United Continental Holdings, Inc. DEF 14A 2017
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Statement Pursuant to Section 14(a) of
April 21, 2017
On behalf of our Board of Directors, we are pleased to invite you to the 2017 Annual Meeting of Stockholders of United Continental Holdings, Inc. (the "Company") to be held on May 24, 2017. A notice of the 2017 Annual Meeting and proxy statement follows. Please read the enclosed information and our 2016 Annual Report carefully before voting your proxy.
Your vote is important. Even if you plan to attend the Annual Meeting in person, please authorize your proxy or direct your vote by following the instructions on each of your voting options described in the proxy statement. You may vote your shares by Internet, telephone or mail pursuant to the instructions included on the proxy card or voting instruction card. We encourage you to use the first option and vote by Internet.
Thank you for your continued support of United. We look forward to seeing you at the 2017 Annual Meeting.
UNITED CONTINENTAL HOLDINGS, INC.
NOTICE OF 2017 ANNUAL MEETING OF STOCKHOLDERS
MATTERS TO BE VOTED ON:
Even if you plan to attend the Annual Meeting in person, please authorize your proxy or direct your vote as promptly as possible. You may vote your shares by Internet, telephone or mail pursuant to the instructions included on the proxy card or voting instruction card. If you mail the proxy or voting instruction card using the envelope provided, no postage is required if mailed in the United States. If you attend the Annual Meeting in person and want to withdraw your proxy, you may do so as described in the attached proxy statement and vote in person on all matters properly brought before the Annual Meeting.
You can find detailed information regarding voting in the section entitled "General Information" in the attached proxy statement.
Table of Contents
UNITED CONTINENTAL HOLDINGS, INC.
This proxy statement is furnished to you by the board of directors (the "Board") in connection with the solicitation of your proxy to be voted at the 2017 annual meeting of stockholders of United Continental Holdings, Inc., which we refer to as the "Annual Meeting," to be held on Wednesday, May 24, 2017, at 9:00 a.m., Central Time, at the Willis Tower, 233 South Wacker Drive, Chicago, Illinois 60606. This proxy statement and the accompanying proxy card are being made available to you on approximately April 21, 2017.
In this proxy statement, the terms "we," "our," "us," "UAL" and the "Company" refer to United Continental Holdings, Inc.
The rules of the SEC allow us to deliver a single set of proxy materials and annual report to one address shared by two or more of our stockholders. This delivery method is referred to as "householding" and can result in significant cost savings. To take advantage of this opportunity, we have delivered only one set of proxy materials and annual report to multiple stockholders who share an address, unless we have received different instructions from the impacted stockholders prior to the mailing date. We agree to deliver promptly, upon written or oral request, a separate set of proxy materials and annual report, as requested, to any stockholder at the shared address to which a single copy of those documents was delivered. If you prefer to receive separate copies of the Annual Meeting materials, contact Broadridge Financial Solutions, Inc. ("Broadridge") by telephone at (800) 542-1061 or in writing at Broadridge, Householding Department, 51 Mercedes Way, Edgewood, New York 11717.
If you are currently a stockholder sharing an address with another stockholder and are receiving multiple copies of our proxy materials and wish to receive only one copy of future proxy materials and annual reports for your household, please contact Broadridge at the above telephone number or address.
If you are a stockholder with shares of our voting stock, including our common stock, $0.01 par value per share ("Common Stock"), registered in your name with Computershare Investor Services ("Computershare"), the Company's transfer agent and registrar, then you are considered a "stockholder of record." Stockholders of record at the close of business on March 29, 2017, which is known as the "record date" for the Annual Meeting, are entitled to notice of and to vote at the Annual Meeting or any adjournments or postponements thereof.
The following chart shows the number of shares of each class of our voting stock outstanding as of the record date, the number of record holders of each class as of the record date entitled to vote at the Annual Meeting, the votes per share for each class for all matters on which the shares vote, and the directors each class is entitled to elect. The aggregate number of votes to which a class is entitled is equal to the number of shares outstanding of such class.
If you are a stockholder of record that holds shares as of the record date, you have three options for delivering your proxy to vote your shares:
You can vote via the Internet by logging onto http://www.envisionreports.com/ual and following the prompts using the control number located on your proxy card. This vote will be counted immediately, and there is no need to mail your proxy card.
To use the telephone voting procedure, dial (800) 652-8683 and listen for further directions. You must use a touch-tone telephone in order to respond to the questions. This vote will be counted immediately, and there is no need to mail 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.
Proxies submitted by Internet or telephone must be received by 11:59 p.m., Central Time, on Tuesday, May 23, 2017, the day before the Annual Meeting.
Even if you have submitted a proxy before the Annual Meeting, you may still attend the Annual Meeting and vote in person. If you vote in person at the Annual Meeting, your previously submitted proxy will be disregarded, but simply attending the Annual Meeting will not revoke a previously submitted proxy. See "Can I attend the Annual Meeting?" below for information regarding how to attend the Annual Meeting.
We encourage you to vote by Internet as instructed on the proxy card.
If we receive a signed and dated proxy card and the proxy card does not specify how your shares are to be voted, your shares will be voted in accordance with the recommendations of the Board, including FOR the election of each of the nominees for director (Proposal No. 1), FOR the ratification of the appointment of Ernst & Young LLP as the Company's independent registered public accounting
firm for the fiscal year ending December 31, 2017 (Proposal No. 2), FOR the advisory vote to approve the compensation of the Company's named executive officers (Proposal No. 3), ONE YEAR on the advisory vote to approve the frequency of future advisory votes on the compensation of the Company's named executive officers (Proposal No. 4) and FOR the approval of the United Continental Holdings, Inc. 2017 Incentive Compensation Plan (Proposal No. 5).
If you hold your shares in an account at a broker, bank, trust or other nominee, you are considered the "beneficial owner" of shares held in "street name," and you should have received a voting instruction card and voting instructions with these proxy materials from that organization rather than from us. To ensure that your vote is counted, follow the directions set forth on the voting instruction card and the voting instructions that you receive. To vote in person at the Annual Meeting, you must obtain a legal proxy from your broker, bank, trust or other nominee. Follow the instructions from your broker, bank, trust or other nominee included with the proxy materials, or contact your broker, bank, trust or other nominee to request a legal proxy.
If you hold shares in an account under the United Airlines 401(k) Savings Plan or the United Airlines Flight Attendant 401(k) Plan (each a "Plan," and collectively, the "United 401(k) Plans"), Computershare is sending you the Company's proxy materials directly, including the voting instruction card. You may direct the trustee of the United 401(k) Plans, Evercore Trust Company, N.A., on how to vote your Plan shares by directing the voting of your Plan shares by Internet, telephone or mail pursuant to the instructions included on the proxy card. Please note that, in order to permit the trustee for the United 401(k) Plans to tally and vote all of the shares of Common Stock held in the United 401(k) Plans, your instructions, whether by Internet, telephone or proxy card, must be completed and received prior to 5:00 a.m., Central Time, on Monday, May 22, 2017. You may not change your vote related to such Plan shares after this deadline.
If you do not provide voting instructions to the trustee, your Plan shares will be voted by the trustee in the same proportion that it votes shares in other Plan accounts for which it did receive timely voting instructions. The proportional voting policy is detailed under the terms of each Plan and trust agreement.
If you receive more than one set of proxy materials, your shares are registered in more than one name or are registered in different accounts. In order to vote all of the shares that you own, you must either sign and return all of the proxy cards or follow the instructions for any alternative voting procedure on each of the proxy cards that you receive.
Representatives of Computershare will tabulate the votes and act as Inspector of Election at the Annual Meeting.
A quorum is necessary for conducting a valid Annual Meeting. The presence in person or represented by proxy of the holders of outstanding shares representing at least a majority of the total voting power entitled to vote at the Annual Meeting is necessary to constitute a quorum at the Annual Meeting. Where a separate vote of a class or series of stock is required, the presence in person or represented by proxy of the holders of outstanding shares representing at least a majority of the total
voting power of all outstanding shares of such class or series is necessary to constitute a quorum thereof entitled to take action with respect to such separate vote.
Under the rules of the New York Stock Exchange ("NYSE"), brokers, banks, trusts or other nominees holding shares on behalf of a beneficial owner may vote those shares in their discretion on certain "routine" matters even if they do not receive timely voting instructions from the beneficial owner. With respect to "non-routine" matters, the broker, bank, trust or other nominee is not permitted to vote shares for a beneficial owner without timely received voting instructions.
A broker non-vote occurs when a beneficial owner of shares held by a broker, bank, trust or other nominee fails to provide the record holder with specific instructions concerning how to vote on any "non-routine" matters brought to a vote at a stockholders meeting. At the Annual Meeting, brokers will have discretionary authority to vote shares on the ratification of the appointment of the independent registered public accounting firm (Proposal No. 2), which is the only "routine" matter presented at the Annual Meeting. If brokers exercise this discretionary voting authority on Proposal No. 2, such shares will be considered present at the Annual Meeting for quorum purposes and broker non-votes will occur as to each of the other proposals presented at the Annual Meeting (Proposal Nos. 1, 3, 4 and 5), which are considered "non-routine."
Abstentions are counted for purposes of determining whether a quorum is present. Abstentions will have the effect of a vote against the matters presented for a vote of the stockholders, other than the election of directors and the advisory vote to approve the frequency of future advisory votes on the compensation of the Company's named executive officers. Abstentions have no effect with respect to the election of directors or the advisory vote to approve the frequency of future advisory votes on the compensation of the Company's named executive officers (Proposal Nos. 1 and 4).
As explained above under "What are 'broker non-votes'?," if brokers exercise their discretionary voting authority on Proposal No. 2, such shares will be considered present at the meeting for quorum purposes and broker non-votes will occur as to each of the other proposals presented at the meeting (Proposal Nos. 1, 3, 4 and 5), which are considered "non-routine." Broker non-votes will have no impact on the voting results on the election of directors (Proposal No. 1), the advisory vote to approve the compensation of the Company's named executive officers (Proposal No. 3), the advisory vote to approve the frequency of future advisory votes on the compensation of the Company's named executive officers (Proposal No. 4) and the approval of the United Continental Holdings, Inc. 2017 Incentive Compensation Plan (Proposal No. 5).
If you are a beneficial owner of shares held by a broker, bank, trust or other nominee holding shares on your behalf, we urge you to submit your voting instructions to your broker, bank, trust or other nominee in advance of the Annual Meeting. Please see "How do I vote if I hold my shares through an account at a broker, bank, trust or other nominee?" above for a discussion of the procedures.
The holders of Common Stock, Class Pilot MEC Junior Preferred Stock and Class IAM Junior Preferred Stock will vote together as a single class on all proposals presented at the Annual Meeting other than the election of directors (Proposal No. 1).
Election of Directors (Proposal No. 1)
Each director will be elected by vote of a majority of the votes cast with respect to that director's election in person or represented by proxy and entitled to vote on the election of directors. "Majority of the votes cast" means that the number of shares voted FOR a director exceeds the number of shares voted AGAINST that director (with abstentions and broker non-votes not counted as a vote cast either FOR or AGAINST that director's election). Any incumbent director who is not reelected in an election in which majority voting applies is required to tender his or her resignation promptly following certification of the stockholders' vote. The Nominating/Governance Committee will then consider the tendered resignation and recommend to the Board whether to accept or reject the resignation offer, or whether other action should be taken. The Board is expected to act on the recommendation within 120 days following certification of the stockholders' vote and will promptly disclose its decision regarding whether to accept the director's resignation offer. The director who tenders his or her resignation will not participate in the recommendation of the Nominating/Governance Committee or the decision of the Board with respect to his or her resignation.
Proposal Nos. 2, 3 and 5
The affirmative vote of a majority in voting power of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the matter will be required to approve the ratification of the appointment of the independent registered public accounting firm (Proposal No. 2), the advisory vote to approve the compensation of the Company's named executive officers (Proposal No. 3) and the approval of the United Continental Holdings, Inc. 2017 Incentive Compensation Plan (Proposal No. 5).
The option of one year, two years or three years that receives the highest number of votes cast by stockholders will be considered by the Board as the stockholders' recommendation as to the frequency of future advisory votes on the compensation of the Company's named executive officers.
If you vote using the Internet or telephone procedures specified in the proxy card, or your proxy card 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 (or if there are no such instructions, then in accordance with the recommendation of the Board).
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 Annual Meeting with the vote of the stockholders then present.
Any proxy may be revoked by the person giving it at any time before it is voted (except as discussed above with respect to shares held in a United 401(k) Plan account). A proxy may be revoked by a later proxy delivered using the Internet or telephone voting procedures or by written notice mailed to the Secretary prior to the Annual Meeting. If you hold your shares through a broker, bank, trust or other nominee, 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 who is in attendance and entitled to vote at the Annual Meeting may request a ballot and vote in person, which revokes a previously granted proxy.
