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United Parcel Service DEF 14A 2007 Documents found in this filing:Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant x Filed by a Party other than the Registrant o Check the appropriate box:
United Parcel Service, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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55
Glenlake Parkway, N.E., Atlanta, Georgia 30328
Notice
of Annual Meeting of Shareowners
May 10, 2007
To our
Shareowners:
United Parcel Service, Inc.’s annual meeting of shareowners
will be held at the Hotel du Pont, 11th and Market Streets,
Wilmington, Delaware 19801, on May 10, 2007, at
8:00 a.m. The purposes of the meeting are:
1. To elect a board of directors to serve until
our 2008 annual meeting of shareowners;
2. To ratify the appointment of
Deloitte & Touche LLP as our independent registered
public accountants for the year ending December 31, 2007;
and
3. To transact any other business as may
properly come before the meeting.
Our board of directors has fixed the close of business on
March 12, 2007 as the record date for determining holders
of our common stock entitled to notice of, and to vote at, the
annual meeting.
Teri P. McClure
Secretary
Atlanta, Georgia
March 19, 2007
Your vote is important. Please vote by using the Internet, by
telephone or by signing and returning the enclosed proxy card as
soon as possible to ensure your representation at the annual
meeting. Your proxy card contains instructions for each of these
voting options.
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55
Glenlake Parkway, N.E., Atlanta, Georgia 30328
PROXY
STATEMENT
FOR THE 2007 ANNUAL MEETING OF SHAREOWNERS
This proxy statement and proxy card are furnished in connection
with the solicitation of proxies to be voted at our annual
meeting of shareowners, which will be held at the Hotel du Pont,
11th and Market Streets, Wilmington, Delaware 19801, on
May 10, 2007, at 8:00 a.m. The proxy is solicited
by our board of directors. This proxy statement and proxy card
are being sent to our shareowners on or about March 19,
2007.
You are receiving this proxy statement and proxy card because
you own shares of United Parcel Service, Inc. common stock. This
proxy statement describes issues on which we would like you to
vote at our annual meeting of shareowners. It also gives you
information on these issues so that you can make an informed
decision.
When you vote by using the Internet, by telephone or by signing
and returning the proxy card, you appoint Michael L. Eskew and
Teri P. McClure as your representatives at the annual meeting.
They will vote your shares at the annual meeting as you have
instructed them (or, if an issue that is not on the proxy card
comes up for vote, in accordance with their best judgment). This
way, your shares will be voted whether or not you attend the
annual meeting. Even if you plan to attend the annual meeting,
we encourage you to vote by using the Internet, by telephone or
by signing and returning your proxy card in advance.
Holders of our class A common stock and our class B
common stock at the close of business on March 12, 2007 are
entitled to vote. March 12, 2007 is referred to as the
record date.
In accordance with Delaware law, a list of shareowners entitled
to vote at the meeting will be available in electronic form at
the place of the annual meeting on May 10, 2007 and will be
accessible in electronic form for ten days prior to the meeting
at our principal place of business, 55 Glenlake Parkway, N.E.,
Atlanta, Georgia 30328, and at the offices of Morris, Nichols,
Arsht & Tunnell, 1201 North Market Street, Wilmington,
Delaware 19899, between the hours of 9:00 a.m. and
5:00 p.m.
Holders of class A common stock are entitled to ten votes
per share. Holders of class B common stock are entitled to
one vote per share. On the record date, there were
389,330,656 shares of our class A common stock and
674,909,016 shares of our class B common stock
outstanding and entitled to vote.
The voting rights of any shareowner or shareowners as a group,
other than any of our employee benefit plans, who beneficially
own shares representing more than 25 percent of our voting
power are limited so that the shareowner or group may cast only
one one-hundredth of a vote with respect to each vote in excess
of 25 percent of the outstanding voting power.
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Shareowners of record may vote by using the Internet, by
telephone or by mail as described below. Shareowners also may
attend the meeting and vote in person. If you hold class B
shares through a bank or broker, please refer to your proxy card
or the information forwarded by your bank or broker to see which
options are available to you.
The method you use to vote will not limit your right to vote at
the annual meeting if you decide to attend in person. Written
ballots will be passed out to anyone who wants to vote at the
annual meeting. If you hold your shares in “street
name,” you must obtain a proxy, executed in your favor,
from the holder of record to be able to vote in person at the
annual meeting.
The presence, in person or by proxy, of the holders of a
majority of the votes entitled to be cast at the annual meeting
will constitute a quorum. If a quorum is present, we can hold
the annual meeting and conduct business.
You may revoke your proxy and change your vote at any time
before the polls close at the annual meeting. You may do this by:
Attendance at the meeting will not by itself revoke a proxy.
You are being asked to vote on two items:
No cumulative voting rights are authorized, and dissenters’
rights are not applicable to these matters.
With respect to the election of nominees for director, you may:
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The 10 nominees receiving the highest number of affirmative
votes will be elected as directors. This number is called a
plurality.
If a nominee is unable to stand for election, the board may, by
resolution, provide for a lesser number of directors or
designate a substitute nominee. If the board designates a
substitute nominee, shares represented by proxies voted for the
nominee who is unable to stand for election will be voted for
the substitute nominee.
With respect to the proposal to ratify the appointment of our
independent registered public accountants, you may:
The ratification of the appointment of our independent
registered public accountants must receive the affirmative vote
of a majority of the votes that could be cast at the annual
meeting by the holders who are present in person or by proxy to
pass. If you abstain from voting on the proposal, it will have
the same effect as a vote against the proposal.
The board recommends a vote
If you return a signed card but do not provide voting
instructions, your shares will be voted FOR all 10 director
nominees and FOR the ratification of the appointment of our
independent registered public accountants.
If you own class A shares and you do not vote by using the
Internet, by telephone or by signing and returning your proxy
card, then your class A shares will not be voted and will
not count in deciding the matters presented for shareowner
consideration in this proxy statement. If your class A
shares are held pursuant to the UPS Qualified Stock Ownership
Plan and Trust and you do not vote by using the Internet, by
telephone or by signing and returning your proxy card, the
trustee will vote your shares for each proposal in the same
proportion as the shares held pursuant to that plan for which
voting instructions were received.
If your class B shares are held in street name through a
bank or broker, your bank or broker may vote your class B
shares under certain circumstances if you do not provide voting
instructions before the annual meeting, in accordance with New
York Stock Exchange (“NYSE”) rules that govern the
banks and brokers. These circumstances include “routine
matters,” such as the election of directors and
ratification of the appointment of our independent registered
public accountants described in this proxy statement. With
respect to these matters,
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therefore, if you do not vote your shares, your bank or broker
may vote your shares on your behalf or leave your shares unvoted.
You will need proof of your share ownership (such as a recent
brokerage statement or letter from your broker showing that you
owned United Parcel Service Inc.’s stock as of
March 12, 2007) and a form of photo identification. If
you do not have proof of ownership and valid photo
identification, you will not be admitted to the annual meeting.
All bags, briefcases and packages will be held at registration
and will not be allowed in the meeting.
Yes. This proxy statement and the 2006 Annual Report to
Shareowners are available on the investor relations page of our
website located at www.shareholder.com/ups. Instead of
receiving paper copies in the mail, shareowners can elect to
receive an
e-mail that
provides a link to our future annual reports and proxy materials
on the Internet. Opting to receive your proxy materials on-line
will save us the cost of producing and mailing documents to your
home or business, and will give you an automatic link to the
proxy voting site.
If you are a shareowner of record and wish to enroll in the
electronic proxy delivery service, you may do so by going to
www.icsdelivery.com/ups and following the prompts.
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There are 10 nominees to our board of directors this year. All
directors are elected annually to serve until the next annual
meeting and until their respective successors are elected. All
of the nominees have served as directors since our last annual
meeting.
John Beystehner retired from our board on January 2, 2007.
In accordance with our Corporate Governance Guidelines, Gary
MacDougal, who has served our company as a director since 1973,
is not standing for re-election at our annual meeting. We thank
John and Gary for their many years of dedicated service to the
board and to UPS.
The board
of directors recommends a vote FOR the election
to the board of each of the following nominees.
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Our board has delegated to the Nominating and Corporate
Governance Committee the responsibility for reviewing and
recommending to the board nominees for director. Board
candidates are evaluated based upon various factors, such as
personal character, values and disciplines, ethical standards,
diversity, professional background and skills, all in the
context of an assessment of the needs of the board at that time.
In addition, each director is expected to ensure that other
existing and planned future commitments do not materially
interfere with his or her responsibilities as a director.
