United Continental Holdings, Inc. DEF 14A 2009
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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April 24, 2009
Dear Fellow Owner:
On behalf of the Board of Directors, I am pleased to invite you to the 2009 Annual Meeting of Stockholders of UAL Corporation. A notice of the 2009 Annual Meeting and Proxy Statement follow. Please read the enclosed information and our 2008 Annual Report carefully before voting your proxy. The 2008 Annual Report is available for viewing at http://www.envisionreports.com/uaua.
I am pleased to inform you that you have three ways to vote your proxy. We encourage you to use the first option, vote by Internet.
Your vote is important. Please take a moment now to vote, even if you plan to attend the meeting, and thank you for your continued support of United Airlines.
Glenn F. Tilton
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 11, 2009
MATTERS TO BE VOTED ON:
1. Election of the following members of the Board of Directors:
2. Ratification of the appointment of the independent registered public accountants for 2009
3. Any other matters that may be properly brought before the meeting.
Paul R. Lovejoy
Senior Vice President,
General Counsel and Secretary
April 24, 2009
TABLE OF CONTENTS
This Proxy Statement is furnished to you by our Board of Directors in connection with the solicitation of your proxy to be voted at the Annual Meeting of Stockholders to be held on Thursday, June 11, 2009, at 9:00 a.m. at the United Airlines Education & Training Center, 1200 E. Algonquin Road, Elk Grove Village, IL 60007. This Proxy Statement is being made available to you on approximately April 24, 2009. We, our, us, UAL and the Company refers to UAL Corporation.
The Company will use the Notice and Access model providing for electronic delivery of the proxy materials and annual report to stockholders. The use of Notice and Access generates significant cost savings for the Company. In lieu of paper copies of the proxy statement and other materials, you will receive a notice with instructions for accessing the proxy materials online. If you follow the instructions on the notice, you will be able to review the proxy materials and annual report and cast your vote online. If you still wish to receive a copy of the proxy materials, please follow the instructions on the notice for requesting paper or email copies.
Voting Rights and Proxy Information
You can vote via the Internet by logging onto http://www.envisionreports.com/uaua and following the prompts using your six digit control number located on your meeting notice or proxy card. This vote will be counted immediately and there is no need to send in your proxy card.
The telephone voting procedure is simple and fast. Dial 1-800-652-8683 and listen for further directions. You must have a touch-tone phone in order to respond to the questions. This vote will be counted immediately and there is no need to send in your proxy card.
Shares eligible to be voted, and for which a properly signed proxy card is returned, will be voted in accordance with the instructions specified on the proxy card.
You can save our Company money if you use the vote by Internet or telephone options.
If no instructions are indicated, your shares will be voted FOR the election of each of the nominees for director and FOR the ratification of the selection of the independent registered public accountants.
You are entitled to vote if our records show that you held your shares at the close of business on April 13, 2009. This date is known as the record date for determining who receives notice of the meeting and who is entitled to vote.
The following chart shows the number of shares of each class of our voting stock outstanding as of the record date, the number of holders of each class as of the record date entitled to vote at the meeting, the votes per share for each class for all matters on which the shares vote, and the class of directors the class is entitled to elect. The aggregate number of votes to which each class is entitled is equal to the number of shares outstanding of each respective class.
The holders of common stock and the Class Pilot MEC and Class IAM Junior Preferred Stock will vote together as a single class on all items at the Annual Meeting except the election of directors. The presence in person or by proxy of the holders of a majority of the total voting power of the shares of all the classes outstanding on the record date is necessary to constitute a quorum at the meeting for all items of business other than the election of directors.
The presence in person or by proxy of the holders of a majority of the total voting power of the outstanding shares entitled to vote on the election of a particular class of director(s) is necessary to constitute a quorum at the meeting for voting on that matter.
Under the Delaware General Corporation Law and our Bylaws, provided a quorum is present, (1) the affirmative vote of the holders of the shares of capital stock representing a plurality of the votes present in person or by proxy at the meeting and entitled to be cast on the matter will be required to elect the directors to be elected by the applicable class of capital stock and (2) the affirmative vote of the holders of the shares of capital stock representing a majority of the votes present in person or by proxy at the meeting and entitled to be cast on the matter will be required to approve any other matters.
Abstentions will have the effect of a vote against the matters presented for a vote of the stockholders (other than the election of directors). This is because abstaining shares are considered present and unvoted, which means they have the same effect as votes against the matter. Abstentions have no effect on the election of directors. Broker non-votes will be counted for purposes of establishing a quorum but will otherwise have no effect on the outcome of the vote on any of the matters presented for your vote.
If the proxy card is voted properly by using the Internet or telephone procedures specified or is properly dated, signed and returned by mail, the proxy will be voted at the Annual Meeting in accordance with the instructions indicated by it. Our Board does not know of any matters, other than as described in this notice of Annual Meeting and Proxy Statement, which are to come before the Annual Meeting. If a proxy is given, the persons named in the proxy will have authority to vote in accordance with their best judgment on any other matter that is properly presented at the meeting for action, including any proposal to adjourn or concerning the conduct of the meeting.
If a quorum is not present at the time the Annual Meeting is convened for any particular purpose, or if for any other reason we believe that additional time should be allowed for the solicitation of proxies, we may adjourn the meeting with the vote of the stockholders then present. The persons named in the proxy may vote any shares of capital stock for which they have voting authority in favor of an adjournment.
Any proxy may be revoked by the person giving it at any time before it is voted. We have not established any specified formal procedure for revocation. A proxy may be revoked by a later proxy delivered using the Internet or telephone voting procedures or by written notice mailed to the Corporate Secretary prior to the Annual Meeting. If you hold your shares through an intermediary, you should follow their instructions as to how you can revoke a proxy. Attendance at the Annual Meeting will not automatically revoke a proxy, but a holder of common stock in attendance may request a ballot and vote in person, which revokes a prior granted proxy.
Proxies are being solicited by the Board of Directors on behalf of the Company. All expenses of the solicitation, including the cost of preparing and mailing this Proxy Statement, will be borne by us. In addition to solicitation by use of mails, proxies may be solicited by our directors, officers and employees in person or by telephone or other means of communication. These individuals will not be additionally compensated, but may be reimbursed for out-of-pocket expenses associated with solicitation. Arrangements will also be made with custodians, nominees and fiduciaries for forwarding of proxy solicitation material to beneficial owners of common stock and voting preferred stock held of record, and we may reimburse these individuals for their reasonable expenses. To help assure the presence in person or by proxy of the largest number of stockholders possible, we have engaged Georgeson Inc., a proxy solicitation firm, to solicit proxies on our behalf. We are paying Georgeson a proxy solicitation fee of $8,500 and will reimburse them for reasonable out-of pocket costs and expenses.
