive offices no less than 90 days nor more than 120 days prior to the first anniversary of the date we released our Proxy Statement to shareholders in connection with last year's Annual Meeting of Shareholders. Therefore, to be presented at our 2021 Annual Meeting of Shareholders, such a proposal must be received on or after November 26, 2020 but not later than December 28, 2020. The nomination and notice must meet all other qualifications and requirements of the Company’s Corporate Governance Principles, By-Laws and Regulation 14A of the Exchange Act. The nominee will be evaluated by the Nominating and Governance Committee of the Board using the same standards as it uses for all other Director nominees.

These standards are discussed in further detail below under “Information about the Board of Directors and Other Matters - Director Selection, Composition and Diversity.” You can request a copy of the nomination requirements from the Corporate Secretary of Vectrus.

WHERE CAN I FIND THE VOTING RESULTS OF THE ANNUAL MEETING OF SHAREHOLDERS?
We will announce preliminary voting results at the 2020 Annual Meeting and will publish final results in a Current Report on Form 8-K that we expect to file with the SEC within four business days after the 2020 Annual Meeting. If final voting results are not available to us in time to file a Form 8-K with the SEC within four business days after the 2020 Annual Meeting, we intend to file a Form 8-K to disclose preliminary voting results and, within four business days after the final results are known, we will file an additional Form 8-K with the SEC to disclose the final voting results.

HOUSEHOLDING OF PROXY MATERIALS
SEC rules permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements and notices with respect to two or more shareholders sharing the same address by delivering a single proxy statement or a single notice addressed to those shareholders. This process, which is commonly referred to as “householding,” provides cost savings for companies.

We will deliver only one copy of the proxy materials to multiple shareholders sharing an address unless we have received contrary instructions from one or more of those shareholders. We will, upon written or oral request, promptly deliver a separate copy of the proxy materials to a shareholder at a shared address to which single copies of the documents were delivered. You can make such request by writing to: Corporate Secretary, Vectrus, Inc., 2424 Garden of the Gods Road, Suite 300, Colorado Springs, CO 80919 or by calling 719-591-3600. Shareholders wishing to receive separate copies of the proxy materials in the future or shareholders sharing an address wishing to receive a single copy of proxy materials in the future may also contact our Corporate Secretary as described above.

7



Some brokers also household proxy materials, delivering a single proxy statement or notice to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker that it will be sending householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in householding and would prefer to receive a separate proxy statement or notice, please notify your broker.

We also make available, free of charge on our website, all of our filings that are made electronically with the SEC, including Forms 10-K, 10-Q, and 8-K. To access these filings, go to our website (www.vectrus.com) and click on “SEC Filings” under the “Investors” heading. Copies of our 2019 Annual Report on Form 10-K, filed with the SEC, are also available without charge to shareholders upon written request addressed to: Corporate Secretary, Vectrus, Inc., 2424 Garden of the Gods Road, Suite 300, Colorado Springs, CO 80919.

INTERNET AVAILABILITY OF PROXY MATERIALS
In accordance with SEC rules, we are using the Internet as our primary means of furnishing proxy materials to shareholders. Because we are using the Internet, most shareholders will not receive paper copies of our proxy materials. We will instead send these shareholders a Notice of Internet Availability of Proxy Materials with instructions for accessing the proxy materials, including our Proxy Statement, 2019 Annual Report on Form 10-K and Annual Report to Shareholders, and voting via the Internet. The Notice of Internet Availability of Proxy Materials also provides information on how shareholders may obtain paper copies of our proxy materials if they so choose.

SHARE OWNERSHIP GUIDELINES
The Vectrus Board of Directors has established share ownership guidelines, as set forth below, for our Non-Management Directors who are not our employees ("Non-Management Directors") and corporate officers that we believe are consistent with general market practices. Share ownership guidelines for Non-Management Directors and corporate officers are reviewed annually to continue to align the guidelines with current market trends. The share ownership guidelines provide for share ownership levels at five times the annual cash retainer amount for the Non-Management Directors of the Company. Non-Management Directors receive a portion of their retainer, and the Non-Executive Chairman of the Board receives a portion of his Chairman fee, in restricted stock units (also referred to as “RSUs”), which are paid in shares when the RSUs vest. Non-Management Directors are encouraged to hold such shares until their total share ownership meets or exceeds the ownership guidelines.

The approved guidelines also require share ownership, expressed as a multiple of base salary, for the President and Chief Executive Officer, the Chief Financial Officer, Executive
 
Vice Presidents, Senior Vice Presidents and Corporate Vice Presidents. The guidelines specify the desired levels of Company stock ownership and encourage a set of behaviors for each corporate officer to reach the guideline levels. Specifically, the guidelines apply as shown in the table below. In achieving these ownership levels, shares owned outright, Vectrus restricted stock and RSUs are considered.
 
Non-Management Directors
5 X Annual Cash Retainer Amount
CEO
5 X Annual Base Salary
CFO and Executive Vice Presidents
3 X Annual Base Salary
Senior Vice Presidents
2 X Annual Base Salary
Corporate Vice Presidents
1 X Annual Base Salary

With respect to corporate officers, in order to attain the ownership levels set forth in the guidelines, it is expected that any restricted stock or RSUs paid in shares when the RSUs vest will be held, and that all shares acquired through the exercise of stock options will be held, except to the extent necessary to meet tax obligations. Compliance with the guidelines is monitored periodically. Non-Management Directors and corporate officers are afforded five years to meet the guidelines. The Company has taken individual tenure and Non-Management Director and corporate officer share ownership levels into account in determining compliance with the guidelines. As of February 3, 2020, all of our Non-Management Directors and corporate officers are in compliance with our share ownership guidelines (taking into account the applicable five-year transition period), except Mr. Parker, who was granted a temporary accommodation due to an unforeseen financial hardship situation.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of February 3, 2020, the beneficial ownership of Vectrus common stock and options exercisable within 60 days of that date by each Director, by each of the executive officers named in the Summary Compensation Table, and by all Directors and executive officers as a group, as well as each person known to us to beneficially own more than 5% of our outstanding common stock. In addition, we have provided information about ownership of options and RSUs that provides economic linkage to Vectrus common stock but does not represent actual beneficial ownership of shares.

The number of shares beneficially owned by each Non-Management Director or executive officer has been determined under the rules of the SEC, which provide that beneficial ownership includes any shares as to which a person has the right to acquire beneficial ownership within 60 days through the exercise of any option or other right. Unless otherwise indicated, each Non-Management Director or

8



executive officer has sole voting and dispositive power or shares those powers with his or her spouse.

Each person or entity has reported sole voting and investment power with respect to the shares beneficially owned by that person or entity, except as otherwise indicated. The percentages below for the beneficial owners holding more than 5% are based on the number of shares of our common stock issued and outstanding as of December 31, 2019. The
 
information regarding persons owning more than 5% of our outstanding common stock is based solely on the most recent Schedule 13D or 13G filings with the SEC on behalf of such persons.

There were 11,523,691 shares of Vectrus common stock outstanding on February 3, 2020.
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
 
Amount and Nature of Beneficial Ownership (1)
Additional Economic Linkage Information
Name and Address of Beneficial Owner
Shares Owned (2)
Right to Acquire (3)
Total Shares Beneficially Owned
Percent Beneficially Owned
Total RSUs
Total Unvested Options
5% Shareholders
 
 
 
BlackRock, Inc. (4)
877,427
877,427
7.6%
Dimensional Fund Advisors LP (5)
810,162
810,162
7.0%
Russell Investments Group, Ltd. (6)
685,962
685,962
6.0%
FMR LLC and Abigail P. Johnson (7)
633,985
633,985
5.5%
LSV Asset Management (8)
585,368
585,368
5.1%
Directors and Named Executive Officers (9)
 
 
 
Louis J. Giuliano
48,607
48,607
*
4,295
Bradford J. Boston
14,671
14,671
*
2,993
Mary L. Howell
18,411
18,411
*
2,993
William F. Murdy
15,671
15,671
*
2,993
Melvin F. Parker
3,669
3,669
*
2,993
Eric M. Pillmore
21,671
21,671
*
2,993
Stephen L. Waechter
23,671
23,671
*
2,993
Phillip C. Widman
24,671
24,671
*
2,993
Charles L. Prow
28,248
43,537
71,785
*
48,796
7,299
Susan D. Lynch
50
50
*
5,176
David A. Hathaway
2,749
5,425
8,174
*
8,368
1,342
Susan L. Deagle
2,381
6,487
8,868
*
7,943
1,872
Kevin T. Boyle
1,512
1,502
3,014
*
7,402
William B. Noon
1,520
4,554
6,074
*
4,420
851
Matthew M. Klein
15,533
15,533
*
All executive officers and Directors as a group (18 persons)
245,949
90,405
336,354
2.9%
126,490
15,066
* Less than 1% of the outstanding shares of common stock.
(1)
None of the Directors or NEOs have pledged Vectrus shares as security.

9



(2)
Includes shares for which the named person has sole voting and investment power or shared voting and investment power with a spouse. Excludes shares that may be acquired through stock option exercises.
(3)
Includes stock options and RSUs. Shares of common stock subject to options currently exercisable or exercisable within 60 days of February 3, 2020 and RSUs that will become vested within 60 days of February 3, 2020 are deemed outstanding and beneficially owned by the person holding such options or RSUs for purposes of computing the number of shares and percentage beneficially owned by such person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person.
(4)
As reported on a Schedule 13G/A filed on February 6, 2020, BlackRock, Inc. has sole voting power with respect to 837,774 shares of common stock, sole dispositive power with respect to 877,427 shares of common stock and shared voting or dispositive power with respect to 0 shares of common stock. The address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
(5)
As reported on a Schedule 13G/A filed on February 12, 2020, Dimensional Fund Advisors, LP has sole voting power with respect to 777,506 shares of common stock, sole dispositive power with respect to 810,162 shares of common stock and shared voting or dispositive power with respect to 0 shares of common stock. The address for Dimensional Fund Advisors LP is Building One, 6300 Bee Cave Road, Austin, TX 78746.
(6)
As reported on a Schedule 13G filed on February 13, 2020, Russell Investments Group, Ltd. has sole voting power with respect to 685,962 shares of common stock, shared voting power and sole dispositive power with respect to 0 shares of common stock and shared dispositive power with respect to 685,962 shares of common stock. The address for Russell Investments Group, Ltd. is 1301 Second Ave., Suite 1800, Seattle, WA 98101.
(7)
As reported on a Schedule 13G filed on February 7, 2020, FMR LLC has sole voting power with respect to 157,888 shares of common stock, FMR LLC and Abigail P. Johnson each have sole dispositive power with respect to 633,985 shares of common stock and shared voting or dispositive power with respect to 0 shares of common stock. Members of the Johnson family, including Ms. Johnson, Director, Chairman and Chief Executive Officer of FMR LLC, are the predominant owners, directly or indirectly through trusts, of Series B voting common shares of FMR LLC, representing 49% of the voting power of FMR LLC. The Johnson family group and all other Series B shareholders have entered into a shareholders' voting agreement under which all Series B voting common shares will be voted in accordance with the majority vote of Series B voting common shares. Accordingly, through their ownership of voting common shares and the execution of the shareholders' voting agreement, members of the Johnson family group may be deemed under the Investment Company Act of 1940 (the "1940 Act") to form a controlling group with respect to FMR LLC. Neither FMR LLC nor Ms. Johnson has the sole power to vote or direct the voting of the shares owned directly by the various investment companies registered under the 1940 Act, which power resides with the funds' boards of trustees. The address for FMR LLC, and Abigail P. Johnson is 245 Summer Street, Boston, MA 02210.
(8)
As reported on a Schedule 13G filed on February 11, 2020, LSV Asset Management has sole voting power with respect to 409,189 shares of common stock, sole dispositive power with respect to 585,368 shares of common stock and shared voting or dispositive power with respect to 0 shares of common stock. The address for LSV Asset Management is 155 N. Wacker Drive, Suite 4600, Chicago, IL 60606.
(9)
The address of each of the Directors and NEOs listed is c/o Vectrus, Inc., 2424 Garden of the Gods Road, Ste. 300, Colorado Springs, CO 80919.

PROPOSALS TO BE VOTED ON AT THE 2020 ANNUAL MEETING OF SHAREHOLDERS
ELECTION OF DIRECTORS
Our Articles provide for a classified Board of Directors divided into three classes designated Class I, Class II and Class III, each serving staggered three-year terms. The terms of our Class III Directors expire at the 2020 Annual Meeting. The terms of the Class I and Class II Directors will expire at the 2021 and 2022 Annual Meeting of Shareholders, respectively. Directors elected by the shareholders at an Annual Meeting of Shareholders to succeed those Directors whose terms expire at such meeting are of the same class as the Directors they succeed and are elected for a term to expire at the third Annual Meeting of Shareholders after their election and until their successors are duly elected and qualified.

The election of Directors requires the affirmative vote of a majority of the votes cast at the Annual Meeting of Shareholders. Accordingly, abstentions and broker non-votes will not have any effect on the election of a Director.

The full Board of Directors has considered and nominated three Class III nominees for election as Directors at the 2020 Annual Meeting, to serve for a three-year term. The qualifications and attributes considered by the Board when selecting each of these directors for nomination are described under the heading “Qualifications” in the respective Director’s biography below. Each of the Class III nominees is currently serving as a Director of Vectrus and has agreed to continue to serve if elected until the earlier of his or her retirement, resignation or death. If unforeseen circumstances arise before the 2020 Annual Meeting and a nominee becomes unable to serve, the Board of Directors could reduce the size of the Board or nominate another candidate for election. If the Board of Directors nominates another candidate, the proxies could use their discretion to vote for that nominee.

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PROPOSAL 1
ELECTION OF THREE CLASS III DIRECTOR NOMINEES FOR A TERM OF THREE YEARS
The following information describes the biographical information, offices held, other business directorships, additional director experience, qualifications, attributes and skills and the class and term of each nominee. Beneficial ownership of equity securities of the nominees is described in the discussion of “Security Ownership of Certain Beneficial Owners and Management.”
IMAGE4A01.JPG
WILLIAM F. MURDY
AGE
78
DIRECTOR SINCE
2014
COMMITTEE ASSIGNMENTS
Audit Committee, Member; Nominating and Governance Committee, Member; Strategy Committee, Member
QUALIFICATIONS:
Mr. Murdy has strong industry background and extensive management and leadership experience as chairman and chief executive officer of several public and private companies. Mr. Murdy has also served as a director of other public companies providing additional relevant experience.
Mr. Murdy serves as a Director. Mr. Murdy has served as Chairman of the Thayer Hotel, a historic hotel, since April 2009 and as Chairman of the Thayer Leader Development Group, a leadership development company, since May 2010. Mr. Murdy retired as the Chairman of Comfort Systems USA, a provider of heating, ventilation, air conditioning installation and services in the commercial/industrial/institutional sector, in May 2014. From 2000 to 2011, Mr. Murdy was Chairman and Chief Executive Officer of Comfort Systems USA. Prior to that, he was President and Chief Executive Officer of Club Quarters, a membership hotel chain. From 1997 to 1999, he was Chairman, President, Chief Executive Officer and Co-Founder of LandCare USA, Inc., a leading commercial landscape and tree services company, which later merged with ServiceMaster. Mr. Murdy also held management positions in the investment sector, including as Managing General Partner of the Morgan Stanley Venture Capital Fund and President of its associated management company from 1981 to 1989. From 1974 to 1981, he served in a number of positions including Chief Operating Officer of Pacific Resources. He served in the United States Army from 1964 to 1974. Formerly, Mr. Murdy also served as the Lead Independent Director of the Board of Directors of LSB Industries, Inc. and Chair of its Compensation Committee. He is currently a Director of Global Infrastructure Services, a large private construction management company; and is a civilian aide to the Secretary of the Army. He received a Bachelor’s degree from the U.S. Military Academy at West Point and a Master’s degree from Harvard Business School.
 
IMAGE5A01.JPG
MELVIN F. PARKER
AGE
52
DIRECTOR SINCE
2014
COMMITTEE ASSIGNMENTS
Compensation and Personnel Committee, Member; Nominating and Governance Committee, Member; Strategy Committee, Member
QUALIFICATIONS:
Mr. Parker has extensive management and leadership experience as a senior executive for a number of public companies.
Mr. Parker serves as a Director. Since December 2017, Mr. Parker has served as President and Chief Executive Officer of Take The Limits Off, LLC, a leadership development, executive coaching and business consulting firm. From May 2016 to February 2017, Mr. Parker served as Managing Director for North America for Aggreko plc, the leading global provider of modular, mobile power and adjacent product solutions. From November 2015 to February 2016, he served as the Senior Vice President and General Manager for Residential and Commercial Energy Solutions at Enphase Energy, Inc., a global energy technology company. From 2012 to December 2014, Mr. Parker served as President of North America for the Brink's Company, a major provider of armored transportation services in North America. Before joining Brink's in 2012, Mr. Parker served as Vice President and General Manager of the North America Consumer and Small Business Division at Dell, Inc. from 2010 to 2012 and as Executive Director and General Manager of US Small Business - Small and Medium Business - Americas at Dell, Inc., a multinational computer technology company that develops, sells, repairs and supports computers and related products and services, from 2009 to 2010. From 1994 until 2009, he held numerous senior leadership roles at multiple Fortune 500 Companies, including PepsiCo., Corporate Express (Staples) and Newell Rubbermaid. Mr. Parker is a decorated combat veteran and graduate of the U.S. Army Ranger and Airborne School. He served with distinction in the 82nd Airborne Division at Fort Bragg, N.C. He currently serves as a director on the Board of the National Black MBA Association. He is also a member of the Executive Leadership Council and was named to the Savoy Top 100 Most Influential Blacks in Corporate America for 2012 to 2014. Mr. Parker received a Bachelor's degree from the U.S. Military Academy at West Point.