Proxies are being solicited by the Board 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. 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. In addition to mailed proxy materials and proxy materials available over the Internet, our directors, officers and employees may also solicit proxies in person, by telephone or by other means of communication. These individuals will not be additionally compensated, but may be reimbursed for out-of-pocket expenses associated with solicitation. To help assure the presence in person or representation by proxy of the largest number of stockholders possible, we have engaged Georgeson LLC ("Georgeson"), a proxy solicitation firm, to solicit proxies on our behalf. We are paying Georgeson a proxy solicitation fee of $13,500 plus reimbursement for reasonable out-of pocket costs and expenses.
Admittance is limited to stockholders of the Company. The following procedures have been adopted to ensure that the Company's stockholders can check in efficiently when entering the Annual Meeting.
If you are a stockholder of record on March 29, 2017 (the record date), you (or your duly appointed proxy holder) are entitled to attend the Annual Meeting. If you are a stockholder of record or you own shares through a Plan, there is an admission ticket located on your proxy card. You will be asked to present the admission ticket and valid picture identification to obtain admittance to the Annual Meeting.
If you are a record holder (or a record holder's duly appointed proxy) and you do not bring an admission ticket with you to the Annual Meeting, you will be admitted upon verification of ownership at the stockholders' registration desk. Please be prepared to present valid picture identification.
If you are a beneficial owner of Common Stock as of March 29, 2017, you may obtain admittance at the stockholders' registration desk by presenting evidence of your Common Stock ownership. This evidence could be a legal proxy from the institution that is the record holder of your shares, or your most recent account statement from your broker, bank, trust or other nominee that includes the record date, along with valid picture identification. Please note that in order to vote at the Annual Meeting, beneficial owners must present the legal proxy from the record holder.
The Nominating/Governance Committee has recommended to the Board, and the Board has unanimously nominated, the individuals named below for election as directors at the Annual Meeting to hold office until the next annual meeting of stockholders, until their successors are elected and qualified, or until their earlier death, resignation or removal. Each of the nominees currently serves as a director of the Company. There is no family relationship between any of the nominees or between any nominee and any executive officer of the Company.
Shares represented by executed proxy cards will be voted, except where directed otherwise, FOR the election of the 13 nominees. In the event that any nominee is unable to serve or for good cause will not serve, such shares will be voted FOR the election of such substitute nominee as the Board may propose. Each of the nominees has agreed to serve if elected, and management has no reason to believe that any of the nominees will be unable to serve.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES NAMED BELOW, WHICH IS DESIGNATED AS PROPOSAL NO. 1.
Set forth on the following pages is biographical and other information about each nominee for election as a director. This information includes, but is not limited to, the business experience and directorships on the boards of public companies and registered investment companies held by each nominee during at least the past five years. This information also includes a discussion of the specific experience, qualifications, attributes and skills of each nominee that led to the Board's determination that such nominee is qualified and should serve as a director.
In addition to the information presented below regarding each nominee's specific experience, qualifications, attributes and skills, the Board believes that all of the nominees have demonstrated certain common attributes that the Board would generally expect any director nominee to possess. Those common attributes include an appropriate level of business, government or professional acumen, the capacity for strategic and critical thinking, leadership capabilities, a reputation for integrity and ethical conduct, and an ability to work collaboratively. Please see "Corporate GovernanceNominations for Directors" below for further discussion of the criteria considered by the Nominating/Governance Committee when identifying director nominees.
Thirteen directors are to be elected by the holders of Common Stock. Each current director has served continuously since the date of his or her appointment. On April 19, 2016, the Company entered into an agreement (the "Settlement Agreement") with PAR Capital Management, Inc. ("PAR"), Altimeter Capital Management, LP ("Altimeter") and the other signatories listed on the signature page thereto, pursuant to which the Company, Altimeter and PAR settled a proxy contest for the election of directors. Pursuant to the Settlement Agreement, Edward M. Philip has been nominated for election at the Annual Meeting.
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 THE FOLLOWING DIRECTORS.
Each nominee was previously elected or appointed by the holder of the applicable class of our preferred stock and has served continuously as a director since the date of his 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.
ALPA DirectorElected by the Holder of Class Pilot MEC Junior Preferred Stock
One director (the "ALPA director") is to be elected by the United Airlines Pilots Master Executive Council of ALPA (the "ALPA MEC"), the holder of our Class Pilot MEC Junior Preferred Stock. The
ALPA MEC has nominated and intends to elect Todd M. Insler as the ALPA director. The Board has recommended that the ALPA MEC vote FOR Mr. Insler.
IAM DirectorElected by the Holder of Class IAM Junior Preferred Stock
One director (the "IAM director") is to be elected by the IAM, the holder of our Class IAM Junior Preferred Stock. The IAM has nominated and intends to elect Sito Pantoja as the IAM director. The Board has recommended that the IAM vote FOR Mr. Pantoja.
We are committed to high standards of corporate governance and to conducting our business ethically and with integrity and professionalism. In furtherance of these commitments, the Board has adopted Corporate Governance Guidelines developed and recommended by the Nominating/Governance Committee, which are available on the Company's website, ir.united.com, by following the link "Corporate Governance" and selecting "Corporate Governance Guidelines."
The Nominating/Governance Committee monitors developments in the laws, regulations and best practices relating to corporate governance and periodically recommends to the Board the adoption of amendments to the Corporate Governance Guidelines to reflect those developments. The current Corporate Governance Guidelines provide for the governance practices described below.
Independence. Our Corporate Governance Guidelines require that a majority of the Board be "independent" under the criteria for independence established by the NYSE, and the Board has adopted categorical standards to assist it in determining whether a director has any direct or indirect material relationship with the Company. Please see "Director Independence" below for a discussion of the Board's independence determinations.
Limitation on Board Service. None of our directors is permitted to serve on the board of directors of more than four other public companies. In addition, no director who is an active chief executive officer or the equivalent of another public company is permitted to serve on the boards of more than two other public companies. No member of the Company's management is permitted to serve on the board of directors of another company if an independent director of the Company serves as the chairman, chief executive officer or president of such other company.
Mr. Nuti and Mr. Whitehurst each serve as chief executive officers of public companies while serving on a total of three public company boards, including our Board. In considering the re-nomination of Mr. Nuti and Mr. Whitehurst, the Nominating/Governance Committee considered the outside positions of each director together with their contributions to our Board and their other business and professional commitments to ensure that each director had sufficient capacity to serve on our Board. Mr. Nuti serves on only one committee of each of his outside boards: the executive committee of NCR Corporation and the human resources committee of Coach, Inc. Mr. Whitehurst serves on only one outside board committee: the compensation committee of SecureWorks Corp. In addition, SecureWorks Corp. is a "controlled company" under Nasdaq listing standards. Michael S. Dell serves as Chairman of the Board of SecureWorks Corp., and benefically owns approximately 87% of its outstanding shares of common stock (according to a Schedule 13G filed with the SEC on February 2, 2017). Neither of Mr. Nuti or Mr. Whitehurst serves on the boards of any privately held companies.
Also, as described further under the heading "Directors to be Elected by the Holders of Common Stock," each of Mr. Nuti and Mr. Whitehurst continues to bring valuable experience and expertise to our Board, which is enhanced by their outside director positions. Mr. Nuti provides the Board with valuable expertise in management, finance and technology, developed during his years of service in the technology industry. Mr. Whitehurst provides valuable business expertise in addition to airline industry knowledge to the Board. Mr. Whitehurst spent six years at Delta, where he managed airline operations and drove significant international expansion as Chief Operating Officer.
After such consideration, the Nominating/Governance Committee determined that each of Mr. Nuti and Mr. Whitehurst continues to be a valuable member of our Board with sufficient capacity to devote the necessary time and attention to matters concerning our Board.
Retirement Age for Directors. No candidate is eligible for election or reelection as a director if at the time of such election he or she is 75 or more years of age, unless the Board affirmatively determines otherwise.
Changes in Business or Professional Affiliations or Responsibilities. If a director experiences a substantial change in his or her principal business or professional affiliations or responsibilities from the time such individual was first elected to the Board, the director is required to volunteer to resign from the Board. The Board, through the Nominating/Governance Committee (excluding the director who volunteered to resign, if a member of the Nominating/Governance Committee), will have the opportunity to review the continued appropriateness of the director's Board membership under the particular circumstances, and shall determine whether to accept such resignation.
Conflicts of Interest. Our Corporate Governance Guidelines require any director with a potential conflict of interest to disclose the matter to the Chairman of the Board and the Lead Director (if appointed at the time, as defined below) before any decision is made related to the matter. If the Chairman of the Board and the Lead Director, in consultation with legal counsel, determine that a conflict exists, or that the perception of a conflict is likely to be significant, then the director is obligated to recuse himself or herself from any discussion or vote related to the matter.
Lead Director. Pursuant to our Corporate Governance Guidelines, in the event that the Chairman of the Board is not an independent director, the independent directors may designate a lead director from among the independent directors (the "Lead Director"). If the independent directors do not designate a Lead Director, then the Chairman of the Nominating/Governance Committee will become the Lead Director on an ex officio basis. The Lead Director's responsibilities include, but are not limited to, the following: consulting with the Chairman of the Board to determine the agenda for Board meetings; presiding at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent directors; serving as liaison between the Chairman of the Board and the independent directors; approving information sent to the Board; approving meeting agendas for the Board; approving meeting schedules to assure that there is sufficient time for discussion of all agenda items; having the authority to call meetings of the independent directors; coordinating the agenda for moderating sessions of the Board's independent directors; assisting the Board in assuring compliance with and implementation of the Corporate Governance Guidelines; and, if requested by major stockholders, ensuring that he or she is available for consultation and direct communication.
Annual Performance Evaluation of the Board. The Nominating/Governance Committee develops, recommends to the Board and coordinates the annual performance evaluation of the Board to determine whether the Board is functioning effectively and meeting its objectives and goals. Each of the Audit Committee, Compensation Committee, Executive Committee, Finance Committee, Nominating/Governance Committee and the Public Responsibility Committee separately perform annual self-evaluations. The collective evaluation results are reported by the committee chair to the full committee for discussion. In addition, the Nominating/Governance Committee periodically performs an evaluation of each director's individual performance.
Annual Meeting Attendance. Our directors are expected to attend each annual meeting of stockholders absent exceptional reasons. All of our directors then in office at the time attended the 2016 annual meeting of stockholders.
In addition to those practices established by our Corporate Governance Guidelines, our Amended and Restated Bylaws (the "Bylaws"), the charters of the Board committees and our other Company policies provide for the following significant corporate governance practices:
In connection with the annual determination of director independence, the Board has adopted the following categorical standards as part of the Company's Corporate Governance Guidelines to assist the Board in determining whether a director has any direct or indirect material relationship with the Company.
Under the categorical standards adopted by the Board, a director is not independent if:
Company for property or services in an amount which, in any of the last three fiscal years, exceeded the greater of $1,000,000 or two percent (2%) of such other company's consolidated gross revenues.
The Board has also considered the purchase of the Company's air carrier services in the ordinary course by the employer of any director who is actively employed, and has determined that such purchases are immaterial in amount and significance, and therefore do not preclude a finding of independence for such director.
For purposes of these categorical standards, (i) an "immediate family member" of a director includes a director's 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 director's home, and (ii) the "Company" means United Continental Holdings, Inc. and its direct and indirect subsidiaries.
In connection with the determination of director independence, the Nominating/Governance Committee reviewed the categorical standards adopted by the Board together with the rules of the NYSE and other applicable legal requirements. The Nominating/Governance Committee also reviewed information compiled from the responses to questionnaires completed by each of the directors, information derived from the Company's corporate and financial records and information available from public records.
Consistent with the recommendation of the Nominating/Governance Committee, the Board has applied these independence tests and standards to each of the current directors and nominees for director. The Board made a determination that: (i) each of Mmes. Corvi and Garvey, and Messrs. Harford, Isaacson, Kennedy, Milton, Nuti, Philip, Shapiro, Simmons, Vitale, and Whitehurst qualify as "independent" under the applicable independence tests and standards; and (ii) Messrs. Munoz, Insler and Pantoja do not qualify as "independent" under the applicable tests and standards. Mr. Munoz is not independent as he is an executive officer and employee of the Company. Mr. Insler is not independent because he is a current employee of United Airlines. Mr. Pantoja is not independent because he is affiliated with the IAM, a union that represents certain of the Company's employees. Please see "Proposal No. 1 Election of Directors" above for a list of all nominees, together with biographical summaries for the nominees, including each individual's business experience, directorships and qualifications.
In addition, three directors who retired from the Board in 2016 but served on the Board for part of 2016, Mr. Henry L. Meyer, III, Mr. John H. Walker and Mr. Charles A. Yamarone, qualified as "independent" under the applicable tests and standards. Two directors who have departed the Company but served on the Board during 2016, Mr. Richard A. Delaney and Mr. James J. Heppner, did not qualify as "independent" under the applicable tests and standards. Mr. Delaney was not independent because he was employed by United Airlines during the last three years. Mr. Heppner was not independent because he was, and still is, an employee of United Airlines.
The Bylaws and the Corporate Governance Guidelines provide that directors will be elected by a majority vote in uncontested elections and a plurality vote in contested elections. When a majority vote standard applies, the Corporate Governance Guidelines require any incumbent director who fails to receive a majority of the votes cast in an uncontested election to immediately tender his or her resignation to the Board. The Nominating/Governance Committee will consider the tendered resignation, and recommend to the Board whether to accept or reject the resignation offer, or whether other action should be taken. The Board will act on the recommendation of the Nominating/Governance Committee, and promptly disclose, through a press release, a Current Report on
Form 8-K, or other means of public disclosure deemed appropriate, its decision regarding whether to accept the director's resignation offer.
