EXHIBIT 10.3

HUNTINGTON INGALLS INDUSTRIES, INC. ANNUAL INCENTIVE PLAN

As amended and restated December 13, 2018

SECTION I

PURPOSE

The Company maintains an annual incentive program to promote the success of the
Company by providing incentives to participating employees to render its
operations profitable and to achieve other Company goals and objectives.
Participating employees have varying degrees of impact on the overall success
and performance of the Company, and the Plan is structured to provide for the
appropriate incentive level for each Participant.

SECTION II

DEFINITIONS

 

  1.

Appropriated Incentive Compensation—The amount appropriated to the Plan for a
Performance Year by the Committee.

 

  2.

Code—The Internal Revenue Code of 1986, as amended from time to time.

 

  3.

Committee—The Compensation Committee of the Board of Directors of Huntington
Ingalls Industries, Inc.

 

  4.

Company—Huntington Ingalls Industries, Inc. and such of its subsidiaries as are
consolidated in its consolidated financial statements.

 

  5.

Director—A member of the Board of Directors of Huntington Ingalls Industries,
Inc.

 

  6.

Incentive Compensation—Awards payable under this Plan.

 

  7.

Officer—A Participant who is an elected corporate officer of the rank of Vice
President and above and the Presidents of those consolidated subsidiaries that
the Committee determines to be significant in the overall corporate operations.

 

  8.

Participant—An employee of the Company granted or eligible to receive an
Incentive Compensation award under this Plan.

 

  9.

Performance Criteria—The performance criteria is a weighted combination of
various financial and non-financial factors approved by the Committee for the
Performance Year.

 

  10.

Performance Year—The year with respect to which an award of Incentive
Compensation is calculated and paid.

 

  11.

Plan—This Huntington Ingalls Industries, Inc. Annual Incentive Plan.

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  12.

Plan Year—The fiscal year of Huntington Ingalls Industries, Inc.

SECTION III

PARTICIPATION

 

  1.

The persons eligible to receive Incentive Compensation awards under this Plan
are Officers and appointed vice presidents, senior management, middle management
and individual key contributors (employees normally in a position that
customarily perform quasi-management or team leadership duties). In addition,
employees may be eligible to receive Incentive Compensation awards under this
Plan if they have specific individual goals that directly contribute to the
attainment of their respective business unit’s operating goals or if employees
are considered “high performing” and are in a position to make measurable and
significant contributions to the success of the Company.

 

  2.

For Officers, at the beginning of, or prior to, a Performance Year, the
Committee will determine the Officers granted or eligible to receive an
Incentive Compensation award for such Performance Year.

 

  3.

For all other eligible employees who are not Officers, at the beginning of, or
prior to, a Performance Year, the Company’s CEO will approve the number of
employees eligible for participation in this Plan for such Performance Year.
Participants are then selected by their management based on an assessment of
their position relative to other candidates, their performance, and their
potential impact on achievement of business unit and the Company goals.

 

  4.

Directors, as such, shall not participate in this Plan, but the fact that an
Officer is also a Director shall not prevent participation.

 

  5.

Eligibility for participation in this Plan does not guarantee that an eligible
individual will actually be selected to participate. Participation in this Plan
during any Performance Year does not imply nor guarantee participation in this
Plan in future years.

 

  6.

A Participant may be eligible to receive a pro-rated Incentive Compensation
award in the event of the Participant’s death, disability, layoff or retirement.
In the case of a deceased Participant, such Incentive Compensation award will be
paid to the Participant’s estate.

 

  7.

Except as provided in Section III 6 (see above), in order to be eligible to
receive a payment from this Plan, a Participant must be an active employee of
the Company as of the last day of the Performance Year (and in no event will the
Participant’s Incentive Compensation award with respect to that year be
considered to have been earned prior to that time unless such condition is
satisfied), unless an exception is approved in writing by the Committee (with
respect to Officers) or the Company’s chief human resources and administrative
officer (with respect to all non-Officer Participants).

 

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SECTION IV

GOAL SETTING AND PERFORMANCE CRITERIA

Goal setting and performance planning are essential elements of Plan
administration. This requires establishing Performance Criteria, such as goals,
goal weights, and performance measures. The Committee approves the annual
business, financial and any supplemental goals for the Company, as described
below, in connection with the start of each Performance Year. When determining
the annual business, financial and any supplemental goals for the Company, the
Committee will consider the recommendations of the CEO.

 

  1.