Accordingly, the Nominating and Corporate Governance
Committee’s objective is to maintain a board of individuals
of the highest personal character, integrity and ethical
standards, and that reflects a range of professional backgrounds
and skills relevant to our business. The Nominating and
Corporate Governance Committee identifies new director
candidates through a variety of sources.
The Nominating and Corporate Governance Committee will consider
director candidates proposed by shareowners on the same basis as
recommendations from other sources. Any shareowner who wishes to
recommend a prospective candidate for the board of directors for
consideration by the Nominating and Corporate Governance
Committee may do so by submitting the name and qualifications of
the prospective candidate in writing to the following address:
Corporate Secretary, 55 Glenlake Parkway, N.E., Atlanta, Georgia
30328.
Our board of directors held five meetings during 2006. Each of
our directors attended at least 75 percent of the total
number of meetings of the board and any committees of which he
or she was a member. It is the board’s policy that our
directors attend the annual meeting. All of the directors who
were serving at our 2006 annual meeting of shareowners attended
the annual meeting.
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Our Corporate Governance Guidelines include categorical
standards adopted by the board to determine director
independence that meet the listing standards set forth by the
NYSE. The portion of our Corporate Governance Guidelines
addressing director independence is attached to this proxy
statement as Annex I.
Pursuant to the Corporate Governance Guidelines, the board
undertook its annual review of director independence in February
2007. During this review, the Board considered whether there
were any transactions or relationships between each director or
any member of his or her immediate family and UPS. The board
also examined whether there were any transactions or
relationships between an organization of which a director is a
partner, shareholder or officer and UPS. The purpose of this
review was to determine whether any such relationships or
transactions were inconsistent with a determination that a
director is independent. The board also evaluated the
categorical standards that form a part of our Corporate
Governance Guidelines.
As a result of this review, the board affirmatively determined
that the following directors nominated for election at the
annual meeting are independent directors: Michael Burns, Stuart
Eizenstat, Jim Kelly, Ann Livermore, Vic Pelson, John
Thompson, Carol Tomé and Ben Verwaayen. The board also
determined that Gary MacDougal is an independent director.
The other directors nominated for election at the annual
meeting, Mike Eskew and Scott Davis, are not independent
directors because they are employed by UPS. In addition, John
Beystehner, who served on our board in 2006, was not independent
because he was employed by UPS.
In determining the independence of Michael Burns, Stuart
Eizenstat, Ann Livermore, Vic Pelson, John Thompson, Carol
Tomé and Ben Verwaayen, our board considered ordinary
course transactions between UPS and the companies that employ
these directors.
Michael Burns is the Chairman, Chief Executive Officer and
President of Dana Corporation. Dana Corporation filed a
voluntary petition under Chapter 11 of the federal
bankruptcy laws on March 3, 2006.
Our non-management directors hold executive sessions without
management present as frequently as they deem appropriate, and
at least two times each year. The presiding director for these
meetings rotates meeting by meeting among the chairpersons of
the board committees that are composed entirely of independent
directors, currently the Audit, Nominating and Corporate
Governance and Compensation Committees. The presiding director
determines the agenda for the session and, after the session,
acts as a liaison between the non-management directors and the
chairman and chief executive officer. The presiding director may
invite the chairman and chief executive officer to join the
session for certain discussions, as he or she deems appropriate.
If the non-management directors include any directors who are
not independent directors, then at least once a year there will
be an executive session including only the independent directors.
Our Corporate Governance Guidelines are available on the
governance section of the investor relations page of our website
(www.shareholder.com/ups). In addition, the charters that
have been adopted for each of the Audit, Compensation and
Nominating and Corporate Governance Committees are available on
the governance section of the investor relations page of our
website.
We have a long-standing commitment to conduct our business in
accordance with the highest ethical principles. Our Code of
Business Conduct is applicable to all the representatives of our
enterprise, including our executive officers and all other
employees and agents of our company and our subsidiary
companies, as well as to our directors. A copy of our code is
available on the governance section of the investor relations
page of our website.
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A copy of our Corporate Governance Guidelines, committee
charters and Code of Business Conduct may also be obtained
without charge upon written request to: Corporate Secretary, 55
Glenlake Parkway, N.E., Atlanta, Georgia 30328.
Any shareowners or interested parties who wish to communicate
directly with our board of directors, with our non-management
directors as a group or with the presiding director of our
non-management directors may do so by writing to Corporate
Secretary, 55 Glenlake Parkway, N.E., Atlanta, Georgia 30328.
Please specify to whom your letter should be directed. Once the
communication is received by the corporate secretary, the
corporate secretary reviews the communication. Communications
that comprise advertisements, solicitations for business,
requests for employment, requests for contributions or other
inappropriate material will not be forwarded to our directors.
Other communications are promptly forwarded to the addressee.
Committees
of the Board of Directors
Our board of directors has four committees: the Audit Committee,
the Compensation Committee, the Nominating and Corporate
Governance Committee and the Executive Committee. The following
table shows the current members of each committee.
X= current committee member; * = chair
Audit Committee. The primary responsibilities
of our Audit Committee include:
In 2006, the Audit Committee held eight meetings. Each
member of our Audit Committee meets the independence
requirements of the NYSE and SEC rules and regulations, and each
is financially literate. Our board has determined that Carol
Tomé is an audit committee financial expert as defined by
the SEC.
Compensation Committee. The primary
responsibilities of our Compensation Committee include:
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In 2006, the Compensation Committee held four meetings.
Each member of our Compensation Committee meets the independence
requirements of the NYSE and is an outside director under
Section 162(m) of the Internal Revenue Code. For additional
information about the Compensation Committee’s processes
and the role of executive officers and compensation consultants
in determining compensation, see “Compensation Discussion
and Analysis.”
Nominating and Corporate Governance
Committee. The primary responsibilities of our
Nominating and Corporate Governance Committee include:
In 2006, the Nominating and Corporate Governance Committee held
four meetings. Each member of our Nominating and Corporate
Governance Committee meets the independence requirements of the
NYSE.
Executive Committee. The Executive Committee
may exercise all powers of the board of directors in the
management of our business and affairs, except for those powers
expressly reserved to the board under Delaware law. In 2006, the
Executive Committee held no meetings.
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BENEFICIAL
OWNERSHIP OF COMMON STOCK
The following table describes the beneficial ownership of our
common stock as of February 1, 2007 by
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Additional
Ownership
In addition to the beneficial ownership of our common stock
discussed above, our directors and executive officers also hold
equity instruments that are not reported in the beneficial
ownership table but represent additional financial interests
that are subject to the same market risk as ownership of our
common stock. The number of shares of stock to which these stock
units are equivalent as of February 1, 2007 is as follows.
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Restricted stock units are bookkeeping units, the value of each
of which corresponds to one share of UPS class A common
stock. RSUs vest in approximately twenty percent increments on
each October 15th during the five-year vesting period
if the grantee remains an employee of UPS or one of its
subsidiaries. In addition, RSUs will vest if the grantee’s
employment terminates by reason of death. In the event of
termination due to disability or retirement as defined by the
plan, RSUs will vest immediately, but will continue to be paid
out in approximately twenty percent increments each year until
the end of the five-year cycle. The awards are eligible for
dividend equivalents, which are deemed to be automatically
reinvested into additional RSUs. At each October vesting event
during the five-year vesting period, the individual receives
shares of UPS class A common stock.
Phantom stock units are bookkeeping units, the value of each of
which corresponds to one share of UPS common stock. Dividends
paid on UPS common stock automatically are deemed to be
reinvested in additional phantom stock units. Upon termination
of the individual’s service as a director, amounts
represented by phantom stock units will be distributed in cash.
Restricted performance units (“RPUs”) are bookkeeping
units, the value of each of which corresponds to one share of
class A UPS common stock. RPUs vest on the fifth
anniversary date of their grant if the grantee remains an
employee or director of UPS or one of its subsidiaries. In
addition, the RPUs will vest if the grantee’s employment
terminates by reason of death, disability or retirement.
Dividends paid on UPS common stock automatically are deemed to
be reinvested in additional RPUs. The number of RPUs granted to
each individual will increase by 10 percent if we attain
certain performance measures for each five-year performance
period. Upon vesting of RPUs, the individual receives shares of
UPS class A common stock.
Stock option deferral shares are shares held for the individual
in a rabbi trust within the UPS Deferred Compensation Plan. Each
individual elected to defer the receipt of these shares rather
than acquiring them directly upon the exercise of a stock option.
Other Deferred Compensation Plan balances are amounts within the
UPS Deferred Compensation Plan allocated to UPS common stock.
