| | Chairman, President and Chief Executive Officer of the American Automobile Manufacturers Association. Mr. Card served as the 11th Secretary of Transportation under President George H.W. Bush from 1992 to 1993. He also served as a Deputy Assistant to the President and Director of Intergovernmental Affairs for President Ronald Reagan. Mr. Card served on the board of Lorillard, Inc. from August 2011 to 2015.
| ERROLL B. DAVIS, JR.
Former Chairman, President and Chief Executive Officer
Alliant Energy Corporation
| Director since: 2004
Age: 72
Board Committees: Compensation and Benefits (Chair), Corporate Governance and Nominating
|
Mr. Davis was appointed the interim superintendent of the Atlanta Public Schools on July 1, 2011, and most recently served as its superintendent from August 15, 2011 until July 7, 2014. Mr. Davis was the Chancellor of the University System of Georgia from February 2006 to June 2011. From 1998 until July 2005, Mr. Davis was President and Chief Executive Officer of Alliant Energy Corporation, an energy holding company. He also served as Chairman of Alliant from April 2000 until January 31, 2006. Mr. Davis was a director of PPG Industries, Inc. from 1994 to 2007, a director of BP plc from 1998 to 2010, and served as a director of General Motors Corporation from 2009 to 2015.
| | : 66
Audit (Chair), Compensation and Benefits
| 
| DAVID B. DILLION
Former Chairman
The Kroger Co.
| Director since: 2014
Age: 66
Board Committees: Audit (Chair), Compensation and Benefits
|
Mr. Dillon retired as the Chairman of the Board of The Kroger Co. and from The Kroger Co. Board of Directors on December 31, 2014, where he was Chairman since 2004 and was the Chief Executive Officer of The Kroger Co. from 2003 through 2013. Mr. Dillon served as the President of The Kroger Co. from 1995 to 2003. Mr. Dillon was elected Executive Vice President of The Kroger Co. in 1990 and was President of Dillon Companies, Inc. from 1986 to 1995. Mr. Dillon was a director of Convergys Corporation from 2000 to 2011 and served as a director of The Kroger Co. from 1995 to 2014 and DIRECTV from 2011 to 2015. In August 2015, Mr. Dillon became a director of the 3M Company.
| | | 
| LANCE M. FRITZ
Chairman, President and Chief Executive Officer
Union Pacific Corporation and Union Pacific Railroad Company | Director since: 2015
Age: 54
|
Mr. Fritz was elected President and Chief Executive Officer of the Company on February 5, 2015, and elected Chairman of the Board effective October 1, 2015. Prior to being named President and Chief Executive Officer, Mr. Fritz served as President and Chief Operating Officer of the Railroad since February 2014 and was Executive Vice President-Operations from September 2010 until February 2014.
Mr. Fritz was the Vice-President-Labor Relations of the Railroad from 2008 until his election as Vice President-Operations in January 2010. Mr. Fritz held several executive positions in the Railroad’s Operating Department from 2005 through 2008, including Regional Vice President-Southern Region and Regional Vice President-Northern Region. Prior to joining the Railroad, Mr. Fritz served in various executive positions with Fiskars, Inc., Cooper Industries and General Electric.
| | | 
| Mr. Fritz is currently serving as the Chairman, President and Chief Executive Officer of the Company and the Railroad, and has held these roles since 2015. Prior to that Mr. Fritz served in various roles for the Railroad, including President and Chief Operating Officer, Executive Vice President-Operations, Vice President-Labor Relations, and several other executive positions in the Railroad’s operating department.
Mr. Fritz has broad, extensive operational and managerial experience, as well as a deep institutional knowledge and track record of success, due to his lengthy tenure with the Company and the Railroad. | |
| | Former Chief Executive Officer Citi Ventures and Former Chief Innovation Officer Citi | Director since: 2017
Age: 62
Board Committees:
| | | Most recently, Ms. Hopkins was the Chief Executive Officer of Citi Ventures and the Chief Innovation Officer of Citigroup, Inc., an international investment bank and financial services corporation, holding both positions from 2008 to 2016. Prior to that Ms. Hopkins served in various roles with Citigroup, including Chief Operations and Technology Officer, Senior Advisor to Corporate and Investment Bank and Head of Corporate Strategy. Ms. Hopkins also has served as Chief Financial Officer for each of Lucent Technologies and The Boeing Company, and has served in various roles for General Motors Company, including Vice President of Finance, Europe and General Auditor, and as the Corporate GovernanceController for Unisys Corporation.
Ms. Hopkins has significant experience in finance, technology and Nominatinginnovation due to her various leadership positions overseeing those areas at multinational companies. Additionally, Ms. Hopkins has extensive experience serving on the boards of other public companies. | | | | OTHER PUBLIC DIRECTORSHIPS (within the last 5 years) | | | | CURRENT
• Virtusa Corporation (since 2018)
• Marsh and McLennan Companies (since 2017) | |
Ms. Hopkins was the founder and Chief Executive Officer of Citi Ventures and Citi’s Chief Innovation Officer from May of 2008 until her retirement on December 31, 2016. Ms. Hopkins joined Citi in 2003 as Head of Corporate Strategy and was later appointed Chief Operations and Technology Officer. Prior to joining Citi, Ms. Hopkins served as the Chief Financial Officer at Boeing and then Lucent Technologies, General Auditor of General Motors before being named Vice President of Finance at General Motors Europe, and Corporate Controller at Unisys. Ms. Hopkins was a director of DuPont from 2000 to 2005 and served as a director of Qlik Technologies from 2011 to August 2016. In January 2017, Ms. Hopkins became a director of Marsh and McLennnan Companies.
TABLE OF CONTENTS PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS
| | | | INDEPENDENT | | | | President and Chief Executive Officer SICPA, North America | | | | Ms. Lute is currently serving as the President and Chief Executive Officer of SICPA, North America, a global provider of security inks; a Special Advisor to the Secretary-General of the United Nations, where she has held several position in peacekeeping and peace building; and as a Director for the Center for Internet Security (CIS); and has held such positions since 2017, 2016 and 2015 respectively. Prior to that, Ms. Lute served as the Chief Executive Officer for CIS, a nonprofit organization focused on developing cyberdefense best practices, from 2015 to 2016, and has also served as the Deputy Secretary for the U.S. Department of Homeland Security, and on the National Security Council Staff under Presidents George H.W. Bush and William Jefferson Clinton. Ms. Lute has also served in the United States Army.
Ms. Lute has unique and invaluable knowledge and leadership experience that she has gained through her extensive military and government service, including her service at the U.S. Department of Homeland Security and the United Nations. Additionally, she has expertise with cyber security matters developed through her role as Chief Executive Officer of CIS, an operating not-for-profit organization and home of the Multi-State Information Sharing and Analysis Center providing cybersecurity services for state, local, tribal and territorial governments. | Director since: 2016
Age: 60
Board Committees: Audit, Corporate Governance
| | | OTHER PUBLIC DIRECTORSHIPS (within the last 5 years) | | | | CURRENT
• Atlas Air Worldwide Holdings, Inc. (since 2018)
• Marsh and NominatingMcLennan Companies (since 2020) | |
Ms. Lute most recently served as the Chief Executive Officer of the Center for Internet Security, an international non-profit organization focused on enhancing cybersecurity readiness and response for the public and private sectors. Ms. Lute served as the President and Chief Executive Officer of the Council on Cybersecurity from 2013 to 2015. Prior to this position, Ms. Lute served as the Deputy Secretary for the U.S. Department of Homeland Security from 2009 until 2013. From 2003 through 2009, Ms. Lute served as acting Under Secretary-General and Assistant Secretary-General of the United Nations (UN) and established the Department of Field Support, responsible for comprehensive on-the-ground support to UN peace operations worldwide.
| MICHAEL R. MCCARTHY | | | INDEPENDENT | LEAD DIRECTOR | | | | Chairman McCarthy Group, LLC | Director since: 2008
Lead Independent Director: 2016 - Present
Age: 65
Board Committees: Finance, Corporate Governance
| | | Mr. McCarthy is currently serving as chairman of McCarthy Group, LLC, a private investment group which he co-founded in 1986, and Nominating (Chair)currently serves as the Company’s lead independent director.
Mr. McCarthy has extensive experience providing strategic and operational advice to businesses in various sectors of the economy, as well as financial expertise and a valuable background in leading successful investment companies, gained through founding and serving as Chairman of McCarthy Group, LLC. Additionally, Mr. McCarthy has significant experience serving on the boards of other public companies. | | | | OTHER PUBLIC DIRECTORSHIPS (within the last 5 years) | | | | FORMER
• Cabela’s Incorporated (1996-2017) | |
Mr. McCarthy serves as chairman of McCarthy Group, LLC, a private investment group, which he co-founded in 1986. Mr. McCarthy has served as a director of Peter Kiewit Sons’, Inc. since 2001, and Cabela’s Incorporated since 1996. Mr. McCarthy currently serves as our lead independent director.
TABLE OF CONTENTS PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS
| MICHAEL W. MCCONNELL
General Partner and Former Managing Partner
Brown Brothers Harriman & Co.
| Director since: 2004
Age: 74
Board Committees: Audit, Finance
|
Mr. McConnell has been a Partner of Brown Brothers Harriman & Co., a private banking firm, since January 1984, Chief Financial Partner from January 1995 to January 2002, Managing Partner from February 2002 to December 31, 2007 and a General Partner since January 1, 2008.
| | | 
| THOMAS F. MCLARTY III | | | INDEPENDENT | | | | President McLarty Associates | Director since: 2006
Age: 70
Board Committees: Finance (Chair)
| | | Mr. McLarty is currently serving as the President of McLarty Associates (formerly Kissinger McLarty Associates), Corporate Governancean international strategic advisory and Nominatingadvocacy firm; Executive Vice Chairman of RML Automotive; and Chairman and President of McLarty Companies, a fourth generation, family-owned transportation business; and has held these positions since 1999, 2007 and 1998, respectively. Prior to that, Mr. McLarty served in several positions in the Clinton White House, including Chief of Staff to the President, Counselor to the President and Special Envoy for the Americas, and also served as Chairman and Chief Executive Officer of Arkla, Inc., a Fortune 500 natural gas company.
Mr. McLarty has valuable business leadership experienced due to his time as the Chief Executive Officer of Arkla, Inc., as well as extensive exposure and expertise in international business and regulatory matters gained as President of McLarty Associates. Additionally, he has significant experience in government service at the highest levels gained through his several positions in the Clinton White House. Mr. McLarty also has experience serving on the board of Acxiom Corporation, another public company. | |
| | Chief Executive Officer of LyondellBasell Industries, N.V. | | | | Mr. Patel is currently serving as the Chief Executive Officer of LyondellBasell Industries, N.V. (LyondellBasell), an international plastics, chemical and refining company, and has held this position since 2015, and until recently, served as the Chairman of LyondellBasell’s management board. Before being named Chief Executive Officer of LyondellBasell, Mr. Patel held a variety of senior leadership roles at LyondellBasell, including Senior Vice President, Olefins and Polyolefins-Americas and Europe; Senior Vice President, Olefins and Polyolefins-Europe, Asia, International and Technology; and Executive Vice President, Olefins and Polyolefins-Europe, Asia, International and Technology. Prior to joining LyondellBasell, Mr. Patel held multiple leadership positions at Chevron Phillips Chemical Company.
Mr. Patel has extensive business and leadership experience gained from his several senior positions at Chevron Phillips and LyondellBasell, and as the current Chief Executive Officer of LyondellBasell, one of the largest plastics, chemical and refining companies in the world. Additionally Mr. Patel, through those same roles, has valuable international and global expertise and knowledge of rail operations from a customer perspective. | | | | OTHER PUBLIC DIRECTORSHIPS (within the last 5 years) | | | | CURRENT
• LyondellBasell Industries, N.V. (since 2018) | |
Mr. McLarty has been President of McLarty Associates (formerly Kissinger McLarty Associates), an international strategic advisory and advocacy firm, since 1999. From 1992 to 1997, Mr. McLarty served in several positions in the Clinton White House, including Chief of Staff to the President, Counselor to the President and Special Envoy for the Americas. In 1998, Mr. McLarty returned to be Chairman and President of the McLarty Companies, a fourth generation family-owned transportation business. From 1983 to 1992, Mr. McLarty served as Chairman and Chief Executive Officer of Arkla, Inc., a Fortune 500 natural gas company. Mr. McLarty was a director of Acxiom Corporation from 1999 until 2010.
TABLE OF CONTENTS PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS
| STEVEN R. ROGEL
Former Chairman
Weyerhaeuser Company
| Director since: 2000
Lead Independent Director: 2010 - 2016
Age: 74
Board Committees: Compensation and Benefits, Corporate Governance and Nominating
|
Mr. Rogel was Chairman, President and Chief Executive Officer of Weyerhaeuser Company, an integrated forest products company, from December 1997 through December 31, 2007, Chairman and Chief Executive Officer of Weyerhaeuser Company from January 1 through April 2008 and Chairman until his retirement on April 15, 2009. Mr. Rogel was a director of EnergySolutions, Inc. from 2009 to 2013 and served as non-executive Chairman of the Board of EnergySolutions, Inc. from 2010 to 2013. Mr. Rogel was a director of The Kroger Co. from 2000 to 2014.
| | | 
| JOSE H. VILLARREAL | | | INDEPENDENT | | | | Advisor Akin, Gump, Strauss, Hauer & Feld LLP | Director since: 2009
Age: 63
Board Committees: Audit, Compensation
| | | Mr. Villarreal is currently serving as a non-employee advisor with Akin, Gump, Strauss, Hauer & Feld LLP, an international law firm, and Benefitswas previously a partner at the firm. Mr. Villareal also previously served as Assistant Attorney General for the Public Finance Division of the Texas Attorney General’s Office, and has served in senior roles in numerous presidential campaigns, as well as in the role of United States Commissioner General to the Shanghai 2010 World Expo.
Mr. Villarreal has valuable legal, regulatory and compliance expertise, as well as extensive government affairs experience gained from his service in state and federal public offices, his involvement in presidential campaigns, and as a partner with Akin, Gump, Strauss Hauer & Feld, LLP. Additionally, Mr. Villarreal has significant service and experience on boards of other public companies, including PMI Group, Inc., First Solar, Inc. and Walmart Inc. | |
| | Chairman Siebert Williams Shank & Co. | | | | Mr. Williams is currently serving as the Chairman of Siebert Williams Shank & Co., LLC, an investment banking and financial services company, and has held this position since November 4, 2019, when The Williams Capital Group, L.P. and Williams Capital Management, LLC (collectively Williams Capital), an investment banking and financial services firm that Mr. Williams founded, merged with Siebert Cisneros Shank & Co., L.L.C. Prior to the merger, Mr. Williams served as the Chairman and Chief Executive Officer of Williams Capital, holding that position since the company’s formation in 1994. Mr. Williams also previously worked at Jeffries and Company and Lehman Brothers.
Mr. Williams has extensive financial, accounting and strategic knowledge gained during his years of experience in investment banking and finance, as well as valuable executive management and leadership experience due to his role as Chairman and Chief Executive Officer of Williams Capital. Additionally, he has significant experience serving on the boards of other public companies, including, in addition to those listed below, Walmart Inc. | | | | OTHER PUBLIC DIRECTORSHIPS (within the last 5 years) | | | | CURRENT
• The Clorox Company (since 2015)
• Ameriprise Financial (since 2016)
FORMER
• Caesars Entertainment Corporation (2003-2019) | |
Mr. Villarreal was a partner with Akin, Gump, Strauss Hauer & Feld, LLP, a law firm, from 1994 through 2008 and has served as a non-employee advisor to the firm since 2008. Prior thereto, Mr. Villarreal served as assistant attorney general in the Public Finance Division of the Texas attorney general’s office. Mr. Villarreal also served in senior roles in numerous presidential campaigns. Mr. Villarreal was a director of Wal-Mart Stores, Inc. from 1998 to 2006, First Solar, Inc. from 2007 to 2012, and PMI Group, Inc. from 2005 to 2013. Mr. Villarreal served as United States Commissioner General to the Shanghai 2010 World Expo.
TABLE OF CONTENTS PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS
The Board recommends a vote FOR the election of each of the nominated directors.
DirectorDirector Qualifications and Experience
The Corporate Governance and Nominating Committee considered the character, experience, qualifications and skills of each director nominee when determining whether he or she should serve as a director of the Company. Consistent with the stated criteria for director nominees described on pages 1417 and 1519 below and included in the Company’s Corporate Governance Guidelines and Policies, the Committee determined that each director nominee exhibits a high degree of integrity, has significant professional accomplishments, and has proven leadership experience. Each director nominee is or has been a leader in his or her respective field and brings diverse talents and perspectives to the Board. The Committee also considered the experience and qualifications that each director nominee brings to the Board outlined above in each director’s biographical information, as well as service on boards of other public companies.
The Committee utilizes the following list of skills, attributes and qualities that are particularly relevant to the Company when evaluating director nominees. Economics/Finance – Background in finance, banking, economics, and the securities and financial markets, both domestic and international; Operations – Knowledge or experience in the transportation industry, particularly the rail industry and rail operations; Risk Management Experience – Senior executive level experience in risk management, strategic planning or compliance activities; Customer Perspective – A strong understanding of rail customer perspectives; Government and Regulatory Expertise – Experience in regulatory, political and governmental affairs or public service in legislative or executive positions in Washington D.C. or state government, especially in states where the Company has a significant operating presence; Legal – Possesses a law degree or experience in the legal profession; International/Global Expertise – An international background or global expertise given the significant rail interchange operations with Mexican and Canadian rail systems, along with the Company’s extensive international marketing efforts; Wall Street Experience – Background or experience with an investment or brokerage firm, investment banking or similar Wall Street financial expertise; Technology – Senior executive level or board experience in information technology, cybersecurity, information systems or information technology issues for a public or private entity; Investor Perspective – A strong understanding of institutional investors; CEO Experience – Business and strategic management experience gained from prior or current service as a chief executive officer; and Publicly Traded Company Experience – Prior or current service as a CEO or director at other publicly traded companies. TABLE OF CONTENTS | ·
| | Economics/Finance – Background in finance, banking, economics, and the securities and financial markets, both domestic and international;
|
PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS
| ·
| | Operations – Knowledge or experience in the transportation industry, particularly the rail industry and rail operations;
|
| ·
| | Risk Management Experience – Senior executive levelexperience in risk management, strategic planning or compliance activities;
|
| ·
| | Customer Perspective – A strong understanding of rail customer perspectives;
|
| ·
| | Government and Regulatory Expertise - Experience in regulatory, political and governmental affairs or public service in legislative or executive positions in Washington D.C. or state government, especially in states where the Company has a significant operating presence;
|
| ·
| | Legal - Experience in the legal profession;
|
| ·
| | International/Global Expertise - An international background or global expertise given the significant rail interchange operations with Canadian and Mexican rail systems;
|
| ·
| | Wall Street Experience – Background or experience with an investment or brokerage firm, investment banking or similar Wall Street financial expertise;
|
| ·
| | Technology – Senior executive level or board experience in information technology, cybersecurity, information systems or information technology issues for a public or private entity;
|
| ·
| | Investor Perspective – A strong understanding of institutional investors;
|
| ·
| | CEO Experience - Business and strategic management experience gained from prior or current service as a chief executive officer; and
|
| ·
| | Publicly Traded Company Experience – Prior or currentservice as a CEO or director at other publicly traded companies.
|
Below we identify the balance of skills and qualifications each director nominee brings to the Board. The fact that a particular skill or qualification is not designated does not mean the director nominee does not possess that particular attribute. Rather, the skills and qualifications noted below are those reviewed by the Corporate Governance and Nominating Committee and the Board in making nomination decisions and as part of the Board succession planning process. We believe the combination of the skills and qualifications shown below demonstrates how the Board is well-positioned to provide effectivestrategic oversight and strategic guidance to management. management.
TABLE OF CONTENTS PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS
The Corporate Governance and Nominating Committee is responsible for developing and periodically reviewing and recommending to the Board the appropriate skills and characteristics required of Board members in the context of the current composition of the Board. Such criteria, as described in the Company’s Corporate Governance Guidelines and Policies, include: business and management experience; familiarity with the business; customers and suppliers of the Company; varying and complementary talents, backgrounds and perspectives; diversity (inclusive of gender, race, ethnicity and national origin); and relevant legal, regulatory and stock exchange requirements applicable to the Board and certain of its Committees. All potential new Board candidates should exhibit a high degree of integrity and ethics consistent with the values of the Company and the Board. In all our director nominee searches, the Committee is committed to actively seeking out highly qualified women (Ms. Lute and Ms. Hopkins) and other diverse candidates (Messrs. Patel, Villarreal and Williams), for consideration as nominees to the Board. The Committee ultimately seeks to identify and nominate candidates with diverse talents, backgrounds and perspectives who will enhance and complement the skills and expertise of the Board and satisfy the Board membership criteria included in the Company’s Corporate Governance Guidelines and Policies. In determining the independence of a candidate, the Committee relies upon the independence standards adopted by the Board. In addition, the Committee requires that all candidates: Exhibit a high degree of integrity and ethics consistent with the values of the Company and the Board; Have demonstrable and significant professional accomplishments; and Have effective management and leadership capabilities. The Committee also values familiarity with the rail transportation industry and considers the number of other public boards on which candidates serve when determining whether the individual circumstances of each candidate will allow the candidate sufficient time to effectively serve on the Board and contribute to its function and activities. The Committee meets each year to consider the inclusion of nominees in the Company’s proxy statement. During this meeting, the Committee considers each nominee by: Reviewing relevant information provided by the nominee in his or her Company questionnaire; Applying the criteria listed above; and Assessing the performance of the Board and each nominee during the previous year with respect to current members of the Board. As part of the Committee’s oversight of the Board’s self-evaluation process, the Committee assesses the effectiveness of the criteria listed above when evaluating all new director candidates and when assessing the composition of the Board. The Committee will consider candidates recommended by shareholders under the same standards after concluding that any such recommendations comply with the requirements outlined below. During 2019, the Company retained the services of Heidrick & Struggles to help identify and evaluate suitable candidates for consideration to replace retiring directors. Mr. Williams was vetted and recommended by Heidrick & Struggles as a director candidate.
TABLE OF CONTENTS | | | | | | | | | | | | | Director
| Economics / Finance
| Operations
| Risk Management
Experience
| Customer
Perspective
| Government and Regulatory Expertise
| Legal
| International / Global
Expertise
| Wall Street Experience
| Technology
| Investor Perspective
| CEO Experience
| Publicly Traded Company Experience
(CEO or Director other than with the Company)
| AndrewH.Card,Jr.
| X
| | X
| | X
| | X
| | | | | X
| Erroll B.Davis,Jr.
| X
| X
| X
| X
| X
| | X
| X
| | | X
| X
| David B.Dillon
| X
| X
| X
| X
| | | | X
| | | X
| X
| Lance M.Fritz
| | X
| X
| X
| X
| | | X
| | | X
| | Deborah C. Hopkins
| X
| X
| X
| | | | X
| X
| X
| X
| X
| X
| Jane H.Lute
| | X
| X
| | X
| | X
| | X
| | X
| | Michael R.McCarthy
| X
| | X
| X
| | | | X
| | X
| X
| X
| Michael W.McConnell
| X
| | X
| | | | | X
| | X
| X
| | Thomas F.McLartyIII
| | | X
| X
| X
| | X
| X
| | | X
| X
| Steven R.Rogel
| X
| X
| X
| X
| X
| | X
| X
| | | X
| X
| Jose H.Villarreal
| | | X
| | X
| X
| X
| | | | | X
|
PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS
We believe that Board tenure diversity is important and directors with many years of service provide the Board with a deep knowledge of our Company, while newer directors lend fresh perspectives. The chart below reflects the Board tenure of our current directors. The average tenure of all directors currently serving on our Board and nominated for re-election is six and a half years. Evaluation of Board and Committee Effectiveness and Performance The Corporate Governance and Nominating Committee is responsible for overseeing the annual self-evaluation process of the Board and its committees, which is used by the Board and each committee to assess their effectiveness, their performance and opportunities for improvement. In addition, each committee reviews its Charter annually and reports to the Corporate Governance and Nominating Committee and the Board on its self-evaluation and review of its Charter. During 2019, the Board and committee evaluation process involved the distribution of a self-assessment questionnaire to all Board and committee members inviting a review and written comments on all aspects of the Board and each committee’s role and responsibilities, as well as director performance and Board dynamics. Comments solicited related to a holistic review of how the Board can improve its key functions overseeing the Company’s overall governance and the enterprise risk profile of the Company, approving the Company’s strategic plan, monitoring strategy implementation and generally overseeing management’s operations of the business. In particular, for both the Board and the relevant committee, the process solicited ideas from directors about (i) improving prioritization of issues, (ii) improving quality of Board and committee discussions on key matters, (iii) identifying specific issues that should be discussed in the future, and (iv) identifying any other matters of importance to the functioning of the Board or committee. The Corporate Governance and Nominating Committee will provide oversight for each committee and the Board as the directors continue discussing the results of this evaluation and work to address the recommendations. TABLE OF CONTENTSConsid PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS
Previously in 2018, an independent third party interviewed each member of the Board, as well as two recently retired directors, as part of the annual self-evaluation process of the Board and its committees and the independent third party presented the results to the Board. This presentation contained a summary of recommendations and items for discussion regarding Board and committee effectiveness based on these interviews. erationConsideration of Director Nominees and Proxy AccessIn November 2015, the Company amended its
The Company’s By-Laws to provide for “proxy access” for certain director candidates nominated by shareholders. Under the amended By-Laws, a shareholder or group of shareholders who have continuously held for three years a number of shares of Company common stock equal to three percent of the outstanding shares of Company common stock may request that the Company include in the Company’s proxy materials director nominees representing up to the greater of two directors or 20% of the current number of directors. Eligible shareholders wishing to have such candidates included in the Company’s Proxy Statement for the 20182021 Annual Meeting of Shareholders should provide the information specified in the By-Laws to the Secretary of the Company in writing during the period beginning on October 30, 2017November 4, 2020 and ending on November 29, 2017,December 4, 2020, and should include the information and representations required by the proxy access provisions set forth in the Company’s By-Laws. The Corporate Governance and Nominating Committee will consider and evaluate individuals for service on the Board suggested by directors and other interested parties. Shareholders desiring to recommend candidates for consideration at the 20182021 Annual Meeting should advise the Secretary of the Company in writing during the period beginning on January 11, 201814, 2021 and ending on the close of business February 10, 2018,13, 2021, and should include the following information required by the nomination procedures set forth in the Company’s By-Laws, as well as any other information that would assist the Committee in evaluating the recommended candidates: (i) the name, age, and business and residence addresses of the candidate, (ii) the principal occupation of the candidate, and (iii) the number of shares of Company common stock beneficially owned by the candidate. A shareholder should also provide (i) his or her name and address, (ii) the number of shares of Company common stock beneficially owned by such shareholder, (iii) a description of all arrangements between himself or herself and the candidate and any other person pursuant to which the recommendation for nomination is being made, and (iv) the candidate’s written
consent agreeing to any resulting nomination and to serve as a director if elected. The By-Laws are available on the Company’s website at www.up.com/investors/governance, and shareholders may obtain a printed copy by contacting the Secretary of the Company at the address set forth on the notice page of this Proxy Statement. The Corporate Governance and Nominating Committee is responsible for developing and periodically reviewing and recommending to the Board the appropriate skills and characteristics required of Board members in the context of the current composition of the Board. Such criteria, as described in the Company’s Corporate Governance Guidelines and Policies, include: business and management experience; familiarity with the business, customers and suppliers of the Company; varying and complementary talents, backgrounds and perspectives; diversity (inclusive of gender, race, ethnicity and national origin); and relevant legal, regulatory and stock exchange requirements applicable to the Board and certain of its Committees. All potential new Board candidates should exhibit a high degree of integrity and ethics consistent with the values of the Company and the Board. The Committee is committed to actively seeking out highly qualified women (Ms. Lute and Ms. Hopkins) and other diverse candidates (Mr. Davis and Mr. Villarreal), for consideration as nominees to the Board. The Committee ultimately seeks to identify and nominate candidates with diverse talents, backgrounds and perspectives who will enhance and complement the skills and expertise of the Board and satisfy the Board membership criteria included in the Company’s Corporate Governance Guidelines and Policies. In determining the independence of a candidate, the Committee relies upon the then effective independence standards adopted by the Board. In addition, the Committee requires that all candidates:TABLE OF CONTENTS
| ·
| | Exhibit a high degree of integrity and ethics consistent with the values of the Company and the Board;
|
BOARD CORPORATE GOVERNANCE MATTERS | ·
| | Have demonstrable and significant professional accomplishments; and
|
| ·
| | Have effective management and leadership capabilities.
|
The Committee also values familiarity with the rail transportation industry and considers the number of other public boards on which candidates serve when determining whether the individual circumstances of each candidate will allow the candidate sufficient time to effectively serve on the Board and contribute to its function and activities.
The Committee meets at the first Board meeting of each year to consider the inclusion of nominees in the Company’s proxy statement. During this meeting, the Committee considers each nominee by:
| ·
| | Reviewing relevant information provided by the nominee in his or her mandatory Company questionnaire;
|
| ·
| | Applying the criteria listed above; and
|
| ·
| | Assessing the performance of the Board and each nominee during the previous year with respect to current members of the Board.
|
The Committee assesses the effectiveness of the criteria listed above when evaluating new director candidates and when assessing the composition of the Board. The Committee will consider candidates recommended by shareholders under the same standards after concluding that any such recommendations comply with the requirements outlined above. During 2016, the Company retained the services of Russell Reynolds Associates to help identify and evaluate suitable candidates for consideration to replace retiring directors. Ms. Hopkins was first identified by Russell Reynolds as a director candidate.
Board Corporate Governance Matters
We are committed to implementing and following high standards of corporate governance, which we believe are important to the success of our business and create shareholder value. Corporate The Board has adopted Corporate Governance Guidelines and Policies,
The Board has adopted the guidelines and policies set forth below, and, with ongoing input from the Corporate Governance and Nominating Committee, will continue to assess the appropriateness of these guidelines and policies and implement such changes and adopt such additions as may be necessary or desirable to promote the effective governance of the Company. We post these guidelines and policies on our website at www.up.com/investors/governance.
Director Independence . A majority of the members of the Board are independent. All members of the Audit, Compensation and Benefits and Corporate Governance and Nominating Committees are independent. An “independent” director is a director who, as determined by the Board in its business judgment, meets the NYSE definition of “independence” as well as the Director Independence Standards adopted by the Board and set forth in the section titled “Director Independence Standards.” In addition, directors who serve on the Audit Committee and on the Compensation and Benefits Committee must meet additional independence criteria applicable to audit committee members and compensation committee members, respectively, under NYSE listing standards, as described in the section titled “Audit Committee and Compensation and Benefits Committee Independence Criteria.” Independence is determined annually by the Board based on the recommendation of the Corporate Governance and Nominating Committee.Board Membership Criteria. The Corporate Governance and Nominating Committee is responsible for developing and periodically reviewing the appropriate skills and characteristics required of Board members in the context of the current make-up of the Board. The Corporate Governance and Nominating Committee develops and recommends membership criteria to the Board. Such criteria include: business and management experience; familiarity with the business, customers and suppliers of the Company; varying and complementary talents, backgrounds and perspectives; diversity (inclusive of gender, race, ethnicity and national origin); and relevant regulatory and stock exchange membership requirements for the Board and its committees. All potential new Board candidates should exhibit a high degree of integrity and ethics consistent with the values of the Company and the Board. When searching for new directors, the Committee should actively seek out highly qualified women and individuals from minority groups for consideration as nominees to the Board as part of the Committee’s regular process.
Selection of Director Nominee Candidates. The Corporate Governance and Nominating Committee is responsible for recommending to the Board the selection of director nominee candidates.
Board Size. The Board’s guideline is to maintain a Board size of 10 to 14 members with no more than two management directors.
Election of Directors-Majority Voting. In uncontested director elections, directors shall be elected by majority vote, pursuant to the Company’s By-Laws, and under Utah corporate law, any director who is not re-elected ceases to serve on the Board no later than 90 days after the voting results are certified.
Retirement Age for Non-management Directors. Non-management directors who are 75 years of age will not be eligible to stand for election to the Board at the next Annual Meeting of Shareholders. Non-management directors who turn 75 during their term are eligible to finish out that term. The Corporate Governance and Nominating Committee may consider a director’s nomination beyond the age of 75 if it believes that the nomination is in the best interest of the shareholders.
Director Orientation and Continuing Education. Upon election to the Board, new members are provided with a comprehensive set of materials on the operations, finances, governance and business plan of the Company, visit at least two major facilities during the first year of service and meet informally
with as many members of senior management as practical. The Board encourages directors to periodically attend appropriate continuing education programs and sessions and obtain and review appropriate materials to assist them in performing their Board responsibilities. The Company recommends continuing education programs and sessions to directors and pays any fees and expenses associated with attendance at continuing education programs and sessions. Directors are expected to participate in continuing education at least once every other year.
Change in Principal Occupation. Upon a director’s retirement, resignation or other significant change in professional duties and responsibilities, the director shall submit his or her resignation from the Board to the Corporate Governance and Nominating Committee for its consideration and recommendation as to acceptance.
Service on Outside Boards. When the CEO or another senior officer of the Company is invited to serve on outside boards of directors, the CEO will present the issue to the Corporate Governance and Nominating Committee for review and approval. Directors must notify the Board prior to accepting a position on the board of another company. No member of the Audit Committee may serve on the audit committees of more than three public companies.
Board Leadership. The Board annually elects a Chairman of the Board, who may or may not be the CEO of the Company. If the individual elected as Chairman of the Board is not an independent director, the independent directors also elect a lead independent director. The lead independent director serves for a period of at least one year. The lead independent director’s responsibilities include: (1) presiding at meetings of the Board at which the Chairman and CEO is not present, including executive sessions of the independent directors; (2) approving the flow of information sent to the Board, and approving the agenda, schedule and what materials are sent for Board meetings; (3) serving as the liaison or facilitating working relationships between the independent directors and the Chairman and CEO; (4) being available for consultation and communication with major shareholders as appropriate; (5) in conjunction with the Compensation and Benefits Committee, overseeing the process of evaluating and compensating the Chairman and CEO; (6) assuring that a succession plan is in place for the Chairman and CEO, as well as the lead independent director; (7) authorizing or recommending the retention of consultants who report directly to the full Board; and (8) assisting the Board and Company officers in compliance with, and implementation of, the Company’s governance guidelines and policies. The lead independent director also has the authority to call executive sessions of the independent directors. The lead independent director will often act as Chair of the Corporate Governance and Nominating Committee, fulfilling the designated duties and responsibilities set forth in the Committee’s Charter.
Board Committees. The current standing committees are the Audit Committee, Finance Committee, Compensation and Benefits Committee and the Corporate Governance and Nominating Committee. The Board has the authority to create additional committees. The Board periodically reviews committee service and assignments, along with the respective committee chair positions, and recommends rotation of members.
Board Meeting Agendas. The directors and management of the Company may originate action items relating to the business and affairs of the Company for the Board agenda and the scheduling of reports on aspects of parent or subsidiary operations.
Board Committee Meeting Agendas. The departments of the Company that administer the area of responsibility charged to each committee may submit items for inclusion on committee agendas, and committee members may suggest topics for inclusion or request additional information with respect to any program previously reviewed by the committee.
Distribution of Board Materials. Information and materials for Board consideration are generally distributed to directors at least five days in advance of the meeting, with additional time provided when the complexity of an issue demands, unless an issue for Board consideration arises without sufficient time to complete distribution of materials within this time frame. Additionally in some cases, due to the timing or the sensitive nature of an issue, materials may be presented only at the Board meeting.
Board Presentations. The Board encourages broad management participation in Board presentations and the involvement of those managers who are directly responsible for the recommendations or other matters before the Board.
Strategic Planning Review. Management presents an annual strategic plan to the Board for its review and assessment, and the Board makes such recommendations to management regarding the strategic plan as it deems necessary.
Reporting to the Board of Directors. The Board receives reporting on at least an annual basis by (1) the Chief Compliance Officer with respect to the Company’s implementation of its compliance program; (2) the Chief Safety Officer with respect to the safety performance of the Company’s railroad operations, including applicable safety metrics and Federal Railroad Administration (FRA) regulatory developments and compliance, including the outcome of claims conferences held with the FRA; and (3) the General Counsel with respect to pending litigation involving railroad operations.
Safety of Railroad Operations. Management presents an annual strategic safety plan to the Board for its review and assessment, and the Board makes such recommendations to management regarding the strategic plan as it deems necessary.
Director Access to Management and Outside Advisors. The Company provides each director with access to the management of the Company. The Board and committees, as set forth in the applicable committee charter, have the right to consult and retain outside counsel and other advisors at the expense of the Company.
Director Attendance at Board Meetings. Directors are expected to attend in person all regularly scheduled Board and committee meetings and to participate telephonically when they are unable to attend in person.
Executive Sessions of Independent Directors. Regularly scheduled sessions of independent directors are held at every meeting of the Board. The lead independent director presides at these sessions and has the authority to call additional executive sessions as appropriate.
Board Member Compensation. Non-management Board members generally are paid an annual retainer valued between the median and seventy-fifth percentile of compensation at comparable companies, and the retainer is reviewed periodically by the Corporate Governance and Nominating Committee. A substantial portion of the annual retainer is paid in Common Stock equivalents, which are not payable until after termination of service from the Board.
Board Member Equity Ownership. Board members must own equity in the Company equal to at least five times the cash portion of the annual retainer, with such ownership goal to be reached within five years of joining the Board, unless special circumstances of a member as determined by the Board delay the achievement of the ownership goal. Board members who have met their applicable ownership goal may sell shares of Company common stock that exceed their ownership goal pursuant to a written trading plan designed to comply with Securities and Exchange Commission Rule 10b5-1 and in compliance with the Company’s trading policy for Board members.
Evaluation of the Chairman and the CEO. The performance of the Chairman and the CEO is evaluated annually by the independent directors during an executive session led by the Chair of the Corporate Governance and Nominating Committee. The evaluation includes an assessment of individual elements of performance in major categories such as leadership, strategic planning, financial performance, operations, human resources, external relations and communications, and Board relations. The Compensation and Benefits Committee then meets following the executive session to determine the appropriate level of compensation to be awarded to the Chairman and the CEO and management of the Company. The lead independent director and the Chair of the Compensation and Benefits Committee
then review with the Chairman and the CEO their respective performance and any recommended areas for improvement.
Succession Planning. The Board is responsible for overseeing the succession planning process for the CEO and other senior management positions. The CEO periodically reports to an executive session of the Board on succession planning, including an assessment of senior managers and their potential to succeed him or her. The CEO also makes available to the Board, on a continuing basis, the CEO’s recommendation concerning who should assume the CEO’s role in the event the CEO becomes unable or unwilling to perform his or her duties. This process enables the Board to maintain its oversight of the program for effective senior management development and succession as well as emergency succession plans.
