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United Parcel Service DEF 14A 2008 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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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 8, 2008, at
8:00 a.m. The purposes of the meeting are:
1. To elect a board of directors to serve until
our 2009 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,
2008; 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 10, 2008 as the record date for determining holders
of our common stock entitled to notice of, and to vote at, the
annual meeting.
We are pleased to take advantage of the new Securities and
Exchange Commission rules that allow issuers to furnish proxy
materials to their shareowners over the Internet. We believe the
new rules will allow us to provide shareowners with the
information they need, while lowering the costs of delivery and
reducing the environmental impact of our annual meeting. On
March 17, 2008, we mailed to certain shareowners a Notice
of Internet Availability of Proxy Materials containing
instructions on how to access our 2008 proxy statement and
annual report and vote online. All other shareowners will
continue to receive the proxy statement and annual report by
mail.
Teri P. McClure
Secretary
Atlanta, Georgia
March 17, 2008
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 2008 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 8, 2008, at 8:00 a.m. The proxy is solicited
by our board of directors. On March 17, 2008, we mailed to
shareowners of record either a Notice of Internet Availability
of Proxy Materials (“Notice”) or this proxy statement
and proxy card.
In addition to delivering printed versions of this proxy
statement and proxy card to certain shareowners by mail, our
board of directors has made this proxy statement and proxy card
available to you on the Internet 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 D. Scott Davis
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 in advance by using the
Internet, by telephone or by signing and returning your proxy
card.
Pursuant to the new rules adopted by the Securities and Exchange
Commission, we are permitted to furnish our proxy materials over
the Internet to our shareowners by delivering a Notice in the
mail. We are sending the Notice to certain record and beneficial
shareowners. These shareowners have the ability to access the
proxy materials, including our proxy statement and annual
report, at www.proxyvote.com or to request a printed or
email set of the proxy materials. Instructions on how to access
the proxy materials over the Internet or to receive a printed
set may be found in the Notice. Shareowners who receive a
printed set of proxy materials will not receive the Notice, but
may still access our proxy materials over the Internet at
www.proxyvote.com.
Important Notice Regarding the Availability of Proxy
Materials for the Shareowner Meeting
to be Held on May 8, 2008
The proxy statement and annual report are available at
www.proxyvote.com
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Holders of our class A common stock and our class B
common stock at the close of business on March 10, 2008 are
entitled to vote. March 10, 2008 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 8, 2008 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 339,718,019
shares of our class A common stock and 690,681,418 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% 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% of the outstanding voting power.
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, the Notice or other 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:
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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:
The ten 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
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If you return a signed card but do not provide voting
instructions, your shares will be voted FOR all ten 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 voting your
shares on “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, 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 10, 2008) 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 2007 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 email that provides a link to our future annual
reports and proxy materials on the Internet. Opting to receive
your proxy materials electronically 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 ten 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. Eight
of the nominees have served as directors since our last annual
meeting. Duane Ackerman and Rudy Markham were appointed to our
board in August 2007 and November 2007, respectively. Duane and
Rudy were each recommended to our Nominating and Corporate
Governance Committee by one of our non-employee directors.
Our board currently has 12 directors. Jim Kelly and Vic
Pelson are not standing for re-election this year, but will
continue to serve as directors until the annual meeting. We
thank Jim and Vic for their many years of service to UPS.
Effective as of the annual meeting, the size of the board will
be reduced from 12 to ten members.
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, including third party
search firms.
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 six meetings during 2007. Each of
our directors attended at least 75% 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 2007 annual meeting of shareowners, except for Ben
Verwaayen, 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 January
2008. As part of 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: Duane Ackerman,
Michael Burns, Stu Eizenstat, Ann Livermore, Rudy Markham, John
Thompson, Carol Tomé and Ben Verwaayen. Jim Kelly and Vic
Pelson, two directors who will continue to serve until the
annual meeting, were also determined to be independent
directors. Scott Davis and Mike Eskew are not independent
directors because they were employed by UPS in 2007.
In determining the independence of Duane Ackerman, Michael
Burns, Stu Eizenstat, Jim Kelly, Ann Livermore, Rudy Markham,
Vic Pelson, John Thompson, Carol Tomé and Ben Verwaayen,
our board considered ordinary course transactions between UPS
and the companies that employed these directors during 2007.
Michael Burns is the former 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. On January 31, 2008,
Dana Corporation emerged from Chapter 11.