Admittance is limited to UAL stockholders. The following procedures have been adopted to ensure that UALs stockholders can check in efficiently when entering the meeting.
If you are a stockholder of record on April 13, 2009, you (or your duly appointed proxy holder) are entitled to attend the meeting. If you are a registered stockholder or you own shares through a UAL 401(k) plan, there is an admission ticket located on your meeting notice or proxy card. You will be asked to present the admission ticket and valid picture identification to obtain admittance to the meeting.
If you are a record holder (or a record holders duly appointed proxy) and you do not have an admittance ticket with you at the meeting, you will be admitted upon verification of ownership at the stockholders registration desk. Please be prepared to present valid picture identification.
Persons who own stock through brokers, trustees, plans or in street name and not directly through ownership of stock certificates are considered beneficial owners. Beneficial owners of record on April 13, 2009 can obtain admittance at the stockholders registration desk by presenting evidence of common stock ownership. This evidence could be a legal proxy from the institution that is the record holder of the stock, or your most recent bank or brokerage firm account statement that includes the record date, along with valid picture identification. Please note that in order to vote at the meeting, beneficial owners must present the legal proxy from the record holder.
PROPOSAL NO. 1
Except where you withhold authority, your proxy will be voted at our 2009 Annual Meeting of Stockholders or any adjournments or postponements FOR the election of the nominee(s) named below for a term of one year and until his or her successor is duly elected and qualified. Incumbent directors will hold office until the Annual Meeting and until their successors are elected and qualified, subject to the directors earlier death, retirement or removal. Our Board of Directors expects all nominees named below, all of whom currently serve on our Board of Directors, to be available for election.
Directors to be Elected by Common Stock
Ten directors are to be elected by the holders of common stock. Each director has served continuously since the date of his or her appointment. The principal occupations for the past five years and other directorships held by the nominees are set forth below. If a nominee unexpectedly becomes unavailable before election, proxies from holders of common stock may be voted for another person designated by the Board or the appropriate Board committee as required by our charter. No persons other than our directors are responsible for the naming of nominees.
The following classes of directors are to be elected by the holders of certain classes of our stock other than common stock. THE HOLDERS OF COMMON STOCK DO NOT VOTE ON THE ELECTION OF THESE DIRECTORS. Each nominee was previously elected or appointed by the holders of the applicable class of our stock and has served continuously as a director since the date of his or her first election or appointment. If a nominee unexpectedly becomes unavailable before election, or we are notified that a substitute nominee has been selected, votes will be cast pursuant to the authority granted by the proxies from the respective holder(s) for the person who may be designated as a substitute nominee.
One ALPA director (as defined in our charter) is to be elected by the United Airlines Pilots Master Executive Council of the Air Line Pilots Association, International (the ALPA-MEC), the holder of our Class Pilot MEC Junior Preferred Stock. The ALPA-MEC has nominated and intends to re-elect Stephen A. Wallach as the ALPA director.
One IAM director (as defined in our charter) is to be elected by the International Association of Machinists and Aerospace Workers (the IAM), the holder of our Class IAM Junior Preferred Stock. The IAM has nominated and intends to re-elect Stephen R. Canale as the IAM director.
The business and affairs of the Company are managed by or under the direction of the Board of Directors. Our Board of Directors held a total of 18 meetings in 2008. All directors attended 75 percent or more of the Board meetings and committee meetings of which they were members. Members of the Board of Directors are expected to attend the Annual Meeting of Stockholders absent exceptional cause.
The Company has adopted Corporate Governance Guidelines, which are available on the Companys website www.united.com by following the links Investor RelationsGovernance, and selecting Corporate Governance Guidelines.
The Board of Directors made a determination that all of the current members of the Board are independent other than Messrs. Canale, Tilton and Wallach under the corporate governance rules of the NASDAQ Global Select Market (Nasdaq) with the assistance of the categorical standards adopted by the Board in the UAL Corporation Corporate Governance Guidelines (see below). Messrs. Tilton and Wallach are not independent because each is an employee of United Air Lines, Inc., a wholly owned subsidiary of UAL Corporation (United), and Mr. Canale is a retired employee of United. There are no family relationships among the executive officers or the directors of the Company.
The Board has established these categorical standards to assist it in determining whether a director has any direct or indirect material relationship with the Company. A director is independent if, within the three years preceding the determination:
For purposes of these categorical standards, (i) an immediate family member of a director includes a directors spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such directors home and (ii) an affiliate includes a general partner of a partnership, a managing member of a limited liability company or a stockholder of a corporation controlling more than 10% of the voting power of the corporations outstanding common stock and (iii) the Company means UAL Corporation and its direct and indirect subsidiaries.
The Board will annually review all relationships between the Company and its outside directors and publicly disclose the Boards determination as to the independence of the outside directors.
The non-management directors of the Company meet regularly outside the presence of the management directors (no less frequently than semiannually). The non-management directors designate a Lead Director who is the non-management director to preside over each non-management director executive session. Mr. OConnor has been designated the Lead Director by the Board of Directors.
Stockholders and other interested parties may contact the UAL Board of Directors as a whole, or any individual member, by one of the following means: (1) writing to the UAL Board of Directors, UAL Corporation, c/o the Corporate Secretarys OfficeHDQLD, 77 W. Wacker Drive, Chicago, IL 60601; or (2) by emailing the UAL Board at UALBoard@united.com.
Stockholders may communicate to the Board on an anonymous or confidential basis. The UAL Board has designated the General Counsel and the Corporate Secretarys Office as its agents for receipt of communications. All communications will be received, processed and initially reviewed by the Corporate Secretarys Office. The Corporate Secretarys Office generally does not forward communications that are not related to the duties and responsibilities of the Board, including junk mail, service complaints, employment issues, business suggestions, job inquires, opinion surveys and business solicitations. The Corporate Secretarys Office maintains all communications and they are all available for review by any member of the Board at his or her request.
The Lead Director is promptly advised of any communication that alleges management misconduct or raises legal, ethical or compliance concerns about Company policies and practices. The Lead Director receives periodic updates from the Corporate Secretarys Office on other communications from stockholders and he determines which of these communications to review, respond to or refer to another member of the Board.