11



IMAGE6A01.JPG
STEPHEN L. WAECHTER
AGE
69
DIRECTOR SINCE
2014
COMMITTEE ASSIGNMENTS
Audit Committee, Chair; Nominating and Governance Committee, Member
QUALIFICATIONS:
Mr. Waechter has extensive financial and leadership experience as chief financial officer of several government contractors and other public companies. Mr. Waechter has also served as a director and as an audit committee chair of one public and several private companies. He has an extensive background with mergers and acquisitions.
Mr. Waechter serves as a Director. From 2008 to 2014, Mr. Waechter was Vice President of Business Operations and Chief Financial Officer of ARINC Incorporated, a provider of communications, engineering and integration solutions for commercial, defense and government customers worldwide. From 1999 to 2007, he was Executive Vice President and Chief Financial Officer of CACI International, Inc., one of the largest government information technology contractors. Before joining CACI, Mr. Waechter served as Chief Financial Officer for a number of high-technology companies including Government Technology Services, Inc., Vincam Human Resources, Inc. and Applied Bioscience International. Mr. Waechter’s early career includes 19 years at GE, most recently as Vice President, Finance for GE Information Services. Mr. Waechter formerly served as Chairman of the Board of Directors of Social & Scientific Systems, Inc., and Chair of the Audit Committee. He serves as Chairman of the Board of Directors of CareFirst, Inc., where he also serves as the Chair of the Executive Committee, Strategic Planning Committee and Nominating Committee, and formerly served as Chair of the Audit Committee. He is also a member of the Board of Trustees of Christian Brothers University and former Chair of the Finance Committee of Choral Arts Society of Washington, D.C. Mr. Waechter received a Bachelor’s degree from Christian Brothers College and a Master’s degree in Business Administration from Xavier University.

THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" THE ELECTION OF EACH OF THE THREE PROPOSED CLASS III NOMINEES LISTED ABOVE TO THE VECTRUS BOARD OF DIRECTORS.

CONTINUING MEMBERS OF THE BOARD OF DIRECTORS
The following information describes the offices held, biographical information, other business directorships, additional director experience, qualifications, attributes and skills, and the class and term of each director whose term continues beyond the Annual Meeting of Shareholders and who is not subject to election this year. Beneficial ownership
 
of equity securities of continuing members of the Board of Directors is described in the discussion of “Security Ownership of Certain Beneficial Owners and Management.”

CLASS I - DIRECTORS WHOSE TERMS EXPIRE IN 2021
IMAGE7A01.JPG
BRADFORD J. BOSTON
AGE
66
DIRECTOR SINCE
2014
COMMITTEE ASSIGNMENTS
Compensation and Personnel Committee, Chair; Strategy Committee, Member
QUALIFICATIONS:
Mr. Boston has extensive leadership and management experience in delivering technology solutions, including to defense industry customers. He has also served in various senior management positions at both public and private companies.
Mr. Boston serves as a Director. From 2012 to February 2018, Mr. Boston served as the President and Chief Executive Officer of NetNumber Inc., a provider of next-generation centralized addressing, routing and database solutions to the global communications industry. He was Senior Vice President of Global Government Solutions & Corporate Security Programs Office of Cisco Systems, Inc., a multinational technology company that designs, manufactures and sells networking equipment, from 2006 to 2012, where he was responsible for engineering, business development and advanced services groups in support of defense customers in the United States, NATO and elsewhere and led all Cybersecurity coordination efforts with various governments around the world. Before that, he was Chief Information Officer of Cisco Systems, Inc. from 2001 to 2006. He also held senior positions at Corio, Inc., Sabre Holdings Corporation, American Express Company and Visa International from 1993 to 2001. Mr. Boston previously served on the Board of Directors of NetNumber Inc. Mr. Boston received a Bachelor’s degree from the University of Illinois.

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IMAGE8A01.JPG
CHARLES L. PROW
AGE
60
DIRECTOR SINCE
2016
COMMITTEE ASSIGNMENTS
None.
 
 
QUALIFICATIONS:
Mr. Prow has an extensive background and leadership experience in global government services organizations and expertise involving information technology and the development of complex strategic solutions for a wide range of government customers. His strong business background provides him with a valuable perspective and deep understanding of the challenges facing government services organizations.
Mr. Prow has served as our President and Chief Executive Officer since December 2016. He is also a member of our Board of Directors. Mr. Prow has over 30 years of information technology and federal services experience, including leadership positions at IBM Corporation, PricewaterhouseCoopers, and Coopers & Lybrand. During his career, he has run large global government services organizations, delivering solutions to a wide array of Department of Defense and other government customers. From August 2015 through August 2016, he served as President, CPS Professional Services, a service-disabled veteran-owned small business, where he provided management consulting services to U.S. government clients. Previously, Mr. Prow served in multiple roles with IBM Corporation, a multinational technology company, including: (i) from 2014 to 2015 as General Manager, Global Government Industry in connection with IBM’s technology and services competencies, where he had responsibility for global revenues exceeding $9 billion; (ii) from 2012 to 2013 as General Manager, Global Business Services, with strategic, profit and loss and operational responsibility for IBM’s over $4 billion North America consulting services unit; and (iii) from 2007 to 2012 as General Manager, Global Business Services, with strategic, profit and loss and operational responsibility for IBM’s over $2.4 billion United States Public Sector business unit. He currently serves on the board of directors for the International Research and Exchange Board (IREX). Mr. Prow has a Bachelor of Science degree in Management and Data Processing from Northwest Missouri State University.
 
IMAGE9A01.JPG
PHILLIP C. WIDMAN
AGE
65
DIRECTOR SINCE
2014
COMMITTEE ASSIGNMENTS
Audit Committee, Financial Expert; Compensation and Personnel Committee, Member
QUALIFICATIONS:
Mr. Widman has an extensive financial and management background and has experience serving as a chief financial officer and senior executive of several companies. Mr. Widman has also served as a director of other public companies, including service as member and chair of several audit committees.
Mr. Widman serves as a Director. From 2002 to his retirement in 2013, Mr. Widman was Senior Vice President and Chief Financial Officer of Terex Corporation, a global manufacturer delivering customer-driven solutions for a wide range of commercial applications, including the construction, infrastructure, quarrying, mining, manufacturing, transportation, energy and utility industries. From 2001 to 2002, he was an independent consultant, and from 1998 to 2001, he served as Executive Vice President and Chief Financial Officer of Philip Services Corporation, an integrated environmental and industrial service corporation. Prior to joining Philip Services Corporation, Mr. Widman spent 11 years at Asea Brown Boveri Ltd. and 12 years at UNISYS Corporation in various financial and operational capacities. Mr. Widman currently serves as a director of Sturm, Ruger & Co., Inc., where he is the Chairman of the Audit Committee and a member of the Risk Oversight and Capital Policy Committees, and as a director of Harsco Corporation, where he is the Chairman of the Audit Committee and a member of the Management Development and Compensation Committee. He was a director of Lubrizol Corporation from November 2008 until its acquisition by Berkshire Hathaway in September 2011, where he served as a member of the Nominating and Governance Committee and Chairman of the Audit Committee. Mr. Widman received a BBA from the University of Michigan and an MBA from Eastern Michigan University.
















13



CLASS II - DIRECTORS WHOSE TERMS EXPIRE IN 2022
IMAGE18.JPG
LOUIS J. GIULIANO
AGE
73
DIRECTOR SINCE
2014
COMMITTEE ASSIGNMENTS
None.
QUALIFICATIONS:
Mr. Giuliano has an extensive background in management and finance, as well as experience as the former Chairman, CEO and President of ITT Corporation.
Mr. Giuliano serves as our Non-Executive Chairman. He currently serves as an operating executive of The Carlyle Group, a global alternative asset management firm. Mr. Giuliano retired as Chairman, CEO, and President of ITT Corporation, a global diversified manufacturing company and former parent of Exelis Inc., in December 2004. Mr. Giuliano joined ITT Corporation in 1988 as vice president of Defense Operations and became president of ITT Defense and Electronics in 1991. Before joining ITT Corporation, Mr. Giuliano spent 20 years with Allied-Signal where he held numerous positions within the Aerospace Group. He is on the Board of Silver II US GP, LLC, and serves on its Audit Committee. In addition, he serves on the Board of Meadowkirk Retreat Center. He is an active member of the CEO Forum and the Advisory Board for the Princeton University Faith and Work Initiative, and a founder of Workforce Ministries. Mr. Giuliano was named a governor of the U.S. Postal Service by President George W. Bush in November 2004. He was confirmed by the Senate in June 2005, for a term that expired in December 2015. He served as vice chairman of United States Post Office Board of Governors from February 2009 to January 2010, and as chairman of the United States Post Office Board of Governors from January 2010 until December 2011. Prior Board positions include Engelhard Corp., ServiceMaster, and JMC Steel Group. He is a graduate of Syracuse University with a Bachelor of Arts degree in chemistry and a Master’s of Business Administration.
IMAGE19.JPG
MARY L. HOWELL
AGE
67
DIRECTOR SINCE
2014
COMMITTEE ASSIGNMENTS
Strategy Committee, Chair; Audit Committee, Member
QUALIFICATIONS:
Ms. Howell has extensive management experience in the aerospace and defense industry. She has served as a director of another public company that also serves government and defense customers.
 
Ms. Howell serves as a Director. Ms. Howell is currently the Chief Executive Officer of Howell Strategy Group, an international consulting firm. Previously, Ms. Howell served as Executive Vice President of Textron Inc. from 1995 until her retirement in 2009. She served as an officer of Textron Inc. for 24 years, serving on the Textron Management Committee for over 15 years. Ms. Howell currently serves on the Board of Directors of Astec Industries, Inc., where she is a member of the Audit Committee. She formerly served on the Board of Esterline Corporation where she served as Lead Director. She also serves on the executive committee of the Board of the Atlantic Council. In 2008, Ms. Howell received the Charles Ruch Semper Fidelis Award and in 2010 became an Honorary Marine. Ms. Howell received a Bachelor’s degree from the University of Massachusetts at Amherst.
IMAGE17.JPG
ERIC M. PILLMORE
AGE
66
DIRECTOR SINCE
2014
COMMITTEE ASSIGNMENTS
Nominating and Governance Committee, Chair; Compensation and Personnel Committee, Member
QUALIFICATIONS:
Mr. Pillmore has extensive corporate governance and financial experience, which includes advising boards of both private and public companies on corporate governance and serving as chief financial officer of several companies.
Mr. Pillmore serves as a Director. In addition, he serves as Managing General Partner with Amore Group, Inc. and as President of Pillmore Consulting, LLC. From 2010 to July 2014, Mr. Pillmore served as senior advisor to the Center for Corporate Governance of Deloitte LLP, which provides board governance services to global clients. Mr. Pillmore was Senior Vice President of Corporate Governance of Tyco International Corporation from 2002 to 2007. Mr. Pillmore also held CFO positions at Multilink Technology Corporation, McData Corporation and General Instrument Corporation from 1996 to 2002. Before that, he spent 17 years with General Electric Company and four years as a naval officer. Mr. Pillmore is currently a Board member of the Colson Center. He received a Bachelor’s degree from the University of New Mexico and an Executive Masters of Business Administration degree from Villanova University.


14



PROPOSAL 2
RATIFICATION OF APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2020
The Audit Committee has appointed Deloitte as our independent registered public accounting firm for 2020. Deloitte has served as the Company's independent auditors since 2013.

Shareholder ratification is not required for making such appointment for the fiscal year ending December 31, 2020 because the Audit Committee has responsibility for the appointment of our independent registered public accounting firm. The appointment is being submitted to shareholders for ratification with a view toward soliciting the opinion of shareholders, which will be taken into consideration in future deliberations. No determination has been made as to what action the Board of Directors or the Audit Committee would take if shareholders do not ratify the appointment. Even if the appointment is ratified, the Audit Committee retains discretion to appoint a new independent registered public accounting firm at any time if the Audit Committee concludes such a change would be in the best interests of the Company and its shareholders. We expect that representatives of Deloitte will be present at the 2020 Annual Meeting and will have an opportunity to make a statement if they desire to do so and to respond to appropriate questions. Deloitte is a registered public accounting firm with the Public Company Accounting Oversight Board (“PCAOB”). Representatives of Deloitte attended all regularly scheduled meetings of the Audit Committee during 2019.

The Audit Committee annually reviews and considers Deloitte’s performance of the Company’s audit. Among the performance factors reviewed are the following:
 
PERFORMANCE FACTORS REVIEWED INCLUDE DELOITTE'S:
l
Independence
l
Non-audit services
l
Experience
l
Management structure
l
Technical capabilities
l
Peer review program
l
Client service assessment
l
Commitment to quality reporting
l
Compliance and ethics programs
l
Length of time engaged by the Company
l
Responsiveness
l
Leadership
l
Financial strength
l
Industry insight

The Audit Committee also reviewed the terms and conditions of Deloitte’s engagement letter. The Audit Committee discussed these considerations as well as Deloitte’s fees and services with Deloitte and our management. The Audit Committee also determined that any non-audit services (services other than those described in the annual audit services engagement letter) provided by Deloitte were permitted under the rules and regulations concerning auditor
 
independence promulgated by the SEC and rules promulgated by the PCAOB in Rule 3526.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
For the year ended December 31, 2019, we paid Deloitte fees totaling $1,145,828, which are categorized below. Aggregate fees billed to us represent fees billed by the member firms of Deloitte Touche Tohmatsu and their respective affiliates.
Fiscal Year Ended
 
2019 ($)
2018 ($)
Audit Fees(1)
1,073,933
745,000
Audit-Related Fees(2)
70,000
20,000
Tax Fees(3)
N/A
N/A
All Other Fees(4)
1,895
N/A
Total
1,145,828
765,000
(1)
Fees for audit services billed in 2019 and 2018 consisted of:
 
l
Audit of our annual consolidated financial statements;
 
l
Audit of our internal controls pursuant to Section 404 of the Sarbanes-Oxley Act of 2002;
 
l
Reviews of our quarterly financial statements; and
(2)
Fees for audit-related services billed in 2019 and 2018:
 
l
Consents and other services related to SEC matters.
 
l
Performance of agreed-upon procedures relating to the proxy statement and annual incentive program.
(3)
No fees were billed to Vectrus for tax services performed in 2019 and 2018.
(4)
All Other Fees:
 
l
Subscription based services for 2019.

PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
The Audit Committee pre-approves audit and permitted non-audit services provided by Deloitte. The Audit Committee has also adopted a policy on pre-approval of permitted audit related and non-audit services provided by Deloitte and permitted certain non-audit services provided by outside internal audit service providers. The purpose of the policy is to identify thresholds for services, project amounts and circumstances where Deloitte and any outside internal audit service providers may perform permitted non-audit services. A second level of review and approval by the Audit Committee is required when such permitted non-audit services, project amounts, or circumstances exceed specified amounts. The policy and its implementation are reviewed and reaffirmed on a regular basis to assure conformance with applicable rules.

The Audit Committee has determined that, where practical, all permitted audit-related and non-audit services shall first be placed for competitive bid prior to selection of a service

15



provider. Management may select the party deemed best suited for the particular engagement, which may or may not be Deloitte.

Providers other than Deloitte shall be preferred in the selection process for permitted audit-related and non-audit service-related work. The Audit Committee has approved specific categories of audit, audit-related and tax services incremental to the normal auditing function, which Deloitte may provide without further Audit Committee pre-approval. These categories include, among others, the following:

1.
Professional services rendered for the audits of our consolidated financial statements, statutory audits, reviews of our quarterly consolidated financial statements and assistance with review of documents filed with the SEC. Due diligence, closing balance sheet audit services, purchase price dispute support and other services related to mergers, acquisitions and divestitures;
2.
Employee benefit plan independent audits and preparation of tax returns for our defined contribution, defined benefit and health and welfare benefit plans, and preparation of the associated tax returns;
3.
Tax compliance and certain tax planning; and
4.
Accounting consultations and support related to new or existing accounting standards.

The Audit Committee has also approved specific categories of audit-related services, including the assessment and review of internal controls and the effectiveness of those controls, which outside internal audit service providers may provide without further approval.

If fees for any pre-approved non-audit services provided by either Deloitte or any outside internal audit service provider exceed a pre-determined threshold during any calendar year, any additional proposed non-audit services provided by that service provider must be submitted for second-level approval by the Audit Committee. Other audit, audit-related and tax services which have not been pre-approved are subject to specific prior approval. The Audit Committee reviews the fees paid or committed to Deloitte on at least a quarterly basis.

We may not engage Deloitte to provide the services described below:
1.
Bookkeeping or other services related to the accounting records or financial statements of the Company;
2.
Financial information systems design and implementation;
3.
Appraisal or valuation services, fairness opinions, or contribution-in-kind reports;
4.
Actuarial services;
5.
Internal audit outsourcing services;
6.
Management functions or human resources services;
7.
Broker-dealer, investment adviser or investment banking services; or
8.
Legal services and other expert services unrelated to the audit.

Employees of Deloitte who are senior manager level or above, including lead or concurring partners or other significant audit
 
partners and who have been involved with us in the independent audit, may not be employed by us in any capacity for a period of two years after the termination of their activities on our account.

THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT OF DELOITTE AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2020.


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PROPOSAL 3
Approval of an Amendment and Restatement of the Vectrus, Inc. 2014 Omnibus Incentive Plan

We are requesting that shareholders approve the amendment and restatement of the Vectrus, Inc. 2014 Omnibus Incentive Plan (the "Amended Plan"), approved by our Compensation and Personnel Committee (the "Compensation Committee") on February 26, 2020, subject to approval by our shareholders. The Amended Plan amends and restates in its entirety the Vectrus, Inc. 2014 Omnibus Incentive Plan (the "Initial Plan"), as previously amended. The Initial Plan, as previously amended, is hereinafter called the "2014 Plan."

The Amended Plan does not increase the overall limit on the number of shares that may issued under the 2014 Plan. The primary purpose of the Amended Plan is to increase the number of shares that may be issued after December 31, 2014 pursuant to "full value" awards under the 2014 Plan from 930,000 shares to 1,200,000 shares. Full value awards are awards other than stock options and stock appreciation rights, such as restricted stock, restricted stock units and performance shares, where the value of the award is tied to the value of a full share. We include a separate limit for full value awards because full value awards are more dilutive than stock options and stock appreciation rights, and we want our shareholders to know how many of the total shares available for issuance under the Amended Plan may be issued in the form of full value awards.

As of March 12, 2020, of the 930,000 shares previously available for full value awards, there were approximately 233,000 shares available for future full value awards and approximately 286,000 full value awards outstanding. Based on our grant practices since the spin-off in September 2014 of Vectrus from Exelis Inc. (the “Spin-off”) and assuming future grant practices are consistent with past practice, we expect that the 270,000 share increase to the full value award limit provided for in the Amended Plan would allow us to continue granting awards for approximately three years. If the Amended Plan is not approved by our shareholders at the 2020 Annual Meeting, we anticipate using all of the current full value award reserve within two years. In addition, if we continue our recent practice of granting only full value awards and the Amended Plan is not approved by our shareholders at the 2020 Annual Meeting, there would be approximately 654,000 shares remaining available after exhausting the full-value reserve, but those shares could only be used for stock options or stock appreciation rights.

