UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment (Amendment No. )
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United Technologies Corporation
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March 18, 2019 |
Notice of 2019 Annual Meeting of Shareowners
Meeting Information | ||||||
DATE AND TIME: | LOCATION: | Your vote is very important. Please submit your proxy or voting instructions as soon as possible. | ||||
April 29, 2019 8:00 a.m. Eastern Time (doors open at 7:30 a.m.) | UTC Center for Intelligent Buildings 13995 Pasteur Boulevard Palm Beach Gardens, Florida 33418 | |||||
Notice of 2018
ANNUAL MEETINGOF SHAREOWNERS
and Proxy Statement
COMPANY AWARDS IN 2017
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Agenda
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Proxy Statement | |
Notice of 2018 Annual Meeting of Shareowners2
Meeting Information DATE AND TIME: April 30, 2018 8:00 a.m. Eastern Time (doors open at 7:30 a.m.) LOCATION: UTC Center for Intelligent Buildings 13995 Pasteur Boulevard Palm Beach Gardens, Florida 33418 Your vote is very important. Please submit your proxy or voting instructions as soon as possible.
Agenda
Advisory Vote to Approve Executive | ||
Appoint PricewaterhouseCoopers LLP to Serve as Independent Auditor for | ||
4 | Approve an Amendment to the Restated Certificate of Incorporation to Eliminate Supermajority Voting for Certain Business | |
6 | Other Business, if Properly |
Who may vote:
If you owned shares of UTC Common Stock at the close of business on March 2, 2018,February 28, 2019, you are entitled to receive this notice of the Annual Meeting and to vote at the meeting, either in person or by proxy.
How to attend:
Please request a ticket in advance by following the instructions on page 81.77.
Please review yourthe Proxy Statement and vote in one of the four ways described in the box below.
By orderOrder of the Board of Directors,Directors.
Peter J. Graber-Lipperman
CorporateVice
Corporate Vice President, Secretary & Associate General Counsel
Voting methods available to you: | ||||
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THE INTERNET
Visit the website on your proxy card. | BY TELEPHONE
Call the telephone number on your proxy card. | BY MAIL
Sign, date and return your proxy card in the enclosed envelope. | IN PERSON
Attend the Annual Meeting in Palm Beach Gardens, Florida. See | |
United TechnologiesNotice of | i |
TABLE OF CONTENTS |
Important Notice Regarding the Availability of Proxy Materials for the Shareowner Annual Meeting of Shareowners to be held on April 30, 2018.29, 2019.This Notice of the 20182019 Annual Meeting of Shareowners and Proxy Statement, and UTC’s 20172018 Annual Report are both available free of charge atwww.proxyvote.com. References in either document to our website are for the convenience of readers, and information available at or through our website is not a part of nor is it incorporated by reference in the Proxy Statement or Annual Report.
The Board of Directors of United Technologies Corporation (“UTC,”UTC”, the “Company” or the “Corporation”) is soliciting proxies to be voted at our 20182019 Annual Meeting of Shareowners on April 30, 2018,29, 2019, and at any postponed or reconvened meeting. We expect that this Proxy Statement will be mailed and made available to shareowners beginning on or about March 19, 2018.18, 2019. At the meeting, votes will be taken on the sixfive matters listed in the Notice of Meeting.
United TechnologiesNotice of 2018
ii | United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement |
PROXY |
Summary
ANNUAL MEETING AGENDA |
1 | PROPOSAL 1: | |
2 | PROPOSAL 2: | |
3 | PROPOSAL 3: | |
4 | PROPOSAL 4: | |
5 | PROPOSAL 5: |
16% net income growth | ||
14% diluted EPS growth | ||
8% organic sales growth |
PROXY Summary ANNUAL MEETING AGENDA PROPOSAL 1: Election of Directors PAGES 6-15 BOARD RECOMMENDATION: FOR EACH DIRECTOR NOMINEE PROPOSAL 2: Advisory Vote to Approve Executive Compensation PAGE 29 BOARD RECOMMENDATION: FOR PROPOSAL 3: Approve the UTC 2018 Long-Term Incentive Plan PAGES 68-74 BOARD RECOMMENDATION: FOR PROPOSAL 4: Appoint PricewaterhouseCoopers LLP to Serve as Independent Auditor for 2018 PAGES 76-77 BOARD RECOMMENDATION: FOR PROPOSAL 5: Approve an Amendment to the Restated Certificate of Incorporation PAGE 78 BOARD RECOMMENDATION: FOR PROPOSAL 6: Shareowner Proposal PAGES 79-80 BOARD RECOMMENDATION: AGAINST
2018 Performance Highlights
Strategic Highlights |
2018 was a transformational year for UTC. With two bold steps, we have positioned our businesses to deliver strong, long-term value to our shareowners, greater opportunity to our employees, and world-class products and services to our customers well into the future.
First, we completed our acquisition of Rockwell Collins, making UTC the preeminent systems and component supplier to the aerospace and defense industry. Our investmentsnew Collins Aerospace Systems (“Collins Aerospace”) business unit, which combined UTC Aerospace Systems with Rockwell Collins, will enable us to offer customers a full suite of systems throughout an entire aircraft. Just as important, this acquisition will enhance our ability to develop electrical, mechanical and software solutions, and to deliver even more innovative products and services to our customers.
Second, we conducted a rigorous yearlong portfolio review, culminating in purposefulour plan to separate UTC into three industry-leading companies. Under this plan, both Carrier and Otis will become independent companies, while Collins Aerospace and Pratt & Whitney will remain under the UTC umbrella. Each company is expected to have the resources, capital and strategic flexibility to drive the continued innovation required to meet the evolving needs of their respective customers and our focus on execution, cost reduction and disciplined capital allocation are yielding outstanding results. markets.
Financial Highlights |
We also delivered solid financial performance in 2017. Sales, adjustedresults. Notably, we achieved 14% diluted earnings per share (“EPS”) growth (GAAP and free cash flownon-GAAP), results that exceeded our expectations. We saw 5%the expectations we communicated to investors at the beginning of the year. At the same time, sales growth in 2017,was 11% (GAAP), which included organic sales of 4% — our strongest since 2014. Importantly, each of our businesses contributed to this organic sales growth, with Pratt & Whitney leading the charge with sales and8% organic growth of 9%. Additionally, we made substantial strategic(non-GAAP), demonstrating how our investments and fully funded our U.S. qualified pension plans (as of December 31, 2017). FINANCIAL RESULTS Net Sales (in billions) Diluted Earnings per Share ($ per share) GAAP $59.8 Non-GAAP(1) $60.2 Diluted Earnings per Share ($ per share) $5.70 $6.65 4% organic sales growth GAAP Cash Flow(2) (in billions) Net Income (in billions) $5.6 $4.6 Non-GAAP(1) $3.6 $4.6 $5.3 (1) See Appendix A on pages 90-91 for more information regarding these non-GAAP financial measures. (2) “GAAP cash flow” isin innovation are paying off across all business lines. We also delivered cash flow from continuing operations while “Non-GAAP cash flow” isof $6.3 billion (GAAP) and free cash flow. See Appendix A for more information. Strategicflow of $4.4 billion (non-GAAP), while returning $2.5 billion to shareowners through dividends and Operational Highlights We announced the proposed acquisition of Rockwell Collins, which upon close (expected in the third quarter of 2018) will merge with our UTC Aerospace Systems (“UTAS”) business to create Collins Aerospace Systems. • UTC Digital Accelerator launched in Brooklyn, New York. • Pratt & Whitney met its 2017 shipment targets for the Geared Turbofan (“GTF”) engine. • Our commercial businesses gained market share and generated solid organic growth. Otis delivered its best year of organic sales growth since 2014. UTC Climate, Controls & Security (“CCS”) generated 6% sales growth, including 4% organic growth, and launched over 100 new products in 2017. Shareowner Returns “Our investments in purposeful innovation and our focus on execution, cost reduction and disciplined capital allocation are yielding outstanding results.” Greg Hayes, Chairman & CEO $2.1 billion dividends paid 19% total shareowner return $1.4 billion share buybacks United Technologies Notice of 2018 Annual Meeting of Shareowners and Proxy Statement 1
during 2018.
Net Sales (in billions) | Diluted Earnings Per Share ($ per share) | ||
GAAP | |||
Non-GAAP(1) | |||
Cash Flow(2) | Net Income | ||
GAAP | |||
Non-GAAP(1) |
(1) | See Appendix A on pages 86-87 for more information regarding these non-GAAP financial measures. |
(2) | “GAAP cash flow” is cash flow from continuing operations while “Non-GAAP cash flow” is free cash flow. |
United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement | 1 |
PROXY SUMMARY |
Executive Compensation Overview
Compensation Committee’s 2018 Pay Decisions and Program Changes |
As discussed in detail on pages 41-46, the Compensation Committee (the “Committee”) makes annual pay decisions on three principal components of our executive compensation program: base salary, annual bonus and long-term incentives (“LTI”). Total direct compensation for each Named Executive Officer (“NEO”) shown in the chart below, reflects the Committee’s assessment of Company, business unit and individual performance in 2018. For this reason, it includes the February 2019 LTI grant values approved by the Committee. This differs from the January 2018 LTI award values shown in the Summary Compensation Table on page 58, which reflect the Committee’s assessment of 2017 performance and is based on accounting valuations. Importantly, while total direct compensation provides a useful picture of the Committee’s 2018 pay decisions, the actual value an executive earns will ultimately depend on the Company’s stock price and future performance against pre-established goals.
2018 NEO TOTAL DIRECT COMPENSATION |
Base Salary ($K) | Annual Bonus ($K) | LTI ($K) | Total ($K) | |||||||||||||||
Base Salary | Annual Bonus | LTI | ||||||||||||||||
Gregory J. Hayes | 72% | $1,600 | $3,500 | $13,000 | $18,100 | |||||||||||||
Akhil Johri | 68% | $900 | $1,200 | $4,500 | $6,600 | |||||||||||||
Robert K. Ortberg | 96% | $112 | * | $140 | * | $6,000 | $6,252 | |||||||||||
Judith F. Marks | 70% | $875 | $900 | $4,100 | $5,875 | |||||||||||||
David L. Gitlin | 65% | $900 | $1,300 | $4,100 | $6,300 | |||||||||||||
“At-Risk” Compensation | ||||||||||||||||||
* | Reflects a pro-rata portion of Mr. Ortberg’s base salary and the target annual bonus paid to him for the portion of the year that he was a UTC employee (November 26, 2018, the closing date of the Rockwell Collins acquisition, through December 31, 2018). Mr. Ortberg’s annualized 2018 base salary of $1,170,500 was previously approved by the Rockwell Collins Compensation Committee prior to UTC’s acquisition of the company. |
RECENT CHANGES TO OUR COMPENSATION PROGRAM |
What | we changed | Why | we changed it | |
We changed our annual bonus funding formula for business unit executives. Beginning in 2019, the annual bonus funding formula for business unit executives will be based solely on business unit performance. Previously, 60% of funding was based on business unit performance and 40% on UTC’s overall performance. | With the announcement of our intention to separate UTC, Otis and Carrier into independent companies, the Committee believes business unit executives should focus on segment performance during the pre-separation transition period. | |||
The mix of LTI for our Executive Leadership Group (“ELG”) has changed. Beginning with the 2019 awards, ELG members (which include each of our NEOs) received 50% of their annual LTI awards in stock appreciation rights (“SARs”) and 50% in performance share units (“PSUs”). | Over the past two years, the Committee had included restricted stock units (“RSUs”) in the ELG LTI mix to enhance retention during a period of significant business investment. With the Company’s announcement to separate into three independent companies, the Committee believes that a return to the prior LTI structure of 50% SARs and 50% PSUs will help drive long-term performance during the transition period and beyond. |
2 | United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement |
PROXY SUMMARY |
How We Align Pay with Performance |
Our compensation program is designed to reward strong financial performance and strategic leadership that drives long-term, sustainable shareowner value. The largest portion of compensation for our CEO and our other NEOs is “at-risk” compensation — annual bonuses and long-term incentive awards that are contingent on Company performance relative to five key financial metrics.
Why these metrics?The Committee believes that these five metrics are essential indicators of the long-term financial health of our Company and therefore serve the fundamental objective of our executive compensation program: the alignment of executive pay with the interests of our shareowners. The Committee also believes that each of these metrics measure a particularly salient aspect of Company performance:
Annual Bonus Metrics | PSU Metrics | |
●Earningsmeasures the immediate impact of operating decisions on the Company’s annual performance. (For Corporate executive bonuses, we use net income, a UTC-wide goal; for each business unit we use earnings before interest and taxes (“EBIT”) as the relevant “earnings” metric.) ●Free Cash Flow (“FCF”)measures the Company’s ability to generate cash to fund our operations and key business investments, whether that means funding critical research and development, strategic acquisitions, paying down debt, or distributing earnings to shareowners. | ●3-Year EPS Growthmeasures the Company’s ability to create long-term, sustainable value that will ultimately drive total shareowner return. ●3-Year Return on Invested Capital (“ROIC”)measures the efficiency with which we allocate capital resources, taking into account not just the quantity of earnings, but also the quality of earnings and investments that drive sustainable growth. ●3-Year Relative Total Shareowner Return (“TSR”)measures our ability to return value to our shareowners relative to competing investment opportunities and is consistent with our program’s pay-for-performance objectives. |
How 2018 Performance Affected Incentive Payouts |
The table below shows UTC’s performance measured against the pre-established performance goals set for our 2018 annual bonus and the 3-year performance cycle for our 2016 PSU awards.
Incentive Plans(1) | Performance Results | Performance Factor | Payout Factor | |||
2018 Annual Bonus(2) | 125%(3) | |||||
Earnings (net income) | $5.9 billion | 152% | ||||
Free Cash Flow | $4.9 billion | 95% | ||||
2016 PSUs | 116% | |||||
3-Year EPS Growth | 4.4% | 98% | ||||
3-Year ROIC | 11.1% | 131% | ||||
3-Year Relative TSR vs. Companies within the S&P 500 Index | 54.9th %ile | 120% |
(1) | Performance goals and results are based on non-GAAP financial measures. See Appendix B on page 88 for definitions of the performance metrics used for our incentive compensation plans. For additional details on how these goals and results were measured, see pages 42-43. |
(2) | Reflects annual bonus goals and results for UTC. Business unit goals and results differ. Refer to pages 42-43 for additional details. |
(3) | The Committee used its discretion and reduced the calculated payout factor from 129% to 125%. See page 43 for additional details on this adjustment. |
United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement | 3 |
PROXY SUMMARY |
Governance and Board Highlights
UTC is committed to strong corporate governance practices, which the Board believes are critical to achieving long-term shareowner value and which strengthen Board and Management accountability. The following are highlights of our governance framework:
INDEPENDENT AND ENGAGED BOARD
92%framework and the diversity of our director nominees are independent
Allstanding committees except Finance are comprised entirely of independent directors
98%overall attendance by directors at ten Board meetings in 2017
99%overall attendance by directors at committee meetings in 2017
75%or more of the Board and applicable committee meetings were attended by each director in 2017
100%director attendance at the 2017 Annual Meeting
PROACTIVE GOVERNANCE IN 2017 Board:
REFRESHED AND DIVERSE BOARD
+5new independent directors since 2016
-4independent directors retired since 2016
63%of independent director nominees have served < 9 years
45%of independent director nominees are diverse
BOARD OVERSIGHT
ACCOUNTABLE BOARD
92% | of our director nominees are independent |
All | standing committees (except Finance) are comprised entirely of independent directors |
99% | overall attendance by directors at nine Board meetings in 2018 |
98% | overall attendance by directors at committee meetings in 2018 |
75% | or more of the Board and applicable committee meetings were attended by each director in 2018 |
100% | director attendance at the 2018 Annual Meeting |
REFRESHED BOARD |
+7 | new independent directors since 2016 |
-5 | independent directors retired since 2016 |
75% | of independent director nominees have served less than 9 years |
GOVERNANCE BEST PRACTICES |
● | Annual election of all directors |
● | Majority voting for directors in uncontested elections |
Robust Lead Director role with explicit responsibilities | |
● | Proxy access |
● | Shareowners can act by written consent |
● | 15% of shareowners can call special meetings |
● | Independent directors meet regularly without Management |
● | Board regularly reviews strategic direction and priorities |
● | Board regularly reviews significant risks, including cybersecurity risk |
● | Board regularly reviews government relations activities |
● | Annual advisory vote on executive compensation |
● | Rigorous stock ownership requirements for directors and senior management |
● | No hedging, short sales or pledging of UTC securities |
● | Annual Board, committee and director evaluations |
● | Active and ongoing shareowner engagement |
DIVERSITY IN BACKGROUND OF THE DIRECTOR NOMINEES |
DIVERSITY IN BACKGROUND OF THE DIRECTOR NOMINEES
current orformer CEOs | women andpeople of color | current or former CFOs or Chief Investment Officers | with STEM degrees | worked outsidethe United States |
| worked in government |
DIVERSITY IN TENURE OF THE NOMINEES
<3 years | We believe that diversity in experience and perspective on the Board areof theutmost importance for reaching sound decisions that drive shareowner value. | ||
3-8 years | |||
≥9 years |
United TechnologiesNotice of |
PROXY SUMMARY |
BOARD NOMINEES |
Skills and Expertise | ||||||||||
LLOYD J. AUSTIN III General, U. S. Army (Retired) and Former Commander of U. S. Central Command | 2016 | 2 | ■ | ■ | ■ | ■ | ||||
DIANE M. BRYANT Technology Industry Executive | 2017 | 1 | ■ | ■ | ■ | |||||
JOHN V. FARACI Retired Chairman & Chief Executive Officer, International Paper | 2005 | 2 | ■ | ■ | ■ | ■ | ||||
JEAN-PIERRE GARNIER Chairman, Idorsia Pharmaceuticals Ltd. | 1997 | 3 | ■ | ■ | ■ | ■ | ||||
GREGORY J. HAYES Chairman & Chief Executive Officer, United Technologies Corporation | 2014 | 0 | ■ | ■ | ■ | ■ | ||||
CHRISTOPHER J. KEARNEY Retired Chairman, SPX FLOW, Inc. | 2018 | 1 | ■ | ■ | ■ | |||||
ELLEN J. KULLMAN INDEPENDENT LEAD DIRECTOR Retired Chair & Chief Executive Officer, E. I. du Pont de Nemours and Company | 2011 | 3 | ■ | ■ | ■ | ■ | ||||
MARSHALL O. LARSEN Retired Chairman, President & Chief Executive Officer, Goodrich Corporation | 2012 | 3 | ■ | ■ | ■ | |||||
HAROLD W. MCGRAW III Chairman Emeritus, S&P Global Inc. (formerly McGraw Hill Financial, Inc.) | 2003 | 1 | ■ | ■ | ■ | ■ | ||||
MARGARET L. O’SULLIVAN Professor, Harvard University Kennedy School | 2017 | 0 | ■ | ■ | ■ | |||||
DENISE L. RAMOS Retired Chief Executive Officer, ITT Inc. | 2018 | 1 | ■ | ■ | ■ | ■ | ||||
FREDRIC G. REYNOLDS Retired Executive Vice President & Chief Financial Officer, CBS Corporation | 2016 | 2 | ■ | ■ | ■ | |||||
BRIAN C. ROGERS Non-Executive Chairman, T. Rowe Price Group, Inc. | 2016 | 2 | ■ | ■ | ■ | ■ |
Skills and Expertise | ||||||||||
Director Since | Other Public Boards | Financial | Government | International | Knowledge of Company/Industry | Risk Management /Oversight | Senior Leadership | Technology & Innovation | ||
LLOYD J. AUSTIN III General, U.S. Army (Retired) and Former Commander of U.S. Central Command | 2016 | 1 | ||||||||
DIANE M. BRYANT Chief Operating Officer, Google Cloud | 2017 | 0 | ||||||||
JOHN V. FARACI Retired Chairman & Chief Executive Officer, International Paper | 2005 | 2 | ||||||||
JEAN-PIERRE GARNIER Chairman, Indorsia Pharmaceuticals Ltd. | 1997 | 2 | ||||||||
GREGORY J. HAYES Chairman & Chief Executive Officer, United Technologies Corporation | 2014 | 1 | ||||||||
ELLEN J. KULLMAN Retired Chair & Chief Executive Officer, E. I. du Pont de Nemours and Company | 2011 | 2 | ||||||||
MARSHALL O. LARSEN Retired Chairman, President & Chief Executive Officer, Goodrich Corporation | 2012 | 3 | ||||||||
HAROLD W. MCGRAW III Chairman Emeritus, S&P Global Inc. (formerly McGraw Hill Financial, Inc.) | 2003 | 1 | ||||||||
MARGARET L. O’SULLIVAN Professor, Harvard University Kennedy School | 2017 | 0 | ||||||||
FREDRIC G. REYNOLDS Retired Executive Vice President & Chief Financial Officer, CBS Corporation | 2016 | 2 | ||||||||
BRIAN C. ROGERS Non-Executive Chairman, T. Rowe Price Group, Inc. | 2016 | 1 | ||||||||
CHRISTINE TODD WHITMAN President, The Whitman Strategy Group | 2003 | 0 | ||||||||
All directors, except Mr. Hayes, are independent. | |
United TechnologiesNotice of |
Executive Compensation Overview
Aligning Pay With Performance.Our compensation program’s fundamental objective is aligning our executives’ pay with the interestsTable of our shareowners. The program is designed to reward financial performance and effective strategic leadership that drives long-term, sustainable value.