The Board meets regularly on previously determined dates, and special meetings are scheduled when required. The Board held 16 meetings in 2016. During 2016, each of the directors who served in 2016 attended at least 75% of the total number of meetings of the Board and each committee of which he or she was a member (during the period he or she was a member). As indicated above under "Corporate Governance GuidelinesAnnual Meeting Attendance," our directors are also expected to attend each annual meeting of stockholders absent exceptional reasons.
Our non-management directors regularly meet separately in executive session outside the presence of management directors. Our Corporate Governance Guidelines currently provide that the independent Chairman of the Board or Lead Director (in the event the Chairman of the Board is not independent) preside over non-management director executive sessions. In addition, our Corporate Governance Guidelines require our independent directors to meet outside the presence of management and the other directors at least twice per year, with the independent Chairman or Lead Director, as applicable, also presiding over such sessions.
The Board has the responsibility for selecting the appropriate leadership structure for the Company. Our Corporate Governance Guidelines state that the offices of the Chairman of the Board and Chief Executive Officer may be either combined or separated, in the Board's discretion.
The Board is currently led by an independent Chairman, Mr. Milton. The Board believes that separating the roles of Chief Executive Officer and Chairman of the Board is the most appropriate structure at this time. Having an independent Chairman of the Board is a means to ensure that Mr. Munoz is able to more exclusively focus on his role as Chief Executive Officer. The Board also believes that an independent Chairman of the Board can effectively manage the relationship between the Board and the Chief Executive Officer.
The Board considers effective risk oversight an important priority. As we consider risks in connection with virtually every business decision, the Board discusses risk throughout the year generally and in connection with specific proposed actions. The Board's approach to risk oversight includes understanding the critical risks in the Company's business and strategy, evaluating the Company's risk management processes, allocating responsibilities for risk oversight among the full Board and its committees, and fostering an appropriate culture of integrity and compliance with legal and ethical responsibilities.
The Board exercises its oversight of our risk management policies and practices primarily through its committees, as described below, which regularly report back to the Board regarding their risk oversight activities.
network security. The Audit Committee also oversees the internal audit function and the Company's ethics and compliance program.
While the Board oversees risk management, the Company's management is charged with identifying and managing the risks. The Company has robust internal processes and a strong internal control environment to identify and manage risks and to communicate with the Board about these risks. These include an enterprise risk management program, an enterprise risk management committee, an ethics and compliance program, and comprehensive internal and external audit processes. The Board receives periodic reports on each of these aspects of the Company's risk
management process. In addition, the Board, through the Audit and Finance Committees, participates in the enterprise risk management process by providing feedback on management's identification and assessment of the key risks facing the Company.
Stockholders and other interested parties may contact the Board as a whole, or any individual member, including the Chairman or the non-management or independent directors as a group, by one of the following means: (i) writing to the Board of Directors, United Continental Holdings, Inc., c/o the Corporate Secretary's Office233 S. Wacker Drive, Chicago, Illinois 60606; or (ii) emailing the Board at UALBoard@united.com.
Stockholders may communicate with the Board on an anonymous or confidential basis. The Board has designated the General Counsel and the Corporate Secretary's Office as its agents for receipt of communications. All communications will be received, processed and initially reviewed by the Corporate Secretary's Office. The Corporate Secretary's 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 inquiries, opinion surveys and business solicitations. The Corporate Secretary's Office maintains all communications and they are all available for review by any member of the Board at his or her request.
The Chairman of the Audit Committee is promptly advised of any communication that alleges management misconduct or raises legal, ethical or compliance concerns about Company policies and practices. The Chairman of the Audit Committee receives periodic updates from the Corporate Secretary's Office on other communications from stockholders and determines which of these communications to review, respond to, or refer to another member of the Board.
The Company has adopted a code of ethics, the "Code of Ethics and Business Conduct," for directors, officers (including the Company's principal executive officer, principal financial officer and principal accounting officer), employees and third-party representatives such as contractors, consultants and agents of the Company and its subsidiaries. The code serves as a "Code of Ethics" as defined by SEC regulations, and as a "Code of Business Conduct and Ethics" under the Listed Company Manual of the NYSE. The code is available on the Company's website, ir.united.com, by following the link "Corporate Governance" and selecting "Code of Ethics and Business Conduct."
As described below, our Nominating/Governance Committee identifies and recommends for nomination individuals qualified to be Board members, other than directors elected by holders of preferred stock of the Company (the ALPA director and the IAM director). The Nominating/Governance Committee identifies directors through a variety of means, including suggestions from members of the Nominating/Governance Committee and the Board, as well as suggestions from Company officers, employees, stockholders and others. The Nominating/Governance Committee may retain a search firm to identify director candidates (other than those elected by holders of preferred stock of the Company). The Nominating/Governance Committee has retained Spencer Stuart, an executive search and leadership consulting firm, to assist with identifying potential director candidates. In addition, the Nominating/Governance Committee considers candidates for director positions suggested by stockholders. Pursuant to the Settlement Agreement, in April 2016, the Board appointed two new directors, Messrs. Harford and Shapiro, to the Board and, in July 2016, the Board appointed a third new mutually agreed independent director, Mr. Philip, to the Board. Under the terms of the Settlement Agreement, the Board has nominated Mr. Philip for election at the Annual Meeting.
Holders of Common Stock may submit director candidates for consideration (other than those elected by holders of preferred stock of the Company) by writing to the Chairman of the Nominating/Governance Committee, United Continental Holdings, Inc., c/o the Corporate Secretary's Office233 S. Wacker Drive, Chicago, Illinois 60606. Stockholders must provide the recommended candidate's name, biographical data, qualifications and other information required by Section 2.10 of the Bylaws with respect to director nominations by stockholders.
A candidate for election as a director of the Board (other than those elected by holders of preferred stock of the Company) should possess a variety of characteristics. Candidates for director recommended by stockholders must be able to fulfill the independence standards established by the Board as set forth in the listing standards of the NYSE, any other applicable rules or regulations, and in the Company's Corporate Governance Guidelines as outlined above under "Director Independence."
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 Nominating/Governance Committee reviews the qualifications of each candidate and makes a recommendation to the full Board. The Nominating/Governance 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. Any invitation to join the Board (other than with respect to any director who is elected by holders 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.
In addition to recommending director candidates to the Nominating/Governance Committee, stockholders may also, pursuant to procedures established in the Bylaws, directly nominate one or more director candidates to stand for election at an annual or special meeting of stockholders. For an annual meeting of stockholders, a stockholder wishing to make such a nomination must deliver written notice of the proposed nomination to the Secretary of the Company not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders. For a special meeting of stockholders, a stockholder wishing to make such a nomination must deliver written notice of the nomination to the Secretary of the Company not earlier than 120 days prior to the date of such special meeting and not later than the close of business on the later of: (x) 90 days prior to the date of such special meeting; and (y) 10 days following the day on which public announcement is first made of the date of such special meeting. In either case, a notice of nomination submitted by a stockholder must include information concerning the nominating stockholder and the stockholder's nominee(s) as required by the Bylaws.
In accordance with the Bylaws, stockholders may also submit director nominees to the Board to be included in the Company's annual proxy statement, known as "proxy access." Stockholders who intend to submit director nominees for inclusion in the Company's proxy materials for the 2018 annual meeting of stockholders must comply with the requirements of proxy access as set forth in the Bylaws. The stockholder or group of stockholders who wish to submit director nominees pursuant to proxy access must deliver the required materials to the Company not less than 120 days nor more than 150 days prior to the anniversary of the date that the Company first mailed its proxy materials for the annual meeting of the previous year.
Although the Company does not have a formal policy on Board diversity, the Board seeks independent directors with 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 he or she can make to the Board and upon his or her willingness to devote adequate time and effort to Board responsibilities. In making this assessment, the Nominating/Governance 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 is eligible for election or reelection as a director if at the time of such election he or she is 75 or more years of age, unless the Board affirmatively determines otherwise.
The Board has six standing committees: Audit, Compensation, Executive, Finance, Nominating/Governance and Public Responsibility. The Audit Committee, Compensation Committee and Nominating/Governance Committee are comprised solely of independent directors. Below is a chart showing the current membership of each committee and a summary of the functions performed by each committee.
The Audit Committee met eight times during 2016 and has a written charter adopted by the Board, which is available on the Company's website, ir.united.com, by following the link "Corporate Governance" and selecting "Audit" under the heading "Governance Documents." All of the members of the Audit Committee are independent as defined by the applicable NYSE and SEC standards. The Board has determined that each of the Audit Committee members is financially literate, and that each of Messrs. Philip and Vitale qualifies as an "audit committee financial expert" as defined by SEC regulations.
The purpose of the Audit Committee is to: (i) oversee the accounting and financial reporting processes of the Company and the audits of the Company's financial statements; (ii) assist the Board in fulfilling its responsibility to oversee: (a) the integrity of the Company's financial statements and the adequacy of the Company's system of disclosure controls and internal controls over financial reporting; (b) the Company's compliance with legal and regulatory requirements and ethical standards; (c) the independent auditors' qualifications and independence; and (d) the performance of the Company's internal audit function and independent auditors; (iii) provide an open avenue of communication
between the independent auditors, the internal auditors, management and the Board; and (iv) prepare an audit committee report as required by the SEC, which is set forth in this proxy statement under "Audit Committee Report."
In discharging its duties, the Audit Committee has the authority to conduct or authorize investigations or studies into any matters within the Audit Committee's scope of responsibilities. The Audit Committee can form and delegate authority to subcommittees. It also has the authority, without further Board approval, to obtain, at the expense of the Company, advice and assistance from internal or external legal, accounting or other advisers as it deems advisable.
The Compensation Committee met 12 times during 2016 and has a written charter adopted by the Board, which is available on the Company's website, ir.united.com, by following the link "Corporate Governance" and selecting "Compensation" under the heading "Governance Documents." All of the members of the Compensation Committee are independent as defined by the NYSE's applicable listing standards.
The Compensation Committee is responsible for, among other things: (i) overseeing the administration of the Company's compensation plans (other than plans covering only directors of the Company), including the equity-based plans and executive compensation programs of the Company; (ii) discharging the Board's responsibilities relating to the performance evaluation and compensation of the Company's officers, including the Company's Chief Executive Officer; and (iii) preparing the compensation committee report required by the SEC to be included in the annual proxy statement, which is set forth in this proxy statement under "Executive CompensationCompensation Committee Report." The Compensation Committee also is responsible for reviewing and discussing with management the Compensation Discussion and Analysis ("CD&A"), and based on such discussions, determining whether to recommend to the Board that the CD&A be included in the Company's annual proxy statement or Form 10-K, as applicable. The Compensation Committee also reviews and makes recommendations to the Board with respect to the adoption (or submission to stockholders for approval) or amendment of such executive incentive compensation plans and all equity-based compensation plans for the Company (other than equity-based plans covering only directors of the Company). Furthermore, the Compensation Committee 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 Compensation Committee performs a review, at least annually, of the goals and objectives of the Company and establishes the goals and objectives for the Chief Executive Officer. In addition, the Compensation Committee annually evaluates the performance of the Chief Executive Officer, including evaluating the Chief Executive Officer's performance in light of the goals and objectives relevant to his compensation and discusses that evaluation with the Board. The Compensation Committee has the sole authority to set the Chief Executive Officer's compensation based on this evaluation and the Company's compensation philosophy. The Compensation Committee also reviews and approves at least annually the compensation of each other executive officer of the Company. In addition to the Chief Executive Officer, the Compensation Committee oversees the annual performance evaluation process of the other executive officers of the Company.
The Compensation Committee has delegated to the Chief Executive Officer the authority to grant stock awards to eligible participants (other than executive officers of the Company), the interpretative authority under the Company's incentive compensation plans for interpretations and determinations relating to the grant of stock awards to such eligible participants and the modification of the terms of such a participant's award following termination of employment. Additionally, the Chief Executive Officer makes recommendations to the Compensation Committee regarding the compensation of the
officers who report directly to him. His recommendations are based on input from the Executive Vice President Human Resources and Labor Relations and his staff, and the Compensation Committee's independent compensation consultant. The Compensation Committee has the authority to review, approve and revise these recommendations as it deems appropriate.
The Compensation Committee has the authority, in its sole discretion, to retain or obtain the advice of a compensation consultant, independent legal counsel or other adviser (each, a "compensation adviser"). The Compensation Committee may select a compensation adviser, to the extent required by applicable NYSE rules, only after taking into consideration all factors relevant to the compensation adviser's independence from management, including the factors specified by NYSE rules. The Compensation Committee is directly responsible for the appointment, compensation and oversight of the work of any compensation adviser retained by the Compensation Committee. It also has the authority, without further Board approval, to obtain, at the expense of the Company, advice and assistance from internal and external legal, accounting or other advisers as it deems advisable. The Compensation Committee is responsible for determining the scope of the executive compensation services provided by any consultant, including its fees. The Compensation Committee can also form and delegate authority to subcommittees.