The Company has adopted a code of business conduct and ethics for directors, officers (including UALs principal executive officer, principal financial officer and principal accounting officer or controller) and employees. The Code of Business Conduct is available on the Companys website www.united.com by following the links Investor RelationsGovernance and selecting Code of Conduct.
As described below, our Nominating/Governance Committee identifies and recommends for nomination individuals qualified to be Board members, other than directors appointed by holders of preferred stock of the Company. The Committee identifies directors through a variety of means, including suggestions from members of the Committee and the Board and suggestions from Company officers, employees and others. The Committee may retain a search firm to identify director candidates for Board positions (other than those elected by holders of shares of preferred stock of the Company). In addition, the Committee considers nominees for director positions suggested by stockholders.
Holders of common stock may submit director candidates for consideration (other than those elected by holders of shares of preferred stock of the Company) by writing to the Chairman of the Nominating/Governance Committee, c/o the Corporate Secretarys OfficeHDQLD, UAL Corporation, 77 W. Wacker Drive, Chicago, IL 60601. Stockholders must provide the recommended candidates name, biographical data and qualifications.
A candidate for election as a director of the Board (other than those elected by holders of shares of preferred stock of the Company) should possess a variety of characteristics. Candidates for director positions recommended by stockholders must be able to fulfill the independence standards established by the Board as set forth above under Director Independence and as set forth in the Companys Corporate Governance Guidelines, which are available at www.united.com. The Board seeks independent directors from diverse professional backgrounds who combine a broad spectrum of experience and expertise with a reputation for integrity. A candidate for director should have experience in positions with a high degree of responsibility and be selected based upon contributions they can make to the Board and upon their willingness to devote adequate time and effort to Board responsibilities. In making this assessment, the Committee will consider the number of other boards on which the candidate serves and the other business and professional commitments of the candidate.
The candidate should also have the ability to exercise sound business judgment to act in what he or she reasonably believes to be in the best interests of the Company and its stockholders. No candidate shall be eligible for election or reelection as a director if at the time of such election he or she is 73 or more years of age.
Submissions of candidates who meet the criteria for director nominees approved by the Board will be forwarded to the Chairman of the Nominating/Governance Committee for further review and consideration. The Committee reviews the qualifications of each candidate and makes a recommendation to the full Board. The Committee considers all potential candidates in the same manner and by the same standards regardless of the source of the recommendation and acts in its discretion in making recommendations to the full Board. The invitation to join the Board (other than with respect to any director who is elected by the shares of preferred stock of the Company) is extended by the entire Board through the Chairman of the Board or the Chairman of the Nominating/Governance Committee.
Committees of the Board
The Board of Directors has Audit, Executive, Finance, Human Resources, Nominating/Governance and Public Responsibility Committees. The Human Resources Committee has a Human Resources Subcommittee as described below. The Audit Committee, Finance Committee, Human Resources Subcommittee and the Nominating/Governance Committee are comprised solely of independent directors. Below is a chart showing current committee membership and a summary of the functions performed by the committees during 2008.
* = Chairman
UAL Corporation has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee met seven times during 2008 and is comprised of six independent members as independence is defined by applicable listing standards of the Nasdaq. The Board of Directors of UAL Corporation has determined that each of the Audit Committee members is an audit committee financial expert as defined by SEC rules. The Audit Committee has adopted a written charter, which is available on the Companys website www.united.com by following the links Investor RelationsGovernance and selecting CommitteesAudit Committee.
The Audit Committee is responsible for the oversight of (1) the integrity of the Companys financial statements, the accounting and financial reporting processes and audits of the financial statements, and adequacy of the Companys system of disclosure controls and internal controls for financial reporting, (2) the Companys compliance with legal and regulatory requirements and ethical standards, (3) the outside auditors qualifications and independence, and (4) the performance of the Companys internal audit function and outside auditors. The Audit Committee provides an open avenue of communication between the outside auditors, the internal auditors, management and the Board. The Audit Committee also prepares an audit committee report as required by the SEC, which is set forth on page 43 under Audit Committee Report.
The Executive Committee met twice during 2008 and has adopted a written charter, which is available on the Companys website www.united.com by following the links Investor RelationsGovernance, and selecting CommitteesExecutive Committee. The Executive Committee is authorized to exercise the powers, subject to certain limitations, of the Board in the management of the business and affairs of the Company, excluding any powers granted by the Board, from time to time, to any other committee of the Board.
The Finance Committee met six times during 2008 and has adopted a written charter, which is available on the Companys website www.united.com by following the links Investor RelationsGovernance, and selecting CommitteesFinance Committee. Each member of the Finance Committee is independent as defined by applicable listing standards of the Nasdaq. The Finance Committee is responsible for, among other things, the review of capital plans and budgets, cash management plans and activities, new business opportunities, financial transactions and proposed issuances of securities.
The Human Resources Committee met once during 2008 and has adopted a written charter, which is available on the Companys website www.united.com by following the links Investor RelationsGovernance, and selecting CommitteesHuman Resources Committee. The Human Resources Committee is responsible for the review of significant labor relations and human resources strategies of the Company.
The Company also has a Human Resources Subcommittee (the Subcommittee), which is comprised of five of the seven members of the Human Resources Committee. Each member of the Subcommittee is independent as defined by applicable listing standards of the Nasdaq. The Subcommittee met eight times in 2008 and does not have a separate charter.
Subcommittee Role in Determining Executive Compensation
The Subcommittee serves the role of a traditional compensation committee. The Subcommittee is responsible for (1) oversight of the administration of the Companys compensation plans (other than plans covering only directors of the Company), including the equity-based plans and executive compensation programs of the Company, (2) evaluation and establishment of the compensation of the executive officers of the Company, and (3) review of the adequacy of the compensation plans of the subsidiaries of the Company in which the designated senior officers of the Companys subsidiaries participate. The Subcommittee also reviews
and makes recommendations to the Board with respect to the adoption (or submission to stockholders for approval) or amendment of such executive compensation plans and all equity-based plans. Furthermore, the Subcommittee exercises the powers and performs the duties, if any, assigned to it from time to time under any compensation or benefit plan of the Company or any of its subsidiaries.