Emphasis on “At Risk” Compensation.The vast majority of compensation for our CEO and other Named Executive Officers (“NEOs”) is “at risk” compensation, meaning it is contingent on performance. “At risk” compensation consists of annual bonus and long-term incentive awards that are subject to the achievement of pre-established performance goals and/or UTC’s stock performance.
As discussed in detail on pages 37-41, our executive compensation program has three principal components of compensation: base salary, annual bonus and long-term incentives (“LTI”). Total direct compensation shown below reflects the Compensation Committee’s pay decisions, which represent its assessment of each NEO’s 2017 performance. Total direct compensation includes the grant date fair value of LTI awards granted in January 2018. This differs from the values included in the Summary Compensation Table on page 54, which shows the January 2017 LTI grants that relate to the Committee’s assessment of 2016 performance.
Base | Annual | |||||||||||
Salary | Bonus | LTI* | Total | |||||||||
($K) | ($K) | ($K) | ($K) | |||||||||
Gregory J. Hayes | 9% | 20% | 71% | $1,500 | $3,300 | $12,044 | $16,844 | |||||
Akhil Johri | 14% | 19% | 67% | $860 | $1,100 | $4,003 | $5,963 | |||||
David L. Gitlin | 9% | 11% | 80% | $900 | $1,100 | $8,006 | $10,006 | |||||
Robert J. McDonough | 15% | 16% | 69% | $900 | $900 | $4,003 | $5,803 | |||||
Robert F. Leduc | 14% | 17% | 69% | $800 | $1,000 | $4,003 | $5,803 | |||||
What we changed We added RSUs to our long-term incentive mix, beginning with the January 2017 grants. Our LTI mix for Executive Leadership Group (“ELG”) members is now: 50% Performance Share Units (“PSUs”) • 30% Stock Appreciation Rights (“SARs”) • 20% Restricted Stock Units (“RSUs”) We changed the cash flow metric used in our 2018 annual bonus program. Instead of a metric based on the ratio of free cash flow to net income, beginning with the 2018 awards, we will now use an absolute free cash flow metric. We strengthened share ownership requirements. The Committee increased share ownership requirements for our CFO and business unit presidents from 3x to 4x base salary. Why we changed it Each component of our LTI program is intended to encourage specific business objectives: • PSUs encourage the achievement of important financial goals. • SARs motivate decision-making that drive share price appreciation. • RSUs, which vest contingent on an executive’s continued employment with UTC, enhance our program’s retentive value and better align our program with those of our peers Switching to an absolute free cash flow metric: • Aligns our annual bonus program with the way we now communicate cash flow expectations to our investors. • Eliminates the net income portion of this metric, which is already used as a metric in our annual bonus program. • Places more emphasis on cash flow generation. Higher share ownership requirements will enhance the alignment of interests between our senior leaders and our shareowners.
1
PROPOSAL 1 |
We are seeking your support for the election of the competitive environments. | ||
Criteria for Board Membership
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The Board and the Committee on Governance and Public Policy (the “Governance Committee”) believethat there are general attributes | |
The Boardfollowing attributes are essential for all UTC directors and the Governance Committeewe believe that it is important that our current directors as a group, have the followingexhibit these attributes:
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While we do not have a specific policy on Board diversity, of the Board, thea director’s ability to contribute to the diversity of perspectives presentnecessary in Board deliberations is an attribute that is critical to ourthe Company’s long-term success.
Key Skills and Expertise
Key Skills and Expertise |
The Board and the Governance Committee have identified the keyfollowing principal skills and expertise (and the associated attributes) that are importantessential to be represented on the Board,effective oversight in light of the Company’s business needsrequirements and strategy.
strategy:
Financial | Leadership of a financial firm, |
Government | Directors who have served in senior positions in the government |
6 | United TechnologiesNotice of |
PROPOSAL 1 | ELECTION OF DIRECTORS |
International | UTC |
Knowledge of Company/ Industry | Knowledge of or experience in |
Risk Management/ Oversight | This experience is critical to the Board’s role in overseeing and understanding major |
Senior Leadership | Extensive leadership experience |
Technology and Innovation | Experience |
The chart below representsillustrates the Board’sdiverse set of key skills and areas of expertise as a group.represented on our Board. Each director’s biography also highlights the three key skills and areas of expertise upon which the Board particularly relies in addition to describing each director’s relevantsignificant work experience and service.
KEY SKILLS AND EXPERTISE |
United TechnologiesNotice of | 7 |
PROPOSAL 1 | ELECTION OF DIRECTORS |
Director Orientation and Education
Director Orientation
Director Orientation |
New directors participate in an orientation program to familiarize them with the roles and responsibilities of the Board, and its committees, including specific topics tailored to theeach director’s committee assignments. New directors also learn about the Company’s strategy, our business units, financial statements, significant financial, accounting and risk management issues, and our compliance programs. The orientation includes meetings with key executives and, to the extent practical, visits to significant facilities and operations, such as a visit in 2017 to Pratt & Whitney’s “engine school” where directors were familiarized with engines and the associated technologies.
Director Continuing Education
Director Continuing Education |
As part of the directors’ continuing education, the Board endeavorsstrives to conductvisit at least one annual onsite visit toof UTC’s business units each year. This gives directors a UTCfirsthand understanding of the business unit, providing directors with the firsthand opportunity to understand that unit’s operations and facilitating interaction betweenfacilitates interactions with employees and key executives. For example, in 2018 directors visited two facilities in Florida (Carrier’s Center for Intelligent Buildings, a state-of-the-art building technology and employees. customer experience center, and a Pratt & Whitney test facility) and two facilities in Connecticut (Pratt & Whitney’s new Engineering & Technology Center and the United Technologies Research Center).
Directors also are also encouraged to attend outside continuing education programs. SupplementaryAdditional presentations and materials, including updates on recent business developments alsoand on topical and beneficial subjects, are provided from time to time on an individual basisto certain directors or collectively,to all directors, as appropriate, on topical and beneficial subjects.appropriate.
Board Self-Evaluation Process
The Board believesappreciates that arobust and constructive self-evaluation process is an essential element of good corporate governance, Board effectiveness, and Board effectiveness.continuous improvement. To this end, the Board conducts an annual self-evaluationevaluates annually its own performance and that of the performance of the full Board, its standing committees and individual directors. The Governance Committee is responsible for and oversees the design and conduct of the annual self-evaluation. The Lead Director or non-Executive Chairman (as applicable) and the Governance Committee Chair jointly lead the self-evaluation process. Each of the Board’s standing committees report to the Board annually on the committee’s self-evaluation of its own performance.
The Governance Committee is responsible for and oversees the design and the manner in which the annual self-evaluation is completed. | The Lead Director or non-Executive Chairman (as applicable) and the Governance Committee Chair jointly lead the self-evaluation process. |
The self-evaluation focuses on the Board’s overall effectiveness and informs the Board’s consideration of the following:
● | Board roles | |
● | ||
Opportunities to increase the Board’s effectiveness, including the addition of new skills and expertise | ||
● | Refreshment objectives, including composition and diversity | |
● | Succession planning |
As part of the 2018 evaluation process, each of the independent directors conferred with Mrs. Kullman, our Lead Director, or Mr. Rogers, the Chair of the Governance Committee, to provide practical feedback and allow for the candid assessment of peer contributions and performance. Afterwards, Mrs. Kullman and Mr. Rogers collaborated to provide a summary of the assessment, which the Board discussed in its private session.
Incorporation of Feedback.The self-evaluation process generates constructive comments and discussion, and has resulted ingenerated improvements to our corporate governance practices and the Board’s effectiveness. For example,effectiveness, including:
● | Expanding the Lead Director’s role and responsibilities |
● | Allocating more time to private sessions of the independent directors |
● | Restructuring the standing committees to allocate more time to strategy discussion at the meetings of the full Board |
● | Improving the Board’s self-evaluation process itself |
Board has expanded the roleRefreshment and responsibilities of the Lead Director, restructured the standing committees to allocate more time to strategy discussions at the meetings of the full Board and to private sessions of the independent directors, and improved upon the self-evaluation process.
Nominating Process
The Governance Committee regularly reviews with the Board the qualificationskey skills and expertise that are most important in selecting candidates to serve as directors, taking into account UTC’s assortedvaried operations and the mix of capabilities and experience represented on the Board already. As part of the Board’s annual evaluation of its overall effectiveness, the Board considers whetherthe following with regard to its composition reflects a diversitycomposition:
8 | United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement |
PROPOSAL 1 | ELECTION OF DIRECTORS |
Does the Board reflect the diversity of experience, skills and perspectives that continuously enhance its ability to carry out its oversight role and need to effectively support UTC’s growth and strategy? | Based on these considerations, the Board adjusts the priority it gives to various director qualifications when identifying candidates. | Outcomes Since 2016: ●Seven new independent directors ●More diverse Board ●Technology & cyber expertise ●Senior government & military experience ●Enhanced financial expertise ●Industrial spin-off experience |
Our Governance Guidelines require that directors retire at the annual meeting after reaching age 72, unless the Board adjusts the priority it gives to various director qualifications when identifying candidates. For example, the Board previously identified a gap in its digital and cybersecurity expertise, leadingmakes an exception to the election to the Boardpolicy in 2017 of Diane M. Bryant, formerly the Group President of Intel Corporation’s Data Center Group and the current Chief Operating Officer of Google Cloud.
special circumstances. The UTC Governance Guidelines and Bylaws, however, do not impose term limits because such limits may unnecessarily cause the loss of experience and expertise important to the optimal operationBoard believes that a director who serves for an extended period develops a deep understanding of the Board. However,Company’s history, practices and strategy, and is therefore uniquely positioned to provide insight and perspective regarding UTC’s current operations and strategic direction. Nonetheless, the Board’s self-evaluation process, including individual director evaluations, contributes to the Governance Committee’s consideration of each incumbent directorincumbent’s skills and experience as part of the nomination and refreshment process.
The Governance Committee considers candidates recommended by directors, managementManagement and shareowners who meet the qualifications UTC seeks in its directors. A shareowner may recommend a director candidate by submitting a letter addressed to the UTC Corporate Secretary (see page 8581 for contact information). The CompanyGovernance Committee also may also engage search firms from time to time to assist in identifying and evaluating qualified candidates and to ensure that the Committee is considering a larger and diverse pool of potential candidates.
The Board, upon the recommendation of the Governance Committee, has nominated for election to the twelveBoard the thirteen individuals listed in this Proxy Statement as director nominees, eachStatement. All are current directors of whom is a current directorUTC and except for Dr. O’Sullivan who joined the Board in November 2017, waswere elected by the shareowners at the 20172018 Annual Meeting.Meeting, except for Mr. Kearney and Ms. Ramos who joined the Board in December 2018.
Christine Todd Whitman is not standing for re-election. Having reached the mandatory retirement age in the Governance Guidelines, she will retire from the Board on April 29, 2019. Management and the directors extend their sincere appreciation to Governor Whitman for her years of dedicated service to UTC.
As describedMr. Kearney and Ms. Ramos possess particularly relevant experience in her biography, Dr. O’Sullivanlight of UTC’s intention to separate into three independent companies, as discussed on page 1. Among other attributes, Mr. Kearney brings to the Board and its committees (Audit and GovernanceFinance) skills and Public Policy) international, governmentexpertise in Senior Leadership, Risk Management/Oversight, and risk management/oversight experience,Knowledge of the Company/Industry (see pages 6-7 for descriptions of these skills). Moreover, Mr. Kearney served as Chairman, President & CEO at the industrial company SPX Corporation. In that role, he led the company through a portfolio transformation resulting in the spin-off of SPX FLOW, where he served in a similar position until his recent retirement. Ms. Ramos brings to the Board and its committees (Audit and Compensation) skills and expertise in Senior Leadership, Technology and Innovation, and Knowledge of the Company/Industry, among other critical and desired attributes. This experienceMs. Ramos has been honed through Dr. O’Sullivan’s service atserved as the U.S. Departmentchief financial officer of State and the White House,two companies, including ITT Corporation, which, during her tenure as CFO, separated into three publicly traded companies. One of these companies was ITT Inc., a diversified manufacturer of industrial products where sheMs. Ramos recently served on the National Security Council as Deputy National Security Advisor and as Special Assistant to the President.
Edward A. Kangas, who is currently the Lead Director and Chair of the Audit Committee, is not standing for re-election. He will retire from the Board on April 30, 2018, in accordance with UTC’s Governance Guidelines that require retirement from the Board at the annual meeting after the director reaches age 72, unless the Board makes an exception to the policy in special circumstances. The Board made such an exception for Mr. Kangas’ election at the 2017 Annual Meeting. The Company and the directors extend their sincere appreciation to Mr. Kangas for his dedicated service.
With Mr Kangas’ retirement, the Board has designated Ellen J. Kullman to serve as Lead Director and Fredric G. Reynolds to serve as Chair of the Audit Committee at the close of the 2018 Annual Meeting.
President & CEO.
If, prior to the 20182019 Annual Meeting, any of the Board’s nominees becomenominee becomes unavailable to serve, the Board may select a replacement nominee or reduce the number of directors to be elected. If the Board selects a replacement nominee, the proxy holders will vote the shares for which they serve as proxy for that replacement candidate.
nominee.
The Board of Directors recommends a vote FOR each of the following nominees: |
United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement | 9 |
PROPOSAL 1 |
General •U.S. Army (Retired) and Former Commander of U.S. Central Command
AGE 64 |DIRECTOR SINCE 2016 |COMMITTEES Audit • Governance and Public Policy
Experience:
Commander, U.S. Central Command (military leadership), 2013-2016 | |
33rd Vice Chief of Staff of the U.S. Army, 2012-2013 | |
Commander of United States Forces — Iraq, 2010-2011 | |
Other Current Directorships:
Nucor Corporation, since 2017 | |
● | Tenet Healthcare Corporation, since 2018 |
Guest Services, Inc. (non-public) |
Other Leadership Experience and Service:
Former Class of 1951 Leadership Chair for the Study of Leadership, U.S. Military Academy at West Point, 2016-2018 | |
Board of Trustees, Auburn University | |
Board of Trustees, Carnegie Corporation of New York | |
● | |
Chief Operating Officer • Google Cloud
AGE56 |DIRECTOR SINCE 2017 |COMMITTEES Audit • Finance
Experience:
Chief Operating Officer, Google Cloud | |
Group President, Data Center Group, Intel Corporation (advanced technology, enterprise, cloud and communications infrastructure), 2017 | |
Executive Vice President and General Manager, Data Center Group, Intel Corporation, 2012-2017 | |
Corporate Vice President and Chief Information Officer, Intel Corporation, 2008-2012 |
Other Current Directorships:
● | Broadcom Inc., since 2019 |
Other Leadership Experience and Service:
Chancellor’s Board of Advisors, University of California-Davis | |
● | Dean’s Executive Committee, University of California-Davis College of Engineering |
● | Former Executive Sponsor, Network of Intel African American Employees |
● | |
Former Member, Anita Borg Institute Technical Board | |
Established Diane Bryant Endowed Scholarship Fund for Diversity in Engineering at the University of |
Retired Chairman & Chief Executive Officer •International Paper
AGE 68 |DIRECTOR SINCE 2005 |COMMITTEES Compensation • Finance (Chair) • Executive
United TechnologiesNotice of 2019 Annual Meeting of Shareowners and |
PROPOSAL 1 |
Experience:
Operating Partner, Advent International (global private equity), since 2016 | |
● | Chairman & Chief Executive Officer, International Paper (paper, packaging and distribution), 2003-2014 |
Executive Vice President and Chief Financial Officer, International Paper, 2000-2003 | |
Chief Executive Officer and Managing Director, Carter Holt Harvey, Ltd. (former New Zealand subsidiary of International Paper), 1995-1999 | |
Other Current Directorships:
ConocoPhillips Company, since 2015 | |
PPG Industries, Inc., since 2012 |
Other Leadership Experience and Service:
Board of Trustees, American Enterprise Institute | |
● | |
Chairman, Board of Trustees, Denison University | |
● | |
● | Advisory Board, Royal Bank of Canada |
United TechnologiesNotice of | 11 |
PROPOSAL 1 | ELECTION OF DIRECTORS |
Chairman of the Board of Directors • Idorsia Pharmaceuticals Ltd.
AGE70 |DIRECTOR SINCE 1997 |COMMITTEES Compensation (Chair) • Governance and Public Policy • Executive
Experience:
Chairman of the Board of Directors (non-executive), Idorsia Pharmaceuticals Ltd. (biopharmaceuticals), since 2017 | |
Operating Partner, Advent International (global private equity), since 2011 | |
● | Actelion Ltd., Chairman of the Board of Directors (non-executive), 2011-2017 |
Chief Executive Officer, Pierre Fabre S.A. (pharmaceuticals), 2008-2010 | |
Chief Executive Officer and Executive Member of the Board of Directors, GlaxoSmithKline plc (pharmaceuticals), 2000-2008 | |
Chief Executive Officer, SmithKline Beecham plc (pharmaceuticals), 2000 |
Chief Operating Officer and Executive Member of the Board of Directors, SmithKline Beecham plc, 1996-2000 |
Other Current Directorships:
Chairman of the Board of Directors (non-executive), | |
● | Radius Health, Inc., since 2015 |
Former Public Company Directorships:
Renault S.A., 2009-2016 | |
Other Leadership Experience and Service:
Advisory Board, Newman’s Own Foundation | |
Board of Trustees, Max Planck Florida Institute for Neuroscience | |
Knight Commander of the Order of the British Empire | |
Officier de la |
Chairman & Chief Executive Officer •United Technologies Corporation
AGE 57 |DIRECTOR SINCE 2014 |COMMITTEES Finance • Executive (Chair)
Experience:
Chairman & Chief Executive Officer, United Technologies Corporation, since 2016 | |
President, Chief Executive Officer and Director, United Technologies Corporation, 2014-2016 | |
Senior Vice President and Chief Financial Officer, United Technologies Corporation, 2008-2014 | |
Various senior positions since joining UTC in 1999 through the merger with Sundstrand Corporation, including Vice President, Accounting and Finance, and responsibility for UTC’s Corporate Strategy | |
function |
Other CurrentFormer Public Company Directorships:
● | Nucor Corporation, 2014-2018 |
12 | United TechnologiesNotice of |
PROPOSAL 1 | ELECTION OF DIRECTORS |
Retired Chair & Chief Executive Officer • E. I. du Pont de Nemours and Company
AGE62 |DIRECTOR SINCE 2011 |COMMITTEES Governance and Public Policy (Chair) • Compensation • Executive
Experience:
● | Managing Partner, Eagle Marsh Holdings, LLC (business and real estate investments), since 2016 |
● | Chairman, SPX FLOW, Inc. (global supplier of highly engineered flow components, process equipment and turnkey solutions for the power and energy, food and beverage, and industrial markets), 2016-2017 |
● | Chairman, President & Chief Executive Officer, SPX FLOW, Inc., 2015 |
● | Chairman, President & Chief Executive Officer, SPX Corporation (global multi-industry manufacturer), 2007-2015 |
● | President & Chief Executive Officer, SPX Corporation, 2004-2007 |
● | Vice President, Secretary and General Counsel, SPX Corporation, 1997-2004 |
Other Current Directorships:
Nucor Corporation, since 2008 |
Former Public Company Directorships:
● | Polypore International Inc., 2012-2015 |
Other Leadership Experience and Service:
● | Advisory Board, Warburg Pincus, LLC |
● | Former Chairman, Foundation for the Carolinas |
Experience:
● | Chair & Chief Executive Officer, E. I. du Pont de Nemours and Company (provider of basic materials and innovative products and services for diverse industries), 2009-2015 |
President, E. I. du Pont de Nemours and Company, 2008 | |
Executive Vice President, E. I. du Pont de Nemours and Company, 2006-2008 | |
Group Vice President, E. I. du Pont de Nemours and Company, | |
1998-2006 |
Other Current Directorships:
Amgen Inc., since 2016 |
Goldman Sachs, since 2016 | |
Dell Technologies | |
Carbon3D, Inc. (non-public) |
Other Leadership Experience and Service:
● | |
Board of Advisors, Tufts University School of Engineering | |
Board of Trustees, Northwestern University | |
● | The Business Council |
North American Advisory Council, |
Retired Chairman, President & Chief Executive Officer •Goodrich Corporation
AGETable of Contents 69 |DIRECTOR SINCE 2012 |COMMITTEES Audit • Finance
Experience:
Chairman, President & Chief Executive Officer, Goodrich Corporation (supplier of systems and services to the aerospace and defense industry), 2003-2012 | |
President, Chief Operating Officer and Director, Goodrich Corporation, 2002-2003 | |
Executive Vice President, Goodrich Corporation, and President and Chief Operating Officer, Goodrich Aerospace, 1995-2002 |
Other Current Directorships:
Air Lease Corporation, since 2014 | |
Becton, Dickinson and Company, since 2007 | |
Lowe’s Companies, Inc. |
Other Leadership Experience and Service:
Chairman Emeritus • S&P Global Inc. (formerly McGraw Hill Financial, Inc.)