Corporation Goals:

For each Performance Year, until otherwise determined by the Committee,
financial and non-financial objectives will be established by the Committee in
its sole discretion.

 

  2.

Financial Measures:

 

  a.

Financial measures are established by the Committee at its sole discretion.
Measures may include, but are not limited to: cash management, cash flow, return
on investment, debt reduction, revenue growth, net earnings, and return on
equity.

 

  b.

The Committee approves a performance threshold, a target level and a maximum
performance level for each of the financial measures for the Performance Year.

 

  3.

Supplemental Goals:

Supplemental goals are established by the Committee at its sole discretion.
Supplemental goals may be either qualitative or quantitative such as, but not
limited to: Customer satisfaction, contract acquisition, delivery schedule,
cycle-time improvement, the total value of contracts awarded, productivity,
quality, workforce diversity, safety and environmental management. Supplemental
goals may be based on division goals contained in Annual Operating Plans and
corporate office goals established prior to the beginning of each Performance
Year. Supplemental goals may have stated milestones and weights.

 

  4.

Individual Goals:

Each year Participants may develop individual goals that support achievement of
the Company’s business plan and the specific goals established by the Committee
in the three aforementioned corporation goals. Any applicable individual goals
are prepared, approved and documented. If applicable, the employee’s manager
reviews these goals with each Participant to ensure they are aggressive,
coordinated and focused on attainment of Company business objectives.

 

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SECTION V

PERFORMANCE DETERMINATION

At the end of each Performance Year, the Committee, in its sole discretion,
after taking into account its appraisal of the overall performance of the
Company in the attainment of such predetermined financial and non-financial
objectives described in SECTION IV, shall establish a “unit performance factor”
or “UPF” for the Performance Year. The UPF is stated numerically and is a
performance multiplier for individual incentive targets. The UPF will vary from
0.0 to a maximum as approved by the Committee. When determining the UPF, the
Committee will consider the recommendations of the CEO.

SECTION VI

INCENTIVE COMPENSATION APPROPRIATIONS

 

  1.

The amount appropriated for this Plan for a Performance Year is based on the
Committee’s determination of the UPF and applied to the individual incentive
targets of Participants. These performance-adjusted targets are aggregated into
the “Appropriated Incentive Compensation” for the Performance Year.

 

  2.

In no event shall Incentive Compensation payable to Participants for a
Performance Year exceed the Appropriated Incentive Compensation for this Plan as
approved by the Committee.

 

  3.

Any Appropriated Incentive Compensation for a Performance Year, which is not
actually distributed to the Participants as awards for such year, shall be
forfeited and cannot be transferred to the following Performance Year.

SECTION VII

INCENTIVE COMPENSATION AWARDS

 

  1.

Individual Award Factors:

 

  a.

Target award percentage—Each Participant’s target award percentage is
established annually and is a percentage of annual aggregate salary that
reflects the varying impact of the Participant’s positions on business results.
Generally Officers will have higher target award percentages than senior middle
managers and so forth.

 

  b.

Individual performance—Unless otherwise determined by the Committee, each
Participant will be evaluated in relation to the Participant’s achievement of
predetermined individual goals and his/her relative contribution during the
Performance Year compared to other Participants to the success or profit of the
Company. This assessment of performance (the “individual performance factor” or
“IPF”) is stated numerically and is a performance multiplier for individual
incentive targets. The IPF may range from 0 to 1.5. Each Officer’s IPF will be
determined by the Committee. For each other Participant, his/her IPF will be
determined by the CEO or his delegate.

 

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  c.

Both the IPF (if applicable) and the UPF are multipliers for the individual
Participant’s target award percentage to determine that Participant’s Incentive
Compensation award.

 

  2.

Awards:

 

  a.

For Officers, the Committee will make the final determination of each Officer’s
Incentive Compensation award for the Performance Year. In making its
determination, the Committee will consider the CEO’s recommendations with
respect to all Officers other than himself.

 

  b.

For all other Participants who are not Officers, the CEO or his delegate will
make the final determination of each such Participant’s Incentive Compensation
award for the Performance Year. Prior to the payment of any such Incentive
Compensation awards for a Performance Year, the CEO, or his delegate, may in his
sole discretion, adjust or reduce to zero recommended amounts of Incentive
Compensation awards to all or any of these Participants. The CEO or his delegate
shall determine the amount of any adjustment in each of these Participant’s
Incentive Compensation awards on the basis of such factors as he deems relevant,
and shall not be required to establish any allocation or weighting component
with respect to the factors he considers.