Role of Compensation Consultant in Determining Executive Compensation
The Compensation Committee has retained Exequity LLP ("Exequity") as its independent compensation consultant since November 2010. A representative of Exequity regularly attends Compensation Committee meetings, participates in discussions regarding executive compensation issues, and, from time to time and in connection with the setting of incentive compensation targets, makes executive compensation recommendations to the Compensation Committee based on available marketplace compensation data for U.S. peer airlines and certain non-airline companies with comparable revenue and other characteristics. Exequity reports exclusively to the Compensation Committee and does not provide any additional services to the Company other than advice to the Nominating/Governance Committee with respect to director compensation.
In November 2010, the Compensation Committee adopted a conflict of interest policy governing the relationship with its compensation consultant in order to ensure objectivity and minimize the potential for conflicts of interest in the delivery of executive compensation advice. The policy establishes management's obligation to report periodically to the Compensation Committee the scope and amount of work being performed by the consultant or its affiliates for the Company. The policy also specifies that the consultant reports directly to the Compensation Committee and has direct access to the Compensation Committee through its Chairman (or in the case of services being provided to the Board, through the Chairman of the Board or, as applicable, the Lead Director). The policy prohibits the consultant from soliciting business from the Company other than work on behalf of the Compensation Committee or the Board and requires the consultant to develop policies and procedures to prevent any employee of the consultant who advises the Compensation Committee or the Board from discussing such services with other employees of the consultant who currently provide other services to the Company or who were providing other services during the prior year. The Compensation Committee has assessed the independence of Exequity pursuant to NYSE rules and concluded that Exequity's work for the Compensation Committee does not raise any conflict of interest.
The Executive Committee met 18 times during 2016 and has a written charter adopted by the Board, which is available on the Company's website, ir.united.com, by following the link "Corporate Governance" and selecting "Executive" under the heading "Governance Documents." The Executive Committee is authorized to exercise all of the powers of the Board, subject to certain limitations, 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 Executive Committee can also form and delegate authority to subcommittees.
The Finance Committee met six times during 2016 and has a written charter adopted by the Board, which is available on the Company's website, ir.united.com, by following the link "Corporate Governance" and selecting "Finance" under the heading "Governance Documents." The Finance Committee is responsible for, among other things: (i) reviewing financial plans and budgets and cash management policies and activities; (ii) evaluating and advising the Board on any proposed merger or consolidation, or any significant acquisition or disposition of assets; (iii) evaluating and advising the Board on business opportunities and financing transactions; (iv) evaluating capital structure and recommending certain proposed issuances of securities; and (v) reviewing strategies relating to financial, operating or economic risk. The Finance Committee can also form and delegate authority to subcommittees.
The Nominating/Governance Committee met 22 times during 2016 and has a written charter adopted by the Board, which is available on the Company's website, ir.united.com, by following the link "Corporate Governance" and selecting "Nominating/Governance" under the heading "Governance Documents." All of the members of the Nominating/Governance Committee are independent as defined by the NYSE's applicable listing standards.
The Nominating/Governance Committee is responsible for, among other things: (i) identifying, evaluating and recommending for nomination individuals qualified to be Board members, other than directors appointed by holders of preferred stock of the Company; (ii) developing, recommending and periodically reviewing the Company's Corporate Governance Guidelines and overseeing corporate governance matters; (iii) reviewing and overseeing the Company's succession planning process for executive officers, including the Chief Executive Officer; (iv) overseeing an annual evaluation of the Board; and (v) reviewing and making recommendations to the Board 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 Nominating/Governance Committee's scope of responsibilities. The Nominating/Governance Committee can form and delegate authority to subcommittees.
The Nominating/Governance 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 firm's fees and other terms of engagement. It also has the authority, without further Board approval, to obtain, at the expense of the Company, advice and assistance from internal or external legal, accounting or other advisers as it deems advisable.
The Public Responsibility Committee met four times during 2016 and has a written charter adopted by the Board, which is available on the Company's website, ir.united.com, by following the link "Corporate Governance" and selecting "Public Responsibility" under the heading "Governance Documents."
The Public Responsibility Committee is responsible for oversight of: the Company's policies, positioning and practices concerning various broad public policy issues, including those that relate to safety (including workplace safety and security); environmental affairs; political and governmental affairs; consumer affairs; diversity, including, without limitation, employee diversity and supplier diversity; civic activities and business practices that impact communities in which the Company does
business; and charitable, political, social and educational organizations. The Public Responsibility Committee can also form and delegate authority to subcommittees.
Special Committee and Subcommittee
In addition to the standing board committees, on March 2, 2015, the Board established a Special Committee in respect of the Port Authority matter, which is currently comprised of Mr. Vitale (Chair), Ms. Corvi, Mr. Harford, Mr. Isaacson, Mr. Kennedy, Mr. Milton, Mr. Nuti, Mr. Shapiro, Mr. Simmons and Mr. Whitehurst. As disclosed in the first quarter of 2015, the Company and certain of its current and former executive officers and employees received federal grand jury subpoenas requesting records and testimony related to certain individuals formerly associated with the Port Authority of New York and New Jersey and related operations of the Company. In addition, on March 2, 2015, the Special Committee formed a Subcommittee of the Special Committee, and authorized the Subcommittee to exercise certain authority of the Special Committee with respect to the investigation. The members of the Subcommittee currently are Mr. Vitale (Chair), Ms. Corvi, Mr. Kennedy and Mr. Milton. The Company cooperated with the investigation by the USAO in respect of the Port Authority matter and, as announced on July 14, 2016, the Company reached a resolution in the form of a Non-Prosecution Agreement with the USAO. As announced on December 2, 2016, the Company also resolved the previously disclosed related investigation by the SEC in respect of the Port Authority matter. The Special Committee was delegated oversight responsibility for the internal investigation related to the Port Authority matter, which includes oversight of compliance by the Company with agreements with government authorities.
The Compensation Committee is currently composed of Messrs. Isaacson, Kennedy, Nuti, Shapiro and Whitehurst, each of whom is an independent, non-management director, and no member of the Compensation Committee has ever been an officer or employee of the Company or any of its subsidiaries. None of our executive officers has served as a member of any board of directors or compensation committee of any other company for which any of our directors served as an executive officer at any time since January 1, 2016. In addition, no member of the Compensation Committee had any relationship requiring disclosure under Item 404 of Regulation S-K promulgated by the SEC.
Review, Approval or Ratification of Transactions with Related Parties
The Board recognizes that transactions involving the Company and related parties present a heightened risk of conflicts of interest. In order to ensure that the Company acts in the best interests of its stockholders, the Board has adopted a written policy for the review and approval of any Related Party Transaction (as defined below). It is the policy of the Company that any Related Party Transaction must be approved or ratified by the Audit Committee or, if the Board determines that a transaction should instead be reviewed by all of the disinterested directors on the Board, by a majority of the disinterested directors on the Board. No director is permitted to participate in the review or approval of a Related Party Transaction if such director or his or her immediate family member is a Related Party (as defined below). In reviewing a proposed transaction, the Audit Committee or the disinterested directors, as applicable, must (i) satisfy themselves that they have been fully informed as to the Related Party's relationship and interest and as to the material facts of the proposed transaction, (ii) consider all of the relevant facts and circumstances available to them, including but not limited to: the benefits to the Company, the impact on a director's independence, the availability of other sources for comparable products or services, the terms of the transaction, and the terms available to unrelated third parties or to employees generally, and (iii) determine whether or not the proposed transaction is
fair to the Company and is not inconsistent with the best interests of the Company and its stockholders.
If the Company enters into a transaction that (i) the Company was not aware constituted a Related Party Transaction at the time it was entered into but which it subsequently determines is a Related Party Transaction or (ii) did not constitute a Related Party Transaction at the time such transaction was entered into but thereafter becomes a Related Party Transaction, then in either such case the Related Party Transaction shall be presented for ratification by the Audit Committee or a majority of the disinterested directors on the Board. If such Related Party Transaction is not ratified by the Audit Committee or a majority of the disinterested directors, then the Company shall take all reasonable actions to attempt to terminate the Company's participation in the transaction.
As set forth in the policy, a "Related Party Transaction" is a transaction (including any financial transaction, arrangement or relationship (including an indebtedness or guarantee of indebtedness)), or series of similar transactions, or any material amendment to any such transaction, in which:
For purposes of this definition, a "Related Party" means (i) an executive officer of the Company, (ii) a director of the Company or nominee for director of the Company, (iii) a person (including an entity or group) known to the Company to be the beneficial owner of more than 5% of any class of the Company's voting securities, or (iv) an individual who is an immediate family member (as defined below) of an executive officer, director, nominee for director or 5% stockholder of the Company.
An "immediate family member" includes any child, stepchild, parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of such person, and any person (other than a tenant or employee) sharing such person's home.
The Company has not entered into any Related Party Transactions (as defined above) since January 1, 2016.
The following table shows the number of shares of our voting securities owned by any person or group known to us as of April 14, 2017, 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 the named executive officers identified in this proxy statement (including two executive officers who have departed from the Company), our directors, and all of our directors and executive officers as a group as of April 14, 2017. 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, or as otherwise described in the footnotes following the table.
Also includes 8,000 shares of Common Stock held in a trust for the benefit of Mr. Kirby's children in which Mr. Kirby's brother serves as the trustee. Mr. Kirby disclaims beneficial ownership of these securities.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires our directors, executive officers and holders of more than 10% of our Common Stock to file with the SEC 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 regulations to furnish us with copies of all Section 16(a) forms filed by such reporting persons. Based solely on a review of such reports filed by or on behalf of such persons in this regard and written representations from them, all Section 16(a) reporting requirements were timely fulfilled during 2016.
The following table sets forth information as of December 31, 2016 regarding the number of shares of our Common Stock that may be issued under the Company's equity compensation plans.
shares); Continental Airlines, Inc. Incentive Plan 2000 (23,625 shares); and United Continental Holdings, Inc. Incentive Plan 2010 (the "Incentive Plan 2010") (15,750 shares).
The Incentive Plan 2010 was adopted by the board of directors of Continental in December 2009 and approved by Continental stockholders in 2010, and was assumed by the Company in connection with the Merger on October 1, 2010. Stock options outstanding prior to the Merger that remain outstanding will vest on their original vesting schedule. The Incentive Plan 2010 provides for the grant of non-qualified stock options, incentive stock options, stock appreciation rights ("SARs"), restricted stock awards, performance awards, incentive awards and other stock awards. Employees who were employed by United Air Lines prior to the Merger closing date are not eligible to receive grants of equity-based awards under the Incentive Plan 2010.
The Incentive Plan 2010 is administered by the Compensation Committee with respect to awards made to persons subject to Section 16 of the Exchange Act, and by the Compensation Committee or the Chief Executive Officer with respect to awards made to persons who are not subject to Section 16 of the Exchange Act, unless the Incentive Plan 2010 otherwise specifies that the Compensation Committee will take specific action or the Compensation Committee specifies that it will serve as administrator.
Subject to adjustment for changes in capitalization, the aggregate number of shares which may be granted under the Incentive Plan 2010 is not to exceed 3,937,500 shares (which reflects the adjustment based on the exchange ratio that applied in connection with the Merger). To the extent that an award lapses, is terminated or is forfeited, or an award is paid in cash such that all or some of the shares of Common Stock covered by the award are not issued to the holder, any such forfeited or unissued shares of Common Stock then subject to such award will be added back to the number of shares available for issuance under the Incentive Plan 2010. No awards may be granted under the Incentive Plan 2010 after November 30, 2019. In addition, effective February 23, 2017, and in connection with the adoption of the 2017 Incentive Compensation Plan, the Board terminated the Company's ability to make any new equity award pursuant to the Incentive Plan 2010. See Proposal No. 5 and Appendix B to this proxy statement.
The exercise price for all stock options and SARs under the Incentive Plan 2010 may not be less than the fair market value of a share of Common Stock on the date of grant. Stock options and SARs may not be exercisable after the expiration of 10 years following the date of grant. Performance awards and incentive awards may be granted in the form of restricted stock units or such other form as determined by the plan administrator.
Vesting and exercisability of awards may be based on continued employment, the satisfaction of certain performance measures, such other factors as the administrator may determine or a combination of such factors. Awards granted under the Incentive Plan 2010 that vest based solely on the continued employment of the holder may not become exercisable or vest in full in less than three years from the date of grant, and awards that are based on the satisfaction of performance measures are subject to a minimum waiting period for vesting or exercise of one year from the date of grant. However, awards that have conditions related to both time and performance measures may vest or become exercisable upon the earlier satisfaction of the performance measures, subject to the one-year waiting period. The exercisability and vesting requirements set forth above are not applicable to: (i) acceleration of exercisability or vesting upon the death, disability or retirement of the holder and upon certain other terminations as provided pursuant to any employment agreement entered into prior to December 1, 2009; (ii) acceleration of exercisability or vesting upon a change in control or certain other corporate changes affecting the Company; and (iii) grants of awards made in payment of other earned cash-based incentive compensation. In addition, the plan administrator has the discretion to grant an award that does not contain the minimum exercisability and vesting requirements provided that the aggregate number of shares that may be subject to such awards may not exceed 5% of the aggregate maximum number of shares that may be issued pursuant to the plan.
This proxy statement provides compensation information regarding: (i) each person who served as the Company's principal executive officer during 2016; (ii) each person who served as the Company's principal financial officer during 2016; and (iii) the three other most highly compensated executive officers in 2016 who were serving at year-end, determined in accordance with applicable SEC disclosure rules. This Compensation Discussion and Analysis, or CD&A, section of this proxy statement describes the 2016 compensation elements and decisions related to these "named executive officers" or "NEOs." Our 2016 named executive officers consist of:
Below is a summary of certain 2016 Company highlights, changes in our leadership team that are important for an understanding of our 2016 compensation decisions, key objectives of our compensation philosophy, and our consideration of our prior say-on-pay vote.
Certain 2016 Company Highlights. In 2016, we focused on restoring trust and re-earning the loyalty of our employees and our customers. Below is an explanation of linkages between the Company's 2016 performance and our compensation programs and a discussion of some of our recent initiatives and accomplishments.
made for the performance period that ended December 31, 2016. We continue to focus on improvement in our relative pre-tax margin performance.
Our Leadership Team. As CEO, Mr. Munoz is focused on the core mission of driving our overall strategy, business innovation and financial performance. As the architect of our strategic vision, Mr. Munoz also retains overall supervision and authority over United's performance, including our employee and customer relationships, legal and regulatory strategy, technology programs, and our financial and accounting responsibilities. Prior to becoming CEO in September 2015, Mr. Munoz developed valuable expertise in management, finance, accounting and operations during his more than 25 years of service in key executive positions within the beverage, telecommunications and transportation industries.
During 2016, with input, review and approval of the Committee and the Board, the Company made key adjustments to the executive leadership team. We believe these changes will advance our efforts to become the best airline for employees, customers and investors. In August 2016, Scott Kirby was hired as President of United. Mr. Kirby reports to Mr. Munoz and oversees the execution of United's strategy with regard to operations, marketing, sales, alliances, route planning and revenue management, with an aim to improve operations and strengthen our product revenue and global
network. With over three-decades of experience in the airline industry, we believe that Mr. Kirby has valuable insight into all aspects of the airline business, from operations to customer service to employee development and Company leadership. Mr. Kirby previously served as president of American.
In August 2016, we also welcomed Andrew Levy as Executive Vice President and Chief Financial Officer. Mr. Levy came to United following more than 13 years of leadership at Allegiant Travel Company, a low cost carrier. He brings a comprehensive airline background to United, having held the roles of president, chief operating officer and chief financial officer. We believe that Mr. Levy's experience in both finance and airline operations is valuable as United is reevaluating and redefining all aspects of our business. In August 2016, Julia Haywood, our former Executive Vice President and Chief Commercial Officer, joined United from The Boston Consulting Group ("BCG"). Ms. Haywood was a partner on BCG's revenue network team consulting for United and brought to the Company her expertise in global consumer travel. Upon the appointment of Mr. Kirby, the Company recognized certain leadership expertise redundancies and, following a transition period, Ms. Haywood separated from the Company, effective February 28, 2017. In addition, James Compton, our former Vice Chairman and Chief Revenue Officer retired and separated from the Company, effective December 31, 2016, after providing support for the transition in management and following significant contributions during his years of service and leadership with the Company.
In addition to the above noted leadership changes, our 2016 named executive officer group includes Brett Hart, our Executive Vice President and General Counsel, who served as acting CEO for part of 2016, and Gerry Laderman, our Senior Vice PresidentFinance, Procurement and Treasurer, who served as acting CFO for part of 2016. Their leadership through the transition periods of the CEO and CFO roles was critical to the Company and both officers continue to serve as members of our executive leadership team.
The membership of our Committee also changed in connection with Board committee membership rotations and adjustments that were made in June 2016, with four new Committee members, including a new Committee Chair. Certain elements of the 2016 compensation programs for the named executive officers were approved by the Committee prior to that membership rotation, while compensation terms for the new members of our management team were approved by the current members of the Committee.
Our 2016 CD&A and the related tabular disclosures reflect the 2016 changes in our executive leadership team that are noted above. Many of the items discussed in our CD&A and the related executive compensation disclosures are, however, comparable to our discussions in prior years given that the elements of our annual and long-term compensation programs remain largely similar to those implemented in prior years.
Executive Compensation Philosophy. Our executive compensation philosophy continues to be based on achieving the following objectives:
The 2016 executive compensation programs were designed to directly link compensation opportunities to the financial and operational performance metrics that we believe are appropriate measures of success in our business: annual pre-tax income; long-term pre-tax margin performance improvement relative to our industry peers; ROIC; stock price performance and customer satisfaction (as measured by on-time arrivals). In 2016, we included greater emphasis on individual performance contributions by including an "individual performance modifier" in our Annual Incentive Program. Our
newly appointed officer compensation packages were evaluated based on external market benchmarking with an emphasis on individual duties and responsibilities.
Consideration of Prior Say-on-Pay Vote. A key objective of our executive compensation programs is linking the interests of our executives with the interests of our stockholders, and we place emphasis on maintaining executive compensation programs that address and satisfy the key concerns of our stockholders. Our "say-on-pay" proposal received approximately 97% approval from our stockholders at our 2016 annual meeting. The Committee considers this voting result to be a strong endorsement of our executive pay programs and has not made any changes to the executive compensation programs based on the results of the 2016 say-on-pay vote. The Committee considers stockholder interests and concerns relating to executive pay as it designs our executive compensation programs and implements specific compensation elements that represent what it believes to be best practices. The Committee will continue to consider stockholder feedback, including say-on-pay voting results, as part of its decision-making process.
The compensation opportunities of our executives are directly tied to the performance of the Company as outlined below. The charts below show the allocation of targeted pay across base salary, annual incentives, and long-term incentives as approved for: (i) Mr. Munoz pursuant to his employment agreement and (ii) the remaining named executive officers with respect to their 2016 targeted compensation levels. As reflected in the charts below, the percentages of our named executive officers' target compensation represented by annual and long-term incentives that are linked to Company performance and stock price are as follows: 91% for Mr. Munoz and an average of approximately 81% for our remaining named executive officers.
We believe that the charts above demonstrate our pay-for-performance philosophy as a significant portion of the targeted 2016 compensation opportunities are in the form of variable pay that is directly linked to Company performance and stock price. Specifically:
Our 2016 executive compensation policies and practices include the following features, which we believe illustrate our commitment to corporate governance "best practices" and the principles stated above:
Aligning the interests of our stockholders and executives. The elements of our 2016 executive compensation programs were aligned with the interests of our stockholders by linking our incentive compensation performance metrics to the following key indicators of the Company's financial performance: annual pre-tax income (70% of our 2016 Annual Incentive Program awards); long-term pre-tax margin performance improvement relative to our industry peers; and our level of ROIC achievement. All of the value of our 2016 long-term incentive awards is in the form of either Performance-Based RSUs or restricted share awards, both of which provide a direct link to our stock value.
Furthermore, we believe that our executives should have a meaningful financial stake in our long-term success. As described in greater detail below, the Committee adopted stock ownership guidelines in 2011 that require covered executive officers, including the named executive officers, to maintain a stake in the long-term success of our business. These guidelines were enhanced in February 2017 to increase the target ownership levels and to eliminate counting cash-settled equity awards toward the specified ownership levels. In addition, the Company's Securities Trading Policy prohibits speculative and derivative trading and short selling with respect to our securities by all officers. The policy further prohibits pledging Company securities and hedging transactions with respect to Company securities. We believe these requirements, coupled with our long-term incentive program, effectively align the interests of our executives with those of our stockholders and motivate the creation of long-term stockholder value.
Our broad-based employee incentive opportunities also are designed to further our objective of aligning the interests of our employees with those of our stockholders and customers. Our profit sharing plans provide eligible employees with incentives that are aligned with the interests of our stockholders through payout opportunities based on our annual pre-tax profit. The Company also rewards employees with an aircraft on-time departure and arrival incentive program and a perfect attendance program. Our annual incentive awards to executives also reward our on-time arrival performance, a key driver of customer satisfaction (30% of our 2016 Annual Incentive Program awards). We believe that these programs ensure a focus on operational performance that aligns pay with customer satisfaction, enhances our product, and ultimately drives financial performance.
Linking executive pay to performance. The 2016 awards to our executives are directly tied to the financial performance metrics that we believe are appropriate measures of success in our business: annual pre-tax income; long-term pre-tax margin performance improvement relative to our industry peers; and our absolute ROIC performance. In addition, all of the targeted value of our 2016 long-term incentive awards is tied to our stock price performance. We believe our compensation programs create strong incentives to align our executives' performance to the successful execution of our strategic plan, as well as longer term shareholder value creation.
Attracting, retaining and appropriately rewarding our executives in line with market practices. We seek to attract world-class executives and to retain our existing executives by setting our compensation and benefits at competitive levels relative to companies of similar size, scope and complexity. Because we
believe that our senior executives have skills that are transferrable across industries, and because we recruit for talent both within the airline industry and also from a broad spectrum of leading businesses, we compare the overall compensation levels of our executives with the compensation provided to executives of a benchmarking peer group, as discussed in further detail in "Compensation Process and OversightBenchmarking" below. Compensation decisions are also considered and balanced in light of an executive's responsibility level within the organization.
In prior years, the Committee emphasized internal pay equity as an important factor in setting executive compensation levels. In 2016, the Committee placed greater emphasis on adjusting compensation packages based on market conditions and other factors specific to individual executives. The structure of the 2016 Annual Incentive Program awards was tailored to allow the Committee to provide greater reward opportunity and accountability based on individual performance and contributions to the Company's success through application of an individual performance modifier. Compensation and promotion opportunities also take into account each executive's unique skills and capabilities, long-term leadership potential, performance and historic pay levels, and the overall scope of the executive's responsibilities. With regard to new executives, the Committee has given consideration to compensation at a prior employer, including compensation structure and forfeited compensation.
Compensation Committee Role and Management Participation in Setting Executive Compensation. All 2016 final executive compensation decisions with respect to the named executive officers were made by the Committee, with input from Exequity, the Committee's independent compensation consultant. In 2015, Exequity assisted the Committee in reviewing the CEO compensation package for Mr. Munoz and the supplemental monthly compensation for Messrs. Hart and Laderman in their roles as acting CEO and acting CFO, respectively, which continued into 2016. This review included consideration of Mr. Munoz's compensation at his prior employer, including forfeited compensation and prospective compensation opportunities, and benchmark comparisons related to the Company's peer group. In 2016, Exequity also assisted the Committee in reviewing the compensation packages for Messrs. Kirby and Levy and Ms. Haywood in connection with their joining the Company, including review of existing compensation levels and structure and benchmark comparisons. The compensation paid to Mr. Compton in connection with his separation and retirement effective as of December 31, 2016 was specified by the terms of the United Continental Holdings, Inc. Executive Severance Plan (the "Executive Severance Plan") based on an involuntary termination and his retirement eligibility under outstanding awards. The Committee reviewed and approved these terms and compensation calculations in advance of the announcement of Mr. Compton's retirement and separation. The compensation paid to Ms. Haywood in connection with her separation, effective as of February 28, 2017, was specified by the terms of the Executive Severance Plan based on an involuntary termination, and included certain payments and benefits related to forfeited compensation opportunities, and was reviewed and approved by the Committee in January 2017. See "Potential Payments upon Termination or Change in Control."
Exequity provides the Committee with background materials, including preparation of the benchmarking study described below, and participates in Committee meetings to support the Committee's executive compensation decision-making process and to respond to questions. Exequity also assists the Committee in performing an annual compensation risk assessment of the Company's compensation programs. The Committee retained Exequity as its independent compensation consultant in October 2010. Exequity reports directly to the Committee, and the Committee has the sole authority to retain and terminate Exequity and to review and approve Exequity's fees and other retention terms. The Committee has adopted an "Independent Executive Compensation Consultant Conflict of Interest Policy" pursuant to which Exequity is required to provide the Committee with regular reports on any work that it performs for the Company. During 2016, Exequity did not perform any work on behalf of
the Company other than the executive compensation services provided to the Committee, and Board compensation services provided to the Nominating/Governance Committee. For additional information concerning the Committee, including its authority and the independent compensation consultant policy, see "Committees of the BoardCompensation Committee" above. The Committee has assessed the independence of Exequity pursuant to SEC rules and concluded that Exequity's work for the Committee does not raise any conflicts of interest.