As of March 12, 2020, 77,047 stock options, with a weighted average exercise price of $23.30 per share were outstanding with a weighted average remaining term of 6.31 years. The closing price of a share of our common stock on the New York Stock Exchange on March 12, 2020 was $38.79 per share.

 
If the Amended Plan is approved by our shareholders, we would have approximately 1.16 million shares available for issuance pursuant to future awards, of which 503,000 would be available for full value awards.

Additional changes made in the Amended Plan include:

Imposing a $500,000 limit on the combined grant date value of equity awards and cash compensation provided to any non-employee director during any one fiscal year;
Removing obsolete historical references to predecessor equity plans;
Removing obsolete provisions relating to the performance-based compensation exception under Section 162(m) ("Section 162(m") of the Internal Revenue Code (the "Code"), which was eliminated by the Tax Cuts and Jobs Act of 2017 (the "Tax Act"); and
Removing an administrative provision that allowed participants to designate beneficiaries.

If the Amended Plan is not approved by our shareholders, the terms of the 2014 Plan in effect as of May 13, 2016 will continue in existence (without the proposed amendments noted above).

Other than the 2014 Plan, we currently have no other plan that provides for grants of equity-based awards to our employees or non-employee Directors.

Summary of the Amended Plan
The following is a description of the Amended Plan. The description of the Amended Plan is qualified in its entirety by the actual provisions of the Amended Plan, which is attached to this Proxy Statement as Appendix A.

Plan History
Our Board of Directors and Exelis Inc, as the sole shareholder, previously adopted and approved the Initial Plan, which became effective on September 27, 2014, following our Spin-off from Exelis Inc. On October 6, 2015, the Initial Plan was amended and restated to add a clawback provision, increase the acquisition threshold for an Acceleration Event from 20% of our outstanding shares to 30% of our outstanding shares, and make several minor clarifying changes. For the definition of Acceleration Event, see "Effect of Change in Control and Term of Employment on Annual Incentive Awards, Equity Awards and the Excess Saving Plan - Change in Control Agreements." On May 13, 2016, our shareholders approved a further amendment and restatement of the Initial Plan to increase the number of shares that may be issued pursuant to "full value" awards, update the list of performance measures that may be used for awards intended to qualify as performance-based compensation under Section 162(m), revise the change in control provision to preclude award agreements that provide for acceleration of vesting or payout of an award unless there is both a change in control event and a qualifying termination of employment or service, limit the Compensation Committee's authority to accelerate vesting, distribution or payment of an award, and make

17



several other clarifying changes. On February 26, 2020, our Compensation Committee approved the Amended Plan as described in this proposal, subject to shareholder approval at the 2020 Annual Meeting. If the Amended Plan is approved by our shareholders, it will become effective on the date of the 2020 Annual Meeting.

Key Features Designed to Protect Shareholders' Interests
The Amended Plan's design reflects our commitment to strong corporate governance and the desire to preserve shareholder value, as demonstrated by the following Amended Plan features:

þ Administration by an Independent Committee. Awards to executive officers are administered by our Compensation Committee, which is composed entirely of independent directors who meet the SEC and NYSE standards for independence.

þ Minimum Vesting Period. The Amended Plan generally requires a minimum vesting period of one year for awards to employees on or after October 6, 2015. Our regular award agreements for employee grants of restricted stock units and stock options provide for vesting in equal annual installments over three years.

þ No Evergreen Feature. The maximum number of shares available for issuance under the Amended Plan is fixed and cannot be increased without shareholder approval.

þ Repricing Prohibited. Shareholder approval is required for any repricing, replacement or buyout of underwater awards.

þ No Discount Awards; Maximum Term Specified. Stock options and stock appreciation rights must have an exercise price no less than the closing price of stock on the date the award is granted and a term no longer than ten years.

þ Limits on Non-Employee Director Compensation. The Amended Plan includes a limit of $500,000 on the combined value of equity awards and cash compensation provided to any non-employee Director in any fiscal year. For information on the compensation received by our non-employee Directors in 2019, see “Information About the Board of Directors and Other Matters - Non-Management Director Compensation.”

þ Award Design Flexibility. Different kinds of awards may be granted under the Amended Plan, giving us flexibility to design our long-term incentives to complement the other elements of compensation and to support our attainment of strategic goals.

þ Performance-Based Awards. The Amended Plan permits the grant of performance-based stock awards that are payable upon the attainment of specific performance goals.

þ Double Trigger Vesting on Change in Control. The Amended Plan expressly precludes award agreements that provide single trigger vesting upon a change in control.
 
þ Awards are Subject to Clawback. Awards and related payments under the Amended Plan are subject to recoupment or clawback under certain circumstances.

þ No Tax Gross ups. The Amended Plan does not include any tax gross up provisions.

Purpose
The purpose of the Amended Plan is to advance our interests by providing an incentive program that will enable us to attract, retain and motivate employees and Directors upon whose judgment, initiative and efforts our success depends, and to provide them with an equity interest in the Company in order to motivate superior performance.

Eligibility
As of January 1, 2020, we had approximately 7,200 employees and eight non-employee Directors. All of our employees and non-employee Directors and the employees of our subsidiaries and other affiliates are eligible to receive awards under the 2014 Plan. All of our non-employee Directors receive awards under the 2014 Plan. Because the Amended Plan provides for broad discretion in selecting participants and in making awards, the total number of employees who will be selected to receive awards under the Amended Plan cannot be determined at this time. The basis for selection to receive an award under the Amended Plan may include factors such as whether the receipt of an award would help us motivate and retain the employee and whether we believe receipt of an award would drive superior performance.

Plan Administration
The 2014 Plan is administered by the Compensation Committee. The Compensation Committee interprets the terms and intent of the 2014 Plan and determines who is eligible to receive awards under the 2014 Plan. The Compensation Committee may adopt rules, regulations and guidelines for administering the 2014 Plan and may delegate administrative duties to one or more of its members or to one or more agents or advisors. Additionally, the Compensation Committee may, by resolution, authorize one or more of our officers to designate who can receive awards and the size of the awards, except the Compensation Committee may not delegate these responsibilities to any officer for awards granted to an employee that is considered one of our elected officers. In addition, the Compensation Committee may only accelerate the vesting, distribution or payout of an award in connection with certain adjustments, death, disability or an Acceleration Event.

Shares Authorized, Shares Available for Issuance and Limits on Awards
Subject to adjustments as provided in the 2014 Plan in connection with certain restructuring and other significant events that change the value of our stock, the number of shares of our common stock that may be issued pursuant to awards under the 2014 Plan after December 31, 2014 is 2,625,000 shares. As noted above, we are not currently recommending any increase in the total number of shares of

18



our common stock that may be issued after such date under the Amended Plan. All of the shares available for issuance under the 2014 Plan may be used pursuant to incentive stock options.

The 2014 Plan contains a separate limit on the number of shares that may be issued with respect to "full value" awards, which includes restricted stock, restricted stock units and other awards other than stock options and stock appreciation rights. If the Amended Plan is approved by shareholders, the total number of shares available for issuance after December 31, 2014 as full value awards would be 1,200,000, an increase of 270,000 shares from 930,000 shares permitted under the 2014 Plan. As a result, we would then have approximately 1.16 million shares available for issuance pursuant to future awards, of which 503,000 would be available for full value awards.

Upon the exercise of a stock-settled stock appreciation right or net-settled stock option granted under the Amended Plan, the number of shares subject to the award (or portion of the award) that is then being exercised shall be counted against the maximum aggregate number of shares that may be issued under the Amended Plan on the basis of one share for every share subject thereto, regardless of the actual number of shares issued upon exercise. Any shares withheld (or, with respect to restricted stock, returned) in satisfaction of tax withholding obligations shall be counted as shares issued. Shares tendered in satisfaction of tax withholding obligations or a stock option exercise price or repurchased by the Company with proceeds collected in connection with the exercise of outstanding stock options may not be added back to the maximum aggregate number of shares that may be issued under the Amended Plan.

No shares were transferred from any prior plan to the Initial Plan. Shares of our common stock that are subject to outstanding awards granted in replacement of awards originally granted under a prior plan maintained by Exelis Inc. (defined as "Converted Awards" in the Amended Plan) are not considered available for grants. Shares that are subject to any awards under the Amended Plan, including Converted Awards, that terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such shares, are settled in cash in lieu of shares of common stock or are exchanged with the Compensation Committee's permission for awards not involving shares of common stock, will be available again for grant under the Amended Plan.

Description of Awards
Stock-based compensation will typically be issued in consideration for the performance of services to us and our subsidiaries and other affiliates. The Amended Plan provides for a number of forms of stock-based compensation. The Compensation Committee may award stock options, stock appreciation rights, restricted stock, restricted stock units and other awards as described below.

Stock Options
The Compensation Committee can award incentive stock options, which are intended to comply with Section 422 of
 
the Code, or nonqualified stock options, which are not intended to comply with Section 422 of the Code. The Committee determines the terms of the stock options, including the period during which the stock options may be exercised, which may not exceed ten years, and the exercise price of the stock options, which may not be less than the fair market value of the underlying shares of common stock on the date the stock option is granted. Subject to the specific terms of the Amended Plan, the Compensation Committee has discretion to set any additional limitations on stock option grants as it deems appropriate.

Each stock option award agreement sets forth the extent to which the participant will have the right to exercise the stock option following termination of the participant's employment or service as a Director. The termination provisions are determined within the discretion of the Compensation Committee, need not be uniform among all participants and may reflect distinctions based on the reasons for termination of employment or service as a Director, subject to the terms of the Amended Plan.

Upon the exercise of a stock option granted under the Amended Plan, the exercise price is payable in full either in cash or its equivalent, tendering (either by actual delivery or attestation) previously acquired shares having an aggregate fair market value at the time of exercise equal to the exercise price, broker-assisted cashless exercise, net exercise, a combination of the foregoing or by any other method approved by the Compensation Committee in its sole discretion.

Stock Appreciation Rights
The Compensation Committee may grant stock appreciation rights in tandem with stock options, freestanding and unrelated to options or any combination of those forms. In any case, the form of payment of a stock appreciation right will be determined by the Compensation Committee at the time of the grant and may be in shares of common stock, cash or a combination of the two. If granted other than in tandem, the Compensation Committee will determine the number of shares of common stock covered by, and the exercise period for, the stock appreciation right.

The Amended Plan provides that a stock appreciation right's base price may not be less than the fair market value of the underlying shares of common stock on the date the stock appreciation right is granted.

Upon exercise of the stock appreciation right, the participant will receive an amount equal to the excess of the fair market value of one share of stock on the date of exercise over the fair market value of one share of the stock on the grant date, multiplied by the number of shares of stock covered by the stock appreciation right exercise. If granted in tandem with an option, a stock appreciation right's exercise period may not exceed that of the option.

The participant may exercise a tandem stock appreciation right when the option is exercisable, surrender the option and receive on exercise an amount equal to the excess of the fair market value of one share of stock on the date of exercise

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over the option exercise price, multiplied by the number of shares of stock covered by the stock appreciation right exercise.

Each stock appreciation right award agreement will set forth the extent to which the participant will have the right to exercise the stock appreciation right following termination of the participant's employment or service as a Director. The termination provisions will be determined within the discretion of the Compensation Committee, need not be uniform among all participants and may reflect distinctions based on reasons for termination of employment or service as a Director, subject to the terms of the Amended Plan.

Restricted Stock
The Compensation Committee is also authorized to award shares of restricted common stock under the Amended Plan upon such terms and conditions as it may establish. The participants may be required to pay a purchase price for each share of restricted stock granted. The award agreement will specify the period(s) of restriction, the number of shares of restricted common stock granted and such other provisions as the Compensation Committee determines, subject to the terms of the Amended Plan. Although participants may have the right to vote these shares from the date of the grant, they will not have the right to sell or otherwise transfer the shares during the applicable period of restriction or until satisfaction of other conditions imposed by the Compensation Committee in its sole discretion. Participants may also receive dividends on their shares of restricted stock and the Compensation Committee, in its discretion, will determine how such dividends are to be paid.

Each award agreement for restricted stock will set forth the extent to which the participant will have the right to retain unvested restricted stock following termination of the participant's employment or service as a Director.

Restricted Stock Units
The Compensation Committee is authorized to award restricted stock units (also referred to as "RSUs") under the Amended Plan upon such terms and conditions as it establishes. The award agreement will specify the period(s) of restriction, the number of RSUs granted and such other provisions as the Compensation Committee determines, subject to the terms of the Amended Plan. The participants have no voting rights with respect to RSUs and do not have the right to sell or otherwise transfer the RSUs during the applicable period of restriction or until earlier satisfaction of other conditions imposed by the Compensation Committee in its sole discretion. Participants may receive credit for dividend equivalents on their RSUs and the Compensation Committee, in its discretion, will determine how such credits for dividend equivalents on restricted stock units are paid.

Each award agreement for RSUs will set forth the extent to which the participant will have the right to retain unvested RSUs following termination of the participant's employment or service as a Director. These provisions will be determined in the sole discretion of the Compensation Committee, need not be uniform among all awards of RSUs issued under the
 
Amended Plan and may reflect distinctions based on reasons for termination of employment or service as a director.

Other Awards
The Compensation Committee may grant other awards which may include, without limitation, unrestricted shares, the payment of shares in lieu of cash, the payment of cash based on attainment of performance goals, service conditions or other goals established by the Compensation Committee and the payment of shares in lieu of cash under other incentive or bonus programs. Payment under or settlement of any such other awards shall be made in such manner at such times and subject to such terms and conditions as the Compensation Committee may determine.

Performance Measures
The Compensation Committee may grant awards under the Amended Plan subject to the attainment of performance goals. To comply with the performance-based compensation exception then in effect under Section 162(m), we previously listed in the 2014 Plan, and asked shareholders to approve, the list of performance measures that could be used for performance-based awards. With the elimination of the performance-based exception under Section 162(m), we do not need to list the performance measures in the Amended Plan or have shareholders approve the performance measures. Consequently, in the Amended Plan we removed the list of performance measures and provide that the Committee may select the performance measures that will be used for awards in its discretion.

Adjustment, Change in Control and Amendments
The Amended Plan provides for appropriate adjustments in the number and kind of shares that may be issued under the Amended Plan and that are subject to outstanding awards, the individual award limits in the Amended Plan, and the exercise price of options and the grant price of stock appreciation rights, in the event of restructuring events and certain other events that change the value of our stock, such as a merger, reorganization, stock split, stock dividend, recapitalization through a large, non-recurring cash dividend, spin off or other similar events.

The Compensation Committee specifies in each participant's award agreement the treatment of outstanding awards upon an Acceleration Event. Our award agreements for awards granted on or after October 6, 2015 provide that acceleration of vesting occurs only if both an Acceleration Event and a termination of employment or service as a Director occur. The Amended Plan expressly precludes award agreements that provide for acceleration of vesting or payout of an award unless there is both an Acceleration Event and a qualifying termination of employment or service.

Subject to certain conditions, including maintenance of the minimum vesting provision below, the Amended Plan may be modified or amended by the Compensation Committee at any time and for any purpose which the Compensation Committee deems appropriate, except that no amendment can adversely affect any outstanding awards in a material way without the affected award holder's consent. Except for

20



adjustments made in connection with events described above, the exercise price of stock options and the grant price of stock appreciation rights issued under the Amended Plan may not be reduced without the approval of shareholders.

Minimum Vesting Period
The Amended Plan provides that awards granted to employees on or after October 6, 2015 require a minimum vesting period of one year, except in the event of the death, disability or, for awards granted prior to May 13, 2016, retirement of the employee, a Converted Award or replacement of an award, or in connection with an adjustment or an Acceleration Event. Notwithstanding the foregoing, the Compensation Committee may grant awards without these minimum vesting requirements or may permit or authorize acceleration of awards otherwise subject to these minimum vesting requirements, with respect to awards covering 5% or fewer of the total number of shares authorized under the Amended Plan. Our regular award agreements for employee grants of restricted stock units and stock options provide for vesting in equal annual installments over three years.

Non-Transferability
Unless otherwise determined by the Compensation Committee and provided in a participant's award agreements, awards may not be assigned or transferred by an Amended Plan participant except by will or by the laws of descent and distribution, and any stock option or stock appreciation right is exercisable during a participant's lifetime only by the participant or by the participant's guardian or legal representative. Nonqualified stock options and stock appreciation rights may not be transferred for value or consideration.

Duration of the Amended Plan
Subject to the Compensation Committee's right to terminate the Amended Plan earlier, the Amended Plan will remain in effect until all shares subject to the Amended Plan have been purchased or acquired.

Federal Income Tax Consequences
The following discussion covers some of the United States federal income tax consequences with respect to awards that may be granted under the Amended Plan. It is a brief summary only. Participants should consult with their tax advisors for a complete statement of all relevant federal tax consequences. This summary does not describe state, local or foreign tax consequences of an individual's participation in the Amended Plan.

Federal Income Tax Consequences - Participants
Options. An Amended Plan participant will not recognize income for federal income tax purposes when incentive stock options are granted or exercised. If the participant disposes of shares acquired by the exercise of an incentive stock option either before the expiration of two years from the date the options were granted or within one year after the issuance of shares upon exercise of the incentive stock option, the participant will recognize in the year of disposition: (a) ordinary income to the extent the less of either (1) the fair
 
market value of the shares on the date of the option exercise, or (2) the amount realized on disposition exceeds the option exercise price; and (b) capital gain, to the extent the amount realized on disposition exceeds the fair market value of the shares on the date of option exercise. If the shares are sold after expiration of these holding periods, the participant generally will recognize capital gain or loss equal to the difference between the amount realized on disposition and the option exercise price.

The exercise of an incentive stock option may result in alternative minimum tax liability. The excess of the fair market value of the shares purchased on exercise of an incentive stock option over the exercise price paid for such shares is considered alternative minimum taxable for alternative minimum tax purposes.
With respect to nonqualified stock options, the participant will recognize no income upon grant of the option, and, upon exercise, will recognize ordinary income to the extent of the excess of the fair market value of the shares on the date of option exercise over the stock option exercise price.