Evaluation of Board and Committee Performance. The Board and its committees, to the extent required by their respective charters, conduct self-evaluations annually to assess their performance. The Board and committee evaluation process involves the distribution of a self-assessment questionnaire to all Board and committee members that invites written comments on all aspects of the Board and each committee’s process. The evaluations are then summarized and serve as the basis for a discussion of Board and committee performance and any recommended improvements.
Evaluation of Director Performance. The Corporate Governance and Nominating Committee assesses the contributions and independence of current directors in connection with considering their renomination to stand for election to the Board.
Director Attendance at Annual Shareholder Meetings. It is the policy of this Company that all directors shall attend the Annual Meeting of Shareholders.
Future Severance Agreements. The Company shall not enter into a future severance agreement with a senior executive that provides for benefits in an amount generally exceeding 2.99 times salary plus bonus unless such agreement is approved by a vote of the Company’s shareholders. The full text of the policy may be found on the Company’s website at www.up.com/investors/governance/severance.pdf.
Confidential Voting. It is the Board’s policy that all shareholder proxies, consents, ballots and voting materials that identify the votes of specific shareholders be kept confidential from the Company with access to proxies, consents, ballots and other shareholder voting records to be limited to inspectors of election who are not employees of the Company, except as may be required by law or to assist in the pursuit or defense of claims or judicial actions or in the event of a contested proxy solicitation.
Amendments. The Board may amend, waive, suspend or repeal any of these guidelines and policies at any time, with or without public notice, as it determines necessary or appropriate, in the exercise of the Board’s judgment or fiduciary duties.
Director Independence
To assist it in making determinations of a director’s independence, the Board has adopted the independence standards set forth below. The Board affirmatively determined that formerretiring director Ms. Hope, each ofMr. Davis, and all remaining directors, except for Mr. Fritz, who are also director nominees, Ms. Hopkins and Ms. Lute and Messrs. Card, Davis,DeLaney, Dillon, McCarthy, McConnell, McLarty, Rogel andPatel, Villarreal and General Krulak hasWilliams, have no material relationship with the Company or any of its consolidated subsidiaries, including Union Pacific Railroad Company (the Railroad), (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company) and isare independent within the meaning of the applicable listing standards of the NYSE and the Director Independence Standards adopted by the Board. Additionally, the Board determined that all Board Committees are comprised entirely of independent directors and that all members of the Audit Committee, and Compensation and Benefits Committee and Finance Committee meet the additional independence standards applicable to such committee members as set forth below. 19
The Board’s independence determination included a review of the payments over the last three years between the Railroad and LyondellBasell Industries, N.V. (LyondellBasell). Mr. Patel is the Chief Executive Officer of LyondellBasell. LyondellBasell paid the Railroad approximately $127 million, $115 million, and $112 million for transportation services in 2019, 2018 and 2017 respectively. These amounts were significantly less than 2% of LyondellBasell’s consolidated gross revenues for any of the past three years (0.4% for 2019, 0.3% for 2018, and 0.3% for 2017).
The Board also reviewed a payment made in 2019 to The Williams Capital Group, L.P. (Williams Capital). Mr. Williams is the Chairman of Siebert Williams Shank & Co., the successor to Williams Capital. The Company paid Williams Capital $87,500 in fees to serve as a co-manager in a July 2019 debt transaction. The Board noted that this payment was significantly less than 2% of Williams Capital’s consolidated gross revenues. Director Independence Standards An “independent” director is a director whom the Board has affirmatively determined has no material relationship with the Company or any of its consolidated subsidiaries either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. Accordingly, a director is also not independent if: (1)
| (1)
| | the director is, or within the last three years has been, an employee of the Company or an immediate family member of the director is, or within the last three years has been, an executive officer of the Company; |
(2)
| (2)
| | the director (a) or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor; (b) is a current employee of such a firm; (c) has an immediate family member who is a current employee of such firm and personally works on the Company’s audit; or (d) or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company’s audit within that time; |
(3)
| (3)
| | the director, or a member of the director’s immediate family, is, or within the last three years has been, an executive officer of another company where any of the Company’s present executives at the same time serves or served on that company’s compensation committee; |
(4)
| (4)
| | the director, or a member of the director’s immediate family, received or has received during any 12-month period within the last three years any direct compensation from the Company in excess of $120,000, other than compensation for Board service and pension or other forms of deferred compensation for prior service with the Company, and compensation received by the director’s immediate family member for service as a non-executive employee of the Company; |
TABLE OF CONTENTS BOARD CORPORATE GOVERNANCE MATTERS
$120,000, other than compensation for Board service and pension or other forms of deferred compensation for prior service with the Company, and compensation received by the director’s immediate family member for service as a non-executive employee of the Company; (5)
| (5)
| | the director is a current employee of a company, including a professional services firm, that has made payments to or received payments from the Company, or during any of the last three years has made payments to or received payments from the Company, for property or services in an amount that, in any of the last three fiscal years, exceeded the greater of $1 million or 2% of the other company’s or firm’s consolidated gross revenues; |
(6)
| (6)
| | a member of the director’s immediate family is a current executive officer of another company, or a partner, principal or member of a professional services firm, that has made payments to or received payments from the Company, or during any of the last three fiscal years has made payments to or received payments from the Company, for property or services in an amount that, in any of the last three fiscal years, exceeded the greater of $1 million or 2% of the other company’s or firm’s consolidated gross revenues; and |
(7)
| (7)
| | the director is an executive officer, director or trustee of a non-profit organization to which the Company or Union Pacific Foundation makes, or within the last three years has made, payments that, in any single fiscal year, exceeded the greater of $1 million or 2% of the non-profit organization’s consolidated gross revenues (amounts that the Company or Union Pacific Foundation contribute under matching gifts programs are not included in the payments calculated for purposes of this standard). |
For purposes of these standards, an “immediate family” member includes a director’s spouse, parents, children, siblings, mother and father-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than a domestic employee) who shares the director’s home.
Audit Committee and Compensation and Benefits Committee Independence Criteria In addition to the Board’s Director Independence Standards above, a director is not considered independent for purposes of serving on the Audit Committee or the Compensation and Benefits Committee, and may not serve on such committees, if the director: (a) accepts, directly or indirectly, from the Company or any of its subsidiaries, any consulting, advisory, or other compensatory fee, other than Board and committee fees and fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the Company; or (b) is an “affiliated person” of the Company or any of its subsidiaries; each as determined in accordance with NYSE and SEC rules and regulations. TABLE OF CONTENTS BOARD CORPORATE GOVERNANCE MATTERS
RelatedRelated Party Policy and Procedures
The Board annually reviews related party transactions involving directors and director nominees in conjunction with making director independence determinations and preparing the annual Proxy Statement. We require that executive officers report any transactions with the Company under the writtenStatement of Policy on Ethics and Business Conduct Policy(Business Conduct Policy) that covers all Company employees. Under the Business Conduct Policy, the Audit Committee reviews any transaction reported by executive officers and refers any reported transactions to the Corporate Governance and Nominating Committee for evaluation pursuant to the Company’s Related Party Transaction Policies and Procedures (the Related Party Policy) described below. Under the Company’s Related Party Policy, transactions with related parties are subject to approval or ratification by the Corporate Governance and Nominating Committee. Transactions subject to Committee review and approval include any transaction in which (i) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (ii) the Company is a participant, and (iii) any related party will have a direct or indirect interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). “Related party” is defined under the policy as any (i) person who is or was during the last fiscal year an executive officer or director of the Company or nominee for election as a director, (ii) greater than 5% beneficial owner of the Company’s common stock, or (iii) immediate family member of any of the foregoing. “Immediate family” member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers and fathers-in-law, sons and daughters-in-law, and brothers and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee). If advance Corporate Governance and Nominating Committee approval of a transaction is not feasible, then the transaction will be considered and, if the Committee determines it to be appropriate, ratified at the Committee’s next regularly scheduled meeting. In determining whether to approve or ratify a transaction, the Committee will consider, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. Under the Related Party Policy, the Committee may pre-approve certain transactions, even if the aggregate amount involved exceeds $120,000. Such transactions include (i) any transaction with another company at which a related party’s only relationship is as an employee (other than an executive officer), direct or beneficial owner of less than 10% of that company’s shares, if the aggregate amount involved does not exceed the greater of $1 million or 2% of that company’s total annual revenues; and (ii) any charitable contribution, grant or endowment by the Company to a charitable organization, foundation, or university at which a related party’s only relationship is as an employee (other than an executive officer) or a director, if the aggregate amount involved does not exceed the lesser of $1 million or 2% of the charitable organization’s total annual receipts. Additionally, the Board has delegated to the Chair of the Committee the authority to pre-approve or ratify, as applicable, any transaction with any related party in which the aggregate amount involved is expected to be less than $1 million. At each regularly scheduled meeting of the Committee, a summary of each new transaction deemed pre-approved will be provided to the Committee for its review. Related Party Transactions in 2019 Since 1994, the Railroad has historically and routinely done business with Omaha Track, Inc. and its related companies (Omaha Track). Kelvin Whited, who became the Chief Financial Officer of Omaha Track in July 2015, is the spouse of Elizabeth F. Whited, who became the Company’s Executive Vice President and Chief Human Resources Officer in August 2018. Ms. Whited served as the Company’s Executive Vice President and Chief Marketing Officer until August 15, 2018, when she was appointed Executive Vice President and Chief Human Resources Officer. In 2019, the Railroad paid Omaha Track or its affiliates approximately $19.9 million for tie disposal services, on-track scrap metal removal and railcar repairs. All of these transactions are managed by the Railroad’s Supply Department and Ms. Whited has no involvement in these matters. TABLE OF CONTENTS BOARD CORPORATE GOVERNANCE MATTERS
Omaha Track has been a transload provider to customers of the Railroad for transload shipments of various materials. The Railroad paid Omaha Track approximately $9,400 in 2019 in connection with these transload services. Ms. Whited is not involved in any commercial or rate discussions involving Omaha Track. The Railroad provides transportation services to LyondellBasell. Mr. Patel is the Chief Executive Officer and a director of LyondellBasell and a director of the Company. Payments to the Railroad over the last three years from LyondellBasell are detailed on page 20 of this Proxy Statement. These transactions were ratified by the Corporate Governance and Nominating Committee under the Company’s Related Party Policy. TABLE OF CONTENTS 21
BOARD CORPORATE GOVERNANCE MATTERS
Bo
ardBoard Leadership Structure
The Board believes it is in the best interest of the Company for the Board to periodically evaluate the leadership structure of the Company and make a determination regarding whether to separate or combine the roles of Chairman and CEO based on circumstances at the time of its evaluation. By retaining flexibility to adjust the Company’s leadership structure, the Board is best able to provide for appropriate management and leadership of the Company and address any circumstances the Company may face. Accordingly, pursuant toPer the Company’s Corporate Governance Guidelines and Policies, set forth on page 16 of this Proxy Statement, the Board annually will elect a Chairman of the Board, who may or may not be the CEO of the Company. Additionally, the Guidelines provide that if the individual elected as Chairman of the Board is not an independent director, the independent directors also will elect a lead independent director. The Board determined that having a combined Chairman and CEO at this time best allows the Board and management to focus on the oversight and implementation of the Company’s strategic initiatives and business plan to efficiently and effectively protect and enhance the Company’s long-term success and shareholder value. In addition, the independent directors of the Board elected Mr. McCarthy as the new lead independent director with the following responsibilities: ✔
| ü
| | Preside at meetings of the Board at which the Chairman and CEO are not present, including executive sessions of the independent directors; |
✔
| ü
| | Approve the flow of information sent to the Board, and approve the agenda, schedule and what materials are sent for the Board meetings; |
✔
| ü
| | Serve as the liaison between the independent directors and the Chairman and CEO; |
✔
| ü
| | Be available for consultation and communication with major shareholders as appropriate; |
✔
| ü
| | Oversee the process of evaluating and compensating the Chairman and CEO (in conjunction with the Compensation and Benefits Committee); |
✔
| ü
| | Assure that a succession plan is in place for the Chairman and CEO, as well as the lead independent director; |
✔
| ü
| | Authorize or recommend the retention of consultants who report directly to the full Board; and |
✔
| ü
| | Assist the Board and Company officers in compliance with, and implementation of, the Company’s governance guidelines and policies. |
The independent directors conducted executive sessions at all Board meetings in 2016.2019. Mr. McCarthy also has the authority to call executive sessions of the independent directors. The Board has adopted a number of strong corporate governance practices that provide effective, independent oversight of management, including: ✔
| ü
| | Holding executive sessions of the non-management, independent directors after every Board meeting; |
✔
| ü
| | Providing that only independent directors serve on key Board committees; and |
✔
| ü
| | Conducting an annual performance evaluation of the Chairman and CEO by the independent directors. |
The Board believes that the current leadership structure and succession planning coupled with an active lead independent director provides effective oversight of management and responsiveness to shareholders, while also continuing the solid leadership of the Company and the Board necessary to effect execution of the Company’s strategic plans. TABLE OF CONTENTS BOARD CORPORATE GOVERNANCE MATTERS
RiskRisk Oversight of the Company
The Board of Directors is responsible for overseeing the assessment and management of the critical enterprise risks affecting the Company. The Board delegates to the Audit Committee primary responsibility for oversight of managing risks related to financial reporting, environmental matters and compliance.operations of the Company.
Management identifies and prioritizes enterprise risks (included in the risk factors disclosed in our Annual Report on Form 10-K) and regularly presents them to the Board for its review and consideration. The senior executives responsible for implementation of appropriate mitigation strategies for each of the Company’s enterprise risks, along with the chief compliance officer, provide reports directly to the Board during the year. The Audit Committee also receives reports throughout the year from the chief compliance officer and the senior executives responsible for financial reporting, cybersecurity and environmental matters. In addition, the Audit Committee oversees the Company’s internal audit of enterprise risks selected for review and evaluation based upon the Company’s annual risk assessment model with the purpose of evaluating the effectiveness of mitigating controls and activities of Company personnel. The Company’s internal auditors present to the Audit Committee findings regarding the mitigating controls and processes for the enterprise risks selected for review. The Audit Committee, in turn, reports those findings to the entire Board. The Company’s enterprise risk management process is dynamic and continually monitored so that the Company can timely identify and address any potential risks that arise in the ever-changing economic, political, legal and legaltechnology threat environment in which the Company operates. TABLE OF CONTENTS BOARD CORPORATE GOVERNANCE MATTERS
BoardBoard of Directors Meetings and Committees
In accordance with applicable provisions of Utah law and the By-Laws of the Company, the business and affairs of the Company are managed under the direction of the Board. The Board has established standing Committees and adopted guidelines and policies to assist it in fulfilling its responsibilities as described below. During 2016,2019, the Board met six times. None of the directors attended fewer than 75% of the aggregate number of meetings of the Board and the Committees on which he or she served during the period of service. The average attendance of all directors at Board and Committee meetings was 96.3%. Theserved. Our Corporate Governance Guidelines and Policies included in this Proxy Statement beginning on page 16 reflect our policy that all directors should attend the Annual Meeting. In accordance with this policy, all directors then serving attended last year’s Annual Meeting. The Board currently maintains four standing committees –− the Audit Committee, Finance Committee, Compensation and Benefits Committee, and Corporate Governance and Nominating Committee. Each of the committees operates under a written charter adopted by the Board, copies of which are available on the Company’s website at www.up.com/investors/governance, and shareholders may obtain copies by contacting the Secretary of the Company at the address set forth on the notice page of this Proxy Statement. Each committee has the ability to retain outside advisors to assist it in the performance of its duties and responsibilities. All Board Committees are composed entirely of independent directors, satisfying both the independence standards of the NYSE and the Director Independence Standards set forth in the Company’s Corporate Governance Guidelines and Policies. Audit Committee members and Compensation and Benefits Committee members also satisfy the additional independence criteria applicable to Audit Committee and Compensation and Benefits Committee members under the listing standards of the NYSE.  TABLE OF CONTENTS 23
BOARD CORPORATE GOVERNANCE MATTERS
| | | | | | Current Board Committee Membership and Meetings | Director | Board | Audit | Finance | Compensation and Benefits | Corporate Governance and Nominating | Andrew H. Card, Jr. | X | X | | X | | Erroll B. Davis, Jr. | X | | | C | X | David B. Dillon | X | C | | X | | Lance M. Fritz | C | | | | | Deborah C. Hopkins | X | | X | | X | Jane H. Lute | X | X | | | X | Michael R. McCarthy | X | | X | | C | Michael W. McConnell | X | X | X | | | Thomas F. McLarty III | X | | C | | X | Steven R. Rogel | X | | | X | X | Jose H. Villarreal | X | X | | X | | Meetings in 2016 | 6 | 11 | 4 | 5 | 4 | C = Chair | | | | | |
Audit Committee. The Board has determined that all members of the Audit Committee are independent directors and satisfy the additional independence criteria under NYSE listing standards applicable to audit committee members. The Board also reviewed the experience and training of the members of the Committee and determined that each member is financially literate and that at least one member has accounting or related financial management expertise. Additionally, the Board determined that Mr. McConnell and Mr. Dillon qualify as “audit committee financial experts” within the meaning of the rules and regulations of the SEC.
| | The Audit Committee assists the Board in fulfilling its responsibilities for overseeing our financial reporting process and the audit of our financial statements.The Audit Committee meets regularly with the independent registered public accounting firm of the Company, financial management, the internal auditors, the chief compliance officer and the general counsel to provide oversight of the financial reporting process, internal control structure, and the Company’s compliance requirements and activities. The independent registered public accounting firm, the internal auditors, the chief compliance officer and the general counsel have unrestricted access to the Committee and meet regularly with the Committee, without Company management representatives present, to discuss the results of their examinations, their opinions on the adequacy of internal controls and quality of financial reporting, and various legal matters.The Audit Committee assists the Board in fulfilling its responsibilities for overseeing our financial reporting process and the audit of our financial statements. Specific duties and responsibilities of the Audit Committee include, among other things:
Independent Registered Public Accounting Firm
| ·
| | Appointing, overseeing the work of, and compensating the independent registered public accounting firm;
|
| ·
| | Discussing with the public accounting firm relationships with the Company and its independence;
|
| ·
| | Evaluating the independent registered public accounting firm through assessments of quality control procedures; peer reviews, and results of inquiries or investigations;
|
| ·
| | Participating in the selection of the Company, financial management, the internal auditors, the chief compliance officer and the chief legal officer to provide oversight of the financial reporting process, internal control structure, and the Company’s compliance requirements and activities. The independent registered public accounting firm’s lead engagement partner;
|
| ·
| | Establishing hiringfirm, the internal auditors, the chief compliance officer and the chief legal officer have unrestricted access to the Committee and meet regularly with the Committee, without Company management representatives present, to discuss the results of their examinations, their opinions on the adequacy of internal controls and quality of financial reporting, and various legal matters.
The Audit Committee has established policies with respect to employees and former employeesprocedures for the pre-approval of all services provided by the independent registered accounting firm (as described on page 36 of this Proxy Statement).
The Audit Committee’s Report is included on page 37 of this Proxy Statement.
| | | • Appoint, evaluate and retain
our independent registered
public accounting firm;firm
• Maintain direct responsibility
for the compensation,
termination and |
| ·
| | Determining whether to retain or, if appropriate, terminate oversight of
our independent registered
public accounting firm and
evaluate the independent
registered public accounting firm.
|
Audit and Non-Audit Services; Financial Reporting; Audit Report
| ·
| | Reviewing
firm’s qualifications,
performance and approving the scope of the annual audit plan
independence
• Review and the audit fee;
|
| ·
| | Reviewing and discussingdiscuss earnings
releases, audited annual financial
statements and unaudited
quarterly financial statements,
including reviewing specific
disclosures under
“Management’s Discussion
and Analysis of Financial
Condition and Results of
Operations”; and
|
| ·
| | Reviewing the adequacy of disclosures to be included in the Annual Report on Form 10-K regarding
• Review the Company’s contractual obligations and commercial commitments, including off-balance sheet financing arrangements.
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Disclosure Controls; Internal Controls and Procedures
| ·
| | Reviewing the Company’s policies
and procedures to maintain the
adequacy and effectiveness of
internal controls and disclosure controls;
|
| ·
| | Reviewing
controls
• Review the scope, resources
and results of the internal audit
program, including
participation in the General
Auditor performance review; and
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| ·
| | Reviewing corporate policies and practices with respect to financial information and earnings guidance.
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Risk Oversight
| ·
| | Discussing with management reports onreview
• Oversee the CompanyCompany’s
enterprise risk management programs, including oversight of risks related to financial reporting, environmental and litigation matters, safety and compliance;
|
| ·
| | Overseeing
program as well as the Company’s compliance program and risk assessments, including the annual
enterprise risk management plan described in more detail below in the section titled Risk Oversight of the Company; and
|
| ·
| | Overseeingassessment
• Oversee the administration of
the Company’s Code of Ethics
for the Chief Executive Officer
and Senior Financial Officers
and the Statement of Policy on
Ethics and Business Conduct
for employees as well as policies concerning derivatives, environmental management, use
| |
TABLE OF CONTENTS BOARD CORPORATE GOVERNANCE MATTERS
| | The Finance Committee is responsible for assisting the Board with its review and oversight of corporate aircraft, insider trading, related personthe Company’s financial position, financing plans and related party transactions,programs and officers’ traveldividend policy and business expenses. |
actions. The Finance Committee also assists the Board by reviewing strategic options and opportunities for the Company, including acquisitions and divestitures.Annual Review/Evaluation
| ·
| | Annually reviewing the Committee’s charter
• Review and performance. |
Pre-Approval of Audit and Non-Audit Services Policy
The Audit Committee’s charter requires the Committee to approve in advance all audit engagement fees and the terms of all audit services to be provided by the independent registered public accounting firm. By approving the engagement, which is performed in conjunction with the first Board meeting of each year, the audit services are deemed to be pre-approved. As part of its pre-approval policy, the Committee considers whether the provision of any proposed non-audit services is consistent with auditor independence. With respect to non-audit services provided by the independent registered public accounting firm, the Audit Committee adopted and observes procedures that require the independent registered public accounting firm to present a budget for the three categories of non-audit services: (i) audit-related services, (ii) tax services and (iii) other services. The budget is detailed as to the particular services to be provided so that the Committee knows what services it is being requested to pre-approve in order to facilitate a well-reasoned assessment of the impact of the services on the auditor’s independence. After review and approval of the annual budget by the Committee, no further approval by the Committee is required to undertake the specific projects within the three categories of non-audit services.
If the Company determines that it requires any other non-audit services after approval of the budget, either the Committee Chair or the full Committee must pre-approve the additional non-audit services, depending on the anticipated cost of the services. In addition, the Committee Chair must review and approve any projects involving non-audit services that exceed budget costs during the year. Any non-audit services pre-approved by the Committee Chair pursuant to delegated authority and any projects involving non-audit services that exceed budget costs will be reported to the full Committee at the next regularly scheduled Committee meeting.
Finance Committee. The Finance Committee is responsible for assisting the Board with its review and oversight of the financial position of the Company. The Finance Committee’s responsibilities and duties include, among other things:
Treasury Matters
| ·
| | Reviewing or overseeingoversee significant
treasury matters such as the
Company’s capital structure,
balance sheet, credit ratings, short- and
short-and long-term financing
plans and programs, derivative
policy, share repurchases and
dividend policy;
|
| ·
| | Reviewingpolicy
• Review the Company’s liquidity
position, including the
Company’s credit facilities;
|
| ·
| | Overseeingfacilities
• Oversee the Company’s
investor relations activities,
including the Company’s
interaction with the investor community; and
|
| ·
| | Reviewing
community
• Review the performance of the
Company’s internal investment
committee that oversees the
investment management of
assets held by the Company’s
pension, thrift and other
funded employee benefit programs.
programs | |
Annual Review/EvaluationTABLE OF CONTENTS
BOARD CORPORATE GOVERNANCE MATTERS
| | The Compensation and Benefits Committee discharges the Committee’s charterBoard’s responsibilities relating to the compensation of senior executives and performance. |
Compensation and Benefits Committee. The Board has determined that all members of the Compensation and Benefits Committee are independent directors and satisfy the additional independence criteria under NYSE listing standards applicable to compensation committee members.
The Compensation and Benefits Committee discharges the Board’s responsibilities relating to the compensation of executives and provides generalprovides strategic oversight of our compensation structure, including equity compensation plans and benefits programs. Specific duties and responsibilities of the Compensation and Benefits Committee include, among other things:
Executive Compensation and Performance Goals
| ·
| | Reviewing and approvingbenefits programs.
The Compensation and Benefits Committee annually reviews and approves corporate goals and objectives relevant to the compensation of the Company’s CEO;
|
Chairman and CEO and certain other elected executives. The details of the processes and procedures involved are described in the Compensation Discussion and Analysis (CD&A). The independent members of the full Board ultimately make the final decisions regarding the Chairman and CEO’s compensation.The Compensation and Benefits Committee Report is included on page 57 of this Proxy Statement. | ·
| | Evaluating
• Evaluate the CEO’s performance
and, together with the other
independent directors, determining
determine and approvingapprove the
CEO’s compensation level based on such evaluation; |
| ·
| | Reviewing and referring to
• Oversee the Board for approval the compensation of the Company’s other elected executives and certain other executives as determined by the Committee or the Board;
|
| ·
| | Overseeing the Company’s
executive incentive plans reviewing theand
review amounts of awards and
the individualsexecutives who will receive
awards and referringrefer its
determinations with respect to
the annual incentive program to
the Board for approval;approval
• Review the CD&A and
|
| ·
| | Reviewing and discussing the “Compensation Discussion and Analysis” (CD&A) and recommending
recommend to the Board thatits
inclusion in our Proxy
Statement
• Oversee the CD&A be included in the Company’s Proxy Statement and Annual Report on Form 10-K.
|
Equity Compensation Plans and Other Employee Benefit Plans
| ·
| | Overseeing the Company’s
pension, thrift and equity
compensation plans and reviewingreview
and recommendingrecommend to the Board all
material amendments to these plans; and
|
| ·
| | Overseeing
plans
• Oversee the administration of
the Company’s general
compensation plans and
employee benefit plans and
periodically reviewingreview the
Company’s benefit plans to
assess whether thesesuch benefit
plans remain competitive with comparably situated companies.
| |
Annual Review/Evaluation
| ·
| | Annually reviewing the Committee’s charter and performance.
|
Compensation Risk Assessment
In early 2017, the Committee, with the assistance of the Committee’s outside compensation consultant, conducted its annual compensation risk assessment of our executive compensation programs and confirmed that they were designed and operate within a system of guidelines and controls to avoid creating any material adverse risks to the Company.
Compensation Consultant
Under its charter, the Compensation and Benefits Committee has the authority to retain, terminate and approve fees for advisors and consultants as it deems necessary. The Committee, in its discretion, uses outside advisors and experts to assist it in performing its duties and fulfilling its responsibilities. The Committee has retained Frederic W. Cook & Co., Inc. (FW Cook) is anas its independent compensation consulting firm that reports directly to the Committee.consultant. A representative of FW Cook regularly attends all Committee meetings. The Committee is solely responsible for the engagement and termination of this relationship. At its March 20172020 meeting, the Committee reviewed and reaffirmed the engagement of FW Cook as the Committee’s compensation consultant and determined that the retention of FW Cook did not raise any conflicts of interest. FW Cook advises the Committee on compensation philosophy and matters related to CEO and other executive and director compensation. The Committee annually requests that FW Cook update compensation and performance data on the peer companies selected by the Committee, as described in the CD&A beginning on page 3443 of this Proxy TABLE OF CONTENTS BOARD CORPORATE GOVERNANCE MATTERS
Statement. In addition, the Committee periodically requests that FW Cook make presentations on various topics, such as compensation trends and best practices, regulatory changes, long-term incentive components and award mix and stock plan utilization. The Committee Chair reviews and approves all charges for these consulting services. Under the Committee’s engagement, FW Cook also confers with management on a limited basis to promote consistency and efficiency. In such matters, FW Cook acts in its capacity as the Committee’s advisor, and the Committee Chair reviews and approves any major projects for which management requests the assistance of FW Cook. Such projects involve only the amount and form of executive or director compensation and may include analysis of competitive director compensation data, design and development of new compensation and stock plans, calculation of compensation amounts reported in this Proxy Statement and review of materials prior to distribution to the Committee to confirm that the materials conform with the Committee’s philosophy and policies. The Committee Chair reviews and approves all charges for any projects requested by management. During 2016,2019, the Company paid fees to FW Cook only for advising on matters under the Committee’s purview. The Company did not pay any fees for additional projects or services. In early 2020, the Committee, with the assistance of FW Cook, conducted its annual compensation risk assessment of our executive compensation programs and confirmed that they were designed and operate within a system of guidelines and controls to avoid creating any material adverse risks to the Company. TABLE OF CONTENTS BOARD CORPORATE GOVERNANCE MATTERS
Corporate Governance and Nominating Committee.| | The Corporate Governance and Nominating Committee oversees and assists the Board in fulfilling its responsibilities relating to our corporate governance and director nominations and elections. Specific duties and responsibilities of the Corporate Governance and Nominating Committee include, among other things:
Board Matters
| ·
| | Developing and recommending to the Board in fulfilling its responsibilities relating to our corporate governance, including the criteria for identifying and evaluating director candidates and periodically reviewing these criteria;
|
| ·
| | Identifying and recommending candidates to be nominated for election as directors at Annual Meetings or to fill Board vacancies, consistent with criteria approved by the Board;
|
| ·
| | Reviewing the composition and activities of the Board, including, but not limited to, committee memberships, Board self-evaluation, Board size, continuing education, retirement policy and stock ownership requirements;
|
| ·
| | Assessing the qualifications, contributions and independence of directors in determining whether to recommend them for election or reelection to the Board; and
|
| ·
| | Periodically reviewing the Board’s leadership structure, recommending changes to the Board as appropriate, and overseeing the election of a lead independent director.
|
Corporate Governance Guidelines and Other Policies
| ·
| | Overseeing the Corporate Governance Guidelines and Policies discussed below, which promote Board independence, integrity and ethics, diversity (inclusive of gender, race, ethnicity and natural origin), and excellence in governance;
|
| ·
| | Overseeing the Company’s Code of Business Conduct and Ethics for Members of the Board of Directors;
|
| ·
| | Establishingpractices, policies and procedures for the review and approval of related party transactions, including reviewing and approving all potential related party transactions as defined under SEC rules; and
|
| ·
| | Reviewing current trends in corporate governance and recommending to the Board for adoption new (or modifications of existing) practices, policies or procedures.
|
Director Compensation and Stock Ownership
| ·
| | Reviewing director compensation periodically to assess whether the compensation paid to non-management directors is competitive and reflects their duties and responsibilities as Board members; and
|
| ·
| | Adopting and monitoring compliance with stock ownership guidelines and policies for directors.
|
Annual Review/Evaluation
| ·
| | Annually reviewing the Committee’s charter and performance; and
|
| ·
| | Overseeing the annual self-evaluation of the Board and its committees.
The Committee also reviews the size, structure and needs of the Board and Board committees, reviews possible candidates for the Board and recommends director nominees to the Board for approval. | | | • Identify and recommend
candidates to be nominated for
election as directors at the
Annual Meeting or to fill Board
vacancies
• Review the composition and
activities of the Board,
including, but not limited to,
committee memberships,
Board self-evaluation, Board
size, continuing education,
retirement policy and stock
ownership requirements
• Review the Board’s leadership
structure, recommending
changes to the Board when
appropriate, and oversee the
election of the lead
independent director
• Oversee the Corporate
Governance Guidelines and
Policies, and the Company’s
Code of Business Conduct and
Ethics for members of the
Board of Directors
• Establish policies and
procedures for the review and
approval of related party
transactions
• Review current trends in
environmental, social and
corporate governance (ESG)
and recommend to the Board
for adoption new (or
modifications of existing)
practices, policies and
procedures
• Review director compensation
periodically to assess whether
compensation is competitive
and reflects duties and
responsibilities of Board
members | |
TABLE OF CONTENTS BOARD CORPORATE GOVERNANCE MATTERS
Compensation Committee Interlocks and Insider Participation During 2016, the following independent directors served on the Compensation and Benefits Committee: Andrew H. Card, Jr., Erroll B. Davis, Jr., David B. Dillon, Steven R. Rogel and Jose H. Villarreal.
The Compensation and Benefits Committee has no interlocks or insider participation.
CodesCodes of Conduct and Ethics
The Board has adopted the Union Pacific Corporation Code of Ethics for the Chief Executive Officer and Senior Financial Officers, the Statement of Policy on Ethics and Business Conduct for employees (the Business Conduct Policy) and the Union Pacific Corporation Code of Business Conduct and Ethics for Members of the Board of Directors. We post these codes of conduct on our website at www.up.com/investors/governance, and printed copies are available to any shareholder upon request to the Secretary of the Company at the address set forth on the notice page of this Proxy Statement. To the
extent permitted by SEC rules and the NYSE listing standards, we intend to disclose any future amendments to, or waivers from, certain provisions of these codes of conduct on our website. CommunicationsCommunications with the Board
Interested parties wishing to communicate with the Board may do so by U.S. mail c/o the Corporate Secretary, Union Pacific Corporation, 1400 Douglas Street, 19th Floor, Omaha, NE 68179. Communications intended for a specific director or directors (e.g., the lead independent director, a committee chairperson or all of the non-management directors) should be addressed to their attention and sent, by U.S. mail, to the address above. The Board has appointed and authorized the Corporate Secretary of the Company to process these communications and forward them to the appropriate directors. We forward appropriate communications from shareholders directly to the appropriate Board member(s). If a communication is illegal, unduly hostile or threatening, or similarly inappropriate, the Corporate Secretary of the Company has the authority to disregard or take appropriate action regarding any such communication. TABLE OF CONTENTS Director Compensation in Fiscal Year 2016DIRECTOR COMPENSATION IN FISCAL YEAR 2019 Non-Management Directors’ Fees For 2016, and Compensation
During 2019, non-employee directors who were not employees received an annual retainer of $250,000, plus expenses. Directors are required to invest $130,000 of the retainer in the Stock Unit Account describedcompensated for their Board service as shown below. Chairs of Board Committees receive additional annual retainers of $15,000 each, and members of the Audit Committee receive additional annual retainers of $10,000 each. The lead independent director receives an additional annual retainer of $25,000. Directors who are employees do not receive retainers or any other Board-related compensation. Annual Retainer: $280,000 ($160,000 annual mandatory deferral into a Stock Unit Account, remainder may be deferred at the director’s election) Annual Mandatory Deferral: $160,000 of their Annual Retainer deferred in the Stock Unit Account described below Committee Chair Retainer: $20,000 for each standing Committee chair Audit Committee Member Retainer: $10,000 Lead Director Retainer: $30,000 Stock Unit Grant and Deferred Compensation Plan for the Board of Directors Under our Stock Unit Grant and Deferred Compensation Plan for non-management directors, a director may, by December 31 of any year, elect to defer all or a portion of any compensation (in addition to the amount mentioned above that is required to be invested in their Stock Unit Account) for service as a director in the ensuing year or years, excluding reimbursements for expenses. Such deferred amounts may be invested, at the option of the director, in (i) a Fixed Rate Fund administered by the Company, (ii) a Stock Unit Account administered by the Company, or (iii) various notional accounts administered by The Vanguard Group. These accounts are unfunded, unsecured obligations of the Company. The Company Fixed Rate Fund bears interest equal to 120% of the applicable federal long-term rate compounded annually. The Stock Unit Account fluctuates in value based on changes in the price of our common stock, and equivalents to cash dividends paid on the common stock are deemed to be reinvested in the Stock Unit Account. The Vanguard Accounts are subject to earnings and value fluctuations from the investment performance of the notional accounts at Vanguard. Payment of all deferred amounts begins in January of the year following separation from service as a director. Deferred amounts may be paid, at the election of the director, in either a lump-sum or in up to 15 equal, annual installments. 2000 Directors Stock Plan Under the 2000 Directors Stock Plan (the 2000 Plan) adopted by the shareholders on April 21, 2000, the Company may grant options to purchase shares of our common stock to non-management directors. Upon recommendation of the Corporate Governance and Nominating Committee in September 2007, the Board eliminated the annual grant of options for 2008 and future years. The Company did not award any options to non-management directors in 2016.The 2000 Plan also provides that2019.
