exv10w26






EXHIBIT 10.26




THE 2011 INCENTIVE COMPENSATION PLAN OF HUNTINGTON INGALLS INDUSTRIES, INC.




SECTION I

PURPOSE


The purpose of this Plan is to promote the success of the Company and render its operations
profitable to the maximum extent by providing for the Senior Executives of the Company incentives
that continue to be dependent upon the overall successful performance of the Company. The Senior
Executives, for this purpose, are only those elected corporate officers who participate in making
the basic and strategic decisions which affect the corporate-wide performance of the Company,
together with those Senior Executives who are in charge of significant operating subsidiaries. The
Plan is designed to comply with the performance-based compensation exception under Section 162(m)
of the Internal Revenue Code of 1986, as amended.




SECTION II

DEFINITIONS




	 	1.	 	CODE—The Internal Revenue Code of 1986, as amended from time to time.
	 
	 	2.	 	COMMITTEE—The Compensation Committee of the Board of Directors of Huntington Ingalls
Industries, Inc. It shall be composed of not less than three members of the Board of
Directors, no one of whom shall be an officer or employee of the Company and it shall be
constituted so as to permit this Plan to comply with the “outside director” requirement of
Code section 162(m).
	 
	 	3.	 	COMPANY—Huntington Ingalls Industries, Inc. and such of its subsidiaries as are
consolidated in its consolidated financial statements.
	 
	 	4.	 	INCENTIVE COMPENSATION—Awards payable under this Plan.
	 
	 	5.	 	PERFORMANCE CRITERIA—Economic Earnings, and for purposes of this Plan, “Economic
Earnings” shall mean income from continuing operations before federal and foreign income
taxes and the cumulative effect of accounting changes and extraordinary items, less pension
income (or plus pension expense) plus amortization and impairment of goodwill and other
purchased intangibles, plus restructuring or similar charges to the extent they are
separately disclosed in the annual report.
	 
	 	6.	 	PERFORMANCE YEAR—The Year with respect to which an award of Incentive Compensation is
calculated and paid.
	 
	 	7.	 	PLAN—This 2011 Incentive Compensation Plan of Huntington Ingalls Industries, Inc.
	 
	 	8.	 	SECTION 162(m) OFFICER—A Participant who is a “covered employee” as defined in Section
162(m) of the Code with respect to an award of Incentive Compensation under the Plan for a
Performance Year.






 











 






	 	9.	 	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
elected corporate officers 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 who are Section 162(m) Officers.






	 	2.	 	“Participant” is a person granted or eligible to receive an Incentive Compensation
award under this Plan.






	 	3.	 	Directors, as such, shall not participate in this Plan, but the fact that an elected
corporate officer or subsidiary President is also a Director shall not prevent his
participation.






	 	4.	 	The death of a Participant shall not disqualify him for an Incentive Compensation award
for the Performance Year in which he dies or the preceding Performance Year. In the case of
a deceased Participant, the Incentive Compensation, if any, determined for him for the
Performance Year by the Committee shall be paid to his spouse, children, or legal
representatives as directed by the Committee.





SECTION IV

INCENTIVE COMPENSATION APPROPRIATIONS AND AWARDS





	 	1.	 	The amount to be appropriated to the Plan with respect to a Performance Year shall
equal two and one-half percent (2.5%) of the Performance Criteria for such Performance
Year. The amount appropriated to the Plan for a Performance Year based on the Performance
Criteria set forth in this Paragraph 1, SECTION IV shall be referred to as the “Tentative
Appropriated Incentive Compensation” for such Performance Year.






	 	2.	 	The amount of the Tentative Appropriated Incentive Compensation for a Performance Year
may be reduced (but not increased) by the Committee, in its sole discretion, after taking
into account an appraisal of individual and overall Company performance in the attainment
of such predetermined financial and non-financial objectives as are selected by the
Committee and set forth in writing within the first 90 days of a Performance Year,
at a time when it is substantially uncertain whether a Participant will earn any amount of
Incentive Compensation. The amount appropriated to the Plan for a Performance Year by the
Committee under this Paragraph 2, SECTION IV shall be referred to herein as the
“Appropriated Incentive Compensation” for such Performance Year. In no event shall Incentive
Compensation payable to Participants for a Performance Year exceed the Appropriated
Incentive Compensation under the Plan for such Performance Year. Any Tentative Appropriated
Incentive Compensation for a Performance Year, which is not actually appropriated to the
Plan for such Year, shall be forfeited.