Upon a subsequent disposition of the shares received from the exercise of an option, the participant generally will recognize capital gain or loss to the extent of the difference between the fair market value of the shares at the time of the exercise and the amount realized on the disposition.

Stock Appreciation Rights. The recipient of a grant of stock appreciation rights will not realize taxable income on the date of such grant. Upon the exercise of a stock appreciation right, the recipient will realize ordinary income equal to the amount of cash or fair market value of stock received.

Restricted Stock. A participant holding restricted stock will, at the time the shares vest, realize ordinary income in an amount equal to the fair market value of the shares and any cash received at the time of vesting. Dividends paid to the participant on the restricted stock during the restriction period will generally be ordinary income to the participant.

Restricted Stock Units. A participant holding restricted stock units will, at the time the restricted stock units vest, realize ordinary income in an amount equal to the fair market value of the shares and any cash received at the time of vesting.

Other Awards. The tax consequences of other awards will depend upon the terms and conditions of such awards as determined by the Compensation Committee. However, a participant holding other awards will generally realize ordinary income in an amount equal to the fair market value of the shares or cash received at the time of payment of shares or cash.

Federal Tax Consequences - Vectrus, Inc.
In general, we will receive an income tax deduction at the same time and in the same amount as the amount which is taxable to a participant as ordinary income, except to the extent prohibited by Section 162(m). To the extent a participant realizes capital gains, as described above, we will

21



not be entitled to any corresponding deduction for federal income tax purposes.

Section 162(m). The Tax Act generally eliminated our ability to deduct compensation qualifying for the "performance-based compensation" exception under Section 162(m) for tax years commencing after December 31, 2017. Section 162(m) imposes a $1 million limit on the amount that a public company may deduct for compensation paid to "covered employees" (as determined under Section 162(m)). For 2017 and prior taxable years, an exception to this deduction limit applied to "performance-based compensation," such as stock options and other equity awards that satisfied certain criteria. Under the Tax Act, the performance-based pay exception to Section 162(m) was eliminated, but a transition rule may allow the exception to continue to apply to certain performance-based compensation payable under written binding contracts that were in effect on November 2, 2017. The Amended Plan is not intended to affect the ability of awards previously granted under the 2014 Plan to qualify for grandfathered status under Section 162(m) if they otherwise would. However, no assurance can be given that such awards will, in fact, be exempt.

Awards Subject to Clawback
Unless otherwise determined by the Compensation Committee, all awards and any related payments made under the Amended Plan are subject to the provisions of any clawback policy implemented by the Company to the extent set forth in the policy and/or in any notice or agreement relating to an award or payment under the Amended Plan.

Future Plan Benefits
The future benefits that will be received under the Amended Plan by particular individuals or groups are not determinable at this time.

Board of Directors Recommendation
Under the laws of the State of Indiana, this matter is approved if the votes cast in favor of the proposal exceed the votes cast against the proposal. Accordingly, neither abstentions nor broker non-votes have any effect on the votes required under Indiana law.

THE BOARD OF DIRECTORS RECOMMENDS YOU VOTE "FOR" THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE VECTRUS, INC. 2014 OMNIBUS INCENTIVE PLAN.


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PROPOSAL 4
NON-BINDING ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS
In accordance with the requirements of Section 14A of the Exchange Act and the related rules of the SEC, we are including in this Proxy Statement a separate resolution subject to shareholder vote to approve, in a non-binding vote, the compensation of our named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K. The text of the resolution in respect of Proposal 4 is as follows:

“RESOLVED, that the compensation paid to the Company’s named executive officers as disclosed in this Proxy Statement pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and any related narrative discussion, is hereby APPROVED.”

At our 2019 Annual Meeting, our shareholders overwhelmingly approved our named executive officer compensation, with approximately 97.3% of the votes cast in favor of the proposal. We value this endorsement by our shareholders and believe that the outcome demonstrates the support of our shareholders for our compensation programs.

In considering their vote, shareholders may wish to review with care the information on our compensation policies and decisions regarding the named executive officers presented in the Compensation Discussion and Analysis.

In particular, shareholders should note that the Compensation and Personnel Committee bases its executive compensation decisions on the following key objectives:
 
l
align executive and shareholder interests by providing incentives linked to our revenue, new business, earnings per share, days sales outstanding, and individual goals, as well as Total Shareholder Return (TSR) relative to the Aerospace and Defense companies in the S&P 1500 Index;
l
achieve long-term shareholder value creation without undue business risk;
l
create a link between an executive's compensation and his or her individual contribution and performance;
l
attract, motivate and retain the most creative and talented industry leaders, recognizing the extremely competitive nature of the industry in which we operate; and
l
maintain compensation programs and practices that are competitive with and comparable to the compensation programs and practices of peer companies in the industry in which we operate and other comparable companies.

While the results of the vote are not binding on the Board of Directors but are only advisory in nature, the Board of Directors intends to carefully consider the results of the vote. The Board of Directors has adopted a policy providing for an annual advisory vote on executive compensation. Unless the Board of Directors modifies this policy, the next advisory vote on executive compensation will occur at the 2021 Annual Meeting.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.

 
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information concerning the shares of common stock that may be issued under our equity compensation plans as of December 31, 2019.
Plan Category
(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants & Rights
 (Millions)
(b) Weighted-Average Exercise Price of Outstanding Options, Warrants And Rights ($)
(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (Millions)
Equity Compensation Plans Approved by Security Holders (1)(2)
0.38 (3)
23.30 (4)
1.00 (5)
Equity Compensation Plans Not Approved by Security Holders
Total
0.38
23.30
1.00
(1)
Equity compensation plans approved by shareholders include the ITT 2003 Equity Incentive Plan, the Amended and Restated Exelis 2011 Omnibus Incentive Plan and the Initial Plan, which were approved by Exelis Inc. as the sole shareholder of Vectrus prior to the Spin-off in September 2014, and the 2014 Plan, which was approved by the Company's shareholders at our 2016 Annual Meeting of Shareholders.
(2)
All of the securities reflected in this row are under the Initial Plan and the 2014 Plan. No additional awards may be granted under the plans referred to in footnote (1) above other than the 2014 Plan.
(3)
The weighted-average remaining contractual life of the total number of outstanding options was 6.5 years as disclosed in Note 15 to the Consolidated Financial Statements in the Company’s 2019 Annual Report on Form 10-K. Vectrus has RSU

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awards outstanding covering 0.3 million shares as of December 31, 2019. When added to the 0.08 million options outstanding, Vectrus has awards outstanding as of December 31, 2019 covering a total of 0.38 million shares.
(4)
The weighted-average exercise price pertains only to 0.08 million outstanding options and excludes outstanding RSUs.
(5)
As of December 31, 2019, the number of shares of common stock available for future issuance under the 2014 Plan with respect to options and RSU awards was approximately 1.0 million shares, which is included in the total above.

INFORMATION ABOUT THE BOARD OF DIRECTORS AND OTHER MATTERS
STRUCTURE OF THE BOARD OF DIRECTORS
Our Articles provide that the Vectrus Board of Directors is divided into three classes that are as nearly equal in number as possible. The current terms of the Class I, Class II and Class III Directors will expire at the Annual Meeting of Shareholders in 2021, 2022 and 2020, respectively, and in each case, when any successor has been duly elected and qualified. Upon the expiration of each term, Directors will subsequently serve three-year terms if they are renominated and reelected. The Class III Directors nominated for a three-year term are William F. Murdy, Melvin F. Parker and Stephen L. Waechter. The Class I Directors are Bradford J. Boston, Charles L. Prow and Phillip C. Widman and the Class II Directors are Louis J. Giuliano, Mary L. Howell and Eric M. Pillmore.

The Nominating and Governance Committee and the Board of Directors regularly review our corporate governance practices to ensure that such practices, including the procedures for the election of Directors, remain in the best interests of the Company, its shareholders and other relevant constituencies. The Board of Directors believes that its classified structure, which was implemented in 2014 when Vectrus became an independent, publicly traded company, provides important governance benefits, including stability and continuity in the leadership of the business and affairs of the Company. A classified board also allows Vectrus, as a relatively new public company, to focus on its long-term growth strategies and commitment to long-term shareholder value. The Board also recognizes the benefit of providing our shareholders an opportunity to vote on the performance of all our directors on an annual basis. However, after careful consideration, the Board believes that, at this time, the Company will continue to benefit from the classified board structure, but will continue to review this structure each year for appropriateness. The Company has opted out of the Indiana mandatory classified board structure requirements.

During 2019, the Vectrus Board of Directors held a total of eight meetings. Additionally in 2019, seven meetings of the Audit Committee, six meetings of the Nominating and Governance Committee, seven meetings of the Compensation and Personnel Committee (the "Compensation Committee") and three meetings of the Strategy Committee were held. In 2019 all Directors attended at least 87.5% of all meetings of the Vectrus Board and Committees on which they served. In conjunction with the regular meetings, those Directors who are not employees of Vectrus met privately (without management) following four of the five such Board meetings during the year. The Non-Executive Chairman presides over these private meetings. It is Company practice that all
 
Directors attend the Company’s Annual Meeting of Shareholders. In 2019, all Directors attended the Annual Meeting of Shareholders. For 2020, the Board has scheduled five regular meetings.

DIRECTOR INDEPENDENCE
The Company’s Corporate Governance Principles require that a majority of the Directors be independent directors. Additionally, the Company’s Non-Management Directors must meet the independence standards of the NYSE and the Company’s Corporate Governance Principles. The Charters of the Audit, Compensation, and Nominating and Governance Committees require all members of those committees to be independent directors, in accordance with the rules of the NYSE. The Strategy Committee Charter requires that a majority of the members of the Strategy Committee be independent directors in accordance with the rules of the NYSE.

Each year, the Company’s Directors and executive officers complete questionnaires designed to elicit information about potential related person transactions. Additionally, Directors and executive officers must promptly advise the Corporate Secretary if there are any changes to the information previously provided.

The Nominating and Governance Committee annually reviews and considers all relevant facts and circumstances with respect to the independence of each Director, including the Class III Directors standing for election, prior to recommending selection as part of the slate of Directors presented to the shareholders for election at the Company’s Annual Meeting of Shareholders. The Nominating and Governance Committee reviews its recommendations with the full Board, which separately considers and evaluates the independence of Directors standing for re-election using the standards described above.

In February 2020, the Board considered whether there were any regular commercial sales and payments in the ordinary course of business to companies where any of the Directors serve as an employee, executive officer or director, as well as whether there were any charitable contributions with respect to each of the Non-Management Directors, including the Class III Directors standing for election at the Company’s 2020 Annual Meeting. The Board determined that there were no such sales to Vectrus or purchases by Vectrus, other than de minimis amounts.

In no instance was a Director a current employee, nor was an immediate family member of a Director a current executive

24



officer, of a company that has made payments to, or received payments from the Company for property or services in an amount which, in any of the last three fiscal years, exceeded the greater of $1 million, or 2% of each respective company’s consolidated gross revenues. The Board determined that there were no Company charitable contributions to any non-profit organizations affiliated with any of the Non-Management Directors. Accordingly, no contribution exceeded the greater of $1 million or 2% of the consolidated gross revenues of any non-profit organization. In addition, with respect to each Non-Management Director, Vectrus made no contribution of $120,000 or greater to any charitable or non-profit organization. The Board also considered that there were no contributions to any nonprofit organization, charity or private foundation over $10,000 requiring approval under the Company's Charitable Contribution Conflict of Interest Policy for Directors, Director Nominees and Senior Management. (See "Charitable Contribution Conflict of Interest Policy.")

In affirmatively determining the independence of Directors who serve on the Compensation Committee, the Board also considered other factors it considered relevant to determining whether any such Director has a relationship to the Company which is material to that Director’s ability to be independent from management in connection with the duties of a Compensation Committee member, including among other things, the source of compensation of each such Director, including any consulting, advisory or other compensatory fees paid by the Company, and whether the Director has an affiliate relationship with the Company, a subsidiary of the Company, or an affiliate of a subsidiary of the Company.

Based on its review, the Board of Directors has affirmatively determined, after considering all relevant facts and circumstances, that each of Messrs. Boston, Giuliano, Murdy, Parker, Pillmore, Waechter and Widman, and Ms. Howell is independent and none has a material relationship with the Company and that all Non-Management Directors, including all members of the Audit, Compensation, Nominating and Governance and Strategy Committees, meet NYSE corporate governance rules and independence standards for listed companies, which is also the independence standard for Directors as set forth in the Company’s Corporate Governance Principles. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, among others. Mr. Prow is the President and Chief Executive Officer of Vectrus and is not an independent Director.

Each of William F. Murdy, Melvin F. Parker and Stephen L. Waechter, the Directors standing for election as Class III Directors at the 2020 Annual Meeting, is independent.

RESPONSIBILITIES OF THE BOARD OF DIRECTORS
The Board of Directors sets policy for Vectrus and advises and counsels the President and Chief Executive Officer and the executive officers who manage the Company’s business and affairs. The Board of Directors is responsible for assuring that, among other things:
 
l
the Company’s business is conducted in conformity with applicable laws and regulations;
l
the Company’s systems of financial reporting and internal controls are adequate and properly implemented and the Company has appropriate risk management structures in place;
l
there is continuity in the leadership of the Company;
l
management develops sound business strategies;
l
adequate capital and managerial resources are available to implement the business strategies;
l
the Company’s long-term strategies, significant investments in new businesses, joint ventures and partnerships and significant business acquisitions, including assessment of balance sheet impacts and other financial matters, are reviewed and approved; and
l
the Company’s operating plans, capital, research and development budgets are reviewed and approved.

In connection with its responsibility for overseeing the affairs of the Company, the Board seeks to keep itself informed about the Company's business and strategies. The Board is committed to being involved in the Company's strategic planning process throughout the year and discusses strategy at almost every Board meeting. Strategy is also discussed during regularly scheduled executive sessions without Company management present. This involvement enables the Board to provide continued guidance to management in formulating and developing a strategic plan that articulates the Company’s core strategies and imperatives.

CORPORATE GOVERNANCE PRINCIPLES
The Board of Directors has adopted Corporate Governance Principles for the Company, which provide, among other things, that the Board of Directors is responsible for selecting the Chairman of the Board of Directors and the Chief Executive Officer in any way it considers in the best interests of the Company. The Board of Directors has determined that the Chairman of the Board should be a non-executive Chair, to provide additional guidance, advice, and counsel and to allow the President and Chief Executive Officer to focus on managing Vectrus businesses and strategy. The non-executive Chair presides at regularly scheduled private sessions of the Non-Management Directors and, with input from the Chief Executive Officer, establishes the agenda for meetings of the Board of Directors. The Corporate Governance Principles further provide that Directors must be able to devote the requisite time for preparation and attendance at regularly scheduled Board of Directors and Board of Directors Committee meetings, as well as be able to participate in other matters necessary for good corporate governance.

To help ensure that Directors are able to fulfill their commitments to the Company, the Corporate Governance Principles provide that Directors who are chief executive officers of publicly traded companies may serve on not more than one public company board (including the Vectrus Board of Directors) in addition to service on their own board, and other Directors who are not chief executive officers of publicly

25



traded companies may not serve on more than four public company boards (including the Vectrus Board of Directors). The Corporate Governance Principles and Committee Charters are reviewed by the Board at least annually and posted on the Company’s website at http://investors.vectrus.com/govdocs. A copy of the Corporate Governance Principles will be provided, free of charge, to any shareholder upon request to the Corporate Secretary of Vectrus.

LEADERSHIP STRUCTURE
The Board of Directors believes that the decision as to whether to combine or separate the Chief Executive Officer and Chairman of the Board positions will depend on the facts and circumstances facing the Company at a given time and could change over time. In today’s challenging economic and regulatory environment, Directors, more than ever, are required to spend a substantial amount of time and energy in successfully navigating a wide variety of issues and in guiding the policies and practices of the companies they oversee. Although we do not have a formal policy with respect to separation of the Chairman and Chief Executive Officer positions, we believe that having the positions separate allows our President and Chief Executive Officer to focus on running the day-to-day operations of our Company while our Chairman, who is an independent director, can devote his time to matters of Board oversight. The Board believes that its organizational structure provides a framework for it to provide independent leadership and engagement while ensuring appropriate insight into the operations and strategic issues of the Company. In addition, the Board believes that the Company’s current leadership structure contributes to the Board’s role in risk oversight of the Company.

COMMUNICATION WITH THE BOARD OF DIRECTORS
Interested parties, including shareholders, may contact the Non-Executive Chairman, all outside Directors as a group, the entire Board of Directors, a committee of the Board of Directors or an individual Director by submitting a letter to the desired recipient in a sealed envelope labeled “Non-Executive Chairman,” “Outside Directors,” “Board of Directors,” or with the name of the Board Committee or a specific Director. This sealed envelope should be placed in a larger envelope and mailed to the Corporate Secretary, Vectrus, Inc. 2424 Garden of the Gods Road, Suite 300, Colorado Springs, CO, 80919. The Corporate Secretary will forward the sealed envelope to the designated recipient. Junk mail, advertisements, resumes, spam and surveys will not be forwarded to the Board or Board members. Abusive, threatening or otherwise inappropriate materials will also not be forwarded.

SHAREHOLDER OUTREACH
Our Board believes it is important to maintain an open dialogue with the Company's shareholders to understand their views on the Company, its strategy, governance, environmental and social matters and compensation practices. The Company has a program to communicate with our top institutional investors (representing approximately 70.5% of our outstanding shares) on a variety of topics throughout the year to seek input and provide perspective
 
on Company policies and practices and to ensure we are addressing any questions and concerns.

BOARD AND COMMITTEE ROLES IN RISK OVERSIGHT
The Board of Directors has primary responsibility for overall risk oversight, including the Company’s risk profile and management controls. The Audit Committee of the Board monitors the Company’s operational and regulatory risk management and risk assessment program, including risk mitigation processes. The Audit Committee's risk oversight responsibilities include regular reviews of the Company's cyber security program and cyber risk assessment. The head of internal audit has responsibility for assessing, monitoring and auditing the Company’s global risk profile, reports directly to the Audit Committee and reports on a functional basis to the Chief Financial Officer. The Audit Committee and the Board of Directors monitor financial liquidity and financing risk. The Audit Committee also oversees the Company's compliance program, including its Code of Conduct and Ethics and Compliance program. The Nominating and Governance Committee provides oversight of corporate governance and environmental, safety and health risks. The Compensation Committee reviews and assesses compensation and incentive program risks to ensure that the Company’s compensation programs encourage innovation and balance appropriate business risks and rewards without encouraging risk-taking behaviors which may have a material adverse effect on the Company. The Compensation Committee structures compensation so that unnecessary or excessive risk-taking behavior is discouraged and behaviors correlated with long-term value creation are encouraged. The Board and its Audit, Nominating and Governance and Compensation Committees receive regular reports with respect to the Company’s risk profile and risk management controls.