The Committee also receives input and recommendations regarding annual executive compensation decisions from management. The Company's Executive Vice President, Human Resources & Labor Relations and members of the human resources team prepare background and supporting materials for Committee meetings. The CEO attends Committee meetings and provides quantitative and qualitative input to the Committee with respect to compensation of the management team other than the CEO, including input regarding individual performance assessments with respect to payments under the Annual Incentive Program. The CFO and other members of the Company's financial planning and analysis group participate in discussions with the Committee relating to the Company's financial plan and proposed performance goals under the executive compensation program, and members of the Company's internal audit group provide special reports to the Committee outlining the review of procedures and calculations relating to the degree of achievement of performance goals and payout of incentives. Management's annual planning process involves preparation of annual financial forecasts, capital expenditure budgets, and the Company's annual business plan. Based on the Company's 2016 planning process and the financial budget approved by the Board, management developed and proposed performance targets under the 2016 incentive compensation programs. These proposals were evaluated by Exequity, in light of compensation trends, benchmarking and compensation risk factors. The Committee made final decisions regarding performance goals and the compensation arrangements of the Company's executive officers, including salary levels and incentive award opportunity levels, following its review and consideration of all recommendations and data it deemed appropriate. The Committee regularly holds executive sessions to discuss executive compensation practices without members of management present.
Benchmarking. We recruit and we compete to retain executives not only from within the airline industry, but also from across a broad spectrum of leading businesses. In making compensation decisions, we examine the practices of companies in a general comparator group that is representative of the size (in revenue), scope and complexity of the Company's global business operations, and that includes the largest U.S.-based airline companies (regardless of revenue range).
The Committee believes that the airline industry does not have enough relevant industry peers, given UAL's current size, to establish reliable ranges of competitive market pay for our top executive talent. Accordingly, our benchmarking peer group represents a cross section of the relevant airline peers and comparably sized companies in general industry that the Committee believes are representative of the competitive talent market. In addition, where relevant and reliable pay information is available from our primary airline peers, we reference that airline-specific information as a significant input for aligning pay, in addition to the pay information for the full peer set. The following primary factors are considered in identifying the most appropriate peer companies for compensation benchmarking purposes: well-run companies in general industry, with a primary focus on airlines, aerospace and transportation companies; companies of similar revenue size (i.e., 0.5-2.0 times the Company's revenues); talent competitors within the Company's geography; and the largest U.S.-based airlines that are relevant comparators (regardless of revenue range). Using these factors as a guide, the composition of the peer group was reviewed and unchanged for 2016 compensation decisions. The competitive benchmarking analysis presented to the Committee in December 2015, in
advance of the February 2016 compensation decisions, included the 21 comparator companies noted below.
Compensation data was obtained from the then most recent proxy statements of our peer group companies (in most cases, the 2015 proxy statement, reflecting 2014 pay data). In this review, the peer group had median annual revenue of approximately $35.5 billion and the Company's 2015 annual revenue at the time of the review was estimated at approximately $37.9 billion. The benchmarking review also considered information from Equilar's Executive Compensation Survey, which provides information for top executive roles at each of the participating peer companies. Within the peer group, 14 of the 21 peer companies participated in the Equilar survey, with median annual revenue of approximately $36 billion.
We compare total compensation opportunities for our executives to the market median (50th percentile) of our peer group. Total compensation for our benchmarking purposes means the sum of base salary, annual cash incentive target, and long-term incentive targets. As is customary in these types of pay studies, retirement benefits were not included in the benchmark comparison. The Exequity benchmarking process compares the Company's executive pay by position in comparison to the most similarly situated executive roles among the peer organizations. Data availability is greater for the CEO and CFO positions, and pay comparisons for these roles were made solely against the CEO and CFO positions among the peer companies. For proxy officers without a direct benchmark role comparison, Exequity considered matching roles based on rank within the proxy and with reference to other officer positions to extrapolate pay trajectories across roles.
The compensation information for our peer group is one factor utilized in setting total compensation for our executives. The Committee balances the benchmarking results with additional factors, such as each executive's experience, knowledge, skills, roles, and contributions to the Company, as well as consideration for internal parity of compensation among our executives. In selected cases in which relevant pay information for a specific role is available from our primary airline peers (Delta and American), we reference that data as a supplemental benchmarking input, in addition to the data from the full peer set. The Committee reviews all of these relevant factors, but does not apply a specific weighting to the various factors. Based on the benchmarking results and with guidance from Exequity, the Committee made adjustments in the 2016 pay allocation by shifting a portion of the total target opportunity from the annual incentive opportunity to the long-term incentive opportunity, further continuing similar adjustments that have been made in prior years.
In addition, in the case of executives who are recruited to join the Company, the Committee references the executive's pay at his or her prior employer in order to facilitate recruitment of top caliber executives. In 2016, the Company recruited Messrs. Kirby and Levy and Ms. Haywood to join the Company. The Committee reviewed the following factors in connection with the development of competitive pay packages that would support the Company's ability to succeed in this recruitment, and
to facilitate the integration of these new compensation packages with the pay arrangements of existing executives:
Tally Sheets. Comprehensive tally sheets covering each of the Company's Section 16 reporting officers are provided to the Committee annually in advance of the meeting at which incentive compensation performance targets and award level opportunities are set and at which compensation levels and annual incentive awards are considered and decisions are made. The tally sheets provide a summary for each executive of total targeted and actual compensation levels over a multi-year period, an accumulated summary of outstanding awards, and estimated total payments under alternative separation scenarios. These tally sheets allow the Committee to make prospective pay decisions that are informed by compensation opportunities and earnings for past periods.
The section and table below summarize the key components of our 2016 executive compensation program. Detailed descriptions of these components appear below the table. In addition, in light of significant changes to our executive leadership team during 2016, our 2016 executive compensation program included several special performance, retention, and sign-on awards that are not a standard part of our annual targeted compensation structure. These special awards are described following the discussion of our key annual compensation components.
Key Annual Compensation Components
The 2016 salary and incentive compensation award levels were considered and approved by the Committee through the compensation process described above and with reference to the benchmarking data prepared by and reviewed with Exequity. The salary, compensation opportunities, and employment terms and conditions for Mr. Munoz are set forth in his employment agreement, which was entered into in December 2015. The compensation levels of the remaining named executive officers were considered and approved through the compensation process described above and with reference to the benchmarking data described above, reflecting median pay among the peer companies. In addition, with respect to Messrs. Kirby and Levy and Ms. Haywood, the Committee considered their compensation structure, opportunities and outstanding incentive awards with their prior employers, as applicable, as well as alignment with comparable roles among the Company's primary airline peers, and the desired internal pay parity among the Company's top executive roles. Exequity assisted in the preparation and review of the new hire compensation analysis, and provided advice in connection with establishing the value of outstanding incentives and alignment of the pay packages with peer practices.
There was no change in the 2016 salary or total target incentive award levels for Messrs. Munoz, Hart, Laderman and Compton as compared to the 2015 salary and total target incentive award levels. However, for 2016, the Committee approved a re-allocation, as compared to 2015, of a portion of the total target level compensation opportunity for Messrs. Hart and Compton from the annual incentive opportunity to the long-term incentive opportunity to align more closely with market practices within our peer group. This shift was made after considering the benchmarking analysis discussed above,
which indicated that the Company's total targeted compensation levels for the named executive officers were generally slightly below the 50th percentile of the peer group but that a greater percentage of the named executive officers' total targeted incentives were being delivered in the form of targeted annual bonus opportunities and a lower percentage of the named executive officers' total targeted incentives were being delivered in the form of long-term incentives than was the case among the benchmarking peer companies. The newly hired officers in 2016 (Messrs. Levy and Kirby and Ms. Haywood) were merged into the Company's existing annual and long-term incentive award programs and thus received pay for performance incentives consistent with the remainder of the management team.
Base Salary. Base salary levels are set in light of competitive practices among our peer companies and our primary airline peers, to reflect the responsibilities of each executive in the Company, in consideration of internal pay equity, and to balance fixed and variable compensation levels. The base salary level for Mr. Munoz was established with reference to the foregoing and in consideration of his compensation and opportunities at his prior employer. The base salary levels for Messrs. Levy and Kirby were primarily established based on reference to the all-peer median levels for their respective roles, with consideration to internal parity. Ms. Haywood's salary was elevated to more closely align with her prior compensation at BCG. Mr. Munoz's annual base salary as set forth in his employment agreement is $1,250,000. The 2016 base salary levels for the remaining named executive officers were as follows: Mr. Hart$715,000; Mr. Levy$675,000; Mr. Laderman$500,000; Mr. Compton$875,000; Mr. Kirby$875,000; and Ms. Haywood$800,000. For Messrs. Munoz, Hart, Laderman and Compton, these salary levels are unchanged from the 2015 levels and remain currently in effect for the continuing named executive officers.
Annual Incentive Awards. In 2016, the named executive officers participated in the United Continental Holdings, Inc. Annual Incentive Program (the "AIP"), an annual cash incentive plan adopted pursuant to the Company's Incentive Plan 2010. In order for a payment to be made under the 2016 AIP awards, (i) the Company's 2016 pre-tax income must meet or exceed the entry level pre-tax income established by the Committee and (ii) a payment must have been made (or will be made) under the Company's broad-based profit sharing plans for employees for such fiscal year. If either of these conditions is not satisfied, no payments are made under the AIP. As a risk mitigation factor,
payment also requires that the Company must have an adequate level of unrestricted cash at the end of the performance period, as determined by the Committee. The 2016 awards permit the exercise of negative discretion to reduce award payments. In addition, in 2016 the Committee adjusted the AIP structure to include an individual performance modifier feature to permit the Committee to adjust the AIP award payment based on individual performance and contributions to the Company's success. The Committee may exercise discretion to reduce the payment or may increase the payment by up to 50%. The CEO made recommendations to the Committee with respect to the performance of the executive leadership team other than himself. Pursuant to the terms of his offer letter, the AIP award for Mr. Levy did not include the individual performance modifier and, pursuant to the terms of his separation, no adjustment was applied to the AIP award for Mr. Compton. Under the AIP, "pre-tax income" means, with respect to a fiscal year, the aggregated consolidated net income adjusted to exclude reported income taxes of the Company as shown on the Company's consolidated financial statements for such year, but calculated excluding any special, unusual or non-recurring items as determined by the Committee in accordance with applicable accounting rules.(3)
The 2016 award opportunities under the AIP were based on an individual award opportunity granted to each participant, with threshold payout equal to 50% of the target opportunity, target payout equal to 100% of the target opportunity, and stretch payout equal to 200% of the target opportunity, with the opportunity to earn up to 300% of the target opportunity after the application of the individual performance modifier. The target award opportunity was allocated so that (1) 70% of the target opportunity was based on pre-tax income performance goals and (2) 30% of the target opportunity was based on the achievement of customer satisfaction performance goals (increased from a 20% weight under the 2015 awards). For 2016, the customer service component was changed from a customer survey metric to an operational metric based on on-time arrival performance, which is a leading indicator of customer satisfaction.
The 2016 AIP individual target level opportunities for each of the named executive officers were expressed as a percentage of the executives' base salary earned during the year as follows: Mr. Munoz200%; Mr. Hart106%; Mr. Levy100%; Mr. Laderman110%; Mr. Compton106%; Mr. Kirby125%, and Ms. Haywood106%. As discussed above, in 2016, the Committee approved a continued reallocation of the incentive opportunity between AIP and long-term incentive compensation, resulting in a decline in the 2016 AIP opportunity for Messrs. Hart and Compton. The AIP opportunity for Mr. Munoz is set forth in his employment agreement. With respect to the new members of the management team, Mr. Levy's AIP opportunity was primarily established with consideration of alignment to the full peer group median target level bonus and the median of the Company's primary airline peers, particularly Delta and American for purposes of the new officer compensation comparisons. Mr. Kirby's AIP opportunity was established with reference to his prior target bonus opportunity at American, the average target bonus levels for the comparative role at Delta and American, and the median target value bonus for the number two level executive within the full peer group. With respect to Ms. Haywood, her AIP opportunity was set at the same percentage of salary as set for other EVP level officers, and consideration was also given to median target value for the number four level role at the Company's primary airline peers.
The 2016 pre-tax income performance goals, representing 70% of the targeted award opportunity, were threshold$3.5 billion, target$4.5 billion, and stretch$5.0 billion. The target pre-tax income goal was based on the Company's 2016 full year expectations at the time the performance conditions were established in February 2016. For 2016, measurement of customer satisfaction, representing 30% of the targeted award opportunity, required a specified number of months of top-tier (#1 or #2) on-time arrival performance as compared to an industry peer group (American, Delta, and Southwest), with the goals set as the number of months of top-tier performance as follows: entry5 months; target7 months; and stretch9 months.
Our 2016 pre-tax income was $3.8 billion, and we achieved pre-tax income of $4.462 billion for 2016, as measured under the AIP and adjusted for special items, and eligible employees received payments pursuant to the Company's profit sharing plans. The 2016 AIP awards paid out at nearly (98.12%) the target level with respect to the pre-tax income performance goal. With respect to the customer satisfaction goal (measured using top tier on-time arrival performance as a proxy for the customer satisfaction metric), the Company achieved top tier performance in all 12 months of 2016, which resulted in stretch level (200%) performance. The combined 2016 performance relating to pre-tax income and customer satisfaction (measured by on-time arrivals) resulted in achievement at 128.68% of the total target opportunity level. The Committee also considered individual performance and contributions to the Company's success based on input from the CEO with respect to named executive officers other than himself. Based on those considerations, the 2016 AIP individual performance modifier that was applied to the payout for each of the named executive officers was as follows: Mr. Munoz110%; Mr. Hart120%; Mr. Laderman100%; Mr. Kirby110%; and Ms. Haywood100%. The sign-on compensation package for Mr. Levy and the separation summary terms for Mr. Compton specified that the individual performance modifier would not apply to the calculation of their 2016 AIP payments. Payments under the AIP are included in the 2016 Summary Compensation Table under the column captioned "Non-Equity Incentive Plan Compensation." The named executive officers are not eligible to receive payments under our profit sharing plans.