The Subcommittee performs a review, at least annually, of the goals and objectives for the CEO as set by the Nominating/Governance Committee and applies them to the Nominating/Governance Committees review of the CEOs performance. The Subcommittee has the sole authority to set the CEOs compensation based on this evaluation. The Subcommittee also reviews and approves at least annually the compensation of each other executive officer of the Company and the designated senior officers of its subsidiaries. With respect to executive compensation, the Subcommittee oversees the annual performance evaluation process of the executive officers of the Company (other than the CEO).
The Subcommittee has delegated to the CEO the interpretative authority under the UAL Corporation Management Equity Incentive Plan (the MEIP) and the UAL Corporation 2008 Incentive Compensation Plan (the ICP) for interpretations and determinations relating to the grant of stock awards to eligible participants other than executive officers of the Company, and the modification of the terms of a participants award following termination of employment. Additionally, the CEO makes recommendations to the Subcommittee regarding compensation of the officers who report directly to him. His recommendations are based on input from the Senior Vice PresidentHuman Resources and the Subcommittees independent compensation consultant. The Subcommittee has the authority to review, approve and revise these recommendations as it deems appropriate.
The Subcommittee has the sole authority to retain and terminate any compensation consultant hired to assist in the evaluation of the compensation of the CEO, other officers of the Company and the designated senior officers of the Companys subsidiaries, including sole authority to approve compensation consultant fees and other terms of engagement. It has the authority, without having to seek Board approval, to obtain, at the expense of the Company, advice and assistance from internal and external legal, accounting or other advisors as it deems advisable.
The Subcommittee has engaged Hewitt Associates LLC (Hewitt) to advise the Subcommittee on executive compensation matters. Upon request by the Subcommittee, Hewitt reviews certain compensation practices, including base salaries, short and long term incentive programs, and various other compensation matters, and makes recommendations consistent with market trends and data and applicable technical and regulatory considerations, while reinforcing the Companys compensation philosophy and strategy. The scope of Hewitts engagement includes the following: (1) preparation for and attendance at Subcommittee meetings and select Board of Director and management meetings; (2) assistance with the review, design, and market prevalence of executive compensation, non-executive compensation or benefit programs; (3) ongoing support with respect to regulatory and accounting considerations impacting executive compensation and benefit programs; and (4) performance of competitive market pay analyses to ascertain each officers position relative to the comparator group market median for base salary, annual incentive and long-term incentive levels, including Total Compensation Measurementtm studies, proxy data studies, dilution analyses and market trends. Hewitt has been directed to work with Company management to prepare the appropriate data, materials and proposals for the Subcommittee.
All of the members of the Nominating/Governance Committee are independent as defined by applicable listing standards of the Nasdaq. The Committee met five times during 2008 and has adopted a written charter, which is available on the Companys website www.united.com by following the links Investor RelationsGovernance, and selecting CommitteesNominating/Governance Committee.
The Nominating/Governance Committee is responsible for, among other things, (1) identification and recommendation for nomination individuals qualified to be Board members, other than directors appointed by holders of preferred stock of the Company, (2) development, recommendation and periodic review of Corporate Governance Guidelines for the Company and oversight of corporate governance matters,
(3) evaluation of the performance of the Chief Executive Officer of the Company and coordination of CEO searches, (4) coordination of an annual evaluation of the Board and (5) making recommendations with respect to director compensation. In discharging its duties, the Nominating/Governance Committee has the authority to conduct or authorize investigations into any matters within the Committees scope of responsibilities. The Nominating/Governance Committee can form and delegate authority to subcommittees.
The Committee has the sole authority to retain and terminate any search firm to be used to identify director candidates, including sole authority to approve the search firms fees and other terms of engagement. Furthermore, it has the authority, without Board approval, to obtain, at the expense of the Company, advice and assistance from internal or external legal, accounting or other advisors as it deems advisable.
The Nominating/Governance Committee makes recommendations to the Board regarding the form and amount of director compensation. It administers the compensation plans for directors of the Company. The Nominating/Governance Committee has not delegated any authority with respect to director compensation matters, and no executive officer plays a role in determining the amount of director compensation. The Human Resources Subcommittees compensation consultant, Hewitt, has advised the Nominating/Governance Committee with respect to director compensation matters. These matters include, among other things, a review and market analysis of board of director pay and benefits.
The Public Responsibility Committee met four times during 2008 and has adopted a written charter, which is available at www.united.com by following the links Investor RelationsGovernance and selecting CommitteesPublic Responsibility Committee. The Public Responsibility Committee is responsible for (1) the review and recommendation to the Board of the Companys policies and positioning with respect to social responsibility and public policy, including those that relate to safety (including workplace safety and security) and the environment; political and governmental policies; consumer affairs; civic activities and business practices that impact communities in which the Company does business; and charitable, political, social and educational organizations, (2) oversight of managements identification, evaluation and monitoring of the social, political and environmental trends, issues and concerns, domestic and international, that affect or could affect the Companys reputation, business activities and performance or to which the Company could make a meaningful contribution and (3) the review and recommendation to the Board concerning the Companys general philosophy regarding diversity, including as it relates to Company policies and practices in areas other than employee diversity.
Mr. Canale and Captain Wallach serve on the Human Resources Committee, but not the Human Resources Subcommittee. Captain Wallach is an employee of United and Mr. Canale retired from employment with United during 2008. Captain Wallach is the Chairman of the ALPA-MEC and an officer of ALPA. ALPA and the Company are parties to a collective bargaining agreement for our pilots represented by ALPA. Mr. Canale is the retired President and Directing General Chairman of the IAM District Lodge 141. The IAM and the Company are parties to collective bargaining agreements for our ramp and stores, public contact employees, food service, security officers, maintenance instructors, fleet technical instructors and Mileage Plus employees represented by the IAM.
No interlocking relationship existed during 2008 between the Companys Board of Directors or Human Resources Subcommittee and the board of directors or compensation committee of any other company.
The Board of Directors recognizes that transactions between the Company and certain related persons present a heightened risk of conflicts of interest. In order to ensure that the Company acts in the best interest of its stockholders, the Board has adopted a written policy for the review and approval of any Related Party Transactions (as defined below). It is the policy of the Company not to enter into any Related Party Transaction unless the Audit Committee (or in instances in which it is not practicable to wait until the next Audit Committee meeting, the Chair of the Audit Committee) approves the transaction or the transaction is approved by a majority of the Companys disinterested directors. In reviewing a proposed transaction, the Audit Committee must (i) satisfy itself that it has been fully informed as to the Related Partys relationship and interest and as to the material facts of the proposed transaction and (ii) consider all of the relevant facts and circumstances available to the Committee. After its review, the Audit Committee will only approve or ratify transactions that are fair to the Company and not inconsistent with the best interests of the Company and its stockholders.