 









 












	 	3.	 	Incentive Compensation Awards to Section 162(m) Officer:






	 	(a)	 	Notwithstanding any other provisions of this Plan, any Incentive
Compensation award for a Performance Year under this Plan payable to a Section
162(m) Officer must satisfy the requirements of this Paragraph 3, SECTION IV.
The purpose of this Paragraph 3 is to ensure compliance by the Plan with the
requirements of Section 162(m) of the Code relating to performance-based
compensation. To the extent necessary to ensure that Incentive Compensation
awards comply with the requirements of Section 162(m) of the Code relating to
performance based compensation, Incentive Compensation awards to Section 162(m)
Officers under this Plan are subject to:






	 	(i)	 	Approval of this Plan and the criteria stated in Paragraph 3(b) of
this SECTION IV by the shareholders of Huntington Ingalls Industries, Inc.
following the Company’s spin-off from Northrop Grumman Corporation no later
than the first regularly scheduled meeting of the shareholders that occurs
more than twelve (12) months after the Company’s spin off from Northrop
Grumman Corporation;
	 
	 	(ii)	 	The maximum amount that may be awarded to any Section 162(m) Officer
under the Plan for any Performance Year as stated in Paragraph 3(b) of
this SECTION IV; and
	 
	 	(iii)	 	Approval of this Plan by the Committee following the Company’s
spin-off from Northrop Grumman Corporation and at or prior to the time any
Incentive Compensation awards are made to any Section 162(m) Officers.






	 	(b)	 	The maximum potential amount of Appropriated Incentive Compensation (as defined
in Paragraph 2 of this SECTION IV) payable to any Participant as an Incentive
Compensation award for any single Performance Year shall be limited to no more than
thirty percent (30%) for the CEO and seventeen and one-half percent (17.5%) for each of
the other up to four (4) Participants for such Performance Year.
	 
	 	(c)	 	The Performance Criteria established in Paragraph 5 of SECTION II on which
Incentive Compensation awards under the Plan are based shall first apply in the
Performance Year 2011.
	 
	 	(d)	 	Prior to the payment of any Incentive Compensation awards for a Performance
Year, the Committee shall make a determination and certification in writing as to
whether the Section 162(m) Officers have met the Performance Criteria, performance
goals, and any other material terms of the Plan for each Performance Year. The
Committee may, in its sole discretion, exercise negative discretion by reducing amounts
of Incentive Compensation awards to all or any of the Section 162(m) Officers from the
maximum potential awards payable by application of Paragraph 3(b) of this




 









 






	 	 	 	SECTION IV.
No such reduction shall increase the amount of the maximum award
payable to any other Section 162(m) Officer. The Committee shall determine the amount of
any reduction in a Section 162(m) Officer’s Incentive Compensation award on the basis of
such factors as it deems relevant, and it shall not be required to establish any
allocation or weighting component with respect to the factors it considers. The
Committee shall have no discretion to increase any Incentive Compensation award for a
Performance Year above the amount determined by application of Paragraph 3(b) of this
SECTION IV.






	 	4.	 	After the end of a Performance Year, in determining each Participant’s Incentive
Compensation award for such Year, the Committee may make a downward adjustment after
considering such factors as it deems relevant, which shall include but not be limited to
the following factors:






	 	(a)	 	The evaluation of the Participant’s performance during that Performance Year in
relation to the Participant’s predetermined objectives and the Participant’s
contribution during such Year to the success or profit of the Company.
	 
	 	(b)	 	The classification of the Participant’s position, relative to the position of
all Participants. The Committee shall make the final determination of each
Participant’s Incentive Compensation award for a Performance Year.





SECTION V

ADMINISTRATION OF THE PLAN



The Committee shall be responsible for the administration of the Plan. The Committee shall:





	 	1.	 	Interpret the Plan, make any rules and regulations relating to the Plan, determine
which consolidated subsidiaries are significant for the purpose of the first paragraph of
SECTION III, and determine factual questions arising in connection with the Plan, after
such investigation or hearing as the Committee may deem appropriate.