AGE69 |DIRECTOR SINCE 2003 |COMMITTEES Compensation • Governance and Public Policy
Experience:
Chairman Emeritus, S&P Global Inc. (formerly McGraw Hill Financial, Inc.) (ratings, benchmarks and analytics for financial reports), since 2015 | |
Chairman, McGraw Hill Financial, Inc., 1999-2015 | |
President and Chief Executive Officer, The McGraw-Hill Companies, 1998-2013 | |
President and Chief Operating Officer, The McGraw-Hill Companies, 1993-1998 | |
Other Current Directorships:
Phillips 66 Company, since 2012 | |
Former Public Company Directorships:
Other Leadership Experience and Service:
Board of Trustees, Asia Society | |
Former Chairman, Business Roundtable | |
Board of Trustees, Carnegie Hall | |
● | |
Board of Trustees, New York Public Library | |
Chairman, U.S. Council for International Business | |
● | |
14 | United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement |
Professor •Harvard University Kennedy School
AGE 48 |DIRECTOR SINCE 2017 |COMMITTEES Audit • Governance and Public Policy
Experience:
Jeane Kirkpatrick Professor of the Practice of International Affairs, Harvard University Kennedy School (higher education), since 2009 | |
Director of the Geopolitics of Energy Project, Harvard University Kennedy School, since 2011 | |
Lecturer and Senior Fellow, Harvard University Kennedy School, 2008-2009 | |
Deputy National Security Advisor for Iraq and Afghanistan, National Security Council, 2005-2007 | |
Special Assistant to the President, National Security Council, 2004-2007 | |
Deputy Director (Governance), Iraq Coalition Provisional Authority, 2003-2004 |
Principal Advisor to the President’s Special Envoy to the Northern Ireland Peace Process, U.S. Department of State, 2001-2003 | |
Fellow, The Brookings Institution, 1997-2001 | |
Other Leadership Experience and Service:
Aspen Strategy Group | |
● | Adjunct Senior Fellow, Council on Foreign Relations |
Advisory Council, George W. Bush Institute Women’s Initiative | |
Board of Trustees, The German Marshall Fund of the United States | |
● | Board of Trustees, The International Crisis Group |
International Advisory Board, Linklaters LLP | |
● | Board of Directors, The Mission Continues |
● | |
Experience:
● | Chief Executive Officer & President, ITT Inc. (formerly ITT Corporation – a diversified manufacturer of critical components and customized technology solutions), 2011-2018 |
● | Senior Vice President and Chief Financial Officer, ITT Corporation, 2007-2011 |
● | Chief Financial Officer, Furniture Brands International (home furnishings), 2005-2007 |
● | Senior Vice President & Corporate Treasurer, Yum! Brands, Inc., and Chief Financial Officer, KFC Corporation (U.S. Division), 2000-2005 |
Other Current Directorships:
● | Phillips 66 Company, since 2016 |
Former Public Company Directorships:
● | ITT Inc., 2011-2018 |
● | Praxair, Inc., 2014-2016 |
United TechnologiesNotice of |
PROPOSAL 1 | ELECTION OF DIRECTORS |
Retired Executive Vice President & Chief Financial Officer • CBS Corporation
AGE67 |DIRECTOR SINCE 2016 |COMMITTEES Audit • Finance
Experience:
Executive Vice President and Chief Financial Officer, CBS Corporation (mass media), 2005-2009 | |
President and Chief Executive Officer, Viacom Television Stations Group (CBS predecessor), 2001-2005 | |
Executive Vice President and Chief Financial Officer, Viacom, Inc., 2000-2001 | |
Executive Vice President and Chief Financial Officer, Westinghouse Electric Corporation, 1994-2000 | |
Various positions at PepsiCo, Inc., 1982-1994 |
Other Current Directorships:
Hess Corporation, since 2013 | |
● | |
MGM Holdings, Inc. (non-public) | |
NEP Group, Inc. (non-public) | |
Pinterest (non-public) | |
Former Public Company Directorships:
● | AOL, Inc., 2009-2015 |
Non-Executive Chairman •T. Rowe Price Group, Inc.
AGE 62 |DIRECTOR SINCE 2016 |COMMITTEES Compensation • Finance
Experience:
Chairman of the Board of Directors, T. Rowe Price Group, Inc. (investment management), 2007-2017 | |
Chief Investment Officer, T. Rowe Price Group, Inc., 2004-2017 | |
Various other senior leadership roles since joining T. Rowe Price Group, Inc., in 1982 | |
Other Current Directorships:
● | Chairman of the Board (non-executive), T. Rowe Price Group, Inc., since 2017 |
● | Lowe’s Companies, Inc., since 2018 |
Other Leadership Experience and Service:
Chairman, Finance Committee, Archdiocese of Baltimore | |
Board of Directors, Harvard Management Company | |
Board of Trustees, Johns Hopkins Medicine | |
United TechnologiesNotice of |
President • The Whitman Strategy Group
AGETable of Contents71 |DIRECTOR SINCE 2003 |COMMITTEES Finance • Governance and Public Policy
Experience:
Former Public Company Directorships:
Other Leadership Experience and Service:
CORPORATE |
Governance
Our Commitment to Sound Corporate Governance
UTC is committed to strong corporate governance practices that are designed to maintain high standards of oversight, accountability, integrity and ethics while promoting long-term growth in shareowner value.
Our governance structure enables independent, experienced and accomplished directors to provide advice, insight and oversight to advance the interests of the Company and our shareowners. UTC has long strived to maintain sound governance standards, as reflected in our Code of Ethics, Governance Guidelines, our systematic approach to risk management, and in our commitment to transparent financial reporting and strong internal controls.
We encourage you to visit the Corporate Governance section of our websitewww.utc.com/Who-We-Are/Corporate-Governance/Pages/default.aspx(www.utc.com)where you maycan access information about corporate governance at UTC, including:
| Governance Guidelines
|
● | Board Committee Charters
|
● | Certificate of Incorporation and Bylaws
|
● | Code of Ethics
|
● | Director Independence Policy
|
● | Related |
● |
|
● | Stock ownership requirements |
● | Information about our Ombudsman
|
● | Information about how to communicate concerns to the Board of Directors |
Shareowner Engagement
The Board and Management believe in transparent and open communication with investors. Over the years, those engagements have improved our engagement with investors has resulted in a number of changes to our Corporate Governance Guidelines,corporate governance practices, increased shareowner rights, Boardchanged the Board’s composition, and improved the design of our executive compensation program.
program and disclosure.
Each fall we solicit feedback from our largest investorsshareowners on changes that the Board (or a Committee) is considering with respect toregarding UTC’s executive compensation program and on our corporate governance practices. In the spring, after the proxy statement is filed, we holdour discussions that generally focus on the clarity and effectiveness of our disclosures and respondon matters that are of interest to investors’ questions. From time to time, weinvestors. We also have also discussed other topics with investors, such as Board composition, leadership structure, governance best practices, executive compensation program design, corporate social responsibility, and UTC’s diversity and sustainability efforts.
initiatives.
In addition, senior leadersManagement and independent directors routinely engage with our shareowners on financial performance, capital allocation and business strategy. In 2017,2018, Management hosted the Investor and Analyst Meeting, presented at sevenfive industry conferences, and investor days, hosted shareowners at UTC’s Corporate Headquarters and visited shareowners in the Americas Asia and Europe throughout the year.Europe.
United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement | 17 |
CORPORATE GOVERNANCE |
Board Leadership Structure
Policy on Chairman and CEO Roles
Chairman and CEO Roles |
The Committee on Governance and Public Policy (the “Governance Committee”)Committee routinely reviews our governance practices and board leadership structure. Under our Corporate Governance Guidelines, the Board does not have a fixed policy on whether or not the Company’s CEO also is permitted to serve simultaneously as Chairman of the Board. Instead, the Board believes this determination should be based on the Company’s best interests in light of the circumstances, which may vary over time. The Board, therefore, choosesselects the structure that it believes canwill provide the most effective leadership and oversight for the Company while also facilitatingin the most effective functioning of the Board and Management.circumstances. In making this decision at any given point in time, the Board considers a range of factors, including: the Company’s operating and financial performance under the then-existing structure;performance; any recent or anticipated changes in the CEO role; the effectiveness of the then-current processes and structures for Board interaction with and oversight of management;Management; and the importance of maintaining a single voice in leadership communications and Board oversight, both internally and with investors.
Lead Director Responsibilities
Under our Corporate Governance Guidelines, the Board designates a non-employee director to serve as Lead Director when the Chairman is not independent. The Lead Director’s responsibilities include the following and essentially mirror the non-executive Chairman’s responsibilities of the non-executive Chairman under the GovernanceUTC’s Guidelines and Bylaws:
| Calls and presides over private sessions of the independent directors or special meetings of the Board of Directors
|
● | Serves as a liaison between the independent directors and the Chairman
|
● | Engages with significant constituencies, as requested
|
● | Works with the Chairman to plan and set the agenda for Board meetings |
● |
|
● | Facilitates succession planning and management development
|
● | Works jointly with the Chair of the Governance Committee to lead the Board’s annual self-evaluation process
|
● | Authorizes retention of outside advisors and consultants who report to the Board on |
The Board believes that a non-executive Chairman or Lead Director with definedwell-defined responsibilities enhances the effectiveness of the independent directors, improves risk management and oversight, and provides a channel for independent directors to candidly raise issues or concerns for Board consideration.
UTC’s independent directors meet in regularly scheduled private sessions without Management and in additional sessions when requested. In practice, the private sessions occur before or after most Board meetings.
18 | United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement |
CORPORATE GOVERNANCE |
Board Committees
Our Board has four standing committees: Audit, Governance and Public Policy, Compensation and Finance. Except for the Finance Committee (which includes our CEO as a member), each standing committee is composed exclusively of independent directors. Each standing committee has the authority to retain independent advisors to assist in the fulfillment of its responsibilities, to approve the fees paid to those advisors and to terminate their engagements.
All committee charters, which are reviewed by each committee annually, are available on the Corporate Governance section of UTC’s website (see page 16)17).
| (Chair) Lloyd J. Austin III
|
The Board determined during 2017in 2018 that Messrs. Kangas, LarsenReynolds and ReynoldsKearney, and Ms. Ramos each are “audit committee financial experts,” as that term is defined in SECthe Securities and Exchange Commission (“SEC”) rules.
* Appointed a member of the Committee effective November 1, 2017.
|
Lloyd J. Austin III
| individual directors |
* Appointed to the Committee effective December 10, 2018.
|
Jean-Pierre Garnier (Chair) John V. Faraci
2018 Meetings: 5 |
●Reviews and approves the design of and ●Reviews a risk assessment of UTC’s compensation policies plans, and practices |
| John V. Faraci (Chair) Diane M. Bryant
|
* Appointed a member ofto the Committee effective November 1, 2017.December 10, 2018.
Director Independence
Under the UTC Corporate Governance GuidelinesUTC’s Director Independence Policy and the New York Stock Exchange (“NYSE”) listing requirements,standards a majority of our directors must be independent.independent; meaning, the director does not have a direct or indirect material relationship with UTC (other than as a director). The Board has therefore adopted a Director Independence Policy available on our website (see page 16), to guideguides the director independence determination includingand includes the categories of relationships that the Board has determined are not material relationships that would not affectimpair a director’s independence.
The policy is available on our Company website (see page 17).
Before joining the Board and annually thereafter, each director completes a detailed questionnaire that providesseeking information about relationships and transactions that may require disclosure, that may affect the independence determination, or that may otherwise require disclosure.affect the heightened independence standards that apply to members of the Audit and Compensation Committees. The Governance Committee then completes anCommittee’s assessment consideringof independence considers all known relevant facts and circumstances about any relationshipthose relationships bearing on the independence of a director or nominee. In determining the independence of our directors, the Governance Committee consideredThe assessment also considers sales and purchases of products and services, in the ordinary course of business, between UTC (including its subsidiaries) and other companies as well asor charitable organizations where directors and nominees are or(and their immediate family members) may have been executive officers. relationships pertinent to the independence determination.
In each of the past three years, the annual payments UTC made or received for products and services oras well as UTC’s charitable contributions fell well below the thresholds in our Independence Policy and the NYSE listing requirementsstandards (the greater of $1 million or 2% of the other company’scompany or organization’s total gross revenues).
The Board has determined that each of the nominees for election at the 20182019 Annual Meeting, other than Mr. Hayes, qualifies asare independent under theUTC’s Independence Policy and the NYSE requirements. Specifically,listing standard because none of the nominees, other than Mr. Hayes, has a business, financial, family or other relationship with UTC that is considered to be material under UTC’s Independence Policy.material.
20 | United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement |
CORPORATE GOVERNANCE |
How We Manage Risk
Our Risk Management Framework |
UTC encounters a range of risks, including legal, financial, operational, strategic, and reputational. And among these broad categories, specific risks include human capital, market conditions, the overall political climate, and the impact of disruptive events, such as natural disasters.
Our Risk Management Framework
UTC’sTo manage these risks, UTC has implemented a comprehensive enterprise risk management (“ERM”) program and policies conformthat conforms to the criteriaEnterprise Risk – Management Integrated Framework established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013. Under our policies, the president. As part of UTC’s ERM program, each major business unit president is responsible for identifying and reporting to the Chairman & CEO – as part of a mid-year compliance review – the notable business and compliance risks that could affect the achievement of business goalsbusiness’ operating plan and strategies,strategic initiatives, assessing the likelihood and potential impact of significantthe pertinent risks, and prioritizing these risks anddesigning the actions to be taken to address them.
mitigation plans. The Chairman & CEO, Chief Financial Officer, and General Counsel periodically report on UTC’s risk management policies and practices to the relevant Board committeesat least annually on business unit risks, functional risks and to the full Board.associated mitigation plans.
The Board’s Role in Risk Management
The Board’s Role in Risk Management |
The full Board is responsible for the oversight of UTC’s risk management process and structure, while the Audit Committee oversees UTC’s overall policies and practices for enterprise risk management. In addition, responsibility for the oversight of specific risk categories is allocated among the Board and its committees as follows:
BOARD RISK OVERSIGHT: AREAS OF RESPONSIBILITY |
|
|
|
|
| ||||
Full Board of Directors | ●Risk management program ●Major strategies and business objectives ●Most significant risks, such as major litigation ●Succession planning ●Government relations | Audit Committee | ●Financial ●Operational ●Compliance ●Reputational ●Strategic ●Cybersecurity | Committee on Governance and Public Policy |
| |||
|
|
|
●Compensation and benefits policies, practices and plans metrics and goals ●Compensation plan design ●Executive retention |
●Capital structure |
Compensation Risk
The Compensation Committee believes that executive compensation payouts must align with the Company’s financial performance, be earned in a manner consistent with UTC’s Code of Ethics, promote long-term, sustainable value for shareowners, and strike a balance between appropriate levels of financial opportunity and risk. Through UTC’s ERM framework, the Compensation Committee identifies, monitors and mitigates compensation risk in the following ways:
Emphasis on Long-Term |
● | Rigorous Share Ownership |
21 |
CORPORATE GOVERNANCE |
● | Prohibition on |
● | Clawback |
● | Post-Employment |
Public Policy Engagement
UTC’s government relations initiatives are intended to educate and inform officials and the public on a broad range of public policy issues that are important to our businesses. These initiatives are consistent with the interests of UTC’s shareowners and are not based on the personal agendas of individual directors, officers or employees. The Board is actively engaged in reviewingreviews and monitoringmonitors the Company’s government relations activities, including the activities of the United Technologies Corporation Federal Political Action Committee (“UTC PAC”).
, which is funded entirely by voluntary employee contributions.
UTC does not make political contributions to candidates for federal office. The UTC PAC is nonpartisan and supports candidates for federal office and the national political organizations of both major parties through voluntary giving by individual employees — thus providing employees, regardless of their political affiliations, with a legal and ethical way to speak with a unified voice on issues that are important to our Company.
The UTC PAC’s contributions are available on our website (see page 17).
UTC does not contribute to candidates for state and local office or to state and local party committees. We also do not make contributions towardsto fund communications to the general public that expressly advocate the election or defeat of a clearly identified federal candidate, nor do we provide funding to support or oppose ballot initiatives.
measures.
UTC’s federal lobbying activities and expenditures can be reviewed through the reports filed with Congress that can be accessed through our Company website referenced on(see page 16.17). UTC’s state lobbying activities, which also are also available onthrough our website, are generally limited to 10 states and involve issues such as building safety and related building codes, economic development, and various business regulation issues.
| |
For the | |
United TechnologiesNotice of |
CORPORATE |
Responsibility
Corporate Sustainability
UTC has long recognized the value of sustainable practices, and since 1992 has implemented sustainability initiatives throughout our organization and value chain. We believe our operations should not compromise the environmental or economic health of future generations, and we also have seen firsthand how responsible management practices provide value to our operations, employees, customers, shareowners and the communities where we operate.
We believe that trends in urbanization and population growth will continue to increase demand for more sustainable products and behaviors. Each of UTC’s major businesses is critical to modern life and the continuing development of prosperous economies around the world. As a recognized leader in these sectors, UTC is well-positioned to reduce the impact of urbanization and population growth on the environment. We offer our customers the most cutting-edge, sustainable technologies, while continually workworking to reduce the environmental footprint of our manufacturing facilities, while offering our customersfacilities. Some of these technologies are highlighted on the most cutting-edge, sustainable technologies, including:inside front cover of this Proxy Statement and others include:
Aerospace | ||
●Since entering into service in early 2016,Pratt & Whitney’s Geared Turbofan (“GTF”) engine | ||
| ||
●Collins Aerospace’s next generation nacelle system,featuring a 360-degree acoustically smooth inlet, helps reduce noise from aircraft powered by engines like Pratt & Whitney’s GTF engine. | Less | |
●Collins Aerospace’s SmartProbe Air Data Systemreduces the number of sensors and pneumatic pressure lines, resulting in weight savings of up to 50% when compared to traditional systems, thereby reducing fuel burn. | Reduces |
Commercial Buildings | ||
●Otis’ Gen2 machineuses flexible polyurethane steel-reinforced belts in place of steel cables and features ReGen drive technology – innovations that reduce energy consumption by 75% under normal operation compared to conventional systems without regenerative technology. | 75% | |
Food Transportation | ||
●Carrier’s NaturaLINE unitcombines a natural refrigerant CO2with energy-efficient technology to reduce the carbon footprint of marine container refrigeration by 28%, when compared to previous Carrier equipment using conventional synthetic refrigerants. | ||
| ||
We continually work to reduce the environmental footprint of our manufacturing facilities, while offering our customersthe most cutting-edge, sustainable technologies.
Since 1997 we have achieved:
reduction in carbon footprint | |||
United TechnologiesNotice of |
CORPORATE RESPONSIBILITY |
Since 1997 we have achieved: | |||||||
35% | 62% | all during a period when we nearly | |||||
reduction in our greenhouse gas emissions | reduction in water consumption |
Progress Toward Our 2020 Environmental Sustainability Goals |
Progress Toward Our 2020 Environmental Sustainability Goals
We set five-year environmental sustainability goals for which we track progress on an annual basis. Our current goals are for the period between 2016 and 2020. We are committed to a targeted reduction in environmental impacts, irrespective of business growth. As a result, we measure our progress towards the attainment of these goals in absolute terms, rather than adjusting for the opening or closing of manufacturing facilities.(1)In 2017,2018, we saw progress in all of our goals:
(1) | Consistent with the Greenhouse Gas Protocol, UTC’s goals and targets are adjusted to reflect the impact of acquired companies at the time of acquisition and to remove divested companies from UTC’s measured performance. For example, goals and actual performance were recalibrated in 2013 to account for the Goodrich acquisition and in 2015 to reflect the sale of Sikorsky. UTC’s goals and targets are not adjusted for the opening of new facilities due to organic growth or for the closing of facilities without a divestiture. Actual levels reflect data reported quarterly by UTC sites under common reporting and quality standards. Reported data are reviewed and consolidated by UTC’s Corporate Office. UTC annually submits site energy use and greenhouse gas emissions data |
(2) | The 2020 goals and progress toward these goals are compared to the following 2015 adjusted baselines: greenhouse gas emissions |
CDP (formerly the Carbon Disclosure Project) The |
We are committed to a targeted reduction in environmental impacts, regardless of business growth. |
United TechnologiesNotice of |
CORPORATE RESPONSIBILITY |
Corporate Citizenship
UTC takes great pride in building a diverse work environment, supporting lifelong employee learning, and contributing to charitable and community causes. In the same way that we set the highest standards for our business operations, we apply the highest corporate responsibility standards and rigorous performance measurements to these efforts.
UTC’s Commitment to Diversity and Inclusion |
We are committed to Diversity and Inclusion
We believe thatcreating a diverse, inclusive workforce and inclusive workplace provides us with a competitive advantagenurturing an environment where all employees can be themselves and enables usshare ideas openly. Our efforts focus on advancing gender parity, encouraging employee-led engagement and enhancing opportunities for professionals who want to better meetreturn to work after voluntary time away.
Advancing Gender Parity
UTC is committed to the needsadvancement of a globally diverse market and customer base by encouraging innovative thought, better team performance and quality customer service.
Paradigm for Parity
women in leadership positions. In 2017, UTCwe joined the Paradigm for Parity coalition (“P4P”), pledging our coalition and put this commitment to achieving gender parity across all levels of corporate leadership. As part of this pledge, UTC has adoptedinto action by adopting the P4P five-point roadmap:roadmap shown below. As a signatory to P4P, we set a goal to achieve 50% women in leadership roles by 2030. Several activities currently underway are advancing our efforts towards achieving our goal, including our Inclusive Leaders Curriculum training for managers and other employees. We also recognize that sponsorship is important to career advancement so we provide a framework for high-performing women to have that support and visibility.