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COMPENSATION
DISCUSSION AND ANALYSIS
UPS founder Jim Casey once said that good management is the
ability to make people feel that you and they are the
company — not merely employees of it. The idea of
management by partnership, and Jim’s belief that determined
people working together can do anything are two of many basic
principles that have allowed UPS to grow and reinvent itself for
more than 99 years. The management philosophy Jim expressed
in the early years of operation grew into a culture based on
integrity, honesty and trust in each other. Our practices,
including compensation programs, reflect an early understanding
that continued success was not only dependent on our innovative
service, but also on the development and well-being of the UPS
team. UPS leaders will consistently point to three practices,
above all others, which have contributed to our sustained growth:
We reflect these principles in our compensation programs by
rewarding ownership, performance and long-term commitment to the
organization. UPS career development and succession planning
programs strengthen the partnership by offering rotational
assignments within and across UPS business units, through
internal and external education, by identification of future
career paths and by encouraging individual responsibility for
self-development.
The UPS management team, including the Named Executive Officers
(“NEOs”), is comprised mainly of employees who have
spent virtually their entire careers with us, and many would say
they have had the good fortune of having more than one career at
UPS due to the variety of assignments and advancement
opportunities available across business units, functions and
geographies. UPS has grown to include small package delivery;
supply chain management; financial services; information
management; freight transportation and delivery; consolidated
mail services; and the operation of one of the largest airlines
in the world. Our growth has resulted in greater career
opportunities available to our best employees.
We believe the opportunity for career development and
advancement within UPS builds loyalty, reinforces our strong
corporate culture and reduces training and recruiting expenses.
Ultimately these attributes provide a greater return to our
shareowners. However, the high quality of our management team
would not preclude looking outside UPS to fill an executive
position if it was in the best interest of UPS and its
shareowners.
Our executive compensation program is administered by the
Compensation Committee of the board of directors. The
Compensation Committee is comprised solely of non-employee
directors who meet the independence requirements of the NYSE,
and currently includes Vic Pelson (Chair), Stuart Eizenstat
and John Thompson.
In regard to the compensation of the NEOs, the Compensation
Committee is responsible for:
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The Compensation Committee has sole authority to engage and
terminate outside advisors or consultants to assist in carrying
out its responsibilities. Consultants are selected by the
Compensation Committee and report directly to the Chair of the
Compensation Committee. For 2006, the Compensation Committee
retained the services of Mercer Human Resource Consulting as its
independent compensation consultant. In 2006, Mercer provided
the following services:
In addition to these services, Mercer provided limited services
in the area of healthcare and benefits consulting to UPS
management.
The Compensation Committee is responsible for establishing the
principles that underlie and guide the design and administration
of our executive compensation programs. The following
compensation principles are designed to drive company
performance, create long-term value for our shareowners and
attract, retain and motivate key talent.
Each year, we review compensation survey data from several
independent sources such as Towers Perrin, Hewitt Associates or
Mercer, to ensure our compensation programs and compensation
levels are appropriate relative to the market and aligned with
company performance. In addition, internal comparisons are made
between the executive positions and their direct reports to
ensure an appropriate division of pay based on level of
responsibility, market data and operational objectives.
With respect to cash compensation, the Compensation Committee
reviews data concerning compensation for comparable positions at
companies that have similar revenues and characteristics. Our
long-term incentive programs are strongly aligned with
shareowners’ interests and company performance, and new
grants are determined on an annual basis. Generally, historical
long-term incentive gains or accumulated values do not impact
future grants.
The Compensation Committee, using data provided by an
independent consultant, reviews an annual benchmark assessment
of compensation levels for our top executives using both peer
group comparisons as well as blended survey data. The companies
used for executive compensation comparisons are not limited to
the companies that comprise the S&P 500 Index and the Dow
Jones Transport Average used in the shareowner return
performance graph contained in our Annual Report on
Form 10-K.
In 2006, the salary survey data used for analysis was provided
by Towers Perrin for companies with more than $10 billion
in revenue. The survey data was used to review base salary,
short-term and long-term incentives and perquisites to determine
how our compensation compares to other large companies. In
addition, for the CEO and our directors, we analyzed
compensation at the following companies: 3M Co., AT&T Corp.,
BellSouth Corp., Boeing Co., Caterpillar Inc., The
Coca-Cola
Company, COSTCO Wholesale Corp, Dell Inc., Dow Chemical Co.,
FedEx Corp., Hewlett-Packard Co., Intel Corp., International
Business Machines Corp., Johnson & Johnson, Lockheed
Martin Corp., Motorola Inc., Pepsico Inc., Pfizer Inc.,
Procter & Gamble Co., Target Corp., United Technologies
Corp., Walgreen Co., and Xerox Corp.
In 2006, the Compensation Committee made the following changes
to the compensation program to maintain reasonable market
positioning based on absolute and relative performance:
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The Compensation Committee believes these changes will further
strengthen the performance incentive and competitive talent
retention objectives of our executive compensation program.
Compensation for the NEO group is linked to individual
performance, experience and leadership, company performance and,
for equity-based awards, share price performance. Measurement of
performance is made against financial and non-financial
objectives. Our compensation programs provide NEOs with a pay
opportunity that is internally equitable when compared to other
jobs in the organization and reflective of the UPS legacy of
ownership.
The weight placed on internal equity has kept total compensation
levels for executives below the median of other large
organizations. The Compensation Committee added the LTIP in 2006
to improve the executives’ total compensation package
relative to the market. However, even with the addition of the
LTIP award, NEO total compensation is closer to the
25th percentile of the market than the market median, based
on data provided by Towers Perrin.
The Compensation Committee believes that when either our
performance or individual achievements exceed the objectives set
for the performance period, employees should receive additional
compensation. When the performance does not meet expectations,
overall pay should reflect actual performance.
Long-term incentives are designed to align pay with shareowner
return, drive performance and encourage long-term ownership and
commitment to UPS. In addition to the design of long-term
incentives, we utilize performance metrics which strongly
correlate to enhanced shareowner value over time.
Total compensation for our senior executives is guided by the
belief that internal equity should have greater emphasis than
comparisons to market data. Total compensation for executives,
including the value of annual and long-term incentive
components, is generally lower than the market median. The
Compensation Committee, however, is mindful of the need to
maintain a reasonable position to the market to retain current
and future leaders. The actual payout for annual and long-term
incentive programs is ultimately determined by company
performance against pre-established objectives and individual
contribution.
Until 1999, we were owned by our employees and managed by our
owners. Since going public in 1999, our employees still maintain
a significant ownership in our company. To achieve our objective
of stock ownership by management employees, four compensation
programs were authorized under the UPS Incentive Compensation
Plan — the UPS Management Incentive Awards Program
(“MIP”), which is comprised of both short-term and
long-term incentives, the UPS Ownership Incentive Award,
the UPS Long-Term Incentive Program (“LTI”) and the
LTIP. An overview of these programs is provided in
“Elements of UPS Compensation,” and material
information about the plan designs is included in the narrative
and footnotes accompanying the compensation tables below.
Because our compensation programs are designed to foster
long-term stock ownership by managers, each executive officer
has accumulated a meaningful number of shares of our common
stock. As a result, the interests of shareowners and our
executive officers are closely aligned, and the executive
officers have strong incentives to provide for effective
management. Additionally, executive officers and directors are
expected to acquire and hold a significant amount of UPS stock
as described under “Stock Ownership Guidelines” below.
The proportion of an executive’s compensation package that
varies based on individual and corporate performance objectives
increases as the level of the individual’s responsibilities
increases. Long-term incentives
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granted in 2006 in the form of stock options, RSUs and RPUs
constituted approximately 66 percent of total cash and
long-term incentives for the four NEOs other than the CEO, and
71 percent for the CEO. The values are based on a
comparison of grant date fair value of the long-term awards to
cash awards.
The cash award amounts above include base salary, Half-Month
Bonus and the cash portion of the 2006 MIP. The long-term
incentive amounts reflect the grant date fair value of the stock
options and RPUs granted under the 2006 LTI, the RSUs granted
under the 2006 LTIP and the RSUs granted under the 2006 MIP.
In addition to looking at the percent of pay linked to long-term
incentives, the Compensation Committee also believes that a
majority of total compensation that could be earned by our
officers should be “at risk” and subject to short-term
and long-term performance goals, individual and company
performance and stock price performance. The 2006 compensation
elements with “at risk” components comprised
approximately 63 percent of the 2006 target compensation
opportunity for the NEOs. The Compensation Committee believes
that this ratio is appropriate. The compensation elements with
an “at risk” component include the annual merit
increase to base salary, the MIP award (both cash and RSUs), the
stock options granted under the LTI and the RSUs granted under
the LTIP.