As set forth in the policy, a Related Party Transaction is a transaction or series of related transactions involving a Related Party that had, has, or will have a direct or indirect material interest and in which the Company is a participant, other than:
For purposes of this definition, Related Party includes (i) an executive officer or director of the Company, (ii) a nominee for director of the Company, (iii) a 5% shareholder of the Company, (iv) an individual who is an immediate family member of an executive officer, director, nominee for director or 5% shareholder of the Company or (v) an entity that is owned or controlled by a person listed in (i), (ii), (iii) or (iv) above or in which any such person serve as an executive officer or general partner or, together with all other persons specified in (i), (ii), (iii) or (iv) above, owns 5% or more of the equity interests thereof.
The Company did not enter into any Related Party Transactions (as defined above) during 2008.
BENEFICIAL OWNERSHIP OF SECURITIES
The following table shows the number of shares of our voting securities owned by any person or group known to us as of April 13, 2009, to be the beneficial owner of more than 5% of any class of our voting securities.
The following table shows the number of shares of our voting securities owned by our named executive officers, our directors, and all of our executive officers and directors as a group as of April 13, 2009. The person or entities listed below have sole voting and investment power with respect to all shares of our common stock beneficially owned by them, except to the extent this power may be shared with a spouse.
The following table sets forth information as of December 31, 2008 regarding the number of shares of UAL common stock that may be issued under the Companys equity compensation plans.
Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and holders of more than 10% of our common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities. Such executive officers, directors and beneficial owners are required by SEC regulation to furnish us with copies of all Section 16(a) forms filed by such reporting persons. Based on the Companys records, we believe that all Section 16(a) reporting requirements related to the Companys directors and executive officers were timely fulfilled during 2008.
Compensation Discussion and Analysis
The Company has three key stakeholders - our customers, employees and investors. Our management strives to make decisions that balance the needs of all of these stakeholders. At least annually, we review the Companys strategic objectives and financial plans with the interests of these three stakeholders in mind. During 2008, there were also significant changes to our leadership team. As part of certain organizational changes, Peter D. McDonald took on the role of Executive Vice President and Chief Administrative Officer and John P. Tague assumed the role of Executive Vice President and Chief Operating Officer in May 2008. In addition, the Board of Directors appointed Kathryn A. Mikells to succeed Frederic F. Brace as Chief Financial Officer upon Mr. Braces retirement on October 31, 2008.
This Compensation Discussion and Analysis explains the material elements of the 2008 compensation of our named executive officers and illustrates how compensation decisions are made to drive performance against our aspirations with our customers, employees and investors in mind.
The principal objectives of our executive compensation program are:
We strive to meet these objectives by utilizing the principles listed below to design, develop and implement each component of our executive compensation program:
The comparator group covers a broad spectrum of industries because we believe that our senior executives have skills that are transferable across industries, and utilizing this comparator group to assist us in making compensation decisions allows us to better attract, retain and appropriately reward our executives
The Subcommittee is responsible for overseeing the administration of the Companys executive compensation program. For more information on the Subcommittee, please read the discussion above under Corporate GovernanceCommittees of the BoardHuman Resources Committee and SubcommitteeSubcommittee Role in Determining Executive Compensation. In addition, Mr. Tilton makes recommendations to the Subcommittee regarding each element of compensation for each of the executive officers other than himself. His recommendations are based on input from the Senior Vice President-Human Resources and Hewitt Associates, the Subcommittees outside compensation consultant. His recommendations also take into account the Companys overall performance, the individual officers performance, and internal and external
equity considerations, including pay level as compared to the market. The Subcommittee has the authority to review, approve and revise these recommendations as it deems appropriate.
Our Executive Compensation Program
There are several elements of our executive compensation program. We believe that these elements of compensation collectively support the objectives of our executive compensation program and encourage both our short-term and long-term success. For 2008, the Subcommittee targeted total compensation, which consists of base salary, annual and long-term incentive compensation, at market median with an emphasis on variable and at-risk components. This general principle was applied in setting the total compensation for each of the named executive officers. In addition, the Subcommittee considered other factors such as internal pay equity, retention and performance or contributions by particular executives.
In connection with her promotion from the position of Vice President - Investor Relations to the position of Senior Vice President and Chief Financial Officer, the Subcommittee reviewed Ms. Mikells base salary, annual incentive opportunity and long term incentive compensation. After reviewing her total pay in light of her experience and relative to the compensation of other chief financial officers in the Companys general industry comparator group with a similar scope of responsibilities, the Subcommittee approved an increase in all three components in order to increase Ms. Mikells total compensation to a more appropriate level. Thus, Ms. Mikells base salary was increased to $525,000 effective November 1, 2008.
In March 2009, the Subcommittee concurred with Mr. Tiltons recommendation not to increase the base salary of any of the named executive officers.
In connection with her promotion to Senior Vice President and Chief Financial Officer, the Subcommittee increased Ms. Mikells annual incentive award opportunity to 60% of annual base salary effective November 1, 2008. Please refer to the discussion above under Base salary for additional information regarding the Subcommittees decision to increase Ms. Mikells annual incentive award opportunity. The incentive opportunities of the other named executive officers remained the same.
In determining the actual incentive awards for each named executive officer for 2008, the Subcommittee considered the performance of the enterprise against the key objectives and the individual contributions and performance of each of the named executive officers, as well as each individuals level of total cash compensation versus market median levels for his or her position. Applying these principles, the Subcommittee approved the following awards for 2008: Mr. Tilton
received $695,640; Ms. Mikells received $325,000; Messrs. McDonald and Tague each received $450,000; and Mr. Lovejoy received $250,000. Mr. Brace received a pro-rated award of $315,513 in accordance with the terms of his separation agreement.
In December 2008, the Company adopted the 2009 Annual Incentive Plan (the AIP) to replace the Success Sharing Plan with respect to performance periods beginning on or after January 1, 2009. As part of the strategic planning during 2008, the Board of Directors and management agreed upon five core performance imperatives designed to run the business and drive results against aspirations. We refer to this aspect of our strategic plan as Focus on Five, and it reinforces the principle that results are proof of our performance, and compensation should be tied to tangible performance results. The AIP will provide performance-based cash incentive compensation opportunities to all salaried and management employees and certain union groups, and is aligned with the Companys Focus on Five core performance imperatives.