SECTION VIII

ADMINISTRATION OF THE PLAN

 

  1.

The Committee shall be responsible for the administration of this Plan for
Officers and the CEO shall be responsible for the administration of this Plan
for all other Participants who are not Officers. The Committee or CEO, as
applicable:

 

  a.

Shall interpret this Plan, make any rules and regulations relating to the Plan,
and determine factual questions arising in connection with the Plan, after such
investigation or hearing (if any) as the applicable administrator may deem
appropriate.

 

  b.

The Committee shall determine which consolidated subsidiaries are significant
for the purpose of determining which Participants are Officers.

 

  c.

As soon as feasible after the close of each Performance Year and prior to the
payment of any Incentive Compensation for such Performance Year, (i) the
Committee shall review the performance of each Officer and determine the amount
of each Officer’s individual Incentive Compensation award, if any, with respect
to that Performance Year and (ii) the CEO shall review the recommended Incentive
Compensation awards of selected Participants, as determined by the CEO, to
determine if the award is appropriate with respect to that Performance Year,
making any adjustments as he deems necessary, and approving each such Incentive
Compensation award, if any, with respect to that Performance Year.

 

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  d.

The Committee shall have sole discretion in determining Incentive Compensation
awards for Officers, except that in making awards the Committee may, in its
discretion, request and consider the recommendations of the CEO and others whom
it may designate.

 

  e.

The CEO shall review and approve the total non-Officer Incentive Compensation
award expenditure of each division and the Company overall.

 

  f.

Any decisions made by the applicable administrator under the provisions of this
SECTION VIII, as well as any interpretations of this Plan by the applicable
administrator, shall be conclusive and binding on all parties concerned.

SECTION IX

METHOD OF PAYMENT OF INCENTIVE

COMPENSATION TO INDIVIDUALS

 

  1.

Payments

 

  a.

The amount of Incentive Compensation award determined for each Participant with
respect to a given Performance Year shall be paid in cash or in common stock of
Huntington Ingalls Industries, Inc. (“HII Common Stock”) or partly in cash and
partly in HII Common Stock, as the Committee may determine. Subject to any
applicable deferred compensation election to the contrary, payment of the
Incentive Compensation award with respect to a given Performance Year shall be
made in a lump sum payment between February 15 and March 15 of the year
following such Performance Year.

 

  b.

The Committee may impose such conditions, including forfeitures and
restrictions, as the Committee believes will best serve the interests of the
Company and the purposes of this Plan.

 

  c.

In making awards of HII Common Stock, the Committee shall first determine all
Incentive Compensation awards in terms of dollars. The total dollar amount of
all Incentive Compensation awards for a particular Performance Year shall not
exceed the Appropriated Incentive Compensation for that Performance Year under
this Plan. After fixing the total amount of each Participant’s Incentive
Compensation award in terms of dollars, then if some or all of the award is to
be paid in HII Common Stock, the dollar amount of the Incentive Compensation
award so to be paid shall be converted into shares of HII Common Stock by using
the fair market value of such stock on the date such dollar amount was fixed.
“Fair market value” shall be the closing price of such stock on the New York
Stock Exchange on the applicable date, or, if no sales of such stock occurred on
that date, then on the last preceding date on which such sales occurred. No
fractional share shall be issued.

 

  d.

If an Incentive Compensation award is paid in HII Common Stock, the number of

 

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  shares shall be appropriately adjusted for any stock splits, stock dividends,
re-capitalization or other relevant changes in capitalization effective after
the date the applicable number of shares is determined and prior to the date as
of which the Participant becomes the record owner of the shares received in
payment of the award. All such adjustments thereafter shall accrue to the
Participant as the record owner of the shares.

 

  e.

HII Common Stock issued in payment of Incentive Compensation awards may, at the
option of the Board of Directors of the Company, be either originally issued
shares or treasury shares, and any such shares so issued shall count against the
applicable limits of the Company’s 2012 Long-Term Incentive Stock Plan or any
successor equity compensation plan of the Company, as the case may be.

 

  f.

Distribution of awards shall be governed by the terms and conditions applicable
to such awards, as determined by the Committee or its delegate. An award, the
payment of which is to be deferred pursuant to the terms of an employment
agreement, shall be paid as provided by the terms of such agreement. Awards or
portions thereof deferred pursuant to the Huntington Ingalls Industries Deferred
Compensation Plan, the Huntington Ingalls Industries Savings Excess Plan, or any
other deferred compensation plan or deferral arrangement shall be paid as
provided in such plan or arrangement.