Performance elements vary by program, and actual compensation
paid will be affected by individual performance, short-term and
long-term company performance and stock price appreciation.
Our compensation plans are designed to emphasize strong annual
performance and foster long-term operational performance and
success. Although the compensation elements and type of
compensation may vary each year based on competitive market
requirements and strategic business needs, the overall
compensation package will provide an appropriate mix between
annual and long-term compensation elements.
Consistent with this belief, compensation for executive officers
is structured to place significance on long-term objectives and
share price appreciation. The percentage of target pay linked to
long-term performance objectives was approximately
84 percent of the CEO’s targeted 2006 compensation
opportunity, and an average of 80 percent for the other
NEOs. The percentages are based on the targeted long-term values
of the awards, not the grant date fair value of the awards. The
compensation elements defined as long-term incentives include
the RSUs awarded under the MIP with five-year vesting; the stock
options and RPUs awarded under the LTI program with five-year
vesting; and the RSUs awarded under the LTIP with three-year
vesting. The actual amounts paid are tied to company short and
long-term performance and stock price appreciation. The
Compensation Committee believes that these percentages are
appropriate.
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Consistent with the UPS Manager-Owner philosophy described
above, the Compensation Committee believes that a significant
portion of an executive officer’s total compensation should
be provided in the form of equity or equity-based incentives.
Equity grants are issued under the UPS Incentive Compensation
Plan, which was approved by shareowners in 1999. A detailed
discussion of our equity programs is provided in the
“Elements of Compensation” section below.
In 2006, the proportion of targeted cash compensation to
targeted non-cash compensation was approximately 16 percent
cash to 84 percent non-cash for the CEO, and an average
target of 20 percent cash to 80 percent non-cash for
the other NEOs. Elements of cash compensation include base
salary, Half-Month Bonus and the cash portion of the MIP. The
non-cash compensation includes only long-term incentives,
therefore the percentage of non-cash targets is the same as the
percentage of long-term incentive targets reported above. The
Compensation Committee, with input from its compensation
consultant, evaluates this ratio each year against emerging
trends and compensation survey data to ensure that we maintain
programs reasonably positioned relative to the market.
Our compensation and benefit programs reflect a philosophy of
providing fair, equitable and appropriate rewards that support
our operating environment; attract and retain a diverse and
highly skilled workforce; and when appropriate, are flexible
enough to respond to changing market conditions.
In 2006, the Compensation Committee adopted a recoupment policy
with respect to equity awards to our executive officers.
Pursuant to this policy, if financial results used to determine
the amount of an award are materially restated and an executive
engaged in fraud or intentional misconduct, we will seek
repayment or recovery of the award, as appropriate.
Since equity award programs can have a dilutive impact on
shareowner value, we evaluate the current overhang rate
(outstanding grants plus shares available for grants divided by
common shares outstanding) when designing new programs or
granting new awards. Our 2006 overhang rate is 7.84 percent.
Shares and units included in the overhang calculation include
outstanding stock options, RPUs and RSUs, as well as the number
of shares set aside for future grants.
Another indicator of dilutive impact to shareowner value is the
grant rate (total shares or units granted in a year divided by
common shares outstanding). In 2006, our grant rate for shares
and units was 0.67 percent of common shares outstanding. While
we are attentive to these measures, we believe that the low
values indicate that dilution is not a current issue for our
equity plans.
In addition to establishing the compensation principles
described above, we have adopted a number of policies to further
the goals of the executive compensation program, particularly
with respect to strengthening the alignment of our executive
officers’ interests with shareowner long-term interests.
The board has adopted stock ownership guidelines which extend to
all levels of management and to members of our board of
directors. The guidelines are consistent with our core
philosophy that managers should also be owners of our company.
The guidelines are based on our expectation that each member of
our management team and board maintains a significant level of
investment in our stock.
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Shares owned outright, deferred units and RSUs are regarded as
owned for purposes of calculating ownership. Existing executives
and directors have five years from the adoption of the
guidelines in 2003 to accumulate the required shares. The
guidelines and each NEO’s ownership on the most recent
measurement date of October 20, 2006 are as follows:
The Compensation Committee reviews the guidelines annually and
monitors the executive officers’ progress toward meeting
the guidelines. Target ownership for all members of the
Management Committee, except the CEO, is six times annual
salary. The target for non-employee directors is three times
their annual retainer.
None of our executive officers is currently subject to a written
or verbal employment agreement.
None of our executive officers is currently subject to a
separate change in control or severance agreement.
The UPS Incentive Compensation Plan includes a provision for an
automatic acceleration of unvested awards in the event of a
change in control. In the Compensation Committee’s view,
the accelerated vesting of all outstanding equity awards
following a change in control is a customary and reasonable
component of an equity incentive program. The Compensation
Committee believes that the equity awards granted to the
executive officers have been reasonable in amount, and a
substantial part of the value that would be received by them in
the event of a change in control would result from the increase
in the price of our common stock over the years.
The estimated payments and benefits to the NEOs assuming a
change of control and a qualifying termination of employment as
of December 31, 2006 are described in “Potential
Payments on Termination or Change In Control” below.
Grants for all equity programs under the UPS Incentive
Compensation Plan are approved by the Compensation Committee.
The Compensation Committee has also determined that grant dates
will be set for all plan participants so that they occur during
the middle of the fiscal quarter and do not fall within the
period 30 days prior to the release of company earnings.
In light of the recent publicity concerning the back-dating of
stock options, management reviewed our option grant history and
grant procedures, and reaffirmed that our historical and current
stock option practices are appropriate.
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Each year, typically in November, the Compensation Committee
conducts a compensation review for the executive officers. The
review evaluates all elements of compensation against
competitive market data, emerging trends and other UPS positions.
The performance of the CEO is reviewed by the Compensation
Committee on an annual basis. The Compensation Committee is
responsible for reviewing the achievement of individual goals
and objectives, evaluating performance and setting compensation
based on this evaluation. In addition, the full board meets in
executive session each year to review the CEO’s
performance. The session is conducted without the CEO present.
The Compensation Committee uses specified criteria to help
assess the performance of the CEO in addition to our financial
results and performance against annual objectives. Among other
things, the Compensation Committee evaluates strategic vision
and leadership, our business and operational results, the
ability of the CEO to make long-term decisions that create
competitive advantage and position us as the premier enabler of
global commerce and his overall effectiveness as a leader and
role model.
2006 was a year of progress and accomplishment across a number
of critical areas for UPS. Under Mike Eskew’s
leadership, we completed the integration of strategic
acquisitions made in previous years to grow our Supply Chain and
Freight businesses, experienced strong growth in global markets
and achieved significant business and financial results. The
Compensation Committee did not assign particular weights to
these factors.
In addition, the CEO provides the Compensation Committee an
evaluation of and compensation recommendations for each of the
other executive officers. The Compensation Committee then
reviews and approves compensation amounts for each executive
officer with respect to each of the elements in our executive
compensation program, as described in more detail below.
The four components of the UPS executive compensation program
are:
Each of these components is discussed below.
During the annual compensation review, the Compensation
Committee develops salary recommendations based on the
individual’s scope of responsibilities, experience,
sustained performance and contributions to UPS. A significant
factor in determining annual increases is the Compensation
Committee’s strong desire to keep the base salary levels of
executive officers reasonable in comparison with the base
salaries of other executives with similar responsibilities at
comparable companies, and in comparison to the salaries of other
UPS management positions. We participate in and purchase surveys
annually to monitor market trends. Internal equity comparisons,
performance, leadership and market data are all considered when
determining annual salary adjustments for our senior officers.
For 2006, base salary increases for the NEOs averaged
4.5 percent compared to an average increase of
4.1 percent for the other Management Committee members. The
base salaries for the NEOs for 2006 are shown in the Summary
Compensation Table below.
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The MIP is designed to align pay with annual company performance
as well as individual achievements and performance. Executive
officers have the opportunity to earn an annual incentive award
when we meet target performance objectives. Incentives paid
above target are possible only if we exceed our performance
objectives. The Compensation Committee exercises its judgment on
the level of incentive payments based on considerations
including overall responsibilities and the importance of these
responsibilities to our success.
If targeted objectives are not met, our executive officers
receive no award or a less than target award reduced as
appropriate based on the actual performance results. Annual MIP
incentives are issued under the UPS Incentive Compensation Plan,
which was approved by shareowners in 1999, and are intended to
satisfy the requirements for performance-based compensation as
defined in Section 162(m) of the Internal Revenue Code.
Prior to 2005, the MIP awards were made solely in shares of
class A common stock. In 2005, we redesigned the
methodology for determining MIP awards to better align
management and shareowner interests, and better reflect our
performance in relation to established corporate objectives.
Currently, one half of the MIP award is paid as an annual
incentive in cash (or the equivalent cash value in shares of UPS
class A stock, at the participant’s election). The
other half of the MIP award is a long-term incentive and awarded
in RSUs that vest over five years.
The level of participation for the CEO and other executive
officers is the same as for approximately 11,000 participating
employees at or above the mid-manager level.
The redesigned MIP program establishes target award levels for
eligible participants expressed as multiples of monthly salary.
The target awards are then multiplied by a factor, as approved
by the Compensation Committee, which represents our success in
achieving business element goals. The actual MIP awards granted
to participants can be higher or lower than target depending on
achievement of the business element goals.
The Compensation Committee, considering recommendations from the
CEO and CFO, sets the company performance objectives and target
amounts payable. The 2006 target opportunity for the cash
portion of the MIP for each NEO is shown in the Grants of
Plan-Based Awards Table below.
MIP is designed to incorporate performance criteria which
support our annual operating plan and business strategy. For the
2006 MIP fiscal year, goals were established for the following
six business elements:
1. Growth in consolidated package volume
2. Growth in consolidated revenue
3. Growth in consolidated, as adjusted, net income
4. Non-operating cost as a percent of revenue
5. Package flow technology implementation
6. Successful integration of acquisitions
Executives are also evaluated on personal criteria including
leadership, managerial skills and talent, business knowledge and
execution of UPS’s overall business strategy, and adherence
to company values.
The goals for the six business elements were based on our
confidential business plans established at the beginning of the
2006 MIP fiscal year. These goals were consistent with other
publicly disclosed financial targets for 2006, and were designed
to be challenging yet achievable. After evaluating our
performance against these goals, the Compensation Committee
determined that the 2006 MIP award to be paid to all recommended
managers, including the NEOs, would be reduced from the targeted
award amount by 20 percent due to below plan performance
with respect to certain of these business elements. The annual
incentive bonuses paid to the NEOs during 2006 are shown in the
Summary Compensation Table below.
To reward management employees for maintaining an ownership
stake in UPS, all participants in the MIP are eligible for an
additional incentive up to the equivalent of one month’s
salary. Ownership levels for the 2006 awards were determined by
totaling the number of UPS shares in the participant’s
family group accounts and the
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participant’s unvested restricted stock units and deferred
compensation shares, and then multiplying the sum by the closing
price of a class B share on the NYSE on October 20,
2006.
The amount of the award is a percent of monthly salary equal to
the participant’s percent of ownership relative to their
target. For example, if the participant’s 2006 ownership
equaled 80 percent of their ownership target, their
Ownership Incentive Award had a value equal to
80 percent of their monthly salary. If ownership is at or
above the target level, an award equivalent to one month’s
base salary is awarded.
The Half-Month Bonus, equal to one half of one month’s
salary, is awarded in December. It is designed to reward
employees for their extra efforts during peak season and
throughout the year.
Our long-term incentive programs provide participants with
grants of equity-based incentives that are intended to reward
performance over a period of more than one year. Grants are made
pursuant to the UPS Incentive Compensation Plan and delivered in
the form of class A shares at vesting. Awards are based on
longer-term operational performance and long-term stock price
appreciation. The Compensation Committee believes equity-based
compensation performs an essential role in retaining and
motivating our executive officers by providing them incentives
which are linked to our long-term success and maximizing
shareowner value.
The long-term incentive component of our executive compensation
package is delivered in three separate programs under the UPS
Incentive Compensation Plan:
Award values are based on general survey data regarding total
compensation packages and the value of long-term incentive
awards at peer companies. The Compensation Committee also
considers factors such as market conditions, company
performance, employee ownership levels and the dilution level to
shareowners.
Stock options have been a major portion of executive
compensation since 1981. The Compensation Committee believes
that stock option awards provide a significant link to company
performance and maximize shareowner value. Stock options will
have value only if the market value of our common stock
increases above the exercise price of the option and the
option-holder does not terminate employment for reasons other
than retirement, death or disability during the vesting period.
Stock option awards are granted to employees annually, typically
in May of each year. Stock options are issued at fair market
value on the date of grant, vest five years from the date of
grant and expire ten years from the date of grant. Grants do not
include dividend equivalents or any reload grant features.
During 2006, a total of 2,434,629 options (0.22 percent of
common shares outstanding) were issued to 3,333 employees.
Those non-qualified or incentive stock options which vested
prior to December 31, 2004 which remain unexercised and for
which an election was made to defer the gain into the UPS
Deferred Compensation Plan will be deferred into the UPS
Deferred Compensation Plan at the time of exercise. The shares
received upon exercise of these options are deferred into a
rabbi trust. The shares held in this trust are classified as
treasury stock, and the liability to participating employees is
classified as “deferred compensation obligations” in
the shareowners’ equity section of the balance sheet. As a
result of the requirements applicable to non-qualified deferred
compensation arrangements under Section 409A of the
Internal Revenue Code and related guidance, deferral of stock
options is no longer offered under the UPS Deferred Compensation
Plan for options that vest after December 31, 2004.
Beginning in 2003, employees in key leadership positions were
entitled to receive awards of RPUs as part of the LTI program
under the UPS Incentive Compensation Plan. The decision to use
RPUs was based on two goals for the award:
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RPUs are delivered at 100 percent of the value of a UPS
class A share at vesting. The awards are eligible for
dividend equivalents, which are deemed to be automatically
reinvested into additional restricted performance units. In
2006, 990,861 RPUs were granted to 3,333 employees.
At the end of the five-year restriction period, the number of
RPUs granted to each individual can increase by 10 percent
if certain company-wide performance measures are attained. Upon
vesting of RPUs, the individual receives a distribution in the
form of shares of class A common stock, less the required
tax withholding.
As described above, we modified the MIP program in 2005 to
provide that half of the annual award be made in RSUs, with
certain exceptions for first-time MIP recipients. The RSUs
generally vest over a five-year period. RSUs are eligible for
dividend equivalents, which are deemed to be automatically
reinvested into additional RSUs. At the end of each annual
vesting period, the individual receives shares of class A
common stock. During 2006, approximately 3.7 million RSUs
were issued to approximately 32,000 employees.
In 2006, UPS adopted the 2006 LTIP under the UPS Incentive
Compensation Plan. The program has a three year award cycle,
from 2006 through 2008. Under the LTIP, target RSUs were granted
to executive officers, officers and certain other eligible
managers. As mentioned earlier, the Compensation Committee
approved the LTIP in the belief that it would further strengthen
the performance component of our executive compensation package,
and enhance our retention of key talent.
Target RSU grants range from 50 percent to 250 percent of annual
salary. For executive officers, the range is from 225 percent to
250 percent of annual salary. Of the total target award, 90
percent is divided into three substantially equal tranches, one
for each calendar year in the three-year award cycle from 2006
through 2008. The remaining 10 percent of the total target award
is based upon achievement of an adjusted net income target for
2008.
Specific performance measures and targets for each such
tranche are set by the Compensation Committee. The number
of RSUs earned each year will be the target number adjusted for
the percentage achievement of the performance criteria targets
for the year. The Compensation Committee may provide for payment
of a percentage less than or more than 100 percent of target
RSUs for each tranche based on achievement of performance
criteria.
The award, if earned, will vest on January 31, 2009,
provided the participant remains employed as of the vesting
date. Special vesting rules apply to terminations by reason of
death, disability or retirement. A participant’s earned
restricted stock units account will be adjusted quarterly for
dividends paid on class A common stock. The restricted
stock unit awards that vest will be distributed in the form of
class A shares. During 2006, a total of 623 employees
received a target grant of approximately 1.18 million RSUs.
The performance criteria approved by the Compensation Committee
for 2006 were growth in consolidated revenue and consolidated
operating return on invested capital. The goals for these
criteria were based on our confidential business plans and were
consistent with other publicly disclosed financial targets for
2006. At their meeting on February 7, 2007, the
Compensation Committee determined that 85 percent of the
target award for the 2006 tranche was earned.
The Compensation Committee believes that the specific
performance targets for the 2006 period incorporated an
appropriate level of difficulty and expectations for on-going
performance improvements. The goals for 2007 are also being
established with a similar intent.