Previously, each non-management director, upon election to the Board of Directors, willwould receive a grant of 4,000 restricted shares of our common stock or restricted share units that represent the right to receive our common stock in the future (which number has been adjusted to reflect
the Company’s two-for-one stock splits on May 28, 2008 and June 6, 2014). The restricted shares or share units vest on the date a director ceases to be a director by reason of death, disability or retirement, as defined in the 2000 Plan. During the restricted period, the director has the right to vote such restricted shares and receive dividends or dividend equivalents, but may not transfer or encumber such shares or units. The director willwould forfeit such shares or units upon ceasing to be a director for any reason other than death, disability or retirement. Effective August 1, 2018, the Board approved the elimination of this initial equity grant for newly elected directors. TABLE OF CONTENTS DIRECTOR COMPENSATION IN FISCAL YEAR 2019
Non-Management Director Compensation in Fiscal Year 20162019 The following table provides a summary of the compensation of our non-management directors for 2016. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | Fees
Earned or
Paid in
Cash | | Stock
Awards
(a) | | Option
Awards | | All Other
Compensation
(b) | | | Total
Compensation | Andrew H. Card, Jr. | | $ | 260,000 | | $ | 0 | | $ | 0 | | $ | 8,295 | | | $ | 268,295 | Erroll B. Davis, Jr. | | | 265,000 | | | 0 | | | 0 | | | 8,070 | | | | 273,070 | David B. Dillon | | | 268,750 | | | 0 | | | 0 | | | 8,778 | | | | 277,528 | Judith Richards Hope (c) | | | 104,167 | | | 0 | | | 0 | | | 62,228 | (d) | | | 166,395 | Charles C. Krulak | | | 260,000 | | | 0 | | | 0 | | | 5,419 | | | | 265,419 | Jane H. Lute (e) | | | 191,667 | | | 313,400 | (f) | | 0 | | | 8,890 | | | | 513,957 | Michael R. McCarthy | | | 279,583 | | | 0 | | | 0 | | | 1,067 | | | | 280,650 | Michael W. McConnell | | | 266,250 | | | 0 | | | 0 | | | 35,716 | | | | 301,966 | Thomas F. McLarty III | | | 258,750 | | | 0 | | | 0 | | | 10,001 | | | | 268,751 | Steven R. Rogel | | | 266,667 | | | 0 | | | 0 | | | 82,525 | | | | 349,192 | Jose H. Villarreal | | | 260,000 | �� | | 0 | | | 0 | | | 7,662 | | | | 267,662 |
__________________
Andrew H. Card, Jr. | | | $290,000 | | | $0 | | | $0 | | | $10,841 | | | $300,841 | Erroll B. Davis, Jr. | | | 300,000
| | | 0 | | | 0 | | | 38,500 | | | 338,500 | William J. DeLaney | | | 290,000 | | | 0 | | | 0 | | | 8,657 | | | 298,657 | David B. Dillon | | | 310,000 | | | 0 | | | 0 | | | 12,036 | | | 322,036 | Deborah C. Hopkins | | | 285,833 | | | 0 | | | 0 | | | 11,563 | | | 297,396 | Jane H. Lute | | | 290,000 | | | 0 | | | 0 | | | 31,944 | | | 321,944 | Michael R. McCarthy | | | 330,000 | | | 0 | | | 0 | | | 26,411 | | | 356,411 | Thomas F. McLarty III | | | 300,000 | | | 0 | | | 0 | | | 13,107 | | | 313,107 | Bhavesh V. Patel | | | 280,000 | | | 0 | | | 0 | | | 26,688 | | | 306,688 | Jose H. Villareal | | | 284,167 | | | 0 | | | 0 | | | 16,587 | | | 300,754 | Christopher J. Williams (c) | | | 46,667 | | | 0 | | | 0 | | | 0 | | | 46,667 |
(a)
| (a)
| | The following table provides the outstanding equity awards at fiscal year-end held by all individuals who served as non-management directors in 2016.2019. The Number of Shares in the Vesting Upon Termination column represents the shares granted to each director upon initial election to the Board and required to be held until his or her service as a member of the Board ends. |
| | | | | | | | | | | | | | Name | | Number of Securities
Underlying
Unexercised Options | | Number of Shares
Vesting Upon
Termination | | Number of Units in
Deferred Stock
Unit Account | Andrew H. Card Jr. | | 7,400 | | 4,000 | | 26,267 | Erroll B. Davis Jr. | | 0 | | 4,000 | | 32,893 | David B. Dillon | | 0 | | 4,000 | | 3,865 | Charles C. Krulak | | 0 | | 4,000 | | 27,653 | Jane H. Lute | | 0 | | 4,000 | | 1,023 | Michael R. McCarthy | | 0 | | 4,000 | | 42,211 | Michael W. McConnell | | 0 | | 4,000 | | 66,235 | Thomas F. McLarty III | | 0 | | 4,000 | | 25,654 | Steven R. Rogel | | 0 | | 4,000 | | 44,427 | Jose H. Villarreal | | 0 | | 4,000 | | 19,564 |
Andrew H. Card Jr. | | | 0 | | | 4,000 | | | 30,782 | Erroll B. Davis Jr. | | | 0 | | | 4,000 | | | 37,812 | William J. Delaney | | | 0 | | | 0 (d) | | | 1,105 | David B. Dillon | | | 0 | | | 4,000 | | | 7,019 | Deborah C. Hopkins | | | 0 | | | 4,000 | | | 5,429 | Jane H. Lute | | | 0 | | | 4,000 | | | 4,005 | Michael R. McCarthy | | | 0 | | | 4,000 | | | 51,089 | Thomas F. McLarty III | | | 0 | | | 4,000 | | | 30,133 | Bhavesh V. Patel | | | 0 | | | 4,000 | | | 2,285 | Jose H. Villarreal | | | 0 | | | 4,000 | | | 23,673 | Christopher J. Williams | | | 0 | | | 0 (d) | | | 0 |
(b)
| (b)
| | Excess liability insurance premiums paid in 20162019 for each non-management director were $1,067.$1,411, except for Mr. Williams which was $0. For each of Mr. Davis, Ms. Lute, Mr. McCarthy and Mr. Patel, the Company matched $25,000 of each directors’ charitable contributions under the Company’s charitable matching gift program which is also available to all employees of the Company. The Company matched $10,000 in charitable contributions for Ms. Hopkins and $5,500 in charitable contributions for Mr. Villarreal. In addition, the Company began paying Nebraska state income taxes on behalf of nonresident directors in 2014 because of their travel to Nebraska required for Company business. The reimbursement covers the incremental cost of these nonresident directors’ taxes and the directors do not claim any tax benefits for the reimbursement in their resident states. The amounts shown |
in the table reflect additional federal and Nebraska income taxes paid in 20172020 for the applicable director’s service, and stock option exercises, if any, during the director’s service in 2016.2019. The Company does not consider this a perquisite and does not gross-up or pay any state income taxes that the directors incur in their normal work locations. |
(c)
| (c)
| | Ms. Hope retired from the Board on May 12, 2016.
|
| (d)
| | Directors elected to the Board prior to April 21, 2000, are eligible to participate in a contributory health care plan that we sponsor. Medical and dental benefits are paid only after payment of benefits under any other group plan in which a director participates. The amount paid in 2016 for Ms. Hope’s participation in the health care plan was $11,215 reduced by an annual medical premium payment of $1,018 (deducted from her annual retainer). The Company terminated medical coverage for directors elected after April 21, 2000, upon adoption of the 2000 Directors Stock Plan by the shareholders on April 21, 2000. In addition, Ms. Hope participated in a director pension plan, which the Board terminated as to future participants in 1996. Under the plan, each non-management director elected to the Board prior to January 1996 receives an annual pension benefit of $36,000 upon retirement from the Board with at least five years of service and on or after attainment of age 65. Ms. Hope was the only director eligible to receive pension benefits under this plan.
|
| (e)
| | Ms. LuteMr. Williams was elected to the Board on April 5, 2016.
November 14, 2019. |
(d)
| (f)
| | PursuantUpon recommendation of the Corporate Governance and Nominating Committee, effective August 1, 2018, the Board eliminated the 4,000 share grant to the 2000 Directors Stock Plan, Ms. Lute received a grant of 4,000 restricted sharesnon-management directors upon hertheir election to the Board. The value reported reflects the grant date fair value of such shares based upon the Company’s closing stock price of $78.35 on April 6, 2016.
|
__________________
TABLE OF CONTENTS PROPOSALPROPOSAL NUMBER 2 –− Ratification of Appointment of Deloitte & Touche LLP as Independent Registered Public Accounting Firm for the Year Ending December 31, 2017 2020 The Audit Committee has appointed Deloitte & Touche LLP as the independent registered public accounting firm to audit the books and accounts of the Company and its consolidated subsidiaries for the year 20172020 and submits this selection for ratification by a vote of shareholders as a matter of good corporate governance. In the event that the Audit Committee’s selection of Deloitte & Touche LLP does not receive an affirmative vote of a majority of the votes cast, the Audit Committee will review its future selection of an independent registered public accounting firm. The Audit Committee believes that the continued retention of Deloitte & Touche LLP as our independent auditorregistered public accounting firm is in the best interests of our shareholders.shareholders as there are several benefits to the Company of having a long-tenured auditor. Enhanced Audit Quality. Through more than 50 years of experience with the Company, Deloitte & Touche has gained institutional knowledge and deep expertise regarding the Company’s rail operations and business, accounting policies and practices and internal control over financial reporting. Competitive Fee Structure. Due to Deloitte & Touche’s familiarity with the Company, audit fees are competitive with peer companies. Avoids Costs Associated with New Auditor. Onboarding a new independent accountant is costly and requires a significant time commitment that could distract from management’s focus on financial reporting and controls. The Company expects that a representative of Deloitte & Touche LLP will be present at the Annual Meeting and will have an opportunity to make a statement if such representative desires to do so and will be available to respond to appropriate questions by shareholders. Vote Required for Approval
Ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the year ending December 31, 20172020 requires the affirmative vote of a majority of the votes cast on this proposal at the Annual Meeting. The Board recommends a vote FOR ratification of the appointment of Deloitte & Touche LLP as independent registered public accounting firm for the year ending December 31, 2017. 2020.TABLE OF CONTENTS
Indepe
ndentIndependent Registered Public Accounting Firm’s Fees and ServicesAggregate fees billed to the Company for services rendered by our independent registered public accounting firm for each of the past two years are set forth below: Audit Fees | | | $2,974,700 | | | $2,838,350 | Audit-Related Fees | | | 509,603 | | | 697,829 | Tax Fees | | | 244,713 | | | 214,860 | All Other Fees | | | 0 | | | 0 | Total | | | $3,729,016 | | | $3,751,039 |
| | | | | | | | | | | | | | | | Year Ended December 31, | | | 2016 | | 2015 | Audit Fees | | $ | 2,661,955 | | $ | 2,604,750 | Audit-Related Fees | | | 521,697 | | | 511,697 | Tax Fees | | | 214,890 | | | 214,890 | All Other Fees | | | 0 | | | 0 | Total | | $ | 3,398,542 | | $ | 3,331,337 |
Audit Fees.Audit services included the integrated audit of financial statements and internal control, quarterly reviews, comfort letters provided in conjunction with the issuance of debt, and agreed-upon procedures performed on the Annual Report R-1 filed by Union Pacific Railroad Company with the Surface Transportation Board. Audit-Related Fees. Audit-related services included consultation on accounting standards and transactions, audits of employee benefit plans, and audits of subsidiary companies.Tax Fees. Tax fees included fees for corporate tax planning and consultation services and work performed for international tax compliance.All Other Fees. No other services were provided to the Company by Deloitte & Touche LLP during the years ended December 31, 20162019 and 2015.2018.Pre-Approval of Audit and Non-Audit Services Policy The Audit Committee’s charter requires the Committee to approve in advance all audit engagement fees and the terms of all audit services to be provided by the independent registered public accounting firm. By approving the engagement, which is performed in conjunction with the first Board meeting of each year, the audit services are deemed pre-approved. As part of its pre-approval policy, the Committee considers whether the provision of any proposed non-audit services is consistent with auditor independence. With respect to non-audit services provided by the independent registered accounting firm, the Audit Committee adopted and observes procedures that require the independent registered public accounting firm to present a budget for the three categories of non-audit services: (i) audit-related services, (ii) tax services and (iii) other services. The budget is detailed as to the particular services to be provided so that the Committee knows what services it is being requested to pre-approve in order to facilitate a well-reasoned assessment of the impact of the services on the auditor’s independence. After review and approval of the annual budget by the Committee, no further approval by the Committee is required to undertake specific projects within the three categories of non-audit services. TABLE OF CONTENTSAud The Audit Committee has reviewed and discussed with management the Company’s audited consolidated financial statements for the year ended December 31, 2016.2019. The Committee has discussed with the Company’s independent registered public accounting firm, Deloitte & Touche LLP, the matters required to be discussed with the Audit Committee under applicable Public Company Accounting Oversight Board (PCAOB) standards and SEC Rule 2-07 of Regulation S-X. The Committee also has received the written disclosure and correspondence from Deloitte & Touche LLP required by applicable requirements of the PCAOB regarding Deloitte & Touche LLP communications with the Committee concerning independence and has discussed their independence with them. Based on the foregoing reviews and discussions, the Committee recommended to the Board that the audited financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2019, for filing with the SEC. David B. Dillon, Chair
Andrew H. Card, Jr.
General Charles
William J. DeLaney
Deborah C. Krulak, USMC (Ret.)
Hopkins
Jane H. Lute Michael W. McConnell
Jose H. Villarreal
Christopher J. WilliamsTABLE OF CONTENTS
PR
OPOSALPROPOSAL NUMBER 3 –− Advisory Vote to Approve Executive CompensationAt the 2016 Annual Meeting of Shareholders, approximately 95% of the shares voted were cast in favor of approving the Company’s executive compensation.
The Board of Directors again asks shareholders to support a non-binding, advisory resolution approving the Company’s executive compensation as reported in this Proxy Statement. We design our executive compensation programs to support the Company’s long-term success. As described below in the Compensation Discussion and Analysis section of this Proxy Statement, the Compensation and Benefits Committee has structured the Company’s executive compensation programs to achieve key Company goals and objectives. We believe our compensation philosophy allows us to link realized pay to a variety of performance measures and reward management skillsefforts that produce consistent, long-term performance andaccompanied with effective risk management.management and execution of the Company’s strategy. In 2016,2019, the Company produced record financial results and finished the year with improvements in service reliability and productivity despite significant weather events, including harsh winter conditions in the Midwest and Pacific Northwest that were followed by widespread flooding across the central and southern portions of our network. We continued to operateimplementation of Unified Plan 2020, the Company’s plan for operating a safe, reliable and efficient railroad provide excellentby increasing reliability of our service to our customersproduct, reducing variability in network operations and deliver solid financial results despite facing a second consecutive year of volume declines and business mix shifts.improving resource utilization costs. Highlights of the Company’s 2019 operational and financial performance include: | ·
| | The Company achieved its third-best financial performance year, with earnings per share of $5.07, despite a 7% decline in volumes, our second lowest volume levels since 1998;
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| | An operating ratio for 2016 of 63.5%, increasing 0.4 points from last year’s record operating ratio of 63.1%, but equaling our second best record from 2014;
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Record financial performance, with earnings per share of $8.38, a 6% increase when compared to 2018; | ·
| | The reportable personal injury rate per 200,000 employee-hours improved 14%, to a best-ever result of 0.75; and
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An all-time record operating ratio for 2019 of 60.6%, 2.1 points lower than 2018; | ·
| | Significant improvements in operatingOperating income of $8.6 billion, flat with 2018 despite the 6% carload decline; and service metrics, as our average train speed, as reported to the Association of American Railroads (AAR), increased 5% in 2016 compared to 2015, and average terminal dwell time decreased 4%, representing improved asset utilization.
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Substantial improvement in key performance indicators year-over-year. For example, improvement in asset utilization and fewer car classifications led to a 17% improvement in freight car terminal dwell and a 6% improvement in freight car velocity. We also saw a 13% improvement in locomotive productivity and 2% improvement in work force productivity The Board urges shareholders to read the Compensation Discussion and Analysis, beginning on page 3442 of this Proxy Statement, which describes in more detail how our executive compensation policies and procedures, including many best practices, operate and are designed to align compensation with our Company strategy, goals and objectives. Shareholders should also review the Summary Compensation Table and related compensation tables and narrative, appearing on pages 5458 through 74, which provide detailed information regarding the compensation of our Named Executive Officers. The Compensation and Benefits Committee and the Board of Directors believe that the policies and procedures articulated in the Compensation Discussion and Analysis create effective incentives for achieving Company goals, including returns to shareholders, and that the compensation of our Named Executive Officers reported in this Proxy Statement has supported and directly contributed to the Company’s performance and success. In accordance with Section 14A of the Securities Exchange Act of 1934, and as a matter of good corporate governance, the Board asks shareholders to approve the following advisory resolution at the Annual Meeting: RESOLVED, that the shareholders of Union Pacific Corporation (the Company) approve, on an advisory basis, the compensation of the Company’s Named Executive Officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables and narrative in the Proxy Statement for the Company’s 20172020 Annual Meeting of Shareholders. This advisory resolution, commonly referred to as a “say on pay” resolution, is non-binding on the Board of Directors. Although non-binding, the Board and the Compensation and Benefits Committee will review and consider the voting results when evaluating the Company’s executive compensation programs. The Board of Directors recommends a vote FOR the advisory resolution to approve executive compensation. TABLE OF CONTENTS
PROPOSAL NUMBER 4 – Advisory VoteA LETTER FROM OUR COMPENSATION AND BENEFITS COMMITTEEDear Fellow Union Pacific Shareholder: We thank you for your continued support of Union Pacific. As directors and members of the Compensation and Benefits Committee, we take our responsibility to you very seriously. Our overarching compensation philosophy is to provide compensation opportunities that are competitive and motivating in an environment that has required continuing commitment and resilience of our employees and the leadership team. Our compensation philosophy is also highly performance based in order to align our management team with the Company’s strategic goals and our shareholders’ long-term interests. 2019 Results and Unified Plan 2020 During 2019, the Company continued the implementation of Unified Plan 2020, the Company’s plan for operating a safe and efficient railroad by increasing the reliability of its service product, reducing variability in network operations and improving resource utilization costs. The year 2019 also presented extreme weather challenges as harsh winter weather, blizzard conditions and record snowfall caused weather disruptions across the Midwest and Pacific Northwest. Additionally, rainfall on top of frozen ground, covered with several inches of accumulated snow, led to rapid snowmelt and historic, catastrophic flooding across Nebraska, Iowa, Missouri and Minnesota. Ice jams, some several miles long, contributed to extensive damage and track washouts across the Company’s network. Despite all of these challenges, the Company delivered solid financial performance, including: Earnings of $8.38 per share, representing a 6% improvement compared to 2018 An all-time record operating ratio of 60.6%, 2.1 points lower than 2018 Operating income of $8.6 billion, flat with 2018 despite a 6% carload decline Union Pacific returned $8.4 billion to its shareholders in the form of dividends and share repurchases and total shareholder return was 33.7% in 2019 compared with 31.5% shareholder return for the S&P 500. Our Fiscal 2019 Compensation Program As the Company continues to implement Unified Plan 2020, we remain focused on a compensation program that supports the Company’s strategic goals and reflects our commitment to alignment of pay with performance. For fiscal year 2019, the Named Executive Officers’ (NEOs) formula-based incentive cash program was similar to 2018 with eighty percent (80%) of the target annual incentive cash bonus based on two key performance metrics: operating income (40%) and operating ratio (40%). The remaining 20% of an executive’s target incentive cash bonus was based on the Frequency of Future Advisory Votes to Approve Executive CompensationPursuant to Section 14A of the Exchange Act, the Board of Directors is asking shareholders to vote on whether future advisory votes on executive compensation of the nature reflected in Proposal Number 3 above should occur every (1) year, every two (2) years, or every three (3) years.
In 2011, shareholders voted, consistent with the Board’s recommendation, to hold advisory votes to approve executive compensation every (1) year.
After careful consideration and taking into account the shareholder vote in 2011, the Board of Directors has determined that holding an advisory vote on executive compensation every (1) year continues to be the most appropriate policy for the Company at this time, and recommends that shareholders vote for future advisory votes on executive compensation to occur every (1) year. While the Company’s executive compensation programs are designed to promote a long-term connection between pay and performance, the Board recognizes that executive compensation disclosures are made annually. Holding an annual advisory vote on executive compensation provides the Company with more direct and immediate feedback on its compensation disclosures. However, shareholders should note that because the advisory vote on executive compensation occurs well after the beginning of the compensation year, and because the different elementsCommittee’s evaluation of the Company’s performance against pre-established business objectives and individual executive performance in the key areas identified in the Company’s new strategy wheel which we implemented in 2019 as set forth on page 51 of the Compensation Discussion & Analysis (CD&A).
After thorough deliberation and consideration, including discussions with the Committee’s compensation consultant, the Committee made an adjustment for weather related expenses incurred by the Company due to the historic and extreme flooding experienced during 2019. This adjustment to the calculation of our formulaic bonus program under the Company’s 2019 Annual Incentive Plan is detailed on page 50 of the CD&A. The Committee believes that the adjustment appropriately recognizes the significant productivity and operational improvements management and our entire workforce achieved during 2019 through the implementation of Unified Plan 2020. This adjustment resulted in an annual incentive bonus payout for 2019 at 41% of target for Mr. Fritz and the other NEOs, excluding Mr. Vena. As described on page 46 of the CD&A, due to Mr. Vena’s critical role in the implementation of Unified Plan 2020, the Committee recommended, and the Board approved, an annual incentive bonus for 2019 for Mr. Vena at 150% of target. Based on Mr. Vena’s performance in leading the Company’s achievement of an historic operating ratio of 60.6 %, the Committee also recommended, and the Board approved, vesting of the first tranche of his 2019 performance stock unit award at 100% of target, and also approved another performance-based long-term incentive grant. TABLE OF CONTENTS Long-term equity incentives remain an integral part of our compensation program, as we believe they support alignment of our executives’ interests with the interests of our shareholders. The 2019 equity grants for the NEOs consisted of 60% (up from 50%) performance stock units (PSUs) and stock options constituted the remaining 40% of award values, reflecting our decision to eliminate retention stock units from our executive compensation programs are designedprogram. The Committee also approved a formalized policy for recoupment of incentive compensation described on page 44 which became effective January 1, 2020. This policy is meant to operate in an integrated mannerbe consistent with, but also is more expansive than, the proposed “clawback” rules under the Dodd-Frank Wall Street and to complement one another, in many cases it mayConsumer Protection Act. While such rules have not be appropriate or feasible to changeyet been finalized, the executive compensation programs in consideration of any one year’s advisory vote on executive compensation by the timeCommittee believes adoption of the following year’s Annual Meeting. An annual advisory vote on executive compensation alsopolicy is consistent with good corporate governance principles. Further detail on our compensation program is included in the CD&A that follows. Diversity and Our Workforce We are working to assist the Company in creating a 21st-century workforce that is gender-balanced and inclusive of top, diverse talent. The Company is committed to improving and strengthening performance to further build an inclusive workforce that reflects the diverse markets and communities it serves . A positive, inclusive and high-performing work environment is essential in order for employees to feel valued and able to fully contribute to the Company’s practice of having all directors elected annually and annually providing shareholdersmission. Ongoing Commitment to Shareholder Engagement The Committee values the opportunity to ratify the Audit Committee’s selection of independent auditors.The Board of Directors understands that someperspectives of the Company’s shareholders may have different viewsand the importance of shareholder feedback, as to what is an appropriate frequency for advisory votesdemonstrated by the continued evolution of our compensation program. We appreciate the strong support from shareholders on our 2019 say-on-pay vote on executive compensation, and the Board will carefully review the voting results on this proposal. Shareholders are not voting to approve or disapprove the Board’s recommendation. Shareholders will be able to specify one of four choices for this proposal on the proxy card: one year, two years, three years, or abstain. This advisory vote on the frequency of future advisory votes on executive compensation is non-binding on the Board of Directors. Notwithstanding the Board’s recommendation and the outcome of the shareholder vote, the Board may in the future decide to conduct advisory votes on a less frequent basis and may vary its practice based on factors such as discussions with shareholders and material changes to compensation programs.
The Board recommends shareholders vote to conduct future advisory votes to approve executive compensation every year (1 year).
Executive Compensation
Compensation Discussion and Analysis
This Compensation Discussion and Analysis describes our executive compensation program and provides information on the amounts shown in the executive compensation tables that follow. For fiscal year ending December 31, 2016, our Named Executive Officers (NEOs) were our Chairman, President and CEO, Lance M. Fritz, our Executive Vice President and CFO, Robert M. Knight, Jr., and the next three most highly compensated executive officers, Cameron A. Scott, Executive Vice President and Chief Operations Officer, Eric L. Butler, Executive Vice President, Chief Administrative Officer and Corporate Secretary (formerly Executive Vice President and Chief Marketing Officer), and Rhonda Ferguson, Executive Vice President and Chief Legal Officer. Diane K. Duren, retired Senior Vice President and Corporate Secretary (formerly Executive Vice President, Chief Administrative Officer and Corporate Secretary) also is included as a NEO for 2016 pursuant to SEC rules.
Mr. Butler was elected Executive Vice President and Chief Administrative Officer on December 1, 2016, and was elected Corporate Secretary on February 3, 2017. Ms. Duren was Executive Vice President, Chief Administrative Officer and Corporate Secretary until December 1, 2016. She remained atcompensation. As the Company as Senior Vice Presidentmoves forward with Unified Plan 2020, we are committed to maintaining a compensation structure that aligns pay with performance, drives long-term value creation and Corporate Secretary until February 3, 2017,reflects the perspectives of our shareholders.
Thank you for your continued support and then as Senior Vice President until her retirement on February 28, 2017.Executive Compensation Program Objectives and Design
investment in Union Pacific. Respectfully,
The Compensation and Benefits Committee
Erroll B. Davis, Jr., Chair
Andrew H. Card, Jr.
William J. DeLaney
David B. Dillon
Bhavesh V. Patel
Jose H. Villarreal TABLE OF CONTENTS Union Pacific Railroad Company (the Committee) believesRailroad) is the principal operating company of Union Pacific Corporation (the Company). One of America’s most recognized companies, the Railroad links 23 states in the western two-thirds of the country by rail, providing a critical link in the global supply chain. The Railroad’s diversified business mix includes Agricultural Products, Energy, Industrial and Premium. We serve many of the fastest-growing U.S. population centers, operate from all major West Coast and Gulf Coast ports to eastern gateways, connect with Canada’s rail systems and are the only railroad serving all six major Mexico gateways. Our freight traffic consists of bulk, manifest and premium business. Bulk traffic primarily consists of coal, grain, soda ash, ethanol and rock shipped. Manifest traffic includes individual carload or less than train-load business involving commodities such as lumber, steel, paper, food and chemicals. The transportation of finished vehicles, auto parts, intermodal containers and truck trailers are included as part of our premium business. The Railroad provides value to its roughly 10,000 customers by delivering products in a safe, reliable, fuel-efficient and environmentally responsible manner. Our operating plan, Unified Plan 2020, implements Precision Scheduled Railroading principles, coupled with our own best practices. It is an important part of the Company’s compensation philosophy allows usobjective to reward behavior that produces consistent, long-term performance accompanied with effective risk management. To guide its executive compensation decisions, the Committee carefully evaluatedoperating a numbersafe, reliable and efficient railroad by increasing reliability of factors, including another year of solid financialour service product, reducing variability in network operations, and operating performance for the Company (described below), appropriate peer comparisons, and the continuing success of the executive compensation programs in supporting the Company’s achievement of key goals and business objectives. The Committee also reviewed and took into consideration the results of the 2016 annual advisory vote approving our executive compensation. Each of these factors guided the Committee’s decision to maintain the Company’s current executive compensation programs and policies and its decisions regarding the compensation of the NEOs for 2016. The Company’s executive compensation program is designed to:
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| | Pay for Performance — By aligning a significant portion of the executive’s opportunity for compensation to annual (short-term) and long-term Company performance, we tie pay to performance. Integration of the Company’s critical business objectives (safety, service, and financial performance) with the Company’s compensation programs also allows its pay structure to reflect individual performance and management effectiveness, along with other qualitative factors, which contribute to the Company’s performance.
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improving resource utilization. | ·
| | Align with Shareholder Interests — By providing equity incentives, we linkSafety: While 2019 was a substantial portion of executive compensation to both short-term and long-term financial performance that benefits our shareholders and aligns the interests of management with those of our shareholders.
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| | Attract and Retain Top Talent — By structuring compensation levels to reflect the competitive marketplace for similar positions at other comparable peer group companies, we are able to attract and retain key executives critical to our long-term success.
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| At the 2016 Annual Meeting, shareholders showed strong support for the Company’s executive compensation program with approximately 95% of the votes cast approving the advisory resolution to approve the compensation of our NEOs.
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2016 Financial and Operating Performance
2016 was the second consecutive year of significant volume declines and business mix shifts. Market factors such as soft energy prices,operational change at the impact ofCompany, we remained committed to the strong U.S. dollar on exports and a sluggish domestic consumer economy were the major drivers of a 7% decline in total volume in 2016. Carloadings were down in foursafety of our six commodity groups, includingemployees, our customers and the public. As we implemented Unified Plan 2020, we remained focused on identifying and managing risk and training our employees as their work environment changed. Despite these efforts, our safety results were not good enough. Our personal injury incidents per 200,000 employee-hours increased 11% from 2018 and our reportable derailment incident rate per million train miles increased 30%. In addition to using and expanding the deployment of Total Safety Culture and Courage to Care, we implemented COMMIT (Coaching, Observing, Mentoring and Motivating with Integrity and Trust) throughout our operations. All of these programs allow us to identify and implement best practices for employee and operational safety.
Service and Operations: The year began with a 20% decrease in coal traffic alone. On the positive side, a large U.S. grain harvest, along with strong global demand, drove aseries of significant increase in our grain shipments, especiallyweather events. Heavy snowfall and harsh winter conditions in the latter partMidwest and Pacific Northwest were followed by widespread flooding across the central and southern portions of our network. Despite the year. However, even with these challenges,disruptions, we remained focused on the things whichimplementation of Unified Plan 2020. Although our operational changes were impacted by weather in the early part of 2019, our control, enabling uskey performance indicators improved substantially year-over-year. Improvement in asset utilization and fewer car classifications led to deliver solid results17% improvement in a difficult environment.freight car terminal dwell and 6% improvement in freight car velocity. We combined our unrelenting focus on safety,also saw 13% improvement in locomotive productivity and service2% improvement in work force productivity. Financial Results: In 2019, the Company generated operating income of $8.6 billion, flat with 2018 despite the 6% carload decline. Lower volumes, productivity initiatives and lower fuel prices drove operating expenses down 8% from 2018. These factors coupled with improved pricing offset the impact of the revenue decline and drove an all-time record 60.6% operating ratio, improving 2.1 points from 2018. Net income of nearly $6.0 billion translated into earnings of $8.38 per diluted share, up 6% from last year. Our net return on invested capital of 15.0% decreased 0.1 point compared to produce strong value for2018. We increased our shareholders.quarterly dividend with two 10 percent increases, resulting in dividends paid in 2019 totaling $2.6 billion. In addition, we repurchased 35 million Union Pacific shares, decreasing our full-year average share count by 6 percent. Combining dividends and share repurchases, Union Pacific returned $8.4 billion to our shareholders in 2019. Please also refer to the Company’s Annual Report on Form 10-K for a complete analysis of the Company’s 20162019 financial and operating performance.performance and non-GAAP reconciliation. TABLE OF CONTENTS 35
COMPENSATION DISCUSSION AND ANALYSIS
Safety – During 2016, we continued our focus on safety to reduce risk and eliminate incidents for our employees, our customersExecutive Compensation Philosophy and the public.Compensation-Setting Process The Company’s executive compensation philosophy is to: Pay for Performance — We achieved our best ever reportable personal injury incidents per 200,000 employee-hourstie pay to performance by aligning a significant portion of 0.75, making us the safest Class I railroad inexecutive’s opportunity for compensation to annual (short-term) and long-term Company strategy. We also integrate the U.S. forCompany’s critical business objectives (safety, service, and financial performance) into the second consecutive year. In addition, we finished 2016Company’s strategy and compensation programs to reflect individual performance and management effectiveness, along with a 3% improvement in our reportable derailment incident rate per million train miles comparedother qualitative factors, which contribute to the prior year. These results demonstrate our employees’ dedicationCompany’s performance. Align with Shareholder Interests — We link a substantial portion of executive compensation to our safety initiativesboth short-term and our efforts to further engage the workforce through programs such as Courage to Care, Total Safety Culture, and UP Way (our continuous improvement culture).
Service and Operations – Continued improvements were made in our operating and service metrics, as our average train speed, as reported to the AAR, increased 5% in 2016 compared to 2015, and our average terminal dwell time decreased 4%, both reflecting the impact of lower volumes and improved network fluidity. We made capital investments of almost $3.5 billion in 2016, continuing to strengthen our franchise. This included $1.8 billion in replacement capital to harden our infrastructure and improve the safety and resiliency of our network. In addition, we spent approximately $760 million on locomotives and other equipment, and just over $300 million on new capacity and commercial facilities.
Financial Performance– Despite a 7% decrease in carloads, resulting in our second lowest volume levels since 1998, 2016 was our third-best earningslong-term financial performance with earnings per share of $5.07. Our operating ratio for 2016 was 63.5%, increasing 0.4 points from last year’s record operating ratio of 63.1%, but matching our second best record from 2014. While our return on invested capital (ROIC, see footnote 1 on the following page) of 12.7 percent fell short of last year’s 14.3 percent, the Company was able to increase its quarterly declared dividend per share by 10 percent, with dividends paid in 2016 totaling $1.9 billion. We also repurchased 35 million shares of Company common stock, equivalent to 4 percent of total shares outstanding. Between dividends and share repurchases, the Company returned $5 billion tothat benefits our shareholders in 2016.
Performance Versus Compensation Peer Group Companies – The Committee benchmarksand aligns the Company’s financial performance as measured by growth in total revenue, operating income, diluted earnings per share from continuing operations (EPS) and ROIC, against the resultsinterests of a group of peer companies (the Peer Group) that consists of both other railroads and companies that are comparable to the Company in size and complexity but are in other industries (as described on pages 52 and 53). In addition, the Committee compares the Company’s total shareholder returnmanagement with those of the Peer Group.
| | | | | | | | | | Three-Year Performance | | 2016 (rank out of 18) | | 2015
(rank out of 19) | Revenue Growth | | 9 | | 3 | Operating Income Growth | | 8 | | 7 | Earnings Per Share Growth | | 8 | | 5 | Return on Invested Capital (1) | | 5 | | 4 | Total Shareholder Return | | 10 | | 15 | Composite Rank (3) | | 7 | | 5 |
| | | | | | | | | | | | Ranking (2) | One-Year Performance | | 2016 (rank out of 18) | | 2015
(rank out of 19) | Revenue Growth | | 17 | | 13 | Operating Income Growth | | 14 | | 14 | Earnings Per Share Growth | | 13 | | 9 | Return on Invested Capital (1) | | 5 | | 5 | Total Shareholder Return | | 4 | | 19 | Composite Rank (3) | | 13 | | 14 |
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| (1)
| | ROIC is not considered a financial measure under Generally Accepted Accounting Principles (GAAP) by SEC Regulation G and Item 10 of SEC Regulation S-K and may not be defined and calculated by other companies in the same manner. For a reconciliation to GAAP, please see Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
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| (2)
| | Performance rankings were provided by Frederic W. Cook & Co., Inc. (FW Cook), an independent compensation consulting firm that reports directly
Attract and Retain Top Talent — We are able to attract and retain key executives critical to the Committee, based on data from Standard & Poor’s Capital IQ database. The rankings reflect performance through December 2016 or the fiscal quarter-end immediately preceding this date for peers with non-calendar fiscal years. |
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| | Reflects the Company’s overall positioning when the rankings for each of the five measures above are averaged and compared against the same average for the Peer Group.
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Summary of 2016 Compensation Decisions
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| | In February 2016, no salary increases were awarded for the NEOs, except for Mr. Scott to more closely align his salary to that of his peers.
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| | Bonuses earned for the 2016 performance year for all NEOs were negatively impacted by the Company’s lower financial performance on a year-over-year basis.
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| | The value of our long-term incentive awards for our NEOs also decreased, reflecting the Company’s overall lower financial performance, except for Mr. Fritz and Mr. Scott, whose long-term incentive awards were increased to align their compensation to fully reflect their level of duties and responsibilities.
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| | The Committee reevaluated the equity compensation mix making the majority of our long-term incentive compensation performance-based. Future long-term incentive awards starting in 2017 will consist of 50% performance stock units, 40% stock options and 10% retention stock units.
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| | Addition to performance stock unit awards of a relative Operating Income Growth modifier (+/-25% of the award earned based on the ROIC achieved) compared to the S&P Industrials Index.
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| | Performance stock units for the three-year performance period ending in 2016 vested at 140% of target, reflecting stronger performance in 2014 and 2015.
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The Committee reviews Total Direct Compensation for each of the NEOs on an annual basis prior to the first Board meeting of the year. Total Direct Compensation consists of (i) cash compensation (Total Cash Compensation) comprised of base salary and annual cash bonus, if any is paid, and (ii) stock-based compensation under our long-term incentivesuccess by structuring compensation programs. Each component is described more fully below. levels to reflect the competitive marketplace for similar positions at other comparable peer group companies.
The Compensation and Benefits Committee also periodically reviews other elements of compensation, including deferred compensation, perquisites, benefits, including retirement plans, and change-in-control severance payments.The following table summarizes the 2016 Total Direct Compensation the Committee approved for each NEO. This table is supplementary and is not intended to replace the Summary Compensation Table.
2016 Total Direct Compensation Versus Peer Group
| | | | | | | | | | | | | | | | | | | | | | | | Name | | Total 2016
Cash Comp | | Grant Date Value
of Target 2016
LTI Award | | Total 2016
Direct Comp (1) | | vs. Peer Group | Lance M. Fritz | | $ | 2,850,000 | | $ | 7,000,000 | | $ | 9,850,000 | | Below 25P | Robert M. Knight, Jr. | | | 1,850,000 | | | 3,000,000 | | | 4,850,000 | | Above 75P | Cameron A. Scott | | | 1,279,000 | | | 1,500,000 | | | 2,779,000 | | Below 25P | Eric L. Butler | | | 1,265,000 | | | 1,500,000 | | | 2,765,000 | | Below 25P | Rhonda S. Ferguson (2) | | | 620,000 | | | 400,000 | | | 1,020,000 | | Below 25P | Diane K. Duren | | | 1,255,000 | | | 1,500,000 | | | 2,755,000 | | 25P - 50P |
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| (1)
| | The compensation elements included in the table above reflect the components of annual compensation considered and evaluated by the Committee in its decision-making process. The table excludes compensation amounts based on changes in pension value and nonqualified deferred compensation earnings as reported in the Summary Compensation Table on page 54. The Committee considers these pension and deferral compensation programs in the context of its assessment of the overall design of the Company’s compensation program and not as an element of annual compensation decisions. Likewise, in its annual compensation decisions the Committee does not consider the items included as “All Other Compensation” in the Summary Compensation Table, and these items are, therefore, also excluded from the table above.
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(2)Ms. Ferguson was elected Executive Vice President and Chief Legal Officer on July 1, 2016, and, in addition to salary and bonus, received a $300,000 signing bonus and a retention stock unit grant with a grant date fair value of $400,000.
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Compensation Best Practices
The Company’s compensation programs, decisions, and practices detailed inbelieves this Proxy Statement continue to reinforce our compensation philosophy allows us to reward behavior that produces consistent, long-term performance accompanied with effective risk management and encourage behavior and performance that the Committee believes is in the long-term best interests of the Company and its shareholders.
What we do…
Emphasize Performance-Based Variable Compensation
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| | Majority of Total Direct Compensation is variable
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| | Base salaries are targeted below the median of our Peer Group
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| | Discretionary bonus program is linked to both individual and Company performance
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Tie Compensation to Long-Term Performance
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| | Equity awards are comprised of stock options and performance-based stock units
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| | Stock options have no value unless the stock price appreciates above the grant price
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| | Performance-based stock units are subject to risk of forfeiture if the Company does not achieve predetermined, multi-year objectives
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Use an Independent Consultant and Peer Group Analysis
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| | Independent consultant analyzes Peer Group for compensation comparison purposes
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| | Independent consultant assists the Committee in its deliberations and provides input at every meeting of the Committee
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Utilize a Compensation Recoupment Policy
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| | Board authorized to make retroactive adjustments to reduce any cash or equity-based incentive compensation paid to the NEOs and certain other executives if the payment was predicated upon the achievement of certain financial results that were subsequently revised in connection with a restatement of all or a portion of our financial statements
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Allow Only Minimal Perquisites
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| | Only provide tax and financial counseling services and personal excess liability coverage
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| | In 2016, the Committee eliminated the requirement for the CEO to use Company aircraft for all air travel and set a limitation for personal flights at $90,000 for the CEO and $45,000 for the other NEOs; executives will pay for any personal flights beyond these limits
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Enforce Stringent Executive Stock Ownership Guidelines
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| | CEO must own Company stock having a value seven times annual salary
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| | Other NEOs must own four times annual salary
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| | As of December 31, 2016, all NEOs held Company stock significantly in excess of ownership targets, with Mr. Fritz, our Chairman, President and CEO, owning stock valued at 27 times his salary and the other NEOs owning stock valued at between 7 and 41 times their salary as of December 31, 2016. As a result of Ms. Ferguson’s recent election, on July 1, 2016, she has additional time to satisfy her ownership requirements.