ANNUAL DIRECTOR EVALUATIONS
As required by our Corporate Governance Principles, the Board annually assesses its performance. In addition, each Committee conducts an annual assessment of its performance pursuant to its Charter. The Nominating and Governance Committee oversees and administers the annual performance evaluation process, including review and oversight of the appropriate methods, tools and questions used for conducting the evaluations of the performance of the Board, each Committee and members of the Board. The Nominating and Governance Committee reviews the results of the Board and Committee assessments, including comments provided, and shares them with the Chairman of the Board and each Committee Chair. The Board and each Committee then reviews and discusses the specific results and any actions needed based on this feedback.

In 2019, detailed anonymous surveys were used for the evaluations conducted for both the Board as a whole and each standing Committee. The surveys were designed to provide information pertaining to the competencies, behaviors and effectiveness of the Board, the Committees and the Directors and suggested areas for improvement. Annually, the Nominating and Governance Committee reviews the survey questions and updates them as appropriate to address new,

26



relevant topics or to emphasize particular areas. In addition, the Committee periodically includes self and peer assessments for each independent Director as part of the evaluation process and plans to do so again in 2021.

The Nominating and Governance Committee will continue to evaluate the appropriateness of the methods, tools, questions and focus to be used in future annual evaluations and the specific needs at the time. As a result, the methods, tools, questions and focus may vary in the future.  

DIRECTOR SELECTION, COMPOSITION AND DIVERSITY
Directors of the Company must be persons of integrity, with significant accomplishments and recognized business stature. The Nominating and Governance Committee desires that the Board of Directors be diverse in terms of its viewpoints, professional experience, education and skills as well as race, gender and national origin. In addition, the Vectrus Corporate Governance Principles state that, as part of the membership criteria for new Board members, individuals must possess such attributes and experiences as are necessary to provide a broad range of personal characteristics including diversity, management skills, and technological, business and international experience. The Board utilizes an assessment process, which includes a director skills/qualifications matrix or similar analysis, to identify current skills and qualifications of Board members and those that may be desired in future Director candidates. Since the Spin-off in 2014, the composition of our Board has not changed.

On an annual basis, the Board of Directors assesses whether the mix of Directors is appropriate for the Company. In addition, the Nominating and Governance Committee assesses the effectiveness of these criteria by referring to the criteria when it periodically assesses the composition of the Board. To be considered by the Nominating and Governance Committee as a Director candidate, a nominee at a minimum must meet the requirements set forth in the Corporate Governance Principles.

The Board of Directors believes that the Company’s Directors, in the aggregate, provide the broad range of personal characteristics, attributes and experiences appropriate for the Company. When identifying candidates for the Board, the Board considers diverse candidates for membership on the Board and includes diversity as a specific factor when conducting a search. As part of its process in identifying new candidates to join the Board of Directors, the Nominating and Governance Committee considers whether and to what extent a candidate’s skills, attributes and experiences will individually and collectively complement the existing Board, recognizing that the Vectrus businesses and operations are diverse and global in nature.

The Nominating and Governance Committee also evaluates the Board’s needs for operational, technical, management, financial, international or other expertise.

Prior to recommending nominees for election as Directors, the Nominating and Governance Committee engages in a
 
deliberative, evaluative process to ensure each nominee possesses the skills and attributes that individually and collectively will contribute to an effective Board of Directors. Biographical information for each candidate for election as a Director is evaluated and, if deemed necessary by the Nominating and Governance Committee, candidates for election participate in interviews with existing Board members and management. Each candidate is subject to thorough background checks. Director nominees must be willing to commit the requisite time for preparation and attendance at regularly scheduled Board and Committee meetings and participation in other matters necessary for good corporate governance. The Nominating and Governance Committee and the Board will continue to review future candidates based on a wide range of qualifications to ensure the highest caliber of directors continue to represent our company.

The Nominating and Governance Committee may identify Director candidates through a variety of sources including search firms, personal references and business contacts. The Nominating and Governance Committee will consider Director nominees recommended by shareholders for election to the Company’s Board who meet the qualification standards described above and the other requirements for nomination including those set forth in the Nominating and Governance Charter, which is available at http://investors.vectrus.com/govdocs. The Nominating and Governance Committee also evaluates and makes recommendations to the Board of Directors concerning appointment of Directors to Board Committees, selection of Board Committee chairpersons, Committee member qualifications, Committee member appointment and removal, Committee structure and operations and proposal of the Board slate for election at the Annual Meeting of Shareholders, consistent with criteria approved by the Board of Directors.

DIVERSITY AND INCLUSION IN THE WORKFORCE
The strength of our Company depends on a diverse workforce that reflects the world around us. We are committed to cultivating a diverse and inclusive environment that supports the development and advancement of all. We foster a feeling of connectedness in the workplace, support diversity of background, experience and thought, and support important initiatives to eliminate unconscious biases. Our approach to diversity and inclusion involves these key areas of focus:
People: Our goal is to attract, develop and retain a workforce that reflects the business and communities we support. We value diversity of thought, experience and backgrounds at all levels.

Environment: We are committed to fostering an inclusive environment that celebrates differences and encourages unique perspectives.

Leaders: We are promoting cultural agility among our leaders to ensure a more robust talent pipeline and leadership alignment and engagement. These goals will help us harness the innovative potential of an

27



inherently diverse workforce, as well as help drive our business initiatives.

Diversity Initiatives: Our diversity initiatives include leadership development and networking events, including an Annual Vectrus Women's Leadership Summit and a Minority Leadership Summit held during 2019. We seek to recruit diverse candidates through a rigorous talent slating process and professional minority organizations, including the Society for Hispanic Professional Engineers, the National Society for Black Engineers and the Society of Women Engineers. Our initiatives also include focus on Black History Month and Women's History Month.

Management reports annually to the Compensation Committee on the diversity of our workforce and the Company's initiatives.

NON-MANAGEMENT DIRECTOR COMPENSATION
Non-Management Director compensation is determined by our Board of Directors with the assistance of the Nominating and Governance Committee and Pay Governance, LLC ("Pay Governance" or the "Compensation Consultant"). Non-Management Director compensation is reviewed on a periodic basis. In support of the Board’s review, Pay Governance compares Non-Management Director compensation components for Vectrus with director compensation
 
components paid for a sample of aerospace and defense companies with revenue comparable to Vectrus’ revenue.

The total annual compensation level for each Vectrus Non-Management Director is $200,000, comprised of $85,000 in cash and $115,000 in RSUs for each full-year tenure. The full-year tenure runs from the date of the Annual Meeting of Shareholders to the day prior to the next Annual Meeting of Shareholders. Additional incremental pay for the full-year tenure includes a cash payment for the Audit Committee Chair in the amount of $15,000, and a cash payment of $10,000 for each of the Compensation Committee Chair, Nominating and Governance Committee Chair and the Strategy Committee Chair. The Non-Executive Chairman of the Board receives an additional $100,000, comprised of $50,000 in cash and $50,000 in RSUs for the full-year tenure. The incremental payments for the Committee Chairs and the Non-Executive Chairman were based on the significant responsibilities involved with these positions and reflect current competitive peer data provided to the Board by the Compensation Consultant.

On May 16, 2019, all of our Non-Management Directors received compensation for their service on the Board of Directors from May 16, 2019 to May 6, 2020, the day prior to the 2020 Annual Meeting. Mr. Prow, as a management Director, received no Director compensation. RSUs granted to Non-Management Directors vest in full on the business day immediately prior to the next Annual Meeting date. The grant date fair value of RSU awards is provided in footnote (2) to the table below.
 
The table below summarizes the compensation received by our Non-Management Directors for the year ended December 31, 2019.
DIRECTOR COMPENSATION TABLE
Name
Fees Earned or Paid in Cash
 (1) ($)
Stock Awards
  (2) ($)
Total
($)
Louis J. Giuliano (3)
135,000
165,014
300,014
Bradford J. Boston (4)
95,000
114,991
209,991
Mary L. Howell (5)
95,000
114,991
209,991
William F. Murdy
85,000
114,991
199,991
Melvin F. Parker
85,000
114,991
199,991
Eric M. Pillmore (6)
95,000
114,991
209,991
Stephen L. Waechter (7)
100,000
114,991
214,991
Phillip C. Widman
85,000
114,991
199,991
(1)
Consists of the following, as applicable: director annual cash retainer of $85,000 for 2019, incremental retainer for Committee chairs and the annual Non-Executive Chairman retainer.
(2)
Represents the aggregate grant date fair value of RSUs, computed in accordance with Accounting Standards Codification issued by the Financial Accounting Standards Board Topic 718, labeled “Compensation – Stock Compensation” (“ASC Topic 718”). The grant date fair value for RSUs was $38.42 per unit, the closing price of Vectrus stock on the grant date, which was May 16, 2019. The assumptions used in calculating these amounts are incorporated herein by reference to Note 15 to the Consolidated Financial Statements in the Company’s 2019 Annual Report on Form 10-K.

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(3)
Mr. Giuliano received an incremental $50,000 cash retainer and $50,000 in RSUs for his service as the Non-Executive Chairman through May 6, 2020.
(4)
Mr. Boston received an incremental $10,000 cash retainer for his service as the Compensation Committee Chair through May 6, 2020.
(5)
Ms. Howell received an incremental $10,000 cash retainer for her service as the Strategy Committee Chair through May 6, 2020.
(6)
Mr. Pillmore received an incremental $10,000 cash retainer for his service as the Nominating and Governance Committee Chair through May 6, 2020.
(7)
Mr. Waechter received an incremental $15,000 cash retainer for his service as the Audit Committee Chair through May 6, 2020.
RESTRICTED STOCK UNIT AWARDS OUTSTANDING AT
2019 FISCAL YEAR-END

The table below represents RSUs outstanding as of December 31, 2019 for our Non-Management Directors.
Name
Restricted Stock Unit Awards
Louis J. Giuliano
4,295
Bradford J. Boston
2,993
Mary L. Howell
2,993
William F. Murdy
2,993
Melvin F. Parker
2,993
Eric M. Pillmore
2,993
Stephen L. Waechter
2,993
Phillip C. Widman
2,993
All Vectrus Non-Management Directors were granted RSUs under the 2014 Plan on May 16, 2019. For the equity component of the annual retainer, the number of RSUs was determined by dividing $115,000 by $38.42, the closing price per share of Vectrus, Inc. common stock on the grant date. The resulting number of RSUs was rounded to 2,993, the nearest whole number of units. Mr. Giuliano received RSUs equal to $165,000 divided by $38.42, representing $115,000 for the equity component of the annual retainer plus $50,000 for the equity component of the annual Non-Executive Chairman fee. The resulting number of RSUs for Mr. Giuliano was rounded to 4,295, the nearest whole number of units.
 
DIRECTOR EXPENSES
Vectrus reimburses Non-Management Directors for all business-related expenses they incur for travel to and from Board of Directors, Committee and shareholder meetings. The Company also reimburses costs related to educational programs and related subscriptions for directors and for other Company business-related expenses (including travel expenses of spouses if they are specifically invited to attend an event for appropriate business purposes). Director airfare is reimbursed at no greater than first-class travel rates.

INDEMNIFICATION AND INSURANCE
As permitted by its By-Laws, Vectrus indemnifies its Directors to the full extent permitted by law and maintains insurance to protect the Directors from liabilities, including certain instances where it could not otherwise indemnify them.

POLICIES FOR APPROVING RELATED PERSON TRANSACTIONS
The Company and the Board have adopted formal written policies for evaluation of potential related person transactions, as that term is defined in the SEC’s rules for related person
 
disclosure, which provide for review and pre-approval of transactions which may or are expected to exceed $120,000 involving Non-Management Directors, Executive Officers, beneficial owners of five percent or more of the Company’s common stock or other securities and any immediate family of such persons. The Company’s policy generally groups transactions with related persons into two categories: (1) transactions requiring the approval of the Nominating and Governance Committee and (2) certain transactions, including ordinary course transactions below established financial thresholds, that are deemed pre-approved by the Nominating and Governance Committee. In reviewing related person transactions that are not deemed pre-approved for approval or ratification, the Nominating and Governance Committee considers the relevant facts and circumstances, including:

29



l
Whether terms or conditions of the transaction are generally available to third parties under similar terms or conditions;
l
Levels of interest or benefit to the related person;
l
Availability of alternative suppliers or customers; and
l
Benefit to the Company.
The Nominating and Governance Committee is deemed to have pre-approved certain transactions identified in Item 404(a) of Regulation S-K that are not required to be disclosed even if the amount involved exceeds $120,000. In addition, any transaction with another company at which a related person’s only relationship is as an employee (other than an executive officer), director and/or beneficial owner of less than 10% of that company’s shares is deemed pre-approved; provided, however, that with respect to Directors, if a Director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues, such transaction shall be reviewed by the Nominating and Governance Committee and not be considered appropriate for automatic pre-approval. Regardless of whether a transaction is deemed pre-approved, all transactions in any amount are required to be reported to the Nominating and Governance Committee. Subsequent to the adoption of the written procedures above, the Company has followed these procedures regarding all reportable related person transactions.

The Company’s Related Party Transaction Policy is posted on the Company’s website at: http://investors.vectrus.com/govdocs. A copy of the Related Party Transaction Policy will be provided, free of charge, to any shareholder upon request to the Corporate Secretary of Vectrus.

There were no related person transactions in 2019 that are required to be disclosed pursuant to Item 404(a) of Regulation S-K.

CHARITABLE CONTRIBUTION CONFLICT OF INTEREST POLICY
The Company and the Board adopted a Charitable Contribution Conflict of Interest Policy for Directors, Director Nominees and Senior Management. The policy requires approval by the Nominating and Governance Committee for donations by the Company to any nonprofit organization, charity or private foundation in an amount or having a value over $10,000 if any Director, Director nominee or any of their immediate family members is associated with such entity. In addition, such approval is required in the case of a donation over that limit to such an entity by a Director, Director nominee or member of senior management where another Director or member of senior management is associated with the entity. During 2019, there were no donations that required approval under this policy.


 
CODE OF CONDUCT
The Company has adopted the Vectrus Code of Conduct which applies to all employees, including our President & Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer and, where applicable, to our Non-Management Directors.

The Code of Conduct is posted on our website at: http://investors.vectrus.com/govdocs.

The Company discloses any changes to or waivers from the Code of Conduct for the Company’s Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, its Non-Management Directors and other Executive Officers on its website. In addition, the Company will disclose within four business days any substantive changes to or waivers from the Code of Conduct for our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, or persons performing similar functions, by posting such information on our website at www.vectrus.com rather than by filing a Form 8-K. In 2019, there were no substantive changes to or waivers of the Code of Conduct for the President and Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer or persons performing similar functions. A copy of the Code of Conduct will be provided, free of charge, to any shareholder upon request to the Corporate Secretary of Vectrus.


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COMMITTEES OF THE BOARD OF DIRECTORS
The Committees outlined below are the current standing committees of the Board of Directors. The table below sets forth the current membership of each of these Committees and identifies each Committee Chair. Each Director listed below, except for Mr. Prow, is an independent director.

DIRECTOR
AUDIT
COMPENSATION AND PERSONNEL
NOMINATING AND GOVERNANCE
STRATEGY
Bradford J. Boston
 
*
 
Louis J. Giuliano
 
 
 
 
Mary L. Howell
 
 
*
William F. Murdy
 
Melvin F. Parker
 
Eric M. Pillmore
 
*
 
Charles L. Prow
 
 
 
 
Stephen L. Waechter
*
 
 
Phillip C. Widman
 
 
* = Committee Chair


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AUDIT COMMITTEE
MEMBERS:
Stephen L. Waechter, Chair
Mary L. Howell
William F. Murdy
Phillip C. Widman

Meetings in 2019:    7

AUDIT COMMITTEE RESPONSIBILITIES
l
Subject to any action that may be taken by the full Board, the Audit Committee has the ultimate authority and responsibility to determine the qualifications, performance, independence and compensation of the independent registered public accountants (currently Deloitte), and to appoint (or nominate for shareholder ratification), evaluate, and where appropriate, consider rotation or replacement of the independent registered public accountants.
l
Review and discuss with management and the independent registered public accountants the audited financial statements of the Company, including discussion of the Company’s disclosures under "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and make a recommendation regarding whether the annual audited financial statements should be included in any public filing including our Annual Report on Form 10-K (or the Annual Report to Shareholders if distributed prior to the filing of the Form 10-K).
l
Review and discuss with management, the independent registered public accountants and the head of internal audit the quarterly consolidated financial statements of the Company, including a discussion of the Company’s disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the results of the independent registered public accountants’ review of those statements prior to our filing of each Form 10-Q with the SEC.
l
Review and consider with Deloitte matters required to be discussed by the applicable requirements of the PCAOB and the SEC.
l
Review with management and Deloitte the effect of regulatory and accounting initiatives as well as off-balance sheet structures on our financial statements.
l
Review and discuss with management and Deloitte the Company’s interim financial results to be included in the Company’s earnings report prior to the release of any earnings report.
l
Review and discuss with management the types of information to be disclosed and the types of presentations to be made with respect to the Company’s earnings press releases and financial information and earnings guidance provided to financial analysts and rating agencies.
l
Discuss with management, Deloitte and the head of internal audit the quality and adequacy of the Company’s internal controls and their effectiveness, and meet regularly and privately with the head of the internal audit function.


 
l
Annually request from Deloitte a formal written statement delineating all relationships between Deloitte and the Company, consistent with PCAOB Rule 3526T. With respect to such relationships, the Audit Committee shall: Discuss with Deloitte any disclosed relationships and the impact of such relationship on Deloitte's independence; and assess and recommend appropriate action in response to the Deloitte report to satisfy itself of the auditor's independence.
l
Pre-approve or delegate to one or more independent members of the Audit Committee, when appropriate, to pre-approve the retention of the independent auditor for audit-related and permitted non-audit services. Other tax-related consulting and special projects and fees for any other services to be provided by the independent auditor and internal audit service providers must be submitted to the Audit Committee consistent with the Company’s Audit Services, Audit-Related Services and Non-Audit Services Policy.
l
Confirm the scope of audits to be performed by Deloitte and the internal audit function, monitor progress and review results. Review fees and expenses charged by Deloitte and any party retained to provide internal audit services.
l
On an annual basis, discuss with Deloitte its internal quality control procedures, material issues raised in quality control or peer review and any inquiries by governmental or professional authorities within the last five years (and any steps taken to deal with issues raised) regarding the firm’s independent audits of other clients.
l
Review significant findings or unsatisfactory internal audit reports or audit problems or difficulties encountered by Deloitte, in the course of the audit work, including any restrictions on the scope of its activities or on access to requested information, and any significant disagreements with management, and monitor management’s response to such matters. Without excluding other possibilities, the Audit Committee may review with the independent registered public accounting firm (i) any accounting adjustments that were noted or proposed by such firm but were “passed” (as immaterial or otherwise), (ii) any communications regarding auditing or accounting issues and (iii) any “management” or “internal control” letter issued or proposed to be issued by Deloitte.
l
Provide oversight and discuss with management, head of internal audit and Deloitte, the adequacy and effectiveness of the Company’s overall risk assessment and risk management process, including all risk mitigation processes. The Audit Committee shall review, at least annually, the Company's cyber security program and cyber risk assessment. In addition, in accordance with regulatory requirements, the Audit Committee shall approve, at least annually, any decision of the Company to enter into uncleared swaps.
l
Review the Company’s capital structure including stock repurchases, debt offerings and other financings and dividends.
l
Review the Company’s rating agencies reviews, if applicable.
l
Review the Company’s capital allocation, including capital expenditures and research and development.
l
Review the Committee's performance and Charter at least annually and make recommendations to the Board of Directors for approval and adoption of any amendments to its Charter.

