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United Parcel Service DEF 14A 2009 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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May 7, 2009
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 7, 2009, at
8:00 a.m. The purposes of the meeting are:
1. To elect ten directors nominated by the
board of directors to serve until our 2010 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, 2009;
3. To approve the United Parcel Service, Inc.
2009 Omnibus Incentive Compensation Plan; and
4. To transact any other business as may
properly come before the meeting.
Our board of directors has fixed the close of business on
March 9, 2009 as the record date for determining holders of
our common stock entitled to notice of, and to vote at, the
annual meeting.
For a second year, we are pleased to take advantage of the
Securities and Exchange Commission rule allowing companies to
furnish proxy materials to shareowners over the Internet. We
believe that this
e-proxy
process expedites shareowners’ receipt of proxy materials,
while also lowering the costs and reducing the environmental
impact of our annual meeting. On March 16, 2009, we began
mailing to certain shareowners a Notice of Internet Availability
of Proxy Materials containing instructions on how to access our
2009 proxy statement and annual report and vote online. All
other shareowners will receive the proxy statement and annual
report by mail.
Teri P. McClure
Secretary
Atlanta, Georgia
March 16, 2009
Your vote is important. Please vote as soon as possible by
using the Internet or by telephone or, if you received a paper
copy of the proxy card by mail, by signing and returning the
enclosed proxy card. Instructions for your voting options are
described on the Notice or proxy card.
Important
Notice Regarding the Availability of Proxy Materials for the
Shareowner Meeting to be Held on May 7, 2009 The proxy
statement and annual report are available at
www.proxyvote.com
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55
Glenlake Parkway, N.E., Atlanta, Georgia 30328
PROXY
STATEMENT
FOR THE 2009 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 7, 2009, at 8:00 a.m. On March 16, 2009,
we began mailing to shareowners of record either a Notice of
Internet Availability of Proxy Materials (“Notice”) or
this proxy statement and proxy card.
You have received these proxy materials because our board of
directors is soliciting your proxy to vote your shares at the
annual meeting. 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.
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, in addition to
delivering printed versions of this proxy statement and proxy
card to certain shareowners by mail.
When you vote by using the Internet, by telephone or (if you
received your proxy card by mail) 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 (if you
received your proxy card by mail) by signing and returning your
proxy card.
Pursuant to 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 shareowners.
If you received a Notice by mail, you will not receive a printed
copy of the proxy materials in the mail. Instead, the Notice
instructs you on how to access and review the proxy statement
and annual report over the Internet at www.proxyvote.com.
The Notice also instructs you on how you may submit your proxy
over the Internet. If you received a Notice by mail and would
like to receive a printed copy of our proxy materials, you
should follow the instructions for requesting these materials
contained on the Notice.
Shareowners who receive a printed set of proxy materials will
not receive the Notice, but may still access our proxy materials
and submit their proxies over the Internet 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 9, 2009 are
entitled to vote. March 9, 2009 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 7, 2009 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
303,071,610 shares of our class A common stock and
691,743,730 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 (if you received a proxy card by mail) 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, Notice or other
information forwarded by your bank or broker to see which voting
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 three 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
either:
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
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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.
With respect to the proposal to approve the 2009 Plan, you may:
The approval of the 2009 Plan 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.
In addition, New York Stock Exchange (“NYSE”) rules
require that the total votes cast on the proposal to approve the
2009 Plan must represent a majority of the shares entitled to
vote on 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 ten director
nominees, FOR the ratification of the appointment of our
independent registered public accountants, and FOR the approval
of the 2009 Plan.
If you own class A shares and you do not vote by using the
Internet, by telephone or (if you received a proxy card by mail)
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 at the annual
meeting. If your class A shares are held pursuant to The
UPS Stock Fund in the UPS Savings Plan 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 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.
The approval of the 2009 Plan is not considered a routine matter
under NYSE rules relating to voting by banks and brokers. When a
proposal is not a routine matter and the brokerage firm has not
received voting instructions from the beneficial owner of the
shares with respect to that proposal, the brokerage firm cannot
vote the shares on that proposal. This is called a “broker
non-vote.” Broker non-votes that are represented at the
annual meeting will be counted for purposes of establishing a
quorum, but not for determining the number of shares voted for
or against the non-routine matter.
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We encourage you to provide instructions to your bank or
brokerage firm by voting your proxy. This action ensures your
shares will be voted at the meeting in accordance with your
wishes.
You will need proof of your share ownership (such as a recent
brokerage statement or letter from your broker showing that you
owned shares of United Parcel Service, Inc. common stock as of
March 9, 2009) and a form of photo identification. If
you do not have proof of ownership and valid photo
identification, you may 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 2008 Annual Report to
Shareowners are available on our investor relations website
located at
http://investor.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 reduce the environmental impact of our annual meetings,
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. Nine
of the nominees have served as directors since our last annual
meeting. William Johnson joined the board in February 2009.
The board
of directors recommends a vote FOR the election
to the board of each of the following nominees.
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Ben Verwayaan also served as a director in 2008 and continues to
serve in 2009. His term will expire at the annual meeting. We
thank him for his contributions to the board.
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. Bill Johnson, who first joined the board in
February 2009, was recommended by a third party search firm.
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 seven meetings during 2008. 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 but one of the directors who were
serving on the board at our 2008 annual meeting attended the
meeting.
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
2009. 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
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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 are independent directors: Duane
Ackerman, Michael Burns, Stu Eizenstat, Bill Johnson, Ann
Livermore, Rudy Markham, John Thompson, Carol Tomé and Ben
Verwaayen. Scott Davis and Mike Eskew are not independent
directors because they were employed by UPS in 2008.
