United Technologies DEFA14A 2012
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
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Additional Information Concerning the 2012 Annual Meeting of Shareowners of United Technologies Corporation (UTC) to be Held on April 11, 2012
We are writing to ask for your support at the Annual Meeting by voting in accordance with the recommendations of our Board of Directors. In particular, we request your support of our proposal regarding the Advisory Vote to Approve Named Executive Officer Compensation (Say-on-Pay).
Institutional Shareholder Services (ISS) has recommended a vote against this proposal. In its report, ISS concedes that shareholders have benefited from investing long-term at UTX, as demonstrated by the companys three-year and five-year TSRs. ISS, nonetheless, recommends against UTCs Say-on-Pay proposal principally on the basis of:
The Compensation Discussion and Analysis on page 19 of our Proxy Statement explains in detail UTCs pay for performance and shareowner alignment compensation program objectives. At last years Annual Meeting of Shareowners, with the support of ISS, UTCs compensation program was approved with the support of 98% of the votes cast. Nothing has changed. UTCs Board of Directors remains committed to compensation that drives performance and aligns with investors interests. UTCs benchmarks, targets and metrics, which have successfully correlated with outstanding near- and long-term performance in the past, remain in place. As explained below, the only thing that has changed is ISS assessment methodology, which we believe to be fundamentally deficient.
ISS new methodology results in a peer group comprised of the following industries:
80% of the companies within the ISS comparison group are irrelevant for purposes of benchmarking shareowner returns against UTC because they are in completely unrelated industries. Only the three Capital Goods industry companies present directly relevant comparisons.
ISS acknowledges (on page 14 of its Evaluating Pay for Performance Alignment document dated December 20, 2011) that approximately 25 non-financial companies within the Russell 3000 index have insufficient industry peers generated by the standard methodology because they are unique in being among the largest public companies and have very few (and in some cases no) industry peers close to their size . UTC has been categorized by ISS as one of these unique companies. Unfortunately, rather than attempting to construct a reasonably relevant group, ISS constructed a group based solely on market capitalization and revenue, without regard to industry, which we believe is critical in any TSR comparison. For example, Apple Inc.s performance is of little, if any, relevance to UTCs performance, yet ISS has used it as a comparison company.
For purposes of our long-term incentive program, UTC measures TSR performance versus the S&P 500 to account for the fact that there are a limited number of industry-specific peers of a similar size to UTC.
Finally, as of the ISS report date, we believe that 2011 CEO compensation data has been included for only seven of the ISS peer group companies, resulting in comparisons to outdated compensation information for a significant portion of the ISS peer group.
The December 31, 2011 TSR snapshot does not account for the impact of UTCs agreement to acquire the Goodrich Corporation (subject to regulatory approvals).
As of March 15, 2012, we present the following TSR comparisons for your consideration:
LTIP Performance Targets
ISS contends that UTCs relative TSR and absolute EPS targets are less than rigorous. Under the UTC program, awards can payout between 0 200% of target level. For the most recently vested LTIP awards, payouts have been far below maximum. In fact, actual results were at or below target as follows:
Given these results, it is hard to understand ISS subjective and unsupported assessment that UTCs targets are less than rigorous.
We believe that ISS significantly overvalues CEO long-term incentive awards granted in 2011. UTC retains an experienced, independent third-party to value its equity awards. This valuation runs one million simulations which incorporate tens-of-thousands of data points to estimate projected award values which are disclosed in UTCs annual Form 10-K. While some variation based on differing valuation methodologies is understandable, a $2.7M increase in the award value of the CEOs stock appreciation rights seems extraordinary and unreasonable.
In considering your vote, we once again urge shareowners to review the Compensation Discussion and Analysis on page 19 of UTCs proxy statement and to consider the information in this letter. UTCs Board of Directors Committee on Compensation and Executive Development maintains a compensation program that, in our view, has effectively aligned executive compensation with shareowner interests. We believe the ISS methodology for assessing UTCs compensation program is inappropriate and fails to properly assess the relationship between pay and performance.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREOWNERS VOTE FOR UTCS PROPOSAL 3:
ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION