UPS » Topics » Long-Term Incentives

This excerpt taken from the UPS DEF 14A filed Mar 13, 2009.
Long-Term Incentives
 
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.
 
                 
            Performance
   
            Measures or
   
Program and Award
  Payment Form and
  Target Amount (As a
  Value
   
Type
  Program Type   Multiple of Salary)   Proposition   Program Objectives
 
Long-Term Incentive (LTI) program granted as stock options   Stock options that vest 20% per year over five years; ten-year term  
Overall award is 175% of base salary for the chief executive officer. Stock option portion equals 25% of total award target.

Overall award is 125% of base salary for the other members of the Management Committee. Stock option portion equals 25% of total award target.
  Value recognized only if UPS stock price appreciates  
Retention

Provides a significant link to our stock price performance

Value realized only if stock price appreciates

Enhances stock ownership and shareowner alignment and maximize shareholder value
                 
LTI program granted as restricted performance units   RPUs that are paid in UPS stock upon vesting; vesting is 20% per year over five years  
Total target is 175% of base salary for the chief executive officer. RPU portion equals 75% of total target

Total target is 125% of base salary for the other members of the Management Committee. RPU portion equals 75% of total target.
  Value increases as stock price increases  
Retention

Reinforces the manager-owner concept

Enhances stock ownership and shareowner alignment
                 
MIP and MIP Ownership Incentive Award long-term portion granted as restricted stock units  
50% paid in RSUs for the long-term portion of the program

RSUs are settled in UPS stock upon vesting; vesting is 20% per year over five years
 
For MIP, RSU portion equivalent to two times monthly base salary for the Management Committee and more senior management

For MIP ownership incentive award, RSU portion equivalent to one-half of one month base salary for all participants
 
For MIP award, volume growth, revenue growth, EPS growth, operating leverage and end-to-end service

For MIP ownership incentive award, ownership level in UPS stock compared to ownership target
  Supports our annual operating plan and business strategy

Ownership incentive award supports the manager-owner concept

Enhances stock ownership and shareowner alignment
                 
Long-Term Incentive Performance Award Program (LTIP) granted as restricted stock units   RSUs that are settled in UPS stock upon vesting; three-year vesting  
475% of base salary for the chief executive officer

450% of base salary for the chief operating officer

250% of base salary for the chief financial officer

225% of base salary for the other members of the Management Committee
 
Revenue growth

Operating return on invested capital

Three-year net income or EPS targets
  Supports our short and long-term operating plan and business strategy

Enhances stock ownership and shareowner alignment


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This excerpt taken from the UPS DEF 14A filed Mar 17, 2008.
Long-Term Incentives
 
Our long-term incentive programs provide participants with grants of equity-based incentives that are intended to reward performance over a period of more than one year. Grants are made pursuant to the shareowner approved UPS Incentive Compensation Plan and delivered in the form of class A shares at vesting. Awards are based on longer-term operational and financial performance goals and long-term stock price appreciation. The Compensation Committee believes equity-based compensation performs an essential role in retaining and motivating our executive officers by providing them incentives which are linked to our long-term success and maximizing shareowner value.
 
Target award levels vary based on level of responsibility. At the Management Committee level, the Compensation Committee has approved a differential in target long-term incentive award levels for the chief executive officer to acknowledge the additional responsibility of the chief executive officer and competitive market practice.


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The following table provides an overview of our long-term incentive awards. Each is described in more detail below.
 
This excerpt taken from the UPS DEF 14A filed Mar 19, 2007.
Long-Term Incentives
 
Our long-term incentive programs provide participants with grants of equity-based incentives that are intended to reward performance over a period of more than one year. Grants are made pursuant to the UPS Incentive Compensation Plan and delivered in the form of class A shares at vesting. Awards are based on longer-term operational performance and long-term stock price appreciation. The Compensation Committee believes equity-based compensation performs an essential role in retaining and motivating our executive officers by providing them incentives which are linked to our long-term success and maximizing shareowner value.
 
The long-term incentive component of our executive compensation package is delivered in three separate programs under the UPS Incentive Compensation Plan:
 
  •  stock option grants and RPUs awarded under the LTI;
  •  RSUs awarded under the MIP; and
  •  RSUs awarded under the LTIP.
 
Award values are based on general survey data regarding total compensation packages and the value of long-term incentive awards at peer companies. The Compensation Committee also considers factors such as market conditions, company performance, employee ownership levels and the dilution level to shareowners.
 
  •  Stock Option Awards
 
Stock options have been a major portion of executive compensation since 1981. The Compensation Committee believes that stock option awards provide a significant link to company performance and maximize shareowner value. Stock options will have value only if the market value of our common stock increases above the exercise price of the option and the option-holder does not terminate employment for reasons other than retirement, death or disability during the vesting period.
 