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l
Review regularly and consider the Company’s financial reserves.
l
Review expense reports of senior executives.
l
Update the Board of Directors on a regular basis with respect to matters coming to its attention that may have a significant impact on the Company’s financial condition or affairs, the Company’s compliance with legal or regulatory requirements and the performance and independence of Deloitte and the internal audit function.
l
Review major issues regarding accounting principles and financial statement presentations, significant changes to the Company’s selection or application of accounting principles and major issues relating to the Company’s internal controls, including any specifically required steps to correct identified major internal control issues. The Audit Committee also reviews management or Deloitte’s analyses regarding significant financial reporting issues and judgments made in preparing financial statements, including analyses of alternative GAAP methods as well as the effect of regulatory and accounting initiatives and off-balance sheet structures, if any, on the Company’s financial statements.
l
In conjunction with the Board of Directors, evaluate the qualifications of the Committee members and the Committee's performance on an annual basis.
l
Meet separately, on a regular basis, with Deloitte, the head of internal audit, and members of management, as well as privately as a Committee.
l
Establish policies regarding the Company’s employment and retention of current or former employees of Deloitte.
l
With respect to complaints concerning accounting, internal accounting controls or auditing matters:
 
¡
Review and approve procedures for receipt, retention and treatment of complaints received by the Company; and
 
¡
Establish procedures for the confidential, anonymous submission of complaints to the Audit Committee.
l
Establish levels for payment by the Company of fees to Deloitte, and ordinary administrative expenses of the Audit Committee and any advisors retained by the Audit Committee.
l
Receive regular reports from the Chief Executive Officer, the Chief Financial Officer and from the Company’s disclosure control committee representative on the status of the Company’s disclosure controls and related certifications, including disclosure of any material weaknesses or significant deficiencies in the design or operation of internal controls and any fraud that involves management or other employees with a significant role in internal controls.
l
Oversee the Company's compliance program, including its Code of Conduct and ethics and compliance program.
l
Prepare the Report of the Audit Committee for the Company’s Proxy Statement.

Although the Board of Directors determined that more than one member of the Board of Directors satisfies the requirements of an audit committee financial expert, the Board of Directors has identified Phillip C. Widman as the Company’s audit committee financial expert.

 
A copy of the Audit Committee Charter is available on the Company’s website at: http://investors.vectrus.com/govdocs. The Company will provide, free of charge, a copy of the Audit Committee Charter to any shareholder, upon request to the Corporate Secretary of Vectrus.

COMPENSATION COMMITTEE
MEMBERS:
Bradford J. Boston, Chair
Melvin F. Parker
Eric M. Pillmore (appointed May 16, 2019)
Phillip C. Widman

Meetings in 2019:     7

COMPENSATION COMMITTEE RESPONSIBILITIES
l
The Committee’s primary objective is to establish a competitive executive compensation program that links executive compensation to business performance and shareholder return, without excessive enterprise risk.
l
Approve and oversee administration of the Company’s employee compensation program, including incentive plans and equity-based compensation plans.
l
Evaluate senior management and Chief Executive Officer performance, evaluate enterprise risk and other risk factors with respect to compensation objectives, set annual performance objectives for the Chief Executive Officer and approve individual compensation actions for the Chief Executive Officer and officers at the corporate vice president level and above, as well as certain other positions.
l
Oversee the establishment and administration of the Company’s benefit programs and executive severance policies.
l
Oversee and approve the leadership development and continuity planning process.
l
Prepare the Compensation Committee Report for the Company’s Proxy Statement.
l
Review its performance and Charter at least annually and make recommendations to the Board of Directors for approval and adoption of any amendments to its Charter.

Detail regarding the processes and procedures used to determine executive compensation is found in the Compensation Discussion and Analysis section of this Proxy Statement.

A copy of the Compensation Committee Charter is available on the Company’s website at: http://investors.vectrus.com/govdocs. The Company will provide, free of charge, a copy of the Compensation Committee Charter to any shareholder, upon request to the Corporate Secretary of Vectrus.



33



NOMINATING AND GOVERNANCE COMMITTEE
MEMBERS:
Eric M. Pillmore, Chair
William F. Murdy
Melvin F. Parker
Stephen L. Waechter (appointed May 16, 2019)

Meetings in 2019:    6

NOMINATING AND GOVERNANCE COMMITTEE RESPONSIBILITIES
l
Review and recommend to the full Board matters and agenda items relating to the Company’s Annual Meeting of Shareholders.
l
Review the form of Annual Report to Shareholders, Proxy Statement and related materials.
l
Review the Company’s business continuity and disaster recovery programs and plans.
l
Review the Company’s communication and advertising program and other activities involving community relations, major charitable contributions and promotion of the Company’s public image.
l
Determine desired Board and Director skills and attributes and conduct searches for prospective board members whose skills and attributes reflect those desired for the Board of Directors.
l
Identify, evaluate and propose nominees for election to the Board of Directors.
l
Make recommendations to the Board of Directors concerning the appointment of Directors to Board Committees and the selection of Board Committee Chairs.
l
Evaluate and make recommendations regarding senior management requests for approval to accept membership on outside boards.
l
Review its performance and Charter at least annually and make recommendations to the Board of Directors for approval and adoption of any amendments to its Charter.
l
Following the review by the Audit Committee, Compensation Committee and Strategy Committee of their respective charters, review those charters as part of the framework of the governance of the Company to ensure completeness and consistency among Committee charters and the Corporate Governance Principles.
l
Review periodic reports from management on, and provide oversight of, environmental, safety and health matters.
l
At least annually review and assess the Company’s director and officer insurance and indemnification.
l
Provide oversight of director education matters and the director orientation process.
The Nominating and Governance Committee will consider Director nominees recommended by shareholders for election
 
to the Company’s Board who meet the qualification standards. See "Information about the Board of Directors and Other Matters - Director Selection, Composition and Diversity" above.

A copy of the Nominating and Governance Committee Charter is available at the Company’s website: http://investors.vectrus.com/govdocs. The Company will provide, free of charge, a copy of the Nominating and Governance Committee Charter to any shareholder, upon request to the Corporate Secretary of Vectrus.

STRATEGY COMMITTEE
MEMBERS:
Mary L. Howell, Chair
Bradford J. Boston
William F. Murdy
Melvin F. Parker

Meetings in 2019:    3

STRATEGY COMMITTEE RESPONSIBILITIES
l
Review and provide guidance to the management team and the Board with respect to the Company's overall business strategy and the Company's strategic plan.
l
Review and make recommendations to the Board on matters relating to the Company's overall business strategy and the Company's strategic planning process.
l
Provide oversight of the Growth and Strategic Advisory Team.
l
Review and assess the Committee's performance on an annual basis.
l
Review its Charter at least annually and make recommendations to the Board of Directors for approval and adoption of any amendments to the Charter.

A copy of the Strategy Committee Charter is available at the Company's website: http://investors.vectrus.com/govdocs. The Company will provide, free of charge, a copy of the Strategy Committee Charter to any shareholder, upon request to the Corporate Secretary of Vectrus.

34



REPORT OF THE AUDIT COMMITTEE
The following Report of the Audit Committee does not constitute soliciting material and the Report should not be deemed filed or incorporated by reference into any other previous or future filings by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

ROLE OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors provides oversight on matters relating to the Company’s financial reporting process, seeks to ensure that the Company develops and maintains adequate financial controls and procedures, and monitors compliance with these processes. This includes responsibility for, among other things:
l
determination of qualifications, performance and independence of Deloitte, the Company’s independent registered public accounting firm;
l
the appointment, compensation, retention, audit and oversight work of Deloitte in preparing or issuing audit reports and related work;
l
review of financial reports and other financial information provided by the Company, its systems of internal accounting and financial controls, and the annual independent audit of the Company’s financial statements;
l
oversight and review of procedures developed for consideration of accounting, internal accounting controls and auditing-related complaints;
l
review of risk assessment and risk management processes on a Company-wide basis; and
l
adoption of and monitoring the implementation and compliance with the Company’s Audit Services, Audit-Related Services and Non-Audit Services Policy.

The Audit Committee has oversight responsibility for confirming the scope and monitoring the progress and results of internal audits conducted by the Company’s internal auditors. The Audit Committee discussed with the Company’s internal auditors and Deloitte the plans for their respective audits. The Audit Committee met with the internal auditors and Deloitte, with and without management present, and discussed results of their examinations, their evaluation of the Company’s internal controls, and the Company’s financial reporting.

The Company’s management has primary responsibility for the financial statements, including the Company’s system of disclosure and internal controls. The Audit Committee may investigate any matter brought to its attention. In that regard, the Audit Committee has full access to all books, records, facilities and personnel of the Company and the Audit Committee may retain outside counsel, auditors or other independent experts to assist the Committee in performing its responsibilities. Any individual may also bring matters to the Audit Committee confidentially or on an anonymous basis,
 
by submitting the matter in a sealed envelope addressed to the “Audit Committee” to the Corporate Secretary who then forwards the sealed envelope to the Audit Committee. Junk mail, advertisements, resumes, spam and surveys will not be forwarded. Abusive, threatening or otherwise inappropriate materials will also not be forwarded.

SARBANES-OXLEY ACT OF 2002 ("SOX") COMPLIANCE
The Audit Committee has responsibility for monitoring all elements of the Company’s compliance with Sections 302 and 404 of SOX relating to internal control over financial reporting.

AUDIT COMMITTEE CHARTER
The Board of Directors has adopted a written charter for the Audit Committee, which the Board of Directors and the Audit Committee review, and at least annually update and reaffirm. The Audit Committee Charter sets out the purpose, membership and organization, and key responsibilities of the Audit Committee.

COMPOSITION OF THE AUDIT COMMITTEE    
The Audit Committee is composed of four members of the Company’s Board. The Board of Directors has determined that each Audit Committee member meets the independence standards set out in the requirements of the NYSE currently in effect, including the Audit Committee independence requirements of Rule 10A-3 of the Exchange Act. No member of the Audit Committee has any relationship with the Company that may interfere with the exercise of independence from management and the Company. All members of the Audit Committee, in the business judgment of the full Board of Directors, are financially literate and several have accounting or related financial management expertise.

REGULAR REVIEW OF FINANCIAL STATEMENTS    
The Audit Committee reviewed and discussed the Company’s audited financial statements with management. The Audit Committee, management and Deloitte reviewed and discussed the Company’s unaudited financial statements before the release of each quarterly earnings report and filing of the Company's Form 10-Qs, and the Company’s audited financial statements before the annual earnings release and filing of the Company’s 2019 Annual Report on Form 10-K.

COMMUNICATIONS WITH DELOITTE
The Audit Committee has discussed with Deloitte the matters required to be discussed by the applicable requirements of the PCAOB and the SEC. The Audit Committee met privately with Deloitte three times during 2019.

INDEPENDENCE OF DELOITTE
Deloitte is directly accountable to the Audit Committee and the Board of Directors. The Audit Committee has received the written disclosures and the letter from Deloitte required by applicable requirements of the PCAOB regarding Deloitte’s communications with the Audit Committee concerning

35



independence and has discussed with Deloitte their independence from management and the Company, any disclosed relationships and the impact of those relationships on Deloitte’s independence.

RECOMMENDATION REGARDING ANNUAL REPORT ON FORM 10-K
In performing its oversight function with regard to the 2019 financial statements, the Audit Committee relied on financial statements and information prepared by the Company’s management. It also relied on information provided by the internal audit staff as well as Deloitte. The Audit Committee reviewed and discussed with management the Company’s audited financial statements as of and for the year ended December 31, 2019. Based on these discussions, and the information received and reviewed, the Audit Committee recommended to the Company’s Board of Directors and the Board of Directors has approved including the audited financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The Audit Committee’s responsibility is to monitor and oversee the audit and financial reporting processes. However, the members of the Audit Committee are not practicing certified public accountants or professional auditors and rely, without independent verification, on the information provided to them and on the representations made by management, and the report issued by the independent registered public accounting firm.

This report is furnished by the members of the Audit Committee.

Stephen L. Waechter, Chair
Mary L. Howell
William F. Murdy
Phillip C. Widman

COMPENSATION COMMITTEE REPORT
The following Report of the Compensation Committee does not constitute soliciting material and the Report should not be deemed filed or incorporated by reference into any other previous or future filings by the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

The Compensation Committee of the Board of Directors approves and oversees administration of the Company’s executive compensation program and senior leadership development and continuity programs. The Compensation Committee’s primary objective is to establish a competitive executive compensation program that clearly links executive compensation to business performance and shareholder return. The Compensation Committee considers appropriate risk factors in structuring compensation to discourage unnecessary or excessive risk-taking behaviors and encourage long-term value creation.

 
RECOMMENDATION REGARDING COMPENSATION DISCUSSION AND ANALYSIS
In performing its oversight function during 2019 with regard to the Compensation Discussion and Analysis prepared by management, the Compensation Committee relied on statements and information prepared by the Company’s management. It also relied on information provided by Pay Governance LLC, the independent compensation consultant to the Compensation Committee. The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management. Based on this review and discussion, the Compensation Committee recommended to the Company’s Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for 2019 and this Proxy Statement.

This report is furnished by the members of the Compensation Committee.

Bradford J. Boston, Chair
Melvin F. Parker
Eric M. Pillmore
Phillip C. Widman


36


COMPENSATION DISCUSSION AND ANALYSIS
INTRODUCTION
The Compensation Committee is responsible for our executive compensation philosophy and programs. The Compensation Committee reviews and approves the compensation to be paid to our Chief Executive Officer ("CEO") and a group of executive officers, including our Named Executive Officers ("NEOs"). At our 2019 Annual Meeting of Shareholders, our shareholders overwhelmingly approved our NEOs' compensation, with approximately 97.3% of the votes cast in favor of the proposal.

EXECUTIVE SUMMARY
VECTRUS' NAMED EXECUTIVE OFFICERS FOR 2019 WERE:
Charles L. Prow, President and Chief Executive Officer;
Susan D. Lynch, Senior Vice President ("SVP") and Chief Financial Officer ("CFO")
David A. Hathaway, SVP, Programs
Susan L. Deagle, SVP and Chief Growth Officer
Kevin T. Boyle, SVP, Chief Legal Officer and General Counsel
William B. Noon, Corporate Vice President and Chief Accounting Officer and former Acting CFO; and
Matthew M. Klein, former SVP and CFO.

2019 COMPANY HIGHLIGHTS
Generated strong revenue growth of 8% and achieved highest quarterly Adjusted EBITDA margin1 since being a public company
Continued to diversify client portfolio and grew Navy revenue +45%, Air Force revenue +22%, and added Department of State and Japan's Ministry of Defense as new clients
Won approximately $1.2B of new business in 2019, including the largest contract in the Company's history
Advanced strategy to lead the converged infrastructure market through the acquisition of Advantor Systems Corporation and Advantor Systems LLC (collectively, "Advantor"), which added capabilities and differentiated solutions
Invested in our growth focused talent and formally launched our top talent mentoring program and enhanced our diversity and inclusion programs globally

(1)    "EBITDA" is defined as operating income, adjusted to exclude depreciation and amortization.
"Adjusted EBITDA" is defined as EBITDA, adjusted to exclude items that may include, but are not limited to, significant changes or credits that impact current results but are not related to our ongoing operations and unusual and infrequent non-operating items, M&A transaction and non-recurring integration costs, and LOGCAP V pre-operational legal costs that impact current results but are not related to our ongoing operations.
"EBITDA margin" is defined as EBITDA divided by revenue.

COMPENSATION PHILOSOPHY
The Compensation Committee's compensation philosophy is to support Vectrus’ business strategy within the principles of competitiveness, full disclosure and consistent alignment with long-term value creation. Our philosophy encourages individual and group behaviors that balance risk and reward while supporting sustained growth and earnings performance. A substantial portion of executive compensation is tied to the Company’s internal business and financial performance and share price performance. If internal business and financial performance or share price performance falls below identified thresholds, at-risk incentive compensation is reduced or not paid at all. Our compensation philosophy is reflective of Vectrus’ industry and peers, and we will continue to seek alignment with market trends. The Compensation Committee has the flexibility to establish appropriate compensation policies to attract, motivate and retain our executives in the industry in which we operate.

PRINCIPAL CHANGE TO COMPENSATION PROGRAM IN 2019
PROGRAM
 
KEY CHANGE
Individual Goals for the 2019 Annual Incentive Plan

l
In March, 2019, the Compensation Committee approved individual strategic goals for the President & Chief Executive Officer and for each SVP for the 2019 Annual Incentive Plan. These goals reinforce the importance of certain key objectives within the individual's specific area of responsibility and allow the Compensation Committee to differentiate compensation among these executives based on their individual performance. These goals are weighted 20% for these executives.