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, Compensation and Nominating and
Corporate Governance 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
at 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 on 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 2007, the Audit Committee held seven 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.
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Compensation Committee. The primary
responsibilities of our Compensation Committee include:
In 2007, the Compensation Committee held six 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 2007, the Nominating and Corporate Governance Committee held
five 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 2007, 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, 2008 by:
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Additional
Ownership
In addition to the beneficial ownership of our common stock
shown 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, 2008 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. We grant RSUs under two programs, the Management
Incentive Program and the Long-term Incentive Performance Award
Program, described in more detail in the “Compensation
Discussion and Analysis.”
Phantom stock units are bookkeeping units, the value of each of
which corresponds to one share of UPS class A common stock.
Dividends paid on UPS common stock are added to the
director’s phantom stock unit balance. 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. We grant RPUs under the Long-term
Incentive Award Program, described in more detail in the
“Compensation Discussion and Analysis”.
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.
The plan is described in more detail in the narrative following
the Non-Qualified Deferred Compensation table under
“Compensation of Executive Officers”.
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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. 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 100 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.
While our programs are designed to provide financial security
for our team, UPS realized long ago that the dollar value of our
programs was only one element considered by executives when
choosing to stay with an organization. Working in a satisfying,
challenging environment with a team committed to each other and
the company is an intangible but key benefit that has been a
cornerstone of our success. Unlike many of our peers, our
executive compensation program does not use benchmarking to
target total compensation at a particular percentile or market
level. Instead, we believe that if we offer reasonable pay and
benefits to our executives, along with a culture and work
environment that encourages innovation, supports diverse ideas,
and recognizes individual contributions, they will choose to
stay for the long-term.
Our executive compensation program is designed to:
The UPS Management Committee, comprised of all of our executive
officers, is made up mainly of employees who have spent
virtually their entire careers with us. Many members of our
Management Committee have had wide-ranging opportunities at UPS
due to the variety of assignments and advancement opportunities
available across business units, functions and geographies. 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 Committee 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
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independence requirements of the NYSE, and currently includes
John Thompson (Chair), Duane Ackerman, Stu Eizenstat and Vic
Pelson. For a description of the Compensation Committee Charter
and Committee responsibilities, see “Committees of the
Board of Directors”.
The Compensation Committee has sole authority to engage and
terminate outside advisors and consultants to assist the
Compensation Committee in carrying out its responsibilities. If
engaged, the consultant reports directly to the Chair of the
Compensation Committee. During the first quarter of 2007, the
Committee worked with Mercer Human Resources Consulting.
Beginning in April 2007, the Committee worked with Frederic W.
Cook & Co. due to the migration of an individual
consultant from Mercer to Frederic W. Cook. The consultant
serves as a resource for market data on pay practices and
trends, provides advice to the Compensation Committee and
attends committee meetings as requested.
In 2007, Mercer tabulated and reported on chief executive
officer, board and committee performance evaluations. Frederic
W. Cook provided an analysis of emerging market trends and best
practices for an executive compensation program and reviewed
this Compensation Discussion and Analysis.
In addition to its advice on compensation, Mercer provided
limited services in the area of healthcare and benefits
consulting to management. Frederic W. Cook provides no
additional services to us.
The chief executive officer provides the Compensation Committee
with his assessments of the members of the Management Committee,
including the other named executive officers. He makes
compensation recommendations to the Compensation Committee for
the other named executive officers with respect to base salary.
The chief executive officer and the chief financial officer also
make recommendations with respect to setting performance goals
under our incentive compensation plans and provide their
analysis as to whether the performance goals were achieved at
the end of the performance period. The recommendations of the
chief executive officer and the chief financial officer are the
basis of discussion by the Compensation Committee. Other members
of the Management Committee assist from time to time in
providing data and recommendations as to compensation structure.
Meetings of the Compensation Committee are regularly attended by
the chief executive officer, the senior vice president of human
resources and other members of the Management Committee from
time to time. However, these persons are not present when the
Compensation Committee goes into executive session, or when
decisions about their own compensation are discussed.
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.
In making compensation decisions, the Committee considers our
overall compensation philosophy, the differentials between
Management Committee compensation and other UPS positions, the
additional responsibilities of our chief executive officer as
compared to the other members of our Management Committee, the
retention power of our existing compensation programs, market
data and their own experience and judgment. Internal comparisons
are made between the executives and their direct reports in an
effort to ensure that compensation paid to our Management
Committee members is reasonable compared to others with whom
they work day in and day out. While the Compensation Committee
considers market data in making compensation decisions, it does
not use benchmarking to target NEO compensation at a particular
percentile or quartile or within any targeted range, based on
the data. The data is one of a variety of factors weighed by the
Compensation Committee when considering base salary and total
compensation levels.