In determining the independence of Stu Eizenstat, Bill Johnson,
Ann Livermore, Rudy Markham, John Thompson, Carol Tomé and
Ben Verwaayen, our board considered ordinary course transactions
between UPS and the companies that employed these directors
during 2008.
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 our investor relations website at
http://investor.shareholder.com/ups.
The charters that have been adopted for each of the Audit,
Compensation and Nominating and Corporate Governance Committees
also are available on our investor relations 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
website.
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.
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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 2008, the Audit Committee held nine 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:
In 2008, the Compensation Committee held seven 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
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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 2008, 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 2008, 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, 2009 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, 2009 is as follows.
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Restricted stock units (“RSUs”) 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
UPS class A 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 shares 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 long-term growth:
UPS reflects 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.
At the beginning of 2008, economists forecasted slow but growing
U.S. gross domestic product and industrial production. Few
predicted that the U.S. economic environment would severely
deteriorate throughout the year. Conditions worsened
significantly in the second half of the year, as the economic
weakness spread globally. As a result of the difficult economic
environment, performance in 2008 did not meet our plans or
expectations set out in the beginning of the year. Although our
revenue, operating profit and earnings per share were down for
the year, we believe the UPS management team performed well
under such trying circumstances. Our U.S. operations team
continued to adjust the network throughout 2008, as package
volume deteriorated. In our international business, export
volume per day increased in 2008 as we benefitted from our
balanced global network. The supply chain and freight segment
improved its operating margin in 2008. We continued to generate
strong cash flow during the year, and ended 2008 with an
industry-leading small package operating margin.
We continue to anticipate a challenging worldwide economic
environment in 2009. Our management team is making the difficult
decisions necessary to ensure that we remain a strong company
throughout the downturn and will be well-positioned when global
markets begin to recover. We are putting the necessary plans in
place to manage our costs while ensuring that we maintain high
quality service to our customers.
While the UPS executive compensation programs are designed to
fairly compensate our team for the work they perform on behalf
of the company, UPS realized long ago that the dollar value of
our programs was only one element considered by executives when
choosing to stay with the 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 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.
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The UPS 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 UPS. 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.
These opportunities provide extensive career development and
build loyalty, which reinforces our strong corporate culture.
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.
The UPS 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 John Thompson (Chair), Duane Ackerman and
Stu Eizenstat. 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. In 2008, the Committee worked with
Frederic W. Cook & Co. (“Cook”). The
consultant serves as a resource for market data on pay practices
and trends, provides advice to the Compensation Committee,
provides competitive analysis and advice related to outside
director compensation, reviews the Committee’s Compensation
Discussion and Analysis, and attends committee meetings as
requested. Cook provides no additional services to UPS.
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, the chief financial officer and the
senior vice president of human resources 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 and the senior vice president of
human resources. Other members of the Management Committee are
in attendance from time to time. Management Committee members
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.
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In making compensation decisions, the Compensation Committee
considers the company’s overall compensation philosophy,
the differentials between Management Committee compensation and
other UPS positions, the additional responsibilities of the
chief executive officer as compared to the other members of the
Management Committee, the retention power of the existing
compensation programs, market data and the Committee’s own
experience and judgment. Internal comparisons are made between
executive officers and their direct reports in an effort to
ensure that compensation paid to the Management Committee
members is reasonable compared to others with whom they work.
While the Compensation Committee considers market data in making
compensation decisions, it does not target compensation at a
particular percentile 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, long-term
equity awards and total compensation levels, and is generally
considered as a market check.
Each year, we purchase and review general compensation survey
data from sources such as Cook and Towers Perrin so that we can
provide the Compensation Committee with general information
about the level of our compensation relative to compensation
data from comparable sized companies. In addition we look at pay
practices and levels for a peer group that is comprised of
companies that typically have global operations, a diversified
business and annual sales and market capitalizations comparable
to UPS. The 2008 peer group was comprised of the following
20 companies:
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.
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 the Management Committee should be “at
risk” and subject to short-term and long-term performance
goals and stock price performance. The 2008 compensation
elements with “at risk” components comprised
approximately 68% of the 2008 target compensation opportunity
for the named executive officers.
Until 1999, we were owned by our employees and managed by our
owners. Since going public in 1999, UPS employees still maintain
a significant ownership in the company. Because 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.
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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 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 2008 overhang rate was 6.24%. 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 2008, our grant rate was 0.83%. We believe that
the low overhang and grant rate percentages demonstrate our
objective to effectively and responsibly manage equity usage.
We do not have a written or verbal employment agreement with any
member of our Management Committee. In addition, we do not have
a separate change in control or severance agreement with any
member of our Management Committee.
The UPS Incentive Compensation Plan adopted in 1999 (the
“1999 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 1999 Plan to all participants in the plan, of
which there were approximately 37,000 in 2008. In the
Compensation Committee’s view, at the time of the adoption
of the 1999 Plan, the accelerated vesting of all outstanding
equity awards following a change in control was a customary and
reasonable component of an equity incentive program. The 2009
Plan that we are asking shareowners to approve at the annual
meeting generally requires a “double trigger” for
accelerating unvested awards, both a change in control and a
termination of employment for the participant.
In 2006, the Compensation Committee adopted a recoupment or
“clawback” 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. We incorporated this recoupment
provision in the 2009 Plan that we are asking shareowners to
approve at the annual meeting that is applicable to awards
granted under the 2009 Plan.
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 the company’s 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.
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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, described in more detail below, are:
Annual and long-term incentive compensation is structured
similarly across much of our management team that is comprised
of approximately 37,000 employees. Target award levels are
generally structured as a multiple of annual or monthly base
salary, with the applicable multiple reflecting the level of job
responsibility. This structure generally has been in place for a
number of years and reflects our historical practices.