 

  g.

The Company shall have the right to deduct from all payments under this Plan any
federal, state, or local taxes required by law to be withheld with respect to
such payments.

 

  h.

No Participant or any other party claiming an interest in amounts earned under
this Plan shall have any interest whatsoever in any specific asset of the
Company. To the extent that any party acquires a right to receive payments under
this Plan, such right shall be equivalent to that of an unsecured general
creditor of the Company. Awards payable under this Plan shall be payable in
shares or from the general assets of the Company, and no special or separate
reserve, fund or deposit shall be made to assure payment of such awards.

SECTION X

AMENDMENT OR TERMINATION OF PLAN

The Committee shall have the right to terminate or amend this Plan at any time
and to discontinue further appropriations to the Plan. Without limiting the
generality of the preceding sentence, the Committee reserves the right to adjust
any annual business, financial and any supplemental goals for the Company
determined pursuant to SECTION IV to the extent the Committee determines such
adjustment is reasonably necessary or advisable to preserve the intended
incentives and benefits under this Plan to reflect (1) any change in
capitalization, any corporate transaction (such as a reorganization,
combination, separation, merger, acquisition, or

 

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any combination of the foregoing), or any complete or partial liquidation,
(2) any change in accounting policies or practices, (3) the effects of any
special charges to earnings, or (4) any other similar special circumstances.

SECTION XI

EFFECTIVE DATE

This Plan was first effective for Performance Years commencing with 2011, and as
amended and restated herein, for Performance Years commencing with 2019, and
shall stay in effect until amended, modified or terminated by the Committee. The
provisions of this Plan shall supersede and replace those of prior plan
documents.

SECTION XII

RECOUPMENT

Any payment of an Incentive Compensation award is subject to recoupment pursuant
to the Company’s Policy Regarding the Recoupment of Certain Performance-Based
Compensation Payments as in effect from time to time, and the Participant shall
promptly make any reimbursement requested by the Board of Directors of the
Company or the Committee pursuant to such policy with respect to any Incentive
Compensation award payments. Further, the Participant agrees, by accepting an
Incentive Compensation award, that the Company and its affiliates may deduct
from any amounts it may owe the Participant from time to time (such as wages or
other compensation) to the extent of any amounts the Participant is required to
reimburse the Company pursuant to such policy with respect to the award.

SECTION XIII

MISCELLANEOUS

 

  1.

Participation in this Plan shall not constitute an agreement of the Participant
to remain in the employ of and to render his/her services to the Company, or of
the Company to continue to employ such Participant, and the Company may
terminate the employment of a Participant at any time with or without cause.

 

  2.

In the event any provision of this Plan shall be held illegal or invalid for any
reason, the illegality or invalidity shall not affect the remaining parts of the
Plan, and the Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.

 

  3.

All costs of implementing and administering the Plan shall be borne by the
Company.

 

  4.

All obligations of the Company under this Plan shall be binding upon and inure
to the benefit of any successor to the Company, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation,
or otherwise, of all or substantially all of the business and/or assets of the
Company.

 

  5.

This Plan and any agreements hereunder, shall be governed by and construed in
accordance with the laws of the state of Delaware.

 

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  6.

The rights of a Participant or any other person to any payment or other benefits
under this Plan may not be assigned, transferred, pledged, or encumbered except
by will or the laws of decent or distribution.

 

  7.

This Plan does not constitute a contract. This Plan does not confer upon any
person any right to receive a bonus or any other payment or benefit. There is no
commitment or obligation on the part of the Company (or any affiliate) to
continue any bonus plan (similar to this Plan or otherwise) in any particular
year.

 

  8.

This Plan and the Incentive Compensation awards under the Plan are intended to
comply with (or be exempt from, as the case may be) Section 409A of the Code so
as to avoid any tax, penalty or interest under Section 409A of the Code. This
Plan shall be construed, operated and administered consistent with this intent.

IN WITNESS WHEREOF, Huntington Ingalls Industries, Inc. has executed this
amended and restated Annual Incentive Plan document by its duly authorized
representative on this 17th day of December, 2018.

 

HUNTINGTON INGALLS INDUSTRIES, INC. By:  

/s/ William R. Ermatinger

  William R. Ermatinger   Vice President and Chief Human Resources Officer

 

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