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Each year, we purchase and review general compensation survey
data from sources such as Towers Perrin, Hewitt Associates or
Mercer so that we can provide the Compensation Committee with
general information about the level of our compensation relative
to the market. For 2007 executive and director compensation,
custom 2006 Towers Perrin survey data for a peer group of
companies was evaluated. For the custom 2006 peer group data,
the Compensation Committee determined that the companies should
be selected based on industry leadership, revenue, number of
employees, geographic footprint and relevant competitors. Based
on those criteria, management identified relevant peer group
companies, which were then approved by the Compensation
Committee.
A significant portion of compensation for the Management
Committee is tied to company performance and, for equity-based
awards, share price performance. Measurement of company
performance is made against financial and operating goals.
Our compensation plans are designed to emphasize strong annual
performance and foster long-term operational performance and
success. We believe that a majority of total compensation (base
salary, short-term incentives and long-term incentives) that can
be earned by our Management Committee should be “at
risk” and subject to short-term and long-term performance
goals and stock price performance. The 2007 compensation
elements with “at risk” components comprised
approximately 63% of the 2007 target compensation opportunity
for the NEOs.
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. Because our compensation
programs are designed to foster long-term stock ownership by all
of our managers, each member of our Management Committee has
accumulated a meaningful number of shares of our common stock.
As a result, the interests of shareowners and our Management
Committee are closely aligned, and they have a strong incentive
to provide for effective management. Additionally, Management
Committee members and directors are expected to acquire and hold
a significant amount of UPS stock as described under “Stock
Ownership Guidelines” below.
Our compensation and benefit programs reflect a philosophy of
providing fair and equitable rewards that support our operating
environment, attracting and retaining a diverse and highly
skilled workforce. For example, many of our compensation
programs apply equally across a wide spectrum of our management
employee base and are not limited to senior management. We have
also adopted a recoupment policy for equity awards granted to
members of our Management Committee, which is described under
“Additional Compensation Policies” below.
Since equity award programs can have a dilutive impact on
shareowner value, we evaluate the current overhang rate (defined
as shares underlying outstanding equity award grants plus shares
available for additional award grants divided by total common
shares outstanding) when designing new programs or granting new
awards. Our 2007 overhang rate was 7.5%. Included in the
overhang calculation are 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
annual grant rate (defined as total shares underlying equity
awards granted in one year divided by total common shares
outstanding). In 2007, our grant rate was 0.8%. We believe that
the low overhang and grant rate percentages demonstrate that
dilution is not a current issue for our equity plans.
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In addition to establishing the compensation principles
described above, there are a number of other policies in place
to further the goals of the executive compensation program,
particularly with respect to strengthening the alignment of our
Management Committee’s interests with the long-term
interests of our shareowners.
The board has adopted stock ownership guidelines which extend to
most 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 will maintain a significant level
of investment in our stock.
Target ownership for the chief executive officer is ten times
annual salary, and for the other members of the Management
Committee is six times annual salary. The target for our
non-employee directors is three times their annual retainer.
Shares owned outright, deferred units and RSUs are considered as
owned for purposes of calculating ownership. Managers and
directors have five years to accumulate the required shares.
As of October 19, 2007, the most recent measurement date
for compliance with the guidelines, each NEO met the applicable
guidelines. The closing price of our stock on the NYSE on
October 19, 2007 was $75.03. The chart below shows the
dollar value of the stock ownership guidelines and the actual
value of shares and units owned by each of the NEOs on that date.
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We do not have a written or verbal employment agreement with any
member of our Management Committee.
We do not have a separate change in control or severance
agreement with any member of our Management Committee.
The UPS Incentive Compensation Plan includes a provision for an
automatic acceleration of unvested awards in the event of a
change in control. This provision applies equally to all equity
awards granted under the plan to all participants in the plan,
of which there were approximately 35,000 in 2007. 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.
In 2006, the Compensation Committee adopted a recoupment policy
with respect to equity awards to members of our Management
Committee. 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.
Grants for all equity programs under the UPS Incentive
Compensation Plan are approved by the Compensation Committee.
The Compensation Committee has 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.