37


PAY FOR PERFORMANCE
We link a large portion of our NEOs' compensation to performance. For instance, based on the elements of 2019 compensation for the CEO and the current CFO, at-risk compensation represented approximately 77% and 57%, respectively, of total compensation. Pay components for our NEOs for 2019 included base salary, Annual Incentive Plan (“AIP”) awards, and long-term incentive awards, consisting of RSUs and Total Shareholder Return ("TSR") awards.

The 2019 AIP provides a cash payout if certain financial metrics, including adjusted revenue, adjusted diluted earnings per share, adjusted days sales outstanding, new business wins, as well as individual strategic goals for SVPs and above, were met. The 2019 AIP performance goals, targets, results and actual payouts are discussed in more detail in "Compensation Program Objectives - Primary Compensation Components" below.
PAY COMPONENT - 2019 ANNUAL INCENTIVE PLAN (AIP)
PERFORMANCE DURING 2019
ACTUAL PAYOUT
l
Adjusted Diluted Earnings Per Share = $3.19 (versus the Compensation Committee-approved target of $3.58) (weighted 30%)
The Compensation Committee approved an actual bonus paid that ranged from
79.8% to 95.8% of target, depending on the individual. Achievement of financial goals was confirmed by our independent auditor.
l
Adjusted Revenue = $1,357.7 million (versus the Compensation Committee-approved target of $1,336.0 million) (weighted 10%)
l
New Business Wins = $355.0 million (versus the Compensation Committee-approved target of $191.2 million) (weighted 20%)
l
Adjusted Days Sales Outstanding (DSO) = 63.5 (versus the Compensation Committee-approved target of 60.5) (weighted 20%)
l
Individual Strategic Goals: As approved by the Compensation Committee (weighted 20%) for the Chief Executive Officer and SVPs.

The TSR awards represent 50% of the total long-term incentive awards. TSR awards align pay with performance by providing a cash long-term incentive linked to the Company's total shareholder return performance relative to the Aerospace and Defense companies in the S&P 1500 over a three-year performance period. The three-year performance period for the 2017 TSR awards concluded on December 31, 2019. Payment for the 2017 awards was made in January 2020 at 130.8% of target. This program and the performance results for the 2017 awards are discussed in more detail under the "Long-Term Incentive Program - 2019 Long-Term Incentive Awards" below.

38


KEY GOVERNANCE POLICIES AND PRACTICES RELATED TO COMPENSATION:
WE DO:
l
use an independent compensation consultant selected and hired by the Compensation Committee.
l
pay for both corporate and individual performance.
l
mitigate compensation risk through oversight, controls and appropriate incentives in our balanced compensation programs.
l
have equity award agreements that require both consummation of a change in control transaction and termination of employment for accelerated vesting ("double trigger").
l
have limited perquisites.
l
have an annual Say-on-Pay vote.
l
have a clawback policy that is also embedded in our equity incentive plan, our annual incentive plan and our award agreements.
l
have an anti-hedging and anti-pledging policy.
l
have meaningful stock ownership guidelines for Vectrus corporate officers and directors.
l
provide in our equity incentive plan for a minimum vesting period of one year for employee equity grants, and generally provide in our employee award agreements for vesting in equal annual installments over a three-year period for our restricted stock unit and stock option awards.
 
 
WE DO NOT:
l
reprice stock options.
l
guarantee minimum bonus payments.
l
provide tax gross-ups for perquisites or in connection with payments made in the event of a change in control; however, tax protection may be provided for costs associated with relocation.
l

provide for automatic base salary increases.
l
have fixed-term employment arrangements with our NEOs. All of our NEOs are at-will employees.
l
provide a traditional pension plan or a supplemental executive retirement plan.

39



INDIVIDUAL EXECUTIVE POSITIONS
COMPENSATION COMPARISONS

Vectrus has been an independent, publicly-traded company since September 2014. Initially, pay was set to approximate the 25th percentile of the marketplace. We continue to work towards setting total compensation for our NEOs closer to the median of competitive practice, assuming continued performance of the Company and the executive, subject to cost and affordability. The Compensation Committee supports this approach, based on the individual NEO's experience in their roles, their strong performance and the business conditions impacting the Company. The Compensation Committee, along with its independent compensation consultant, annually reviews current market compensation data for determining the path forward in setting the compensation program.

The Compensation Committee reviewed and assessed the performance of the NEOs for 2019 and will continue to review and assess the performance of the President and Chief Executive Officer and the other officers and authorize compensation actions it believes are appropriate and commensurate with relevant competitive data, the Company's business environment and the approved compensation program.

INDIVIDUAL EXECUTIVE POSITIONS - 2019 COMPENSATION INFORMATION
For 2019, the Compensation Committee approved a 2019 target bonus increase for Mr. Prow and base salary increases, effective March 2019, for Messrs. Hathaway, Noon and Klein, and Ms. Deagle, pursuant to external market data and an assessment of their performance as described below:

Charles L. Prow: The Committee set Mr. Prow's target bonus percent at 105% of base salary for 2019, an increase from 100% for 2018. Mr. Prow did not receive a salary increase in 2019. His total target compensation remained below the median of the market.

David A. Hathaway: An annual base salary increase of 2.5% to $374,150 was approved for Mr. Hathaway. With this increase, Mr. Hathaway's annual salary and total compensation remained below the median of the market.

Susan L. Deagle: An annual base salary increase for Ms. Deagle of 12.1% was approved, bringing her salary to $370,032. Since joining the Company in 2019, her responsibilities have expanded to include leading Corporate Development and Strategy as well as Growth. This increase was approved in recognition of her performance and increased role. Ms. Deagle's total compensation remained below the median of the market.

William B. Noon: An annual base salary increase for Mr. Noon of 2.5% was approved in March 2019 in connection with the 2019 compensation program, bringing his salary to $246,022. In addition, Mr. Noon's salary was increased 21.9% to $300,019 in April 2019 to reflect his increased responsibilities as Acting Chief Financial Officer following Mr. Klein's resignation. His annual salary and total compensation in that role were below the median of the market. Mr. Noon's salary remained at $300,019 following the appointment of Ms. Lynch as CFO in August 2019.

Matthew M. Klein: An annual base salary increase of 2.5% to $384,384 was approved for Mr. Klein. With this increase, Mr. Klein's annual salary and total compensation remained below the median of the market.

The base salary increases and total compensation, which were approved by the Compensation Committee, were determined following a review of market competitive survey data, as well as the individual's relevant experience, and to more closely align their compensation with the median of the competitive market and reflect their individual contributions to the Company. Mr. Boyle and Ms. Lynch did not receive salary increases in 2019 because they joined the Company in October 2018 and August 2019, respectively.



40



The table below sets out the NEOs' 2019 target compensation for annual base salary, annual incentive and long-term incentive targets as determined by the Compensation Committee.

2019 BASE SALARY AND TARGET COMPENSATION
Named Executive Officers
2019 Base Salary ($)
Target 2019 AIP Award (% of Base Salary)
 (1)
Target 2019 Long-Term Incentive Award ($)
Charles L. Prow
President and Chief Executive Officer
700,003
105%
1,600,000
Susan D. Lynch Senior Vice President and Chief Financial Officer

430,019
65%
450,000
David A. Hathaway Senior Vice President, Programs

374,150
55%
250,000
Kevin T. Boyle Senior Vice President, Chief Legal Officer and General Counsel

365,019
55%
250,000
Susan L. Deagle Senior Vice President and Chief Growth Officer

370,032
55%
250,000
William B. Noon Corporate Vice President and Chief Accounting Officer and former Acting CFO
300,019
40%
150,000
Matthew M. Klein
(former) Senior Vice President and Chief Financial Officer
384,384
65%
425,000
(1)
This column reflects the target percentage of base salary approved for each NEO for the 2019 AIP award. The approved AIP formula for 2019 was based on performance measures and goals that would pay 96% of target for 100% achievement of the approved goals.

VECTRUS COMPETITIVE COMPENSATION
In reviewing compensation for the NEOs for the 2019 compensation program, the Compensation Committee used the general industry market data reflected in the 2018 Towers Watson U.S. Compensation Databank General Industry Executive Compensation Survey Report (“CDB”). The Compensation Committee considers the CDB as most representative of the companies that comprise the marketplace in which Vectrus competes for business talent. Data reviewed included competitive market information for each compensation component and total compensation. The Compensation Committee evaluated and determined target and actual compensation provided to each of our NEOs based on a review of the CDB general industry market data, which was adjusted via regression analysis to estimate the competitive market pay levels for a company of our revenue size. In determining executive compensation, the Compensation Committee also considered qualitative information discussed in "Qualitative Considerations" below, individual performance and business conditions in addition to recommendations from Vectrus' President and Chief Executive Officer and Senior Vice President and Chief Human Resources Officer.
 

INDEPENDENT COMPENSATION CONSULTANT
In 2019, the Compensation Committee continued to retain Pay Governance as its independent compensation consultant to assist the Committee in fulfilling its responsibilities under its Charter, the material terms of which are described in this Proxy Statement under "Compensation Committee Responsibilities." The Compensation Consultant’s engagement leader provided objective expert analyses, assessments, research and recommendations for executive compensation programs, incentives, perquisites and compensation standards. In this capacity, the Compensation Consultant provided services that related solely to work performed for and at the direction of the Compensation
 
Committee, including analysis of material prepared by Vectrus’ human resources, finance and legal departments for the Compensation Committee’s review. The Compensation Consultant attended each of the seven meetings held by the Compensation Committee during 2019 and provided no other services to Vectrus during 2019 other than those for and at the direction of the Compensation Committee.

During 2019, Vectrus’ human resources, finance and legal functions supported the work of the Compensation Committee, provided information, answered questions and responded to requests from the Compensation Consultant.


41



The Compensation Committee is directly responsible for the appointment, compensation, and oversight of the Compensation Consultant. The Compensation Committee has the sole authority to retain and terminate the services of consultants, including Pay Governance, with respect to compensation matters.

In connection with the engagement of the Compensation Consultant, the Compensation Committee considered various factors bearing on the independence of the Compensation Consultant, including, but not limited to, the following:
l
Provision of other services to Vectrus by the Compensation Consultant;
l
Business or personal relationships of the Compensation Consultant with members of the Compensation Committee or with executive officers;
l
The Compensation Consultant’s policies and procedures to prevent conflicts of interest;
l
Ownership of Vectrus common stock by the Compensation Consultant’s engagement leader; and
l
The amount of fees received by the Compensation Consultant.

The Compensation Committee affirmatively determined the Compensation Consultant was independent and has no
 
conflicts of interest with the Company or the Board of Directors.

OUR COMPENSATION CYCLE
The Compensation Committee reviews compensation in detail during the first quarter of each year. This review includes:
l
Annual performance reviews for the prior year;
l
Increases in base salary;
l
Annual Incentive Plan (bonus) awards for the prior year and target awards for the current year; and
l
Long-term incentive target awards, including RSUs and TSR awards.

The award date for long-term incentive awards is determined by the Compensation Committee and is typically in March, following the February meeting of the Compensation Committee. Meeting dates for the following year’s regular Board and Committee meetings are scheduled during the prior year. Target TSR awards reflect a three-year performance period beginning on January 1 of the year in which the Compensation Committee approves the award. Participants in the Long-Term Incentive Program receive notification of their awards as soon as reasonably practical after the grant date.
 
 
 
 
 
COMPENSATION PROGRAM OBJECTIVES
COMPENSATION OBJECTIVES, PRINCIPLES AND APPROACHES
The Vectrus compensation program objectives, principles and approaches reflect the Company's business needs and strategy, as detailed below:
OBJECTIVE
GENERAL PRINCIPLE
APPROACH
Attract, incentivize and retain talented and experienced leaders.
Design an executive compensation program to attract, incentivize and retain high performing executives.
Target total direct compensation approximating the 50th percentile of competitive practice. Review current competitive market compensation to structure movement of NEO compensation toward the competitive median of general industry companies in the CDB, as adjusted for revenue size.
Align at-risk compensation with corporate and individual performance.
Align the measures of performance in our compensation programs with measures key to the success of our business. If our business succeeds, our shareholders will benefit.
Provide incentive opportunities based on corporate and individual performance to drive shareholder value.
Align at-risk compensation with levels of executive responsibility.
As executives advance in the Company, the leverage of at-risk pay relative to fixed pay increases.
Structure NEO compensation so that a substantial portion of compensation is at risk for executives with greater levels of responsibility.







42



PRIMARY COMPENSATION COMPONENTS
NEO COMPENSATION
=
BASE SALARY
+
ANNUAL INCENTIVE
+
LONG-TERM INCENTIVES

BASE SALARY – Base salary comprises the fixed component of total compensation for Mr. Prow and the other NEOs. Salary is a competitive component of pay that is aligned with the NEO's position, experience and criticality of the required competencies. It is not a risk-based element of compensation.

ANNUAL INCENTIVE PLAN (AIP) AWARDS – The Compensation Committee determined that the four corporate metrics noted below would be most closely predictive of optimal operating performance in 2019 for Vectrus. For 2019, 80% of the awards were based on the achievement of these corporate metrics and 20% of the awards were based on the achievement of individual strategic goals.

EARNINGS PER SHARE (EPS): This is a market-based metric recognized as a standard by investors and analysts. For 2019 the Compensation Committee used a metric of Adjusted Diluted Earnings per Share, as discussed below.

TOTAL REVENUE: Revenue reflects successful recognition of contracted revenue, recompetes and emphasis on growth through new revenue streams. Revenue is defined as adjusted revenue as discussed below.

NEW BUSINESS WINS: Winning new business is a critical focus for our Company. New Business Wins includes any new business contract award notification during the calendar year, recompetes, contract extensions and add-on work to existing contracts.

DAYS SALES OUTSTANDING (DSO): DSO is an important operating efficiency metric that measures the number of days it takes to turn accounts receivable into cash. DSO is calculated using a five (5) point average of the DSO for Q4 of the prior year and each of the four quarters of the performance year. DSO is defined as adjusted DSO, as discussed below.

INDIVIDUAL STRATEGIC GOALS: The Compensation Committee approved individual strategic goals for each of the NEOs, except for Mr. Noon, for the 2019 AIP. The use of individual goals balances the executive's shared responsibility to achieve corporate goals with the desire to motivate the executives to achieve goals within the individual's specific area of responsibility. The individual goals also reinforce the importance of certain key objectives within the individual's specific area of responsibility and allow the Compensation Committee to differentiate compensation among these executives based on their individual performance. It also strengthens the executive's accountability. See "Individual Strategic Goals and Results for 2019" below.

The Compensation Committee was responsible for the administration of the AIP for 2019. The Compensation Committee approved an annual incentive plan design for the business as described below.    
2019 AIP METRICS
PERFORMANCE PERCENTAGE
Adjusted Diluted Earnings Per Share (EPS)
30%
Adjusted Revenue
10%
New Business Wins (NBW)
20%
Adjusted Days Sales Outstanding (DSO)
20%
Individual Strategic Goals *
20%
(*) The Compensation Committee did not assign a specific weighting to any of the individual goals, but reviewed each executive's performance against his or her individual goals in the aggregate. For Mr. Noon, although he was not assigned specific individual goals during his tenure as Acting CFO, 20% of his AIP award was based on an assessment of his individual performance and contributions.







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AIP OPERATIONAL OBJECTIVES
CHART-FD7A9B5E359A5990BFCA09.JPG
 
Adjusted Diluted Earnings Per Share (EPS)*
Adjusted Revenue*
New Business Wins*
Adjusted Days Sales Outstanding (DSO)*
Individual Strategic Goals**
 
thres-hold
target
maxi-mum
thres-hold
target
maxi-mum
thres-hold
target
maxi-mum
thres-hold
target
maxi-mum
thres-hold
target
maxi-mum
Performance Percentage of Target
85%
100%
150%
90%
100%
130%
21%
100%
150%
95.21%
100%
107%
0%
100%
200%
Payout Percentage of Target
50%
90%
200%
50%
90%
200%
1%
100%
200%
25%
100%
200%
0%
20%
40%
(*) For performance results between the minimum and maximum thresholds, the performance percentage achieved for that metric is calculated on a non-linear slope pre-approved by the Compensation Committee for the performance year. Actual results may range from zero to 200% of target.
(**) For Mr. Noon, see note under "Primary Compensation Components" above.

2019 AIP AWARDS PAID IN 2020 On February 26, 2020, the 2019 AIP awards for the NEOs were approved by the Compensation Committee for payment on or about March 13, 2020. Mr. Prow conducted a detailed assessment of each of the other NEO's performance against their individual goals. Based on the financial results and achievement of individual goals, Mr. Prow recommended the AIP awards for those NEOs. In the case of Mr. Noon, who was not assigned individual goals, his overall individual performance and contributions were considered in Mr. Prow's assessment and recommendation. In addition, Mr. Prow provided a detailed self-assessment to the Committee with regard to his own performance against his individual goals. The approved 2019 AIP awards for NEOs are included in the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column.


44



The performance and payout percentages for each component of the AIP were as follows:
Metric (all $ amounts in millions, except per share data and DSO)
Performance Target at 100.0% Payment and Weighting (1)
2019 Performance
Performance Percentage of Target
Payout Percentage of Target (1)
Weighted Attainment
Adjusted Diluted Earnings Per Share
$3.58
30.0%
$3.19
89.1%
60.9%
18.3%
Adjusted Revenue
$1,336.0
10.0%
$1,357.7
101.6%
94.8%
9.5%
New Business Wins
$191.2
20.0%
$355.0
185.6%
200.0%
40.0%
Adjusted Days Sales Outstanding
60.5
20.0%
63.5
95.0%
0.0%
0.0%
Individual Strategic Goals (discussed below)
 
20.0%
 
 
 
 
(1) Attainment of all of the 2019 AIP performance goals would result in a payout of 96.0% of target.

“Adjusted Net Income” is defined as net income, adjusted to exclude items that may include, but not limited to, other income, significant charges or credits that impact the current results that are not related to our ongoing operations and unusual and infrequent non-operating items or adjustments, such as excluding the impact of acquisitions in the year of the acquisition, if unplanned and the exclusion of Merger and Acquisition costs, integration costs, and LOGCAP V pre-operational legal costs.
“Adjusted Revenue” is defined as GAAP Revenue, adjusted to exclude the impact of acquisitions in the year of the acquisition, if unplanned.
"Adjusted Days Sales Outstanding" is defined as reported DSO, adjusted to exclude the impact of acquisitions in the year of the acquisition, if unplanned.