Employee Engagement
We support and encourage our employees to join Employee Resource Groups (“ERGs”), which foster advocacy, professional development, education and mentoring, along with community outreach. We support nine global ERGs (African-American, Asian-American, Disability, Generational, Hispanic-American, LGBTQ Pride, Military Veterans, Professional and Women) with more than 100 chapters and an estimated 5,000 members.
Opportunities to Re-enter the Workforce
|
We understand that returning to work after a career break can be challenging. The UTC Re-Empower Program, launched in 2017, eases this transition by helping professionals bring their knowledge, experience and creativity back to the workforce after voluntary time off. This program offers on-the-job experience, career guidance and mentoring over a 16-week period.
2018 Recognition for Diversity and Inclusion |
Among America’s Best Employers for Women | Among Best Placesto Work for | |||||
|
UTC earned | |||||
Among Best Places to Work forEmployment Disability Inclusion | Among Noteworthy Companies for Diversity Practices | |||||
UTC was recognized by the Disability Equality Index (“DEI”), a joint initiative between |
UTC was named a noteworthy company byDiversityInc, | |||||
Among Best Places for Women to Work | Among Best Companies for Latinas to Work | |||||
UTC was recognized byFairygodbossas the ninth best workplace for women in 2018. This ranking was determined by a survey around overall job satisfaction, equal treatment at work and whether female employees would recommend that other women work for their employer. | For the sixth straight year, UTC was ranked among the top 10 best places to work for Latinas out of 50 companies honored byLatina Style Magazine. |
|
United TechnologiesNotice of |
CORPORATE RESPONSIBILITY |
Our Employee Scholar Program |
Our Employee Scholar Program
At UTC, we support a culture of lifelong learning in which our employees are encouraged to expand their knowledge and capabilities to maintain their competitive skills in an ever-changing world. We aspire to maintain a highly educated workforce capable of the innovation required of our technology-driven company.
Our Employee Scholar Program has been in place for more than 20 years and has been consistently recognized as one of the world’s most comprehensive company-sponsored employee education programs.
programs in the world.
$1.3 billion | 60+ | ||
degrees earned since 1996 | invested since 1996 | employees participated in | countries with participating employees |
At UTC, Cares aboutwe are committed to enhancing the Community
UTC focuses its sustainability and corporate responsibility initiatives in three areas: environment, people andquality of life everywhere we do business because we believe positive engagement builds vibrant communities. Through grants to leading nonprofit organizationsfinancial contributions and employee volunteerism, we are committed toUTC and our employees support thousands of civic, cultural, economic and social welfare organizations around the globe that share in our mission of making the world a better place while building long-term, sustainable value for our shareowners.place.
In our signature collaborations with The New York Academy of Sciences and the National Geographic Society,Since 2012, we work to advance achievement and thought leadershiphave invested more than $250 million in science, technology, engineering and math (“STEM”) education, as well as in the study of sustainable cities. With regard to STEM, UTC’s investments enable virtual one-on-one mentoring of students by science and engineering professionals. Our Urban Expeditions initiative with the National Geographic Society produces cutting-edge research and reporting on urbanization megatrends, while also highlighting solutions for the environmental impacts of rapid urban growth.
In 2017, we worked to help those affected by Hurricane Maria in Puerto Rico. The Company provided critical supplies and offered our facilities on the island to distribute meals, showers and other basic needs to our employees. Separately, UTC employees delivered toys and clothing to local orphanages and community centers and traveled to isolated towns to provide disaster relief.
These efforts, along with our support for veterans and military family programs, local educational endeavors, and artistic, historical and cultural initiatives, demonstrate our commitment to our employees and the communities where we do business.operate, an amount that includes in excess of $20 million in employee contributions and company matching grants. UTC’s corporate responsibility commitments are bolstered by the impact that our employees have close to home and around the world. Whether mentoring students in STEM (science, technology, engineering and math) subjects, teaching lessons in environmental stewardship or providing disaster relief, our employees contribute their expertise, creativity and passion to help build resilient communities.
|
United TechnologiesNotice of | 27 |
COMPENSATION |
of Directors
Pay Structure
Annual Retainer
Annual Retainer |
The following chart shows annual retainers for non-employee directors for the April 20172018 to April 20182019 Board cycle for non-employee directors.cycle. 40% is payable in cash and the remaining 60% is payable in deferred stock units (“DSUs”). Alternatively,, although a director also may elect to receive 100% of his or herthe retainer in DSUs.
Role | Cash ($) | Deferred Stock Units ($) | Total ($) | ||||||||
Base Retainer | $120,000 | $180,000 | $300,000 | ||||||||
Incremental Amount Above Base Retainer* | |||||||||||
Lead Director | $32,000 | $48,000 | $80,000 | ||||||||
Audit Committee Chair | $16,000 | $24,000 | $40,000 | ||||||||
Audit Committee Member | $12,000 | $18,000 | $30,000 | ||||||||
Compensation Committee Chair | $10,000 | $15,000 | $25,000 | ||||||||
Finance Committee Chair | $10,000 | $15,000 | $25,000 | ||||||||
Committee on Governance and Public Policy Chair | $10,000 | $15,000 | $25,000 |
Role | Cash ($) | Deferred Stock Units ($) | Total ($) | |||
All Directors (base retainer) | $120,000 | $180,000 | $300,000 | |||
Incremental Amount Above Base Retainer* | ||||||
Lead Director | $32,000 | $48,000 | $80,000 | |||
Audit Committee Chair | $16,000 | $24,000 | $40,000 | |||
Audit Committee Member | $12,000 | $18,000 | $30,000 | |||
Compensation Committee Chair | $10,000 | $15,000 | $25,000 | |||
Finance Committee Chair | $10,000 | $15,000 | $25,000 | |||
Committee on Governance and Public Policy Chair | $10,000 | $15,000 | $25,000 |
* Directors serving in multiple leadership roles receive incremental compensation for each role.
Directors do not receive additional compensation for attending regularly scheduled Board or committee meetings, but do receive an additional $5,000 for each special meeting attended in person. The directors did not attend any special Board or committee meetings in person during 2017.
2018.
Annual retainers are paid each year following the Annual Meeting. New directors joining the Board between the Annual Meeting and the end of September receive 100% of the annual retainer. Directors joining the Board between October and the following Aprilnext Annual Meeting receive 50% of the annual retainer.
After a non-employee director leaves the Board, DSUs are converted into shares of UTC Common Stock, payable either in a lump-sum payment or in 10- or 15-year installments in accordance with the director’s prior elections.
Effective at the election2019 Annual Meeting, the total base retainer will be $310,000, comprised of $124,000 in cash and $186,000 in DSUs. There are no changes to the director.incremental role-based retainers.
New Director RSU Award
New Director Restricted Stock Unit (“RSU”) Award |
Non-employee directors receive a one-time $100,000 restricted stock unit (“RSU”)RSU award when first elected to the Board. This award vests in equal portions over five years and is distributed in shares of UTC Common Stock upon termination of service. Mr. Kearney and Ms. Bryant and Dr. O’SullivanRamos each received this award when they joined the Board in 2017.December 2018.
Treatment of Dividends
Treatment of Dividends |
When UTC pays a dividend on Common Stock, each director is credited with additional DSUs and RSUs equal in value to the dividend paid on the corresponding number of shares of UTC Common Stock.
28 | United TechnologiesNotice of |
COMPENSATION OF DIRECTORS |
20172018 Director Compensation
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | All Other Compensation ($)(2) | Total ($) | ||||||||||||
Lloyd J. Austin III | $132,000 | $198,000 | $8,137 | $338,137 | ||||||||||||
Diane M. Bryant(3) | $0 | $585,000 | $2,820 | $587,820 | ||||||||||||
John V. Faraci | $0 | $325,000 | $25,974 | $350,974 | ||||||||||||
Jean-Pierre Garnier | $0 | $325,000 | $974 | $325,974 | ||||||||||||
Edward A. Kangas | $168,000 | $252,000 | $974 | $420,974 | ||||||||||||
Ellen J. Kullman | $0 | $325,000 | $30,974 | $355,974 | ||||||||||||
Marshall O. Larsen | $132,000 | $198,000 | $1,141 | $331,141 | ||||||||||||
Harold W. McGraw III | $120,000 | $180,000 | $974 | $300,974 | ||||||||||||
Margaret L. O’Sullivan(4) | $0 | $265,000 | $583 | $265,583 | ||||||||||||
Fredric G. Reynolds | $132,000 | $198,000 | $2,820 | $332,820 | ||||||||||||
Brian C. Rogers | $0 | $300,000 | $2,820 | $302,820 | ||||||||||||
Christine T. Whitman | $120,000 | $180,000 | $738 | $300,738 |
��
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | All Other Compensation ($)(2) | Total ($) | ||||
Lloyd J. Austin III | $132,000 | $198,000 | $6,236 | $336,236 | ||||
Diane M. Bryant | $0 | $330,000 | $857 | $330,857 | ||||
John V. Faraci | $0 | $325,000 | $1,236 | $326,236 | ||||
Jean-Pierre Garnier | $0 | $325,000 | $1,236 | $326,236 | ||||
Christopher J. Kearney(3) | $0 | $265,000 | $0 | $265,000 | ||||
Ellen J. Kullman | $0 | $380,000 | $1,236 | $381,236 | ||||
Marshall O. Larsen | $132,000 | $198,000 | $1,236 | $331,236 | ||||
Harold W. McGraw III | $120,000 | $180,000 | $1,236 | $301,236 | ||||
Margaret L. O’Sullivan | $132,000 | $198,000 | $857 | $330,857 | ||||
Denise L. Ramos(3) | $0 | $265,000 | $0 | $265,000 | ||||
Fredric G. Reynolds | $136,000 | $204,000 | $1,236 | $341,236 | ||||
Brian C. Rogers | $0 | $325,000 | $1,236 | $326,236 | ||||
Christine T. Whitman | $120,000 | $180,000 | $857 | $300,857 |
(1) | Stock Awards consist of the grant date fair value of DSU and RSU awards credited to the director’s account, including any portion of the annual cash retainer that the director elected to receive as DSUs. The value of DSU and RSU awards has been calculated in accordance with the |
(2) | Amounts in this column include incidental benefits and matching contributions made to eligible universities, colleges and certain other eligible nonprofit organizations under the Company’s matching gift program that covers non-employee directors as well as company employees. |
(3) | Mr. Kearney and Ms. |
United TechnologiesNotice of | 29 |
SHARE |
Ownership
Share Ownership Requirements
Our robustrigorous share ownership requirements detailed below promote and strengthen the alignment of interests between our non-employee directors management and Management with the interests of our shareowners. These requirements are:
base salary for the Chairman & CEO | annual base cash retainer for independent directors | base salary for the CFO and business unit CEO and presidents | base salary for other ELG members | |||
As previously discussed on page 5, the Compensation Committee increased the share ownership requirements for the CFO and business unit presidents during 2017 from 3x to 4x base salary. The Committee made this change because it recognizes the importance of shareowner alignment for these particular roles.
Non-employee directors must achieve thetheir required ownership level within five years of joining the Board. ForBoard and ELG members (including the NEOs), the applicable ownership levels must be achievedachieve theirs within five years of their appointment to the ELG. The sale of UTC shares is prohibited ifIf ownership requirements are not met after this five-year period, the five-year period.individual is not permitted to sell UTC shares until achieving the required level. All directors and NEOsELG members currently comply with their respective ownership requirementrequirements or are on track to meet the requirementthem within the five-year period.
Beneficial Share Ownership Information forof Directors and Executive Officers
The following table shows information as of February 18, 2019, regarding the numberbeneficial ownership of shares ofUTC Common Stock beneficially owned as of March 2, 2018, by our currentby: (i) each director and nominee; (ii) each NEO; (iii) and the directors NEOs, and our directors and current executive officers as a group. None of these individuals or the group as a whole beneficially owned more than 1% of UTC’s shares outstandingUTC Common Stock as of that date. EachUnless otherwise noted, each person listednamed in the following table hadhas sole voting power and sole investment powerpower.
Directors and Executive Officers | SARs Exercisable within 60 days(1) | RSUs Convertible to Shares within 60 days(2) | DSUs Convertible to Shares within 60 days(3) | Total Shares Beneficially Owned(4) | |||||
L. Austin III | — | 424 | 5,104 | 5,528 | |||||
D. Bryant | — | 403 | 7,208 | 7,611 | |||||
J. Faraci | — | 2,352 | 51,025 | 53,377 | |||||
J. Garnier | — | — | 86,549 | 104,659 | |||||
D. Gitlin | 25,488 | — | — | 50,733 | (5) | ||||
G. Hayes | 112,690 | — | — | 271,286 | (6) | ||||
A. Johri | 26,108 | — | — | 65,643 | |||||
C. Kearney | — | — | 1,381 | 3,123 | |||||
E. Kullman | — | 1,526 | 20,083 | 21,615 | (6) | ||||
M. Larsen | — | 1,465 | 17,021 | 23,918 | (5) | ||||
J. Marks | — | — | — | 87 | |||||
H. McGraw III | — | 3,141 | 52,191 | 58,937 | |||||
R. Ortberg | — | — | — | 159,968 | |||||
M. O’Sullivan | — | 189 | 3,088 | 3,277 | |||||
D. Ramos | — | — | 1,381 | 1,381 | |||||
F. Reynolds | — | 704 | 6,437 | 29,366 | |||||
B. Rogers | — | 704 | 9,844 | 15,548 | (5) | ||||
C. Whitman | — | 3,141 | 36,104 | 46,095 | |||||
Directors & Executive Officers as a group (25 in total)(7)(8)(9) | 1,342,129 |
30 | United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement |
Table of the shares shown, except as noted in the footnotes below.Contents
Directors and Executive Officers | SARs Exercisable within 60 days(1) | RSUs Convertible to Shares within 60 days(2) | DSUs Convertible to Shares within 60 days(2) | Total Shares Beneficially Owned(3) | ||||||||||||
L. Austin III | — | 215 | 3,353 | 3,568 | ||||||||||||
D. Bryant | — | 202 | 4,319 | 4,521 | ||||||||||||
J. Faraci | — | 2,301 | 47,219 | 49,520 | ||||||||||||
J. Garnier | — | — | 81,965 | 100,075 | ||||||||||||
D. Gitlin | 32,502 | — | — | 46,072 | (4) | |||||||||||
G. Hayes | 188,787 | — | — | 312,387 | (5) | |||||||||||
A. Johri | 51,007 | — | — | 90,235 | ||||||||||||
E. Kangas | — | 2,589 | 37,113 | 39,702 | ||||||||||||
E. Kullman | — | 1,494 | 16,498 | 17,992 | ||||||||||||
M. Larsen | — | 1,434 | 15,010 | 21,876 | (4) | |||||||||||
R. Leduc | 28,332 | — | — | 83,652 | ||||||||||||
R. McDonough | 69,306 | — | — | 89,918 | ||||||||||||
H. McGraw III | — | 3,073 | 49,560 | 56,238 | ||||||||||||
M. O’Sullivan | — | 4 | 1,381 | 1,385 | ||||||||||||
F. Reynolds | — | 471 | 4,608 | 18,304 | ||||||||||||
B. Rogers | — | 471 | 6,939 | 12,410 | (4) | |||||||||||
C. Whitman | — | 3,072 | 33,824 | 43,746 | ||||||||||||
Directors & Executive Officers as a group (23 in total)(6)(7)(8) | 598,228 | 15,326 | 301,789 | 1,340,750 |
SHARE OWNERSHIP |
(1) |
(2) | |
(3) | The |
(4) | Includes stock units credited to |
SRP. (5) Includes | |
(6) | Includes shares for which a spouse holds sole voting and investment |
Includes | |
Includes 1,546 shares |
Certain Beneficial Owners
The following table shows all holders known to UTC to be beneficial owners of more than 5% of the outstanding shares of Common Stock as of December 31, 2017.2018.
Name and Address | Shares | Percent of Class | ||||||
State Street Corporation(1) | 90,109,040 | 11.28% | ||||||
State Street Financial Center | ||||||||
One Lincoln Street | ||||||||
Boston, MA 02111 | ||||||||
The Vanguard Group(2) | 57,346,994 | 7.18% | ||||||
100 Vanguard Boulevard | ||||||||
Malvern, PA 19355 | ||||||||
BlackRock, Inc.(3) | 46,850,302 | 5.9% | ||||||
55 East 52nd Street | ||||||||
New York, NY 10055 |
Name and Address | Shares | Percent of Class | ||
State Street Corporation(1) | ||||
State Street Financial Center | 89,786,914 | 10.4% | ||
One Lincoln Street | ||||
Boston, MA 02111 | ||||
The Vanguard Group(2) | ||||
100 Vanguard Boulevard | ||||
Malvern, PA 19355 | 65,593,077 | 7.6% | ||
BlackRock, Inc.(3) | ||||
55 East 52nd Street | ||||
New York, NY 10055 | 54,035,145 | 6.3% |
(1) | State Street Corporation reported in an SEC filing that, as of December 31, |
(2) | The Vanguard Group reported in an SEC filing that, as of December 31, |
(3) | BlackRock, Inc., reported in an SEC filing that, as of December 31, |
United TechnologiesNotice of | 31 |
2
PROPOSAL 2 |
TO APPROVE EXECUTIVE COMPENSATION
Each year we ask shareowners to approve, on an advisory basis, the compensation of UTC’s Named Executive Officers (“NEOs”). | ||
How is Shareowner Feedback Considered? |
How is Shareowner Feedback Considered?
Although your vote is advisory, UTC values and carefully considers shareowner opinions when making executive compensation decisions. Over the years, shareowner input has substantially contributed to our executive compensation program’s Guiding Principles, which can be found on page 3134 of this Proxy Statement. Since our last Annual Meeting, we engagedWe actively engage in annual discussions with investors holding more than 340 million shares of UTC stock on executive compensation matters. The Compensation Committee uses this feedback in its annual evaluation and management of our program. Shareowner feedback also is also reflected in our descriptionongoing effort to enhance the clarity and transparency of ourthe compensation programdisclosures in this Proxy Statement in order to enhance its clarity and transparency for our investors.Statement.
Why Should I Vote FOR This Proposal?
Why Should I Vote “FOR” this Proposal? |
Our executive compensation program is structured to advance its fundamental objective: aligning our executives’ compensation with the long-term interests of UTC shareowners. We design ourOur program is designed to reward financial performance and effective strategic leadership, key elements in building sustainable shareowner value. The performance metrics used in our incentive plans align with shareowner interests by correlating the timing and amount of actual payouts to our short-, medium- and long-term performance. Compensation opportunities are structured to reward the appropriate balance of financial, strategic and operational business results, and to require ethical and responsible conduct in pursuit of these goals. The Board and its Compensation Committee believe that UTC’s executive compensation program has effectively aligned pay with performance, while facilitating the retention of highly talented executives who are critical to our long-term success.
Accordingly, the Board recommends that shareowners vote FOR the following resolution:
“RESOLVED, that the compensation of UTC’s Named Executive Officers,NEOs, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and related information provided in this Proxy Statement, is hereby APPROVED on an advisory basis.”
As a matter of law, the approval or disapproval of this Proposal 2 may not be construed as overruling any decision by UTC or the Board, or as imposing any duty or obligation on UTC, the Board or any individual director.
The Board of Directors recommends a vote FOR this proposal. |
32 | United TechnologiesNotice of |
COMPENSATION |
Discussion and Analysis
2018 NAMED EXECUTIVE OFFICERS | ||||
GREGORY J. HAYES | ||||
Chairman & CEO | President, | |||
AKHIL JOHRI | DAVID L. GITLIN | |||
Executive Vice President & Chief Financial Officer | President Operating Officer, Collins Aerospace | |||
ROBERT K. ORTBERG | ||||
CEO, Collins Aerospace |
In this section, we discuss ourcompensation philosophyand | ||
Investor Engagement
2017
Investor Engagement |
SHAREOWNER OUTREACH EFFORTS We actively seek and highly value feedback from shareowners and their advisors. The Committee annually considers this feedback along with factors such as external market data and staff and consultant recommendations in its ongoing assessment of the effectiveness of our program. | 96% support |
RESPONSE TO OUR 2018 SAY-ON-PAY VOTE
Each year we consider the results of our advisory vote on executive compensation (“say-on-pay”) from the prior year. In 2018, 96% of the effectivenessvotes cast (excluding abstentions and broker non-votes) voted in favor of the Committee’s 2017 executive compensation decisions. We interpreted this result as an endorsement of our program.compensation program’s design and direction.
|
20172018 SHAREOWNER FEEDBACK
This past year, shareowners also expressed support for our recent executive compensation program changes, which are discussed in detail in thisthe Proxy Summary on page 5.
2.
United TechnologiesNotice of | 33 |
COMPENSATION DISCUSSION AND ANALYSIS |
Our Executive Compensation Philosophy
The Committee believes that there must be a meaningful link between the compensation paid to our executives and our goal of long-term, sustainable growth for our shareowners. This core philosophy is embedded in the following principles, which guide all aspects of our compensation program:
UTC’S GUIDING PRINCIPLES FOR EXECUTIVE COMPENSATION |
Competitiveness | Long-Term Focus | Balance | ||
Total compensation should be sufficiently competitive to attract, retain and motivate a leadership team capable of maximizing UTC’s performance. Each element should be benchmarked relative to peers. | For our most senior executives, long-term, stock-based compensation opportunities should significantly outweigh short-term, cash-based opportunities. Annual objectives should complement sustainable, long-term performance. | The portion of total compensation contingent on performance should increase with an executive’s level of responsibility. Annual and long-term incentive opportunities should reward the appropriate balance of short-, medium- and long-term financial, strategic and operational business results. | ||
Pay-for-Performance | Responsibility | Shareowner Alignment | ||
A substantial portion of compensation should be variable, contingent and directly linked to individual, company and business unit performance. | A complete commitment to ethical and corporate responsibility is a fundamental principle incorporated into all aspects of our compensation program. Compensation should take into account each executive’s responsibility to act at all times in accordance with our Code of Ethics and our environmental, health and safety objectives. Financial, strategic and operational performance must not compromise these values. | The financial interests of executives should be aligned with the long-term interests of our shareowners through stock-based compensation and performance metrics that correlate with long-term shareowner value. |
Principal Components of Compensation
Principal Components of Compensation |
The following table summarizes the principal components of our executive compensation program for 2017.program. The Committee structures these elements to promote and reward superior financial performance through a variety of performance metrics and time horizons. For additional details on each of these components refer to pages 37-41.
41-46.
Pay Component | Time Horizon | ||||||
Performance Measures | Purpose | ||||||
Base Salary | Individual achievement | Attract and retain talent | |||||
Annual Bonus | Earnings | ||||||
Free cash flow | Drive near-term performance goals | ||||||
Individual achievement | |||||||
Performance Share Units | Adjusted earnings per share | ||||||
Drive medium-term performance goals | |||||||
Return on invested capital | |||||||
Total shareowner return vs. the S&P 500 | |||||||
Share price appreciation | |||||||
Restricted Stock Units | Share price appreciation | ||||||
Stock Appreciation Rights | Share price appreciation | Drive long-term share price appreciation |
*The Committee changed the cash flow metric beginning with the 2018 annual bonus program to an absolute free cash flow goal, as described on page 5.
34 | United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
2018 Performance Highlights |
STRATEGIC HIGHLIGHTS
2017 PerformanceTwo transformational changes to our company occurred in 2018.
Our senior leadership team continued itsFirst, on November 26, 2018, we completed the acquisition of Rockwell Collins, making UTC the preeminent systems and component supplier to the aerospace and defense industry. The merged business, Collins Aerospace, will be able to offer customers a full suite of systems throughout an entire aircraft. This acquisition enhances our capabilities in the development of intelligent aircraft, integrated and optimized aircraft products and services, and advanced defense systems.
Second, we completed a comprehensive business portfolio review and subsequently announced our intention to separate our commercial businesses – Carrier and Otis – into independent companies. As standalone companies, we believe Carrier and Otis will have the resources, capital and strategic flexibility to focus on the unique needs of their respective customers. We further believe that focused companies perform better, offer greater transparency to investors and bring operating discipline and enhanced competitiveness within their specific industries. We expect this proposed separation to be tax free to our key priorities — innovation, cost reduction, executionshareowners for U.S. federal income tax purposes and disciplined capital allocation. The following 2017 accomplishments reflect our commitment to these priorities, which we believe drive long-term, sustainable growth.be completed by mid-year 2020.
OPERATIONAL HIGHLIGHTS
● | Pratt & Whitney:Achieved net sales growth of 20% (GAAP), which included 14% organic growth (non-GAAP), while nearly doubling the 2017 production of the GTF engine and, for the first time in over 30 years, manufactured more than 1,000 large commercial and military engines. |
● | Collins Aerospace:Secured a number of substantial product placement wins from key customers – examples include a contract to provide an advanced nacelle system for Dassault Aviation’s Falcon 6X business jet, selection by Boeing to provide its ACES 5 ejection seat and a fully integrated landing gear system for the U.S. Air Force’s new T-X jet trainer, and development of the main electric power generation system for South Korea’s KF-X fighter. |
● | Otis:Saw the launch of the IoT-enabled Otis ONE service platform, which collects real-time performance data to help predict and prevent equipment shutdowns. This digital ecosystem combines Otis’ decades of experience in remote elevator monitoring with the latest in data analytics, machine learning and the Internet of Things. |
● | Carrier:Through its investments in innovation and research and development, Carrier launched more than 100 products in 2018. During the same period, Carrier achieved net sales and organic growth of 6% (GAAP and non-GAAP). |
“Our decision to separate UTC into three companies is a pivotal moment in our history and will best position each independent companyto drive sustained growth, lead its industry in innovation and customer focus, and maximize value creation.” |
Gregory J. Hayes, Chairman & Chief Executive Officer |
United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement | 35 |
COMPENSATION DISCUSSION AND ANALYSIS |
FINANCIAL ACCOMPLISHMENTS*HIGHLIGHTS*
In 2017,2018, we met or exceeded all of the keydelivered strong financial targets we communicated to investors for the year, including achievingresults. We achieved 14% diluted EPS of $5.70growth (GAAP and non-GAAP) and increased sales by 11% (GAAP) and $6.65 (non-GAAP). Sales increased by 5%, which included organic sales growth of 4% —our8% (non-GAAP) — our best performance since 2014.in over a decade. We also generated $5.6$6.3 billion of cash flow from continuing operations (GAAP) and free cash flow of $3.6$4.4 billion (non-GAAP), while returning $3.5spending $4.0 billion in company- and customer-funded research and development. Further, we continued our 82-year tradition of paying a dividend to shareowners through a combination ofand increased the dividends and share buybacks and contributing $1.9 billion to fully fund our qualified U.S. pension plans (as of December 31, 2017)paid in 2018 by 4.2%.
GAAP FINANCIAL MEASURES* | NON-GAAP FINANCIAL MEASURES* | |
NET SALES (in billions) DILUTED EPS ($ per share) CASH FLOW FROM OPERATIONS (in billions) NET INCOME (in billions) | ADJUSTED NET SALES (in billions) | |
| ADJUSTED DILUTED EPS ($ per share) | |
| FREE CASH FLOW (in billions) | |
| ADJUSTED NET INCOME (in billions) |
* See Appendix A on pages 86-87 for additional information regarding these GAAP and non-GAAP financial measures. |
16% | 14% | 8% |
growth | diluted EPS growth | growth |
*Please refer to Appendix A on pages 90-91 for additional information regarding these GAAP and non-GAAP financial measures.
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
DIVIDENDS PAID (PER COMMON SHARE) |
$2.5 billion | |||
consecutive year we paid dividends to shareowners | paid in | in dividends per share paid to shareowners |
SHAREOWNER VALUE
Our executive compensation program is designed to drive long-term shareowner value and incentivize strategic investments and operational decisions that contribute to long-term growth in earnings and total shareowner return. In the threeDuring his four-plus years sinceas CEO, Mr. Hayes became CEO, UTC has made substantial investmentsled UTC’s efforts to invest in the development of innovative products and to execute transformative, strategic transactions, while focusing on efforts to more rapidly and efficiently satisfy our customers’ needs. For example, the strong customer demand for Pratt & Whitney’s game-changing GTF engine continues, with more than 1,300 firm and option orders in 2018. The historic Rockwell Collins acquisition was successfully completed in the last quarter of 2018 and our new Collins Aerospace business unit is poised to become one of the world’s leading aerospace systems and component suppliers. UTC’s investment in digital technologies is producing results in each of our business units. For example, we broughtCarrier’s Automated Logic business developed the new OptiFlex virtual integrator platform that enables building operators to monitor up to 50,000 data points from various building systems, subsystems and devices using a single computer server. Further, Pratt & Whitney GTF engineWhitney’s FAST solution, which is used for predictive and preventive aircraft maintenance, continues to market and are shipping an increasingexpand on a growing number of engines to our customers. We are building the world’s premier aerospace systems business through a combination of mergers and acquisitions and steady organic growth. We are investing in new digital technologies for Otis products and aftermarket services. CCS has launched a wide array of innovative new products that promote safer, smarter and more sustainable buildings. Our long-term business investments are paying off.aircraft platforms.
Over the last four years, we have spent$15.5 billion in company- and customer-funded research and development. |
WeIn short, we believe there iswe have built a solid foundation in place for years of strongfuture UTC earnings growth across UTC’s businesses and, asfollowing a result, investor sentiment and TSR continue to improve. This can be seen in UTC’s 19% TSR performance in 2017, even during the heavy investmentmulti-year cycle of the last several years.heavy product and strategic investments. The following chart below illustrates UTC’s annualized TSR compared to our Compensation Peer Group (“CPG”) and other major market indices over varying time periods.
TOTAL SHAREOWNER |
* | TSR values are provided by S&P Capital IQ and are calculated on an annualized basis as of December |
STRATEGIC ACCOMPLISHMENTS
Rockwell Collins Acquisition.In 2017, we reached a definitive agreement to acquire Rockwell Collins for $30 billion (including $7 billion in assumed net debt). We believe that the combined businesses — which have highly complementary capabilities — will better position UTC to deliver more innovative products and services, compete more effectively for future business, and provide greater value to our customers and shareowners.
United Technologies Digital Accelerator.Another milestone in 2017 was the launch of the UT Digital Accelerator in Brooklyn, New York, where our business and technology talent collaborate to expand the digital capabilities that we believe will enhance our products, improve our services and unlock efficiencies. To best utilize advanced digital capabilities, we have
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
How 2018 Performance Affected Incentive Payouts |
selected several initiatives in areas criticalAs previously discussed on page 3, the Committee utilizes five key financial metrics that it believes are essential to the long-term financial health of our business success: customer experience, service transformation, asset intelligenceCompany. The chart below shows UTC’s performance against these pre-established financial goals set for our 2018 annual bonus and smart factories. These initiatives will enable us to rapidly expand new product experiences so we can meet the demands of the fast-paced, technology-driven economy with greater agility and flexibility.our 2016-2018 PSU awards.
How 2017 Performance Affected Incentive Payouts
UTC(1) | Threshold | Target | Maximum | Actual | Payout Factor | |||||
2017 Annual Bonus(2) | ||||||||||
Earnings (net income) | $4.6 billion | $5.1 billion | $5.6 billion | $5.3 billion | 138% | |||||
Free Cash Flow to Net Income Ratio | 50% | 90% | 150% | 99%(3) | 115% | |||||
Committee Approved UTC Financial Performance Factor | 122%(4) | |||||||||
2015-2017 Performance Share Units | ||||||||||
EPS Growth | 3% | 6% | 9% | 1% | 0% | |||||
TSR vs. S&P 500 | 37.5th | 50th | 75th | 39.2nd | 57% | |||||
Committee Approved Payout Factor | 28% |
Incentive Plans(1) | Threshold | Target | Maximum | Actual | Payout Factor | ||||||
2018 Annual Bonus(2) | |||||||||||
UTC Earnings (net income) | $5.1 billion | $5.6 billion | $6.2 billion | $5.9 billion | 152% | ||||||
UTC Free Cash Flow | $3.8 billion | $5.0 billion | $6.3 billion | $4.9 billion | 95% | ||||||
Calculated UTC Financial Performance Factor | 129% | (3) | |||||||||
Committee Approved UTC Financial Performance Factor | 125% | (3) | |||||||||
2016-2018 Performance Share Units | |||||||||||
EPS Growth | 1.5% | 4.5% | 7.5% | 4.4% | 98% | ||||||
Return on Invested Capital | 9% | 10.5% | 12.5% | 11.1% | 131% | ||||||
UTC’s TSR rank vs. S&P 500 companies(4) | 25th %ile | 50th %ile | 75th %ile | 54.9th %ile | 120% | ||||||
Committee Approved Payout Factor | 116% |
(1) | Performance goals and results are based on non-GAAP financial measures. See Appendix B on page 88 for details. |
(2) | Reflects annual bonus goals and results for the UTC financial performance factor. |
(3) | |
The Committee used its discretion and reduced the calculated payout factor from 129% to | |
(4) | TSR is calculated using a 60-day average stock price at the beginning and end of the performance period for |
How We Make Pay Decisions and Assess Our Programs
WHO DOES WHAT |
Compensation Committee
adjustments based on its assessment of CEO performance. officers. ●Considers shareowner input | CEO
and executive officers. |
Management and the Independent Consultant
The Executive Vice President & Chief Human Resources Officer, along with UTC’s Human Resources staff and the independent compensation consultant, provide insights on program design and compensation market data to assist the Committee with its decisions. Management also has been delegated oversight responsibility of executive compensation plan administration. | Shareowners
In assessing our |
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
Role of Independent Compensation Consultant
The Compensation Committee retained Pearl Meyer & Partners (“Pearl Meyer”) to serve as its executive compensation consultant for 2017.2018. Although Pearl Meyer may make recommendations on the form and amount of compensation, but the Committee makes all decisions regarding the compensation of our NEOs and other ELG members.
During 2017,2018, Pearl Meyer advised the Committee on a variety of subjects, including compensation plan design and trends, pay-for-performance analytics, benchmarking data and related matters. Pearl Meyer reports directly to the Committee, participates in meetings as requested and communicates with the Committee Chair between meetings as necessary. A Pearl Meyer representative attended each of the five Committee meetings in 2017.
2018.
Prior to engaging Pearl Meyer, the Committee reviewed the firm’s qualifications, independence and any potential conflicts of interest. Pearl Meyer does not perform other services for or receive other fees from UTC (except for an incidental amount of $8,400$9,400 in 20172018 for participation in certain business surveys). The Committee therefore determined that Pearl Meyer qualified as an independent consultant. The Committee has the sole authority to modify or approve Pearl Meyer’s compensation, determine the nature and scope of its services, evaluate its performance, terminate the engagement, and hire a replacement or additional consultant at any time.
The Committee also uses market data from other compensation consulting firms for benchmarking and other purposes. However, this benchmark data is generally available broadly to these firms’ other consulting clients. No other consulting firm made recommendations to the Committee or managementManagement on peer group composition or on the form, amount or design of executive compensation in 2017.2018.
Our Compensation Peer Group
Our Compensation Peer Group |
How We Use Peer Group Data.We compare our executive compensation program to those at the 23 companies that make up our Compensation Peer Group (“CPG”). Data from a broader range of companies, including the Fortune 100, are used for insight into general compensation trends and to supplement CPG data when necessary and appropriate. To maintain a sufficiently competitive executive compensation program, the Committee believes the target value of each principal element of compensation should approximate the market median of the companies UTC views as competitors for executive talent. The Committee annually evaluates each compensation element relative to the market for each ELG member’s role and makes adjustments as necessary. However, individual compensation may vary from market median benchmarks based on the Committee’s assessment of Company, business unit/function and individual performance, job scope, retention risk, tenure, and other factors that it determines to be relevant to its evaluation.
How Our Compensation Peer Group is Constructed.The CPG’s composition reflects a mix of both industry and non-industry peers that the Committee views as competitors for senior executive talent. Like UTC, 1211 of these 23 companies are Dow Jones Industrial Average components. In determining the most appropriate peer group composition,its 2018 review, the Committee considersmade no adjustments to the CPG. The Committee believes the companies in the CPG provide a relevant comparison based on their similarity to UTC in size, geographic footprint and operational complexity, taking into account factors such as revenue, market capitalization, global scope of operations, manufacturing footprint, research and development activities, and diversified product portfolios. In its 2017 review, the Committee made no adjustments to the CPG. However, two of the CPG companies (DuPont and Dow Chemical) merged into one company during the year, reducing the number of CPG companies from 24 to 23. The Committee believes the companies in the CPG provide a relevant comparison based on their similarity to UTC in size and operational complexity. The CPG is constructed to serve the specific purpose of benchmarking executive compensation. For this reason, we do not use the relative financial performance of the CPG as a performance metric in our incentive compensation programs.
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
OUR COMPENSATION PEER GROUP |
Companies inBluerepresent Dow Jones Industrial Average components.
Aerospace & Defense
| Equipment & Machinery
| Technology/Communications AT&T
| Consumer Packaged Goods Johnson & Johnson | Oil & Gas
|
Chemicals
| Diversified Industrials
| Automotive
| Pharmaceuticals
| |
PEER GROUP DATA* |
Market | |||||||
Net Sales | Capitalization | ||||||
(in billions) | (in billions) | Employees | |||||
25th Percentile | $30.2 | $56.2 | 80,259 | ||||
50th Percentile | $48.0 | $140.0 | 98,200 | ||||
75th Percentile | $93.4 | $202.8 | 128,500 | ||||
UTC | $59.8 | $101.9 | 204,651 | ||||
UTC Rank | 59th | 43rd | 96th |
Net Sales (in billions) | Market Capitalization (in billions) | Employees | ||||
25th percentile | $34.5 | $46.9 | 89,750 | |||
50th percentile | $53.8 | $97.8 | 104,000 | |||
75th percentile | $93.6 | $201.3 | 128,550 | |||
UTC | $66.5 | $91.9 | 240,200 | |||
UTC Rank | 59th | 49th | 98th |
* | Peer company data is provided by S&P Capital IQ. Net sales and employee data reflect the most recent publicly available information (as of February |
Timeline For Compensation Decisions
Timeline for Compensation Decisions |
The Committee followed the below process below to make 20172018 annual pay decisions for each of the principal components of compensation:
compensation included in total direct compensation as detailed on pages 2 and 46:
February | April | December | February | 1st Quarter of | ||
2018 base salary Performance goals for the 2018 annual bonuses were approved. | 2018 base salary | Review of preliminary | Review of final | |||
performance. Financial performance Performance goals for the 2019-2021 PSU awards were approved. 2019 LTI award values were approved. | 2019 LTI awards granted. | 2018 annual bonuses paid. |
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
Our Principal Elements of Compensation
Base Salary
Base Salary |
To attract and retain talented and qualified executives, we provide competitive base salaries, which we target at the market median. Each year the Committee reviews the CEO’s recommendations for base salary adjustments for ELG members relative to peer market data for similar roles. The Committee has complete discretion to modify or approve the CEO’s recommendations. The CEO has no involvement in the Committee’s determination of his own base salary. Actual salaries may vary from market medians based on factors such as job scope and responsibilities, experience, tenure, individual performance, retention risk, and internal pay equity.
Annual Bonus |
Annual Bonus
OUR OBJECTIVES
The Committee believes its methodology for determining annual bonus awards accomplishes the following objectives:
Sets financial performance goals that are consistent with the Committee’s assessment of the opportunities and risks for the upcoming year, as communicated to investors. | |
Establishes challenging but achievable performance goals for our executives. |
Provides incentive opportunities that are market competitive. | |
Allows the Committee to make discretionary adjustments if it determines that |
ANNUAL BONUS TARGETS
The Committee approves annual bonus target levels based on relevant market data for each ELG member’s role. Target levels are expressed as a percentage of an executive’s base salary and generally approximate the market median. The 20172018 annual bonus targets for each NEO are shown below:
NEO | ANNUAL BONUS TARGET | |
Gregory J. Hayes | 175% | |
Akhil Johri | 100% | |
Robert K. Ortberg | 125% | |
Judith F. Marks | 100% | |
David L. Gitlin | 100% | |
SETTING FINANCIAL PERFORMANCE METRICS AND GOALS FOR 20172018
For 2017,2018, the Committee established annual performance goals at threshold, target and maximum levels for two financial metrics: earnings and the ratio of free cash flow to net income (“FCF/NI”FCF”) at threshold, target and maximum goal levels.. Performance relative to these pre-established goals determines the financial performance factors for UTC and each business unit.
The charts below show the weighting of each financial metric. UTC’s financial performance factor determines the annual bonus pool for Corporate Office executives, while a blend of the UTC factor and business unit-specific financial performance factors are used to determine the pool for business unit executives.
executives for 2018.
UTC FINANCIAL PERFORMANCE FACTOR | BUSINESS UNIT FINANCIAL PERFORMANCE FACTORS | |||
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
BACKGROUND ON FINANCIAL PERFORMANCE METRICS AND GOALS |
UTC Earnings | UTC | Business Unit Earnings | Business Unit | |||||
How are performancemetrics defined forannual bonus purposes? | UTC’s net income, | UTC | Business unit earnings before interest and taxes (“EBIT”) at constant currency, | Business unit | ||||
Why has theCommittee selectedthese metrics? | The Committee believes that adjusted net income is an appropriate UTC-wide goal because it includes the impact of items such as tax, interest and foreign exchange fluctuations, which are managed at the Corporate level and thus relevant to assessing UTC’s overall performance. | The Committee believes that | The Committee believes operating earnings growth, exclusive of tax, interest and foreign exchange exposure should be the focus of business unit performance. | The Committee believes that | ||||
Why does theCompany use | The Committee believes annual bonuses should not be positively or negatively impacted by short-term decisions made in the best interest of UTC’s long-term business strategies. | |||||||
How | An adjusted net income goal | The UTC | Adjusted EBIT goals were set to contribute to the overall adjusted UTC net income goal | FCF goals | ||||
What goals did theCommittee set for 2018? | A $5.6 billion adjusted net income goal was | $5.0 billion FCF goal. | Adjusted EBIT goals ranged from | FCF goals ranged from |
* | |
PAYOUT FACTORS
PAYOUT RANGES
PayoutsPayout factors begin at 50% of target (for threshold-level performance) and are capped at 200% of target (for maximum-level performance). There are no payouts for below threshold-level performance and at no point can the Committee approve payoutsa payout factor above 200% of target.