The Company did not make any general grants under the MEIP or the ICP during 2008; however the Subcommittee did make individual grants of long-term incentive awards in the ordinary course for events such as hirings and promotions. In connection with Ms. Mikells promotion to Senior Vice President and Chief Financial Officer in November 2008, the Subcommittee approved a grant under the ICP consisting of 30,000 shares of restricted stock and 50,000 options with an exercise price of $16.59. As described above under Base salary, this award was part of an overall increase in compensation approved by the Subcommittee in order to bring Ms. Mikells compensation more in line with the total compensation of other chief financial officers with similar levels of responsibility. The Subcommittee also approved a grant to Mr. Tague in June 2008 in connection with his promotion to Chief Operating Officer and in recognition of his increased scope of responsibility in that new position. The grant was made under the MEIP and consisted of 13,000 shares of restricted stock and 62,000 options with an exercise price of $7.22.
In March 2009, the Subcommittee approved a general grant under the ICP for certain management employees, including the named executive officers, effective April 1, 2009. The grant included cash and equity-based incentive awards that will vest over three years, and consisted of approximately 2.4 million stock options and 1.7 million restricted stock units in the aggregate for all participants. During 2009, we will also continue to make individual grants of long-term incentive awards in the context of events such as hirings, promotions or other events.
We believe that providing executives with a defined severance program allows the executive to focus on the issues at hand, knowing that should severance occur, they will be treated fairly and consistently. Our Executive Severance Plan provides for severance amounts that we believe are consistent with current market practice, and is an important component of the compensation package required to attract and retain top caliber talent in senior leadership roles.
For more information on each of these compensation items, please refer to Narrative to 2008 Summary Compensation Table and Grants of Plan-Based Awards Table below.
The Subcommittee adopted stock ownership guidelines in September 2006. The guidelines require executive officers to hold at least 25% of the aggregate number of restricted shares granted to them under the MEIP after the shares have become vested. The measurement date under the guidelines is December 31 of each year, and all executive officers were in compliance as of December 31, 2008. In the event that a named
executive officer does not meet the requirement as of a particular measurement date, any future cash incentive awards will be paid to that individual 50% in restricted shares and 50% in cash until the ownership guidelines have been satisfied.
Section 162(m) of the Internal Revenue Code limits the tax deductibility by a company of compensation in excess of $1 million paid to any of its most highly compensated executive officers. However, performance-based compensation that has been approved by stockholders is excluded from the $1 million limit if, among other requirements, the compensation is payable only upon attainment of pre-established, objective performance goals.
While the tax impact of any compensation arrangement is one factor that might, when relevant, be considered, this impact would be evaluated by the Subcommittee in light of the Companys overall compensation philosophy and objectives. However, the Subcommittee believes there may be circumstances in which the Companys and stockholders interests may be best served by providing compensation that is not fully deductible and that its ability to exercise discretion outweighs the advantages of qualifying compensation under Section 162(m).
We have reviewed and discussed the Compensation Discussion and Analysis with management. Based on such review and discussions, we recommended to the Board that the Compensation Discussion and Analysis be included in the Companys Proxy Statement on Schedule 14A.
W. James Farrell, Chairman
Richard J. Almeida
James J. OConnor
David J. Vitale
John H. Walker
2008 Summary Compensation Table
1 This table provides information regarding the Companys principal executive officer (Mr. Tilton), former principal financial officer (Mr. Brace), current principal financial officer (Ms. Mikells) and the three other most highly compensated executive officers in 2008, as determined in accordance with the applicable SEC disclosure rules. The table also provides information for 2007 and 2006 if the executive officer was included in the Summary Compensation Table for those years. While the amounts reported for Ms. Mikells include total compensation received during 2008, they are not reflective of what she would have received had she served in her current position for the full fiscal year.
2 Amounts disclosed in the Stock Awards column relate to grants of restricted stock made under the MEIP and, with respect to Ms. Mikells, the ICP. The stock awards for Ms. Mikells and Mr. Tague include 30,000 and 13,000 restricted shares, respectively, which were granted to each officer in connection with their respective promotions during 2008. For additional information regarding these special grants, please refer to the Compensation Discussion and Analysis. With respect to each restricted stock grant, the amounts disclosed reflect the compensation cost that the Company recognized for financial accounting purposes in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004) (FAS 123R) during the applicable year. Generally, FAS 123R requires the full grant-date fair value of a restricted stock award to be amortized and recognized as compensation cost over the service period that relates to the award. Grant-date fair value of the restricted stock awards was determined by multiplying the number of restricted shares awarded by the volume weighted average price of a share of Company stock on the date of grant. As a result of the modification to Mr. Braces restricted stock award in September 2008 in connection with his retirement agreement, the Company was required, for purposes of FAS 123R, to revalue the stock awards to their fair value on the date of the modification. A decline in the Companys stock price since the date of grant resulted in a reduction of the compensation expense attributable to the stock awards and, therefore, the negative number shown in the table.
3 Amounts disclosed in the Option Awards column relate to grants of stock options made under the MEIP and, with respect to Ms. Mikells, the ICP. The option awards for Ms. Mikells and Mr. Tague include 50,000 options that were granted to Ms. Mikells in connection with her promotion to Chief Financial Officer and 62,000 options that were granted to Mr. Tague in connection with his promotion to Chief Operating Officer. With respect to each stock option grant, the amounts disclosed generally reflect the compensation cost that the Company recognized for financial accounting purposes in accordance with FAS 123R. Generally, FAS 123R requires the full grant-date fair value of a stock option award to be amortized and recognized as compensation cost over the service period that relates to the award. Grant-date fair value was determined using a generally accepted option valuation methodology referred to as the Black-Scholes Option Pricing Model. The assumptions used in calculating the grant-date fair value of each stock option award are disclosed in footnotes to the Companys financial statements that are set forth in the Companys 2008 Annual Report on Form 10-K. As explained in footnote 2 above, as a result of the modification to Mr. Braces option awards in September 2008 in connection with his retirement agreement, the Company was required, for purposes of FAS 123R, to revalue the awards to their fair value on the date of the modification. A decline in the Companys stock price since the date of grant resulted in a reduction of the compensation expense attributable to the option awards and, therefore, the negative number shown in the table.
