2018 Guide to Effective Proxies

2.17.5 Elements of pay tables | 369 6 TH EDITION | GUIDE TO EFFECTIVE PROXIES Compensation Discussion & Analysis Variable Incentive Compensation. We use a combination of cash and equity incentive awards to drive and reward performance in key areas over different time frames. Our annual cash incentive awards were designed to measure performance against pre-determined goals established for the fiscal year in order to encourage and to reward contributions to our annual financial, operating and strategic objectives. We provided long-term equity incentive awards to our executive officers to motivate them to stay with us and build stockholder value through their future performance, and we do not generally consider an executive officer’s current stock holdings or outstanding equity awards in making annual grants. The following chart summarizes the elements of our compensation program and the relevant performance measures and time frames supporting our base and variable incentive compensation elements for fiscal 2017: Pay Element Description and Purpose Time Period Metrics Base Pay š Fixed cash compensation recognizing individual performance, time in role, scope of responsibility, leadership skills and experience. 1 Year š Pay aligned to experience and job scope, targeted to median of applicable market data š Reviewed annually and adjusted when appropriate. Short-Term š Variable compensation based on performance against annually established targets and individual performance; payable in cash. 1 Year š Financial (80%) (each goal = maximum score of 150%) Adjusted Operating Income (40%) Total Backlog (25%) Days Working Capital (15%) š Designed to reward executives for annual performance on key operational and financial measures, as well as individual performance. š Personal (20%) Personal Achievements - Score of 0% to 200% based on individual leadership behaviors and achievement of personal goals Long-Term Performance Shares š Distributed in the form of shares of Leidos common stock based on the achievement of financial results 3 Years š Adjusted Operating Income (50%) Relative Total Stockholder Return (50%) Performance Restricted Stock Units (PRSUs) š Designed to drive sustainable performance that delivers long-term value to stockholders and directly ties the interest to those stockholders; distributed in the form of shares of Leidos common stock 4 Years š One-year Revenue Goal (100%) must be met for first year for Units to be eligible for vesting Stock Options š Rewards longer-term stock price appreciation 7 Years š Stock Price (100%) Other Benefits. We provide our executive officers with benefits generally available to our other employees, such as participation in our health, benefit and retirement programs. Our executive officers are also entitled to certain benefits (described in the section entitled “ Potential Change in Control and Severance Benefits” ) if their employment is terminated following a change in control. Considerations in Determining Direct Compensation In determining the amounts of direct compensation (base salary, annual and long-term incentives) to be awarded to our executive officers, we considered the company’s overall performance, the performance of operating units under the 28 | 2018 Proxy Statement LEIDOS HOLDINGS, INC.