 
Year Ended December 31, 2019
(in millions)
Adjusted Revenue
Reported GAAP Revenue
$
1,382.6

Adjustments for the impact of:
 
 - Acquisitions
(24.9
)
Comparable Non-GAAP Adjusted Revenue
$
1,357.7


 
Year Ended December 31, 2019
(in millions, except per share data)
Adjusted Diluted Earnings Per Share
Reported GAAP Net Income
$
34.70

Adjustments for the impact of, net of tax:
 
 - Acquisitions
(0.2
)
 - Merger and Acquisitions and Integration Costs
1.6

 - LOGCAP V pre-operational legal costs
0.9

Comparable Non-GAAP Adjusted Net Income
$
37.06

Reported GAAP Diluted Earnings Per Share
$
2.99

Comparable Non-GAAP Adjusted Diluted Earnings Per Share
$
3.19

Weighted average common shares outstanding - diluted
11.6


45



The following table illustrates the calculation of the 2019 AIP awards paid to the NEOs in 2020. (Sum of components may differ from actual award amounts due to rounding.)
Named Executive Officer
Base Salary
 (a) ($)
Annual Incentive Target as a Percent of Base Salary
(b) (1)
Adjusted Diluted Earnings Per Share Percent Achieved
Adjusted Revenue Percent Achieved
New Business Wins Percent Achieved
Adjusted Days Sales Outstanding Percent Achieved
Individual Goals/Performance Percent Achieved
 (2)
Approved Total Performance Percent Payout
 (d)
Actual 2019 AIP Awards (a)x(b)x(d) ($) (3)
Charles L. Prow
700,003
105
89.1
101.6
185.6
95.0
100.0
87.8
645,300
Susan D. Lynch
430,019
65
89.1
101.6
185.6
95.0
60.0
79.8
93,000
David A. Hathaway
374,150
55
89.1
101.6
185.6
95.0
80.0
83.8
172,500
Susan L. Deagle
370,032
55
89.1
101.6
185.6
95.0
140.0
95.8
195,000
Kevin T. Boyle
365,019
55
89.1
101.6
185.6
95.0
120.0
91.8
184,300
William B. Noon
300,019
40
89.1
101.6
185.6
95.0
100.0
87.8
105,400
Matthew M. Klein
384,384
65
89.1
101.6
185.6
95.0
n/a
n/a
n/a
(1) This column reflects the target percent of base salary approved for each NEO for his or her 2019 annual incentive award. For performance year 2019, Mr. Prow's annual incentive target as a percent of base salary was increased from 100% to 105% to position his target cash compensation to be more competitive with the market. The approved annual incentive plan formula for 2019 was based on performance measures and goals that would pay 96% of target for 100% achievement of the approved goals. Mr. Klein resigned as SVP and Chief Financial Officer effective April 15, 2019 and therefore did not receive a bonus for 2019. Mr. Noon served as Acting Chief Financial Officer from April 15, 2019 until Ms. Lynch was appointed SVP and Chief Financial Officer effective August 7, 2019.
(2) The Compensation Committee evaluated the extent to which Messrs. Prow, Hathaway and Boyle and Mses. Deagle and Lynch achieved their individual strategic goals and assessed Mr. Noon's individual performance and contributions. See tables below.
(3) Ms. Lynch's award was prorated, based on five months of service in 2019.

Individual Strategic Goals and Results for 2019
Charles L. Prow
Goal Description
Drive the strategic execution of our Growth, Programs and Enterprise Vectrus initiatives.
Fully develop and harden Enterprise Vectrus to optimize cost structure, supply chain and operational excellence across the enterprise.
Improve personal and corporate visibility in both the investment and M&A-related growth objectives.
Develop executive strength and succession planning throughout the organization, paying special attention to increasing diversity.
Continue to evolve our culture in support of our values.

Individual Performance Assessment. In evaluating Mr. Prow's performance, the Compensation Committee considered the following key factors:
Successfully led and executed the growth and strategy initiatives.
Effective oversight and continued focus on long-term growth strategy and targets.
Met and substantially exceeded new business target.
Substantially improved the Investor Relations process and the Company's investor messaging.
Leadership role in achieving the goals related to strengthening talent and increasing diversity.

Following a review of Mr. Prow's achievements against his individual goals, the Compensation Committee determined that Mr. Prow earned 100% of the individual portion of his 2019 AIP award.


46



Susan D. Lynch
Goal Description
Advance the finance team to become a premier organization.
Fully execute the Company's Enterprise Vectrus - Supply Chain and Global Service Delivery initiatives.
Fully deploy the Company's Management System and have the Vectrus Improvement Project - Enterprise Vectrus (VIPER) operationally ready according to the agreed upon schedule and cost plan
With the Growth and Service Lines create an approach to capital acquisitions that will lower program costs and maximize salvage values.
Continue to evolve our culture in support of our values.

Individual Performance Assessment. In evaluating Ms. Lynch's performance, the Compensation Committee considered the following key factors:
Began the process of assessing, developing and adding talent to the finance team.
Successfully achieved substantial cost reductions in the Supply Chain and Global Service Delivery initiatives during 2019.
Completed Phase One of the Company's Management System.
Began development of the approach to capital acquisitions.
Achieved the goals related to culture overall.

Following a review of Ms. Lynch's achievements against her individual goals and based on a recommendation by Mr. Prow, the Compensation Committee determined that Ms. Lynch earned 60% of the individual portion of her 2019 AIP award.

David A. Hathaway
Goal Description
Achieve financial goals relating to the Programs.
Fully develop functional model and other initiatives of the Enterprise Vectrus Delivery Method.
Fully develop the Enterprise Vectrus - Delivery Excellence initiative.
In collaboration with the Growth initiative, continue the evolution of the labor staffing model and create and maintain a performance map of each program.
Continue to evolve our culture in support of our values.

Individual Performance Assessment. In evaluating Mr. Hathaway's performance, the Compensation Committee considered the following key factors:
Substantially met the financial goals relating to the Programs.
Continues to work to improve results for profit expansion.
Exceeded contract add-on and base expansion goals.
Completed phase-in hardening.
Satisfactorily completed the functional model of the Enterprise Vectrus Delivery Method.
Mostly met the goals related to the labor staffing model and is continuing work to refine the model.
Achieved the goals related to culture overall.

Following a review of Mr. Hathaway's achievements against his goals and based on a recommendation by Mr. Prow, the Compensation Committee determined that Mr. Hathaway earned 80% of the individual portion of his 2019 AIP award.


47



Susan L. Deagle
Goal Description
Achieve financial goals relating to Growth.
Achieve demonstrable progress in building and progressing pipeline in all federal campaigns. Achieve at least one net new significant intelligence community win. Gain access to the ALLIANT Indefinite Delivery/Indefinite Quantity ("IDIQ")vehicle.
Develop robust pipeline of acquisition targets for both our core business and solutions initiatives with at least one acquisition closing in 2019.
In collaboration with the Service Lines and Finance, manage, maintain and evolve the labor staffing model to be a foundational data source and tool for core process.
Continue to evolve our culture in support of our values.

Individual Performance Assessment. In evaluating Ms. Deagle's performance, the Compensation Committee considered the following key factors:
Met and substantially exceeded new business target.
Won recompetes, except a minor task order.
Successfully closed the acquisition of Advantor, but was unsuccessful in gaining access to the ALLIANT IDIQ vehicle.
Exceptional performance in development of a robust business development and acquisition pipeline.
Substantially improved the Investor Relations process and the Company's investor messaging.
Solidified and advanced the Company's strategy.
Mostly met the goals related to the labor staffing model and is continuing work to refine the model.
Was a key leader in transforming our culture initiatives and in achieving the 2019 culture goals.

Following a review of Ms. Deagle's achievements against her goals, particularly the strong performance in new business wins and base expansion, and Mr. Prow's recommendation, the Compensation Committee determined that Ms. Deagle earned 140% of the individual portion of her 2019 AIP award.

Kevin T. Boyle
Goal Description
Transform the Contracts function to be a client-facing organization, including base expansion and contracts led base expansion.
Expedite the business and country registrations.
Support the Growth initiative to advance the acquisition pipeline with at least one acquisition closing in 2019. Additionally, work with Growth to gain access to the ALLIANT IDIQ vehicle.
Increase and strengthen the facilities and security functional capabilities in support of existing business and in preparation for the Logistics Civil Augmentation Program ("LOGCAP") V.
Continue to evolve our culture in support of our values.

Individual Performance Assessment. In evaluating Mr. Boyle's performance, the Compensation Committee considered the following key factors:
Significantly enhanced the role of the Contracts function.
Met and exceeded the base expansion and contracts led base expansion goals.
Effectively strengthened the security and facilities functions.
Successfully closed the acquisition of Advantor.
Exceeded the acquisition goal, but was unsuccessful in gaining access to the ALLIANT IDIQ vehicle.
Strong performance in supporting the acquisition pipeline for our core business and solution initiatives.
Leadership of critical contract protest matters.
Achieved the goals related to culture overall.

Following a review of Mr. Boyle's achievements against his goals, particularly his leadership on the Advantor acquisition and protest matters, and overall enhancement of the legal and contracts functions, and Mr. Prow's recommendation, the Compensation Committee determined that Mr. Boyle earned 120% of the individual portion of his 2019 AIP award.


48



William B. Noon
Individual Performance Assessment
In addition to serving as Chief Accounting Officer throughout 2019, Mr. Noon was appointed Acting CFO following the resignation of Mr. Klein in April 2019. He continued in that position until the appointment of Ms. Lynch as CFO in August 2019.

In evaluating Mr. Noon's performance, the Compensation Committee considered the following key factors:
Successful oversight and management of the finance team.
Planning for and leading the implementation of the new lease accounting standard.
Working on Advantor acquisition matters and contributing to a number of other Company initiatives.

Following a review of Mr. Noon's performance and contributions in 2019 and Mr. Prow's recommendation, the Compensation Committee determined that Mr. Noon earned 100% of the individual portion of his 2019 AIP award.

Matthew M. Klein
Goal Description
Mr. Klein was initially assigned the same goals that were subsequently assigned to Ms. Lynch, as shown above.

Mr. Klein was not considered for a 2019 bonus because he resigned from the Company effective April 15, 2019.

LONG-TERM INCENTIVE PROGRAM
2019 LONG-TERM INCENTIVE AWARDS
Long-term incentive awards are intended to directly tie long-term compensation to long-term value creation and shareholder return. The 2019 long-term incentive program provided for a combination of TSR awards and RSUs to comprise the total long-term incentive award for each NEO. These components are incentives for absolute stock price performance and appreciation as well as TSR performance relative to the specific group of companies referenced below. The Compensation Committee set vesting terms for RSUs based on the Compensation Consultant's review and guidance regarding current competitive practice and its assessment of appropriate vesting terms and conditions for Vectrus. In determining the total long-term incentive award for each NEO, the Committee also considered individual performance.

The Compensation Committee weighted the 2019 long-term incentive awards as follows:
CHART-CD3CDF182DC45E95AB0A09.JPG
The 2019 long-term incentive awards for all NEOs were granted on March 4, 2019. A valuation based on the grant date was used to determine the number of RSUs granted pursuant to this allocation. The number of RSUs granted on March 4, 2019 was based on $27.74, the closing price of Vectrus common stock on the grant date.


49



The following table sets forth the value of 2019 long-term incentive award amounts for the NEOs granted during 2019, as determined by the Compensation Committee.
Named Executive Officer
Restricted Stock Unit
Award Value
 ($)
Restricted Stock Unit Awards
 (# of Units)
Relative Total Shareholder Return Target Award
($)
Represents 50% of total award value
Represents 50% of total award value
Charles L. Prow
$800,000
28,839
$800,000
Susan D. Lynch
$225,000
5,176
$225,000
David A. Hathaway
$125,000
4,506
$125,000
Susan L. Deagle
$125,000
4,506
$125,000
Kevin T. Boyle
$125,000
4,506
$125,000
William B. Noon
$75,000
2,704
$75,000
Matthew M. Klein*
$212,500
7,660
$212,500
*Mr. Klein's awards were forfeited because he resigned from the Company effective April 15, 2019.

RESTRICTED STOCK UNIT COMPONENT
The Compensation Committee reviewed all proposed grants of RSUs to NEOs prior to their award, including awards based on performance, retention-based awards and awards contemplated for new employees as part of employment offers. Grants of RSUs provide executives with stock ownership of unrestricted shares after the restrictions lapse. NEOs were granted RSU awards because, in the judgment of the Compensation Committee and based on management’s recommendations, these individuals were in positions most likely to assist in the achievement of the Company’s long-term value creation goals and to create increased shareholder value over time. RSUs granted in 2019 vest in one-third annual installments on the first, second and third anniversaries of the grant date.

RELATIVE TOTAL SHAREHOLDER RETURN (TSR) AWARD COMPONENT
The TSR performance design for 2019 - 2021 compares the Company’s TSR performance relative to the TSR performance of the Aerospace and Defense companies in the S&P 1500 Index. In designing the program, the Compensation Committee determined that this would be an appropriate index for Vectrus to be measured against for relative total shareholder return performance. The Compensation Committee also determined to measure performance in a balanced manner with the following four performance periods weighted equally at 25%:

January 1, 2019 through December 31, 2019;
January 1, 2020 through December 31, 2020;
January 1, 2021 through December 31, 2021; and
January 1, 2019 through December 31, 2021.

The actual award payout factor will be determined based on the average of the payout factors for each of the four performance periods, determined as follows:
If the Company’s TSR performance relative to that of the Aerospace and Defense companies in the S&P 1500 Index is:
The Payout Factor is:
Less than the 35th percentile
0%
At the 35th percentile
50%
At the 50th percentile
100%
At the 80th percentile
200%
Actual results between the 35th percentile and the 80th percentile will be interpolated.

The potential award payout is capped at 200% of the target award as the Compensation Committee believes that having a cap helps mitigate excessive or inappropriate risk-taking.


50



VECTRUS TOTAL SHAREHOLDER RETURN AWARDS GRANTED IN 2017
The Compensation Committee approved and granted the 2017 TSR awards in March 2017. The awards were subject to a three-year performance period beginning January 1, 2017 through December 31, 2019 and measured in four individual periods, weighted equally, as follows: January 1, 2017 - December 31, 2017; January 1, 2018 - December 31, 2018; January 1, 2019 - December 31, 2019; and January 1, 2017 - December 31, 2019.

Following the end of the three-year performance period, Vectrus TSR performance was calculated for each of the four individual periods, relative to the Aerospace and Defense companies in the S&P 1500. Results are indicated below:
Individual Performance Period
Vectrus Percentile - Performance vs. Aerospace & Defense Companies in the S&P 1500 *
Payout Factor
January 1, 2017 - December 31, 2017
70.3 percentile
167.7%
January 1, 2018 - December 31, 2018
4.10 percentile
0.0%
January 1, 2019 - December 31, 2019
100.0 percentile
200.0%
January 1, 2017 - December 31, 2019
66.6 percentile
155.3%
Average Payout Factor:
 
130.80%
(*) Performance below the 35th percentile rank versus the Aerospace and Defense companies in the S&P 1500 Index results in a 0% Payout Factor for the applicable performance period. Payout percentages for performance between the 35th and 80th percentile rank are interpolated.

Following certification of Vectrus performance for the 2017 TSR awards, the Compensation Committee approved payouts in January 2020 at 130.8% of the target award. Payments in January 2020 to the NEOs were as follows:
Named Executive Officer
 2017 Target Award
Payout at 130.8%
Charles L. Prow
$450,000
$588,600
David A. Hathaway
$125,000
$163,500
Susan L. Deagle
$125,000
$163,500
William B. Noon
$52,500
$68,670

Mr. Boyle and Ms. Lynch did not receive a 2017 TSR award because Mr. Boyle joined the Company in October 2018 and Ms. Lynch joined the Company in August 2019. Mr. Klein did not receive a 2017 award payout because he resigned from the Company effective April 15, 2019. TSR awards are discussed in more detail above at "Relative Total Shareholder Return (TSR) Award Component."
 
 
 
 
 
POST-EMPLOYMENT COMPENSATION
The Vectrus employer match contribution is 50% up to 8% of employee-elected deferrals based upon annual base compensation. All contributions are 100% vested.

Vectrus also established and maintains a non-qualified, unfunded Vectrus Systems Corporation Excess Savings Plan to provide key employees an opportunity to earn benefits in excess of the benefits that may be earned under the Vectrus 401(k) Plan. This plan is discussed in more detail in “Non-qualified Deferred Compensation for 2019” below.

SEVERANCE PLAN ARRANGEMENTS
The plans discussed below are described in more detail in "Payments Upon a Termination or Change in Control." The severance plans apply to key Vectrus employees as defined by Section 409A. The Vectrus severance plan arrangements
 
are not considered in determining other elements of compensation. All of the Vectrus NEOs were covered under the Senior Executive Severance Play Plan and the Special Senior Executive Severance Pay Plan.

SENIOR EXECUTIVE SEVERANCE PAY PLAN
The purpose of this plan is to provide a period of transition for senior executives. Senior executives who are U.S. citizens or who are employed in the United States are covered by this plan. The plan generally provides for severance payments if the Company terminates a senior executive’s employment without cause.

The exceptions to severance payments are:

51



l
the executive terminates his or her own employment;
l
the executive’s employment is terminated for cause; or
l
if the executive accepts employment or refuses comparable employment with a purchaser in a divestiture situation.

No severance is provided for termination for cause because the Company believes employees terminated for cause should not receive additional compensation. No severance is provided where an executive accepts or refuses comparable employment in a divestiture situation because the executive had the opportunity to receive employment income from another party under comparable circumstances. All of the NEOs, except for Mr. Noon, are covered under this plan. See "Other Severance Plan" below.

SPECIAL SENIOR EXECUTIVE SEVERANCE PAY PLAN
The purpose of this plan is to provide compensation in the case of termination of employment in connection with an Acceleration Event (defined in "Payments Upon Termination or Change in Control"). The provisions of this plan are specifically designed to address the inability of senior executives to influence the Company's future performance after certain change in control events. The plan is structured to encourage executives to act in the best interests of shareholders by providing for certain compensation and retention benefits and payments, including change in control provisions, in the case of an Acceleration Event.

The purposes of these provisions are to:
l
provide for continuing cohesive operations as executives evaluate a transaction, which, without change in control protection, could be personally adverse to the executive;
l
keep executives focused on preserving value for