2016 Long-Term Incentive Awards. In designing the long-term incentive award structure for the Company, the Committee divided the long-term incentive opportunity into three separate awards, each of which has a three-year performance or vesting period. This design was put in place and has continued since our 2011 awards, with the 2016 long-term incentives structured as follows:
Mr. Munoz's total target long-term incentive opportunity was established in connection with the review, negotiation and finalization of his employment agreement in December 2015. The total target long-term incentive opportunities of the remaining named executive officers were established with reference to the applicable benchmarking analysis conducted by Exequity and discussed with the Committee in December 2015 with respect to Messrs. Hart, Laderman and Compton and in August 2016 with respect to Messrs. Kirby and Levy and Ms. Haywood. As discussed above with respect to the AIP awards, for 2016, the Committee approved a re-allocation of a portion of the total target compensation opportunity for Messrs. Hart and Compton from the annual incentive opportunity to the long-term incentive opportunity to align more closely with market practices within our peer group. This shift was made after considering the benchmarking analysis discussed above, which indicated that the Company's total targeted compensation levels for the named executive officers were generally slightly below the 50th percentile of the peer group but slightly higher than the group with respect to target levels of annual compensation as compared to long-term incentives. With respect to the new members of the management team, Mr. Levy's long-term incentive opportunity was primarily established with consideration of alignment to the full peer group median for targeted long-term incentive value, as well as alignment to compensation for persons in similar roles at Delta and American. Mr. Kirby's opportunity was established with strong consideration to alignment with his prior target long-term incentive value at American, while also considering the target compensation levels for the president role at Delta and American and placement between the CEO and other top executives at United. With respect to Ms. Haywood, her opportunity was influenced by internal parity and in light of the
establishment of her salary at a level that took into consideration the fixed compensation elements at her prior employer. See "Compensation Process and OversightBenchmarking" above.
For the named executive officers, the 2016 total long-term incentive target level opportunities were as follows: Mr. Munoz$10,500,000; Mr. Hart$1,637,350; Mr. Levy$815,533; Mr. Laderman$1,000,000; Mr. Compton$2,458,750; Mr. Kirby$1,872,860; and Ms. Haywood$649,180. These actual award levels for Messrs. Kirby and Levy and Ms. Haywood represent prorated amounts based on their dates of hire. The 2016 total long-term target opportunities were divided equally among each of the three long-term incentive awards. Consistent with 2015, all of the 2016 long-term incentives are linked to the Company's stock price performance.
The 2016 Performance-Based RSU awards have a performance period of January 1, 2016 through December 31, 2018. We believe that the ROIC definition applicable to the 2016 awards is aligned with the parameters generally used by investors as well as our external reporting methodology, including capitalizing our aircraft operating lease expense at seven times and only including aircraft operating leases for which we are the lessor in our calculation of invested capital. For 2016, the ROIC goals were set based on the Company's expectations for the performance period at the time the performance goals were established in February 2016. The entry level performance goal (11%) is aligned with our approximate cost of capital. At the time, the target level (17%) was viewed by the Committee as a challenging goal that was established above the ROIC level that the Company has achieved in any prior three-year period but below the Company's single-year achievement in 2015, and the maximum or "stretch" performance goal (19%) requires the Company to achieve three-year average earning greater than any annual earnings in our history. Each performance level was increased from the levels established with respect to the three-year performance under the prior year awards to reflect the Company's recent financial performance improvement. The goals are established with reference to the Company's operating plan, economic conditions at the time the goals were set, and a variety of scenarios for the Company's multi-year financial plan to address the challenges associated with forecasting results for a three-year measurement period. The 2016 ROIC Performance-Based RSUs include a fuel price corridor pursuant to which the Company's results will be adjusted if and to the extent that fuel prices during any year of the performance period vary by more than $5 per barrel based on the fuel curve model used to establish the ROIC goals.
The 2016 ROIC Performance-Based RSU awards have an entry opportunity equal to 50% of the target award value, a target opportunity of 100% of the target award value, and a maximum or
"stretch" opportunity equal to 200% of the target award value. Payment opportunities under the ROIC Performance-Based RSU awards are subject to linear interpolation between performance levels. As noted in the 2016 Summary Compensation Table below, the grant date fair value of the 2016 Performance-Based RSUs is the target level of the award based on the probable satisfaction of the required performance conditions as of the grant date. The number of Performance-Based RSUs granted was calculated based on the target opportunity divided by the closing price per share of Common Stock on the date of grant and with the result multiplied by the stretch opportunity level and rounded up to the nearest whole unit.
The 2014 Performance-Based RSU awards, which had a performance period of January 1, 2014 through December 31, 2016, had the following performance goals: entry9.1% ROIC; target10% ROIC; and stretch11% ROIC. In calculating the number of RSUs subject to the 2014 Performance-Based RSU awards, the Committee applied a discount factor to the closing price per share of Common Stock on the date of grant in recognition of the Company's history of ROIC not exceeding our cost of capital. As a risk mitigation factor, payment of the awards also required that the Company must have an adequate level of unrestricted cash at the end of the performance period, as determined by the Committee. The Committee also established a maximum payment amount with respect to the 2014 awards equal to two times the stock price on the date of grant (representing a $86.56 per unit maximum payment amount). For the 2014-2016 performance period, the Company's ROIC (17.9%) exceeded the required stretch level of performance (11% ROIC), and the 2014 Performance-Based RSUs were settled in cash in the first quarter of 2017 following review and certification by the Committee. The 20-day average closing price per share of Common Stock immediately preceding December 31, 2016 was $73.32 per share. The payments to the named executive officers are included in the "Option Exercises and Stock Vested for 2016" table below.
One-third of the 2016 long-term incentives were based on a relative pre-tax margin performance measure. These incentives were granted in the form of cash-settled Performance-Based RSU awards that measure and reward performance based on the Company's improvement in cumulative pre-tax margin over a three-year performance period as compared to an industry peer group (American, Delta, Southwest, JetBlue Airways Corporation, and Alaska Air Group, Inc.).
The goals established for the 2016 pre-tax margin Performance-Based RSU awards measure the Company's relative pre-tax margin improvement over the 2016-2018 performance period as compared to the industry peer group. Improvement over the performance period by the Company and the industry group is measured with comparison to pre-tax margin performance achieved in 2015. Performance is generally measured as (A) the Company's pre-tax income over the performance period divided by its revenue over such period minus the Company's 2015 pre-tax margin as compared to (B) the peer companies' aggregate pre-tax income over the performance period divided by the peer companies' aggregate revenue over such period minus the peer companies' aggregate 2015 pre-tax margin. The calculations are adjusted to exclude special items in accordance with applicable accounting rules. If the Company achieves at least the minimum threshold level of performance, the awards will be settled in cash following the end of the three-year performance period. As a risk mitigation factor, payment also requires that
the Company must have an adequate level of unrestricted cash at the end of the performance period, as determined by the Committee. The Committee did not apply a maximum payment price per share with respect to the 2016 pre-tax margin Performance-Based RSU awards.
The 2016 pre-tax margin Performance-Based RSU awards have a performance period of January 1, 2016 through December 31, 2018. The target performance level established for the 2016 relative pre-tax margin PB RSUs was set by the Committee so that executives would earn market-competitive rewards ("target" level) for achieving pre-tax margin improvement substantially in excess of the peer group (equal to peer group pre-tax margin change over the performance period plus 90 basis points). The entry performance level was designed to be achievable with solid relative performance (peer group change plus 20 basis points), while the stretch performance level (peer group change plus 220 basis points) was set at a high level requiring exceptional relative performance. In determining the 2016-2018 performance goals, the Committee considered the historic performance of the Company and the peer group, the Company's multi-year financial plan, and the economic and market conditions at the time the goals were established.
The 2016 pre-tax margin Performance-Based RSU awards have an entry opportunity equal to 50% of the target award value, a target opportunity of 100% of the target award value, and a maximum or "stretch" opportunity equal to 150% of the target award value. Payment opportunities under the relative pre-tax margin Performance-Based RSUs are subject to linear interpolation between performance levels. In accordance with ASC Topic 718, and as noted in the 2016 Summary Compensation Table below, the grant date fair value of the relative pre-tax margin Performance-Based RSUs is zero because the satisfaction of the required performance conditions was not considered probable as of the grant date. As discussed above, the Committee believes that improvement in pre-tax margin continues to be an appropriate metric for motivating executive performance in line with stockholder interests. Although the performance conditions were not considered probable as of the grant date, the Committee established the goals at a level they believe is appropriate for the Company and stockholders.
The 2014 relative pre-tax margin awards, which had a performance period of January 1, 2014 through December 31, 2016, were cash-based awards and had the following performance goals using relative improvement in pre-tax margin as the metric: entrypeer group change in pre-tax margin plus 20 basis points; targetpeer group change in pre-tax margin plus 90 basis points; and stretchpeer group change in pre-tax margin plus 160 basis points. As a risk mitigation factor, the awards also required that the Company must have an adequate level of unrestricted cash at the end of the performance period, as determined by the Committee. The Company's pre-tax margin performance with respect to the 2014 relative performance awards did not meet the entry level of performance, and no payments were made to the named executive officers with respect to this 2014 long-term incentive award.
2016 Special Compensation Components
There were several special performance, retention, and sign-on awards granted during 2016 related to the terms of Mr. Munoz's employment agreement and in recognition of unique circumstances related to interim service in the CEO and CFO roles, performance and retention considerations, and sign-on compensation. The special compensation components applicable to Messrs. Munoz, Hart, Levy, Laderman and Kirby and Ms. Haywood are described below.
Mr. Munoz. In December 2015, the Company and Mr. Munoz entered into an employment agreement to memorialize the terms of his employment. As described above, the compensation, benefits, terms and conditions of the employment agreement were approved by the Committee after consideration of Mr. Munoz's compensation at his prior employer, including forfeited compensation and prospective incentive opportunities; the benchmarking analysis of the peer group and our primary airlines peers; general succession planning processes within the Company; and guidance and input from Exequity. In consideration of his commencement of employment, and in part to compensate him for incentive and equity compensation forfeited at his prior employer, the agreement provided him a sign-on cash payment of $5.2 million (paid in 2015) and an initial equity award (granted in 2016) with a grant date value of $6.8 million, vesting over a three-year period. The agreement also provided an annual base salary of $1,250,000 and, beginning in 2016, Mr. Munoz became eligible to participate in the Company's annual cash bonus program, with a target annual bonus not less than 200% of his annual base salary. Also beginning in 2016, Mr. Munoz became eligible to receive an annual long-term incentive award with a grant date target value of at least $10.5 million.
Mr. Hart. As referenced above, in connection with Mr. Hart's appointment to serve as acting CEO, the Committee approved an additional monthly cash payment of $100,000 for the duration of his service in such role. This special monthly stipend represents special assignment compensation of a limited duration and was terminated on March 14, 2016. The 2016 special monthly stipend is included in the Bonus column of the 2016 Summary Compensation Table. In addition, on May 5, 2016, the Committee approved a performance award for Mr. Hart in recognition of his continued leadership and extraordinary efforts, his importance to the continued success of the Company, and as an inducement for him to remain employed by the Company over the award vesting periods. Under the terms of the performance award, Mr. Hart received an immediate cash payment of $500,000 and a restricted stock award with a grant date value equal to $1,000,000, vesting in equal installments on January 1, 2017 and January 1, 2018. The unvested portion of the equity award will be forfeited if Mr. Hart's employment with the Company is terminated prior to the applicable vesting date for reasons other than termination by Mr. Hart due to good reason (as defined in the Executive Severance Plan), termination by the Company due to an involuntary termination without cause (as defined in the Executive Severance Plan), death, or disability. The cash portion of the performance award is included in the Bonus column and the equity award is included in the Stock Awards column of the 2016 Summary Compensation Table.
Mr. Levy. Effective August 22, 2016, the Committee approved a sign-on award for Mr. Levy of 86,000 stock options. The stock options vest over a three year period on each anniversary of the grant date and have a seven year term. The sign-on award was designed to enhance Mr. Levy's immediate alignment with shareholder value creation, and to bring his total annualized pay into alignment with (i) the average total target pay for the CFO role at United's primary airline peers (Delta and American); and (ii) the desired internal pay parity among the Company's top executives. The options are included in the Option Awards column of the 2016 Summary Compensation Table.