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Utilize Double Trigger Change-in-Control Plan
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| | Severance payment and accelerated vesting of equity awards only if a covered executive is terminated following a change-in-control (i.e., “double trigger”)
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Provide Limited Post-Termination Benefits
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| | Benefits under change-in-control plan limited to 2.99 times salary plus bonus for any eligible executive
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Review Senior Executive Compensation Tally Sheets
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| | The Committee reviews Tally Sheets at every meeting
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| | The Committee uses Tally Sheets as a reference point to summarize all relevant data when reviewing the elements of compensation and assessing the consistency of awards for the NEOs
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Consistently Apply Company Grant Practices
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| | The Company awards all performance stock units, retention shares, retention stock units and stock options for all executive and management employees based on the closing price on the day the awards are approved
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Conduct Compensation Risk Assessment
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| | All executive compensation programs are reviewed annually by the Committee’s independent consultant to confirm programs are designed with effective risk management to avoid creating material adverse risks to the Company
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What we don’t do…
No Tax Gross-Up Payments Allowed for NEOs
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| | No tax gross-up payments are provided with respect to any perquisites or change-in-control severance payments
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No Repricing or Back-Dating of Options Allowed
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| | Repricing of outstanding stock options prohibited without the approval of shareholders
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| | No back-dated stock options are awarded
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| | The Company does not allow employees to select the effective date of stock option awards
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| | The Committee does not time its approval of stock option awards around the release of any material non-public information
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No Employment Agreements
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| | No employment agreements with any of our executive officers, including NEOs
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No Hedging of Company Stock
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| | Employees, including NEOs, are prohibited by policy from buying, selling or writing puts, calls or options and from executing derivative arrangements linked to Company stock
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Elements of Our Executive Compensation Program
The following table provides information regarding the elementsexecution of the Company’s strategy.
The Committee carefully evaluates and considers a number of factors in connection with its executive compensation program for 2016: decisions, including: ✔
| | | | | | | | | | | | | | | | | Compensation
Type
| | Pay Element
| | How It is Determined/
Linked to Performance
| | What It Does
| | Fixed
| | Base Salary
| | - Part of a competitive total compensation package
- Determined based on job scope and experience, market comparable positions, and internal leadership structure
| | - Provides a level of predictable income for the executive and is intended to remain competitive through business cycles
| | Variable
| | Annual Cash
Bonus Award
| | - Determined as a result of overall performance assessment of safety, service and financial measures, including:
- Company and individual performance
- Successful implementation of safety and service initiatives
- Adherence to risk and compliance policies and other core values of the Company
| | - Provides an opportunity to earn a cash-based annual bonus award
- Aligns incentives with individual performance and short-term Company performance goals
against objectives; |
[Table Continued on Next Page]
✔
| Compensation
Type
| | Pay Element
| | How It is Determined/
Linked to Performance
| | What It Does
| | Variable
| | Long-Term
Incentive
Compensation
| | | | | | | | - Performance
Stock Units
(40%)
| | - Performance Stock Units tie a substantial portion of totalGuidance from the Committee’s compensation to the Company’s future achievement of ROIC performance goals over a three-year performance period with a relative Operating Income Growth modifier (+/-25% of the award earned based on the ROIC achieved) compared to the S&P 500 Industrials Index
| | - Aligns the interests of executive officers with those of shareholders by providing a balanced mix of equity compensation tied to Company and individual performance
- Long-term incentive award size designed to deliver total direct compensation (base salary + annual cash bonus + long-term incentive) generally within a range around the median
- Actual award of annual Performance Stock Units, Retention Stock Units and Stock Options based on individual and Company performance over the previous year
- Combined with the Company’s vesting and stock ownership requirements, as well as clawback feature, equity-based awards balance the goals of encouraging sustainable results over time and reward those results with appropriate levels of actual compensation
| | | | - Time-Vested
Retention
Stock Units
(20%)
| | - Retention Stock Units align awards with stock price performance and encourage executive retention with vesting after a four-year period
| | | | | - Stock Options
(40%)
| | - Stock options are tied to future stock price performance and require continued employment for a three-year period for options to fully vest
| | | | | | | | | | | Other
| | Perquisites
and Other
Executive
Benefits
| | - Minimal (see discussion below)
| | - Provides for the safety and wellness of our executives, and serve other purposes as discussed below
| | | | Deferred
Compensation
- 401(k) plan non-qualified deferred compensation programs
| | - See discussion below
| | - Provides tax-deferred methods for general savings, including for retirement
consultant; |
✔
| Appropriate peer comparisons. |
Company Performance.Executive Compensation ProcessThe Company’s compensation program is a pay for performance system. As described above, under the Company’s annual incentive cash program, the Company measures its performance against a formulaic component based on pre-established operating income and operating ratio targets, as well as a non-formulaic component based on the Committee’s evaluation of certain business objectives related to safety, service and financial performance.performance outlined on pages 49 and 50. The Committee recommends the operating income and operating ratio targets to the Board for approval each February. Management also develops the Company’s overall strategy and the corresponding business objectives and presents them to the Board annually in February. After Board approval, the Committee incorporates the objectives into the compensation program with the assistance and advice from the Finance Committee of the Board. The Board monitors
the Company’s progress concerning theseexecution of its strategy and its business objectives during the year. At the end of the year, the Board assesses the Company’s achievement of these objectives. In February, subsequent to the performance year, management presents to the Committee the Company’s operating income and operating ratio results, its achievement compared to the business objectives, and its relative performance compared to the Peer Group, along with its recommendations for bonusGroup. Guidance from Compensation Consultant and equity awards.Input from CEO.The Committee reviews and recommends Board approval for the compensation of all NEOs.NEOs to the Board for its approval. The CEO provides the Committee with his evaluation of the performance of the other NEOs (excluding himself) and his recommendations for their compensation. The Committee also receives information and recommendations from its independent compensation consultant (FW Cook) on matters related to the NEOs’ (including the CEO’s) and other executives’ compensation. The Committee then determines (with advice from the Board, and assistance from its consultant) a bonus and equity award for the Company’s CEO. For more information on the operation of the Committee, including information on its compensation consultant, see pages 29 and 30 of this Proxy Statement.
TABLE OF CONTENTS Executive Compensation Philosophy and the Compensation-Setting Process
Peer Companies. The Committee benchmarks salary, Target Total Cash Compensation and Target Total Direct Compensation for the NEOs against competitive market information. To assess competitive market information, the Committee looks primarily to pay data from the proxy statements of the Company’s Peer Group. As further discussed below, the Committee generally seeks to establish base salaries below the median of the Peer Group, reflecting the Committee’s philosophy that a greater proportion of the cash component of the executives’ compensation should be incentive-based. The Committee generally targets a range around the median of the Peer Group for Target Total Cash Compensation and Target Total Direct Compensation. Actual Total Direct Compensation and Actual Total Cash Compensation may be greater or less than targeted percentiles, depending upon whether and to what degree the Company achieves its business objectives (as described above). Other factors considered in setting target compensation levels may include the individual performance of each NEO and his or her position relative to the Company’s current internal pay structure or changes in personnel or compensation at the Peer Group companies. In addition, the Committee particularly focuses on competitive pay for railroad executives within the Peer Group and the performance of other comparable railroads. In comparing the executive positions with comparable positions at companies within the Peer Group, the Committee and FW Cook review and consider any adjustments that may be required to account for significant differences in tenure or functional responsibilities. For compensation decisions made in 2019, the Company’s Peer Group consisted of the following 15 companies listed below. Canadian National | | | Canadian Pacific | | | CSX | Deere & Co | | | Delta Airlines | | | Exelon | FedEx | | | Honeywell International | | | NextEra Energy | Norfolk Southern | | | Northrop Grumman | | | Raytheon | Southern Co. | | | Southwest Airlines | | | UPS |
The Committee selected this Peer Group with the assistance of its compensation consultant, FW Cook, after considering U.S. based public companies in the same Global Industry Classification System (GICS) Industry Group with comparable revenues and market capitalization and other U.S.-based public companies with comparable (i) revenues, (ii) operating income, (iii) total assets, (iv) market capitalization and (v) employees, while excluding pharmaceuticals, high-tech, insurance and financial services companies. These comparative financial measures and the number of employees for the 2018 Peer Group are summarized below and were used for compensation decisions made in 2019. Net Revenue | | | $27,058 | | | $39,560 | | | $22,832 | | | 39th | Operating Income | | | $4,414 | | | $5,118 | | | $8,517 | | | 100th | Total Assets | | | $49,589 | | | $65,189 | | | $59,147 | | | 68th | Market Capitalization | | | $53,380 | | | $61,332 | | | $108,411 | | | 98th | Employees | | | 58,803 | | | 82,500 | | | 41,992 | | | 45th |
Dollars in millions. Median/Percentiles determined by FW Cook using Standard & Poor’s Capital IQ Service, Form 8-K filings and Peer Group company information. The financial information provided above is derived from data as of fiscal year ending December 31, 2018, except as of September 2018 for Exelon and Southern Co., October 2018 for Deere & Co. and November 2018 for FedEx. Market Capitalization is a 12-month average as of December 31, 2018. TABLE OF CONTENTS Executive Compensation Philosophy and the Compensation-Setting Process
Compensation Best Practices We endeavor to maintain strong governance standards in our policies and practices related to executive compensation. Below is a summary of key executive compensation and governance practices in place during 2019. | | ✔ | | | Emphasize Performance-Based Variable Compensation | | | ✗ | | | No Repricing or Back-Dating of Options Allowed | | | | ✔ | | | Utilize a Compensation Recoupment Policy | | | ✗ | | | No Individual Supplemental Executive Retirement Plans | | | | ✔ | | | Tie Compensation to Short-and-Long-Term Performance | | | ✗ | | | No Tax Gross-Up Payments Allowed for NEOs, including Change-in-Control | | | | ✔ | | | Allow Only Minimal Perquisites | | | ✗ | | | No Employment Agreements with any of our Executive Officers, including NEOs | | | | ✔ | | | Utilize Double Trigger Change-in-Control Plan | | | ✗ | | | NEOs are Prohibited from Pledging and Hedging Company Stock | | | | ✔ | | | Target Base Salaries Below the Median of our Peer Group | | | | | | | | | | ✔ | | | Enforce Stringent Executive Stock Ownership Guidelines | | | | | | | | | | ✔ | | | Conduct Annual Compensation Risk Assessment | | | | | | | | | | ✔ | | | Require Trading Plans for Executive Officers (as set forth on page 77) and Directors | | | | | | | |
Effective January 1, 2020, the Company adopted its Policy for Recoupment of Incentive Compensation. This policy allows the Board’s Compensation and Benefits Committee to require Company executives to repay to the Company certain incentive compensation (or if such incentive compensation has not been paid or settled, the Company may cancel such incentive compensation) if the Committee determines either (a) that a financial restatement is required due to the Company’s material non-compliance with financial reporting requirements or if there was a material error in incentive compensation calculations, or (b) if the executive engaged in certain types of detrimental conduct, as more particularly described in the policy. This policy is meant to be consistent with, but also is more expansive than, the proposed “clawback” rules under the Dodd-Frank Wall Street and Consumer Protection Act. While such rules have not yet been finalized, the Company nevertheless implemented this recoupment policy because we believe it is consistent with good corporate governance principles. TABLE OF CONTENTS Executive Compensation Philosophy and the Compensation-Setting Process
This Compensation Discussion and Analysis describes the material elements of our executive compensation program, and the corresponding pay decisions for our 2019 Named Executive Officers (NEOs), who are listed below. The amounts in each NEO’s pie chart below reflect the values in the Summary Compensation Table on page 58. | | • Increased base salary
by 2.2%
• LTI target unchanged
• Annual incentive
target unchanged
• Increased Total
Target Direct
Compensation by
0.2% | | | | |
During 2019, Mr. Fritz marked almost five years as our Chief Executive Officer. The Compensation and Benefits Committee increased Mr. Fritz’s salary for 2019 to $1,175,000, a 2.2% increase, and maintained Mr. Fritz’s 2019 Annual Incentive Plan bonus target of $2,200,000. Mr. Fritz received an annual incentive bonus for 2019 of $902,000 at 41% of target based on the formulaic bonus program under the Company’s 2019 Annual Incentive Plan. The Committee made no change to Mr. Fritz’s long-term incentive target grant value of approximately $9,750,000 consisting of 60% performance stock units and 40% stock options granted on February 7, 2019. Mr. Fritz’s 2017 grant of performance stock units paid out at 200% of target. | | • Increased base salary by 2.5%
• LTI target unchanged
• Annual incentive
target unchanged
• Increased Total Target
Direct Compensation
by 0.3% | | | | |
Mr. Knight retired as our Executive Vice President and Chief Financial Officer on December 31, 2019, after nearly 40 years of service. The Compensation and Benefits Committee increased Mr. Knight’s salary for 2019 to $619,000, a 2.5% increase, and maintained Mr. Knight’s 2019 Annual Incentive Plan bonus target of $1,275,000. Mr. Knight received an annual incentive bonus for 2019 of $523,000 at 41% of target based on the formulaic bonus program under the Company’s 2019 Annual Incentive Plan. The Committee made no change to Mr. Knight’s long-term incentive target grant value of approximately $3,400,000 consisting of 60% performance stock units and 40% stock options granted on February 7, 2019. Mr. Knight’s 2017 grant of performance stock units paid out at 200% of target. TABLE OF CONTENTS Named Executive Officers
| | • Hired January 14,
2019
• $600,000 salary
• $750,000 annual
incentive target
• $4,000,000 equity
award comprised of
60% performance
stock units prorated
annually based on
Operating Income and
Operating Ratio and
40% stock options,
with two-year vest | | | | |
To help lead implementation of our Unified Plan 2020, Mr. Vena became Chief Operating Officer effective January 14, 2019. Mr. Vena previously served as Executive Vice President and Chief Operating Officer of Canadian National Railway Company, where he was responsible for implementing its highly successful Precision Scheduled Railroad operating model. At time of hire, his annual base salary was $600,000 with an annual target bonus opportunity of $750,000, payout of which is dependent on the Company’s formulaic bonus program under the Company’s 2019 Annual Incentive Plan. Mr. Vena also received a $4,000,000 equity grant award consisting of 60% performance stock units and 40% stock options, each with a two year vesting period, prorated and payable annually based on the Company’s operating income and operating ratio. As previously disclosed, Mr. Vena’s initial performance stock unit award was subject to review for potential adjustment after the end of the year based on performance. At its February 2020 meeting, the Compensation and Benefits Committee sectionreviewed the critical role and accomplishments of Mr. Vena in the implementation of Unified Plan 2020. Based on pages 26Mr. Vena’s performance in leading the Company’s achievement of an historic operating ratio of 60.6%, the Committee recommended, and 27the Board approved, vesting of this Proxy Statement.the first tranche of his 2019 performance stock unit award at 100%. In addition, the Compensation and Benefits Committee recommended, and the Board approved, payment to Mr. Vena of an annual incentive bonus for 2019 of $1,125,000 at 150% of target. The Committee will review the second tranche of Mr. Vena’s performance stock unit award for potential adjustment at the end of 2020. Likewise, in recognition of the role and accomplishments of Mr. Vena in the implementation of Unified Plan 2020, the Compensation and Benefits Committee in March 2020 recommended, and the Board approved, a $4,000,000 equity grant award subject to vesting over two years. The new grant consisted of 40% stock options and 60% performance stock units, with a two year vesting period, and the number of performance stock units payable based on the Company’s 2020 operating ratio. TABLE OF CONTENTS Named Executive Officers
| | • Increased base salary by 5.0%
• LTI target unchanged
• Annual incentive
target unchanged
• Increased Total Target
Direct Compensation
by 0.8%
| | | | |
Ms. Ferguson has been our Executive Vice President, Chief Legal Officer and Corporate Secretary for almost 4 years. The Compensation and Benefits Committee increased Ms. Ferguson’s salary for 2019 to $485,000, a 5.0% increase, and maintained Ms. Ferguson’s 2019 Annual Incentive Plan bonus target of $750,000. Ms. Ferguson received an annual incentive bonus for 2019 of $308,000 at 41% of target based on the formulaic bonus program under the Company’s 2019 Annual Incentive Plan. The Committee made no change to Ms. Ferguson’s long-term incentive target grant value of approximately $1,500,000 consisting of 60% performance stock units and 40% stock options granted on February 7, 2019. Ms. Ferguson’s 2017 grant of performance stock units paid out at 200% of target. | | • Increased base salary by 2.0%
• LTI target unchanged
• Annual incentive
target unchanged
• Increased Total Target
Direct Compensation
by 0.3% | | | | |
Ms. Whited has been our Executive Vice President and Chief Human Resources Officer for almost 2 years after previously serving as the Company’s Executive Vice President and Chief Marketing Officer. The Compensation and Benefits Committee increased Ms. Whited’s salary for 2019 to $464,000, a 2.0% increase, and maintained Ms. Whited’s 2019 Annual Incentive Plan bonus target of $750,000. Ms. Whited received an annual incentive bonus for 2019 of $308,000 at 41% of target based on the formulaic bonus program under the Company’s 2019 Annual Incentive Plan. The Committee made no change to Ms. Whited’s long-term incentive target value of approximately $1,500,000 consisting of 60% performance stock units and 40% stock options granted on February 7, 2019. Ms. Whited’s 2017 grant of performance stock units paid out at 200% of target. TABLE OF CONTENTS Fiscal Year 2016 Actual2019 Total Compensation MixA significant portion
The majority of the compensation awarded to our CEO and other NEOs, is performance-based, variable performance-based compensation and “at-risk.” This is illustrated in the charts below that show the pay mix for Mr. Fritz, our CEO, and for our other NEOs as a group based on the target total direct compensation received by these executives in fiscal 2016 as shown in the Summary2019.
TABLE OF CONTENTS Elements of Our Executive Compensation Table.
Named Executive Officer Accomplishments During 2016
In setting the annual bonus for Mr. Fritz, the Committee, along with all the other non-management, independent directors, considered the Company’s 2016 safety, operational and financial performance. During his second year as CEO, Mr. Fritz led the Company’s efforts on resource alignment, productivity and efficiency, while leveraging the strengths of the Company’s rail franchise in the face of significant declines in volume and shifts in business mix (please also refer to the Company’s 2016 Financial and Operating Performance section beginning on page 35). In addition, the Company’s new strategic productivity initiative gained momentum in 2016. Called “G55 and Zero,” this program aspires to improve the Company's operating ratio to 55% over time, while driving safety incidents to zero. In 2016, senior management leadership continued the development and implementation of the Company’s strategic goals and initiatives that drove approximately $450 million in productivity improvements, with the
Program
expectation of further benefits ahead as this multi-year effort works to re-energize the entire organization toward new levels of safety, customer service, financial performance and productivity improvement, and new product and service innovations.
In setting annual bonuses for the other NEOs, the Committee first considered the overall operational and financial performance of the Company in 2016. The Committee considered the CEO’s recommendations for compensation of each of the other NEOs, as well as the responsibilities of each NEO, and their tenure and award levels relative to similarly situated executives in the Peer Group. The Committee also considered the following accomplishments of each of the other NEOs:
Mr. Knight led the ongoing implementation of a financial strategy that focused on shareholder returns despite an economic environment that continued to be challenging. Earnings per share decreased in 2016, to $5.07, primarily reflecting a 7% volume decline. This volume shortfall was at least partially offset by a continued strong focus on pricing gains and cost efficiencies which enabled the Company to achieve an operating ratio of 63.5%, up only 0.4 percentage points from the prior year. Under Mr. Knight’s leadership, the Company’s new strategic productivity initiative “G55 and Zero” drove approximately $450 million in productivity improvements, with a plan for additional financial benefits as the Company continues its focus on this initiative. In an uncertain economic environment, the Company continued to maintain the strong credit profile needed to retain a solid A/A3 credit rating, while optimizing its strong balance sheet and cash allocation. Debt to EBITDA was 1.9X, compared to 1.7X in the prior year. The Company’s average debt maturity was extended by almost 14% to approximately 16 years, while slightly reducing our effective interest rate to 4.7%. Returns to shareholders included a 10% increase in the quarterly declared dividend for the Fourth Quarter of 2016, reflecting a declared payout ratio of 44.5%. In addition, the Company repurchased 35.1 million shares, which was 4% of total shares outstanding, at a total cost of $3.1 billion and an average price of $88.57 per share. A new authorization was also established for the repurchase of up to 120 million shares over the four years beginning January 1, 2017, reflecting the Company’s consistent focus on enhancing shareholder value over the long-term. In 2016, the Company’s total shareholder return was 36%, versus 12% for the S&P 500.
Mr. Scott led the Operating team’s progress toward the ultimate safety objective of achieving an incident free workplace. During 2016, the Company continued to focus its efforts to reduce risk and eliminate safety-related incidents for employees, customers and the public. The reportable personal injury rate per 200,000 employee hours improved 14% to a best-ever result of 0.75, which for the second year in a row the Company was the best in the rail industry. The reportable derailment rate per million train miles reflects 2.6% improvement to the Company’s best annual rate. Mr. Scott led efforts to enhance the Company's safety strategy and continued to foster a robust safety culture reflected in the peer-to-peer, behavior-based Total Safety Culture, as well as the Courage to Care commitment and the G55 and Zero productivity initiative. Velocity improved 5% to 26.6 mph. Although the Company was challenged by a 7% decline in volume, Mr. Scott led efficiency and productivity gains by rapidly adjusting resources to match business levels. Efficient capital spending minimized the miles of track with speed restrictions due to track condition and resulted in the continued development of a robust track infrastructure. These resource adjustments and productivity initiatives helped the Company match our second lowest ever operating ratio in 2016. Throughout the year, Mr. Scott participated in a comprehensive leadership development and engagement plan with senior management and the Board to support the Company’s leadership development plan.
Mr. Butler led the Marketing and Sales team to implement commercial strategies that enhanced the Company’s leadership position as a transportation and logistics provider. Mr. Butler led the deployment of the commercial strategy, ensuring the team was focused, coordinated, and effective at developing new business and increasing overall customer satisfaction. Despite significant economic and market headwinds during the year, these efforts resulted in profitable volume growth in 2 of the 6 business areas. Under Mr. Butler's leadership, his team achieved core price growth of $325 million in 2016, and generated over $1.6 billion in business development revenue by winning new and growing existing business. In collaboration with multiple departments, Mr. Butler and his team led resource productivity improvements across the network, which included the new G55 and Zero initiative. He led the Company in creating customer value by expanding services, launching new services, and expanding commercial facilities,
resulting in more than 311 industrial development projects. Mr. Butler and his team leveraged our subsidiaries and interline business to drive growth, extend reach, and improve supply chain logistics. Customers acknowledged these efforts by awarding the Company with strong customer satisfaction scores and multiple customer awards.
Since joining the Company in mid-2016, Ms. Ferguson has led the Law Department’s continuing efforts to meet the challenges posed by increasingly complex litigation, regulatory matters and the changing political landscape. Ms. Ferguson and the Law team successfully resolved significant litigation matters, including favorable decisions on notable labor and commercial regulatory matters pending before federal district courts, federal circuit courts of appeals and the U.S. Department of Transportation’s Surface Transportation Board. In support of the Company’s G55 and Zero productivity initiative, the Law Department continued to pursue targeted initiatives to reduce litigation and associated costs along with driving efficiencies and prevention efforts in areas such as safety, regulatory, risk management, environmental and ethics. Ms. Ferguson and the Law team provided legal counsel and leadership on corporate and real estate transactions critical to the success of the Company’s business and strategic plans. Under Ms. Ferguson's leadership, the Law team also continued to lead compliance and risk-reduction initiatives across a wide range of Company activities, protecting Company and shareholder interests.
Ms. Duren served two roles for the Company, as Corporate Secretary and as Executive Vice President and Chief Administrative Officer overseeing the Company’s Human Resources, Strategic Planning and Executive Services teams. As Corporate Secretary, Ms. Duren led activities designed to maintain the Company’s continued adherence to the highest standards of corporate governance by fostering strong Board communication and adherence to the Company’s Corporate Governance Guidelines and Policies. In particular, Ms. Duren managed the relationship between the Company and the Board and ensured that Board materials and meeting agendas appropriately considered issues identified as priorities by the Board and the Company’s senior leadership, including strategic planning, risk management, recent leadership transitions and succession planning. Ms. Duren coordinated the Company’s director search efforts to include more diverse candidates in the composition of the Board. Under her leadership as Executive Vice President and Chief Administrative Officer, Ms. Duren led the continued development of a robust strategic planning process. Ms. Duren has strengthened the Company’s strategic planning process focusing on key strategic topics, including global trade flows, energy outlook, demographic changes and migration, regulation and the competitive landscape, along with certain aspects of the G55 and Zero productivity initiative. In her oversight of the Company’s Human Resources team, Ms. Duren led the development of an all-employee engagement survey, which provided valuable insight and action plans for continued organizational growth. Under Ms. Duren’s guidance, the Company has continued to attract, develop and engage quality employees that led to increasing diversity as well as enhancing employee development and leadership. Ms. Duren also worked to preserve and enhance the Company’s Heritage assets to ensure value creation now and in the future.
Base Salary The CEO reviews base salaries and prior year performance and accomplishments for the other NEOs and recommends a base salary for the coming year for each. The Committee considers and evaluates these base salary recommendations. Among many considerations, the Committee primarily considers:reviews: (i) the executive’s position and responsibility in the organization, (ii) the executive’s experience and expertise, (iii) Company performance, (iv) individual accomplishments and job performance during the year, (v) Peer Group pay data, (vi) internal benchmarking relative to the Company’s pay structure, and (vii) current salary. In making salary recommendations to the Board of Directors, the Committee exercises subjective judgment in evaluating allmany factors andbut applies no specific weights to the above factors.any factor. The Committee, alone, with input from its compensation consultant, and the Board’s review of CEO performance, assesses and determines the base salary of the CEO for subsequent Board approval. In February 2016,2019 and 2020, the Committee reviewed and consideredeach of our NEO’s base salary. Upon review of competitive market data, including our Peer Group, the achievementCommittee approved the salary increases shown below. Lance M. Fritz | | | $1,150,000 | | | 2.2% | | | $1,175,000 | | | 25P-50P | | | 2.1% | | | $1,200,000 | Vincenzo J. Vena | | | (1) | | | — | | | 600,000 | | | Below 25P | | | 3.3% | | | 620,000 | Robert M. Knight, Jr. | | | 604,000 | | | 2.5% | | | 619,000 | | | 25P-50P | | | 0.0% | | | (2) | Rhonda S. Ferguson | | | 462,000 | | | 5.0% | | | 485,000 | | | Below 25P | | | 3.1% | | | 500,000 | Elizabeth F. Whited | | | 455,000 | | | 2.0% | | | 464,000 | | | Below 25P | | | 3.0% | | | 478,000 |
(1)
| Mr. Vena was elected on January 14, 2019. |
(2)
| Mr. Knight retired on December 31, 2019. |
2019 Annual Incentive Plan Eighty percent (80%) of the target annual incentive cash bonuses paid to executives, including the NEOs, are based on the attainment of pre-established objective Company financial performance goals, and the remainder (20%) is based on the Company’s performance against business objectives for the prior year. As a result of Companyand individual executive performance in 2015, therekey areas such as safety, customer service, resource productivity, maximized franchise, innovation and employee engagement. The financial performance goals were based on operating income (40%) and operating ratio (40%), which are key performance measures in the rail industry. If the minimum performance thresholds for both operating income and operating ratio are not achieved, then no salary increases recommended exceptannual incentive cash bonus is paid to executives. For performance that exceeds target levels, the annual incentive plan payout is capped at 200% of target.  When determining individual annual incentive bonus targets for Mr. Scott. Mr. Scott received a salary increase for 2016 in
order to account for his level of duties and responsibility and to more closely align his salary with his peers.
2015/2016 Salary Versus Peer Group
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name | | 2015 Salary | | Increase
for 2016 | | 2016 Salary | | vs. Peer
Group | | Increase
for 2017 | | 2017 Salary | Lance M. Fritz | | $ | 1,000,000 | | 0% | | | $ | 1,000,000 | | Below 25P | | 10% | | | $ | 1,100,000 | Robert M. Knight, Jr. | | | 575,000 | | 0% | | | | 575,000 | | 25P - 50P | | 2% | | | | 589,000 | Cameron A. Scott | | | 425,000 | | 9% | | | | 464,000 | | Below 25P | | 7% | | | | 496,000 | Eric L. Butler | | | 485,000 | | 0% | | | | 485,000 | | Below 25P | | 2% | | | | 497,000 | Rhonda S. Ferguson (1) | | | -- | | -- | | | | 400,000 | | Below 25P | | 10% | | | | 440,000 | Diane K. Duren (2) | | | 485,000 | | 0% | | | | 485,000 | | Below 25P | | 0% | | | | 485,000 |
__________________
| (1)
| | Ms. Ferguson was elected Executive Vice President and Chief Legal Officer of the Company on July 1, 2016, and received six months of her 2016 salary.
|
| (2)
| | Ms. Duren retired on February 28, 2017.
|
__________________
Annual Cash Bonus
Annual cash bonuses link a significant portioneach of the executive’sNEOs, the Committee generally targeted the 50th percentile of Target Total Cash Compensation. In light of Mr. Knight’s contributions and performance, the Committee recommended his annual incentive bonus target be set above the 75th percentile of our Peer Group. These individual annual incentive bonus targets for each of the NEOs were approved by the Committee and then recommended to the Board and approved.
TABLE OF CONTENTS Elements of Our Executive Compensation Program
2019 Target Total Cash Compensation to specific annualVersus Peer Group Lance M. Fritz | | | $1,175,000 | | | $2,200,000 | | | $3,375,000 | | | 50P - 75P | Vincenzo J. Vena(1) | | | 600,000 | | | 750,000 | | | 1,350,000 | | | 25P - 50P | Robert M. Knight, Jr.(2) | | | 619,000 | | | 1,275,000 | | | 1,894,000 | | | Above 75P | Rhonda S. Ferguson | | | 485,000 | | | 750,000 | | | 1,235,000 | | | 25P - 50P | Elizabeth F. Whited | | | 464,000 | | | 750,000 | | | 1,214,000 | | | 25P - 50P |
(1)
| Mr. Vena was elected on January 14, 2019. |
(2)
| Mr. Knight retired on December 31, 2019. |
Annual incentive compensation supports the Compensation Committee’s pay-for-performance philosophy and further aligns individual goals with Company results and also to individual contributions to Company performance. We do not establish a target performance formula for any of our executives, includinggoals as set forth in the NEOs. Although we communicate specific business objectives to the Company as a whole based on theCompany’s annual operating plan developed by management and presented to the Board, these business objectives do not exclusively determine executive bonuses. Instead,plan. For 2019, the Committee uses these business objectivesselected Operating Income and Operating Ratio as the key financial metrics to determine an overall funding level without using formulas or assigning specific weight to any one objective.focus on both absolute and relative operating performance. The Committee established this year’s funding level by considering competitive compensationtables below display the respective weightings of the relevant performance measures and the Company’s success in achieving its business objectives, as well as other qualitative factors. The Committee determines individual bonus awardsaggregate actual performance for each NEO on a subjective basis, taking into account Company and individual performance. The Committee believes this is an effective way to reinforce the Company’s pay-for-performance philosophy, as annual bonuses are based upon (i) the Company’s performance and (ii) the individual executive’s performance during the period. In prior years, this subjective process has resulted in the annual cash bonus ranging from zero for all NEOs to an amount that significantly exceeds the executive’s base salary.The following graph sets forth the amount of average annual cash bonus reported for the NEOs for the applicable performance year versus the Company’s EPS as reported in accordance with GAAP.
Maximum – 200% Payout | | | $10,792 | | | 59.0% | | | 200% | Target – 100% Payout | | | 9,384 | | | 60.5% | | | 100% | Threshold – 50% Payout | | | 8,915 | | | 61.0% | | | 50% | 2019 Actual* | | | 8,738** | | | 60.6%** | | | 25% | Performance Achieved – Weighted Average Payout = 41% | | | 0% | | | 90% | | | 25% |
*
| (1)
| | Represents the averageThe 2019 annual cash bonus reportedincentive plan design includes an adjustment to operating ratio for the NEOsreported fuel expense and fuel revenue from the actual price to the price assumed in the Board approved financial plan.
|
**
| Special transactions or events, such as weather or accounting special charges, that impact operating income by $50 million or more in any year are subject to the Compensation and Benefit’s Committee’s approval for inclusion or exclusion in the adjusted Operating Ratio and Operating Income calculations. In 2019, the Committee made an adjustment to the 2019 Annual Incentive Plan to exclude the effect of the extraordinary weather events. The Committee believes that the adjustment appropriately recognizes the significant productivity and operational improvements management achieved during 2019 through the implementation of Unified Plan 2020. The actual results as reported in the 2019 Annual Report on Form 10-K for the applicable Performance Year.year ended December 31, 2019, for operating income was $8.6 billion, and for operating ratio was 60.6%. |
Lance M. Fritz | | | $2,200,000 | | | $0 | | | 792,000 | | | 110,000 | | | $902,000 | | | 41% | Vincenzo J. Vena | | | 750,000 | | | — | | | — | | | — | | | 1,125,000 | | | 150%* | Robert M. Knight, Jr. | | | 1,275,000 | | | 0 | | | 459,000 | | | 64,000 | | | 523,000 | | | 41% | Rhonda S. Ferguson | | | 750,000 | | | 0 | | | 270,000 | | | 38,000 | | | 308,000 | | | 41% | Elizabeth F. Whited | | | 750,000 | | | 0 | | | 270,000 | | | 38,000 | | | 308,000 | | | 41% |
*
| The Compensation and Benefits Committee reviewed the critical role and accomplishments of Mr. Vena in the implementation of Unified Plan 2020. Based on Mr. Vena’s performance in leading the Company’s achievement of an historic operating ratio of 60.6%, the Committee recommended, and the Board approved, payment to Mr. Vena of an annual incentive bonus for 2019 of $1,125,000 at 150% of target. |
| (2)
| | Diluted EPS is net income divided by our weighted average common stock outstanding, assuming dilution. Years 2009-2014 have been adjusted for the Company’s June 6, 2014, two-for-one stock split.
|
| (3)
| | For Performance Years 2012, 2013 and 2014, the Company had a separate chairman and CEO, who each received bonuses. The lighter shaded area represents the difference of how the bonus received by the Chairman contributed to the average.
|
50
__________________TABLE OF CONTENTS
When determining individual annual bonuses, the Committee considers the individual performance
Elements of the NEO as well as competitive compensationOur Executive Compensation Program
In 2018, we revised our Company strategy and focused on its rollout and implementation in 2019. The six value tracks used in our previous strategy live on in our strategy wheel, providing employees a clearer picture of the Company’s Peer Group. Depending primarilystrategic intent. The individual strategic elements work together to turn the wheel, driving Union Pacific forward: Safest and Most Reliable Freight Rail Products and Services. Everything we do must be done safely, or we don’t do it – that’s our promise to each other. We also must be reliable, so customers trust we’ll deliver on our promises. Unified Plan 2020, our new operating plan, accomplishes this by creating an achievable transportation plan customers can count on. Highly Efficient Operations. Driving down cost and removing waste helps us to be more competitive, enabling us to enter new markets. The faster we turn our assets – whether it’s a locomotive or a freight car – the more we can do with our investment. Industry-Leading Customer Experience. Continuously improving the customer journey provides higher levels of service and better transparency into customers’ transportation supply chains, helping them win in their markets. Secure Appropriate Business. Selling products that fit our business model versus developing boutique services builds a consistent, balanced network. We will continue finding solutions customers value, but they also must optimize our network. Best-in-Industry Cash Returns. Each employee plays a role, from getting price on a contract to finding efficiencies in everyday work. This gives shareholders confidence in our ability to create financial returns, allowing us to invest in and grow our business. Optimal Investment. Every dollar spent must drive safe, reliable and efficient results. We invest in areas customers are willing to pay for, whether it’s improving car cycle time, updating track infrastructure on vital corridors or developing digital tools that help them plan their business. Proud and Engaged Workforce. The wheel turns when our employees work toward the same goals. It takes the best employees in the industry to become the best freight railroad in North America – we have that, and there is nothing stopping us from achieving our vision. As we transform our railroad into the safest, most reliable and most efficient in North America, our values will continue guiding us: Our passion for performance will help us win; our high ethical standards will ensure we don’t win at the expense of any one stakeholder; and teamwork will make sure we win together. TABLE OF CONTENTS Elements of Our Executive Compensation Program
Based on the positionCommittee’s evaluation of the NEO, Company-level performanceCompany’s achievement of its business objectives and individual executive performance in the key areas identified in our strategy wheel above, the Committee exercised its discretion to award this process generally results in between half and three-quarterscomponent at 25% of an executive’s potential cash compensation being at-risk. At the end of the year, the CEO reviews corporate, operational and individual accomplishments and job performancetarget for the other NEOs (which, for 2016 are as described above under the Named Executive Officer Accomplishments section), and providesOfficers, excluding Mr. Vena. Among other factors, the Committee an annual cash bonus recommendation for each NEO other than himself. Thealso considered the Company’s financial performance as compared to the Company’s peer group measured by growth in total revenue, operating income, diluted earnings per share from continuing operations (EPS) and ROIC. In addition, the Committee considers these recommendations as part of its subjective assessment of each NEO, and may make adjustments, in its discretion, applying no specific weight to any one factor. The Committee,compared the Company’s total shareholder return with input from its consultant and the reviewthose of the evaluations of the CEO by the independent, non-management members of the Board, alone assesses and determines the bonus for the CEO. The annual bonuses for all NEOs are then recommended to the Board for approval.2016 Total Cash Compensation Versus Peer Group
| | | | | | | | | | | | | | | | | | | | | | | | Name | | 2016 Bonus | | 2016 Salary | | Total 2016 Cash Comp | | vs. Peer Group | Lance M. Fritz | | $ | 1,850,000 | | $ | 1,000,000 | | $ | 2,850,000 | | 25P - 50P | Robert M. Knight, Jr. | | | 1,275,000 | | | 575,000 | | | 1,850,000 | | Above 75P | Cameron A. Scott | | | 815,000 | | | 464,000 | | | 1,279,000 | | 25P - 50P | Eric L. Butler | | | 780,000 | | | 485,000 | | | 1,265,000 | | 25P - 50P | Rhonda S. Ferguson (1) | | | 420,000 | | | 200,000 | | | 620,000 | | Below 25P | Diane K. Duren (2) | | | 770,000 | | | 485,000 | | | 1,255,000 | | 50P - 75P |
__________________
| (1)
| | Ms. Ferguson was elected Executive Vice President and Chief Legal Officer of the Company on July 1, 2016, and received six months of her 2016 salary of $400,000. In addition, Ms. Ferguson received a $300,000 signing bonus.
|
Group. | (2)
| | Ms. Duren retired on February 28, 2017.
|
__________________
Long-Term Equity Incentive Compensation The components of long-term incentive compensation are: | ·
| | performance
Performance Stock Units
Performance stock units which are payable based on the attainment and certification of average annual ROIC for a three-year period and a relative operating Income Growth Modifier (+/- 25% of the award earned based on the ROIC overachieved) compared to the S&P 500 Industrials Index. | | | | | | | | Stock Options
Stock option awards become fully exercisable only if the executive remains an employee through a three-year period, subject to an Operating Income Growth modifier, and vest at the endvesting period. One-third of the three-year performance period; |
| ·
| | retention stock units, which vest in full after a four-year period; and
|
| ·
| | stock options, with an exercise price based on the closing price of our stock on the date of grant (for a discussion of Companyeach stock option grant practices, see page 40) and that vest one-thirdvests each year over athe three-year vesting period.
|
The Committee generally seeks to award long-term incentives with grant date fair values that range between 50% and 70%75% of each NEO’s Target Total Direct Compensation making it the largest element of their Total Direct Compensation. In setting the size of long-term incentive awards, the Committee considers the individual performance of the NEO as well as the Target Total Direct Compensation opportunities of similarly situated executives of the Company’s Peer Group. The CEO recommends to the Committee an aggregate value of long-term incentive awards for each of the NEOs (other than himself, a determination reserved for the Committee, taking into account advice from its compensation consultant and the Board’s evaluation of the CEO). The Committee considers these recommendations and determines the final amounts awarded to each NEO. The Committee may vary the mix of each component of equity compensation to some degree depending on Company and individual performance and retention risk regarding an executive. The long-term incentive awards granted by the Committee in February 20162019 reflected the Committee’s desire to provide long-term incentive compensation to ensure the continued efforts of the NEOs to meet the long-term goals and strategic plans of the Company and to align this element of their compensation with the long-term interests of the Company’s shareholders. The majority of our long-term incentive compensation is performance-based. The annual long-term incentive program grants for the NEOs in 20162019 included the following targeted mix of equity compensation based on grant date fair value: 40%60% performance stock units, 20% retention stock units and 40% stock options. The long-term incentive awards for the NEOs and a description of the terms of these awards are set forth on pages 5760 and 5861 in the Grants of Plan-Based Awards in Fiscal Year 20162019 Table and accompanying narrative discussion. In February 2016,2019, the Committee awarded the NEOs, other than Mr. Vena, performance stock units (PSUs) that are payable based on the attainment and certification of average annual ROIC, as adjusted, for a three-year period (Performance Period) and also added a relative Operating Income Growth (OIG) modifier (+/-25% of the award earned based on the ROIC achieved) compared to the S&P 500 Industrials Index.Index, which can increase or decrease payment by up to 25% of the stock units earned under the ROIC performance criteria. Payout of the 2019 performance stock units will continue to be capped at 200% of the target number of stock units. The threshold, target and maximum number of performance stock units that may be earned by each NEO is set forth on page 60 in the Grants of Plan-Based Awards in Fiscal Year 2019 Table.TABLE OF CONTENTS Elements of Our Executive Compensation Program
We define ROIC as net operating profit after taxes, divided by average invested capital. The Committee may adjust ROIC to reflect the effect of special or strategic transactions or events, such as excluding the impact of significant gains on sales of real estate, tax adjustments, accounting charges, or reclassifications. The Committee selected ROIC because it is one of our key measurements that indicateindicates success in making long-term capital investment decisions that improve financial and operational performance and increase shareholder value. In addition, the Board emphasizes ROIC as a key focus area for the Company. The table below identifies the ROIC performance criteria forare set with rigorous analysis of current and projected business levels and changes in the outstanding performance stock unit grants:economic environment that may impact the Company’s ability to achieve levels of return reported in previous periods. 2017 – 2019 | | | 11.0% | | | 12.5% | | | 14.0% | 2018 – 2020 | | | 13.8% | | | 14.8% | | | 15.8% | 2019 – 2021 | | | 15.1% | | | 16.8% | | | 18.1% |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Performance Period | | ROIC
Threshold | | ROIC
Target | | ROIC
Maximum | 2014 – 2016 | | 12.0 | % | | 14.0 | % | | 15.0 | % | 2015 – 2017 | | 13.0 | % | | 15.5 | % | | 16.3 | % | 2016 – 2018 | | 11.0 | % | | 13.0 | % | | 14.0 | % |
The performance stock units granted in 2017, 2018 and 2019 generally vest three years from the date of grant subject to the achievement of the ROIC performance criteria. Performance stock units that are earned during any year Upon completion of the Performance Period will be paid out in shares of our common stock at the end of the Performance Period and are not subject to any further performance criteria. At the end of year one of the Performance Period, the executive may earn up to one-third of the target number of performance stock units granted to him or her based on the first year of ROIC performance achieved. At the end of year two, the executive may earn additional performance stock units up to a total of two-thirds of the target number of performance stock units granted to such executive based on the average of the first two years of ROIC performance achieved.During year three of the Performance Period, the executive may earn up to two times the target number of performance stock units (less any units earned in years one and two) granted to that executive based on the average annual ROIC performance achieved over all three years of the program. In addition, to ROIC, the actual number of stock units earned inat the third yearend of the Performance Period will be adjusted up or down by a percentage not to exceed 25% (subject to a maximum of two times the target number of stock units granted) based on the Company’s Operating Income Growth (“OIG”)(OIG) over the Performance Period as compared to the OIG of the companies in S&P 500 Industrials Index.