	 	2.	 	As soon as practicable after the close of each Performance Year and prior to the
payment of any Incentive Compensation for such Performance Year, review the performance of
each Participant and determine the amount of each Participant’s individual Incentive
Compensation award, if any, with respect to that Performance Year.






	 	3.	 	Have sole discretion in determining Incentive Compensation awards under the Plan,
except that in making awards the Committee may, in its discretion, request and consider the
recommendations of the Chief Executive Officer of the Company and others whom it may
designate.




Any decisions made by the Committee under the provisions of this SECTION V shall be conclusive and
binding on all parties concerned. Except as otherwise specifically provided in this Plan, the
provisions of this Plan shall be interpreted and administered by the Committee in a


 









 






manner
consistent with the requirements for exemption of Incentive Compensation awards granted to
Participants who are Section 162(m) Officers as “performance-based compensation”
under Code Section 162(m) and regulations and other interpretations issued by the Internal Revenue
Service thereunder.




SECTION VI

METHOD OF PAYMENT OF INCENTIVE COMPENSATION TO INDIVIDUALS





	 	1.	 	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 an Incentive Compensation award, in cash or in HII Common Stock,
with respect to a given Performance Year shall be made in a lump sum between February 15
and March 15 of the year following such Performance Year.






	 	2.	 	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 the
Plan.






	 	3.	 	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. In the case of Section
162(m) Officers, the total dollar amount of an Incentive Compensation award for a
particular Performance Year shall be no greater than the maximum potential awards payable
by application of Paragraph 3(b) of SECTION IV. After fixing the total amount of each
Participant’s Incentive Compensation award in terns 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.






	 	4.	 	If an Incentive Compensation award is paid in HII Common Stock, the number of shares
shall be appropriately adjusted for any stock splits, stock dividends, recapitalizations 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.






	 	5.	 	HII Common Stock issued in payment of Incentive Compensation awards may, at the option
of the Board of Directors, be either originally issued shares or treasury shares, and any
such shares so issued shall count against the applicable limits of the Company’s 2011




 









 






	 	 	 	Long-Term Incentive Stock Plan or any successor equity compensation plan of the Company, as
the case may be.






	 	6.	 	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, Inc. Deferred Compensation Plan], the [Huntington Ingalls
Industries, Inc. Savings Excess Plan], or any other deferred compensation plan or deferral
arrangement shall be paid as provided in such plan or arrangement.






	 	7.	 	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.






	 	8.	 	No Participant or any other party claiming an interest in amounts earned under the 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 the Plan, such right shall be
equivalent to that of an unsecured general creditor of the Company.






	 	9.	 	The Committee shall have the exclusive right to interpret the provisions of this
SECTION VI, to determine all questions arising under it or in connection with its
administration, and to issue regulations and take actions implementing its provisions.





SECTION VII

AMENDMENT OR TERMINATION OF PLAN



The Board of Directors of the Company shall have the right to terminate or amend this Plan at any
time and to discontinue further appropriations thereto, except that that no amendment to the Plan
shall be made without the approval of the shareholders of Huntington Ingalls Industries, Inc. if
shareholder approval is required to preserve the exemption of Incentive Compensation awards granted
to Participants who are Section 162(m) Officers as “performance-based compensation” under Code
Section 162(m).




SECTION VIII

EFFECTIVE DATE



This Plan was first effective for Performance Years commencing in 2011. No appropriations will be
made, and no Incentive Compensation shall be paid, under the Plan for subsequent Performance Years
if the Plan is not approved by the shareholders of Huntington Ingalls Industries, Inc. in
accordance with Paragraph 3(a) of SECTION IV.




SECTION IX

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 X

MISCELLANEOUS





	 	1.	 	Participation in the Plan shall not constitute an agreement (1) of the Participant to
remain in the employ of and to render his/her services to the Company, or (2) 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 the 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 the 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.	 	The Plan, and any agreements hereunder, shall be governed by and construed in
accordance with the state of Delaware.






	 	6.	 	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.