Each year the Compensation Committee conducts a compensation
review for the Management Committee, including the named
executive officers. As part of this review, the chief executive
officer provides the Compensation Committee with a subjective
assessment of the Management Committee members and compensation
recommendations with respect to annual base salary increases.
In setting compensation of the chief executive officer, the
Compensation Committee undertakes a comprehensive review each
year of the chief executive officer’s performance. The full
board also meets in executive session each year to review the
chief executive officer’s performance. Factors considered
include the board’s assessment of the performance of the
chief executive officer, his strategic vision and leadership,
his ability to execute and achieve our business strategy, his
ability to make and drive long-term decisions that create
competitive advantage and his overall effectiveness as a leader
and role model.
In making compensation decisions, the Compensation Committee
also considers our compensation philosophies. The Compensation
Committee does not assign particular weights to any of these
factors in making compensation decisions.
The components of the compensation program for our Management
Committee are:
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Each of these components is discussed below.
The Compensation Committee considers a number of factors in
determining annual base salary increases of Management Committee
members. While performance is the most important factor,
leadership, internal equity
comparisons and market data are all considered by the
Compensation Committee when determining annual salary
adjustments for Management Committee members.
The following table shows annual base salaries as set for the
NEOs in 2006 and 2007 and the overall percentage increase.
The Compensation Committee generally makes annual salary
determinations at its first meeting of the year, and the new
salaries are effective as of March 1 of that year. In 2007, UPS
approved an average base salary increase of 3.5% for all
management employees other than members of the Management
Committee. The Compensation Committee considered this increase,
as well as performance, leadership and peer group data that
showed that the NEOs were generally well below the median with
respect to base salary levels at other companies.
Based on these considerations, the Compensation Committee
approved base salary increases effective March 1, 2007 for
Mike Eskew, Jim Winestock and John McDevitt of between 3.5% and
3.6%, which was consistent with the average base salary increase
for all management employees. For Scott Davis, the Compensation
Committee considered the additional responsibilities assumed by
him as vice chairman in awarding him an increase of 19.0%. For
David Abney, the Compensation Committee also considered the
additional responsibilities assumed by him as chief operating
officer, and his base salary increase was 9.0%, effective as of
January 1, 2007.
As described in more detail below, annual and long-term
incentive compensation is structured similarly across much of
our management group. The target award levels are generally
structured as a multiple of annual or monthly base salary, with
the applicable multiple reflecting the job responsibility of the
participant. This structure generally has been in place for a
number of years and reflects our historical practices.
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The following table provides an overview of our annual incentive
awards. Each is described in more detail below.
Annual
Incentive Programs
This program is designed to align pay with annual company
performance. Participants in the plan, which include
approximately 35,000 of our management employees at all levels,
have the opportunity to earn an annual incentive award when we
meet target performance objectives. Incentives paid above target
are possible if we exceed our performance objectives. The
Compensation Committee exercises its judgment on the payout
level for the plan based on considerations including company
performance relative to target objectives, the general economic
environment, and performance trends.
The award is structured one-half in cash (or the equivalent cash
value in shares of UPS class A stock, at the
participant’s election) and other half in restricted stock
units, which is discussed in more detail under “Long Term
Incentives.” Annual Management Incentive Program awards are
issued under the UPS Incentive Compensation Plan, which was
approved by shareowners in 1999.
For approximately 11,000 of the more senior managers among the
plan participants, including the Management Committee, the
target award level for the overall Management Incentive Program
is four months base salary, plus the Ownership Incentive Award
described below. For the remaining plan participants, the
overall target award level ranges from one to three months base
salary, plus the Ownership Incentive Award. These target award
levels have been the same since 2005 when the Management
Incentive Program was redesigned to better align
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management and shareowner interests. The target payouts were
based on and are consistent with the long-term average payouts
under the previous design.
The Compensation Committee, considering recommendations from the
chief executive officer and chief financial officer, approves
the company performance objectives, which we call business
elements. At the end of the year, the Compensation Committee,
considering recommendations from the chief executive officer and
chief financial officer, evaluates our achievement of the
business elements and approves the “MIP factor,” which
represents our success in achieving business element goals. The
MIP factor is multiplied by the target award to determine the
actual award earned by the participant.
If performance objectives are not met, participants receive a
reduced award based on actual performance results as determined
by the Compensation Committee. Similarly, if performance
objectives are exceeded, participants can receive an award
greater than 100% of the targeted award.