Mr. Laderman. As referenced above, in connection with Mr. Laderman's appointment to serve as acting CFO, the Committee approved an additional monthly cash payment of $40,000 for the duration of his service in such role. This special monthly stipend represents special assignment compensation of a limited duration and was terminated as of the end of August 2016. The 2016 monthly stipend for Mr. Laderman is included in the Bonus column of the 2016 Summary Compensation Table. In addition, in connection with his return to the position of Senior Vice PresidentFinance, Procurement and Treasurer, the Committee approved a retention award for Mr. Laderman. The retention award consists of a $500,000 cash payment and an award of 45,000 restricted stock units that will vest over a three year period and will be settled in stock. The cash portion of the retention award is subject to a clawback provision under which Mr. Laderman will be required to pay back 50% of the cash portion of the retention award if he leaves the Company within two years following the payment date. The cash
portion of the performance award is included in the Bonus column and the equity portion is included in the Stock Awards column of the 2016 Summary Compensation Table. The original retention award was approved effective August 16, 2016 and on December 7, 2016 the Committee amended the equity portion of the award to specify the stock settlement feature (rather than cash settlement). As a result of this change in settlement form, this award is included in two lines on the Grants of Plan Based Awards in 2016 table, with one line showing the original grant and another line showing the modification of the original grant.
Mr. Kirby. In connection with his appointment as President of the Company, Mr. Kirby received a sign-on transition award consisting of premium-priced stock options (with an exercise price that was set 25% higher than the closing stock price on the date of grant) with a total Black-Scholes grant value of $5 million. The sign-on award was intended to facilitate the transition from American to the Company, as well as to offer an overall pay opportunity that is heavily tied to the delivery of significant shareholder value creation. The options were split into two tranches as follows: (i) $2 million of the grant date value consists of stock options with a seven-year term that vest in one-third increments on the first, second and third anniversary of the grant date; and (ii) $3 million of the grant date value consists of stock options with a ten year term that vest in one-third increments on the fourth, fifth and sixth anniversary of the grant date. These options are included in the Option Awards column of the 2016 Summary Compensation Table.
Ms. Haywood. In connection with her appointment to serve as Executive Vice President and Chief Commercial Officer, the Committee approved a sign-on award for Ms. Haywood consisting of (i) a $600,000 cash payment and (ii) an award of $2 million in restricted stock units that vest over a three year period on December 31, 2016, 2017, and 2018. These values were established by reference to the objectives of: (i) maintaining general consistency with the level of Ms. Haywood's fixed forms of compensation at her previous employer; (ii) alignment with peer practices; and (iii) alignment with the annualized total targeted pay of internal roles at the Company. While the cash portion of the sign-on award was subject to clawback for a termination of employment, the repayment obligation was not applied in connection with Ms. Haywood's involuntary termination from the Company. The restricted stock units that were scheduled to vest in 2017 and 2018 were forfeited in connection with her separation. The cash portion of the sign-on award is included in the Bonus column and the equity portion is included in the Stock Awards column of the 2016 Summary Compensation Table.
2017 Incentive Compensation Structural Changes
In designing the incentive compensation program for 2017, the Committee made changes to the structure of the Annual Incentive Program awards and the annual long-term incentive program. While retaining pre-tax income as the largest percentage of the award opportunity, the 2017 AIP awards include a broader array of operational metrics that are viewed as important factors in achieving customer satisfaction, including on-time departures, flight completion, and mishandled baggage ratio. A portion of the 2017 AIP award opportunity is linked to management progress toward achieving specified strategic objectives. The individual performance modifier was retained in the 2017 AIP design. With respect to the annual long-term incentive program design, the Company eliminated ROIC as a performance measure for the 2017 awards.
The 2017 long-term incentive target opportunity is equally divided between time-vested RSU awards and Performance-Based RSUs with relative pre-tax margin performance as the performance metric. The Committee believes that the changes in the 2017 program motivate management performance toward achieving goals that are considered by the Board to be important to our customers and investors.
As noted in the text box above, for 2017, improvement in the customer experience and United's culture will be critical components in the determination of the 2017 earned bonus amounts, making the entire 2017 AIP award opportunity responsive to these imperatives.
Severance Benefits. We have pre-established terms applicable to each of our named executive officers relating to severance and post-employment benefits provided upon certain termination events. In 2014, the Committee determined that individual employment agreements, other than agreements with our CEO, were no longer necessary.
The Company maintains the Executive Severance Plan, which provides severance benefits to executive officers, including Messrs. Hart, Levy, Compton, and Kirby and Ms. Haywood, and the United Continental Holdings, Inc. Senior Officer Severance Plan, which provides severance benefits to senior officers, including Mr. Laderman. The severance and post-employment benefits provided under the severance plans are consistent with the level of benefits that were provided under the named executive officers' prior employment agreements, which expired in September 2014, and these plans
were approved and adopted by the Committee in 2014. The terms of Mr. Compton's and Ms. Haywood's departures were governed by the Executive Severance Plan and the payments and benefits provided upon an involuntary termination. Under the terms of his outstanding incentive awards, Mr. Compton is eligible for payment of the long-term performance awards on a pro-rata basis and based on actual Company performance through the end of the applicable performance period. The Committee also agreed to provide Ms. Haywood with flight benefits through her two year severance period and acknowledged that her cash sign-on award was not subject to repayment based on her involuntary termination.
Based on advice of Exequity, we believe that the described severance compensation and benefits are competitive with typical practices and that they provide appropriate levels of compensation and terms and conditions related to executive separations. Further, we believe that these arrangements are an important component of our compensation packages in terms of attracting and retaining top caliber talent in senior leadership roles and in defining terms and conditions of executive separation events. See "Potential Payments upon Termination or Change in Control" below for a discussion and estimate of the potential compensation and benefits provided pursuant to these arrangements.
Frozen SERP. Continental maintained supplemental executive retirement plan ("SERP") benefits for Messrs. Laderman and Compton that provides an annual retirement benefit expressed as a percentage of the executives' final average compensation. The SERP is not a current element of the Company's compensation program. The SERP benefit for Mr. Compton was frozen as of December 31, 2010, while the SERP benefit for Mr. Laderman was partially frozen as of December 31, 2010 and fully frozen as of December 31, 2013. The benefit formulas and the compensation limitations applicable to the SERP are described below under "Narrative to Pension Benefits Table."
Frozen Pension Benefits. Management and administrative employees from Continental, including Messrs. Laderman and Compton, participate in the Continental Retirement Plan ("CARP"), a non-contributory, defined benefit pension plan in which substantially all of Continental's non-pilot domestic employees participated. The CARP benefits for management and administrative employees were frozen as of December 31, 2013. The CARP benefit is based on a formula that utilizes final average compensation and service while one is an eligible employee. The benefit formulas and the compensation limitations applicable to the CARP are described below under "Narrative to Pension Benefits Table."
Defined Contribution Retirement Benefits. We provide retirement benefits including a tax qualified 401(k) plan to all of our non-union employees. The Company maintains a tax qualified 401(k) benefit and an excess 401(k) cash direct and cash match program for management and administrative employees, including the named executive officers. We believe these benefits encourage retention and are part of delivering an overall competitive pay package necessary to recruit and retain talented executives.
Perquisites. We offer our named executive officers certain perquisites that we believe are generally consistent with those provided to executives at similar levels at companies within the airline industry and general industry groups. We believe that providing certain benefits to our executives, rather than cash, enhances retention, results in a cost savings to the Company, and strengthens our relationships with our executives. For example, travel privileges on United flights provide our executives and non-management directors the opportunity to become familiar with our network, product and locations and to interact with customers and employees. The incremental cost to the Company of providing such flight benefits is minimal, while we believe the value of these benefits to the named executive officers is perceived by them to be high. Other benefits are primarily linked to maintaining the health of our executives and to financial and tax planning and assistance, or to benefits that were provided by
Continental and were grandfathered in individual benefit packages. Please refer to "2016 Summary Compensation Table" and the footnotes thereto for additional information regarding perquisites.
Recoupment of Earned Awards/"Claw-back" Provisions. All of our incentive award programs include claw-back provisions requiring the return of incentive payments in financial restatement situations to the extent necessary to comply with applicable law including, without limitation, the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act or any SEC rule.
Stock Ownership Guidelines. The Committee has approved stock ownership guidelines that apply to our executive officers. The guidelines encourage our executives, including each of the named executive officers, to hold shares of Common Stock or equity-based awards with a fair market value that equals or exceeds a multiple of the executive's base salary. In February 2017, the Committee made adjustments to the guidelines. Currently, the CEO level stock ownership target is six times base salary, the President level stock ownership guideline is four times base salary, the EVP level stock ownership target is three times base salary, and the SVP stock ownership target is two times base salary. For purposes of determining whether an executive satisfies the revised stock ownership guidelines, restricted shares and stock-settled restricted stock units are included in total stock holdings. A newly hired or promoted executive has five years to achieve the stock ownership targets set forth in the guidelines. The Committee reviews equity ownership at least annually. Once an executive is determined to be in compliance with the stock ownership guidelines, the executive will be considered to be in compliance until such time as he or she sells or otherwise disposes of any his or her shares of Common Stock. Following any such sale or disposition, the Committee will reevaluate the executive's compliance with the stock ownership guidelines at the next annual evaluation date. As of April 1, 2017, all of our continuing named executives officers are in compliance with the guidelines. We also maintain stock ownership guidelines that apply to our non-employee directors, which are described below in "2016 Director Compensation."
Securities Trading Policy. Our securities trading policy prohibits speculative and derivative trading and short selling with respect to our securities by all officers and directors. Our securities trading policy prohibits pledging and hedging Company securities by our officers and directors.
Tax Matters. In designing and implementing the programs applicable to executives, we consider the effects of applicable sections of the Internal Revenue Code of 1986, as amended (the "Code"), including section 162(m). Section 162(m) of the Code limits the tax deductibility by a company of compensation in excess of $1 million paid to the company's chief executive officer and its three other most highly compensated executive officers (other than the chief financial officer). 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 the Committee may consider in its deliberations, this impact would be evaluated in light of the Company's overall compensation philosophy and objectives. Under certain circumstances, the Committee believes that the Company's and stockholders' interests would be best served by providing compensation that is not fully deductible and that its ability to exercise discretion outweighs the advantages of requiring that all compensation be qualified under section 162(m).
Consistent with historic practice and the travel policies at other airlines, the Company provides tax indemnification on the travel benefits provided to active and certain former officers. The Company has eliminated tax indemnification for post-separation perquisites provided to officers who were not officers as of the date the policy was adopted. The tax indemnification provided to each of the named executive officers with respect to active and former (grandfathered) officer travel is subject to an annual limit.
We have reviewed and discussed the CD&A with management. Based on such review and discussions, we recommended to the Board that the CD&A be included in the Company's Proxy Statement on Schedule 14A and the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
The following table provides information regarding (i) each person who served as the Company's principal executive officer during 2016 (Oscar Munoz and Brett Hart), (ii) each person who served as the Company's principal financial officer during 2016 (Andrew Levy and Gerald Laderman), and (iii) the three other most highly compensated executive officers in 2016 who were serving at year-end (James Compton, Scott Kirby and Julia Haywood), determined in accordance with applicable SEC disclosure rules. The table provides information for 2016 and, to the extent required by applicable SEC disclosure rules, 2015 and 2014.
Based on his retirement eligibility and in accordance with the terms of the underlying award agreements, Mr. Compton remains eligible for vesting in his Performance-Based RSU awards based on actual Company performance during the performance period and pro-rated for the portion of the performance period that he served the Company. The unvested incentive awards held by Ms. Haywood were forfeited in connection with her separation from the Company.
computed in accordance with ASC Topic 718. See Note 5 to the Combined Notes to Consolidated Financial Statements included in the 2016 Form 10-K for a discussion of the relevant assumptions used in calculating the amounts reported for 2016.
for Mr. Munoz also includes relocation benefits ($112,774), car services ($27,707), executive physical and parking in Chicago.
The amounts shown for Messrs. Hart, Laderman and Compton include an executive physical. The amount shown for Mr. Hart includes health club membership fees and financial planning and tax services. The amount shown for Mr. Laderman also includes health club membership fees and financial planning and tax services. The amount shown for Mr. Levy includes relocation benefits ($75,301) and financial planning and tax services. The amount shown for Mr. Compton includes health club membership fees, financial planning and tax services ($30,000), and an automobile benefit related to the vehicle transferred to him in connection with his separation from service ($60,688). The automobile benefit of Mr. Compton was grandfathered from his employment arrangements prior to the Merger. No other officers have this benefit. The amount for Mr. Kirby includes relocation benefits ($37,401) and financial planning and tax services. The cost of the financial planning and tax services, relocation benefits, and car services is the amount paid by the Company to the service provider or through reimbursement to the officer. The amount for Ms. Haywood includes relocation benefits ($90,956). The incremental cost of the automobile benefit of Mr. Compton is the Company's net purchase price of the vehicle transferred to Mr. Compton at the time of his separation.
The following table sets forth information regarding awards granted during 2016 to our named executive officers. The annual incentive awards were granted pursuant to our Annual Incentive Program which is implemented under our Incentive Plan 2010. The ROIC Performance-Based RSUs and relative pre-tax margin Performance-Based RSUs were granted pursuant to our Performance-Based RSU Program, which is implemented under our 2008 Incentive Compensation Plan. The restricted share awards, time-vested RSU awards and stock option awards were granted pursuant to our 2008 Incentive Compensation Plan.