UTC Earnings Goal | Threshold | Target | Maximum | ||||
Net Income (as a % of target) | 90%* | 100%* | 110%* | ||||
Payout (as a % of target) | 50% | 100% | 200% | ||||
UTC FCF/NI Goal | Threshold | Target | Maximum | ||||
FCF/NI Ratio | 50% | 90% | 150% | ||||
Payout (as a % of target) | 50% | 100% | 200% |
UTC Earnings Goal* | Threshold | Target | Maximum | |||
Adjusted Net Income | $5.1 billion | $5.6 billion | $6.2 billion | |||
Payout Factor (as a % of target) | 50% | 100% | 200% | |||
UTC Free Cash Flow Goal* | Threshold | Target | Maximum | |||
Free Cash Flow | $3.8 billion | $5.0 billion | $6.3 billion | |||
Payout Factor (as a % of target) | 50% | 100% | 200% |
* |
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
HOW |
UTC Earnings | UTC | Business Unit Earnings | Business Units | |||||
What | UTC’s adjusted 2018 net income was | UTC’s free cash flow was | Adjusted business unit EBIT ranged from | Free cash flow results for the business units ranged from | ||||
What were the payoutfactors for each metric? | 152% of target. | 95% of target. | Ranged from | Ranged from | ||||
What were thecalculated financialperformance factors? | The weighted earnings and | After incorporating the UTC factor, the weighted earnings and | ||||||
Did the Committee makeany adjustments to thecalculated financialperformance factors? | The Committee used its discretion and reduced the calculated UTC financial performance factor from 129% to | The Committee |
POOL DETERMINATION
Annual bonus funding pools are calculated by first multiplying each executive’s annual bonus target value (base salary x target bonus percentage) by the finalapplicable UTC or business unit financial performance factor as applicable.approved by the Committee. These amounts are then aggregated to determine award pools for Corporate Office executives and each business unit, and are subsequently allocated among eligible executives based on individual performance.
INDIVIDUAL PERFORMANCE
Our NEOs begin the year with individual financial, strategic and operational objectives. Based on the CEO’s assessment of each NEO’s performance, he may recommend that the Committee make a discretionary adjustment to increase or decrease the annual bonus calculated using the applicable financial performance factor. The Committee considers these recommendations and makes adjustments as it deems appropriate. Mr. Hayes has no role in the Committee’s determination of his own annual bonus.
COMMITTEE’S USE OF DISCRETION IN ANNUAL BONUS AWARDS
As previously discussed, the annual bonus program is designed to closely align individual payouts with performance relative to pre-established goals. However, the Committee retains the authority to make upward or downward adjustments if it determines that Company, business unit and/or individual performance measured by the metrics dodoes not accurately reflect the overall quality of performance for the year. Although the achievement of financial performance goals remains the primary basis for determining actual annual bonus amounts, the Committee has previously made positive and negative discretionary adjustments in the past to both financial performance factors and as a result of individual performance. Examples of situations that could result in discretionary adjustment include:
Material, unforeseen circumstances beyond Management’s control that affected financial performance results relative to the established goals or certain non-recurring charges or credits unrelated to operating performance; | |
Tax or accounting rule adjustments that positively or negatively impact performance; |
Changes to the Company’s capital structure; | |
An executive’s performance relative to specific individual annual objectives; or | |
An executive’s failure to adhere to UTC’s Code of Ethics, Enterprise Risk Management program or other Company policies. | |
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
Long-Term Incentive Awards |
Long-Term Incentive Awards
Each year the Committee reviews the design of our LTI awards to ensure consistency with our program’s fundamental objectivesobjective of aligning the interests of executives and shareowners while attracting and retaining talented senior leaders. Our annual LTI awards are subject to three-year, service-based (and in some casesthe case of PSUs, performance-based) vesting requirements, with limited exceptions for death, disability, retirement, change-in-control and certain qualifying involuntary terminations.
TYPES OF2018 LTI VEHICLES
As discussed on page 5, theThe Committee added RSUsapproves a total LTI award value for each NEO at its meeting prior to the NEOs’ LTI mix for 2017 to enhancegrant date. For the retentive value and to better alignJanuary 2, 2018 grant, our program with market norms. NEOs received their 2017annual award weighted in the LTI vehicles shown in the chart below.
to the right. The number of PSUs, SARs and RSUs awarded to each NEO is determined based on the 30-day average of UTC’s closing stock price prior to the grant date. This method has been adopted as a totalmechanism to stabilize the impact of potential volatility of UTC’s stock price on the date of grant. However, because the award value is ultimately determined based on the closing price of UTC Common Stock on the grant date and other accounting valuation assumptions, the value approved by the Committee. The Committee may also,differs from time to time, approve special equity grants for purposes such as recruitment, retention and recognition, or to drive the achievement of specific strategic performance goals. These special grants may begrant date fair value shown in the form of PSUs, SARs, RSUs, restricted stock or performance-based SARs. In 2017, the Committee granted Mr. Gitlin a special retention RSU award reflecting his increasing leadership demands and integration challenges in connection with the announced acquisition of Rockwell Collins.Summary Compensation Table on page 58.
2018 NEO LTI MIX |
PERFORMANCE SHARE UNITS
PSUs vest at the end of a three-year performance period if, and to the extent that, the Company achieves performance goals established by the Committee. EachWhen a PSU vests, it converts into one share of UTC Common Stock upon vesting.Stock. Unvested PSUs do not earn dividend equivalents. PSUs are designed to deliver market median compensation at target levels of performance. Below-Performance below or above-target performanceabove target levels will result in variationspayouts that differ from the market median payouts.
median.
Performance Metrics and Goals for the 2017-20192018-2020 PSUs.PSUsOn January 2, 2018, the Committee granted in 2017 will vest based on UTC’sPSU awards subject to pre-established three-year performance relativegoals. On November 26, 2018, UTC completed the $30+ billion (including debt) acquisition of Rockwell Collins. Given the significant change to the Company’s capital structure and the financial impact of this transaction, the Committee adjusted the performance goals for the 2018 and 2017 PSUs to neutralize the impact of the transaction. This adjustment was necessary to maintain the same level of challenge as the originally established performance goals and is in accordance with plan provisions designed to maintain the integrity of the performance goals in such scenarios. The adjusted goals for 2018 PSUs are described below over a three-year performance period. Vesting is calculated separately for each metric.
below.
EARNINGS PER SHARE GROWTH (“EPS”) |
EPS Growth (weighted 35%)
EPS Growth (weighted 35%) ●Three-year EPS compound annual growth rate goal was set at | ||
●Aligned with our mid-range strategic business plan. | ||
●Reflects what the Committee |
RETURN ON INVESTED CAPITAL (“ROIC”) |
Return on Invested Capital (weighted 35%)
Return on Invested Capital (weighted 35%) ●ROIC goal was set at | ||
●ROIC is calculated using a quarterly average over the three-year performance period. | ||
●Incentivizes our executives to make disciplined capital allocation decisions. |
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
TOTAL SHAREOWNER RETURN (“TSR”) VS. S&P 500 |
Relative TSR (weighted 30%)
Relative TSR (weighted 30%) ●Cumulative three-year TSR goal was set at the 50th percentile relative to the companies within the S&P 500 | |
Index at the beginning of the performance period. ●Vesting does not occur if UTC’s TSR ranks below the 25th percentile and is capped at 200% of target if TSR reaches the 75th percentile. | |
●If UTC’s three-year TSR is negative, the payout for this portion of the award is capped at 100% of target regardless of UTC’s relative performance vs. the S&P ●Beginning and end periods measured using a 60-day average. |
Why We Compare UTC’s TSR to the TSR of the Companies within the S&P 500 Index.Index.The Committee believes that comparing UTC’s TSR to the companies within the S&P 500 provides an appropriate benchmark for measuring our share price performance as a large capitalization company. The Committee does not set TSR goals relative to the performance of the CPG (see page 36pages 39-40 for more details on our peer group) because the CPG is used solely for the purpose of measuringto measure the competitiveness of our executive compensation program. The Committee believes the S&P 500 provides a more comprehensive and relevant comparison for our share price performance and, unlike the CPG, is not a self-selected, customized benchmark.
benchmark based on a limited number of companies.
What the Committee Considers when Setting Performance Goals.Goals.When setting financial performance goals for our PSU awards, the Committee considers various long-term business factors, including, but not limited to:to, planned share buybacks, macroeconomic market trends, pension headwinds/tailwinds and cost reduction plans. Certain items such as unplanned share buybacks, restructuring charges, and other non-recurring and non-operational items may be excluded from performance results, as necessary,appropriate, to maintain the validity of the targets as originally formulated. See Appendix B on page 9288 for a definition of how we calculate these metrics.
PSU Vesting (2015-2017(2016-2018 Performance Period).PSU awards granted on January 2, 2015,4, 2016, were subject to vesting based on UTC’s three-year performance relative to pre-established EPS growth, ROIC and relative TSR goals, each weighted at 50%. 2017goals. The performance results used to determine the final payout factor for the 2016-2018 performance period were as follows:
Metric | Weight | Threshold | Target | Maximum | Actual | Payout Factor | ||||||
3-Year EPS Growth | 35% | 1.5% | 4.5% | 7.5% | 4.4% | 98% | ||||||
12-Quarter Average ROIC | 35% | 9% | 10.5% | 12.5% | 11.1% | 131% | ||||||
3-Year TSR vs. the S&P 500 | 30% | 25th %ile | 50th %ile | 75th %ile | 54.9th %ile | 120% | ||||||
Final Payout Factor | 116% |
The 2018 GAAP diluted EPS of $5.70$6.50 was adjusted to $6.65 for PSU vesting purposes$7.61 to account for the impact of restructuring, non-recurring and other significant items unrelated to operational performance (see Appendix A on pages 90-9186-87 for details on GAAP and non-GAAP financial measures). This resulted in a 1% compound annual EPS growth rate, which fell belowFor PSU vesting purposes, the threshold performance level and resulted in an EPS payout factor of 0%. UTC’s three-year cumulative TSR performance was atCommittee neutralized the 39.2nd percentileimpact of the S&P 500, generating a TSR payout factor of 57%. When weighted, the combined payout factors resultedRockwell Collins acquisition (completed in the PSUs vesting at 28%last quarter of target.the performance period) and the effects of the Tax Reform and Jobs Act (passed into law in the middle of the performance period), resulting in diluted EPS of $7.17. These adjustments are in accordance with plan provisions and were made to maintain the integrity of the original goals, which did not anticipate these significant events.
STOCK APPRECIATION RIGHTS
SARs entitle the award recipient to receive at the time of exercise shares of UTC Common Stock with a market value equal to the difference between the market price of UTC Common Stock on the date the SARs are exercised and the exercise price that was set at the grant date (i.e., the closing price of UTC Common Stock on the date of grant). SARs vest and become exercisable after three years and expire 10 years from the grant date.
To align shareowner and executive interests, SAR awards directly link NEO compensation to share price appreciation thereby aligning shareowner and executive interests.appreciation. The Committee believes the 10-year term of these awards incentivizeincentivizes long-term shareowner value creation and has been a driving force behind UTC’s strong 10-year TSR performance.creation.
United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement | 45 |
COMPENSATION DISCUSSION AND ANALYSIS |
RESTRICTED STOCK UNITS
InSince 2017, our ELG members (including each of our NEOs) have received 20% of their annual total LTI grantaward in the form of RSUs. The Committee believes the introduction of RSUs into the LTI mix better aligns UTC with peers and further balances our program by adding a time-based vesting vehicle that enhances retention.
RSUs vest three years from the grant date and earn dividend equivalents during the vesting period that are reinvested as additional RSUs each time UTC pays a dividend to shareowners. The reinvested RSUs vest on the same date as the underlying RSUs. The Committee believes this time-based vesting vehicle has enhanced senior executive retention during a period of significant business investment and market volatility. RSUs have less upside potential than SARs, but have a stabilizing effect on the value of LTIP grants.
The Committee also may, from time to time, approve special equity grants for purposes such as recruitment, retention and recognition, or to drive the achievement of specific strategic performance goals. These special grants may be in the form of PSUs, SARs, RSUs, restricted stock or performance-based SARs. Since these grants are awarded for special purposes, we do not include them in total direct compensation which is intended to show the Committee’s annual pay decisions as it relates to its evaluation of executive performance.
CEO PAY FOR |
$ | $ | 175% target | $ | ||
base salary | annual bonus | annual bonus | LTI award | ||
No change from prior year | approved by the |
Total Direct Compensation
Total Direct Compensation |
Unlike the amounts reported in the Summary Compensation Table, total direct compensation, shown in the chart below for each year, represents the annual pay decisions by the Committee that specifically reflect its assessment of Company, business unit and individual performance for 2017.performance. For example, 2018 total direct compensation includes the grant date fair value of LTI values approved by the Committee for awards grantedmade in January 2018early February 2019 because these awards reflect the Committee’sits assessment of 20172018 performance. The Summary Compensation Table, however,by contrast, shows the grant date fair value of the January 2018 LTI awards, granted in January 2017, which related toreflects the Committee’s assessment of 20162017 performance. Further, due to the valuation methodology used to determine the number of shares granted (see page 44), the LTI award values approved by the Committee, and included in total direct compensation, differ from the accounting grant date fair value ultimately reported in the Summary Compensation Table in the following year. Other elements included in the Summary Compensation Table, —such as changes in pension values and other formulaic compensation components — are excluded from total direct compensation because they do not relatedrelate to performance and are outside the scope of the Committee’s annual pay decisions and, accordingly, are excluded from total direct compensation.decisions. The Committee therefore believes that total direct compensation renders a more accurate and up-to-date reflection of its assessment of 2017 performance.
2016 | |
2017 | |
2018 | |
46 | United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
Pay Decisions for the CEO
Chairman & Chief Executive Officer
AGE57 |UTC EXPERIENCE28 YEARS
TOTAL DIRECT COMPENSATION The Committee assessed Mr. Hayes’ 2018 performance favorably. Under his leadership, UTC successfully executed its 2018 financial, strategic and operational objectives in tandem with closing the Rockwell Collins acquisition and conducting an in-depth analysis of the Company’s business portfolio. The Committee’s compensation decisions below reflect his ability to deliver near-term performance while focusing on long-term strategic initiatives. Base Salary.The Committee increased Mr. Hayes’ base salary from $1.5 to $1.6 million, effective April 2018, consistent with the market median for our Compensation Peer Group (“CPG”). Annual Bonus.UTC’s 2018 annual bonus factor is determined based on adjusted net income and free cash flow performance against pre-established goals. 2018 adjusted net income of $5.9 billion used for annual bonus purposes exceeded the $5.6 billion goal, resulting in a payout factor of 152% for the earnings metric. Free cash flow used for annual bonus purposes equaled $4.9 billion, compared to the $5.0 billion goal. This resulted in a 95% payout factor for the UTC cash flow metric. In combination, these results generated a UTC financial performance factor of 129%. The Committee subsequently adjusted the calculated factor to 125%, as discussed in detail on page 43. |
INDIVIDUAL PERFORMANCE HIGHLIGHTS |
The Committee assessed Mr. Hayes’ 2017 performance favorably. Under his leadership, UTC successfully executed its 2017 financial, strategic and operational objectives.
Annual Bonus.UTC’s 2017 annual bonus factor is determined based on net income and free cash flow performance against pre-established goals. 2017 adjusted net income of $5.3 billion exceeded the $5.1 billion goal, resulting in a payout factor of 138% for the earnings metric. The ratio of free cash flow to net income used for annual bonus purposes equaled 99%, compared to the 90% goal. This resulted in a 115% payout factor for the UTC cash flow metric. In combination, these results generated a 129% UTC financial performance factor. However, as discussed on page 39, the Committee reduced this factor to 122%.
The Committee utilized this factor, along with favorable individual performance, explained in part by the considerations noted here, and awarded Mr. Hayes a $3.3 million annual bonus. This amount closely aligns with the Company’s 122% factor.
LTI.Mr. Hayes’ 2018 long-term incentive award of $12.0 million reflects the Committee’s favorable assessment of his 2017 performance, exceeds the value of his 2017 grant and aligns with the CPG median for his role.
INDIVIDUAL PERFORMANCE HIGHLIGHTS
Delivery of | |
●Successful completion of the $30+ billion (including debt) Rockwell Collins ●Completion of the Company’s portfolio review which resulted in our plan to separate UTC, Carrier and | |
●Continued commitment to | |
control equipment failures. ●Effectively driving a high-performance culture while emphasizing ethical standards, transparency and corporate responsibility. |
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
How We Assess Pay-for-Performance
The Summary Compensation Table on page 5458 provides annual compensation data presented in accordance with the Securities and Exchange Commission’s (“SEC”) requirements. While helpful for cross-company comparisons, this SEC-mandated format uses accounting conventions to estimate values of long-term incentive awards at the time of grant. As might be expected, these estimated values can differ significantly from the actual value that is ultimately earned from these awards. TheBecause the Committee believes this format does not adequately measure CEO compensation for the purposespurpose of assessing pay-for-performance alignment. Therefore, the Committeealignment, it also considers realizable and realized compensation as supplemental measures in its evaluation of CEO pay-for-performance, aspay-for-performance. These measures are described in detail below.
Summary Compensation Table | Realizable Compensation | Realized Compensation | ||||||||
Basic concept | ||||||||||
Uses SEC methodology, which includes a mix of both compensation actually earned during the year and | Includes only pay actually earned during the year, including any gains realized on equity awards that were granted in prior years. | |||||||||
Purpose | ||||||||||
SEC-mandated compensation disclosure. | Used to evaluate pay-for-performance alignment by correlating the value of an executive’s long-term incentive awards with the returns our shareowners receive from investing in UTC stock over the same period. | Used to evaluate pay-for-performance alignment by focusing on the strength of the correlation between UTC’s stock performance and the actual cash and equity payouts earned by our CEO during the year. | ||||||||
How it is calculated | ||||||||||
Sum of: | Three-Year Average of: | Sum of: | ||||||||
Base salary paid during the year | Base salary paid | Base salary paid during the year | ||||||||
Annual bonusearned for the applicable year’s performance | Annual bonus earned | Annual bonus earned for the applicable year’s performance | ||||||||
Accounting grant date fair value ofequity awards granted during the year reflecting prior year’s performance | In-the-money value(1) ofequity awards granted during the prior three fiscal years, calculated using the stock price at the end of the third year | Gains realized onequity awards exercised and vested during the year | ||||||||
All other compensation | Other direct(2)compensation | Other direct(2)compensation | ||||||||
Change in the actuarial value of pension benefits | Excludes: | Excludes: | ||||||||
Above-market earnings ofnonqualified deferred compensation | ●Change in the actuarial present value of pension benefits ●Above-market earnings of nonqualified deferred compensation ●Other indirect(3) compensation | ●Change in the actuarial present value of pension benefits ●Above-market earnings of nonqualified deferred compensation ●Other indirect(3) compensation |
Future pay opportunities that may or may not be realized. | |
(1) | Defined as the difference between the closing stock price of UTC Common Stock at the end of the fiscal year and the exercise price of the award (if any) multiplied by the number of shares underlying equity awards. For PSU awards for which the vesting factor is not yet known, the target number of shares is used. |
(2) | Includes personal use of the Corporate aircraft, leased vehicle expenses, financial planning, security benefits, healthcare benefits and other miscellaneous items. |
(3) | Includes insurance premiums and Company contributions to nonqualified deferred compensation plans and defined contribution retirement plans. |
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
The following charts compare the Summary Compensation Table values reported for Mr. Hayes for the past three years to his realizable and realized compensation for the same period. These supplemental methodologies provide the Committee with relevant measures to assess the pay-for-performance relationship by focusing on the strength of the correlation between UTC’s one-year TSRstock price performance and compensation realizable and realized during these time periods.
The charts below show a strong correlation between TSR and realizable and realized compensation. For 2017, the correlation between TSR and realized compensation was less pronounced than in prior years. This was driven by a significant decrease in Mr. Hayes’ SAR exercise activity during the year as well as the 2014 PSU award, which vested in 2017 at 0%. While the value realized from SAR exercises generally aligns with stock price appreciation, the executive ultimately decides when to exercise. As a result, this timing does not always correlate precisely with TSR performance.
Nevertheless, the Committee believes that the design of our executive compensation program, with its significant focus on “at risk”“at-risk” pay, reinforces its key objectives of driving long-term shareowner value, aligning executive and shareowner interests, and rewarding pay-for-performance.
CEO PAY-FOR-PERFORMANCE TREND
CEO PAY-FOR-PERFORMANCE |
* | Refer to the table on page 48 to see how we calculate realizable and realized compensation. |
long-term shareowner value,align executive pay-for-performance. | ||||||
* Refer to the table on page 44 to see how we calculate realizable and realized compensation.
Our program’s fundamental objective is driving long-term shareowner value,aligning executive and shareowner interests and rewarding pay-for-performance.
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
Pay Decisions for the Other NEOs
The Committee makes annual compensation decisions for our NEOs based on both their individual performance and the overall performance of the Company (and the business unit and/or function, where applicable). The following pages show each NEO’s 20172018 total direct compensation values. As discussed on page 42,46, total direct compensation includes only those pay elements that relate to the Committee’s assessment of 20172018 performance (i.e., it includes 2019 LTI grants that reflected 2018 performance, rather than 2018 LTI grants that reflected 2017 performance, rather than 2017 LTI grants that reflected 2016 performance). We also provide individual performance highlights that contributed to the Committee’s pay decisions for each NEO.
Executive Vice President & Chief Financial Officer
AGE56 |UTC EXPERIENCE29 YEARS
TOTAL DIRECT COMPENSATION |
Base Salary.During 2017, Mr. Johri received a merit increase along with a market adjustment to his base salary, resulting in an aggregate increase from $825,000 to $860,000. This increase reflected the Committee’s favorable assessment of his performance, as well as its efforts to better align his base salary with the CPG and Fortune 100 market medians for CFOs. Following these increases, Mr. Johri’s base salary is now closely aligned with the market median.
Annual Bonus.For Mr. Johri’s 2017 annual bonus, the Committee considered the UTC adjusted financial performance factor of 122% (as previously discussed on page 39), his effective leadership of UTC’s Finance organization and the individual performance considerations noted here, and awarded Mr. Johri a $1.1 million annual bonus. This amount was slightly above the UTC financial performance factor.
LTI.In consideration of Mr. Johri’s strong 2017 performance, the Committee granted him a 2018 LTI award valued at $4.0 million, an amount that slightly exceeds the CPG and Fortune 100 market medians for his role.
INDIVIDUAL PERFORMANCE HIGHLIGHTS
INDIVIDUAL PERFORMANCE HIGHLIGHTS ●Effective management of ●14% diluted EPS growth (GAAP and | |
non-GAAP), an amount that exceeded the expectations we communicated to investors at the beginning of the year; ●Net sales growth of 11% (GAAP), which included organic growth of 8% (non-GAAP); and ●Growth in net income from continuing operations of 16% (GAAP and non-GAAP). ●Leadership in driving UTC’s disciplined capital allocation strategy, including: |
●$2.5 billion | ||
repurchases; and ●$ |
●Significant role in completing the Rockwell Collins acquisition and the business portfolio review that culminated in our plan to separate UTC, Carrier and Otis into three independent companies. ●Ranked | |
Base Salary.During 2018, Mr. Johri received a merit increase to his base salary from $860,000 to $900,000. This increase reflected the Committee’s favorable assessment of his performance, as well as its efforts to keep Mr. Johri’s base salary aligned with the CPG and Fortune 100 market medians for his role. Following this increase, Mr. Johri’s base salary closely aligns with the market median. Annual Bonus.The Committee considered the UTC adjusted financial performance factor of 125% (as previously discussed on page 43), Mr. Johri’s effective leadership of UTC’s Finance function and the individual performance considerations noted here, and awarded him a $1.2 million annual bonus for 2018. This amount is closely aligned with the adjusted 125% UTC financial performance factor. LTI.In consideration of Mr. Johri’s strong 2018 performance, the Committee approved a $4.5 million 2019 LTI award, an amount above the CPG and Fortune 100 market medians for his role. As previously noted, due to differences in valuation methodologies, the grant date fair value of this award will be reported as $4.6 million in next year’s Summary Compensation Table. |
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
and Mr. Ortberg wished to continue his employment with the Company following the acquisition. Accordingly, we reached an agreement whereby Mr. Ortberg waived his rights and benefits under his change-in-control agreement. In exchange, the Company agreed to grant Mr. Ortberg an RSU award valued at $9.875 million following the closing. Importantly, Mr. Ortberg’s agreement with UTC provides for certain post-termination restrictive covenants that protect UTC’s interests, including non-competition, customer and employee non-solicitation, non-disclosure, and intellectual property protections. In replacing a contingent change-in-control severance benefit with a stock-based retention award with important restrictive covenants, this compensation strategy serves the best interest of the Company. INDIVIDUAL PERFORMANCE HIGHLIGHTS ●During 2018, Mr. Ortberg effectively led Rockwell Collins to the successful closing of its merger with UTC. ●Notwithstanding the challenges of the merger process, under Mr. Ortberg’s leadership, Rockwell Collins delivered solid operational and strategic results in 2018, positioning the new Collins Aerospace business for the future. Examples include: ●Successful delivery of the OLED F-35 advanced helmet display system for safety of flight evaluation, an outstanding technical achievement. ●Entry into service of the Flight Operations and Maintenance Exchanger (FOMAX) program, which positions Collins Aerospace as a leader in connected aviation with real-time secure data gathering and transmissions during all phases of flight. ●Meeting key milestones for the Boeing 777X. ●Exceeding cost and sales synergy goals for the B/E Aerospace acquisition. ●Maintained outstanding employee engagement throughout the 15-month merger approval process. (1)Includes Rockwell Collins years of service. (2)Reflects a prorated portion of base salary and annual bonus paid to Mr. Ortberg for the portion of the year he was a UTC employee. |
President, UTC Aerospace Systems (“UTAS”)
AGE48 |UTC EXPERIENCE20 YEARS
|
Base Salary.Mr. Gitlin received a base salary increase from $750,000 to $800,000, effective April 1, 2017, reflecting the Committee’s favorable assessment of his performance. Subsequently, the Committee adjusted Mr. Gitlin’s salary to $900,000, effective October 1, 2017, in connection with his role in the Company’s agreement to acquire Rockwell Collins and related pre-closing integration efforts. Mr. Gitlin’s base salary is now moderately above the CPG median.
Annual Bonus.The unadjusted UTC financial performance factor (129%, as discussed on page 39) and the factor for UTAS (104%) resulted in a blended financial performance factor of 114% of target. Based on these results, along with the individual performance considerations noted here, the Committee awarded Mr. Gitlin an annual bonus of $1.1 million, an amount slightly above UTAS’ blended financial performance factor.
LTI.In consideration of Mr. Gitlin’s 2017 performance, the Committee granted him a 2018 long-term incentive award valued at $4.0 million, an amount above the CPG median.
Retention RSU Award.In late 2017, the Committee also granted Mr. Gitlin a special $4.0 million retention RSU reflecting increasing leadership demands and integration challenges in connection with the announced acquisition of Rockwell Collins.
INDIVIDUAL PERFORMANCE HIGHLIGHTS
Mr. Ortberg served in |
Base Salary.Mr. Ortberg’s full-year base salary remained at its pre-acquisition level of $1,170,500 following the closing. | |||
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
President, UTC Climate, Controls & Security (“CCS”)
AGE58 |UTC EXPERIENCE10 YEARS
TOTAL DIRECT |
|
Base Salary.Mr. McDonough received a base salary increase from $825,000 to $900,000 in 2017. This increase reflects the Committee’s favorable assessment of his performance, as well as the length of his tenure as President of CCS. Mr. McDonough’s base salary is now slightly above the CPG median.
Annual Bonus.The unadjusted UTC financial performance factor (129%, as discussed on page 39) and the factor for CCS (85%) resulted in a blended financial performance factor of 103% of target. However, the Committee used its discretion and reduced the blended financial performance factor for CCS to 98% to account for a product recall that occurred in 2017.
Based on these results, along with the individual performance considerations noted here, the Committee awarded Mr. McDonough an annual bonus of $900,000, an amount that closely aligns with CCS’ blended financial performance factor.
LTI.In consideration of Mr. McDonough’s 2017 performance, the Committee granted him a 2018 LTI award valued at $4.0 million, an amount above the CPG median.
$5.88 MILLION | ||
●Leading Otis’ significant | ||
●Major contract wins for some of the world’s largest and ●Installation of 171 escalators and moving walkways for SNCF French Rail, which includes a 15-year maintenance | ||
●More than 200 units to be ●More than 2,500 units for metro, rail and airport projects in 11 cities across China. ●Selected to provide nine super double-deck elevators for the ●Exceeded 2 million units under maintenance contracts for the first time in Otis’ history. | ||
Base Salary.Ms. Marks received a base salary increase from $850,000 to $875,000 in 2018. This increase reflected the Committee’s favorable assessment of her performance in her short tenure as President of Otis. Ms. Marks’ base salary is now closely aligned with Annual Bonus.The unadjusted UTC financial performance factor (129%, as discussed on page 43) and the Otis factor (78%), resulted in a blended financial performance factor of 99% of target. The Committee subsequently used its discretion and reduced the Otis factor to 95% of target. Based on this factor, along with the LTI.In consideration of Ms. Marks’ strong 2018 performance, the Committee approved a $4.1 million 2019 LTI award, an amount above the CPG market median for her role. As previously noted, due to differences in valuation methodologies, the grant date fair value of this award will be reported as $4.2 million in next year’s Summary Compensation Table. Other Compensation Elements.Ms. Marks joined UTC in late 2017 as President of Otis. In early 2018, UTC paid Ms. Marks a one-time $500,000 cash sign-on bonus to offset compensation she forfeited with her former employer. |
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
$6.30 MILLION
Mr. Gitlin served in the role of President, UTC Aerospace Systems (“UTAS”), until the completion of the Rockwell Collins acquisition on November 26, 2018, at which point he transitioned to the role of President & Chief Operating Officer of the combined Collins Aerospace business. Since Mr. Gitlin led the UTAS business for most of the year, the Committee evaluated his performance relative to the performance of the pre-merger UTAS organization.
Base Salary.Mr. Gitlin’s base salary remained at $900,000 for 2018, an amount that is closely aligned with the CPG market median for his role.
Annual Bonus.The unadjusted UTC financial performance factor (129%, as discussed on page 43) and the UTAS factor (111%) resulted in a blended financial performance factor of 118% of target. The Committee subsequently adjusted the UTAS factor to 130% in recognition of the successful closing of the Rockwell Collins acquisition and the continued integration of the two businesses. Based on these results, along with the individual performance considerations noted here, the Committee awarded Mr. Gitlin an annual bonus of $1.3 million, an amount moderately above UTAS’ blended financial performance factor.
LTI.In consideration of Mr. Gitlin’s strong 2018 performance, the Committee approved a $4.1 million 2019 LTI award, an amount above the CPG market median for his role. As previously noted, due to differences in valuation methodologies, the grant date fair value of this award will be reported as $4.2 million in next year’s Summary Compensation Table.
President, Pratt & Whitney
AGE61 |UTC EXPERIENCE39 YEARS
|
Annual Bonus.The unadjusted UTC financial performance factor (129%, as discussed on page 39) and the factor for Pratt & Whitney (139%) resulted in a blended financial performance factor of 135% of target. However, the Committee used its discretion and reduced the blended financial performance factor for Pratt & Whitney to 112% to account for an unfavorable customer contract adjustment.
Based on these results, along with the individual performance considerations noted here, the Committee awarded Mr. Leduc an annual bonus of $1.0 million, an amount slightly above Pratt & Whitney’s blended financial performance factor.
LTI.Reflecting its favorable assessment of Mr. Leduc’s 2017 performance, the Committee granted him a 2018 LTI award valued at $4.0 million, an amount above the CPG median.
INDIVIDUAL PERFORMANCE HIGHLIGHTS
Leadership in driving substantial | ||
●Selection by Dassault Aviation to furnish an advanced nacelle system for its Falcon 6X business jet, providing for quieter and | ||
●Achieved significant wins for wheel and brake systems in 2018, with more than 35 airlines selecting Collins Aerospace’s equipment, which ●Selection by Boeing to | ||
●Contracted to develop state-of-the-art electric power generation system for South Korea’s KF-X fighter. |
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
Retirement and Deferred Compensation Benefits
Retirement and Deferred Compensation Benefits |
Retirement and deferred compensation plans help UTC attract and retain talented executives. Over the years, the Committee has from time to time updated these programs to maintain a competitive position within an evolving market. We believe the overall design of our retirement and deferred compensation programs is currently consistent with compensation practices in the marketplace and provides participating executives with benefits that approximate the CPGCompensation Peer Group market median.
Below is aare brief descriptiondescriptions of the variouseach retirement and deferred compensation arrangementsarrangement we offer. See the Pension Benefits section on pages 59-60 and the Nonqualified Deferred Compensation sectionsections on pages 61-6263-66 for more details.
Plan | Description | |
UTC Employee Retirement Plan | ||
UTC Pension Preservation Plan | An unfunded, nonqualified retirement plan utilizing the same benefit formula, compensation recognition, retirement eligibility and vesting provisions as the tax-qualified UTC Employee Retirement Plan. For employees hired prior to January 1, 2010, it provides pension benefits not provided under the tax-qualified pension plan because of Internal Revenue Code limits. | |
UTC Employee Savings Plan | A tax-qualified plan where employees receive a matching contribution in the form of UTC stock units with a value equal to 60% of the first 6% of pay (consisting of base salary plus annual bonus) contributed by the employee. Salaried employees hired on or after January 1, 2010, who are not eligible to participate in the UTC Employee Retirement Plan receive an additional age-based Company contribution (ranging from 3% to 5.5% of earnings) to their UTC Employee Savings Plan account. | |
UTC Savings Restoration Plan | An unfunded, nonqualified plan that matches the executive’s contributions with Company contributions in UTC stock units at the same rate as the UTC Employee Savings Plan, to the extent such contributions exceed Internal Revenue Code limits. | |
UTC Company Automatic Contribution Excess Plan | An unfunded, nonqualified plan for which salaried employees hired on or after January 1, 2010, may receive an additional age-based Company automatic contribution (ranging from 3% to 5.5% of earnings) for amounts above the Internal Revenue Code limits applicable to the qualified UTC Employee Savings Plan. Participants receiving benefits under this plan are ineligible to accrue a benefit under the UTC Pension Preservation Plan described above. | |
UTC Deferred Compensation Plan | An unfunded, nonqualified, deferred compensation plan that offers executives the opportunity to defer up to 50% of base salary and up to 70% of annual bonus. | |
UTC PSU Deferral Plan | An unfunded, nonqualified, deferred compensation plan that allows executives to defer between 10% and 100% of their vested PSU awards. Upon vesting, the deferred portion of each PSU award is converted into deferred stock units that accrue dividend equivalents. |
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
Perquisites and Other Benefits
We provide the following benefits to our senior executives, which the Committee believes are consistent with market practice and contributecontributes to recruitment and retention.
Perquisite/Benefits* | Description | |
ELG Life Insurance | ELG members appointed prior to January 31, 2015, may receive company-funded life insurance coverage up to three times their base salary at age 62 (projected or actual). This benefit is not available to Ms. Marks and Mr. | |
ELG Long-Term Disability | The ELG long-term disability program provides an annual benefit upon disability that is equal to 80% of base salary plus target annual bonus. | |
Healthcare | ELG members are eligible to participate in the same health benefit program we offer to our other employees. | |
Executive Physical | ELG members are eligible for a comprehensive annual executive physical. | |
Executive Leased Vehicle | UTC provides ELG members with an annual allowance toward the costs of a leased vehicle. The value of the allowance varies by ELG appointment date. Any costs above the annual allowance are paid directly by the executive. | |
Financial Planning | ELG members are eligible to receive an annual financial planning benefit. | |
Personal Aircraft Usage | Our CEO is allowed personal use of the Corporate aircraft for up to 50 hours per year. The Committee believes this optimizes the efficient use of Mr. Hayes’ time. Under this policy, Mr. Hayes also may | |
Security Arrangements |
* | See footnote (5) to the |
* See footnote (5) to the Summary Compensation Table on page 55 for more details on these perquisites/benefits.
Severance and Change-in-Control Arrangements
ELG members participate in severance and change-in-control arrangements similar to programs in effect at the majority of the companies inwithin our CPG.Compensation Peer Group. The Committee believes such arrangements are part of a competitive executive compensation program. Our severance program incorporates post-employment restrictive covenants designed to protect UTC’s interests, including non-compete,non-competition, non-solicitation and non-disclosure obligations.
Severance and change-in-control benefits are contingent upon certain future events whichthat may never occur. The Committee, therefore, does not consider these contingent benefits when setting other compensation elements or measuring total direct compensation.
For specific details on our severance and change-in-control arrangements, and how these programs have evolved over time, see the Potential Payments on Termination or Change-in-Control section on pages 62-65.
66-69.
United TechnologiesNotice of |
COMPENSATION DISCUSSION AND ANALYSIS |
Other Executive Compensation Policies and Practices
Succession Planning
Succession Planning |
On an annual basis, the Chairman & CEO and the Executive Vice President & Chief Human Resources Officer provide the Board with information concerningabout the succession planning for key senior leadership roles, including the CEO. Succession plans include a readiness assessment, biographical information and future career development plans. The Board’s views are incorporated into succession plans which are updated annually based on this feedback.
Employment Agreements
Employment Agreements |
The Committee does not believe fixed-term executive employment contracts that guarantee minimum levels of compensation over multiple years enhance shareowner value. Accordingly, our U.S.-based executives do not have employment contracts. However,contracts, except for certain agreements with employees from acquired businesses (such as Mr. Ortberg’s agreement described on page 67). We also have agreements with non-U.S.-based executives may have contracts consistent withwhere local regulations and practices.practices require employment contracts.
Post-Employment Restrictive Covenants
Post-Employment Restrictive Covenants |
ELG members may not engage in activities after termination or retirement that are detrimental to UTC, such as disclosing proprietary information, soliciting UTC employees or engaging in competitive activities. Violations can result in a clawback of annual and long-term incentive awards.
Tax Deductibility of Incentive Compensation
To the extent consistent with other compensation objectives, the Committee has sought to minimize UTC’s compensation-related tax burden. For 2017, Internal Revenue Code section 162(m) limited UTC’s deduction to $1 million for annual compensation paid to the CEO and each of the three other most highly compensated NEOs (excluding the CFO), unless the compensation qualifies as “performance-based compensation” as defined in section 162(m).
Clawback Policy
Clawback Policy |
UTC has a comprehensive policy on recoupment (“clawback”) of executive compensation, which applies to both our annual and long-term incentive compensation programs. In the event of a financial restatement or recalculation of a financial metric applicable to an award, the Company has the right to recover annual bonus payments and gains realized from vested long-term incentive awards from any executive (including NEOs) involved in activities that caused the restatement or recalculation. Clawbacks of bonuses, long-term incentive awards and compensation realized from prior awards also may be triggered by violations of our Code of Ethics, failure to meet employee health and safety standards, violations of post-employment restrictive covenants, or the exposure of UTC to excessive risk as determined under theour Enterprise Risk Management (“ERM”) program.program (for additional details on this program refer to page 21). In addition, the Company has the right to recover compensation when an executive’s negligence (including negligent supervision of a subordinate) causes significant harm to UTC. If required or otherwise appropriate, the Company may publicly disclose the circumstances surrounding the Committee’s decision to seek recoupment.
Anti-Hedging and Anti-Pledging Policy
No Short Sales, Pledging or Hedging of UTC Securities and No Underwater Option Buyouts |
UTC does not allow its directors, officers or executives to enter into short sales of UTC Common Stock. Similarly, directors and executive officers may not pledge or assign an interest in UTC Common Stock or similar transactions where potential gains are linked to a decline in the price of our shares. Unvestedother equity awards may not be assigned, traded, transferred or otherwise disposed of for economic benefit. Additionally, our directors and executives are not permitted to pledge UTC sharesinterests as collateral for loansa loan. Additionally, transactions in put options, call options or any other purpose.
derivative securities that have the effect of hedging the value of UTC securities are also prohibited, whether or not those securities were granted to or held, directly or indirectly, by the director, officer or employee. UTC’s LTIP prohibits buyouts of underwater stock options and stock appreciation rights.
To the extent consistent with other compensation objectives, the Committee has sought to minimize UTC’s compensation-related tax burden. For 2018, Internal Revenue Code section 162(m) limited UTC’s deduction to $1 million for annual compensation paid to our NEOs, as defined in section 162(m).