The Management Incentive Program is designed to incorporate
performance criteria which support our annual operating plan and
business strategy. The 2007 performance goals were based on our
business plans established at the beginning of the 2007
Management Incentive Program fiscal year, from October 1,
2006 through September 30, 2007. Performance targets and
results, as communicated to MIP participants, were as follows:
Some of the five business elements have a greater impact than
others on UPS financial results and our long-term success. The
Compensation Committee does not assign a specific weight to each
business element when determining award payouts; rather, the
Committee uses the achievement of these goals to judge our
success in implementing its overall business strategy. In
addition to evaluating results for these five business elements
when setting award amounts, the Compensation Committee also
considers its assessment of the challenges of the economic and
competitive market in which UPS operated during the award year.
After evaluating actual company performance against the business
elements and these other factors, the Compensation Committee
determined that the 2007 award to be paid to all participants
would be at 90% of the targeted award amount. This award was
greater than the award made in 2006 of 80% of target, but below
the average of the previous five years.
The Compensation Committee does not consider individual
performance of the named executive officers or any other members
of management in determining the annual award factor. Rather,
the award is based on overall company achievement of the
business elements and the other factors described above, and the
factor applies equally to all participants in the plan.
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To reward management employees for maintaining significant
ownership of UPS stock, all participants in the Management
Incentive Program are eligible for an additional incentive award
up to the equivalent of one month’s salary. The target
level of one month’s salary is the same for all
participants in the plan.
Ownership levels for the 2007 awards were determined by totaling
the number of UPS shares in the participant’s family group
accounts and the participant’s unvested MIP 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 19, 2007.
The amount of the award is equal to the participant’s
percent of ownership relative to their target, multiplied by one
month’s salary. For example, if the participant’s 2007
ownership equaled 80% of their ownership target, their ownership
incentive award had a value equal to 80% of one month’s
salary. The maximum award that can be granted is one
month’s salary. This portion of the Management Incentive
Program award is also provided one-half in cash, UPS stock or
deferred into the participant’s 401(k) at the
participant’s election, and one-half in restricted stock
units.
The Half-Month Bonus, equal to one-half of one month’s
salary, is a discretionary cash bonus awarded in the fourth
quarter to all eligible salaried employees, including the
Management Committee, in the U.S. Approximately
60,000 employees are eligible to receive the Half-Month
Bonus, which is awarded in recognition of all participants’
contributions to the business throughout the year, and in
particular during our peak operating period in the fourth
quarter. Each year, management determines whether company-wide
performance merits payment of the bonus. If earned, the bonus is
paid to all participants in the program.
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 shareowner approved UPS Incentive Compensation
Plan and delivered in the form of class A shares at
vesting. Awards are based on longer-term operational and
financial performance goals 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.
Target award levels vary based on level of responsibility. At
the Management Committee level, the Compensation Committee has
approved a differential in target long-term incentive award
levels for the chief executive officer to acknowledge the
additional responsibility of the chief executive officer and
competitive market practice.
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The following table provides an overview of our long-term
incentive awards. Each is described in more detail below.
Long-Term
Programs
Our Long-Term Incentive program is comprised of two parts: stock
option awards and restricted performance units. Grants are made
annually, typically in May of each year. Approximately 3,200
members of our management team participate in this program.
The total target award value at grant for the Long-Term
Incentive awards (both the stock options and the restricted
performance units) are set at 350% of base salary for the chief
executive officer and 250% of base salary for the other members
of the Management Committee. For other management employees,
target award values ranges from 50% to 150% of base salary.
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Long-Term Incentive awards are granted one-half in stock options
and one-half in restricted performance units. The number of
stock options awarded is based on a formula that assumes an
anticipated compounded annual growth rate of 11% in the price of
UPS stock over a five year period. The number of restricted
performance units granted is established by discounting the
value of the award by 11% compounded annually over a five year
period, and dividing that amount by the NYSE closing price of
our class B common stock on the date of grant.
The Compensation Committee believes that stock option awards
provide a significant link to company performance and maximize
shareowner value, as the option holder receives value only if
our stock price increases. Stock options also have retention
value, as the option holder will not receive value from the
options unless he remains our employee during the vesting period
for the award (except in the case of retirement, death or
disability during the vesting period).
Stock options are issued at the closing market price on the NYSE
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.
Restricted performance units are bookkeeping units, the value of
which corresponds to one share of class A common stock. The
decision by the Compensation Committee to use restricted
performance units was based on two goals for the award:
Restricted performance units vest on the fifth anniversary date
of their grant. When dividends are paid on UPS common stock, an
equivalent value is automatically credited to the
participant’s bookkeeping account in additional RPUs. At
the end of the five-year restriction period, the number of RPUs
granted to each individual will increase by 10% if we attain
certain performance measures for the five-year performance
period. Upon vesting of RPUs, the individual receives shares of
UPS class A common stock.
For the RPUs issued in 2003, an adjusted earnings per share goal
of $3.94 per diluted share for 2007 was established. Based on
actual adjusted diluted EPS of $4.11 for 2007, the goal was met
and the 10% bonus will be included for the 2003 RPU adjusted
diluted awards that vest in May 2008. For the RPUs granted in
2007, the Compensation Committee approved a 2011 adjusted
diluted earnings per share goal of $7.11.
As described under annual incentives, one-half of the award
earned under the MIP and the MIP ownership incentive award is
paid in restricted stock units. This provides a retention
incentive and enhances executive stock ownership and shareholder
linkage. The number of restricted stock units granted is
determined by calculating the dollar value of the MIP award
allocated to restricted stock units (as described under
“Management Incentive Program”) and dividing by the
closing price of our class B stock on the NYSE on, or
about, the last Friday in October. The restricted stock units
vest 20% per year over five years on October 15 of each
year.
UPS adopted the Long-term Incentive Performance Award Program in
2006 under the UPS Incentive Compensation Plan. It was approved
by the Compensation Committee to strengthen the performance
component of our executive compensation package and enhance our
retention of key talent. The award was also designed to increase
total compensation of senior management to be closer to the
compensation of comparable positions at similarly sized
companies. Approximately 600 of our employees received awards
under this program in 2007.
The program has a three year award cycle. The first grant, made
in 2006, covers the three-year period from 2006 through 2008.
The 2007 grant covers the three-year period from 2007 through
2009. Under the program, a target level
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of restricted stock units are granted to members of the
Management Committee and certain other eligible managers.
Performance measures, such as adjusted revenue growth, adjusted
operating return on invested capital (ROIC), adjusted net income
or adjusted diluted earnings per share, are set by the
Compensation Committee for each annual period. The number of
units earned each year is based on company achievement of the
performance goals.
Of the total target award, 90% is divided into three
substantially equal tranches, one for each calendar year in the
three-year award cycle. The remaining 10% of the total target
award is based upon achievement of an adjusted net income or
adjusted diluted earnings per share target for the third year.
Specific performance measures and targets for each annual
tranche are set by the Compensation Committee. The Compensation
Committee may provide for payment of an amount less than or more
than 100% of target based on achievement of performance criteria.
Target award values for the three-year awards granted in 2006
and in 2007 were 250% of annual salary for the chief executive
officer and 225% of annual salary for the other Management
Committee members. For other management employees, target award
values ranges from 50% to 200% of base salary. Target award
values are based on internal pay equity and general survey data
regarding total compensation of comparable positions as
similarly sized companies. Target award levels are designed to
vary based on level of responsibility. The differential in award
level for the chief executive officer is to acknowledge the
added responsibilities of the position. The actual number of
restricted stock units granted is determined once the payment
percentage for a particular tranche has been approved by the
Compensation Committee.
Performance targets and actual results for the 2006 and 2007
LTIP awards are described below. Where the three year cycles
overlap, the performance goals for individual years are the same.
For 2006, the performance targets to earn 100% of the LTIP
tranche were adjusted revenue growth of 10.7% and adjusted
operating ROIC of 22.8%. Actual results for 2006 were adjusted
revenue growth of 8.9% and adjusted operating ROIC of 21.8%.
Based on actual performance, 85% of the 2006 LTIP tranche was
earned. The LTIP payout for 2006 at 85% of target was driven by
us not meeting our adjusted revenue goal of 10.7% growth. This
revenue shortfall was driven primarily by challenges in our
Supply Chain and Freight operating segment that we experienced
during 2006, as discussed in our 2006 Annual Report on
Form 10-K.