Consistent with our culture, the benefits and perquisites
offered to the NEO group are the same or similar to programs
offered to the rest of the UPS management team, with the
exception of a financial planning service. These programs
include: matching contributions to the UPS Qualified Stock
Ownership Plan that are paid in shares of class A common
stock; qualified and non-qualified pension plans; life insurance
premiums paid by UPS; the Discounted Employee Stock Purchase
Plan; and a financial planning service.
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To ensure the Compensation Committee has current data regarding
total compensation practices at similar organizations, we
participate in surveys sponsored by outside consulting firms. In
2006, we participated in surveys sponsored by Hewitt Associates
and Towers Perrin.
The Compensation Committee has reviewed the details of the
benefits and perquisites provided to each of the executive
officers in 2006 and determined that they were in line with
competitive practices. Additional information on these benefits
can be found in the program descriptions below.
The QSOP provides a matching contribution (generally up to a
maximum of 3 percent of each participant’s eligible
compensation) to those employees of UPS who make elective
deferrals under the UPS Savings Plan and invests that matching
contribution entirely in class A common stock. The UPS
Savings Plan is a 401(k) plan offered to all U.S. based
employees who are not subject to a collective bargaining
agreement, and who are not eligible to participate in another
plan sponsored by UPS or one of its subsidiaries.
UPS executives participate in our qualified retirement program,
the UPS Retirement Plan, on the same terms as all other
participants. Benefits payable under the plan are subject to the
maximum compensation limits and the annual benefit limits for a
tax-qualified defined benefit plan as prescribed and adjusted
from time to time by the Internal Revenue Service. Amounts
exceeding these limits are paid pursuant to the UPS Excess
Coordinating Benefit Plan, which is a non-qualified restoration
plan designed to replace the amount of benefits limited under
the tax-qualified plan. Without the Excess Coordinating Benefit
Plan, UPS executives would receive a lower benefit as a percent
of final average earnings than the benefit received by other
participants in the UPS Retirement Plan.
To foster our Manager-Owner philosophy, we have a Discounted
Employee Stock Purchase Plan. The plan provides all
U.S. based employees, including executive officers, and
some internationally-based employees, with the opportunity to
purchase at a discount up to $10,000 in company stock annually.
The plan has been designed to comply with Section 423 of
the Internal Revenue Code. The purchase price at which our
common stock may be acquired under the plan is equal to 90
percent of the lesser of (a) the fair market value of the
shares on the first day of the calendar quarter or (b) the
fair market value of the shares on the last day of each calendar
quarter. Share purchases are made on a quarterly basis.
The NEOs and all other Management Committee members are eligible
for financial planning services provided by the Ayco Company.
Only a portion of the NEOs utilized the benefit in 2006. The
value of this benefit is shown in the footnotes to the Summary
Compensation Table below.
Although this benefit is not offered to other management
employees, we offer a separate financial counseling service
through PricewaterhouseCoopers to all U.S. and Puerto Rico based
employees who are not subject to a collective bargaining
agreement.
Section 162(m) of the Internal Revenue Code makes
compensation paid to certain executives in amounts in excess of
$1 million not deductible unless the compensation is paid
under a predetermined objective performance plan meeting certain
requirements, or satisfies one of various other exemptions.
The Compensation Committee believes that the interests of our
shareowners are best served by not restricting the Compensation
Committee’s discretion and flexibility in crafting
compensation plans and arrangements. While the Compensation
Committee intends to structure awards to comply with
Section 162(m), the Compensation Committee may approve
elements of compensation for certain executive officers that are
not fully deductible, and reserves the right to do so in the
future in appropriate circumstances.
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COMPENSATION
OF EXECUTIVE OFFICERS
Summary
Compensation Table for 2006
The following table shows the compensation for each of the Named
Executive Officers for 2006.
(1) This column represents the Half-Month Bonus awarded
annually in December. Eligibility varies by business unit;
however, the majority of the UPS management group, including the
NEOs, are eligible for the award.
(2) The values for equity-based awards in this column
represent the cost recognized for financial statement reporting
purposes for 2006, in accordance with FAS 123R. However,
pursuant to SEC rules these values are not reduced by an
estimate for the probability of forfeiture. Current and prior
year awards with compensation expense recognized in 2006 include:
The assumptions used to value these awards can be found in
Note 11 “Stock-Based Compensation” in our 2006
Form 10-K,
except for our 2003 RPUs, which can be found in Note 1
“Summary of Accounting Policies” and Note 11
“Capital Stock and Stock-Based Compensation” in our
2003
Form 10-K.
The grant date fair value of the awards can be found in the
Grants of Plan-Based Awards Table below. An overview
of the features of each program can be found in the
“Elements of UPS Compensation” section above, and in
the narrative following the Grants of Plan-Based Awards Table.
(3) The values for stock option awards in this column
represent the cost recognized for financial statement reporting
purposes for 2006, in accordance with FAS 123R. However,
pursuant to SEC rules these values are not reduced by an
estimate for the probability of forfeiture. Current and prior
year awards with compensation expense recognized in 2006 include
the grants made in 2003, 2004, 2005 and 2006 under the LTI
program.
The assumptions used to value these awards can be found in
Note 11 “Stock-Based Compensation” in our 2006
Form 10-K,
except for our 2003 stock option awards, which can be found in
Note 1 “Summary of Accounting Policies” and
Note 11 “Capital Stock and Stock-Based
Compensation” in our 2003
Form 10-K.
The grant date fair value of the awards can be found in the
Grants of Plan-Based Awards Table below. An overview of the
features of the program can be found in the “Elements of
UPS Compensation” section above, and in the narrative
following the Grants of Plan-Based Awards table below.
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(4) This column shows the cash portion (representing 50
percent) of the MIP award and the Ownership Incentive award,
which were paid in 2006. As more fully described in the
“Elements of UPS Compensation” section above, the 2006
MIP award was paid at 80 percent of target due to below plan
performance. The Ownership Incentive award was paid at
100 percent of target (one month’s salary) since each
NEO exceeded his target ownership level.
(5) This column represents an estimate of the increase in
the actuarial present value of the NEO’s accrued benefit
under our retirement plans from September 30, 2005 to
September 30, 2006, assuming a retirement age of 60. See
the Pension Benefits Table below for additional information,
including the present value assumptions used in this
calculation. There are no above market or preferential earnings
for the UPS Deferred Compensation Plan.
(6) Amounts reported in this column include 401(k) matching
contributions in the amount of $6,600 for each NEO. Also
includes imputed income of life insurance premiums for the NEOs
in the following amounts: Eskew — $4,840,
Davis — $2,322, Abney — $919,
Beystehner — $2,518 and Winestock — $1,553.
Also includes imputed income on the Restoration Plan Rollover
Option discussed in the 2006 Pension Benefits table below as
follows: Eskew — $10,522, Davis — $4,867
and Winestock — $3,633. The NEOs did not receive any
perquisites, except for financial planning services as follows:
Eskew — $11,175 and Davis — $12,214.
Grants of
Plan-Based Awards for 2006
The following table provides information about awards granted in
2006 to each of the NEOs.
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In 2006 we made four grants of equity incentive awards under the
UPS Incentive Compensation Plan, which represent four separate
programs within that plan. In order, as shown on the table, the
four grants represent:
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Outstanding
Equity Awards at Fiscal Year-End 2006
The following table shows the number of shares covered by
exercisable and unexercisable options and unvested RSUs and RPUs
held by the NEOs on December 31, 2006.
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The following table sets forth the number and corresponding
value realized during 2006 with respect to restricted stock that
vested for each NEO.
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2006
Pension Benefits
The following table quantifies the pension benefits expected to
be paid from the UPS Retirement Plan, the Restoration Plan
Rollover Option (“RPRO”) and the UPS Excess
Coordinating Plan. The terms of each are described below.
The UPS Retirement Plan is a qualified defined benefit plan
provided to executives and other UPS employees who generally are
not covered by a collective bargaining agreement and who are not
participating in another UPS-sponsored plan at a subsidiary
company. UPS also sponsors a non-qualified defined benefit plan,
the UPS Excess Coordinating Benefit Plan, for non-union
employees whose pay and benefits in the qualified plan are
limited by the Internal Revenue Service.
The Compensation Committee believes that the retirement,
deferred compensation
and/or
savings plans offered at UPS are important for the long-term
economic well-being of our employees, and are important elements
of attracting and retaining the key talent necessary to compete.
The UPS Retirement Plan and UPS Excess Coordinating Plan provide
monthly lifetime benefits to participants and their eligible
beneficiaries based on final average compensation at retirement,
service with UPS and age at retirement. Participants may choose
to receive a reduced benefit payable in an optional form of
annuity that is equivalent to the single lifetime benefit.