If the Company does not meet the threshold ROIC level in any year,for the three-year performance period, executives will not earn any performance stock units in that year. The Company will pay or accrue dividend equivalents between the time performance stock units are earned and the payment date.units. The Company does not pay dividend equivalents on unearned performance stock units. The threshold, With respect to performance stock units granted in 2017, executives could earn up to one-third of the target and maximum number of performance stock units that may begranted to him or her based on each of the first two years of ROIC performance achieved, and dividend equivalents were paid on the earned by each NEO is set forth on page 57 inperformance stock units. As described above, this annual vesting feature and the Grants of Plan-Based Awards in Fiscal Year 2016 table.Forassociated dividend equivalents were removed for the performance stock units granted since 2006, thein 2018 and 2019.
TABLE OF CONTENTS Elements of Our Executive Compensation Program
The Committee has certified the ROIC results as shown in the graph below.
below for performance years 2010-2019. *
| See item 7 of Union Pacific’s Annual Report on Form 10-K for the year ended December 31, 2019, for reconciliations to U.S. GAAP. For 2017, the Committee’s ROIC certification included adjustments for the impact of the Company’s workforce reduction program. For 2017-2019, the Committee’s ROIC certification included adjustments for the benefits of the Tax Act. |
In February 2020, the PSUs granted for the 2017-19 performance period were settled at an overall payout of 200% of target, based on performance over the three-year performance period against pre-established goals for ROIC. Our relative OIG was in the 58th percentile so the modifier had no effect on the final payout. Performance stock units earned under each of the 2014, 2015 and 20162017 grants for each of the NEOs are included as Earned Performance Stock Units in the Stock Awards column of the Outstanding Equity Awards at 20162019 Fiscal Year-End Table on page 59. 62.The table below summarizes how the performance stock units granted in 2014, 2015 and 20162017 were earned, to date. | | | | | | | | | | | | | | | | | | Performance Period | | Average
ROIC | | Percent of Target
Achieved to Date | | Percent of Target Earned (1) | 2014 – 2016 | | 14.4 | % | | +40 | % | | 140% of the target number of stock units | 2015 – 2017 | | 13.5 | % | | (40) | % | | 60% of 2/3 of the target number of stock units | 2016 – 2018 | | 12.7 | % | | (10) | % | | 90% of 1/3 of the target number of stock units |
__________________
| (1)
| | Years one and two of each Performance Period are capped at 1/3 and 2/3, respectively, ofand how the target number of stock units granted and are subject to continued employment throughout the
|
Performance Period. Amounts earned at the conclusion of the Performance Period may be different depending on future years’ performance.
|
__________________
The Committee awarded the NEOs performance stock units againgranted in 2017 with new ROIC performance targets2018 and subject to a relative2019 are tracking as of the end of 2019.
2017 – 2019 | | | 14.1% | | | 200% | | | 200% of the target number of stock units | 2018 – 2020 | | | 15.1% | | | 135% | | | No stock units earned until the end of the performance period | 2019 – 2021 | | | 15.0% | | | 0% | | | No stock units earned until the end of the performance period |
The table below shows the application of the OIG modifier based on the Company’s Operating Income Growth modifier, which can increase or decrease payment by up to percentile. 0% - 10% | | | -25% | 11% - 20% | | | -20% | 21% - 30% | | | -15% | 31% - 40% | | | -10% | 41% - 60% | | | No Effect | 61% - 70% | | | +10% | 71% - 80% | | | +15% | 81% - 90% | | | +20% | 91% - 100% | | | +25% |
Mr. Vena’s long-term equity incentive compensation is described on page 46 of the stock units earned. The 2017 Long Term Plan will continue to be capped at 200%.this Compensation Discussion and Analysis. TABLE OF CONTENTS Retention Stock Units
Retention stock awards typically provide for vesting in full after a four-year period
Elements of continued service. Executives holding retention stock units have the right to receive a cash payment equivalent to dividends in such amounts as dividends are paid on our common stock. The Company delays payment of retention stock units to a NEO who is also a “covered employee” for purposes of Section 162(m) of the Internal Revenue Code (Code) if the Company anticipates that such payment, if made, would not be deductible due to the application of Section 162(m) of the Code. In that case, payment is delayed until the first taxable year in which the Company anticipates its tax deduction would no longer be limited by Section 162(m) of the Code.Stock Options
Stock option awards provide that stock options become fully exercisable only if the executive remains an employee through a three-year vesting period. One-third of each stock option grant vests each year over the three-year vesting period.
2017 Long-Term Incentive Awards
Our Executive Compensation Program
2020 Compensation Decisions In February 2017,2020, the Compensation and Benefits Committee reviewed and consideredapproved the Company’s safety, service,following compensation changes for the NEOs and financial performance discussed above under the section captioned 2016 FinancialBoard of Directors reviewed and Operating Performance Achievements, as the primary factor in determining each NEO’s annual long-term incentive awards. In addition, the Committee took into consideration each NEO’s responsibilities, performanceapproved Mr. Fritz’s compensation. The following table summarizes adjustments made to CEO and accomplishments during the year, tenure, and award levels relative to the Peer Group as discussed above in the subjective assessment of eachother NEO under the Named Executive Officer Accomplishments section. The Committee awarded each NEO the long-term incentive awards as shown in the table below.For long-term incentive awards beginning in 2017, the Committee reevaluated the equity compensation mix making the majority of our long-term incentive compensation performance-based. The Committee awarded each NEO a long-term incentive award, based on grant date fair value, consisting of 50% performance stock units, 40% stock options and 10% retention stock units.
2017 Long-Term Incentive Awards
for 2020. Lance M. Fritz | | | 2.1% | | | No change | | | +$750,000 | Vincenzo J. Vena (1) | | | 3.3% | | | +$100,000 | | | +$4,000,000 | Robert M. Knight, Jr. (2) | | | 0.0% | | | N/A | | | N/A | Rhonda S. Ferguson | | | 3.1% | | | No change | | | No change | Elizabeth F. Whited | | | 3.0% | | | No change | | | No change |
(1)
| On March 19, 2020, the Compensation and Benefits Committee recommended, and the Board approved, a $4,000,000 grant subject to vesting over two years, consisting of 40% stock options and 60% performance stock units. |
(2)
| Mr. Knight retired on December 31, 2019. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Grant | | | | Retention | | | | | | | | | Date Fair | | Stock | | Stock | | Performance Stock Units | | | Value of | | Options | | Units | | | | Target | | | | | 2017 | | (40% of | | (10% of | | | | (50% of | | | Name | | LTI Award | | LTI Award) | | LTI Award) | | Threshold | | LTI Award) | | Maximum | Lance M. Fritz | | $ | 8,000,000 | | 175,899 | | 7,456 | | 18,641 | | 37,281 | | 74,562 | Robert M. Knight, Jr. | | | 3,100,000 | | 68,163 | | 2,890 | | 7,224 | | 14,448 | | 28,896 | Cameron A. Scott | | | 1,600,000 | | 35,181 | | 1,492 | | 3,729 | | 7,458 | | 14,916 | Eric L. Butler | | | 1,600,000 | | 35,181 | | 1,492 | | 3,729 | | 7,458 | | 14,916 | Rhonda S. Ferguson | | | 1,000,000 | | 21,990 | | 932 | | 2,331 | | 4,662 | | 9,324 | Diane K. Duren (1) | | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 |
(1)Ms. Duren retired on February 28, 2017.
___________________
Other Compensation
Other Compensation
The Committee reviews perquisites periodically for both appropriateness and effectiveness. Key executives, including the NEOs, receive tax and financial counseling services and personal excess liability coverage. In 2016, the Committee eliminated the requirement for the CEO to use Company aircraft for all air travel and set a limitation for personal flights at $90,000 for the CEO and $45,000 for the other NEOs. Executives will pay for any personal flights beyond these limits. Income is imputed to the CEO and NEOs for personal travel below the limits withoutand tax gross-ups.gross-ups are not provided. All use of Company aircraft must be approved in advance by the CEO.CEO or a specifically authorized designate. The value of perquisites provided to the NEOs by the Company is not a significant portion of eachany of the NEOs’ compensation on an annual basis. Due to the relatively low cost to the Company of these perquisites, combined with the policy regarding use of Company aircraft, the Committee does not consider perquisites in its analyses of Total Direct Compensation for the CEO and the other NEOs. The Committee, pursuant to its charter, is responsible for oversight of our deferred compensation arrangements. Management and the Committee believe that deferred compensation arrangements are important benefits that contribute to the Company’s competitive compensation arrangements and help attract and retain executives. The Company’s deferred compensation programs allow for elective deferrals of (i) salary, (ii) bonus (iii) performance stock units, and (iv) retention stock units, which accrue earnings during the deferral period as described on page 65.68. These deferrals are not funded and there are no mechanisms in place (such as insurance or trusts) to protect the executives from any inability of the Company to pay these amounts in the future. More detailed descriptions of the features of our non-qualified deferred compensation plans begin on page 64.68. In addition to these non-qualified deferred compensation benefits, the Company allows its executives to participate in its tax qualified 401(k) plan on terms and conditions similar to the Company’s other employees. Pension Plan and Supplemental Pension Plan The Company sponsors a tax-qualified defined benefit Pension Plan and a non-qualified excess Supplemental Pension Plan. Management and the Committee believe that the defined benefit Pension Plan and the Supplemental Pension Plan (with respect to our executives, including the NEOs) provide employees with a competitive retirement benefit. The Company offers the Supplemental Pension Plan to allow executives to receive pension benefits for compensation and benefits that exceed government imposed limits applicable to TABLE OF CONTENTS Elements of Our Executive Compensation Program
defined benefit plans and to allow for the inclusion of compensation that has been deferred, which cannot be included as compensation under the defined benefit Pension Plan. Benefit amounts are based on the employee’s years of service, salary, bonus and age. More detailed descriptions of the Pension Plan and Supplemental Pension Plan are set forth on pages 6265 and 63. Ot66.
herOther Policies and Considerations
Change-in-Control Arrangements The NEOs do not have individual severance agreements or employment agreements with the Company. In November 2000, the Board adopted the Union Pacific Corporation Key Employee Continuity Plan (the Continuity Plan). The purpose of the Continuity Plan is to assure the smooth transition of management and effective operation of the Company in the event of a change-in-control by providing (i) sufficient economic security to allow key executives to focus on overall shareholder value without concern about personal financial interests and (ii) severance benefits in the event their employment with the Company is terminated within two years following a change-in-control.
The Continuity Plan provides severance benefits to certain senior level executives, including the NEOs, in the event (i) a change-in-control occurs and (ii) the covered executive is involuntarily terminated or constructively discharged within two years following the change-in-control. This two-step requirement will allow the new controlling party to retain certain executives and terminate others with the obligation to provide the benefits set forth in the Continuity Plan. Severance benefits are the same for all covered executives, except for the multiple used to determine thean executive’s lump-sum severance payment. The lump-sum severance payment is equal to three times the sum of base salary plus the average of the annual bonus payments earned in the three most recent calendar years for Mr. Fritz, and two times this sum for each of Messrs.Mr. Vena, Mr. Knight, Scott, Butler, Ms. Ferguson and Ms. Duren.Whited. Mr. Knight is no longer subject to severance benefits after December 31, 2019 due to his retirement. The Committee determined these multiples based upon competitive practices at the time the plan was adopted. At its February 2014 meeting, the Committee recommended, and the Board approved, an amendment of the Continuity Plan to remove the excise tax gross-up. As a result, none of the Company’s executives, including the NEOs, are eligible to receive any excise tax gross-up on any severance payment received under the Continuity Plan. In September 2003, the Board adopted the Union Pacific Corporation Policy Regarding Shareholder Approval of Future Severance Agreements (Severance Policy). Under this Severance Policy, the Company agreed not to enter into a future severance agreement with a senior executive that provides for benefits in an amount generally exceeding 2.99 times salary plus bonus unless such agreement is approved by a vote of our shareholders. Payments and certain severance benefits for the NEOs upon a change-in-control, as well as a description of the Continuity Plan are set forth on pages 6870 through 70. 74. Deductibility of Performance-BasedGrandfathered Compensation The
Due to the amendment to Section 162(m) of the Code noted above, compensation paid to covered employees in excess of $1 million will not be deductible unless it qualifies for transition relief available for certain arrangements in place on November 2, 2017 (“Grandfathered Compensation”). For Grandfathered Compensation intended to satisfy the requirements of Section 162(m) of the Code for performance based compensation, the Committee has, where it deemed appropriate, taken steps intended to preserve the deductibility of performance-basedsaid compensation to the CEO and certain executive officers. In order to allow for deductibility under Section 162(m) of the Code, annual bonus and performance stock unit awards are subject to operating income criteria (as defined under the programs) and, together with stock options, are granted under a plan that is intended to satisfy the requirements of Section 162(m) of the Code for performance-based compensation. In order to allow for tax deductibility of the annual cash bonus, the Company’s shareholder-approved bonus plan provides that the maximum amount payable to the CEO with respect to any year may not exceed 0.25% of Operating Income (as defined in the plan) for that fiscal year and may not exceed 0.15% of Operating Income for that fiscal year in the case of any other executive. However, because there are uncertainties as to the application and interpretation of regulations under Section 162(m) of the Code and the transition relief described above, it is possible that the Company’s deductions may be challenged or disallowed. Accordingly, there is no certainty that elements of compensationany Grandfathered Compensation discussed in this Proxy Statement will in fact be deductible by the Company. Further, the Committee retains discretion to award compensation that is not deductible under Section 162(m) of the Code. Non-performance-based compensation, such as salary, taxable perquisites and other taxable compensation for the CEO and other NEOs (excluding the CFO in accordance with Section 162(m) of the Code), is deductible up to $1.0 million in any year.Peer Gr
oup Companies and BenchmarkingTABLE OF CONTENTS The Committee benchmarks salary, Total Cash
Compensation and Total Direct Compensation for the NEOs against competitive market information. To assess competitive market information, theBenefits Committee looks primarily to pay data from the proxy statements of the Company’s Peer Group. The proxy information reviewed by the Committee consists of comparable data for the CEO and CFO positions and the next three highest paid individuals at each Peer Group company. The Committee also reviews relevant data provided by FW Cook, the Committee’s compensation consultant, for purposes of evaluating the compensation for the Chairman.As discussed above, the Committee generally seeks to establish base salaries below the median of the Peer Group, reflecting the Committee’s philosophy that a greater proportion of the cash component of the executives’ compensation should be incentive-based. The Committee generally targets a range
Report
around the median of the Peer Group for Total Cash Compensation and Total Direct Compensation. Then, if Company performance objectives are met, the Committee generally determines compensation within that range based upon relative and individual performance. Total Direct Compensation and Total Cash Compensation may be greater or less than targeted percentiles, depending upon whether and to what degree the Company achieves its business objectives (as described above). Other factors considered in setting compensation levels may include the individual performance of each NEO and his or her position relative to the Company’s current internal pay structure or changes in personnel or compensation at the Peer Group companies. In addition, the Committee particularly focuses on competitive pay for railroad executives within the Peer Group and the performance of other comparable railroads. In comparing the executive positions with comparable positions at companies within the Peer Group, the Committee and FW Cook review and consider any adjustments that may be required to account for significant differences in tenure or functional responsibilities.
In 2016, the Peer Group consisted of the following 17 companies listed below, which reflects one change from the Peer Group used in 2015. Time Warner Cable was removed from the Peer Group due to its acquisition by Charter Communications.
| | | | | 3M
| | Altria Group
| | Canadian National
| Canadian Pacific
| | CSX
| | Deere & Co.
| Du Pont (El) De Nemours
| | Exelon
| | FedEx
| General Dynamics
| | Halliburton
| | Honeywell International
| Medtronic
| | Norfolk Southern
| | Raytheon
| Southern Co.
| | UPS
| | |
The Committee selected this Peer Group with the assistance of its compensation consultant, FW Cook, after considering U.S. based public companies in the same Global Industry Classification System (GICS) Industry Group with comparable revenues and market capitalization and other U.S.-based public companies with comparable (i) revenues, (ii) operating income, (iii) total assets, (iv) market capitalization and (v) employees, while excluding pharmaceuticals, high-tech, insurance and financial services companies. These comparative financial measures and the number of employees for the 2016 Peer Group are summarized below.
| | | | | | | | | | | | | | Peer Group | | Union Pacific | | | Median | | 75th Percentile | | Company Data | | Percentile Rank | Net Revenue | | $ | 24,594 | | $ | 31,353 | | $ | 19,941 | | 38th | Operating Income | | $ | 3,955 | | $ | 5,467 | | $ | 7,272 | | 94th | Total Assets | | $ | 39,964 | | $ | 54,146 | | $ | 55,718 | | 78th | Market Capitalization | | $ | 45,381 | | $ | 85,837 | | $ | 74,421 | | 72nd | Employees | | | 50,000 | | | 98,017 | | | 42,919 | | 43rd |
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Dollars in millions. Median/Percentiles determined by FW Cook using Standard & Poor’s Capital IQ Service, Form 8-K filings and Peer Group company information. The financial information provided above is derived from data as of fiscal year ending December 31, 2016, except for Southern Co. (quarter ending September 2016), Deere & Co. and Medtronic (quarter ending October 2016) and FedEx (quarter ending November 2016). Market Capitalization is a 12-month average as of December 31, 2016.
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Compensation Committee Report
The Committee reviewed and discussed with management the CD&A and, based on that review and discussion, the Committee recommended to the Board of Directors that the CD&A be included in the Company’s 20172020 Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2016. 2019. The Compensation and Benefits Committee Erroll B. Davis, Jr., Chair
Andrew H. Card, Jr.
William J. DeLaney
David B. Dillon
Steven R. Rogel
Bhavesh V. Patel
Jose H. Villarreal
2014 Sto
ck SplitTABLE OF CONTENTS On June 6, 2014, we completed a two-for-one stock split, effected in the form of a 100% stock dividend. The stock split entitled all shareholders of record at the close of business on May 27, 2014 to receive one additional share of our common stock for each share of common stock held on that date. The outstanding stock and option awards shown in the tables that follow are adjusted to reflect the stock split.
Summary CompensationCompensation Table
The following table provides a summary of compensation awarded to, earned by or paid to the NEOs, including salary, bonus, the value of stock awards and option awards and other compensation for 2016, 20152019, 2018 and 2014. 2017. | | | | | | | | | | | | | | | | | | | | | | | | Name and
Principal
Position | | Year | | Salary | | Bonus | | Stock
Awards
(a) | | Option
Awards
(b) | | Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings (c) | | All Other
Compensation
(d) | | Total
Compensation
(e) | Lance M. Fritz | | 2016 | | $ | 1,000,000 | | $ | 1,850,000 | | $ | 4,200,120 | | $ | 2,800,032 | | $ | 1,686,329 | | $ | 106,656 | | $ | 11,643,138 | Chairman, | | 2015 | | | 966,000 | | | 2,000,000 | | | 3,600,488 | | | 2,400,008 | | | 980,911 | | | 139,220 | | | 10,086,627 | President & CEO | | 2014 | | | 629,643 | | | 1,750,000 | | | 1,500,428 | | | 1,000,083 | | | 1,429,723 | | | 29,551 | | | 6,339,428 | Robert M. Knight, Jr. | | 2016 | | | 575,000 | | | 1,275,000 | | | 1,800,095 | | | 1,200,024 | | | 957,309 | | | 110,813 | | | 5,918,240 | EVP & Chief | | 2015 | | | 566,167 | | | 1,350,000 | | | 1,860,195 | | | 1,240,037 | | | 640,555 | | | 107,934 | | | 5,764,888 | Financial Officer | | 2014 | | | 519,500 | | | 1,600,000 | | | 5,680,192 | | | 1,120,055 | | | 3,331,030 | | | 137,835 | | | 12,388,612 | Cameron Scott | | 2016 | | | 457,500 | | | 815,000 | | | 900,198 | | | 600,029 | | | 1,211,403 | | | 17,901 | | | 4,002,031 | EVP & Chief | | 2015 | | | 416,667 | | | 860,000 | | | 540,172 | | | 360,058 | | | 735,600 | | | 8,031 | | | 2,920,528 | Operating Officer | | 2014 | | | 342,610 | | | 696,000 | | | 306,460 | | | 204,109 | | | 859,571 | | | 8,229 | | | 2,416,979 | Eric L. Butler | | 2016 | | | 485,000 | | | 780,000 | | | 900,198 | | | 600,029 | | | 975,852 | | | 25,037 | | | 3,766,116 | EVP & Chief | | 2015 | | | 477,500 | | | 830,000 | | | 930,343 | | | 620,052 | | | 1,282,151 | | | 15,250 | | | 4,155,296 | Administrative Officer (f) | | 2014 | | | 435,333 | | | 975,000 | | | 4,750,305 | | | 500,102 | | | 1,756,128 | | | 24,760 | | | 8,441,628 | Rhonda S. Ferguson | | 2016 | | | 200,000 | | | 720,000 | | | 400,017 | | | 0 | | | 0 | | | 59,746 | | | 1,379,763 | EVP & Chief | | 2015 | | | -- | | | -- | | | -- | | | -- | | | -- | | | -- | | | -- | Legal Officer (g) | | 2014 | | | -- | | | -- | | | -- | | | -- | | | -- | | | -- | | | -- | Diane K. Duren | | 2016 | | | 485,000 | | | 770,000 | | | 900,198 | | | 600,029 | | | 935,141 | | | 19,980 | | | 3,710,348 | Retired SVP & | | 2015 | | | 477,500 | | | 790,000 | | | 930,343 | | | 620,052 | | | 902,675 | | | 22,763 | | | 3,743,333 | Corporate Secretary (h) | | 2014 | | | 435,333 | | | 925,000 | | | 4,750,305 | | | 500,102 | | | 1,922,640 | | | 38,024 | | | 8,571,404 |
Lance M. Fritz
Chairman, President
& CEO | | | 2019 | | | $1,170,835 | | | $0 | | | $5,850,127 | | | $3,900,028 | | | $902,000 | | | $3,053,874 | | | $141,536 | | | $15,018,400 | | | 2018 | | | 1,141,667 | | | 0 | | | 5,850,190 | | | 3,900,049 | | | 1,781,000 | | | 1,098,926 | | | 115,121 | | | 13,886,920 | | | 2017 | | | 1,083,333 | | | 2,100,000 | | | 4,800,280 | | | 3,200,000 | | | 0 | | | 2,491,149 | | | 1 19,468 | | | 13,794,237 | Vincenzo J. Vena
Chief Operating Officer (f) | | | 2019 | | | 579,032 | | | 0 | | | 2,400,068 | | | 1,599,991 | | | 1,125,000 | | | 0 | | | 96,936 | | | 5,801,027 | Robert M. Knight, Jr.
Retired EVP & Chief
Financial Officer | | | 2019 | | | 616,500 | | | 0 | | | 2,040,144 | | | 1,360,021 | | | 523,000 | | | 3,031,325 | | | 47,697 | | | 7,618,687 | | | 2018 | | | 601,500 | | | 0 | | | 2,040,337 | | | 1,360,034 | | | 1,033,000 | | | —(e) | | | 35,539 | | | 5,070,410 | | | 2017 | | | 586,667 | | | 1,500,000 | | | 1,860,367 | | | 1,240,041 | | | 0 | | | 2,044,815 | | | 65,779 | | | 7,297,669 | Rhonda S. Ferguson
EVP Chief Legal
Officer & Corp
Secretary | | | 2019 | | | 481,167 | | | 0 | | | 900,106 | | | 600,060 | | | 308,000 | | | 0 | | | 25,924 | | | 2,315,257 | | | 2018 | | | 458,333 | | | 0 | | | 900,365 | | | 600,048 | | | 608,000 | | | 0 | | | 51,175 | | | 2,617,921 | | | 2017 | | | 433,333 | | | 825,000 | | | 600,236 | | | 400,048 | | | 0 | | | 0 | | | 31,822 | | | 2,290,439 | Elizabeth F. Whited
EVP & Chief Human
Resources Officer | | | 2019 | | | 462,500 | | | 0 | | | 900,106 | | | 600,060 | | | 308,000 | | | 1,994,999 | | | 16,586 | | | 4,282,251 | | | 2018 | | | 438,958 | | | 0 | | | 900,365 | | | 600,048 | | | 608,000 | | | 653,157 | | | 19,007 | | | 3,219,535 | | | 2017 | | | 396,500 | | | 775,000 | | | 450,016 | | | 300,009 | | | 0 | | | 683,617 | | | 15,922 | | | 2,621,064 |
__________________
(a)
| (a)
| | Amounts reported in the Stock Awards column reflect grant date fair value as calculated in accordance with FASB ASC Topic 718, including performance stock units, which are valued based on target performance achieved. Refer to the Grants of Plan-Based Awards in Fiscal Year 2019 Table on page 5760 for the separate grant date fair values of the retention stock units and performance stock units granted in 2016.2019. The grant date fair value is calculated on the number of stock units and performance stock units at target multiplied by the closing stock price on the date of grant. Dividend equivalents that accrue or are payable on retention stock units and earned performance stock units are reflected in the grant date fair value of such awards and, therefore, pursuant to SEC rules, are not separately reported in the Summary Compensation Table when actually paid to the NEOs. The maximum value of performance stock units for 2019 for Mr. Fritz is $11,700,253, for Mr. Vena is $4,800,137, for Mr. Knight is $4,080,289, for Ms. Ferguson $1,800,213, and for Ms. Whited is $1,800,213. |
Dividend equivalents that accrue or are payable on retention stock units and earned performance stock units are reflected in the grant date fair value of such awards and, therefore, pursuant to SEC rules, are not separately reported in the Summary Compensation Table when actually paid to the NEOs. The maximum value of performance stock units for 2016 for Mr. Fritz is $5,600,110, for Mr. Knight is $2,400,177, for Mr. Scott is $1,200,315, for Mr. Butler $1,200,315 and for Ms. Duren is $1,200,315. Ms. Ferguson did not receive performance stock units as she was elected on July 1, 2016.
(b)
| (b)
| | Amounts reported in the Option Awards column reflect grant date fair value as calculated in accordance with FASB ASC Topic 718. The following table shows the assumptions used to calculate the grant date fair value of Option Awards. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | 2016 | | 2015 | | 2014 | Risk-free interest rate | | | 1.25 | % | | | 1.33 | % | | | 1.56 | % | Dividend yield | | | 2.9 | % | | | 1.8 | % | | | 2.1 | % | Expected life (years) | | | 5.1 | | | | 5.1 | | | | 5.2 | | Volatility | | | 23.22 | % | | | 23.35 | % | | | 29.96 | % | Grant date fair value per option of options granted | | $ | 11.36 | | | $ | 22.30 | | | $ | 20.18 | |
Risk-free interest rate | | | 2.47% | | | 2.53% | | | 2.58% | | | 1.97% | Dividend yield | | | 2.18% | | | 2.08% | | | 2.3% | | | 2.3% | Expected life (years) | | | 5.2 | | | 5.1 | | | 5.3 | | | 5.3 | Volatility | | | 22.70% | | | 22.77% | | | 21.09% | | | 21.73% | Grant date fair value per option of options granted | | | $30.37 | | | $29.38 | | | $21.70 | | | $18.19 |
(c)
| (c)
| | The amounts reported are the aggregate change in the actuarial present value of the accumulated benefit under the Company’s Pension Plan and Supplemental Pension Plan. The pension values fluctuate due to changes in the discount rate, discount period, and the value of the accrued annual pension benefit for each NEO. If the discount rate and discount period assumptions had not changed, the increase in the present value of the accrued annual pension benefit would have been $1,408,712$515,058 for Mr. Fritz, $227,359$234,885 for Mr. Knight $979,194 for Mr. Scott, $561,543 for Mr. Butler, and $601,593$799,171 for Ms. Duren.Whited. These assumption changes have no impact on the actual pension benefits payable under the Company’s defined benefit pension plans. |
TABLE OF CONTENTS Executive Compensation
(d)
| (d)
| | The following table provides a summary of the All Other Compensation column that includes all perquisites. |
[Space Intentionally Left Blank]
Summary of All Other Compensation | | | | | | | | | | | | | | | | | | | | | | | | | | | | Perquisites | | | | | | | | | | | | | Name and Principal
Position | | Year | |
Use of
Corporate
Assets (x)
| | Tax and
Financial
Counseling
Services | | Excess
Liability
Premium | | Tax
Reimburse-
ments (y) | | Company-
Matched
Thrift Plan
Contributions | | Relocation (z) | | Total All Other
Compensation | Lance M. Fritz | | 2016 | | $ | 63,753 | | $ | 3,500 | | $ | 1,067 | | $ | 8,336 | | $ | 30,000 | | $ | 0 | | $ | 106,656 | Chairman, | | 2015 | | | 94,393 | | | 14,922 | | | 925 | | | 0 | | | 28,980 | | | 0 | | | 139,220 | President & CEO | | 2014 | | | 146 | | | 9,592 | | | 925 | | | 0 | | | 18,889 | | | 0 | | | 29,552 | Robert M. Knight, Jr. | | 2016 | | | 9,170 | | | 15,000 | | | 1,067 | | | 68,326 | | | 17,250 | | | 0 | | | 110,813 | EVP & Chief | | 2015 | | | 2,910 | | | 50,047 | | | 925 | | | 37,067 | | | 16,985 | | | 0 | | | 107,934 | Financial Officer | | 2014 | | | 0 | | | 26,797 | | | 925 | | | 94,529 | | | 15,585 | | | 0 | | | 137,836 | Cameron Scott | | 2016 | | | 11,229 | | | 0 | | | 1,067 | | | 0 | | | 5,605 | | | 0 | | | 17,901 | EVP & Chief | | 2015 | | | 0 | | | 0 | | | 925 | | | 0 | | | 7,106 | | | 0 | | | 8,031 | Operating Officer | | 2014 | | | 0 | | | 0 | | | 925 | | | 0 | | | 7,304 | | | 0 | | | 8,229 | Eric L. Butler | | 2016 | | | 9,420 | | | 0 | | | 1,067 | | | 0 | | | 14,550 | | | 0 | | | 25,037 | EVP & Chief | | 2015 | | | 0 | | | 0 | | | 925 | | | 0 | | | 14,325 | | | 0 | | | 15,250 | Administrative Officer | | 2014 | | | 9,454 | | | 1,321 | | | 925 | | | 0 | | | 13,060 | | | 0 | | | 24,760 | Rhonda S. Ferguson | | 2016 | | | 8,360 | | | 9,878 | | | 0 | | | 0 | | | 0 | | | 41,508 | | | 59,746 | EVP & Chief | | 2015 | | | -- | | | -- | | | -- | | | -- | | | -- | | | -- | | | -- | Legal Officer | | 2014 | | | -- | | | -- | | | -- | | | -- | | | -- | | | -- | | | -- | Diane K. Duren | | 2016 | | | 0 | | | 3,940 | | | 1,067 | | | 648 | | | 14,325 | | | 0 | | | 19,980 | Retired SVP & | | 2015 | | | 0 | | | 2,950 | | | 925 | | | 4,563 | | | 14,325 | | | 0 | | | 22,763 | Corporate Secretary | | 2014 | | | 11,874 | | | 12,165 | | | 925 | | | 0 | | | 13,060 | | | 0 | | | 38,024 |
Lance M. Fritz Chairman,
President & CEO | | | 2019 | | | $90,000 | | | $15,000 | | | $1,411 | | | $0 | | | $35,125 | | | $0 | | | $141,536 | | | 2018 | | | 64,604 | | | 15,000 | | | 1,267 | | | 0 | | | 34,250 | | | 0 | | | 115,121 | | | 2017 | | | 70,268 | | | 12,026 | | | 1,221 | | | 3,453 | | | 32,500 | | | 0 | | | 119,468 | Vincenzo J. Vena
Chief Operating Officer | | | 2019 | | | 16,391 | | | 15,000 | | | 705 | | | 0 | | | 15,058 | | | 49,782 | | | 96,936 | Robert M. Knight, Jr. Retired EVP & Chief Financial Officer | | | 2019 | | | 12,791 | | | 15,000 | | | 1,411 | | | 0 | | | 18,495 | | | 0 | | | 47,697 | | | 2018 | | | 0 | | | 15,000 | | | 1,267 | | | 1,227 | | | 18,045 | | | 0 | | | 35,539 | | | 2017 | | | 10,738 | | | 15,000 | | | 1,221 | | | 21,220 | | | 17,600 | | | 0 | | | 65,779 | Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary | | | 2019 | | | 2,448 | | | 13,665 | | | 1,411 | | | 0 | | | 8,400 | | | 0 | | | 25,924 | | | 2018 | | | 23,018 | | | 13,140 | | | 1,267 | | | 0 | | | 13,750 | | | 0 | | | 51,175 | | | 2017 | | | 4,966 | | | 12,635 | | | 1,221 | | | 0 | | | 13,000 | | | 0 | | | 31,822 | Elizabeth F. Whited EVP & Chief
Human Resources Officer | | | 2019 | | | 0 | | | 1,300 | | | 1,411 | | | 0 | | | 13,875 | | | 0 | | | 16,586 | | | 2018 | | | 0 | | | 4,569 | | | 1,267 | | | 0 | | | 13,171 | | | 0 | | | 19,007 | | | 2017 | | | 0 | | | 3,352 | | | 675 | | | 0 | | | 11,895 | | | 0 | | | 15,922 |
(x)
| (x)
| | The aggregate incremental cost for use of corporate aircraft is computed by multiplying the variable cost per air mile by the number of miles used for travel other than for Company business (including empty plane miles). The variable cost per air mile is the cost incurred for flying the plane divided by the number of miles flown. Costs may include jet fuel, catering, or pilot personal expenses. |
(y)
| (y)
| | The Company reimburses employees for certain nonresident state income taxes because of their travel on Company business. The reimbursement covers only the incremental cost of these nonresident taxes. The amounts shown in the table reflect additional federal and state taxes paid for the applicable executive. The Company does not consider this a perquisite and does not gross-up or pay any state income taxes that the employees incur in their normal work locations. |
(z)
| (z)
| | In 2016, Ms. Ferguson2019, Mr. Vena relocated to Omaha, Nebraska from Solon, Ohio.Scottsdale, Arizona. The Company'sCompany’s relocation package elements include monetary allowances and moving services to help employees relocate. The packages are designed to meet the business needs of the Company and the personal needs of employees and their families. Relocation packages apply to all nonagreement employees, based on set criteria such as distance and duration of the assignment, destination for the assignment, family size, and other needs as applicable. |
(e)
| The 2018 change in pension value for Mr. Knight was a negative $582,757. |
(f)
| Mr. Vena was elected on January 14, 2019. |
| (e)
| | For comparison purposes, refer to the 2016 Total Direct Compensation Versus Peer Group Table on page 38, which provides a summary of the total compensation approved by the Committee for 2016.