For 2007, the performance targets to earn 100% of the LTIP
tranche were adjusted revenue growth of 6.1% and adjusted ROIC
of 25.0%. Actual results for 2007 were adjusted revenue growth
of 4.5% and adjusted operating ROIC of 24.5%. Based on actual
performance, 75% of the 2007 LTIP tranche was earned. The LTIP
payout for 2007 at 75% of target was driven by us not meeting
our adjusted revenue goal of 6.1% growth. As discussed in our
2007 Annual Report on
Form 10-K,
the weak U.S. economy resulted in only a 1.7% revenue
increase for our U.S. Domestic Package operating segment,
which was below our planned increase for this segment.
For the 2006 LTIP award, the three year adjusted net income
target for 2008 is $5.6 billion. For the 2007 LTIP award,
the three year adjusted diluted EPS target for 2009 is $5.28.
The RSUs for 2007 are now “fixed”, meaning the amount
of the award for the 2007 performance period has been
determined; however, the RSUs for all three years of the 2007
through 2009 award cycle will not vest until January 31,
2010, 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.
Consistent with our culture, the benefits and perquisites
offered to the Management Committee 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; a charitable gift matching program and a financial
planning service.
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The Compensation Committee has reviewed the details of the
benefits and perquisites provided to the Management Committee in
2007 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% 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.
Management Committee members 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, Management Committee members
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 Management Committee
members, and some internationally-based employees, with the
opportunity to purchase up to $10,000 in our stock annually at a
discount of at least 10%. 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% 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.
We match charitable contributions made by all active employees
with 12 months of service, including members of the
Management Committee, up to a maximum of $3,000 per year.
The Management Committee members are eligible for financial
planning services provided by the Ayco Company. Mike Eskew and
Scott Davis were the only NEOs who utilized the benefit in 2007.
Although this financial planning service 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 2007
The following table shows the compensation for each of the Named
Executive Officers for 2006 and 2007.
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Grants of
Plan-Based Awards for 2007
The following table provides information about awards granted in
2007 to each of the NEOs.
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Outstanding
Equity Awards at Fiscal Year-End 2007
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, 2007.
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The following table sets forth the number and corresponding
value realized during 2007 with respect to restricted stock
units that vested for each NEO.
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2007
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% 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% of final average compensation plus 0.4% 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, the cash and RSU portions of the
MIP award 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 2007 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. In addition, the
plans allow participants with ten years or more of service to
retire at age 55 with a larger reduction in the amount of
their benefit. Mr. Eskew, Mr. Davis, and
Mr. Winestock are currently eligible for early retirement
with reduced benefits from those shown above. If they had
retired on September 30, 2007, their benefits would be
reduced from those shown by 5.25%, 27.75%, and 10.75%
respectively.
2007
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 2007.
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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.
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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 added to the
participant’s deferred compensation balance. Deferral
elections made under the UPS Deferred Compensation Plan are
irrevocable.
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,
except for Mike Eskew, upon a termination of employment under
various circumstances. Mike Eskew retired on January 1,
2008, and the table for him shows what he received in connection
with his retirement.
In preparing the tables below for the NEOs other than Mike
Eskew, we made certain assumptions. We assumed the termination
occurred on December 31, 2007. The closing price per share
of our common stock on December 31, 2007 was $70.72. With
respect to the tax
gross-ups,
we assumed an excise tax rate under 280G of the Internal Revenue
Code of 20%, a 35% federal income tax rate, a 1.45% Medicare tax
rate and a 6% state income tax rate.
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John J.
McDevitt
James F.
Winestock, Jr.
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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:
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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We provide both cash and equity awards to our non-employee
directors. In 2007, our non-employee directors received an
annual cash retainer of $75,000. The chairs of the Compensation
and Nominating and Corporate Governance Committees received an
additional annual cash retainer of $10,000, and the chair of the
Audit Committee received an additional annual cash retainer of
$20,000. Cash retainers are paid on a quarterly basis. 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.
In 2007, non-employee directors received an annual restricted
stock grant of class A common stock in the amount of
$110,000. 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.
In 2008, we anticipate changing the form of the equity awards
granted to non-employee directors from restricted stock to
restricted stock units. The value of the annual grant will
remain at $110,000.
Our employee directors do not receive any compensation for
service as a director.
2007 Director
Compensation
The following table sets forth the compensation paid to our
non-employee directors in 2007.
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The aggregate shares for stock awards and option awards, which
were outstanding as of December 31, 2007, 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 2008 proxy statement and incorporated by
reference in the Annual Report on
Form 10-K
for the year ended December 31, 2007 filed with the
Securities and Exchange Commission.