The plans provide monthly benefits based on the greatest result
from up to four benefit formulas. Participants receive the
largest benefit from the applicable benefit formulas. For all
executives except Jim Winestock, the formula that results
in the largest benefit is called the “grandfathered
integrated formula.” This formula provides retirement
income equal to 58.33 percent of final average compensation
offset by a portion of the Social Security benefit. A
participant with less than 35 years of benefit service
receives a proportionately lesser amount. For
Jim Winestock, the formula that results in the largest
benefit is called the “RPA integrated formula.” This
formula provides retirement income equal to 1.2 percent of final
average compensation plus 0.4 percent of final average
compensation in excess of the Social Security wage base all
multiplied by years of benefit service at the time of
termination or retirement.
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Participants earn benefit service for the time they work as an
eligible UPS employee. For purposes of the formulas,
compensation includes salary, management incentive awards
granted under the United Parcel Service, Inc. Incentive
Compensation Plan and the Half-Month Bonus. The average final
compensation for each participant in the plans is the average
covered compensation of the participant during the five highest
consecutive years out of the last ten full calendar years of
service.
Benefits payable under the UPS Retirement Plan are subject to
the maximum compensation limits and the annual benefit limits
for a tax-qualified defined benefit plan as prescribed and
adjusted from time to time by the Internal Revenue Service.
Eligible amounts exceeding these limits will be paid from the
UPS Excess Coordinating Benefit Plan. Under this plan,
participants receive the benefit in the form of a life annuity.
From 1999 through 2002, certain executives were eligible for the
RPRO, which allowed them to receive their benefit in excess of
the Retirement Plan in a combination of life annuity and cash
lump sum. Under this option, the cash lump sum is based on a
projected benefit under the Excess Coordinating Benefit Plan
using projected pay and service through the date the executive
would have reached age 57, which is the reason for the
differences in years of credited service in the 2006 Pension
Benefits table.
The plans permit participants with 25 or more years of benefit
service to retire as early as age 55 with only a limited
reduction in the amount of their monthly benefits. Each of the
named executives would be eligible to retire at age 60 and
receive unreduced benefits from the plans. Mike Eskew and
Jim Winestock are currently eligible for early retirement
with reduced benefits from those shown above. If either
executive had retired on September 30, 2006, his benefit
would be reduced from those shown by 8.25 percent and 13.75
percent respectively.
2006
Non-Qualified Deferred Compensation
The following table shows the executive contributions, earnings
and account balances for the NEOs in the UPS Deferred
Compensation Plan for 2006.
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There are three deferred compensation vehicles in the UPS
Deferred Compensation Plan, and not all of the NEOs participate
in each feature of the UPS Deferred Compensation Plan.
We do not make any company contributions to any of the three
features of the UPS Deferred Compensation Plan. The aggregate
balances shown in the table above represent amounts that the
NEOs have earned but elected to defer, plus earnings (or less
losses). There are no above market or preferential earnings in
the UPS Deferred Compensation Plan. The investment options
mirror those in the UPS Savings Plan, our 401(k) plan. Dividends
earned on shares of our stock in the UPS Deferred Compensation
Plan are earned at the same rate as all other class A and
class B shares of common stock. Dividends are reinvested.
Deferral elections made under the UPS Deferred Compensation Plan
are irrevocable.
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We have not entered into any employment agreements with our NEOs
that provide for severance or change in control benefits, nor do
we have separate severance or change in control agreements or
arrangements with our NEOs. As described earlier, our
Compensation Committee believes that the UPS promotion from
within policy has created a culture where long tenure for
executives is the norm. As a result, the NEOs serve without
employment contracts, as do most of our other U.S. based
non-union employees.
The equity-based awards that we grant to our NEOs are made
pursuant to the UPS Incentive Compensation Plan. Awards under
the UPS Incentive Compensation plan generally can be granted to
any of our employees, employees of our subsidiaries and
affiliates, directors and certain consultants. The UPS Incentive
Compensation Plan contains provisions that affect outstanding
awards to all plan participants, including the NEOs, under
certain circumstances, including a change in control of the
company (as defined below) and a participant’s retirement,
death or disability. Pursuant to the terms of the UPS Incentive
Compensation Plan, upon a change in control or a
participant’s retirement, death or disability:
In addition, the plan provides for tax
gross-up
payments to plan participants upon a change in control,
retirement, death or disability if the plan participants would
be subject to certain excise taxes imposed as a result of the
amounts paid to the participant pursuant to the treatment of the
awards as a result of the event. The tax
gross-ups
are payable as an additional lump sum cash payment.
The following tables show the potential payments to the NEOs
upon a termination of employment under various circumstances. In
preparing the tables below, we made certain assumptions. We
assumed the termination occurred on December 31, 2006. The
closing price per share of our common stock on the closest
market day was $74.98 on December 29, 2006. With respect to
the tax
gross-ups,
we assumed an excise tax rate under 280G of the Internal Revenue
Code of 20 percent, a 35 percent federal income tax
rate, a 1.45 percent Medicare tax rate and a 6 percent
state income tax rate.
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John J.
Beystehner
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James F.
Winestock, Jr.
The tables above do not include payments and benefits to the
extent they are generally provided on a non-discriminatory basis
to salaried employees not subject to a collective bargaining
agreement upon termination of employment. These include:
The tables above also do not include amounts to which the
executives would be entitled to receive that are already
described in the compensation tables that appear earlier in this
proxy statement, including:
Definition of a Change in Control
Under the terms of the UPS Incentive Compensation Plan, a change
in control is deemed to have occurred as a result of any one of
the following events:
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In 2006, our non-employee directors received an annual retainer
of $75,000, and committee chairs received an additional annual
retainer of $10,000. Retainers are paid on a quarterly basis.
Non-employee directors received an annual restricted stock grant
of class A common stock in the amount of $85,000. In
addition, upon joining the board, new non-employee directors
received a restricted stock grant of class A common stock
in the amount of $25,000. Directors are reimbursed for their
expenses related to board membership. Under the UPS Deferred
Compensation Plan, non-employee directors may defer retainer
fees quarterly, but we do not make any company contributions
under this plan. There are no preferential or above market
earnings in the UPS Deferred Compensation Plan.
Compensation for non-employee directors in 2007 will remain the
same for the annual retainer and the one-time award of $25,000
for new directors. To remain market competitive the Compensation
Committee recommended and the Board of Directors approved an
increase in the 2007 restricted stock grant from $85,000 to
$110,000, and an increase in the additional annual retainer for
the Audit Committee chair from $10,000 to $20,000. The
additional annual retainer for the other two committee chairs
will remain at $10,000. The decision to increase the restricted
stock grant and the additional annual retainer fee for the Audit
Committee chair was based on an analysis of director
compensation at other large organizations with more than
$10 billion in annual revenue.
Our employee directors do not receive any compensation for
service as director.
2006 Director
Compensation
The following table sets forth the compensation paid to our
non-employee directors in 2006.
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The aggregate shares for stock awards and option awards, which
were outstanding as of December 31, 2006, are presented in
the table below.
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The Compensation Committee is responsible for, among other
things, reviewing and approving compensation for the executive
officers, establishing the performance goals on which the
compensation plans are based and setting the overall
compensation principles that guide the committee’s
decision-making. The Compensation Committee has reviewed the
Compensation Discussion and Analysis (“CD&A”) and
discussed it with management. Based on the review and the
discussions with management, the Compensation Committee
recommended to the board of directors that the CD&A be
included in the 2007 proxy statement and incorporated by
reference in the Annual Report on
Form 10-K
for the year ended December 31, 2006 filed with the
Securities and Exchange Commission.
The Compensation Committee
Victor A. Pelson, Chair
Stuart E. Eizenstat John W. Thompson
Stuart Eizenstat, Vic Pelson and John Thompson
were members of the Compensation Committee of our board of
directors during 2006. None of these directors are employees or
former employees of UPS. None of the members of the Compensation
Committee has any direct or indirect material interest in or
relationship with us outside of his position as a non-employee
director. None of our executive officers serves as a member of a
board of directors or compensation committee of any entity that
has one or more executive officers who serves on our board of
directors or Compensation Committee.
In accordance with our Audit Committee charter, our Audit
Committee is responsible for overseeing our Code of Business
Conduct, which includes policies relating to conflicts of
interest. Although we have not entered into any such
transactions that meet the requirements for disclosure in this
proxy statement, if there were to be such a transaction, it
would need to be approved by our Audit Committee.