Stock option awards are granted to employees annually, typically in May of each year. Stock options are issued at fair market value on the date of grant, vest five years from the date of grant and expire ten years from the date of grant. Grants do not include dividend equivalents or any reload grant features. During 2006, a total of 2,434,629 options (0.22 percent of common shares outstanding) were issued to 3,333 employees.
 
Those non-qualified or incentive stock options which vested prior to December 31, 2004 which remain unexercised and for which an election was made to defer the gain into the UPS Deferred Compensation Plan will be deferred into the UPS Deferred Compensation Plan at the time of exercise. The shares received upon exercise of these options are deferred into a rabbi trust. The shares held in this trust are classified as treasury stock, and the liability to participating employees is classified as “deferred compensation obligations” in the shareowners’ equity section of the balance sheet. As a result of the requirements applicable to non-qualified deferred compensation arrangements under Section 409A of the Internal Revenue Code and related guidance, deferral of stock options is no longer offered under the UPS Deferred Compensation Plan for options that vest after December 31, 2004.
 
  •  Restricted Performance Units
 
Beginning in 2003, employees in key leadership positions were entitled to receive awards of RPUs as part of the LTI program under the UPS Incentive Compensation Plan. The decision to use RPUs was based on two goals for the award:
 
  •  maintain the long-term nature of the award and its impact on retention; and


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  •  continue to represent shareowner interests by utilizing an award whose value is linked to share price performance.
 
RPUs are delivered at 100 percent of the value of a UPS class A share at vesting. The awards are eligible for dividend equivalents, which are deemed to be automatically reinvested into additional restricted performance units. In 2006, 990,861 RPUs were granted to 3,333 employees.
 
At the end of the five-year restriction period, the number of RPUs granted to each individual can increase by 10 percent if certain company-wide performance measures are attained. Upon vesting of RPUs, the individual receives a distribution in the form of shares of class A common stock, less the required tax withholding.
 
  •  Long-Term Portion of MIP Awards
 
As described above, we modified the MIP program in 2005 to provide that half of the annual award be made in RSUs, with certain exceptions for first-time MIP recipients. The RSUs generally vest over a five-year period. RSUs are eligible for dividend equivalents, which are deemed to be automatically reinvested into additional RSUs. At the end of each annual vesting period, the individual receives shares of class A common stock. During 2006, approximately 3.7 million RSUs were issued to approximately 32,000 employees.
 
  •  2006 Long-Term Incentive Performance Award Program
 
In 2006, UPS adopted the 2006 LTIP under the UPS Incentive Compensation Plan. The program has a three year award cycle, from 2006 through 2008. Under the LTIP, target RSUs were granted to executive officers, officers and certain other eligible managers. As mentioned earlier, the Compensation Committee approved the LTIP in the belief that it would further strengthen the performance component of our executive compensation package, and enhance our retention of key talent.
 
Target RSU grants range from 50 percent to 250 percent of annual salary. For executive officers, the range is from 225 percent to 250 percent of annual salary. Of the total target award, 90 percent is divided into three substantially equal tranches, one for each calendar year in the three-year award cycle from 2006 through 2008. The remaining 10 percent of the total target award is based upon achievement of an adjusted net income target for 2008.
 
Specific performance measures and targets for each such tranche are set by the Compensation Committee. The number of RSUs earned each year will be the target number adjusted for the percentage achievement of the performance criteria targets for the year. The Compensation Committee may provide for payment of a percentage less than or more than 100 percent of target RSUs for each tranche based on achievement of performance criteria.
 
The award, if earned, will vest on January 31, 2009, provided the participant remains employed as of the vesting date. Special vesting rules apply to terminations by reason of death, disability or retirement. A participant’s earned restricted stock units account will be adjusted quarterly for dividends paid on class A common stock. The restricted stock unit awards that vest will be distributed in the form of class A shares. During 2006, a total of 623 employees received a target grant of approximately 1.18 million RSUs.
 
The performance criteria approved by the Compensation Committee for 2006 were growth in consolidated revenue and consolidated operating return on invested capital. The goals for these criteria were based on our confidential business plans and were consistent with other publicly disclosed financial targets for 2006. At their meeting on February 7, 2007, the Compensation Committee determined that 85 percent of the target award for the 2006 tranche was earned.
 
The Compensation Committee believes that the specific performance targets for the 2006 period incorporated an appropriate level of difficulty and expectations for on-going performance improvements. The goals for 2007 are also being established with a similar intent.
 
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