The Compensation Committee considers a number of factors in
determining annual base salary adjustments of Management
Committee members. While company performance is the most
important factor, scope of responsibility, 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 for the named
executive officers in 2007 and 2008 and the overall percentage
increase.
In 2008, UPS approved an average base salary increase of 3.5%
for all management employees other than members of the
Management Committee based upon company performance in 2007. The
Compensation Committee generally makes annual salary
determinations for members of the Management Committee at its
first meeting of the year, and (unless otherwise specified) the
new salaries are effective as of March 1 of that year.
At its February 2008 meeting, the Compensation Committee
considered the general management salary increase,
2007 company performance, scope of responsibility and
leadership, as well as market data showing that the named
executive officers 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, 2008, except that the base
salary increase for Scott Davis was effective as of
January 1, 2008. In determining to grant base salary
increases to named executive officers that exceeded the general
management salary increase, the Compensation Committee noted the
following:
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The following table provides an overview of our annual incentive
award programs. Each is described in more detail below.
There are two parts of the MIP program: MIP Award and MIP
Ownership Incentive Award.
The MIP award is designed to align pay with annual company
performance. The program is an annual plan, and for historical
reasons the performance period is from October 1 of one year
through September 30 of the following year. MIP awards are
granted under the 1999 Plan. Participants in the plan, who
include approximately 37,000 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 stock, at the participant’s
election) and one-half in restricted stock units. 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.
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The target amount that can be earned by our named executive
officers under MIP, equal to four months of base salary, is
significantly lower than comparative annual target incentive
award levels based on market data. However, we continue to
believe that the structure of the Management Incentive Program
that treats similarly all 11,000 of our employees eligible for
an award equal to four months of base salary is consistent with
our overall compensation strategy.
In October of each year we set the annual performance objectives
under the MIP, which we call business elements. At the end of
the MIP fiscal year of September 30, we evaluate our
achievement of the business elements and approve 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.
The final awards are reviewed and approved by the Compensation
Committee. If performance objectives are not met, participants
may receive a reduced award based on actual performance results.
Similarly, if performance objectives are exceeded, participants
can receive an award greater than 100% of the targeted award.
The MIP factor is applied equally to all 37,000 participants in
the program. Individual performance of the named executive
officers or any other members of management is not considered in
determining the annual award factor. Rather, the award is based
solely on overall company achievement of the business elements
and our assessment of company performance in light of the
business environment and competitive market in which we operated
during the award year.
The Management Incentive Program is designed to incorporate
performance criteria which support our annual operating plan and
business strategy. The 2008 performance goals were based on our
business plans established at the beginning of the 2008
Management Incentive Program fiscal year, from October 1,
2007 through September 30, 2008. Performance targets and
results, as communicated to MIP participants, were as follows:
Some of the business elements have a greater impact than others
on UPS financial results and our long-term success. We do not
assign a specific weight to each business element when
determining award payouts; rather, we use the achievement of
these goals to judge our success in implementing our overall
business strategy. In addition to evaluating results for these
business elements when setting award amounts, we also consider
our 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, we determined, and the
Compensation Committee approved, that the 2008 award to be paid
to all participants would be at 70% of the targeted award
amount. This award was less than the award made in 2007 of 90%
of target, and below the average of the previous five years
(2003 to 2007) of 102%.
To reward management employees for maintaining significant
ownership of UPS stock, all 37,000 participants in the
Management Incentive Program are eligible for an additional
incentive award up to the equivalent of one month’s salary.
This portion of the MIP award is also provided one-half in cash,
UPS stock or deferred into the participant’s 401(k) or
related savings program at the participant’s election, and
one-half in restricted stock units. The target level of one
month’s salary is the same for all 37,000 participants in
the program.
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Ownership levels for the 2008 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 17, 2008.
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 2008
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.
The Half-Month Bonus, equal to one-half of one month’s
salary, is a discretionary cash bonus awarded in the fourth
quarter to eligible salaried employees in the U.S., including
the Management Committee. 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. We determined that the half-month bonus was earned
in 2008.
The named executive officers earned the following amounts of
cash incentive awards for 2008.
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 1999 Plan. We grant
long-term equity awards in the form of stock options, restricted
performance units and restricted stock units that are delivered
in the form of class A shares at vesting. Programs 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 managers 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 certain key positions, including chief executive
officer, chief financial officer and chief operating officer, to
acknowledge the additional responsibilities of those positions
and competitive market practice.
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The following table provides an overview of our long-term
incentive award programs. Each award type and program is
described in more detail below.
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Award
Types
The Compensation Committee believes that stock options 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
or she 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 granted with an exercise price equal to the
closing market price on the NYSE on the date of grant.
Historically, stock options vested five years from the date of
grant and expired ten years from the date of grant. In 2008 we
changed the vesting schedule, so that stock options granted in
2008 vest 20% per year over five years. The change was made to
bring the vesting schedule in line with market practice. The
options continue to 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 is based on two goals for the award:
Historically, restricted performance units vested on the fifth
anniversary date of their grant. In 2008 we changed the vesting
schedule of the award, so that restricted performance units
granted in 2008 vest 20% per year over five years. The change
was made to bring the vesting schedule in line with market
practice. Upon vesting of restricted performance units, the
individual receives shares of UPS class A common stock.
When dividends are paid on UPS common stock, an equivalent value
is automatically credited to the participant’s bookkeeping
account in additional restricted performance units.
Restricted stock units are bookkeeping units, the value of which
corresponds to one share of class A common stock. The
Compensation Committee believes that restricted stock units
provide a retention incentive and enhance executive stock
ownership and shareholder linkage. Restricted stock units vest
20% per year over five years. Upon vesting of restricted stock
units, the individual receives shares of UPS class A common
stock. When dividends are paid on UPS common stock, an
equivalent value is automatically credited to the
participant’s bookkeeping account in additional restricted
stock units.