|
| (f)
| | Mr. Butler was elected Executive Vice President and Chief Administrative Officer on December 1, 2016, and was elected Corporate Secretary on February 3, 2017. Prior to December 1, 2016, Mr. Butler was Executive Vice President and Chief Marketing Officer.
|
59
| (g)
| | Ms. Ferguson was elected Executive Vice President and Chief Legal Officer on July 1, 2016.
|
| (h)
| | Ms. Duren was Executive Vice President, Chief Administrative Officer and Corporate Secretary until December 1, 2016. She remained at the Company as Senior Vice President and Corporate Secretary until February 3, 2017, and then as Senior Vice President until her retirement on February 28, 2017.
|
__________________
TABLE OF CONTENTS 56
Executive Compensation
Gr
antsGrants of Plan-Based Awards in Fiscal Year 20162019
The following table sets forth additional information concerning Stock Awards and Option Awards reported in the Summary Compensation Table as part of the NEOs’ compensation for 2016. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and
Principal | | Grant | | | | Estimated Future Payouts
Under Equity Incentive Plan
Awards | | All Other
Stock
Awards:
Number of
Shares of
Stock | | All Other
Option
Awards:
Number of
Securities
Underlying | | Exercise
or Base
Price
of Option
Awards | | Grant Date
Fair Value
of Stock
and Option | Position | | Date | | Award Type | | Threshold | | Target | | Maximum | | or Units | | Options | | (a) | | Awards (b) | Lance M. Fritz | | 2/4/2016 | | Performance Stock Units | | 18,539 | | 37,077 | | 74,154 | | | | | | | | | $ | 2,800,055 | Chairman, | | 2/4/2016 | | Retention Stock Units | | | | | | | | 18,539 | | | | | | | | 1,400,065 | President & CEO | | 2/4/2016 | | Stock Options | | | | | | | | | | 246,447 | | $ | 75.52 | | | 2,800,032 | Robert M. Knight, Jr. | | 2/4/2016 | | Performance Stock Units | | 7,946 | | 15,891 | | 31,782 | | | | | | | | | | 1,200,088 | EVP & Chief | | 2/4/2016 | | Retention Stock Units | | | | | | | | 7,945 | | | | | | | | 600,006 | Financial Officer | | 2/4/2016 | | Stock Options | | | | | | | | | | 105,621 | | $ | 75.52 | | | 1,200,024 | Cameron A. Scott | | 2/4/2016 | | Performance Stock Units | | 3,974 | | 7,947 | | 15,894 | | | | | | | | | | 600,157 | EVP & Chief | | 2/4/2016 | | Retention Stock Units | | | | | | | | 3,973 | | | | | | | | 300,041 | Operating Officer | | 2/4/2016 | | Stock Options | | | | | | | | | | 52,812 | | $ | 75.52 | | | 600,029 | Eric L. Butler | | 2/4/2016 | | Performance Stock Units | | 3,974 | | 7,947 | | 15,894 | | | | | | | | | | 600,157 | EVP & Chief | | 2/4/2016 | | Retention Stock Units | | | | | | | | 3,973 | | | | | | | | 300,041 | Administrative Officer | | 2/4/2016 | | Stock Options | | | | | | | | | | 52,812 | | $ | 75.52 | | | 600,029 | Rhonda S. Ferguson | | 2/4/2016 | | Performance Stock Units | | -- | | -- | | -- | | | | | | | | | | -- | EVP & Chief | | 7/1/2016 | | Retention Stock Units | | | | | | | | 4,580 | | | | | | | | 400,017 | Legal Officer | | 2/4/2016 | | Stock Options | | | | | | | | | | -- | | $ | -- | | | -- | Diane K. Duren | | 2/4/2016 | | Performance Stock Units | | 3,974 | | 7,947 | | 15,894 | | | | | | | | | | 600,157 | Retired SVP & | | 2/4/2016 | | Retention Stock Units | | | | | | | | 3,973 | | | | | | | | 300,041 | Corporate Secretary | | 2/4/2016 | | Stock Options | | | | | | | | | | 52,812 | | $ | 75.52 | | | 600,029 |
__________________
Lance M. Fritz
Chairman,
President & CEO | | | 2/7/2019 | | | Performance Stock Units | | | | | | | | | | | | 18,104 | | | 36,208 | | | 72,416 | | | | | | | | | | | | $5,850,127 | | | 2/7/2019 | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | 128,415 | | | $161.57 | | | 3,900,028 | | | | | | | | | $1,100,000 | | | $2,200,000 | | | $4,400,000 | | | | | | | | | | | | | | | | | | | | | | Vincenzo J. Vena
Chief Operating Officer (c) | | | 1/14/2019 | | | Performance Stock Units | | | | | | | | | | | | 7,798 | | | 15,596 | | | 31,192 | | | | | | | | | | | | 2,400,068 | | | 1/14/2019 | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | 54,450 | | | $153.89 | | | 1,599,901 | | | | | | | | | 375,000 | | | 750,000 | | | 1,500,000 | | | | | | | | | | | | | | | | | | | | | | Robert M. Knight, Jr.
Retired EVP & Chief Financial Officer | | | 2/7/2019 | | | Performance Stock Units | | | | | | | | | | | | 6,314 | | | 12,627 | | | 25,254 | | | | | | | | | | | | 2,040,144 | | | 2/7/2019 | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | 44,781 | | | $161.57 | | | 1,360,021 | | | | | | | | | 637,500 | | | 1,275,000 | | | 2,550,000 | | | | | | | | | | | | | | | | | | | | | | Rhonda S. Ferguson
EVP, Chief Legal
Officer & Corp
Secretary | | | 2/7/2019 | | | Performance Stock Units | | | | | | | | | | | | 2,786 | | | 5,571 | | | 11,142 | | | | | | | | | | | | 900,106 | | | 2/7/2019 | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | 19,758 | | | $161.57 | | | 600,060 | | | | | | | | | 375,000 | | | 750,000 | | | 1,500,000 | | | | | | | | | | | | | | | | | | | | | | Elizabeth F. Whited
EVP & Chief
Human Resources
Officer | | | 2/7/2019 | | | Performance Stock Units | | | | | | | | | | | | 2,786 | | | 5,571 | | | 11,142 | | | | | | | | | | | | 900,106 | | | 2/7/2019 | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | 19,758 | | | $161.57 | | | 600,060 | | | | | | | | | 375,000 | | | 750,000 | | | 1,500,000 | | | | | | | | | | | | | | | | | | | | | |
(a)
| (a)
| | The Exercise Price is the closing price of our common stock on February 4, 2016,7, 2019, the date of grant. |
(b)
| (b)
| | Amounts reported reflect grant date fair value as calculated in accordance with FASB ASC Topic 718. Performance Stock Units are valued based on target performance achieved. Refer to Footnote (b) to the Summary Compensation Table on page 5558 for the assumptions made in calculating the grant date fair value of Stock Options. |
(c)
| Mr. Vena received a $4,000,000 equity grant consisting of 60% performance stock units and 40% stock options, each with a two year vesting period, prorated and payable annually based on the Company’s operating income and operating ratio. |
__________________TABLE OF CONTENTS
Executive Compensation
Narrative DisclosureDisclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
Annual bonuses are awarded under the Executive Incentive Plan, which allows the Committee to establish performance objectives annually in order to adjust to the changing business climate; provided that annual bonuses may not exceed 0.25% of operating income for the CEO or 0.15% of operating income for each other “covered employee” who is subject to Section 162(m) of the Code. The Committee determines bonuses for the NEOs by evaluating a combination of corporate and individual performance, as more fully described beginning on page 46 of the CD&A.49. On February 4, 2016,7, 2019, the Committee granted performance stock units, retention stock units and stock options to each of the NEOs.NEOs, other than Mr. Vena. Performance stock units actually earned will be subject to continued employment through February 4, 2019, and7, 2022. After the attainment of pre-established levels of annual ROIC for a three-year performance periodthree year Performance Period covering fiscal years 20162019 through 2018. The level of ROIC achieved each fiscal year determines the number of stock units earned. At the end of year one of the performance period, the executive may earn up to one-third of the target number of stock units granted based on the first year of ROIC performance achieved. At the end of year two, the executive may earn additional stock units up to a total of two-thirds of the target number of stock units granted based on the average of the
first two years of ROIC performance achieved. During year three of the performance period,2021, the executive may earn up to two times the target number of performance stock units awarded in the grant (less any units earned in years one and two)granted to that executive based on the average ofannual ROIC performance achieved over all three years of the program. In addition to ROIC, performance achieved. Beginning in 2016, the Committee addedactual number of stock units earned after the third year of the Performance Period will be adjusted up or down by a relativepercentage not to exceed 25% (subject to a maximum of two times the target number of stock units granted) based on the Company’s Operating Income Growth modifier (+/-25%(OIG) over the Performance Period as compared to the OIG of the award earned based on the ROIC achieved) compared to thecompanies in S&P 500 Industrials Index.
If the Company does not meet the threshold ROIC level, executives are not entitled to any payout of their performance stock units. Prior to the satisfaction of the ROIC performance criteria and continued employment requirement, the Company does not pay dividend equivalents on the performance stock units. Performance stock units that have been earned over the three-year performance period will be paid out in Company common stock after the end of the performance period, subject to the executive’s continued employment. In addition, a participant may elect to defer the payment of the stock units earned and the associated dividend equivalents on those stock units pursuant to the Company’s Deferred Compensation Plan described on page 65. 68. If the stock units are deferred, associated dividend equivalents paid on or after the date such stock units are earned also are deferred under the Deferred Compensation Plan. Stock option grants vest one-third of total each year over a three-year period from the grant date of February 4, 2016.7, 2019. The maximum term of stock options is 10 years. The retention stock units vest in full on February 4, 2020. Stock option grants and retention stock unit grants are subject to continued employment. Vesting or forfeiture of these awards may occur upon termination of employment or a change-in-control as described further below and in the Potential Payments Upon Separation from Service, Change-In-Control or Death or Disability section below. As part of the February 20162019 grants of performance stock units, retention stock units and stock options, the Committee provided for the lapse of the continued employment requirement applicable to the award if an executive attains age 62 with 10 years of service under the Company pension plan, so long as the executive remained employed until September 30 in the year of grant. This same provision was contained in the stock award agreements for non-executive employees. Mr. Vena’s 2019 equity grants are described on page 46 of the Compensation Discussion and Analysis. Retention stock units granted prior to 2019 generally vest after a four-year period of continued service. Executives holding retention stock units have the right to receive a cash payment equivalent to dividends in such amounts as dividends are paid on our common stock. TheTo the extent permissible by law, the Company delays payment of retention stock units granted before November 2, 2017 (which are not performance based) to a NEO who is also a “covered employee” for purposes of Section 162(m) of the Code if the Company anticipates that such payment, if made, would not be deductible due to the application of Section 162(m) of the Code. The shares that are subject to this delayed distribution are reflected below in the Nonqualified Deferred Compensation at 20162019 Fiscal Year-End table.Table. The Company delays payment until the first taxable year in which the Company anticipates that the tax deduction would no longer be limited by Section 162(m) of the Code. As noted previously, the Company is evaluating whether to continue its practice of delaying payment for retention stock units that are subject to Section 162(m) of the Code.
TABLE OF CONTENTS 58
Executive Compensation
Outstand
ingOutstanding Equity Awards at 20162019 Fiscal Year-End
The following table sets forth additional information concerning Option Awards and Stock Awards held by the NEOs as of our most recent fiscal year-end, including awards granted during 20162019 and described in the tables above. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | | Stock Awards | | | | | | | | | | | | | Earned Performance
Stock Units and
Retention Units | | Performance
Stock Units | Name and
Principal
Position | | Number of
Securities
Underlying
Unexercised
Options
(Exercisable) | | Number of
Securities
Underlying
Unexercised
Options
(Unexercisable)
(a) | | Option
Exercise
Price | | Option
Expiration
Date | | | Number
of Shares
or Units
of Stock
Held
That
Have Not
Vested
(b) | | Market
Value of
Shares or
Units of
Stock Held
That Have
Not Vested
(c) | | Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units,
or Other Rights
That Have
Not Vested (a) | | Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares, Units,
or Other
Rights That
Have Not
Vested (c) | Lance M. Fritz | | 0 | | 246,447 | | $ | 75.52 | | 2/4/2026 | | | 75,921 | | $ | 7,871,489 | | 101,149 | | $ | 10,487,128 | Chairman, | | 35,881 | | 71,762 | | $ | 122.85 | | 2/5/2025 | | | | | | | | | | | | President & CEO | | 33,044 | | 16,522 | | $ | 87.56 | | 2/6/2024 | | | | | | | | | | | | | | 52,614 | | 0 | | $ | 66.00 | | 2/7/2023 | | | | | | | | | | | | Robert M. Knight, Jr. | | 0 | | 105,621 | | $ | 75.52 | | 2/4/2026 | | | 99,817 | | | 10,349,027 | | 50,843 | | | 5,271,402 | EVP & Chief | | 18,539 | | 37,078 | | $ | 122.85 | | 2/5/2025 | | | | | | | | | | | | Financial Officer | | 37,008 | | 18,504 | | $ | 87.56 | | 2/6/2024 | | | | | | | | | | | | | | 60,618 | | 0 | | $ | 66.00 | | 2/7/2023 | | | | | | | | | | | | | | 63,918 | | 0 | | $ | 57.37 | | 2/2/2022 | | | | | | | | | | | | | | 36,090 | | 0 | | $ | 46.80 | | 2/3/2021 | | | | | | | | | | | | Cameron A. Scott | | 0 | | 52,812 | | $ | 75.52 | | 2/4/2026 | | | 14,716 | | | 1,525,755 | | 19,601 | | | 2,032,232 | EVP & Chief | | 5,383 | | 10,766 | | $ | 122.85 | | 2/5/2025 | | | | | | | | | | | | Operating Officer | | 6,744 | | 3,372 | | $ | 87.56 | | 2/6/2024 | | | | | | | | | | | | Eric L. Butler | | 0 | | 52,812 | | $ | 75.52 | | 2/4/2026 | | | 70,468 | | | 7,306,122 | | 25,017 | | | 2,593,763 | EVP & Chief | | 9,270 | | 18,540 | | $ | 122.85 | | 2/5/2025 | | | | | | | | | | | | Administrative Officer | | 16,524 | | 8,262 | | $ | 87.56 | | 2/6/2024 | | | | | | | | | | | | | | 22,878 | | 0 | | $ | 66.00 | | 2/7/2023 | | | | | | | | | | | | | | 14,064 | | 0 | | $ | 57.37 | | 2/2/2022 | | | | | | | | | | | | Rhonda S. Ferguson | | -- | | -- | | | -- | | -- | | | 4,580 | | | 474,854 | | -- | | | -- | EVP & Chief | | | | | | | | | | | | | | | | | | | | | Legal Officer | | | | | | | | | | | | | | | | | | | | | Diane K. Duren | | 0 | | 52,812 | | $ | 75.52 | | 2/4/2026 | | | 70,468 | | | 7,306,122 | | 25,017 | | | 2,593,763 | Retired SVP & | | 9,270 | | 18,540 | | $ | 122.85 | | 2/5/2025 | | | | | | | | | | | | Corporate Secretary | | 16,524 | | 8,262 | | $ | 87.56 | | 2/6/2024 | | | | | | | | | | | | | | 15,252 | | 0 | | $ | 66.00 | | 2/7/2023 | | | | | | | | | | | | | | 4,688 | | 0 | | $ | 57.37 | | 2/2/2022 | | | | | | | | | | | |
__________________
Lance M. Fritz
Chairman,
President & CEO | | | 0 | | | 128,415 | | | $161.57 | | | 2/7/2029 | | | 108,366 | | | $19,591,489 | | | 150,506 | | | $27,209,980 | | | 59,913 | | | 119,826 | | | $124.86 | | | 2/8/2028 | | | | | | | | | | | | | | | 117,266 | | | 58,633 | | | $107.30 | | | 2/2/2027 | | | | | | | | | | | | | | | 107,643 | | | 0 | | | $122.85 | | | 2/5/2025 | | | | | | | | | | | | | Vincenzo J. Vena
Chief Operating Officer | | | 0 | | | 54,450 | | | $153.89 | | | 1/14/2029 | | | 7,798 | | | 1,409,800 | | | 15,596 | | | 2,819,601 | Robert M. Knight, Jr.
Retired EVP & Chief
Financial Officer | | | 0 | | | 44,781 | | | $161.57 | | | 2/7/2029 | | | 42,455 | | | 7,675,439 | | | 52,488 | | | 9,489,306 | | | 20,893 | | | 41,786 | | | $124.86 | | | 2/8/2028 | | | | | | | | | | | | | | | 45,442 | | | 22,721 | | | $107.30 | | | 2/2/2027 | | | | | | | | | | | | | | | 35,207 | | | 0 | | | $75.52 | | | 2/4/2026 | | | | | | | | | | | | | | | 55,617 | | | 0 | | | $122.85 | | | 2/5/2025 | | | | | | | | | | | | | | | 55,512 | | | 0 | | | $87.56 | | | 2/6/2024 | | | | | | | | | | | | | Rhonda S. Ferguson
EVP, Chief Legal
Officer & Corp
Secretary | | | 0 | | | 19,758 | | | $161.57 | | | 2/7/2029 | | | 16,038 | | | 2,899,510 | | | 23,160 | | | 4,187,096 | | | 9,218 | | | 18,436 | | | $124.86 | | | 2/8/2028 | | | | | | | | | | | | | | | 0 | | | 7,330 | | | $107.30 | | | 2/2/2027 | | | | | | | | | | | | | Elizabeth F. Whited
EVP & Chief Human
Resources Officer | | | 0 | | | 19,758 | | | $161.57 | | | 2/7/2029 | | | 10,401 | | | 1,880,397 | | | 23,160 | | | 4,187,096 | | | 9,218 | | | 18,436 | | | $124.86 | | | 2/8/2028 | | | | | | | | | | | | | | | 10,994 | | | 5,497 | | | $107.30 | | | 2/2/2027 | | | | | | | | | | | | | | | 10,000 | | | 0 | | | $75.52 | | | 2/4/2026 | | | | | | | | | | | | | | | 9,510 | | | 0 | | | $122.85 | | | 2/5/2025 | | | | | | | | | | | | | | | 8,826 | | | 0 | | | $87.56 | | | 2/6/2024 | | | | | | | | | | | | |
(a)
| (a)
| | The following table reflects the scheduled vesting dates for all unvested stock options as shown in the Number of Securities Underlying Unexercised Options (Unexercisable) column, unvested stock units as shown in the Number of Shares or Units of Stock Held That Have Not Vested column and unearned performance units as shown in the Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested column in the above table. |
TABLE OF CONTENTS 59
Executive Compensation
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal
Position | | Number of
Securities
Underlying
Unexercised
and Unvested
Options (i) | | Option
Vest
Date | | Option
Expiration
Date | | | Number of
Units of Stock
Held That
Have Not
Vested (ii) | | Unearned
Performance
Units (iii) | | Unit
Vest
Date | Lance M. Fritz | | 82,149 | | 2/4/2019 | | 2/4/2026 | | | 18,539 | | | | 2/4/2020 | Chairman, | | 82,149 | | 2/4/2018 | | 2/4/2026 | | | 9,769 | | | | 2/5/2019 | President & CEO | | 82,149 | | 2/4/2017 | | 2/4/2026 | | | 11,123 | | 63,031 | | 2/4/2019 | | | 35,881 | | 2/5/2018 | | 2/5/2025 | | | 5,712 | | | | 2/6/2018 | | | 35,881 | | 2/5/2017 | | 2/5/2025 | | | 7,815 | | 31,263 | | 2/5/2018 | | | 16,522 | | 2/6/2017 | | 2/6/2024 | | | 6,970 | | | | 2/7/2017 | | | | | | | | | | 15,993 | | 6,855 | | 2/6/2017 | Robert M. Knight, Jr. | | 35,207 | | 2/4/2019 | | 2/4/2026 | | | 7,945 | | | | 2/4/2020 | EVP & Chief | | 35,207 | | 2/4/2018 | | 2/4/2026 | | | 5,047 | | | | 2/5/2019 | Financial Officer | | 35,207 | | 2/4/2017 | | 2/4/2026 | | | 4,767 | | 27,015 | | 2/4/2019 | | | 18,539 | | 2/5/2018 | | 2/5/2025 | | | 6,396 | | | | 2/6/2018 | | | 18,539 | | 2/5/2017 | | 2/5/2025 | | | 45,684 | | | | 2/6/2018 | | | 18,504 | | 2/6/2017 | | 2/6/2024 | | | 4,038 | | 16,152 | | 2/5/2018 | | | | | | | | | | 8,032 | | | | 2/7/2017 | | | | | | | | | | 17,908 | | 7,676 | | 2/6/2017 | Cameron A. Scott | | 17,604 | | 2/4/2019 | | 2/4/2026 | | | 3,973 | | | | 2/4/2020 | EVP & Chief | | 17,604 | | 2/4/2018 | | 2/4/2026 | | | 1,466 | | | | 2/5/2019 | Operating Officer | | 17,604 | | 2/4/2017 | | 2/4/2026 | | | 2,384 | | 13,510 | | 2/4/2019 | | | 5,383 | | 2/5/2018 | | 2/5/2025 | | | 1,166 | | | | 2/6/2018 | | | 5,383 | | 2/5/2017 | | 2/5/2025 | | | 1,172 | | 4,690 | | 2/5/2018 | | | 3,372 | | 2/6/2017 | | 2/6/2024 | | | 1,288 | | | | 2/7/2017 | | | | | | | | | | 3,267 | | 1,401 | | 2/6/2017 | Eric L. Butler | | 17,604 | | 2/4/2019 | | 2/4/2026 | | | 3,973 | | | | 2/4/2020 | EVP & Chief | | 17,604 | | 2/4/2018 | | 2/4/2026 | | | 2,384 | | 13,510 | | 2/5/2019 | Administrative Officer | | 17,604 | | 2/4/2017 | | 2/4/2026 | | | 2,524 | | | | 2/5/2019 | | | 9,270 | | 2/5/2018 | | 2/5/2025 | | | 45,684 | | | | 2/6/2018 | | | 9,270 | | 2/5/2017 | | 2/5/2025 | | | 2,856 | | | | 2/6/2018 | | | 8,262 | | 2/6/2017 | | 2/6/2024 | | | 2,019 | | 8,079 | | 2/5/2018 | | | | | | | | | | 3,032 | | | | 2/7/2017 | | | | | | | | | | 7,996 | | 3,428 | | 2/6/2017 | Rhonda S. Ferguson | | -- | | -- | | -- | | | 4,580 | | | | 7/1/2020 | EVP & Chief | | | | | | | | | | | | | | Legal Officer | | | | | | | | | | | | | | Diane K. Duren | | 17,604 | | 2/4/2019 | | 2/4/2026 | | | 3,973 | | | | 2/4/2020 | Retired SVP & | | 17,604 | | 2/4/2018 | | 2/4/2026 | | | 2,384 | | 13,510 | | 2/5/2019 | Corporate Secretary | | 17,604 | | 2/4/2017 | | 2/4/2026 | | | 2,524 | | | | 2/5/2019 | | | 9,270 | | 2/5/2018 | | 2/5/2025 | | | 45,684 | | | | 2/6/2018 | | | 9,270 | | 2/5/2017 | | 2/5/2025 | | | 2,856 | | | | 2/6/2018 | | | 8,262 | | 2/6/2017 | | 2/6/2024 | | | 2,019 | | 8,079 | | 2/5/2018 | | | | | | | | | | 3,032 | | | | 2/7/2017 | | | | | | | | | | 7,996 | | 3,428 | | 2/6/2017 |
Lance M. Fritz
Chairman,
President & CEO | | | 42,805 | | | 2/7/2022 | | | 2/7/2029 | | | 7,809 | | | | | | 2/8/2022 | | | 42,805 | | | 2/7/2021 | | | 2/7/2029 | | | 0 | | | 72,416 | | | 2/7/2022 | | | 42,805 | | | 2/7/2020 | | | 2/7/2029 | | | 7,456 | | | | | | 2/2/2021 | | | 59,913 | | | 2/8/2021 | | | 2/8/2028 | | | 0 | | | 78,090 | | | 2/8/2021 | | | 59,913 | | | 2/8/2020 | | | 2/8/2028 | | | 18,539 | | | | | | 2/4/2020 | | | 58,633 | | | 2/2/2020 | | | 2/2/2027 | | | 74,562 | | | 0 | | | 2/2/2020 | Vincenzo J. Vena
Chief Operating Officer | | | 27,225 | | | 1/14/2021 | | | 1/14/2029 | | | 0 | | | 15,596 | | | 2/8/2021 | | | 27,225 | | | 1/14/2020 | | | 1/14/2029 | | | 7,798 | | | 0 | | | 2/6/2020 | Robert M. Knight, Jr.
Retired EVP & Chief
Financial Officer | | | 14,927 | | | 2/7/2022 | | | 2/7/2029 | | | 2,724 | | | | | | 2/8/2022 | | | 14,927 | | | 2/7/2021 | | | 2/7/2029 | | | 0 | | | 25,254 | | | 2/7/2022 | | | 14,927 | | | 2/7/2020 | | | 2/7/2029 | | | 2,890 | | | | | | 2/2/2021 | | | 20,893 | | | 2/8/2021 | | | 2/8/2028 | | | 0 | | | 27,234 | | | 2/8/2021 | | | 20,893 | | | 2/8/2020 | | | 2/8/2028 | | | 7,945 | | | | | | 2/4/2020 | | | 22,721 | | | 2/2/2020 | | | 2/2/2027 | | | 28,896 | | | 0 | | | 2/2/2020 | Rhonda S. Ferguson
EVP, Chief Legal
Officer & Corp
Secretary | | | 6,586 | | | 2/7/2022 | | | 2/7/2029 | | | 1,202 | | | | | | 2/8/2022 | | | 6,586 | | | 2/7/2021 | | | 2/7/2029 | | | 0 | | | 11,142 | | | 2/7/2022 | | | 6,586 | | | 2/7/2020 | | | 2/7/2029 | | | 932 | | | | | | 2/2/2021 | | | 9,218 | | | 2/8/2021 | | | 2/8/2028 | | | 0 | | | 12,018 | | | 2/8/2021 | | | 9,218 | | | 2/8/2020 | | | 2/8/2028 | | | 4,580 | | | | | | 7/1/2020 | | | 7,330 | | | 2/2/2020 | | | 2/2/2027 | | | 9,324 | | | 0 | | | 2/2/2020 | Elizabeth F. Whited
EVP & Chief Human
Resources Officer | | | 6,586 | | | 2/7/2022 | | | 2/7/2029 | | | 1,202 | | | | | | 2/8/2022 | | | 6,586 | | | 2/7/2021 | | | 2/7/2029 | | | 0 | | | 11,142 | | | 2/7/2022 | | | 6,586 | | | 2/7/2020 | | | 2/7/2029 | | | 699 | | | | | | 2/2/2021 | | | 9,218 | | | 2/8/2021 | | | 2/8/2028 | | | 0 | | | 12,018 | | | 2/8/2021 | | | 9,218 | | | 2/8/2020 | | | 2/8/2028 | | | 1,510 | | | | | | 2/4/2020 | | | 5,497 | | | 2/2/2020 | | | 2/2/2027 | | | 6,990 | | | 0 | | | 2/2/2020 |
(i)
| (i)
| | Reflects a stock option grant that vests one-third of the total each year for three years from the date of grant. |
(ii)
| (ii)
| | Reflects performance stock units granted on February 6, 2014,2, 2017, February 5, 20158, 2018 and February 4, 20167, 2019 that have been earned, but not yet vested and paid out, and unvested retention stock units as of December 31, 2016. 2019. For Mr. Vena, reflects performance stock units granted on January 14, 2019 that have been earned, but not yet vested and paid out. |
(iii)
| (iii)
| | Reflects the maximum amount of performance stock units that may be earned under the grants of performance stock units February 5, 20158, 2018 and February 4, 2016.7, 2019. These performance stock units are each subject to a three-year performance period ending December 31, 20172020 and December 31, 2018,2021, respectively. For Mr. Vena, reflects the maximum amount of performance stock units that may be earned under his January 14, 2019 grant of performance stock units. |
(b)
| (b)
| | Dividends paid in 20162019 on outstanding stock awards for each of our NEOs were as follows: Mr. Fritz, $145,393;$303,710; Mr. Knight, $189,391; Mr. Scott, $22,848; Mr. Butler, $143,519;$85,807; Ms. Ferguson, $5,290$36,341; and Ms. Duren, $142,189. Whited, $27,650. |
(c)
| (c)
| | Reflects the closing price per share of the common stock on the last business day of the fiscal year multiplied by the number of shares. The closing price per share was $103.68$180.79 on December 31, 2016. 2019. |
__________________
Op
tionTABLE OF CONTENTS Executive Compensation
Option Exercises and Stock Vested in Fiscal Year 20162019
The following table shows a summary of the stock options exercised by the NEOs and stock awards that vested during the year. | | | | | | | | | | | | | | | | | | | | | | | | Option Awards | | Stock Awards | Name and Principal Position | | Number of
Shares Acquired
on Exercise | | Value
Realized Upon
Exercise (a) | | Number of
Shares Acquired
on Vesting (b) | | Value
Realized Upon
Vesting (a) | Lance M. Fritz | | 0 | | $ | 0 | | 35,384 | | $ | 2,629,975 | Chairman, President & CEO | | | | | | | | | | | Robert M. Knight, Jr. | | 0 | | | 0 | | 40,842 | | | 3,035,432 | EVP & Chief Financial Officer | | | | | | | | | | | Cameron A. Scott | | 6,484 | | | 210,341 | | 6,294 | | | 468,474 | EVP & Chief Operating Officer | | | | | | | | | | | Eric L. Butler | | 27,068 | | | 1,782,893 | | 14,050 | | | 1,047,804 | EVP & Chief Administrative Officer | | | | | | | | | | | Rhonda S. Ferguson | | 0 | | | 0 | | 0 | | | 0 | EVP & Chief Legal Officer | | | | | | | | | | | Diane K. Duren | | 0 | | | 0 | | 14,050 | | | 1,047,804 | Retired SVP & Corporate Secretary | | | | | | | | | | |
__________________
Lance M. Fritz
Chairman, President & CEO | | | 246,447 | | | $21,906,673 | | | 59,822 | | | $9,662,803 | Vincenzo J. Vena
Chief Operating Officer | | | 0 | | | 0 | | | 0 | | | 0 | Robert M. Knight, Jr.
Retired EVP & Chief Financial Officer | | | 0 | | | 0 | | | 26,499 | | | 4,280,081 | Rhonda S. Ferguson
EVP, Chief Legal Officer & Corp Secretary | | | 14,660 | | | 974,321 | | | 0 | | | 0 | Elizabeth F. Whited
EVP & Chief Human Resources Officer | | | 19,682 | | | 2,122,041 | | | 4,941 | | | 798,084 |
(a)
| (a)
| | Value Realized Upon Exercise is calculated based upon the difference between the market price of the Company’s common stock at the time of exercise and the exercise price of the options. Value Realized Upon Vesting is calculated based upon the fair market value of the Company’s common stock on the day of vesting times the number of shares vested. |
(b)
| (b)
| | The number of these stock units that have been deferred under the Company’s Deferred Compensation Plan are: for Mr. Fritz, 7,496are 863 shares and for Ms. Duren, 1,918 shares.Whited. A description of the features of the Company’s Deferred Compensation Program is set forth on page 65.pages 68 − 70. |
__________________
TABLE OF CONTENTS 61
Executive Compensation
Pen
sionPension Benefits at 20162019 Fiscal Year-End
The table below sets forth the estimated present value of accumulated benefits payable under the Company’s defined benefit pension plans to the NEOs upon normal retirement at age 65 based on service and annual earnings (base salary and bonus, as described below) considered by the plans for the period through December 31, 2016.2019. The present value was calculated as of December 31, 2016,2019, based on the benefit at the normal retirement age of 65 paid in the form of a single life annuity. The present value factors used to determine the reported amounts are based on the sex distinct, white collar, Mercer Industry Longevity Experience Study Retiree Table for the Auto, Industrial Goods and Transportation industry group projected using Scale MP2016,MP-2018 as of December 31, 2018 to Scale MP-2018 as of December 31, 2018, and the discount rate as disclosed in Note 6 in the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018. For purposes of reporting the change in pension value in the Summary Compensation Table, present value factors for the year ended December 31, 2015,2019, were based on the sex distinct, white collar, Adjusted RP2014Mercer Industry Longevity Experience Study Retiree Table for the Auto, Industrial Goods and Transportation industry group projected using Scale MP2015,MP2019, and the discount rate as disclosed in Note 56 in the Notes to the Consolidated Financial Statements in the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2015.2019. For both mortality tables, no pre-retirement decrements (i.e., death, disability) were assumed. | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal Position | | Plan Name | | Number
of Years
Credited
Service | | Present
Value of
Accumulated
Benefit (a) | | | Payments
During Last
Fiscal Year | Lance M. Fritz | | Basic Plan | | 16.5000 | | $ | 545,293 | | | $ | 0 | Chairman, President & CEO | | Supplemental Plan | | 16.5000 | | | 5,223,196 | | | | 0 | Robert M. Knight, Jr. | | Basic Plan | | 36.5833 | | | 1,547,859 | | | | 0 | EVP & Chief Financial Officer | | Supplemental Plan | | 36.5833 | | | 11,719,330 | | | | 0 | Cameron A. Scott | | Basic Plan | | 25.5000 | | | 857,327 | | | | 0 | EVP & Chief Operating Officer | | Supplemental Plan | | 25.5000 | | | 2,980,777 | | | | 0 | Eric L. Butler | | Basic Plan | | 30.6667 | | | 1,190,726 | | | | 0 | EVP & Chief Administrative Officer | | Supplemental Plan | | 30.6667 | | | 5,598,219 | | | | 0 | Rhonda S. Ferguson | | Basic Plan | | 0.5000 | | | 0 | | | | 0 | EVP & Chief Legal Officer (b) | | Supplemental Plan | | 0.5000 | | | 0 | | | | 0 | Diane K. Duren | | Basic Plan | | 31.5833 | | | 1,240,027 | | | | 0 | Retired SVP & Corporate Secretary | | Supplemental Plan | | 31.5833 | | | 5,652,051 | | | | 0 |
__________________
Lance M. Fritz
Chairman, President & CEO | | | Basic Plan | | | 19.5000 | | | $983,276 | | | $0 | | | Supplemental Plan | | | 19.5000 | | | 11,429,162 | | | 0 | Vincenzo J. Vena
Chief Operating Officer (b) | | | Basic Plan | | | 0 | | | 0 | | | 0 | | | Supplemental Plan | | | 0 | | | 0 | | | 0 | Robert M. Knight, Jr.
Retired EVP & Chief Financial Officer | | | Basic Plan | | | 39.5833 | | | 2,141,026 | | | 0 | | | Supplemental Plan | | | 39.5833 | | | 15,619,547 | | | 0 | Rhonda S. Ferguson
EVP, Chief Legal Officer & Corp Secretary (c) | | | Basic Plan | | | 3.5000 | | | 0 | | | 0 | | | Supplemental Plan | | | 3.5000 | | | 0 | | | 0 | Elizabeth F. Whited
EVP & Chief Human Resources Officer | | | Basic Plan | | | 32.0000 | | | 1,366,364 | | | 0 | | | Supplemental Plan | | | 32.0000 | | | 4,161,145 | | | 0 |
(a)
| (a)
| | Present values for Messrs. Knight, ButlerFritz and Ms. DurenKnight are based on the single life annuity payable at age 65 and include the present values of the joint life benefit (amount payable to the surviving spouse upon participant’s death). As of December 31, 2016, Mr. Fritz and Mr. Scott were2019, Ms. Whited was not eligible for the surviving spouse benefit. We do not have a lump-sum payment option under our plans. |
(b)
| (b)
Mr. Vena was elected Chief Operating Officer on January 14, 2019. A pension benefit is not offered to employees after the plans closed to new entrants on January 1, 2018. |
(c)
| | Ms. Ferguson was elected Executive Vice President and Chief Legal Officer on July 1, 2016. A pension benefit is not offered to employees until they obtain at least five years of vesting service. |
__________________
Pensions for our NEOs are provided through the Pension Plan for Salaried Employees of Union Pacific Corporation and Affiliates (Basic Plan) and the Supplemental Pension Plan for Officers and Managers of Union Pacific Corporation and Affiliates (Supplemental Plan). The pension benefit formula for both the Basic Plan and the Supplemental Plan is (i) 1.667% of final average compensation times credited service (up to 30 years), plus (ii) 1% of final average compensation times credited service above 30 years (not to exceed 40 years) minus (iii) 1.5% of Social Security or Railroad Retirement benefit times credited service (not to exceed 40 years). The amount of the annual pension benefit from both Plans is based upon final average compensation for the 36 consecutive months of highest regular compensation
(base (base salary and up to three annual bonus plan awards within the 36-month period) within the 120-month period immediately preceding retirement. Credited service includes the years and months of service as a non-agreement employee and may include certain periods of agreement service or service with an acquired company. Both the Basic Plan and the Supplemental Plan were amended effective January 1, 2018 to provide that an employee hired or rehired on or after January 1, 2018, or who otherwise was not accruing a benefit under the Basic Plan on December 31, 2017 is not eligible to participate in the Basic Plan or the Supplemental Plan.