The Audit Committee of our board of directors is responsible
for, among other things, reviewing with Deloitte &
Touche LLP, our independent registered public accountants, the
scope and results of their audit engagement. In connection with
the 2006 audit, the Audit Committee has:
Based on the review and the discussions described in the
preceding bullet points, the Audit Committee recommended to the
board of directors that the audited financial statements and
management’s report on internal controls over financial
reporting be included in our Annual Report on
Form 10-K
for the year ended December 31, 2006 for filing with the
Securities and Exchange Commission.
The Audit Committee has adopted a charter and a process for
pre-approving services to be provided by Deloitte &
Touche.
The members of the Audit Committee have been determined to be
independent in accordance with the requirements of
Section 303.01 (B)(2)(a) and (3) of the New York Stock
Exchange listing standards.
The Audit Committee
Carol B. Tomé, Chair
Michael J. Burns
John W. Thompson
Ben Verwaayen
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Our Audit Committee has appointed Deloitte & Touche
LLP, independent registered public accountants, to audit our
consolidated financial statements for the year ending
December 31, 2007 and to prepare a report on this audit,
subject to ratification by our shareowners. A representative of
Deloitte & Touche will be present at the annual meeting
of shareowners, will have the opportunity to make a statement
and will be available to respond to appropriate questions by
shareowners.
The board
of directors recommends that shareowners vote FOR the
ratification
of the appointment of Deloitte & Touche LLP as our independent registered public accountants.
Aggregate fees billed to us for the fiscal years ended
December 31, 2006 and 2005 by our independent registered
public accountants, Deloitte & Touche LLP, the member
firms of Deloitte Touche Tohmatsu, and their respective
affiliates were:
The Audit Committee has considered whether the provision of
audit-related and other non-audit services by
Deloitte & Touche is compatible with maintaining
Deloitte & Touche’s independence.
Our Audit Committee has established a policy requiring the
pre-approval of all audit and non-audit services provided to us
by Deloitte & Touche. The policy provides for
pre-approval of audit, audit-related and tax services
specifically described by the Audit Committee. The Audit
Committee has delegated to its chair authority to pre-approve
permitted services between the Audit Committee’s regularly
scheduled meetings, and the chair must report any pre-approval
decisions to the Audit Committee at its next scheduled meeting
for review by the Audit Committee. The policy prohibits the
Audit Committee from delegating to management the Audit
Committee’s responsibility to pre-approve permitted
services of our independent registered public accountants.
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Section 16(a) of the Securities Exchange Act of 1934
requires our directors, executive officers and persons who own
beneficially more than 10 percent of either our
class A or class B common stock to file reports of
ownership and changes in ownership of such stock with the
Securities and Exchange Commission. These persons are required
by SEC regulations to furnish us with copies of all
Section 16(a) forms they file with the SEC. To our
knowledge, each of our directors and executive officers complied
during 2006 with all applicable Section 16(a) filing
requirements, except for a late Form 4 filing for
Michael J. Burns due to an administrative error.
We will pay our costs of soliciting proxies. Directors, officers
and other employees may solicit proxies by mail, in person or by
telephone. We will reimburse brokers, fiduciaries, custodians
and other nominees for
out-of-pocket
expenses incurred in sending our proxy materials to, and
obtaining instructions relating to the proxy materials from,
beneficial owners. In addition, we have retained Mellon Investor
Services LLC to assist in the solicitation of proxies for the
2007 Annual Meeting at a fee of approximately $15,000 plus
associated costs and expenses.
We have adopted a procedure approved by the SEC called
“householding.” Under this procedure, multiple
shareowners who share the same last name and address and do not
participate in electronic delivery will receive only one copy of
the annual proxy materials, although each shareowner will
receive his or her own proxy card. We have undertaken
householding to reduce our printing costs and postage fees.
If you wish to opt out of householding and continue to receive
multiple copies of the proxy materials at the same address, you
may do so at any time prior to thirty days before the mailing of
proxy materials, which typically are mailed in March of each
year, by notifying us in writing or by telephone at: UPS
Investor Relations, 55 Glenlake Parkway, N.E., Atlanta, Georgia
30328,
(404) 828-6059.
You also may request additional copies of the proxy materials by
notifying us in writing or by telephone at the same address or
telephone number.
If you share an address with another shareowner and currently
are receiving multiple copies of the proxy materials, you may
request householding by notifying us at the above-referenced
address or telephone number.
Our board of directors is not aware of any business to be
conducted at the annual meeting of shareowners other than the
proposals described in this proxy statement. Should any other
matter requiring a vote of the shareowners arise, the persons
named in the accompanying proxy card will vote in accordance
with their best judgment.
Under our bylaws and SEC regulations, any shareowner proposals
or director nominations for the 2008 annual meeting of
shareowners must be received by our Corporate Secretary at 55
Glenlake Parkway, N.E., Atlanta, Georgia 30328, no later than
November 20, 2007 to be eligible for inclusion in the proxy
statement for next year’s meeting.
Pursuant to
Rule 14a-4
under the Exchange Act, if a shareowner notifies us after
February 4, 2008 of an intent to present a proposal at our
2008 annual meeting of shareowners, our proxy holders will have
the right to exercise discretionary voting authority with
respect to the proposal, without including information regarding
the proposal in our proxy materials.
A copy of our 2006 annual report on
Form 10-K,
including financial statements, as filed with the SEC, may be
obtained without charge upon written request to: Corporate
Secretary, 55 Glenlake Parkway, N.E., Atlanta, Georgia 30328. It
is also available on our investor relations website at
www.shareholder.com/ups.
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Annex I
An “independent” director is a director whom the Board
has determined has no material relationship, other than as a
director of the Company, with the Company or any of its
consolidated subsidiaries, either directly, or as a partner,
shareholder or officer of an organization that has a
relationship with the Company. In addition, when determining
whether a director is independent, the Board applies the
categorical standards set forth below.
Under no circumstances is a director independent if:
1. the director is, or has been within the past three
years, an employee of the Company, or an immediate family member
of the director is, or in the past three years has been, an
executive officer of the Company, other than on an interim basis;
2. (A) the director or an immediate family member is a
current partner of a firm that is the Company’s external
auditor; (B) the director is a current employee of such a
firm; (C) the director has an immediate family member who
is a current employee of such a firm and who participates in the
firm’s audit, assurance or tax compliance (but not tax
planning) practice; or (D) the director or an immediate
family member was within the last three years (but is no longer)
a partner or employee of such a firm and personally worked on
the Company’s audit within that time.
3. the director, or a member of the director’s
immediate family, is or in the past three years has been, an
executive officer of another company where any of the
Company’s present executives concurrently served on the
compensation committee;
4. the director, or a member of the director’s
immediate family, has, in any twelve-month period within the
past three years, received any direct compensation from the
Company in excess of $100,000, other than compensation for
service on the Board or any of its committees, compensation
received by the director’s immediate family member for
service as a non-executive employee of the Company, and pension
or other forms of deferred compensation for prior service with
the Company; or
5. the director is a current employee, or a member of the
director’s immediate family is an executive officer, of
another company that makes payments to or receives payments from
the Company, or during any of the last three fiscal years has
made payments to or received payments from the Company, for
property or services in an amount that, in any single fiscal
year, exceeded the greater of $1 million or 2% of the other
company’s consolidated gross revenues. For purposes of this
section, a contribution to a tax-exempt entity is not a
“payment.”
An “immediate family” member includes a
director’s spouse, parents, children, siblings, mother and
father-in-law,
sons and
daughters-in-law,
brothers and
sisters-in-law,
and anyone (other than a domestic employee) who shares the
director’s home.
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UNITED PARCEL SERVICE, INC.
INVESTOR RELATIONS B1F7 55 GLENLAKE PARKWAY, N.E. ATLANTA, GEORGIA 30328 VOTE BY INTERNET — www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on May 9, 2007. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS
If you would like to reduce the costs incurred by United Parcel Service, Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years. VOTE BY PHONE — 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on May 9, 2007. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to United Parcel Service, Inc., c/o ADP, 51 Mercedes Way, Edgewood, NY 11717. If you vote by Internet or phone, you do not need to return this card. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: X
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
UNITED PARCEL SERVICE, INC.
Sign exactly as name appears hereon. For joint accounts all co-owners should sign. Executors,
administrators, custodians, trustees, etc. should so indicate when signing.
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Annual Meeting of Shareowners
Thursday, May 10, 2007, 8:00 a.m. (Eastern time) Hotel du Pont 11th and Market Streets Wilmington, Delaware 19801 DETACH HERE
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