Our Long-Term Incentive program historically has been comprised
of two parts: stock option awards and restricted performance
units. Grants are made annually, typically in May of each year.
Approximately 3,100 members of our management team
participate in this program.
In 2008, the LTI plan was modified from that of previous years.
Management team members at the region manager level and above,
including the named executive officers, continued to receive
their awards in the form of both stock options and restricted
performance units. All other eligible management team members
now receive their awards solely in the form of restricted
performance units. The change was made to better align our
compensation expense with the value received by our employees.
The restricted performance units granted under the Long-Term
Incentive program prior to 2008 provided that the number of
restricted performance units ultimately earned would increase by
10% if we attain a performance measure, such as adjusted diluted
earnings per share, for the five-year performance period.
Beginning in 2008, the
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restricted performance units no longer include a performance
measure that could result in an increase of 10% of the number of
restricted performance units ultimately earned.
The total target award value at grant for the Long-Term
Incentive awards are set at 175% of base salary for the chief
executive officer and 125% of base salary for the other members
of the Management Committee. For other management employees,
target award values ranges from 25% to 75% of base salary.
2008 Long-Term Incentive awards for the named executive
officers were granted 25% in stock options and 75% in restricted
performance units. The number of stock options granted is
determined by dividing 25% of the target award value by the
Black-Scholes value of a UPS share on the date of grant. The
number of restricted performance units granted is determined by
dividing 75% of the target award value by the NYSE closing price
of UPS stock on the date of grant. The number of stock options
and restricted performance units granted to the named executive
officers on May 7, 2008 is shown in the Grants of
Plan-Based Awards for 2008 table below.
For the restricted performance units issued in 2004, an adjusted
earnings per share goal of $4.50 per diluted share for 2008 was
established. Because the adjusted diluted earnings per share
goal was not met in 2008, the potential 10% increase in
restricted performance units will not be earned for the 2004
awards that will vest in May 2009.
As described above under “Management Incentive
Program”, one-half of the award earned under the MIP and
the MIP ownership incentive award is paid in restricted stock
units. The number of restricted stock units granted is
determined by calculating the dollar value of the MIP award
allocated to restricted stock units 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. The number of
restricted stock units granted to the named executive officers
on December 5, 2008 is shown in the Grants of Plan Based
Awards for 2008 table below.
The LTIP award program began in 2006. The Compensation Committee
approved the program to further 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 senior management team
received awards under this program in 2008.
The program has a three-year award cycle.
Under the program, a target award of restricted stock units is
granted to members of the Management Committee and certain other
eligible managers at the beginning of the three-year period. 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 a net income or diluted earnings per
share target for the third year. Performance measures, such as
revenue growth, operating return on invested capital (ROIC), net
income or diluted earnings per share, are set by the
Compensation Committee at the beginning of each calendar year in
the three-year award cycle.
The actual number of restricted stock units that the management
employee will receive is determined once the payment percentage
for a particular tranche has been approved by the Compensation
Committee, based on achievement of performance goals for the
applicable calendar year.
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In March 2008, the Compensation Committee approved 2008 target
award values for the three-year 2008 LTIP awards at 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 range from 50% to 200%
of base salary. Target award values are based on internal pay
equity considerations and market data regarding total
compensation of comparable positions at similarly sized
companies. Differences in the target award values are based on
increasing levels of responsibility on the management team.
Over the last several years, with the assistance of its
independent compensation consultant, the Compensation Committee
has undertaken a comprehensive review of the positioning of the
total direct compensation of key UPS executive officers in
comparison to the market data described above. These reviews
showed that the total direct compensation for certain key
executives, including the chief executive officer, chief
operating officer and chief financial officer, was in the lowest
quartile compared to the market data. In the third quarter of
2008, the Compensation Committee determined that it was
appropriate to consider a multi-year strategy to supplement
compensation as a means of ensuring that their total direct
compensation was more consistent with comparable positions at
similarly sized companies, while reinforcing the link between
compensation and company performance, increasing the retention
incentive for these individuals and further aligning the
interests of these executives with our shareowners.
The Compensation Committee determined that the most effective
manner of achieving these goals was to supplement the target
award to these key executives under the existing LTIP in an
effort to move them closer to the top of the lowest quartile of
the company’s peer group. The following table shows
previous years’ target grant values and the Compensation
Committee’s expected target LTIP award values for the
current year and 2010 for these key executives, based on a
percentage of annual base salary. Each target amount covers a
three-year performance period.
Consistent with the strategy set forth above, the Compensation
Committee granted additional three-year 2008 LTIP awards in
September 2008, covering the period from 2008 through 2010, to
the chief executive officer, chief operating officer and chief
financial officer. The additional awards were designed to
increase the 2008 LTIP target award values to a total of 475% of
annual salary for the chief executive officer, 450% of annual
salary for the chief operating officer and 250% of annual salary
for the chief financial officer. The differential in award level
for the chief executive officer and the chief operating officer
is to acknowledge the added responsibilities of the positions.
The September 2008 LTIP grants have the same performance goals,
terms and conditions as the March 2008 grants.
The threshold, target and maximum number of restricted stock
units that can be earned by the named executive officers under
the 2008 LTIP, including both the March 2008 and September 2008
grants, is shown in the “Grants of Plan-Based Awards for
2008” table.
In the first quarter of 2009, the Compensation Committee granted
three-year 2009 LTIP awards to LTIP participants covering the
period from 2009 through 2011. The 2009 LTIP target awards made
to the chief executive officer, chief operating officer and
chief financial officer were made in accordance with the table
above. While it expects to continue to monitor the effect of
global economic conditions on the Company, the Compensation
Committee is committed to the implementation of its plan to
increase the total compensation of these three executive officer
positions through increasing LTIP target award values, with the
increase in compensation earned by these executives, subject to
meeting the performance targets over the three-year performance
period.