TABLE OF CONTENTS Executive Compensation
The Supplemental Plan is an unfunded non-contributory plan that, unlike the Basic Plan, provides for the grant of additional years of service and deemed age, for the inclusion of compensation in excess of IRS prescribed limits ($ 265,000280,000 for 2016)2019) and deferred annual bonuses in the calculation of final average compensation and for any benefit in excess of limitations provided for under Section 415(b) of the Code (for 2016,2019, the lesser of 100% of the executive’s compensation or $210,000)$225,000). The Committee may grant additional years of service and deemed age credit to any participant as it determines appropriate. Under both the Basic Plan and the Supplemental Plan, an executive’s age and vesting service upon termination of employment with the Company determines whether the executive is eligible for a normal retirement, early retirement, postponed retirement, or a vested benefit. Vesting service generally includes all service while an employee is with the Company, whether or not the employment counts as credited service. Normal retirement is offered to employees who end their employment at or after age 65 and benefits are not reduced. Early retirement is offered to employees who end their employment between ages 55 and 65 and have at least ten years of vesting service. Postponed retirement is when an employee continues employment past age 65. The benefit is reduced if payments begin before age 65, to reflect the expectation that benefits will be paid over a longer period of time. A vested benefit is offered to employees who end their employment before age 65 with at least five years of vesting service but less than ten years of vesting service. This benefit is available as early as age 55. The benefit is reduced if payments begin before age 65. However, those reductions will be greater than those applied if the employee was eligible for early retirement. As of December 31, 2016, Messrs.2019, Mr. Fritz and Mr. Knight Mr. Butler and Ms. Duren were eligible for early retirement under both Plans. Mr. Fritz and Mr. Scott wereMs. Whited was eligible for vested benefits under both Plans. Ms. Ferguson was elected Executive Vice President and Chief Legal Officer on July 1, 2016. A pension benefit is not offered to employees until they obtain at least five years of vesting service. Mr. Vena was elected Chief Operating Officer on January 14, 2019. A pension benefit is not offered to employees after the Plans closed to new entrants on January 1, 2018. Benefits from both Plans are normally paid as a single life annuity providing monthly benefits for the employee’s life. The employee may waive the single life annuity to receive the benefit in a different optional form. Subject to eligibility conditions, the available optional forms of benefit include: 25%, 50%, 75%, or 100% Joint and Survivor Annuity; 10-Year Certain and Continuous; or Level Income. All optional forms of benefit are actuarially equal in value to the single life annuity. The Plans do not offer a lump-sum payment as an optional form. No NEO received any payments under either Plan during 2016.2019. TABLE OF CONTENTS 63
Executive Compensation
Nonqual
ifiedNonqualified Deferred Compensation at 20162019 Fiscal Year-End
The Company has two non-qualified deferred compensation plans: the Supplemental Thrift Plan, which permits an executive to defer amounts from base salary; and the Deferred Compensation Plan, which permits deferral of bonuses awarded under the Executive Incentive Plan and deferral of stock unit awards made under the 2004 Stock Incentive Plan and the 2013 Stock Incentive Plan (the Stock Incentive Plans). Each of these arrangements represents unfunded, unsecured obligations of the Company. The table below shows NEO and Company allocations under these arrangements, earnings accrued on all amounts that the Named Executive OfficersNEOs have deferred under the plans and the balances under each plan as of December 31, 2016.2019. Executive incentive bonus deferrals and stock unit award deferrals under the Deferred Compensation Plan are shown separately. | | | | | | | | | | | | | | | | | | Name and Principal
Position | | Plan Name | | Executive
Contributions
in Last Fiscal
Year (a) | | Company
Contributions
in Last Fiscal
Year (b) | | Aggregate
Earnings/
(Loss) in
Last Fiscal
Year (c) | | | Aggregate
Withdrawals/
Distributions | | Aggregate
Balance at
Last Fiscal
Year End
(d) (e) | Lance M. Fritz | | Supplemental Thrift | | $ | 44,100 | | $ | 22,050 | | $ | 22,215 | | $ | 0 | | $ | 297,036 | Chairman, | | Executive Incentive Deferral | | | 0 | | | 0 | | | 5,527 | | | 0 | | | 179,342 | President & CEO | | Deferral of Stock Unit Awards | | | 517,299 | | | 0 | | | 1,158,942 | | | 0 | | | 4,292,858 | Robert M. Knight, Jr. | | Supplemental Thrift | | | 18,600 | | | 9,300 | | | 52,373 | | | 0 | | | 470,516 | EVP & Chief | | Executive Incentive Deferral | | | 0 | | | 0 | | | 4,386 | | | 0 | | | 142,303 | Financial Officer | | Deferral of Stock Unit Awards | | | 0 | | | 0 | | | 5,168,191 | | | 0 | | | 19,571,617 | Cameron A. Scott | | Supplemental Thrift | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | EVP & Chief | | Executive Incentive Deferral | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | Operating Officer | | Deferral of Stock Unit Awards | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | Eric L. Butler | | Supplemental Thrift | | | 15,400 | | | 6,600 | | | 34,197 | | | 0 | | | 277,964 | EVP & Chief | | Executive Incentive Deferral | | | 0 | | | 0 | | | 1,838 | | | 0 | | | 40,507 | Administrative Officer | | Deferral of Stock Unit Awards | | | 0 | | | 0 | | | 3,071 | | | 192,123 | | | 0 | Rhonda S. Ferguson | | Supplemental Thrift | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | EVP & Chief | | Executive Incentive Deferral | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | Legal Officer | | Deferral of Stock Unit Awards | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | Diane K. Duren | | Supplemental Thrift | | | 13,200 | | | 6,600 | | | 7,154 | | | 0 | | | 121,656 | Retired SVP & | | Executive Incentive Deferral | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | Corporate Secretary | | Deferral of Stock Unit Awards | | | 127,420 | | | 0 | | | 335,436 | | | 0 | | | 1,226,607 |
__________________
Lance M. Fritz
Chairman,
President & CEO | | | Supplemental Thrift | | | $53,450 | | | $26,725 | | | $138,474 | | | $0 | | | $692,850 | | | Executive Incentive Deferral | | | 0 | | | 0 | | | 7,258 | | | 0 | | | 198,280 | | | Deferral of Stock Unit Awards | | | 0 | | | 0 | | | 996,996 | | | 0 | | | 4,235,126 | Vincenzo J. Vena
Chief Operating Officer | | | Supplemental Thrift | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | Executive Incentive Deferral | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | Deferral of Stock Unit Awards | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | Robert M. Knight, Jr.
Retired EVP & Chief
Financial Officer | | | Supplemental Thrift | | | 290,190 | | | 10,095 | | | 157,527 | | | 0 | | | 749,721 | | | Executive Incentive Deferral | | | 0 | | | 0 | | | 39,231 | | | 0 | | | 186,088 | | | Deferral of Stock Unit Awards | | | 0 | | | 0 | | | 9,168,655 | | | 0 | | | 36,400,304 | Rhonda S. Ferguson
EVP, Chief Legal
Officer & Corp
Secretary | | | Supplemental Thrift | | | 0 | | | 0 | | | 8,856 | | | 0 | | | 41,435 | | | Executive Incentive Deferral | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | Deferral of Stock Unit Awards | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | Elizabeth F. Whited
EVP & Chief Human
Resources Officer | | | Supplemental Thrift | | | 16,425 | | | 5,475 | | | 2,375 | | | 0 | | | 54,235 | | | Executive Incentive Deferral | | | 121,600 | | | 0 | | | 95,576 | | | 118,303 | | | 581,556 | | | Deferral of Stock Unit Awards | | | 139,202 | | | 0 | | | 118,462 | | | 0 | | | 569,825 |
(a)
| (a)
| | Executive Contributions in the Last Fiscal Year under the Supplemental Thrift Plan are amounts that are also reported in the Salary column in the Summary Compensation Table. Table |
(b)
| (b)
| | Company Contributions in the Last Fiscal Year were reported as All Other Compensation in the Summary Compensation Table for 2016. 2019. |
(c)
| (c)
| | Aggregate Earnings on deferred stock unit awards represent appreciation in the value of Company common stock and dividend equivalents, which are deemed to be reinvested in Company common stock. |
(d)
| (d)
| | Amounts reported in Aggregate Balance at Last Fiscal Year End that were reported in the Salary column of the Summary Compensation Table for 20152018 and 2014,2017, but deferred under the Supplemental Thrift Plan are, for Mr. Fritz, $42,060$52,001 and $22,179;$48,800; Mr. Knight, $18,070$19,590 and $15,570; Mr. Butler $19,125$19,000; Ms. Ferguson, $12,833 and $15,780;$11,433; and Ms. Duren $12,750Whited $13,121 and $10,520,$7,590, respectively. Amounts reported in Aggregate Balance at Last Fiscal Year End that were reported in the All Other Compensation column of the Summary Compensation Table for 20152018 and 2014,2017, representing Company contributions to the Supplemental Thrift Plan are, for Mr. Fritz, $21,030$26,000 and $11,089;$24,400; Mr. Knight, $9,035$9,795 and $7,785; Mr. Butler $6,375$9,500; Ms. Ferguson, $5,500 and $5,260;$4,900; and Ms. Duren, $6,375Whited $4,921 and $5,260,$3,795, respectively. |
(e)
| (e)
| | The Aggregate Balance at Last Fiscal Year End for deferred stock unit awards represents 41,40523,426 shares of Company common stock for Mr. Fritz, 188,769201,340 shares for Mr. Knight and 11,8313,152 shares for Ms. Duren. Whited. |
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TABLE OF CONTENTS 64
Executive Compensation
Supplemental Thrift Plan.The Supplemental Thrift Plan is available to executives who otherwise participate in the Company’s Thrift Plan, which is a defined contribution plan intended to be a plan qualified under Section 401(a) of the Code. The Qualified Thrift Plan permits executives to contribute, on a pre-tax, Roth and/or after-tax basis from 2% to 75% (combined) of base salary through payroll deductions. An executive is not permitted to defer amounts from base salary under the terms of the Supplemental Thrift Plan until the earlier of the following: (i) the amount of base salary paid to the executive during the year equals the IRS prescribed limit ($265,000280,000 for 2016)2019); or (ii) the contributions to the Qualified Thrift Plan made by or on behalf of the executive (including matching contributions) equal the IRS prescribed annual addition limit under Section 415(c) of the Code ($53,00056,000 in 2016)2019). An executive who has elected to participate in the Supplemental Thrift Plan before the start of the calendar year in which one of these limits is reached will have payroll deductions on a pre-tax basis continued from his/her base pay for the remainder of the calendar year in an amountat a percentage that may differ from the pre-tax and/or after-tax deferralspercentage rate(s) the executive elected to make tounder the Qualified Thrift Plan as of the first day of the calendar year. Under the Supplemental Thrift Plan, the executive may defer from 2% to 75% of base salary. TheCurrently and unless the changes described in the following paragraph apply to the executive, the Company credits a matching amount equal to 50 cents of each dollar an executive defers to the Supplemental Thrift Plan for a pay period up to 6% of the executive’s base pay. The Supplemental Thrift Plan was amended effective January 1, 2018, as part of the changes made to the Company’s overall retirement plan design strategy, including closing the Company’s pension plan for certain employees (see pages 65 and 66). The Supplemental Thrift Plan changes will apply to an executive hired or rehired by the Company on or after January 1, 2018, or who was not accruing a benefit under the Pension Plan for Salaried Employees of Union Pacific Corporation and Affiliates on December 31, 2017 (a “Post-2017 Executive”). The same general rules described above regarding executive deferrals continue to apply to Post-2017 Executives, except that the matching amount the Company credits under the Supplemental Thrift Plan is $1 for every dollar a Post-2017 Executive defers to the Supplemental Thrift Plan for a pay period up to 6% of the Post-2017 Executive’s base salary. Furthermore, a Non-Elective Contribution feature (“NEC”) was added to both the Qualified Thrift Plan and Supplemental Thrift Plan. The NEC amount equals 3% of the Post-2017 Executive’s base salary for the calendar year. The NEC amount credited on behalf of a Post-2017 Executive under the Supplemental Thrift Plan for a calendar year is the difference between the NEC calculated under the terms of the Qualified Thrift Plan (but determined without regard to the IRS limits described in the paragraph above) and the amount of the NEC actually contributed to the Qualified Thrift Plan on behalf of the Post-2017 Executive after taking into account those limits. The NEC amount contributed to the Qualified Thrift Plan or credited to the Supplemental Thrift Plan is determined in January of the year immediately following the year to which the NEC is attributable. Deferred Compensation Plan.The Deferred Compensation Plan allows for the deferral of all or a portion of a bonus awarded under the Executive Incentive Plan and for the deferral of payment of stock units, both retention and performance based, awarded under the Stock Incentive Plans.Plan. An executive must elect by June 30th of the calendar year for which the bonus amount is awarded whether to defer any or all of his or her bonus award for such year. For retention stock units, an executiveexecutive’s election to defer payment of a vested award must electbe made prior to the beginning of the calendar year for which athe retention stock unit award is madegranted to him or her whether to defer such award when it vests.the executive. For performance stock units, an executive must elect by June 30th of the first year of the three year performance period whether to defer the payment of the entire award of vested and earned performance stock units earned.units. Rate of Return Provisions Notional accounts in the Supplemental Thrift Plan and in the Deferred Compensation Plan for bonus amounts deferred are deemed to be invested in one or more of 12 mutual funds and the Vanguard Target Retirement Funds, as well as a Company common stock fund,investment options offered in the Qualified Thrift Plan, as selected by the participating executive. Notional accounts in the Deferred Compensation Plan for bonus amounts deferred currently can be invested in the same investment options, along with the Company’s Fixed Rate Fund that bears interest equal to 120% of the Applicable Federal Long-Term Annual rate for January of the applicable year. The Vanguard Group administers all notional accounts. Executives can generally transfer amounts between investment funds each business day. Earnings reflect the increase or decrease in the value of those investment funds and any interest or dividends earned by those funds, to the same extent as if amounts were actually invested in those investment funds. Additionally, notional accounts in the Deferred TABLE OF CONTENTS Executive Compensation Plan for bonus amounts deferred can be invested in the Company’s Fixed Rate Fund that bears interest equal to 120% of the Applicable Federal Long-Term Annual rate for January of the applicable year.The value of each stock unit deferred is equivalent to that of one share of Company common stock. These amounts are tracked through notional accounts maintained by the Company.
Notional accounts in the Deferred Compensation Plan for stock units deferred are invested in notional shares of the Company’s common stock. The value of each stock unit deferred is equivalent to that of one share of Company common stock. Amounts equivalent to the dividends paid on Company common stock are added to an executive’s notional account when actual dividends are paid and are credited as reinvested in additional notional shares. These amounts are tracked through notional accounts maintained by the Company.
Payment Elections, Withdrawals and Distributions The Company adopted amended and restated plans effective as of January 1, 2009, in order to satisfy the requirements of Section 409A of the Code. Non-qualified deferred compensation amounts not subject to Section 409A of the Code, (i.e., amounts credited to an executive’s notional account as of December 31, 2004, and earnings thereon), are available for distribution or withdrawal in accordance with the terms of the Grandfathered Component of the Supplemental Thrift Plan or the Grandfathered Component of the Deferred Compensation Plan, as applicable. Non-qualified deferred compensation amounts subject to Section 409A of the Code, (i.e., amounts credited to an executive’s notional account on and after January 1, 2005, and earnings thereon), are available for distribution in accordance with the terms of the Non-Grandfathered Component of the Supplemental Thrift Plan or Non-Grandfathered Component of the Deferred Compensation Plan, as applicable. 409A Non-Grandfathered Components-Supplemental Thrift and Deferred Compensation Plans NEOs made payment elections with respect to their then-existing notional account balances under the Non-Grandfathered Component of both the Supplemental Thrift Plan and the Deferred Compensation Plan prior to the end of 2008. Generally speaking, NEOs who first participated in the Non-Grandfathered Component of the Supplemental Thrift Plan in 2009 or later may make a payment election under the Non-Grandfathered Component of the Supplemental Thrift Plan in the calendar year prior to the calendar year his or her initial deferral election becomes effective. A payment election made under the Non-Grandfathered Component of the Supplemental Thrift Plan also will apply with respect to compensation an executive elects to defer in the future under the Non-Grandfathered Component of the Supplemental Thrift Plan. Executives may make a separate payment election with respect to each bonus, retention stock unit or performance stock unit award deferred under the Non-Grandfathered Component of the Deferred Compensation Plan at the same time the deferral election is made. Generally, the same payment option must be elected for all awards of the same type (i.e., bonus or stock units) deferred to separation from service under the Non-Grandfathered Deferred Compensation Plan. The Non-Grandfathered Component of both the Supplemental Thrift Plan and Deferred Compensation Plan provide the following payment options: (i) a single lump-sum distribution at separation from service or in January of the next year following separation from service, (ii) annual installments over a period not exceeding 15 years, with the initial installment being paid as soon as administratively practicable following the executive’s separation from service or in January of the year next following such separation from service, or (iii) a single lump-sum distribution atin January of a specified future dateyear that is not to exceedearlier than 2 years and not later than 15 years fromfollowing the executive’s separation from service. However, if the executive first participates in the Non-Grandfathered Component of the Supplemental Thrift Plan after December 31, 2017, the single sum or installment payments described above cannot be made or commence before the January of the year following the year in which the executive separates from service. The Non-Grandfathered Component of the Deferred Compensation Plan also permits an executive to elect to receive payment at the earlier of: (i) July of a year specified by the executive, or (ii) separation from service. In no case, however, will an amount payable on account of a NEO’s separation from service be paid from either Non-Grandfathered Component before the date that is six months after such executive’s separation from service. Under
Generally speaking, under both plans, an executive who does not make a timely election will receive the Non-Grandfathered Component of his or her notional account at the time of his or her separation from service in a single lump-sum payment, subject to the six-month delay as described in the last sentence of the immediately preceding paragraph. However, an executive who first participates in the Non-Grandfathered Component of the Supplemental Thrift Plan after December 31, 2017 and who does not make a timely election TABLE OF CONTENTS Executive Compensation
will receive his or her notional account in January of the year following the executive’s separation from service, subject to the six-month delay rule. In the event an executive dies before receiving payment of his or her entire notional account balance, the unpaid balance is paid in a single lump-sum to the executive’s beneficiary. Generally, no withdrawals are permitted from the notional accounts maintained in connection with the Non-Grandfathered Components of either the Supplemental Thrift Plan or the Deferred Compensation Plan prior to the executive’s separation from service. Under the terms applicable to the Non-Grandfathered Components of the Deferred Compensation Plan and the Supplemental Thrift Plan, an executive may modify his or her payment election if such modification election is made prior to the executive’s separation from service and at least 12 months prior to the date payments would have commenced in accordance with the prior election. In addition, the modification must have the effect of postponing the payment commencement date by at least five years.
409A Grandfathered Components-SupplementalComponents—Supplemental Thrift and Deferred Compensation Plans An executive can take a withdrawal in cash from the Grandfathered Component of his or her notional account under the Supplemental Thrift Plan or the Deferred Compensation Plan prior to separation from service, provided that 10% of the amount withdrawn will be irrevocably forfeited by the executive. Following an executive’s separation from service, the general rule is that an executive’s notional account under the Grandfathered Component of either plan is distributed in a single sum cash payment as soon as administratively practicable. However, an executive can elect at least six months prior to his or her separation from service and in the calendar year preceding such separation from service that such component be paid:paid under one of the following payment options: (i) in a single sum cash payment at separation from service or in January of the year next following his or her separation from service, (ii) in annual installments over a period not exceeding 15 years, with the initial installment being paid as soon as administratively practicable following the executive’s separation from service or in January of the year next following such separation from service, or (iii) in a single sum cash payment atin January of a specified future dateyear that is not to exceedlater than 15 years fromfollowing the executive’s separation from service. The Grandfathered Component of the Deferred Compensation Plan also permits an executive to elect to receive payment at the earlier of: (i) July of a year specified by the executive, or (ii) separation from service. This election may be changed at least six months prior to the fixedscheduled payment date and in the calendar year preceding such date. With respect to the Grandfathered Component of the Supplemental Thrift Plan, an executive’s payment election applies to the executive’s entire notional account balance. With respect to the Grandfathered Component of the Deferred Compensation Plan, an executive may make a separate payment election for each bonus award under the Executive Incentive Plan or stock unit award under the Stock Incentive Plans;Plan; provided that the executive must elect the same payment option for all such awards of the same type (i.e., bonus or stock units) deferred to separation from service. Po
tentialPotential Payments Upon Separation from Service, Change-In-Control or Death or Disability
The information below describes certain compensation that would have become payable by the Company under existing plans assuming a separation from service or change-in-control and separation from service occurred on December 31, 20162019 (based upon the Company’s closing stock price on December 31, 20162019 of $103.68)$180.79), given the NEOs’ current compensation and service levels as of such date. The benefits discussed below are in addition to those generally available to all salaried employees, such as distributions under the qualified Pension Plan for Salaried Employees, health care benefits and disability benefits. In addition, these benefits do not take into account any arrangements that do not currently exist but may be offered by the Company in connection with an actual separation from service or a change-in-control or other factors that may vary from time to time. Due to the number of different factors that affect the nature and amount of any benefits provided in connection with these events, actual amounts payable to any of the NEOs should a separation from service or change-in-control occur during the year will likely differ, perhaps significantly, from the amounts reported below. Factors that could affect such amounts include the timing during the year of the event, the Company’s stock price, the target amounts payable under annual and long-term incentive arrangements that are in place at the time of the event, and the executive’s age. TABLE OF CONTENTS Ms. Duren
Executive Compensation
Mr. Knight retired February 28, 2017. In connection with Ms. Duren’s retirementDecember 31, 2019 and began receiving the amounts shown in the Pension Benefits at 2019 Fiscal Year End Table on page 65 and in consideration for her servicethe Non Qualified Deferred Compensation at 2019 Fiscal Year End Table on page 67. The terms of Mr. Knight’s equity awards as described in the Narrative Disclosure to the Company,Summary Compensation Table and Grants of Plan-Based Awards Table on page 60 provided for vesting upon attainment of age 62 with 10 years of service under the Board of Directors of the Company, acting upon the recommendation from theCompany’s pension plan provided he remain employed through September 30, 2019. The Compensation and Benefits Committee approved on February 2, 2017, the pro rata vesting of a retention stock unit award previously granteddid not waive any restriction periods or employment requirements in connection with Mr. Knight’s unvested equity awards. All references to Ms. Duren on February 6, 2014, with a four-year vesting period. Ms. Duren received 34,263 of the 45,684 shares under“NEOs” that follow in this award (representing three-fourths of the original award grant) and forfeited the remaining shares. The remainder of Ms. Duren’s unvested outstanding stock awards were forfeited upon her retirement.
section titled Potential Payments Upon Separation from Service, Change-In-Control or Death or Disability exclude Mr. Knight. Separation from Service In the event of the separation from service of any of the NEOs on December 31, 2016,2019, for any reason, the executive would be entitled to the executive’s accumulated retirement benefits under the Basic and Supplemental Plans in the payment forms set forth in the Pension Benefits at 20162019 Fiscal Year-End Table on page 62.65. Under both Plans, the executive must be at least age 55 and have 5 years of service (including deemed service under the Supplemental Plan) with the Company, or at least age 65 regardless of years of service, for benefits to be payable immediately. Assuming a termination date of December 31, 2016, Messrs. Knight, Butler and Ms. Duren were2019, Mr. Fritz was eligible to begin benefits immediately at January 1, 2017. The monthly amount payable as a single life annuity under the Supplemental Plan for Mr. Knight was $66,938, Mr. Butler was $29,867 and for Ms. Duren was $32,605. Assuming a termination date of December 31, 2016, Mr. Fritz would be eligible to begin his benefit on February 1, 2018 and Mr. Scott would be eligible to begin his benefit July 1, 2017.2020. The monthly amount payable as a single life annuity under the Supplemental Plan for Mr. Fritz was $52,542. Assuming a termination date of December 31, 2019, Ms. Whited would be $21,407 andeligible to begin her benefit on August 1, 2020. The monthly amount payable as a single life annuity under the Supplemental Plan for Mr. ScottMs. Whited would be $11,750. $15,486. Each of the NEOs would also be entitled to the amount shown in the Nonqualified Deferred Compensation at 20162019 Fiscal Year-End Table on page 64.67. Notional returns continue to be credited and debited under these plans through the actual payment date, so amounts may differ at the time of an actual separation from service or change-in-control. For any unvested equity awards, the Compensation and Benefits Committee may, but is not required to, waive the related restriction period and/or employment requirements. As described in the Narrative Disclosure to the Summary Compensation Table and Grants of Plan-Based Awards Table on page 57,61, the 20162019 equity awards provided for satisfaction of the continued employment requirement if an executive attains age 62 with 10 years of service under the Company’s pension plan and remains employed until September 30th in the year of grant. The Continuity Plan provides severance benefits to the NEOs in the event (i) a change-in-control occurs and (ii) the NEO incurs a severance within the two-year period following such change-in-control. Severance means a separation from service (as such term is defined in Section 409A of the Code and the regulations promulgated thereunder): (i) by the Company other than for cause or pursuant to mandatory retirement policies in existence prior to the change-in-control, or (ii) by the NEO for good reason. Under the Continuity Plan, a change-in-control means any of the following: | ·
| | any “person,” as defined in the Exchange Act, becomes the “beneficial owner,” as defined in the Exchange Act, of 20% or more of our outstanding voting securities;
|
| ·
| | there is a change in 50% of the composition of the Board of Directors (such change must be due to new directors not recommended by the Board);
|
any “person,” as defined in the Exchange Act, becomes the “beneficial owner,” as defined in the Exchange Act, of 20% or more of our outstanding voting securities; | ·
| | a merger, consolidation or reorganization that results in our shareholders holding 50% or less of the outstanding voting securities of the post-transaction entity; or
|
there is a change in 50% of the composition of the Board of Directors (such change must be due to new directors not recommended by the Board); | ·
| | a liquidation, dissolutiona merger, consolidation or reorganization that results in our shareholders holding 50% or less of the outstanding voting securities of the post-transaction entity; or sale of all or substantially all of our assets.
|
a liquidation, dissolution or sale of all or substantially all of our assets. The Continuity Plan defines a severance “for cause” if it is for any of the following reasons: (i) the NEO has willfully and continually failed to substantially perform his duties, or (ii) the NEO has willfully engaged in conduct that is demonstrably injurious to the Company, monetarily or otherwise. TABLE OF CONTENTS Executive Compensation
A severance of the NEO is for “good reason” if it is for any of the following reasons: (i) the assignment to the NEO of duties that are materially inconsistent with the NEO’s duties immediately prior to the change-in-control or any material diminution in the nature or scope of the NEO’s responsibilities from those in effect immediately prior to the change-in-control; (ii) a reduction in the NEO’s base salary or annual bonus opportunity in effect immediately prior to the change-in-control; provided, however, that
such reduction results in a material diminution in the total package of compensation and benefits provided to the NEO; (iii) a material reduction in the NEO’s pension, thrift, medical or long term disability benefits provided to the NEO immediately prior to the change-in-control; provided, however, that such reduction results in a material diminution in the total package of compensation and benefits provided to the NEO; or (iv) the failure by any successor, to all or substantially all of the business and/or assets of the Company, to expressly assume and agree to perform under the Continuity Plan. In the event of a qualifying severance following a change-in-control, each of the NEOs receives a lump-sum severance payment equal to the sum of (i) his annual base salary in effect at the time of his severance and (ii) the average annual bonus earned under the Executive Incentive Plan in the most recent three calendar years; multiplied by 3 for Mr. Fritz and by 2 for Messrs. Knight, Scott, Butler,Mr. Vena, Ms. Ferguson and Ms. Duren.Whited. The Continuity Plan also provides for automatic vesting in the Company’s Supplemental Pension Plan and the receipt of an additional three years of age and service credit, not to exceed age 65 and 40 years of service. The age and service credit is solely for purposes of determining the amount of any benefit from the Company’s Supplemental Pension Plan. The Continuity Plan provides in the event of a qualifying severance following a change-in-control that all restrictions on outstanding retention stock units awarded to each NEO lapse and all unvested stock options granted to each NEO vest and become exercisable for a period of three years (or five years if the NEO is retirement eligible) from the NEO’s separation from service. In no event will the period exceed the remaining term of the option. For outstanding performance stock units, the NEO will be entitled to receive shares equal to the number of performance stock units at the greater of (i) the target level of performance criteria or (ii) the level of performance criteria actually achieved through the end of each year prior to the date of the change-in-control and through the end of the most recent fiscal quarter ending prior to the date of the change-in-control. Other benefits under the Continuity Plan include the continuation of health insurance and dental insurance for three years following a NEO’s severance (or, if sooner, until the NEO attains the age of 52, at which time the NEO is eligible to receive benefits under the Company’s retiree medical benefit plans); provided, however, that (i) the NEO will pay the fair market value of such coverage (active or retiree, as applicable) as determined under Section 61 of the Code and the regulations promulgated thereunder, and (ii) benefit amounts received by the NEO will be reduced by any benefits received by the NEO from a subsequent employer. At its February 2014 meeting, the Committee recommended, and the Board approved, the amendment of the Continuity Plan to remove the excise tax gross-up. As a result, none of the NEOs are currently eligible to receive any excise tax gross-up on any severance payment received under the Continuity Plan. TABLE OF CONTENTS 69
Executive Compensation
The table below sets forth the estimated value of the severance payments, welfare benefits, accelerated equity awards and additional pension benefits for each NEO, assuming a change-in-control had occurred as of December 31, 2016,2019, and the NEO’s employment had immediately terminated without cause or for good reason as of that date. Amounts are reported without any reduction for possible delay in the commencement or timing of payments. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Name and Principal
Position | | Cash
Severance
Payment
(a) | | Supplemental
Pension Plan
Enhancement
(b) | | Accelerated
Vesting of
Stock
Options (c) | | Accelerated
Vesting of
Retention
Stock and
Performance
Stock Units (d) | | Other (e) | | Pre-Tax
Total | | Lance M. Fritz | | $ | 7,900,000 | | $ | 2,339,052 | | $ | 7,206,282 | | $ | 7,101,192 | | $ | 40,536 | | $ | 24,587,062 | (f) | Chairman, President & CEO | | | | | | | | | | | | | | | | | | | | Robert M. Knight, Jr. | | | 4,063,333 | | | 2,019,294 | | | 3,272,572 | | | 12,130,353 | | | 23,232 | | | 21,508,784 | | EVP & Chief Financial Officer | | | | | | | | | | | | | | | | | | | | Cameron A. Scott | | | 2,222,000 | | | 1,530,809 | | | 1,541,543 | | | 723,623 | | | 40,536 | | | 6,058,511 | (f) | EVP & Chief Operating Officer | | | | | | | | | | | | | | | | | | | | Eric L. Butler | | | 2,673,333 | | | 1,349,404 | | | 1,620,369 | | | 8,197,044 | | | 23,232 | | | 13,863,383 | | EVP & Chief Administrative Officer | | | | | | | | | | | | | | | | | | | | Rhonda S. Ferguson | | | 800,000 | | | 0 | | | 0 | | | 474,854 | | | 40,536 | | | 1,315,390 | | EVP & Chief Legal Officer | | | | | | | | | | | | | | | | | | | | Diane K. Duren | | | 2,613,333 | | | 1,295,597 | | | 1,620,369 | | | 8,197,044 | | | 23,232 | | | 13,749,575 | | Retired SVP & Corporate Secretary | | | | | | | | | | | | | | | | | | | |
__________________
Lance M. Fritz
Chairman, President & CEO | | | $2,621,938 | | | $3,483,516 | | | $13,478,944 | | | $33,196,478 | | | $25,761 | | | $52,806,637(f) | Vincenzo J. Vena
Chief Operating Officer | | | 1,200,000 | | | 0 | | | 1,464,705 | | | 2,819,605 | | | 47,736 | | | 5,532,041 | Rhonda S. Ferguson
EVP Chief Legal Officer & Corp Secretary | | | 2,515,000 | | | 706,535 | | | 1,949,556 | | | 4,993,058 | | | 47,736 | | | 10,221,885 | Elizabeth F. Whited
EVP & Chief Human Resources Officer | | | 1,149,655 | | | 1,652,366 | | | 1,814,849 | | | 3,973,944 | | | 47,736 | | | 8,638,550(f) |
(a)
| (a)
| | This amount is based on 20162019 salary and three-year average bonus multiplied by the Continuity Plan severance multiple. |
(b)
| (b)
| | This amount represents the present value of an additional three years of service credit (up to a maximum of 40 years), three years of Supplemental Plan age (up to a maximum of 65 years), and reductions for early retirement. |
(c)
| (c)
| | This amount is based upon the difference between the exercise price of the options and the Company’s closing stock price on December 31, 2016,2019, of $103.68. $180.79. |
(d)
| (d)
| | This amount is based on the Company’s closing stock price on December 31, 2016,2019, of $103.68$180.79 and assumed a payout of performance stock unitsuntis at target levels forof performance cycles ending December 31, 20172020 and December 31, 2018;2021; assumes 140%200% of target earned for performance cycle ending December 31, 2016. 2019. |
(e)
| (e)
| | For a termination as of December 31, 2016,2019, this amount includes the cost of medical premiums paid by the Company for three years and assumes no benefit reduction from a subsequent employer. |
(f)
| (f)
| | The amount of accelerated vesting of equityseverance benefits in this table was reduced by $4,697,903$6,828,062 for Mr. Fritz and $1,561,277$838,345 for Mr. ScottMs. Whited in order to avoid the characterization of the total severance benefit as an excess parachute payment under Section 280G of the Code. |
__________________
In the event the NEO ceases to be an employee by way of death or disability under the Company’s long-term disability plan, the NEO would be entitled to receive shares of stock equal to the number of outstanding performance stock units earned through the end of the fiscal year ending prior to the date of his death or disability. All unvested retention stock units and stock options would vest immediately. The
NEO or his designated beneficiary will have the lesser of five years from the date of death or disability or the remaining life of the option to exercise any outstanding stock options. TABLE OF CONTENTS Executive Compensation
Set forth below is the estimated value of the accelerated vesting of performance stock units, retention stock units and stock options for each NEO, as of December 31, 2016. | | | | | | | | | | | | | | | | | | | | Name | | Accelerated
Vesting of
Performance
Stock Units (a) | | Accelerated
Vesting of
Retention
Stock Units (b) | | Accelerated
Vesting of
Stock
Options (c) | Lance M. Fritz | | $ | 3,621,646 | | $ | 4,249,843 | | $ | 7,206,282 | Chairman, President & CEO | | | | | | | | | | Robert M. Knight, Jr. | | | 2,769,604 | | | 7,579,423 | | | 3,272,572 | EVP & Chief Financial Officer | | | | | | | | | | Cameron A. Scott | | | 707,409 | | | 818,346 | | | 1,541,543 | EVP & Chief Operating Officer | | | | | | | | | | Eric L. Butler | | | 1,285,528 | | | 6,020,594 | | | 1,620,369 | EVP & Chief Administrative Officer | | | | | | | | | | Rhonda S. Ferguson | | | 0 | | | 474,854 | | | 0 | EVP & Chief Legal Officer | | | | | | | | | | Diane K. Duren | | | 1,285,528 | | | 6,020,594 | | | 1,620,369 | Retired SVP & Corporate Secretary | | | | | | | | | |
__________________
Lance M. Fritz
Chairman, President & CEO | | | $20,367,982 | | | $6,111,425 | | | $13,478,944 | Vincenzo J. Vena
Chief Operating Officer | | | 1,409,800 | | | 0 | | | 1,464,705 | Rhonda S. Ferguson
EVP Chief Legal Officer & Corp Secretary | | | 2,745,658 | | | 1,213,824 | | | 1,949,556 | Elizabeth F. Whited
EVP & Chief Human Resources Officer | | | 2,323,694 | | | 616,675 | | | 1,814,849 |
(a)
| (a)
The amount is based on the Company’s closing stock price on December 31, 2019, of $180,79 and assumed a payout of performance stock units at target levels of performance ending December 31, 2020 and December 31, 2021; assumes 200% of target earned for performance cycle ending December 31, 2019. For Mr. Vena, assumes 100% of target earned for performance cycle ending December 31, 2019. |
(b)
| | Amounts are calculated based on the Company’s closing stock price on December 31, 2016,2019, of $103.68 multiplied by the performance stock units earned through the end of the 2016 performance year. |
| (b)
| | Amounts are calculated based on the Company’s closing stock price on December 31, 2016, of $103.68$180.79 multiplied by retention stock units that are unvested on December 31, 2016.