The Compensation Committee
John W. Thompson, Chair
F. Duane Ackerman Stuart E. Eizenstat Victor A. Pelson
Duane Ackerman, Stu Eizenstat, Vic Pelson and John Thompson were
members of the Compensation Committee of our board of directors
during 2007. 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. The Code requires that all of our employees and
directors avoid conflicts of interest, defined as situations
where the person’s private interests conflict, or even
appear to conflict, with the interests of UPS as a whole.
At least annually, each director and executive officer completes
a detailed questionnaire that asks questions about any business
relationship that may give rise to a conflict of interest and
all transactions in which UPS is involved and in which the
executive officer, a director or a related person has a direct
or indirect material interest. We also conduct a review, at
least annually, of our financial systems to determine whether a
director, or a company employing a director, engaged in
transactions with us during the fiscal year.
The Nominating and Corporate Governance Committee, which is
composed of independent directors, conducts an annual review of
the information from the questionnaire and financial systems
review, evaluates related party transactions (if any) involving
the directors and their related persons and makes
recommendations to the board of directors regarding the
independence of each board member.
If a transaction arises during the year that may require
disclosure as a related person transaction, information about
the transaction would be provided to the Audit Committee and the
Nominating and Corporate Governance Committee, as applicable,
for review, approval or ratification of the transaction.
We have not entered into any related person transactions that
meet the requirements for disclosure in this proxy statement.
We have purchase, finance and other transactions and
relationships in the normal course of business with companies
with which our directors are associated, but which are not
sufficiently material to be reportable. The Nominating and
Corporate Governance Committee has reviewed these transactions
and relationships and believe they were entered into on terms
that are both reasonable and competitive. Additional
transactions and relationships of this nature may be expected to
take place in the ordinary course of business in the future.
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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 2007 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, 2007 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
Rudy Markham
Ben Verwaayen
Our Audit Committee has appointed Deloitte & Touche
LLP, independent registered public accountants, to audit our
consolidated financial statements for the year ending
December 31, 2008 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.
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Aggregate fees billed to us for the fiscal years ended
December 31, 2007 and 2006 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% 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 2007 with all
applicable Section 16(a) filing requirements, except
for a Form 4 in February 2007 for each of our executive
officers that was filed one day late 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 and Notice to, and obtaining
instructions relating to the proxy materials and Notice from,
beneficial owners. In addition, we have retained BNY Mellon
Shareowner Services to assist in the solicitation of proxies for
the 2008 annual meeting at a fee of approximately $10,000, 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 or Notice. If the household received
a printed set of proxy materials by mail, each shareowner will
receive his or her own proxy card by mail. 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 or Notice at the same
address, you may do so at any time prior to thirty days before
the mailing of proxy materials or Notice, 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 or
Notice 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 or Notice,
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 17, 2008 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
January 31, 2009 of an intent to present a proposal at our
2009 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 2007 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 7, 2008. 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 email 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 7, 2008. 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
UPS001 KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
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 8, 2008, 8:00 a.m. (Eastern time) Hotel du Pont 11th and Market Streets Wilmington, Delaware 19801 Important
Notice Regarding
Internet Availability of Proxy Materials for the Annual Meeting: The proxy statement and annual report are available at www.proxyvote.com.
UNITED PARCEL SERVICE, INC.
This Proxy is Solicited on Behalf of the Board of Directors for the Annual Meeting of Shareowners to be held on May 8, 2008 I hereby appoint D. SCOTT DAVIS and TERI P. McCLURE, or either of them,
with power of substitution, as attorneys and proxies to vote all of the
shares of stock outstanding in my name as of March 10, 2008 at the annual
meeting of shareowners of United Parcel Service, Inc. to be held at the
Hotel du Pont, 11th and Market Streets, Wilmington, Delaware 19801, on
May 8, 2008, and at any or all adjournments or postponements thereof, and I hereby
instruct and authorize the attorneys to vote as stated on the reverse
side. (If you sign and return this proxy but no direction is made, this
proxy will be voted FOR the election of the nominees listed in Proposal 1
and FOR Proposal 2.)
If I participate in the UPS Qualified Stock Ownership Plan and Trust, I
direct the Trustee to vote the stock in the manner stated on the reverse
side. (If you sign and return this proxy but no direction is made, the
Trustee will vote the shares FOR the election of the nominees listed in
Proposal 1 and FOR Proposal 2. If this card is not returned or is
returned unsigned, the Trustee will vote the shares in the same
proportion as the shares for which voting instructions are received from
other participants.)
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
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