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Performance targets and actual results for the various
performance periods are described below. Where the three-year
LTIP cycles overlap, the performance goals for individual years
are the same. Pursuant to the terms of the LTIP award, the
underlying restricted stock units are earned based on actual
performance as compared to pre-established performance criteria
for each period over the three-year cycle of the award.
For 2008, the performance targets to earn 100% of the LTIP
tranche were revenue growth of 7.0% and operating ROIC of 23.0%.
Actual results for 2008 were revenue growth of 3.6% and
operating ROIC, as adjusted, of 18.7%. Based on actual
performance, 65% of the LTIP tranche was earned. The LTIP payout
for 2008 was at 65% of target. The restricted stock units for
2008 are now “fixed”, meaning the amount of the award
for the 2008 performance period has been determined. The
restricted stock units for the three-year award cycle will not
vest until the January 31 following the third year, provided the
participant remains employed as of the vesting date. For
example, the 2008 LTIP award, if earned, will not vest until
January 31, 2011. 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 common stock.
Consistent with our culture, the benefits and perquisites
offered to members of the Management Committee are the same or
similar to programs offered to the rest of the UPS management
team, with the exception of a
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financial planning service. These programs include matching
contributions to the UPS Stock Fund in the UPS Savings 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.
The Compensation Committee has reviewed the details of the
benefits and perquisites provided to members of the Management
Committee in 2008 and determined that they were in line with
competitive practices. Additional information on these benefits
can be found in the program descriptions below.
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
savings plan sponsored by UPS or one of its subsidiaries. We
have generally provided a matching contribution (generally up to
a maximum of 3% of each participant’s eligible
compensation) to those UPS employees who make elective deferrals
to the UPS Savings Plan. Matching contributions are made to the
UPS Stock Fund, an investment election under the UPS Savings
Plan, which is composed entirely of shares of our class A
common stock. Prior to January 1, 2009, the matching
contributions were made to the UPS Qualified Stock Ownership
Plan (“QSOP”). The QSOP was merged with the UPS
Savings Plan on January 1, 2009.
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 class A common stock annually
at a discount to the market price of our stock. The plan has
been designed to comply with Section 423 of the Internal
Revenue Code. The purchase price at which our class A
common stock may be acquired under the plan is equal to 95% of
the fair market value of the shares on the last day of each
calendar quarter. Share purchases are made on a quarterly basis.
In past years, the plan permitted purchases at a 10% discount.
In past years, the UPS Foundation matched 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. Scott Davis,
Kurt Kuehn and Bob Stoffel utilized the benefit in 2008.
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.
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UPS anticipates a challenging worldwide economic environment in
2009. Base salaries for our management team, including the named
executive officers, generally have been frozen at 2008 levels.
In February 2009, we announced that we will suspend our matching
contributions to our 401(k) plan for all participants, including
the named executive officers. We also have suspended the UPS
Gift Matching Program. In addition, we announced that we will
reduce the Discounted Employee Stock Purchase Plan share
purchase price discount from 10% to 5% off of the closing stock
price on the last day of the applicable quarter for all
participants, including the named executive officers. The
company and the Compensation Committee will continue to monitor
the changing economic environment in making compensation
decisions through the course of 2009.
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 17, 2008, the most recent measurement date
for compliance with the guidelines, each named executive officer
met the applicable guidelines except for Scott Davis. Scott
Davis’ target increased from six times annual salary to ten
times annual salary as a result of his promotion to chief
executive officer. The value of his stock ownership exceeded six
times his annual salary, and he has five years to achieve the
target of ten times annual salary.
Grants for all equity programs under the 1999 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 a fiscal
quarter and do not fall within the period 30 days prior to
the release of company earnings.
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 2008
The following table shows the compensation for each of the Named
Executive Officers.
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Grants of
Plan-Based Awards for 2008
The following table provides information about awards granted in
2008 to each of the named executive officers.
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Outstanding
Equity Awards at Fiscal Year-End 2008
The following table shows the number of shares covered by
exercisable and unexercisable options and unvested RSUs and RPUs
held by the named executive officers on December 31, 2008.
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The following table sets forth the number and corresponding
value realized during 2008 with respect to restricted stock
units that vested for each named executive officer.
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2008
Pension Benefits
The following table quantifies the pension benefits expected to
be paid to each of the named executive officers 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 account
formula.” This formula provides
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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.
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 2008 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. As of December 31, 2008, Mr. Davis and
Mr. Winestock were eligible for early retirement with
reduced benefits. If they had retired on December 31, 2008,
their benefits would be reduced by 24% and 7%, respectively.
2008
Non-Qualified Deferred Compensation
The following table shows the executive contributions, earnings
and account balances for the named executive officers in the UPS
Deferred Compensation Plan for 2008.
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There are three deferred compensation vehicles in the UPS
Deferred Compensation Plan, and not all of the named executive
officers 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
named executive officers 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
named executive officers that provide for severance or change in
control benefits, nor do we have separate severance or change in
control agreements or arrangements with our named executive
officers. 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 named executive officers 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 named executive
officers are made pursuant to the 1999 Plan. Awards under the
1999 Plan generally can be granted to any of our employees,
employees of our subsidiaries and affiliates, directors and
certain consultants. The 1999 Plan and the related award
certificates contain provisions that affect outstanding awards
to all plan participants, including the named executive
officers, 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 1999 Plan and the related award certificates,
upon a change in control or a participant’s retirement,
death or disability:
In addition, the 1999 Plan provides for tax
gross-up
payments to plan participants upon a change in control 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 2009
Plan that we are asking our shareowners to approve does not
contain a similar provision.