2019. |
(c)
| (c)
| | Amounts are calculated based on the number of unvested option shares multiplied by the difference in the Company’s closing stock price on December 31, 2016,2019, of $103.68$180.79 and the exercise price on the grant date. |
__________________
Sec
urityTABLE OF CONTENTS The median 2019 annual total compensation of all our employees who were employed as of December 31, 2019 was $79,446. The 2019 annual total compensation of Lance M. Fritz, our Chief Executive Officer (CEO), was $15,018,400. The resulting CEO pay ratio of these amounts was 189:1. The median employee is a yardman whose compensation is subject to a national collective bargaining agreement. In determining the median employee, we utilized reasonable estimates. We identified the median employee by examining the 2019 W-2 box 1 income (Taxable Income) for all individuals who were employed by us on December 31, 2019, other than our CEO. We included all employees, whether employed on a full-time, part-time or seasonal basis except that we excluded our 29 non-U.S. employees, who are based in Mexico, under the SEC’s de minimis exemption, since these employees represent less than 0.1% of our approximately 42,800 employees. Taxable income for non-seasonal employees who were not employed for the full-year was annualized. The employees were then ranked based on Taxable Income and the median employee selected. After identifying the median employee based on Taxable Income, we calculated annual total compensation for such employee using the same methodology we use for our Named Executive Officers as set forth in the 2019 Summary Compensation Table on page 58. The SEC’s rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. As a result, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios. TABLE OF CONTENTS Security Ownership of Certain Beneficial Owners and Management The following table sets forth the number of shares of common stock beneficially owned as of March 10, 201720, 2020 (except as otherwise noted), by (i) each person known to the Company to own more than 5% of the Company’s common stock, (ii) each Named Executive Officer (as defined in the CD&A section of this Proxy Statement under Executive Compensation), (iii) each director or director nominee and (iv) all current directors and executive officers (as designated in the Company’s 20162019 Annual Report on Form 10-K) as a group. The table also sets forth ownership information concerning stock units, the value of which is measured by the price of the common stock. Stock units do not confer voting rights and are not considered beneficially owned shares under SEC rules. The number of common shares and stock units included in the table are adjusted to reflect the Company’s two-for-one stock split on June 6, 2014. Andrew H. Card, Jr. | | | 18,400 | | | 31,166 | | | * | Erroll B. Davis, Jr. | | | 5,377 | | | 38,232 | | | * | William J. DeLaney | | | 5,000 | | | 1,331 | | | * | David B. Dillon | | | 4,000 | | | 7,276 | | | * | Rhonda S. Ferguson | | | 37,684 | | | 39,546 | | | * | Lance M. Fritz | | | 873,910 | | | 233,473 | | | * | Deborah C. Hopkins | | | 4,265 | | | 5,856 | | | * | Robert M. Knight, Jr. | | | 259,511 | | | 40,133 | | | * | Jane H. Lute | | | 4,051 | | | 4,246 | | | * | Michael R. McCarthy | | | 54,864 | | | 51,813 | | | * | Thomas F. McLarty III | | | 4,000 | | | 30,513 | | | * | Bhavesh V. Patel | | | 4,173 | | | 2,516 | | | * | Vincenzo J. Vena | | | 34,801 | | | 55,056 | | | * | Jose H. Villarreal | | | 5,022 | | | 24,018 | | | * | Elizabeth F. Whited | | | 109,701 | | | 34,733 | | | * | Christopher J. Williams | | | 0 | | | 146 | | | * | The Vanguard Group (c) | | | 59,984,985 | | | 0 | | | 8.64% | BlackRock, Inc. (d) | | | 46,163,868 | | | 0 | | | 6.60% | All current directors and executive officers as a group
(19 people) | | | 1,371,198 | | | 626,109 | | | * |
Name | | Number of
Shares
Beneficially
Owned (a) | | | Stock
Units (b) | | Percent of
Shares
Outstanding | Eric L. Butler | | 230,052 | | | 97,437 | | * | | Andrew H. Card, Jr. | | 18,400 | | | 26,267 | | * | | Erroll B. Davis, Jr. | | 5,042 | | | 32,893 | | * | | David B. Dillon | | 4,000 | | | 3,865 | | * | | Rhonda S. Ferguson | | 0 | | | 14,836 | | * | | Lance M. Fritz | | 536,152 | | | 229,270 | | * | | Deborah C. Hopkins | | 4,000 | | | 0 | | * | | Robert M. Knight, Jr. | | 536,719 | | | 148,830 | | * | | Charles C. Krulak | | 4,893 | | | 27,653 | | * | | Jane H. Lute | | 4,051 | | | 1,023 | | * | | Michael R. McCarthy | | 54,736 | | | 42,211 | | * | | Michael W. McConnell | | 19,010 | | | 66,235 | | * | | Thomas F. McLarty III | | 4,000 | | | 25,654 | | * | | Steven R. Rogel | | 4,000 | | | 44,427 | | * | | Cameron A. Scott | | 71,583 | | | 44,769 | | * | | Jose H. Villarreal | | 4,710 | | | 19,564 | | * | | The Vanguard Group (c) | | 52,252,361 | | | 0 | | 6.34 | % | BlackRock, Inc. (d) | | 48,523,474 | | | 0 | | 5.9 | % | Capital Research Global Investors (e) | | 42,756,715 | | | 0 | | 5.1 | % | All current directors and executive officers | | | | | | | | | as a group (18 people) | | 1,599,288 | | | 853,999 | | * | |
__________________
* Indicates ownership of less than 1% (a)
| (a)
| | Includes the maximum number of shares of common stock that may be acquired within 60 days of March 10, 2017,20, 2020, upon the exercise of stock options as follows: Mr. Butler 97,872;Ms. Ferguson 28,352; Mr. Fritz 256,091;446,173; Mr. Knight 288,423;0; Mr. Scott 38,486;Vena 27,225 and Ms. Whited 54,849; and all current directors and executive officers as a group 739,272.670,938. Also included in the number of shares owned by Mr. Fritz, and Mr. Knight 48,068; and 188,769Ms. Whited are 41,964; 158,822; and 11,651 deferred stock units, respectively, representing deferred stock option exercise gains and vested retention stock units which they will acquire as shares of common stock at termination of employment or a future designated date. |
(b)
| (b)
| | Consists of stock units payable in cash to non-management directors after retirement and held in their Stock Unit Accounts. For a discussion of the Stock Unit Grant and Deferred Compensation Plan for non-management directors, see page 29.33. These amounts for the Named Executive Officers consist of 97,437; 14,836; 229,270; 148,830;39,546; 223,473; 40,133; 55,056 and 44,76934,733 unvested stock units owned by Mr. Butler, Ms. Ferguson, Mr. Fritz, Mr. Knight, Mr. Vena, and Mr. ScottMs. Whited awarded under Company stock plans. Stock units do not confer voting rights and are not considered beneficially owned shares of common stock under SEC rules. |
(c)
| (c)
| | Based solely upon information contained in Schedule 13G/A filed on February 10, 2017,2020, reporting that, as of December 31, 2016,2019, this holder held sole and shared voting power over 1,386,1541,265,478 and 153,478250,727 of these shares, respectively, and sole and shared dispositive power over 50,805,57658,719,131 and 1,446,7851,265,854 of these shares, respectively. The address of The Vanguard Group is 100 Vanguard Boulevard, Malvern, PA 19355. |
(d)
| (d)
| | Based solely upon information contained in Schedule 13G/A filed on January 27, 2017,February 5, 2020, reporting that, as of December 31, 2016,2019 this holder held sole and shared voting power over 40,868,02039,452,657 and 0 of these shares, respectively, and sole and shared dispositive power over 48,523,47446,163,868 and 0 of these shares, respectively. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. |
TABLE OF CONTENTS 72
Security Ownership of Certain Beneficial Owners and Management
The following table summarizes the equity compensation plans under which our common stock may be issued as of December 31. 2019: Equity Compensation Plan Information Equity compensation plans approved by security holders | | | 4,549,180(1) | | | $113.35(2) | | | 70,318,887(3) | Total | | | 4,549,180 | | | $113.35 | | | 70,318,887 |
(1)
| (e)
| | Based solely upon information contained in Schedule 13G/A filed on February 13, 2017, reportingIncludes 1,047,593 retention units that as of December 31, 2016, this holder held soledo not have an exercise price. Does not include 1,659,991 retention shares that have been issued and shared voting power over 42,756,715 and 0 of these shares, respectively, and sole and shared dispositive power over 42,756,715 and 0 of these shares, respectively. The address of Capital Research Global Investors is 333 South Hope Street, Los Angeles, CA 90071.
are outstanding. |
__________________
(2)
| Does not include the retention shares described above in footnote 1. |
(3)
| Consists of 68,948,687 share of Company common stock available for issuance under the Union Pacific Corporation 2013 Stock Incentive Plan and 1,370,200 shares of Company common stock available for issuance under the Union Pacific Corporation 2000 Directors Plan. |
StockStock Ownership Requirements for Executives
The Company’s Compensation and Benefits Committee believes that stock ownership will better align the interests of our executives, including the Named Executive Officers, with those of our shareholders by enhancing the focus of executives on the long-term success of the Company. We require our executives to achieve and maintain a specified amount of stock ownership acquired primarily through the exercise of options and the receipt of retention stock or retention stock units under our equity compensation programs. Our Stock Ownership Guidelines require that the CEO hold at least seven (7) times annual salary and that the other Named Executive Officers hold at least four (4) times annual salary in stock or stock units. Until the required ownership target is achieved, executives must retain all of the shares of stock they receive from our plans, net of the shares of stock required, if any, to cover tax expense and the cost of exercising options. We do not include the following types of equity interests when calculating stock ownership under these guidelines: (i) unexercised stock options, (ii) unvested retention shares or units, and (iii) any investment in the Company stock fund under the Thrift Plan, the Supplemental Thrift Plan or the Executive Incentive Deferral Plan. As of December 31, 2016,2019, all of the Named Executive Officers were in compliance with our stock ownership requirements. Trading in Derivatives ofHedging Our Common Stock Is ProhibitedThe
Company policy prohibits directors and all employees (including the Named Executive Officers)our officers) from hedging activities,Union Pacific common stock, such as (i) buying, selling or writing puts, calls or options related to our common stock and (ii) executing straddles, equity swaps and similar derivative arrangements linked tothat hedge our common stock. In addition, directors and executive officers may not pledge, deliver as collateral, or maintain a margin account or otherwise subjectwith respect to shares of our common stock to any other prohibited security arrangement.stock. SalesSales of Our Common Stock by Executive Officers and Directors Under Rule 10b5-1 Trading Plans
Executive officersOfficers (including the Named Executive Officers)Officers and certain other executives in key positions) and directors who meet their applicable ownership requirements as described above may sell shares of our common stock subject to the following restrictions: Executive officers and directors may only sell shares of our common stock that exceed their ownership target (the Eligible Shares). TABLE OF CONTENTS | ·
| | Executive officers and directors may only sell shares of our common stock that exceed their ownership target (the Eligible Shares).
|
Security Ownership of Certain Beneficial Owners and Management
| ·
| | Eligible Shares may be sold only pursuant to a written trading plan designed to comply with SEC Rule 10b5-1, that: |
| ·
| | was adopted when a quarterly trading blackout was not in effect and when such executive officer or director was not in possession of material nonpublic information regarding the Company, |
| ·
| | has been reviewed and approved by the General Counsel’s office,
|
has been reviewed and approved by the Chief Legal Officer, | ·
| | has been disclosed to the public in a manner determined by the General Counsel’s officehas been disclosed to the public in a manner determined by the Chief Legal Officer (public disclosure may not be required for certain executives who are not executive officers), and
|
| ·
| | has been in effect for at least 20 trading days from the date of disclosure of the trading plan to the public or approval by the General Counsel’s officehas been in effect for at least 20 trading days from the date of disclosure of the trading plan to the public or approval by the Chief Legal Officer for trading plans not announced.
|
73
The total sales by an executive officer or director of Eligible Shares during any calendar year may not exceed 50% of the total shares of our common stock beneficially owned by such executive officer or director using the immediately preceding February 1st measurement date.
| ·
| | The total sales by an executive officer or director of Eligible Shares during any calendar year may not exceed 50% of the total shares of our common stock beneficially owned by such executive officer or director using the immediately preceding February 1st measurement date.
|
For purposes of this policy, the number of shares beneficially owned by an executive officer or director includes shares and units deferred by the executive officer or director and excludes any shares disclaimed by the executive officer or director for purposes of reporting beneficial ownership under Section 16 reporting of the Securities Exchange Act of 1934 (Exchange Act). All of the reporting obligations of the executive officer or director under Section 16 apply to sales made pursuant to a 10b5-1 trading plan. Re
lated Party TransactionsIn May 2016, the Company entered into an agreement with Gayla L. Thal, a former executive officer, that provided for a lump sum payment of $5.1 million in exchange for a release of claims. Due to the nature of the agreement and amount involved, the transaction was reviewed and approved by the Board.
The Railroad has historically and routinely done business with Omaha Track, Inc. and its related companies (Omaha Track). Kelvin Whited, who became the Chief Financial Officer of Omaha Track in July 2015, is the spouse of Elizabeth F. Whited, who became the Company’s Executive Vice President and Chief Marketing Officer in December 2016.
In 2016, the Railroad paid Omaha Track approximately $5.2 million for tie disposal services under a contract awarded in January 2016 through a competitive bid process, approximately $3.5 million for on-track scrap metal removal under a contract that commenced in October of 2014, and approximately $3.2 million for railcar repairs under a contract that became effective in July 2015. All of these transactions are managed by the Railroad’s Supply Department and Ms. Whited has no involvement in these matters.
Since 1994, Omaha Track has been a transload provider to customers of the Railroad for transload shipments of various materials. The Railroad paid Omaha Track approximately $782,500 in 2016 in connection with these transload services. Ms. Whited is not involved in any commercial or rate discussions involving Omaha Track.
These transactions were ratified by the Corporate Governance and Nominating Committee under the Company’s Related Party Policy.
TABLE OF CONTENTSPRO POSALPROPOSAL NUMBER 54 – Shareholder Proposal Regarding Independent Board ChairmanJohn Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, CA 90278, the owner ofwho reported owning 100 shares of the Company’s common stock, has submitted the following proposal. The proposal and supporting statement are presented as received in accordance with SEC rules, and the Company disclaims any responsibility for their content. TheIf properly presented at the annual meeting by or on behalf of the proponent, the Board of Directors recommends a vote AGAINST this proposal.proposalProposal 5 – Independent Board Chairman
. Shareholders request our Board of Directors to adopt as policy, and amend our governing documents as necessary, to require that the Chair of the Board of Directors, whenever possible to be an independent member of the Board. TheAlthough it would be better to have an immediate transition to an independent Board Chairman, the Board would have the discretion to phase in this policy for the next CEO transition, implemented so it does not violate any existing agreement. Chief Executive Officer transition. If the Board determines that a ChairChairman, who was independent when selected is no longer independent, the Board shall select a new ChairChairman who satisfies the requirements of the policy within a reasonable amount of time. Compliance with this policy is waived ifin the unlikely event that no independent director is available and willing to serve as Chair.Chairman under the succession planning program of the company. This proposal requests that all the necessary steps be taken to accomplish the above.
Caterpillar reversed itself by naming an independent board chairman in October 2016. Caterpillar had opposed a shareholder proposal for an independent board chairman as recent as its June 2016 annual meeting. Wells Fargo also reversed itself and named an independent board chairman in October 2016.
This proposal is of greater importance because our lead director, Steven Rogel, is age 73 with 16-years tenure – which makes him an insider. Additionally, Mr. Rogel chairs our nomination committee and is on our executive pay committee. Mr. Rogel has retired from his directorship at other companies. Thus he cannot bring a fresh perspective from another company to his work on our board.
According to Institutional Shareholder Services 53% of the Standard & Poors 1,500 firms separate these 2 positions – “2015 Board Practices,” April 12, 2015. This proposal topic won 50%-plus support at 5 major U.S. companies in 2013 including 73%-support at Netflix.
It
Lead Director Michael McCarthy is the responsibility of theno substitute for an independent Board Chairman. Mr. McCarthy was rejected in 2019 by more shareholders than any other director except our combined Chairman and CEO, Lance Fritz. Mr. McCarthy is apparently retired and serves on no other major Board of Directors to protect shareholders’ long-term interests by providingkeep his skills up to date. Mr. McCarthy has apparantly never served on any other major Board of Directors. An independent oversight of management. By setting agendas, priorities and procedures, the Chairman is critical in shapingbest positioned to build up the workoversight capabilities of our directors while our CEO addresses the challenging day-to-day issues facing the company. The roles of Chairman of the Board.Having a board chairman who is independent of management is a practice that will promote greater management accountability to shareholdersBoard and lead to a more objective evaluation of management.
A number of institutional investors said that a strong, objective board leader can best provideCEO are fundamentally different and should not be held by the necessary oversight of management. Thus, the California Public Employees’ Retirement System’s Global Principles of Accountable Corporate Governance recommends that a company’s boardsame person. There should be chaired by an independent director, as doesa clear division of responsibilities between these positions to insure a balance of power and authority on the Council of Institutional Investors. An independent director serving as chairman can help ensure the functioning of an effective board.
Board. Please vote to enhance shareholder value:yes: Independent Board Chairman —- Proposal 5. 4 Recommendation of the Board of Directors
First, we note that similar proposals regarding an independent board chairman were made at our annual meetings in the last 5 years. In 2019, the proposal received support from approximately 29% of voted shares and 25% of outstanding shares. This support was down from 45% of voted shares and 40% of outstanding shares in 2017, the year in which it received its greatest support out of all the years that the proposal has been made. We believe this reflects our shareholders’ recognition of the strength and independence of our fully engaged Board and the actions the Board has taken to implement robust corporate governance practices at Union Pacific. The Board of Directors opposes the proposal because it believes it to be inshareholders are best served through the best interestBoard’s existing practice of the Company for the Board to periodically evaluateevaluating the leadership structure of the CompanyBoard and make a determination regardingdetermining whether to separate or combine the roles of Chairman and CEO based on circumstances at the time of its evaluation. By retaining flexibility to adjust the Company’s leadership structure, the Board is best able to provide for appropriate management and leadership of the Company and address any circumstances the Company may face, as no single leadership model is universally or permanently appropriate in all circumstances. The Board believes that this flexibility has served the Company and its shareholders well during recent leadership transitions and has allowed the Board to operate efficiently and effectively to protect and enhance our long-term success and shareholder value. The proposal, however, deprives the Board of the flexibility to act in the shareholders’ best interests by applying a “one-size-fits-all” approach to structuring the Board rather than permitting the Board to organize its functions and manage its operations in the manner it determines to be most productive and efficient. TABLE OF CONTENTS PROPOSAL NUMBER 4 – Shareholder Proposal Regarding Independent Board Chairman
The Board’s Existing Policies Ensure that Independent Directors Operate Effectively on the Board. Board. The Board’s current policies demonstrate the Board’s continuing commitment to strong corporate governance, effective risk management and an empowered and independent Board. As described on page 2224 of this Proxy Statement, if the individual elected as Chairman is not an independent director, the independent directors also elect a lead independent director. Mr. McCarthy, not Mr. Rogel, as the proposal misstates, is the Company’s lead independent director. As discussed in the Board Leadership Structure section and inof this Proxy Statement, under the Company’s Corporate Governance Guidelines and Policies, the lead independent director (i) presides at meetings of the Board at which the Chairman and CEO is not present, including executive sessions of the independent directors; (ii) approves the flow of information sent to the Board, and approves the agenda, schedule and what materials are sent for Board meetings; (iii) serves as the liaison or facilitates working relationships between the independent directors and the Chairman
and CEO; (iv) is available for consultation and communication with major shareholders as appropriate; (v) in conjunction with the Compensation and Benefits Committee, oversees the process of evaluating and compensating the Chairman and CEO; (vi) assures that a succession plan is in place for the Chairman and CEO, as well as the lead independent director; (vii) authorizes or recommends the retention of consultants who report directly to the full Board; and (viii) assists the Board and Company officers in compliance with, and implementation of, the Company’s governance guidelines and policies. The lead independent director also has the authority to call executive sessions of the independent directors. In addition, the lead independent director will often act as Chair of the Corporate Governance and Nominating Committee, fulfilling the designated duties and responsibilities set forth in the Committee’s Charter. Because the Company’s policies ensure that there will be a lead independent director at any time that the Chairman is not independent, including times during which the positions of Chairman and CEO are both held by the same person, it is unnecessary to permanently separate the Chairman and CEO positions. Additional information about the lead independent director’s responsibilities is provided on page 2224 of this Proxy Statement. The Company Maintains Effective and Progressive Governance Practices.Practices. The Board believes that effective independence and oversight are currently being maintained through the Board Leadership Structure detailed beginning on page 2224 of this Proxy Statement, and through the Company’s sound Corporate Governance Guidelines and Policies as set forth on pages 16 through 19 of this Proxy Statement and which also can be found on our website.website at www.up.com/investors/governance. The independence of the Board as a whole satisfies both Company and New York Stock Exchange guidelines and independence standards, as 1110 of 1211 current directors (and 10 out of 11 director nominees) are outside independent directors, and the Audit, Compensation, Finance, and Governance Committees are all composed entirely of independent outside directors. Moreover, the Board routinely holds scheduled sessions of independent directors at each Board meeting, and each director may originate action items for the Board’s agenda. The Board is deeply engaged in overseeing the Company’s strategy, including implementation of Unified Plan 2020, our strategy for operating a safe, reliable and efficient railroad by increasing reliability of our service product, reducing variability in network operations and improving resource utilization costs, as well as our safety enhancement and risk management activities. In addition, the Board has adopted practices that increase its accountability to shareholders including, the adoption of “proxy access” By-Law provisions.provisions, and recently, a formalized policy for recoupment of incentive compensation that is consistent with, but also more expansive than, the proposed “clawback” rules under the Dodd-Frank Wall Street and Consumer Protection Act.The proponent provides no evidence demonstrating, or even suggesting, that requiring an independent Chairman of the Board improves corporate performance or increases shareholder value. In fact, the proponent’s inaccurate assertions about the Company’s current lead independent director, Mr. McCarthy, in no way demonstrates that requiring an independent Chairman of the Board would improve corporate performance. Pages 12 and 16 of this Proxy provide accurate information on Mr. McCarthy’s qualifications to sit on the Company’s Board, including information regarding his current and past work history, as well as information on his current and past experience serving on the boards of other public companies. Similarly, the Company’s current report on Form 8-K, filed with the SEC on May 17, 2019, discloses the actual level of votes against Mr. McCarthy at the Company’s 2019 annual shareholder meeting, and reflects that almost 97% of the votes cast supported his re-election. Mr. McCarthy has committed the time and effort to effectively help lead the Board. The Board believes that adopting a policy to restrict the Board’s discretion in selecting the Chairman would deprive the Board of the valuable flexibility to exercise its business judgment in selecting the most qualified
TABLE OF CONTENTS PROPOSAL NUMBER 4 – Shareholder Proposal Regarding Independent Board Chairman
and appropriate individual to lead the Board. The Board further believes that adopting such a policy would not provide any benefit to the Company or its shareholders, particularly in light of the Company’s policies requiring an independent lead director at any time when the Chairman is not independent. In view of the strong independent oversight of management by the Board, the Company’s sound governance practices and the business success that the Board has fostered and overseen, the Board believes the standard that would be imposed under the proposal is not productive. The Board of Directors respectfully requests that shareholders vote AGAINST Proposal 5. 4.TABLE OF CONTENTSOth PROPOSAL NUMBER 5 – Shareholder Proposal Regarding Climate Assessment Report James McRitchie, 9295 Yorkship Court, Elk Grove, CA 95758, who reported owning 80 shares of the Company’s common stock, has submitted the following proposal. The proposal and supporting statement are presented as received in accordance with SEC rules, and the Company disclaims any responsibility for their content.er MattersIf properly presented at the annual meeting by or on behalf of the proponent, the Board of Directors recommends a vote AGAINST this proposal. Resolved: Shareholders request Union Pacific (or “Company”) issue a report, at reasonable cost and omitting proprietary information, describing if, and how, it plans to reduce or offset its total contribution to climate change and align its operations with the Paris Agreement’s goal of maintaining global temperature increases well below 2 degrees Celsius. Supporting Statement: Shareholders seek information, among other issues reported at board and management discretion, on the relative benefits and drawbacks of integrating actions, such as: Adopting overall short-, medium-, and long-term, absolute greenhouse gas emissions reduction targets for the Company’s full carbon footprint, aligned with the Paris Agreement; Increasing the scale, pace and rigor of initiatives aimed at reducing the carbon intensity of Union Pacific’s services and operations; Increasing investments in route and switchyard electrifications [https://grist.org/climate-energy/how-we-can-turn-railroads-into-a-climate-solution/], as well as renewable energy resources, such as wind and solar. Background: In 2018, the Intergovernmental Panel on Climate Change advised that net carbon emissions must fall 45% by 2030 and reach net zero by 2050 to limit warming below 1.5 degrees Celsius, thereby preventing the worst consequences of climate change. The Fourth National Climate Assessment report (2018) finds with continued growth in emissions, “annual losses in some U.S. economic sectors are projected to reach hundreds of billions of dollars by 2100.” Climate change impacts present risks to investors such as increased supply chain disruptions, reduced resource availability, lost production, commodity price volatility, infrastructure damage, political instability, and reduced worker efficiency, among other factors that can disrupt company operations. The U.S. Energy Information Administration identifies the transportation sector as the largest producer of greenhouse gas emissions and its emissions are steadily increasing. Union Pacific has implemented various initiatives to improve efficiency and reduce emissions, but greenhouse gas emissions from its locomotives increased from 2017 to 2018. While Union Pacific does have a modest goal of reducing locomotive fuel consumption by 1.5% in total from 2018 through 2020, the company lacks comprehensive greenhouse gas reduction goals and plans. More than 690 leading companies, including DHL Group, have committed to reduce emissions in line with Paris Agreement goals. Deutch Bahn (a German railway company with 318,000 employees) has a goal to use 100% renewable energy by 2038 [https://ir.deutschebahn.com/en/news-presentations/news/detail/deutsch-bahn-is-focusing-solely-on-powerful-rail/] Ramping up the scale, pace and rigor of climate-related efforts may help Union Pacific unlock opportunities for growth as major business customers demand environmental accountability from suppliers. It may also help prepare for future carbon-related regulations. Similar resolutions won majority votes recently at Genesee & Wyoming [https://engagements.ceres.org/ceres_engagementdetailpage?recID=a0I1H00000C4a0TQAR], Anadarko, Exxon Mobil, Kinder Morgan, Middleby, Occidental, and Range Resources. Given the impact of climate change on Union Pacific, the economy, environment, and human systems, and the short amount of time in which to address it, our Company has a clear responsibility to investors and stakeholders to account for whether, and how, it plans to reduce or offset ongoing climate contributions. Vote FOR Climate Assessment Report – Proposal 5 TABLE OF CONTENTSShareh PROPOSAL NUMBER 5 – Shareholder Proposal Regarding Climate Assessment Report
Recommendation of the Board of Directors The Board of Directors has considered the proposal, and does not believe that it is in the best interests of the Company and its shareholders in light of all of the actions the Company is already taking to address climate change and sustainability. The Board acknowledges the importance of addressing and minimizing the environmental impact of the Company’s operations. Union Pacific has long supported corporate sustainability, including environmental and social considerations, is committed to incorporating these values in our business, and has promoted them in its practices. For example, the Company recently announced that it will set science-based greenhouse gas (GHG) emissions reduction goals at a level consistent with the Paris Agreement’s goal of limiting global warming to well below 2"C above pre-industrial levels. We help our customers transport their goods in a fuel efficient manner. Railroads are one of the most fuel efficient means of transportation. On average, trains are four time more fuel efficient than trucks. According to the American Association of Railroads, that means that moving freight by rail instead of truck can result in a relative 75 percent reduction in greenhouse gas emissions. Consistent with being part of the solution, Union Pacific offers customers a carbon emission estimator so they can calculate their potential carbon emissions savings if they use rail instead of trucks. In addition, we already constantly look for ways to improve our environmental performance by, among other things, investing in technology, maintaining equipment, training employees in environmentally friendly behaviors, and collaborating with a range of partners to try to identify opportunities to reduce our environmental impact and manage our business and land responsibly. Some examples of the Company’s efforts include: | • | We already provide an annual overview of our sustainability efforts in our Building America Reports, copies of which can be found at https://www.up.com/aboutup/corporate_info/building-america-report/index.htm. |
For the past 12 years, Union Pacific has submitted, and intends to continue to submit, climate change data to the CDP. Union Pacific earned an A- rating on the CDP’s Climate Change Survey in 2018 and a B rating on the CDP’s Climate Change Survey in 2019. In March 2020, Union Pacific announced that it has submitted a commitment letter to the Science Based Targets Initiative (SBTi) and intends to utilize SBTi’s Sectoral Decarbonization Approach Transport tool, which models targets for direct and indirect transportation emissions, to help establish Union Pacific’s GHG emissions reduction goals. SBTi assesses corporate emissions reduction targets in line with what climate scientists believe is needed to meet the Paris Agreement goals of limiting global warming to well below 2"C above pre-industrial levels. Union Pacific anticipates finalizing its target and submitting it for approval to the SBTi within a year. In 2018, Union Pacific invested in new software that runs while the train is traveling on our network to help us predict potential locomotive failures, rather than requiring the locomotives to burn fuel while being tested in a static position inside our yard. | • | Union Pacific mandates that its employees follow the Company’s environmental policy, which can be found on the Company’s website at https://www.up.com/aboutup/environment/policy/index.htm. |
We participate in and collaborate with a range of partners to identify opportunities to reduce our environmental impact and manage our land responsibly, including: GreenBiz Network, a peer-to-peer learning forum for sustainability executives from a diverse group of some of the world’s largest companies; The California Council for Environmental and Economic Balance, a nonprofit, nonpartisan coalition of industry, labor and public leaders working to solve the most pressing environmental policy problems facing California; and The Association of American Railroads Environmental Affairs Committee, a rail industry forum that shares best practices. TABLE OF CONTENTS PROPOSAL NUMBER 5 – Shareholder Proposal Regarding Climate Assessment Report
Since 2008, we have invested roughly $3.8 billion in purchasing more than 1,500 locomotives that all meet the EPA’s tier standards for emissions, some of which also meet the EPA’s stringent Tier 4 emissions standards, which reduce particulate emissions from diesel locomotives by as much as 90% and nitrogen oxide emissions by as much as 80%. At the same time, Union Pacific also retired more than 1,950 older, less fuel efficient locomotives. We continue to diligently work toward our previously announced fuel consumption goal of reducing locomotive consumption by 1.5% in total through 2020. For example, we have worked to optimize fuel consumption by expanding the use of our energy management system (EMS), which will allow high-horsepower locomotives that are equipped with EMS to use the system, similar to cruise control, in all locations that utilize Positive Train Control (PTC). PTC provides the two-way communication and data needed to optimize this EMS technology. The proposal fails to acknowledge or recognize the significant measures the Company already takes, which are based on carefully planned and executed strategies developed and implemented by the Company’s management, with Board oversight. The proposal also ignores the reports and other information the Company already makes available to its shareholders and other stakeholders. Union Pacific maintains its steadfast commitment to sustainable practices and acting as a responsible steward of the environment, and will continue to evaluate areas where it can continue to enhance both its commitment to informing our shareholders and stakeholders on our goals and accomplishments. However, the Board does not believe requiring the Company to incur the additional cost and expense to provide the didactic report on the pros and cons of generalized propositions, as requested in this proposal, would result in improved environmental stewardship, better company performance, or increased shareholder value. Instead, we believe that the additional report requested by the proposal would result in an unnecessary and unproductive use of the Company’s time and resources and negatively burden shareholder value, and that the interests of the Company’s shareholders are better served by the deliberate, thoughtful decisions and analysis of Company management, made with Board oversight. The Board of Directors respectfully requests that shareholders vote AGAINST Proposal 5. TABLE OF CONTENTS Under SEC rules, any shareholder who wishes to present a proposal to be included in our Proxy Statement and introduced at our 20182021 Annual Meeting of Shareholders must submit the proposal to the Secretary of the Company so that it is received no later than the close of business on November 29, 2017,December 4, 2020, and must satisfy the other requirements of SEC Rule 14a-8. Any shareholder who instead wishes to bring a proposal directly before the Company’s next Annual Meeting of Shareholders (other than certain proposals submitted only pursuant to SEC Rule 14a-8) must provide written notice of the proposal to the Secretary of the Company no earlier than January 11, 2018,14, 2021, and no later than the close of business on February 10, 2018,13, 2021, and must otherwise provide the information and comply with the procedures set forth in the Company’s By-Laws, a copy of which is available on the Company’s website at
www.up.com/investors/governance. Shareholders may obtain a printed copy of the Company’s By-Laws by contacting the Secretary of the Company at the address set forth on the notice page of this Proxy Statement. If a shareholder wishing to make such a proposal fails to comply with the forgoing notice provision and does not also satisfy the requirements of SEC Rule14a-4(c)(1), the Company may exercise discretionary voting authority over proxies it solicits in determining how to vote on the proposal. Any eligible shareholder wishing to nominate director candidates for inclusion in our Proxy Statement under our proxy access By-Law provisions should refer to page 1419 for applicable procedures and submission requirements. SectionDelinquent Section 16(a) Beneficial Ownership Reporting Compliance Reports
Section 16(a) of the Exchange Act requires the Company’s executive officers, directors and persons who own more than 10% of a registered class of the Company’s equity securities to file initial reports of ownership and reports of changes in ownership of the Company’s common stock with the SEC. SEC regulations require executive officers, directors and greater than 10% shareholders to furnish the Company with copies of all forms they file pursuant to Section 16(a). As a matter of practice, the Company’s administrative staff assists the Company’s executive officers and directors in preparing initial reports of ownership and reports of changes in ownership and filing such reports with the SEC. Based solely on a review of the copies of such forms furnished to the Company and written representations from the Company’s executive officers and directors, thethere was one late filing. Mr. Patel failed to file a Form 4 due to a purchase on May 18, 2018, of 20 shares of Company believes that all Section 16(a)common stock in a managed S&P 500 account. The late Form 4 filing requirements were met during 2016. was made on January 6, 2020. DeliveryDelivery of Documents to Shareholders Sharing an Address
The broker, bank or other nominee for any shareholder who is a beneficial owner, but not the record holder, of the Company’s common stock may deliver only one copy of the Company’s Proxy Statement and annual report to multiple shareholders who share the same address, unless that broker, bank or other nominee has received contrary instructions from one or more of the shareholders. The Company will deliver promptly, upon written or oral request, a separate copy of the Proxy Statement and annual report to a shareholder at a shared address to which a single copy of the documents was delivered. A shareholder who wishes to receive a separate copy of the Proxy Statement and annual report, now or in the future, should submit a request to the Secretary of the Company by telephone at 402-544-5000 or by submitting a written request to the Secretary of the Company at the address listed below. Beneficial owners sharing an address who are receiving multiple copies of proxy materials and annual reports and wish to receive a single copy of such materials in the future will need to contact their broker, bank or other nominee to request that only a single copy of each document be mailed to all shareholders at the shared address in the future. TABLE OF CONTENTSAvaila Other Matters
bilityAvailability of Annual Report on Form 10-K
If you would like an additional copy of the Annual Report on Form 10-K for the year ended December 31, 2016,2019, you may find this document at www.up.com under the “Investors” caption link. Alternatively, any shareholder wishing to receive, without charge, a copy of this document should send a written request to: Corporate Secretary, Union Pacific Corporation, 1400 Douglas Street, 19th Floor, Omaha, NE 68179.68179.The references to the Company’s website in this Proxy Statement do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this Proxy Statement. Other Business
Other Business
The Board does not currently intend to bring any other business before the Annual Meeting, and is not aware of any other business to be brought before the Annual Meeting. If any other business is properly brought before the Annual Meeting, the proxies will be voted in accordance with the judgment of the proxy holders. Whether or not you plan to attend the Annual Meeting, please vote by telephone or Internet or complete, sign, date and promptly return the accompanying proxy card in the enclosed envelope. Eric L. Butler
Rhonda S. FergusonExecutive Vice President,
Chief AdministrativeLegal Officer
and
Corporate Secretary
*** Exercise Your Right to Vote *** Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on May 11, 2017. UNION PACIFIC CORPORATION 1400 DOUGLAS ST, 19TH FLOOR OMAHA, NE 68179 Meeting Information Meeting Type: Annual Meeting For holders as of: March 10, 2017 Date: May 11, 2017 Time: 11:00 AM CDT
Location: Meeting live via the Internet-please visit UNP.onlineshareholdermeeting.com The company will be hosting the meeting live via the Internet this year. To attend the meeting via the Internet please visit UNP.onlineshareholdermeeting.com and be sure to have the information that is printed in the box marked by the arrow (located on the following page). You are receiving this communication because you hold shares in the company named above. This is not a ballot. You cannot use this notice to vote these shares. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). We encourage you to access and review all of the important information contained in the proxy materials before voting. See the reverse side of this notice to obtain proxy materials and voting instructions.
TABLE OF CONTENTS 
Before You Vote How to Access the Proxy Materials Proxy Materials Available to VIEW or RECEIVE: NOTICE AND PROXY STATEMENT ANNUAL REPORT How to View Online: Have the information that is printed in the box marked by the arrow (located on the following page) and visit: www.proxyvote.com.
How to Request and Receive a PAPER or E-MAIL Copy: If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request: 1) BY INTERNET: www.proxyvote.com 2) BY TELEPHONE: 1-800-579-1639 3) BY E-MAIL*: sendmaterial@proxyvote.com * If requesting materials by e-mail, please send a blank e-mail with the information that is printed in the box marked by the arrow (located on the following page) in the subject line. Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before April 27, 2017 to facilitate timely delivery.
How To Vote Please Choose One of the Following Voting Methods Vote By Internet: Before The Meeting: Go to www.proxyvote.com. Have the information that is printed in the box marked by the arrow (located on the following page) available and follow the instructions. During The Meeting: Go to UNP.onlineshareholdermeeting.com. Have the information that is printed in the box marked by the arrow (located on the following page) available and follow the instructions. Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a proxy card.
Voting Items The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees: 1a. Andrew H. Card Jr. 1b. Erroll B. Davis Jr. 1c. David B. Dillon 1d. Lance M. Fritz 1e. Deborah C. Hopkins 1f. Jane H. Lute 1g. Michael R. McCarthy 1i. Thomas F. McLarty III 1h. Michael W. McConnell 1j. Steven R. Rogel 1k. Jose H. Villarreal The Board of Directors recommends you vote FOR proposals 2 and 3, FOR ONE YEAR in proposal 4 and AGAINST proposal 5.
2. Ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of the Company for 2017.
3. An advisory vote to approve executive compensation ("Say on Pay"). 4. An advisory vote on the frequency of future advisory votes to approve executive compensation ("Say on Frequency").
5. Shareholder proposal regarding Independent Chairman if properly presented at the Annual Meeting. NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
UNION PACIFIC CORPORATION 1400 DOUGLAS ST, 19TH FLOOR OMAHA, NE 68179
VOTE BY INTERNET Before The Meeting - Go to www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the meeting
date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
During The Meeting - Go to UNP.onlineshareholdermeeting.com
You may attend the Meeting via the Internet and vote during the Meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: E18198-P86208
KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
UNION PACIFIC CORPORATION The Board of Directors recommends you vote FOR the following:
1. Election of Directors Nominees: For Against Abstain
1a. Andrew H. Card Jr. 1b. Erroll B. Davis Jr. 1c. David B. Dillon 1d. Lance M. Fritz 1e. Deborah C. Hopkins 1f. Jane H. Lute 1g. Michael R. McCarthy 1i. Thomas F. McLarty III 1h. Michael W. McConnell 1j. Steven R. Rogel 1k. Jose H. Villarreal
The Board of Directors recommends you vote FOR proposals 2 and 3, FOR ONE YEAR in proposal 4 and AGAINST proposal 5. For Against Abstain
2. Ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of the Company for 2017.
3. An advisory vote to approve executive compensation ("Say on Pay").
4. An advisory vote on the frequency of future advisory votes to approve executive compensation ("Say on Frequency"). 1 Year 2 Years 3 Years Abstain
5. Shareholder proposal regarding Independent Chairman if properly presented at the Annual Meeting. For Against Abstain
NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report are available at www.proxyvote.com.
UNION PACIFIC CORPORATION
Annual Meeting of Shareholders
May 11, 2017 11:00 AM
This proxy is solicited by the Board of Directors
The shareholder(s) hereby appoint(s) Lance M. Fritz, Eric L. Butler and James J. Theisen, Jr., and each of them, as proxies, each with the power to appoint his substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common stock of UNION PACIFIC CORPORATION that the shareholder(s) is/are entitled to vote at the Annual Meeting of Shareholders to be held at 11:00 AM, CDT on May 11, 2017, online at UNP.onlineshareholdermeeting.com, and any adjournment or postponement thereof.
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors' recommendations.
Continued and to be signed on reverse side
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