4 Amounts disclosed in the Non-Equity Incentive Plan Compensation column for 2008 represent the awards for each named executive officer under the Companys Success Sharing Program.
5 See following table titled Explanation of All Other Compensation Disclosure for details regarding amounts disclosed in the All Other Compensation column for 2008.
Explanation of All Other Compensation Disclosure
1 Represents the payment of supplemental life insurance premiums on the named executive officers behalf.
2 Represents the payment of Company direct and matching contributions that would have been made to the Companys 401(k) plan on behalf of the named executive officer in the absence of contribution limits imposed under the Internal Revenue Code.
3 Represents perquisites and other personal benefits received by the named executive officer if the total value for that individual equals or exceeds $10,000. In each case, this column includes air travel on United Airlines and United Express carriers. Mr. Tilton was also provided with the use of a Company car and driver. The incremental cost to the Company relating to Mr. Tiltons personal use of the Company car and driver in 2008 was $37,623,which represents the cost of fuel as well as a driver related to Mr. Tiltons non-business use of the Company car. Messrs. Brace, McDonald and Lovejoy were also provided the following perquisites during 2008: reimbursement for financial management advisory service, reimbursement for club membership dues (for Messrs. Brace and McDonald) and a car allowance (for Mr. McDonald). Total amounts paid by the Company for Mr. McDonalds country club dues were equal to $86,885.
4 Amounts disclosed in the Other Payments column for Mr. Brace represent 2008 payments by the Company pursuant to Mr. Braces retirement agreement. See Other Potential Post-Employment Payments for additional details regarding Mr. Braces retirement agreement. Amounts disclosed for Mr. McDonald represent Company contributions to an irrevocable trust and other payments by the Company in connection with the May 2008 amendment of Mr. McDonalds employment agreement. Please refer to the Compensation Discussion and Analysis and the Narrative to Nonqualified Deferred Compensation Table below for additional details regarding these payments.
5 Represents taxes paid on behalf of all named executive officers with regards to air travel on United Airlines and United Express flights and taxes paid for Mr. McDonalds secular trust and legal expenses.
Grants of Plan-Based Awards for 2008
1 Amounts disclosed represent target, threshold and maximum possible payouts under the Companys Success Sharing Plan (SSP) for 2008, before individual performance-based adjustments. As explained in the Compensation Discussion and Analysis, the Company maintains another non-equity incentive plan referred to as the Profit Sharing Plan. The Profit Sharing Plan contains no threshold or maximum payout amounts. Rather, payout amounts relate solely to the level of the Companys pre-tax earnings (no payouts occur if pre-tax earnings are less than $10 million). Due to the structure of the Profit Sharing Plan, the SEC disclosure rules do not require any disclosure relating to estimated payout levels under the Profit Sharing Plan in the Grants of Plan-Based Awards table.
2 Represents restricted stock awards made to Mr. Tague and Ms. Mikells in connection with their respective promotions during 2008.
3 Represents option awards made to Mr. Tague and Ms. Mikells in connection with their respective promotions during 2008.
Narrative to 2008 Summary Compensation Table and Grants of Plan-Based Awards Table
The following is a description of material factors necessary to understand the information disclosed in the 2008 Summary Compensation Table and the Grants of Plan-Based Awards table. This description is intended to supplement the information included in the Compensation Discussion and Analysis.
Employment Agreement with Mr. Tilton
As a general policy, the Company does not enter into employment agreements with its executive officers or other employees. However, to induce Mr. Tilton to become the Companys chief executive officer, the Company and Mr. Tilton entered into an employment agreement on September 5, 2002. Mr. Tiltons agreement has been amended on several occasions, most recently on September 25, 2008, to address the requirements of Section 409A of the Internal Revenue Code. The agreement terminates on September 1, 2011. The following description of Mr. Tiltons employment agreement reflects the material terms of the agreement which were in effect during fiscal year 2008.
Employment Agreement with Mr. McDonald
To induce Mr. McDonald to remain with the Company after his receipt of a competitive offer of employment, the Company and Mr. McDonald entered into an employment agreement on September 29, 2006. In addition, the Company and Mr. McDonald entered into an amendment to the agreement on May 15, 2008, in connection with Mr. McDonalds appointment to the position of Chief Administrative Officer. The term of the agreement expires on October 1, 2010. The following description of Mr. McDonalds employment agreement reflects the material terms of the agreement which were in effect during the fiscal year, including the terms of the May amendment.
Under the original agreement, Mr. McDonalds rights with respect to the assets of the Trust were to vest equally over a three-year period beginning February 1, 2008 and ending February 1, 2010. As part of the May 2008 amendment, the Company agreed to accelerate the vesting schedule such that, provided Mr. McDonald remained employed by the Company until February 1, 2009, he would become fully vested with respect to all assets in the Trust on February 1, 2009.
The Company agreed to make a special payment to Mr. McDonald that is intended to cover any income and employment tax liability that Mr. McDonald incurs upon the vesting of any portion of the Trust assets and any income and employment tax liability that Mr. McDonald incurs as a result of the special payment. Mr. McDonalds rights with respect to all earnings on Trust assets are fully vested at all times and are distributed to Mr. McDonald quarterly. Mr. McDonald is responsible for the payment of any taxes that arise due to his receipt of Trust earnings.
In addition to the May 2008 contribution to the Trust, the Company also made a payment in the amount of $1,359,750 to Mr. McDonald in 2008. In consideration for this payment, the $820,000 contribution to the Trust and the accelerated vesting of the Trust, Mr. McDonald agreed that he would have no further entitlement to any severance pay or benefits upon termination, except in the case of termination following a change of control.
Short-Term Incentive Awards
Success Sharing Plan
As described in the Compensation Discussion and Analysis, the Company maintained an annual incentive program in 2008, referred to as the Success Sharing Plan. The Success Sharing Plan for 2008 provided eligible employees, including the named executive officers, the opportunity to earn short-term incentive awards based upon the achievement of certain predefined performance goals. During 2008, certain employee groups elected not to participate in the Success Sharing Plan in exchange for an increase in base pay.
For executive officers, a pool of award money to be paid to executive officers in the aggregate was created based on the Companys satisfaction of the operational, customer and financial goals. The two quarterly performance measures for 2008 were:
The Company established adjusted pre-tax earnings as the measure for annual financial performance for 2008. Since pre-tax earnings is consistent with pay-outs under our Profit Sharing Plan, it is a very accessible measure that reflects the financial strength of the Company.
The 2008 Success Sharing Plan has three performance levels: threshold, target and maximum payout. The threshold payout is 50% of target and the maximum payout is 200% of target. The 2008 actual performance levels compared to target were as follows:
Our 2008 results drove an aggregate payout of approximately $49.5 million for all eligible employees, of which the named executive officers received approximately $2.5 million or 5% of the actual payout. The overall pool of money available for payment to the executive officers under the Success Sharing Plan is fixed. Payments to participants under the Success Sharing Plan is based on individual performance and contributions to the Company. The total payout to participants cannot exceed the overall pool of money available for payment. For 2008, the Subcommittee set the following target incentive award opportunities for the named executive officers:
Each named executive officers incentive award opportunities are disclosed in the Grants of Plan-Based Awards table. At the discretion of the Subcommittee, the named executive officers incentive awards under the Success Sharing Plan may be increased or decreased based on individual performance. The incentive award actually earned by each named executive officer for 2008 is disclosed in the Compensation Discussion and Analysis and in the 2008 Summary Compensation Table. The Company paid the 2008 incentive awards in 2009.
Profit Sharing Program
The Company maintains another annual incentive award program referred to as the Profit Sharing Plan, which covers all U.S.-based employees including the named executive officers. Under the Profit Sharing Plan, 15% of the Companys annual adjusted pre-tax earnings are distributed to eligible employees who had been with the Company for at least one year. While distributions are based on all of the Companys earnings, the Company must first reach a threshold of $10 million in earnings before there can be any distribution under the Profit Sharing Plan. Distributions are made to eligible employees, including each named executive officer, in proportion to their base salaries. Since the $10 million earnings threshold was not met in 2008, no distributions were made.
Long-Term Incentive Awards
The Company adopted the 2008 Incentive Compensation Plan (ICP) in June 2008 to replace the 2006 Management Equity Incentive Plan (MEIP). Under the ICP, the Company may grant to the named executive officers, as well as other eligible employees, incentive and non-qualified stock options, restricted stock, stock appreciation rights, performance compensation awards, performance units, cash incentive awards and other forms of stock-based compensation. The Company may issue up to 8,000,000 shares pursuant to awards
granted under the ICP, plus 339,284 additional shares that remained available for issuance under the MEIP as of June 12, 2008. In 2008, the Subcommittee made ordinary course grants under the MEIP and the ICP in the context of hirings and promotions. These grants included the stock and option awards granted to Mr. Tague and Ms. Mikells in June and November 2008, respectively. The value of these awards is reflected in the Grants of Plan-Based Awards table. Each award vests in four equal, annual installments beginning on June 11, 2009 for Mr. Tague and November 3, 2009 for Ms. Mikells. No other grants were made to the named executive officers under the MEIP or the ICP during 2008.
Outstanding Equity Awards at 2008 Fiscal Year-End.
The following table presents information regarding the outstanding equity awards held by each named executive officer as of December 31, 2008.
1 All stock option awards vest at a rate of 20% upon the following dates 8/1/2006, 2/1/07, 2/1/08, 2/1/09 and 2/1/10, except for the options granted to Ms. Mikells and Mr. Tague during 2008 (50,000 and 62,000 options, respectively), which vest at a rate of 25% annually over four years beginning on 11/3/2009 with respect to Ms. Mikells award and 6/11/2009 with respect to Mr. Tagues award.
2 All restricted stock awards vest at a rate of 20% upon the following dates 8/1/2006, 2/1/07, 2/1/08, 2/1/09 and 2/1/10, except for the awards granted to Ms. Mikells and Mr. Tague during 2008 (30,000 shares and 13,000 shares, respectively), which vest at a rate of 25% annually over four years beginning 11/3/2009 for Ms. Mikells and 6/11/2009 for Mr. Tague.
3 Market Value is calculated based on the number of unvested shares as of 12/31/08 multiplied by the closing share price of UAL common stock on 12/31/08, which was $11.02.
Option Exercises and Stock Vested for 2008
The following table presents information regarding the exercise of options and the vesting of restricted stock awards during 2008.
1 Value Realized on Exercise was calculated by multiplying (a) the number of shares of the Companys common stock to which the exercise of the option related by (b) the difference between (i) the market price of the Companys common stock at the time of exercise and (ii) the exercise price of the options.
2 Value Realized on Vesting was calculated by multiplying (a) the number of shares that vested by (b) the average of the high and low sale prices of a share of the Companys common stock on the vesting date.
1 $820,000 is included in the All Other Compensation column of the Summary Compensation Table, as disclosed in the Explanation of All Other Compensation Disclosure.
The following is a description of material factors necessary to understand the information disclosed in the Nonqualified Deferred Compensation Table. This description is intended to supplement the information discussed in the Compensation Discussion and Analysis and above related narratives.
According to Mr. McDonalds employment agreement, as amended, and as previously described in the Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table, Mr. McDonald forfeited his right to the compensation to which he would be owed in the event of certain qualifying terminations of employment in exchange for consideration that included an $820,000 contribution by the Company to his irrevocable trust. The trust was originally funded with a $2,600,000 payment by the Company in 2006 in connection with the negotiation of the employment agreement. Mr. McDonalds rights with respect to the assets of the irrevocable trust and the related earnings are described in the Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table.
Northern Trust Corporation is the trustee for the irrevocable trust. Northern Trust Corporation manages the trusts assets pursuant to the written investment guidelines provided by Mr. McDonald. Mr. McDonald is permitted to modify the guidelines from time to time by notice to Northern Trust Corporation. In the absence of such guidelines, Northern Trust Corporation will invest the assets of the trust in short term
securities of the U.S. Government. Mr. McDonald received a (15.62)% time-weighted rate of return on the assets held by the trust for the year ended December 31, 2008.
This section describes and quantifies potential payments that may be made to each named executive officer at, following, or in connection with the resignation, severance, retirement, or other termination of the named executive officer or a change of control of the Company. These benefits are in addition to benefits generally available to salaried employees.
Estimate of Mr. Tiltons Other Potential Post-Employment Payments
The following table quantifies the potential payments and benefits that would have been made to Mr. Tilton at, following, or in connection with his termination of employment or a change of control occurring on December 31, 2008. The value of long-term incentive awards was determined using the closing share price of the Companys common stock at year-end, which was $11.02. The methodology used to calculate the potential payments is described below beginning on page 38.