The following table shows the potential payments to the named
executive officers upon a termination of employment under
various circumstances. In preparing the table, we assumed the
termination occurred on December 31, 2008. The closing
price per share of our common stock on December 31, 2008
was $55.16. With
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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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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 1999 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. Our employee directors do not receive any
compensation for service as a director. Directors are reimbursed
for their expenses related to board membership.
In 2008, 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 addition, in 2008 non-employee directors received an annual
restricted stock grant of class A common stock in the
amount of $110,000. Upon joining the board, new non-employee
directors received a restricted stock grant of class A
common stock in the amount of $25,000.
Effective January 1, 2009, the cash retainer paid to
non-employee directors will increase to $90,000, and the
additional cash retainers paid to the chairs of the Compensation
and Nominating and Corporate Governance Committees will increase
to $15,000. The non-employee directors also will receive an
annual grant of restricted stock units in the amount of
$130,000. The cash retainers and annual equity grant will be
prorated based on the portion of the year that a director serves
on the board. There is no additional equity award for new
non-employee directors who join the board.
2008 Director
Compensation
The following table sets forth the compensation paid to our
non-employee directors in 2008.
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The aggregate number of stock awards and option awards
outstanding as of December 31, 2008 for each of our
non-employee directors are set forth 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, 2008 filed with the
Securities and Exchange Commission.
The Compensation Committee
John W. Thompson, Chair
F. Duane Ackerman Stuart E. Eizenstat
Duane Ackerman, Stu Eizenstat, Vic Pelson and John Thompson were
members of the Compensation Committee of our board of directors
during 2008. 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 believes 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 2008 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, 2008 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, 2008 and 2007 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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The board of directors has adopted, and recommends that the
shareowners approve, the United Parcel Service, Inc. 2009
Omnibus Incentive Compensation Plan. The 2009 Plan permits the
grant of options, stock appreciation rights, restricted stock,
restricted stock units, restricted performance shares,
restricted performance units, management incentive awards and
other cash awards (collectively, “awards”). Shareowner
approval of the 2009 Plan is required by NYSE rules and is
intended to permit the performance-based awards discussed below
to qualify for deductibility under Section 162(m) of the
Internal Revenue Code. If we receive shareowner approval, the
2009 Plan will become effective on May 7, 2009. If we do
not receive shareowner approval, the 2009 Plan will not go into
effect.
A summary of the material terms of the 2009 Plan is provided
below, but is qualified in its entirety by reference to the full
text of the 2009 Plan that is included as Annex II to this
proxy statement.
The shares issuable pursuant to awards granted under the 2009
Plan will be shares of class A common stock. The maximum
number of shares that may be issued pursuant to awards granted
under the 2009 Plan (the “share reserve”) is
80,000,000, which includes 28,108,557 unissued shares that were
previously authorized for issuance under the 1999 Plan and
51,891,443 newly authorized shares. The share reserve is subject
to adjustment as described below. The maximum number of shares
that can be issued upon the exercise of incentive stock options
is 80,000,000.
Each share issued pursuant to an option, and each share subject
to the exercised portion of a stock appreciation right
(regardless of the form of payment of the stock appreciation
right), will reduce the share reserve by one share. Each share
issued pursuant to restricted stock, a restricted stock unit, a
restricted performance share or a restricted performance unit
will reduce the share reserve by 2.76 shares. To the extent
that a distribution pursuant to an award is made in cash, the
share reserve will be reduced by the number of shares (if any)
subject to the exercised or distributed portion of the award.
If any award granted under the 2009 Plan is forfeited or
otherwise expires, terminates or is cancelled without the
issuance of the shares in full, the shares covered by such
awards again will be available for use under the 2009 Plan.
Unless the Compensation Committee determines that an award will
not be performance-based compensation as discussed below, no
participant may be granted in any one calendar year
The award limits are subject to the adjustment provisions
discussed below.
The 2009 Plan is administered by the Compensation Committee,
except that the Board administers the 2009 Plan with respect to
non-employee directors of UPS. The Board also may at any time
take on the powers, authority
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and duties of the Compensation Committee. The Committee
generally may delegate its power, authority and duties under the
2009 Plan, except as prohibited by law.
The Compensation Committee determines who among those eligible
to participate in the 2009 Plan will be granted awards,
determines the amounts and types of awards to be granted,
determines the terms and conditions of all awards, and construes
and interprets the terms of the 2009 Plan. Determinations of the
Committee are final, binding, and conclusive.
Individuals eligible to receive awards under the 2009 Plan
include employees of UPS or a subsidiary or affiliate of UPS,
consultants, agents or other service providers to UPS or a
subsidiary or affiliate of UPS, and directors of UPS. As of
February 1, 2009, there were 10 directors and
approximately 37,000 employees who are eligible to receive
awards under the 2009 Plan.
Stock options may be either nonqualified stock options or
incentive stock options. The exercise price of any stock option
must be equal to or greater than the fair market value of a
share on the date the option is granted. The term of a stock
option cannot exceed ten years.
A stock option’s terms and conditions, including the number
of shares to which the option pertains, exercise price, vesting
and expiration of the option, are determined by the Compensation
Committee and set forth in an award document.
Payment for shares purchased upon exercise of a stock option
must be made in full at the time of purchase. The exercise price
may be paid (a) in cash or its equivalent, (b) by
tendering previously acquired shares having an aggregate value
at the time of exercise equal to the total exercise price,
(c) through a reduction in the number of shares received
through the exercise of the option, or (d) by a combination
of (a), (b) and (c).
Freestanding and tandem SARs, or any combination of these forms
of SAR, may be granted to participants. A freestanding SAR means
a SAR that is granted independently of any stock options. A
tandem SAR means a SAR that is granted in connection with a
related option, the exercise of which requires forfeiture of the
right to purchase a share under the related option (and when a
share is purchased under the option, the tandem SAR similarly is
canceled). Each SAR grant will be set forth in an award document
that will specify the grant price, the term of the SAR and such
other provisions as the Compensation Committee determines. The
term of a SAR cannot exceed ten years.
The grant price of a freestanding SAR will equal the fair market
value of a share on the date of grant. The grant price of a
tandem SAR will equal the exercise price of the related stock
option.
Upon exercise of a SAR, a participant will be entitled to
receive payment in an amount determined by multiplying the
difference between the fair market value of a share on the date
of exercise over the grant price, by the number of shares with
respect to which the SAR is exercised. At the discretion of the
Compensation Committee, the payment upon SAR exercise may be in
cash, in shares of equivalent value, or in some combination of
cash and shares.
Each grant of restricted stock or RSUs will be evidenced by an
award document that will specify the period of restriction on
transferability, the number of shares (or units tied to the
value of shares) granted, and such other provisions as the
Compensation Committee will determine, including restrictions
based upon the achievement of specific performance goals and
time-based restrictions on vesting following the attainment of
the performance goals. Restricted stock or RSUs will be
forfeited to the extent that a participant fails to satisfy the
applicable conditions or restrictions during the period of
restriction.
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Generally, shares of restricted stock will become freely
transferable by the participant after the last day of the
applicable period of restriction, and RSUs will be paid in a
single lump sum following the close of the applicable period of
restriction in the form of cash or in shares (or in a
combination of cash and shares) as determined by the
Compensation Committee.
Participants holding restricted stock generally have the right
to vote the shares during the period of restriction and, unless
otherwise provided in the award document, will be credited with
and will be paid regular cash dividends paid with respect to the
underlying shares, but not stock dividends. Participants awarded
RSUs are not entitled to similar voting rights or dividends
(unless, with respect to dividends, otherwise provided in the
award document).
Each RPU will have an initial value established by the
Compensation Committee at the time of grant. Each RPS will have
an initial value equal to the fair market value of a share on
the date of grant. The Compensation Committee will set
performance goals. Achievement of the performance goals will
determine the number
and/or value
of RPUs and RPSs that are paid to the participant. RPUs and RPSs
will be forfeited to the extent that the applicable performance
goals are not satisfied during the performance period.
Unless otherwise provided in an award document, payment of
earned RPUs or RPSs will be made in a single lump sum following
the close of the applicable performance period in the form of
cash or in shares (or in a combination thereof), with an
aggregate fair market value equal to the value of the earned
RPUs or RPSs at the close of the performance period. At the
discretion of the Compensation Committee, participants may be
entitled to receive dividends or dividend equivalents declared
with respect to shares payable with respect to RPUs or RPSs not
yet distributed to participants and be entitled to exercise
voting rights with respect to RPSs.
The Compensation Committee will select those participants (if
any) who will receive management incentive awards for a given
year, based upon the recommendations of district, regional and
corporate group managers. Each management incentive award will
consist of shares, cash, RSUs or other awards at the discretion
of the Compensation Committee. The aggregate amount of the
awards will be determined by the Compensation Committee and will
be divided among those participants who have been selected to
receive management incentive awards in such manner and amount as
the Committee determines. A participant receiving a management
incentive award may (in the discretion of the Compensation
Committee) also receive, as a part of the award, an additional
amount not to exceed one month’s salary of the participant.
Pursuant to Section 162(m) of the Internal Revenue Code,
UPS ordinarily may not deduct compensation of more than
$1 million that is paid to certain “covered
employees” (i.e., any individual who, on the last
day of the taxable year, is either UPS’s principal
executive officer or an employee whose total compensation for
the tax year is required to be reported to shareowners because
he or she is among the three highest compensated officers for
the tax year, other than the principal executive officer or
principal financial officer). The limitation on deductions does
not apply, however, to qualified “performance-based
compensation.” Certain awards under the 2009 Plan may
constitute qualified performance-based compensation and, as
such, would be exempt from the $1 million limitation on
deductible compensation.
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Under the 2009 Plan, any performance goals applicable to awards,
other than options and SARs, intended to qualify as
“performance-based compensation” under
Section 162(m) will be based on one or more of the
following measures:
The Compensation Committee has discretion to adjust the
determinations of the degree of attainment of the
pre-established performance goals, except that awards which are
intended to qualify as performance-based compensation may not be
adjusted upward.
In the event of a change in control in UPS, if the successor
company continues, assumes or substitutes other grants for
outstanding awards and within two years following the change in
control (as defined in the 2009 Plan), the participant is
terminated by the successor without cause or resigns for good
reason (as defined in the 2009 Plan), then
In the event of a change in control in UPS, if the successor
company does not continue, assume or substitute other grants for
outstanding awards, or in the case of a dissolution or
liquidation of UPS, then options and SARs will be fully vested
and exercisable and the Compensation Committee will either give
a participant a reasonable opportunity to exercise the option
and SAR before the transaction resulting in the change in
control or pay the participant the difference between the
exercise price for the option or SAR and the consideration
provided to other similarly situated shareholders. Other
outstanding awards will vest and be paid generally as described
in the bullet points above (except, where applicable, timing of
payment generally will be tied to such change in control, rather
than termination or resignation).
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If an award has been paid to an executive officer or to his or
her spouse or beneficiary, and the Compensation Committee later
determines that financial results used to determine the amount
of that award are materially restated and that the executive
officer engaged in fraud or intentional misconduct, UPS will
seek repayment or recovery of the award.
The Compensation Committee has the right to amend or terminate
the 2009 Plan at any time; provided that except for an amendment
or termination of the provisions related to change in control,
no amendment or termination of the 2009 Plan may adversely
affect in any material way any award previously granted without
the award holder’s consent, and the provisions related to
change in control may not be amended after a change in control.
In addition, without the prior approval of our shareowners, the
2009 Plan may not be materially amended if shareowner approval
is required by law or applicable stock exchange listing
requirement, or if the amendment would increase the number of
shares available for awards under the 2009 Plan, or permit
options, SARs or similar awards to be repriced, replaced, or
regranted through cancellation, or by lowering the exercise or
purchase price of a previously granted award (except for certain
adjustments and award substitutions authorized under other
provisions of the 2009 Plan). In any event, no awards may be
granted under the 2009 Plan on or after May 7, 2019.
If UPS effects a subdivision or consolidation of shares of stock
or other capital adjustment, the maximum number and class of
shares that may be awarded under the 2009 Plan, the number and
class of
and/or price
of shares subject to outstanding awards, and the annual award
limits will be adjusted in the same manner and to the same
extent as all other shares.
If there are material changes in the capital structure of UPS
resulting from the payment of a special dividend, a spin-off,
the sale of a substantial portion of UPS’s assets; a merger
or consolidation in which UPS is not the surviving entity, or
other extraordinary non-recurring event affecting the capital
structure and the value of shares, the Compensation Committee
will make equitable adjustments in the maximum number and class
of shares that may be awarded under the 2009 Plan, the number
and class of
and/or price
of shares subject to outstanding awards, and the annual award
limits, to prevent the dilution or enlargement of the rights of
award recipients.
The rules concerning the federal income tax consequences with
respect to awards made pursuant to the 2009 Plan are technical,
and reasonable persons may differ on the proper interpretation
of the rules. Moreover, the applicable statutory and regulatory
provisions are subject to change, as are their interpretations
and applications, which may vary in individual circumstances.
The following discussion is designed to provide only a brief,
general summary description of the federal income tax
consequences associated with the awards, based on a good faith
interpretation of the current federal income tax laws,
regulations (including applicable proposed regulations) and
judicial and administrative interpretations. The following
discussion does not set forth any federal tax consequences other
than income tax consequences or any state, local or foreign tax
consequences that may apply.
Incentive Stock Options (ISOs). An optionee
does not recognize taxable income upon the grant or upon the
exercise of an ISO (although the exercise of an ISO may in some
cases trigger liability for the alternative minimum tax). Upon
the sale of ISO shares, the optionee recognizes income in an
amount equal to the excess, if any, of the fair market value of
those shares on the date of sale over the exercise price of the
ISO shares. The income is taxed at the long-term capital gains
rate if the optionee has not disposed of the stock within two
years after the date of the grant of the ISO and has held the
shares for at least one year after the date of exercise, and we
are not entitled to a federal income tax deduction. ISO holding
period requirements are waived when an optionee dies.
If an optionee sells ISO shares before having held them for at
least one year after the date of exercise and two years after
the date of grant, the optionee recognizes ordinary income to
the extent of the lesser of: (a) the gain realized upon the
sale; or (b) the excess of the fair market value of the
shares on the date of exercise over the exercise
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price. Any additional gain is treated as long-term or short-term
capital gain depending upon how long the optionee has held the
ISO shares prior to disposition. In the year of any such
disposition, we will receive a federal income tax deduction in
an amount equal to the ordinary income that the optionee
recognizes, if any, as a result of the disposition.
Nonqualified Stock Options (NQSOs). An
optionee does not recognize taxable income upon the grant of an
NQSO. Upon the exercise of such a stock option, the optionee
recognizes ordinary income to the extent the fair market value
of the shares received upon exercise of the NQSO on the date of
exercise exceeds the exercise price. We will receive an income
tax deduction in an amount equal to the ordinary income that the
optionee recognizes upon the exercise of the stock option.
Restricted Stock. A participant who receives
an award of restricted stock does not generally recognize
taxable income at the time of the award. Instead, the
participant recognizes ordinary income in the first taxable year
in which his or her interest in the shares becomes either:
(a) freely transferable; or (b) no longer subject to
substantial risk of forfeiture. The amount of taxable income is
equal to the fair market value of the shares less the cash, if
any, paid for the shares.
A participant may elect to recognize income at the time of grant
of restricted stock in an amount equal to the fair market value
of the restricted stock (less any cash paid for the shares) on
the date of the award.
We will receive a compensation expense deduction in an amount
equal to the ordinary income recognized by the participant in
the taxable year in which restrictions lapse (or in the taxable
year of the award if, at that time, the participant had filed a
timely election to accelerate recognition of income).
SARs. A participant who exercises a SAR will
recognize ordinary income upon the exercise equal to the amount
of cash and the fair market value of any shares received on as a
result of the exercise. We will receive an income tax deduction
in an amount equal to the ordinary income that the participant
recognizes upon the exercise of the SAR.
Other Awards. In the case of an award of RSUs,
RPUs, RPSs, or cash, the participant would generally recognize
ordinary income in an amount equal to any cash received and the
fair market value of any shares received on the date of payment.
In that taxable year, we would receive a federal income tax
deduction in an amount equal to the ordinary income that the
participant has recognized.
Section 409A. Section 409A of the
Internal Revenue Code provides special tax rules applicable to
programs that provide for a deferral of compensation. Failure to
comply with those requirements will result in accelerated
recognition of income for tax purposes along with an additional
tax equal to 20% of the amount included in income, and interest
on deemed underpayments in certain circumstances. While certain
awards under the 2009 plan could be subject to
Section 409A, the 2009 plan has been drafted to comply with
the requirements of Section 409A, where applicable.
Because benefits under the 2009 Plan will depend on the
Compensation Committee’s actions and the fair market value
of the shares at various future dates, it is not possible to
determine the benefits that will be received by directors,
executive officers and other employees if the 2009 Plan is
approved by the shareowners.
The board of directors recommends that shareowners vote FOR
approval of the 2009 Plan.
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