56 | United TechnologiesNotice of |
REPORT OF THE |
COMPENSATION COMMITTEE | |
Jean-Pierre Garnier, Chair | Ellen J. Kullman | Denise L. Ramos | |
John V. Faraci | Harold W. McGraw III | ||
Brian C. Rogers |
United TechnologiesNotice of |
COMPENSATION |
Tables
SUMMARY COMPENSATION TABLE |
Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total ($) | Total Without Change in Pension Value ($) | ||||||||||||||||||||||||
GREGORY J. HAYES • Chairman & Chief Executive Officer | ||||||||||||||||||||||||||||||||
2017 | $1,500,000 | $3,300,000 | $7,877,818 | $2,589,650 | $1,277,981 | $482,044 | $17,027,493 | $15,759,799 | ||||||||||||||||||||||||
2016 | $1,450,000 | $3,000,000 | $4,960,217 | $3,706,560 | $2,392,716 | $321,842 | $15,831,335 | $13,448,390 | ||||||||||||||||||||||||
2015 | $1,300,000 | $850,000 | $4,752,443 | $3,280,210 | $230,673 | $354,502 | $10,767,828 | $10,547,063 | ||||||||||||||||||||||||
AKHIL JOHRI • Executive Vice President & Chief Financial Officer | ||||||||||||||||||||||||||||||||
2017 | $851,250 | $1,100,000 | $2,674,030 | $883,225 | $198,047 | $356,512 | $6,063,064 | $5,865,017 | ||||||||||||||||||||||||
2016 | $766,667 | $1,100,000 | $1,609,731 | $1,207,440 | $151,840 | $259,356 | $5,095,034 | $4,943,194 | ||||||||||||||||||||||||
2015 | $700,000 | $1,040,000 | $6,770,654 | $3,470,482 | $1,174 | $386,405 | $12,368,715 | $12,367,541 | ||||||||||||||||||||||||
DAVID L. GITLIN • President, UTC Aerospace Systems | ||||||||||||||||||||||||||||||||
2017 | $812,500 | $1,100,000 | $6,855,052 | $943,250 | $385,996 | $181,970 | $10,278,768 | $9,892,772 | ||||||||||||||||||||||||
ROBERT J. MCDONOUGH • President, UTC Climate, Controls & Security | ||||||||||||||||||||||||||||||||
2017 | $881,250 | $900,000 | $2,851,552 | $943,250 | $222,507 | $137,048 | $5,935,607 | $5,713,100 | ||||||||||||||||||||||||
2016 | $806,250 | $1,100,000 | $2,470,750 | $1,853,280 | $149,742 | $136,899 | $6,516,921 | $6,367,179 | ||||||||||||||||||||||||
ROBERT F. LEDUC • President, Pratt & Whitney | ||||||||||||||||||||||||||||||||
2017 | $787,500 | $1,000,000 | $2,851,552 | $943,250 | $353,740 | $167,289 | $6,103,331 | $5,749,591 | ||||||||||||||||||||||||
2016 | $665,057 | $600,000 | $2,829,436 | $1,107,040 | $350,287 | $112,104 | $5,663,924 | $5,313,637 |
Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Option Awards ($)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total ($) | Total Without Change in Pension Value ($) | ||||||||
GREGORY J. HAYES •Chairman & Chief Executive Officer | ||||||||||||||||
2018 | $1,575,000 | $3,500,000 | $8,878,810 | $3,165,260 | $829,344 | $469,901 | $18,418,315 | $17,599,694 | ||||||||
2017 | $1,500,000 | $3,300,000 | $7,877,818 | $2,589,650 | $1,277,981 | $482,044 | $17,027,493 | $15,759,799 | ||||||||
2016 | $1,450,000 | $3,000,000 | $4,960,217 | $3,706,560 | $2,392,716 | $321,842 | $15,831,335 | $13,448,390 | ||||||||
AKHIL JOHRI •Executive Vice President & Chief Financial Officer | ||||||||||||||||
2018 | $890,000 | $1,200,000 | $2,950,834 | $1,051,810 | $0 | $361,924 | $6,454,568 | $6,454,568 | ||||||||
2017 | $851,250 | $1,100,000 | $2,674,030 | $883,225 | $198,047 | $356,512 | $6,063,064 | $5,865,017 | ||||||||
2016 | $766,667 | $1,100,000 | $1,609,731 | $1,207,440 | $151,840 | $259,356 | $5,095,034 | $4,943,194 | ||||||||
ROBERT K. ORTBERG •Chief Executive Officer, Collins Aerospace(6) | ||||||||||||||||
2018 | $112,240 | $140,300 | $9,875,022 | $0 | $30,107 | $147,381 | $10,305,050 | $10,274,943 | ||||||||
JUDITH F. MARKS •President, Otis | ||||||||||||||||
2018 | $868,750 | $1,400,000(7) | $2,950,834 | $1,051,810 | $0 | $241,555 | $6,512,949 | $6,512,949 | ||||||||
DAVID L. GITLIN •President & Chief Operating Officer, Collins Aerospace | ||||||||||||||||
2018 | $900,000 | $1,300,000 | $2,950,834 | $1,051,810 | $0 | $239,548 | $6,442,192 | $6,442,192 | ||||||||
2017 | $812,500 | $1,100,000 | $6,855,052 | $943,250 | $385,996 | $181,970 | $10,278,768 | $9,892,772 |
(1) | Bonus.Cash bonuses provided under the UTC Annual Executive Incentive Compensation Plan. Payments are primarily based on measured performance against pre-established goals. However, the Committee retains discretion to adjust annual bonus amounts based on its assessment of overall performance. Consequently, we report annual bonuses in the Bonus column rather than in |
(2) | Stock Awards.Grant date fair value of PSUs and RSUs issued under the LTIP, calculated in accordance with the |
(3) | Option Awards.Grant date fair value of SARs granted under the LTIP, calculated in accordance with the |
(4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings.The |
United TechnologiesNotice of |
COMPENSATION TABLES |
(5) | All Other Compensation.The |
Name | Personal Use of Corporate Aircraft(a) | Leased Vehicle(b) | Insurance Premiums(c) | 401(k) Plan Company Contributions(d) | Company Contributions to Non- Qualified Retirement Plans(e) | Relocation Benefit | Financial Planning(f) | Security Benefit(g) | Health Benefit(h) | Misc. | Total | |||||||||||||||||||||||
G. Hayes | $79,350 | $33,066 | $143,741 | $9,720 | $152,280 | $0 | $0 | $43,197 | $19,717 | $973 | $482,044 | |||||||||||||||||||||||
A. Johri | $0 | $25,421 | $129,963 | $24,570 | $152,994 | $0 | $4,900 | $0 | $17,926 | $738 | $356,512 | |||||||||||||||||||||||
D. Gitlin | $0 | $30,149 | $63,604 | $9,720 | $51,930 | $0 | $16,000 | $0 | $9,829 | $738 | $181,970 | |||||||||||||||||||||||
R. McDonough | $0 | $28,671 | $74,879 | $0 | $0 | $15,750 | $0 | $0 | $17,676 | $72 | $137,048 | |||||||||||||||||||||||
R. Leduc | $0 | $24,342 | $0 | $24,570 | $101,692 | $0 | $0 | $0 | $15,946 | $739 | $167,289 |
Name | Personal Use of Corporate Aircraft(a) | Leased Vehicle(b) | Insurance Premiums(c) | Company Contributions to 401(k) Plans(d) | Company Contributions to Non-Qualified Retirement Plans(e) | Relocation Benefits(f) | Financial Planning(g) | Healthcare Benefits(h) | Misc. | Total | ||||||||||
G. Hayes | $85,401 | $44,598 | $143,741 | $9,900 | $165,600 | $0 | $0 | $18,574 | $2,087 | $469,901 | ||||||||||
A. Johri | $0 | $31,371 | $129,963 | $25,025 | $156,065 | $0 | $4,900 | $13,465 | $1,135 | $361,924 | ||||||||||
R. Ortberg | $0 | $2,100 | $0 | $0 | $9,904 | $133,984 | $0 | $1,116 | $277 | $147,381 | ||||||||||
J. Marks | $0 | $16,780 | $0 | $15,125 | $55,719 | $124,006 | $16,000 | $13,502 | $423 | $241,555 | ||||||||||
D. Gitlin | $0 | $33,388 | $63,604 | $9,900 | $62,100 | $36,309 | $16,000 | $17,113 | $1,134 | $239,548 |
(a) | Incremental variable operating costs incurred for personal air travel which includes fuel (calculated on the basis of aircraft-specific average consumption rates and fleet average fuel costs), fleet average landing and handling fees, additional crew lodging and meal allowances and catering and hourly maintenance contract charges, when applicable. Because fleet-wide aircraft utilization is primarily for business purposes (approximately 99% in | |
(b) | Annual costs | |
(c) | Premiums paid on behalf of the executive under the ELG life insurance program. This benefit was eliminated for ELG members appointed after January 31, 2015, thereby excluding Ms. Marks and Mr. Ortberg. Under this program, UTC pays the premiums on a cash value life insurance contract owned by the executive. Life insurance benefits equal up to three times the executive’s actual or projected base salary at age 62. Once vested (age 55 or older with three years of service as an ELG member), UTC funds the policy to maintain coverage following retirement. | |
(d) | Dollar value of Company matching contributions made | |
(e) | Dollar value of Company contributions to the UTC Savings Restoration Plan (“SRP”) and the UTC Company Automatic Contribution Excess Plan (“CACEP”). Under the SRP, participants are credited with a benefit equal to the | |
(f) | Costs associated with relocation expenses, which include tax reimbursement payments of $11,418 for Mr. Ortberg and $26,400 for Ms. Marks. | |
(g) | Costs associated with a financial planning benefit available to ELG members. | |
(h) | Costs incurred by the Company associated with annual executive physicals and Company-covered healthcare benefits. | |
(6) | All values shown in the | |
(7) | Includes a cash sign-on bonus of $500,000 paid in the first quarter of 2018 to offset compensation forfeited from Ms. Marks’ former employer. |
United TechnologiesNotice of |
COMPENSATION TABLES |
GRANTS OF PLAN-BASED AWARDS |
Estimated Future Payouts under Equity Incentive Plan Awards(2) | All Other Stock Awards: | All Other Option Awards: Number of | Exercise or | Grant Date Fair | ||||||||||||||||||
Grant Date(1) | Threshold (#) | Target (#) | Maximum (#) | Number of Shares of Stock or Units (#)(3) | Securities Underlying Options (#)(4) | Base Price of Option Awards ($/Sh)(5) | Value of Stock and Option Awards ($)(6) | |||||||||||||||
G. HAYES | ||||||||||||||||||||||
1/3/2017 | 4,040 | 50,500 | 101,000 | — | — | — | $5,605,803 | |||||||||||||||
1/3/2017 | — | — | — | — | 151,000 | $110.83 | $2,589,650 | |||||||||||||||
1/3/2017 | — | — | — | 20,500 | — | — | $2,272,015 | |||||||||||||||
A. JOHRI | ||||||||||||||||||||||
1/3/2017 | 1,376 | 17,200 | 34,400 | — | — | — | $1,909,303 | |||||||||||||||
1/3/2017 | — | — | — | — | 51,500 | $110.83 | $883,225 | |||||||||||||||
1/3/2017 | — | — | — | 6,900 | — | — | $764,727 | |||||||||||||||
D. GITLIN | ||||||||||||||||||||||
1/3/2017 | 1,464 | 18,300 | 36,600 | — | — | — | $2,031,410 | |||||||||||||||
1/3/2017 | — | — | — | — | 55,000 | $110.83 | $943,250 | |||||||||||||||
1/3/2017 | — | — | — | 7,400 | — | — | $820,142 | |||||||||||||||
10/11/2017(7) | — | — | — | 34,000 | — | — | $4,003,500 | |||||||||||||||
R. MCDONOUGH | ||||||||||||||||||||||
1/3/2017 | 1,464 | 18,300 | 36,600 | — | — | — | $2,031,410 | |||||||||||||||
1/3/2017 | — | — | — | — | 55,000 | $110.83 | $943,250 | |||||||||||||||
1/3/2017 | — | — | — | 7,400 | — | — | $820,142 | |||||||||||||||
R. LEDUC | ||||||||||||||||||||||
1/3/2017 | 1,464 | 18,300 | 36,600 | — | — | — | $2,031,410 | |||||||||||||||
1/3/2017 | — | — | — | — | 55,000 | $110.83 | $943,250 | |||||||||||||||
1/3/2017 | — | — | — | 7,400 | — | — | $820,142 |
Estimated Future Payouts under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/Sh)(5) | Grant Date Fair Value of Stock and Option Awards ($)(6) | ||||||||||
Grant Date(1) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||
G. HAYES | ||||||||||||||
1/2/2018 | 3,880 | 48,500 | 97,000 | — | — | — | $6,379,690 | |||||||
1/2/2018 | — | — | — | — | 161,000 | $128.16 | $3,165,260 | |||||||
1/2/2018 | — | — | — | 19,500 | — | — | $2,499,120 | |||||||
A. JOHRI | ||||||||||||||
1/2/2018 | 1,288 | 16,100 | 32,200 | — | — | — | $2,117,794 | |||||||
1/2/2018 | — | — | — | — | 53,500 | $128.16 | $1,051,810 | |||||||
1/2/2018 | — | — | — | 6,500 | — | — | $833,040 | |||||||
R. ORTBERG | ||||||||||||||
12/3/2018(7) | — | — | — | 79,895 | — | — | $9,875,022 | |||||||
J. MARKS | ||||||||||||||
1/2/2018 | 1,288 | 16,100 | 32,200 | — | — | — | $2,117,794 | |||||||
1/2/2018 | — | — | — | — | 53,500 | $128.16 | $1,051,810 | |||||||
1/2/2018 | — | — | — | 6,500 | — | — | $833,040 | |||||||
D. GITLIN | ||||||||||||||
1/2/2018 | 1,288 | 16,100 | 32,200 | — | — | — | $2,117,794 | |||||||
1/2/2018 | — | — | — | — | 53,500 | $128.16 | $1,051,810 | |||||||
1/2/2018 | — | — | — | 6,500 | — | — | $833,040 |
(1) | The Committee |
(2) | Number of PSUs granted under the LTIP, which vest based on performance |
(3) | Number of RSUs granted under the LTIP, which vest three years from the grant date |
(4) | Number of SARs granted under the LTIP, which vest and become exercisable three years from the grant date |
(5) | The SAR exercise price equals the NYSE closing price of UTC Common Stock on the grant date. |
(6) | Grant date fair value of awards granted in |
(7) | One-time retention RSU award granted to Mr. |
United TechnologiesNotice of |
COMPENSATION TABLES |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END |
Option Awards | Stock Awards | |||||||||||||||||||||||||||
Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price($)(1) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(5) | |||||||||||||||||||
G. HAYES | ||||||||||||||||||||||||||||
1/3/2017 | — | 151,000(6) | — | $110.83 | 1/2/2027 | 20,984(9) | $2,676,929 | 50,500 | $6,442,285 | |||||||||||||||||||
1/4/2016 | — | 264,000(7) | — | $95.57 | 1/3/2026 | — | — | 106,000 | $13,522,420 | |||||||||||||||||||
1/2/2015 | — | 165,500(8) | — | $115.04 | 1/1/2025 | — | — | 11,060 | $1,410,924 | |||||||||||||||||||
1/2/2014 | 71,500 | — | — | $112.49 | 1/1/2024 | — | — | — | — | |||||||||||||||||||
1/2/2013 | 107,000 | — | — | $84.00 | 1/1/2023 | — | — | — | — | |||||||||||||||||||
1/3/2012 | 122,000 | — | — | $74.66 | 1/2/2022 | — | — | — | — | |||||||||||||||||||
1/3/2011 | 103,000 | — | — | $78.99 | 1/2/2021 | — | — | — | — | |||||||||||||||||||
1/4/2010 | 86,000 | — | — | $71.63 | 1/3/2020 | — | — | — | — | |||||||||||||||||||
A. JOHRI | ||||||||||||||||||||||||||||
1/3/2017 | — | 51,500(6) | — | $110.83 | 1/2/2027 | 7,063(9) | $901,027 | 17,200 | $2,194,204 | |||||||||||||||||||
1/4/2016 | — | 86,000(7) | — | $95.57 | 1/3/2026 | — | — | 34,400 | $4,388,408 | |||||||||||||||||||
1/2/2015 | — | 134,600(10) | — | $115.04 | 1/1/2025 | 39,290(10) | $5,012,225 | — | — | |||||||||||||||||||
1/2/2015 | — | 40,500(8) | — | $115.04 | 1/1/2025 | — | — | 2,716 | $346,480 | |||||||||||||||||||
1/2/2015 | — | — | — | — | — | 13,128(11) | $1,674,739 | — | — | |||||||||||||||||||
1/3/2012 | 30,500 | — | — | $74.66 | 1/2/2022 | — | — | — | — | |||||||||||||||||||
1/3/2011 | 22,500 | — | — | $78.99 | 1/2/2021 | — | — | — | — | |||||||||||||||||||
1/4/2010 | 14,500 | — | — | $71.63 | 1/3/2020 | — | — | — | — | |||||||||||||||||||
1/2/2009 | 10,950 | — | — | $54.95 | 1/1/2019 | — | — | — | — | |||||||||||||||||||
D. GITLIN | ||||||||||||||||||||||||||||
10/11/2017 | — | — | — | — | — | 34,193(12) | $4,362,001 | — | — | |||||||||||||||||||
1/3/2017 | — | 55,000(6) | — | $110.83 | 1/2/2027 | 7,575(9) | $966,343 | 18,300 | $2,334,531 | |||||||||||||||||||
1/4/2016 | — | 79,000(7) | — | $95.57 | 1/3/2026 | — | — | 31,600 | $4,031,212 | |||||||||||||||||||
1/2/2015 | — | 46,000(8) | — | $115.04 | 1/1/2025 | — | — | 3,080 | $392,916 | |||||||||||||||||||
1/2/2014 | 24,500 | — | — | $112.49 | 1/1/2024 | — | — | — | — | |||||||||||||||||||
11/12/2013 | — | — | — | — | — | 15,408(11) | $1,965,599 | — | — | |||||||||||||||||||
1/2/2013 | 18,900 | — | — | $84.00 | 1/1/2023 | — | — | — | — | |||||||||||||||||||
8/1/2012 | 45,036 | — | — | $74.79 | 7/31/2022 | — | — | — | — |
Option Awards | Stock Awards | |||||||||||||||
Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($)(1) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(5) | ||||||||
G. HAYES | ||||||||||||||||
1/2/2018 | — | 161,000(6) | $128.16 | 1/1/2028 | 19,936(9) | $2,122,785 | 97,000 | $10,328,560 | ||||||||
1/3/2017 | — | 151,000(7) | $110.83 | 1/2/2027 | 21,454(10) | $2,284,422 | 101,000 | $10,754,480 | ||||||||
1/4/2016 | — | 264,000(8) | $95.57 | 1/3/2026 | — | — | 61,480 | $6,546,390 | ||||||||
1/2/2015 | 165,500 | — | $115.04 | 1/1/2025 | — | — | — | — | ||||||||
1/2/2014 | 71,500 | — | $112.49 | 1/1/2024 | — | — | — | — | ||||||||
1/2/2013 | 107,000 | — | $84.00 | 1/1/2023 | — | — | — | — | ||||||||
1/3/2012 | 122,000 | — | $74.66 | 1/2/2022 | — | — | — | — | ||||||||
1/3/2011 | 103,000 | — | $78.99 | 1/2/2021 | — | — | — | — | ||||||||
1/4/2010 | 86,000 | — | $71.63 | 1/3/2020 | — | — | — | — | ||||||||
A. JOHRI | ||||||||||||||||
1/2/2018 | — | 53,500(6) | $128.16 | 1/1/2028 | 6,645(9) | $707,560 | 32,200 | $3,428,656 | ||||||||
1/3/2017 | — | 51,500(7) | $110.83 | 1/2/2027 | 7,221(10) | $768,892 | 34,400 | $3,662,912 | ||||||||
1/4/2016 | — | 86,000(8) | $95.57 | 1/3/2026 | — | — | 19,952 | $2,124,489 | ||||||||
1/2/2015 | 134,600 | — | $115.04 | 1/1/2025 | — | — | — | — | ||||||||
1/2/2015 | 40,500 | — | $115.04 | 1/1/2025 | — | — | — | — | ||||||||
1/2/2015 | — | — | — | — | 13,422(11) | $1,429,175 | — | — | ||||||||
1/3/2012 | 30,500 | — | $74.66 | 1/2/2022 | — | — | — | — | ||||||||
1/3/2011 | 22,500 | — | $78.99 | 1/2/2021 | — | — | — | — | ||||||||
1/4/2010 | 7,250 | — | $71.63 | 1/3/2020 | — | — | — | — | ||||||||
R. ORTBERG | ||||||||||||||||
12/3/2018 | — | — | — | — | 79,895(12) | $8,507,220 | — | — | ||||||||
11/13/2017 | — | — | — | — | 30,341(13) | $3,230,710 | — | — | ||||||||
11/13/2017 | — | — | — | — | 20,228(14) | $2,153,877 | — | — | ||||||||
J. MARKS | ||||||||||||||||
1/2/2018 | — | 53,500(6) | $128.16 | 1/1/2028 | 6,645(9) | $707,560 | 32,200 | $3,428,656 | ||||||||
11/1/2017 | — | — | — | — | 17,129(11) | $1,823,896 | — | — | ||||||||
11/1/2017 | — | — | — | — | 8,564(15) | $911,895 | — | — |
United TechnologiesNotice of |
COMPENSATION TABLES |
Option Awards | Stock Awards | |||||||||||||||||||||||||||
Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price($)(1) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(5) | |||||||||||||||||||
R. MCDONOUGH | ||||||||||||||||||||||||||||
1/3/2017 | — | 55,000(6) | — | $110.83 | 1/2/2027 | 7,575(9) | $966,343 | 18,300 | $2,334,531 | |||||||||||||||||||
1/4/2016 | — | 132,000(7) | — | $95.57 | 1/3/2026 | — | — | 52,800 | $6,735,696 | |||||||||||||||||||
1/2/2015 | — | 50,500(8) | — | $115.04 | 1/1/2025 | — | — | 3,388 | $432,207 | |||||||||||||||||||
1/2/2014 | 35,000 | — | — | $112.49 | 1/1/2024 | — | — | — | — | |||||||||||||||||||
1/2/2014 | 44,550(13) | — | — | $112.49 | 1/1/2024 | — | — | — | — | |||||||||||||||||||
1/2/2013 | 38,000 | — | — | $84.00 | 1/1/2023 | — | — | — | — | |||||||||||||||||||
1/3/2012 | 28,000 | — | — | $74.66 | 1/2/2022 | — | — | — | — | |||||||||||||||||||
6/15/2011 | — | — | — | — | — | 13,129(11) | $1,674,867 | — | — | |||||||||||||||||||
1/3/2011 | 20,900 | — | — | $78.99 | 1/2/2021 | — | — | — | — | |||||||||||||||||||
1/4/2010 | 18,900 | — | — | $71.63 | 1/3/2020 | — | — | — | — | |||||||||||||||||||
1/2/2009 | 20,000 | — | — | $54.95 | 1/1/2019 | — | — | — | — | |||||||||||||||||||
R. LEDUC | ||||||||||||||||||||||||||||
1/3/2017 | — | 55,000(6) | — | $110.83 | 1/2/2027 | 7,575(9) | $966,343 | 18,300 | $2,334,531 | |||||||||||||||||||
1/15/2016 | — | 88,000(7) | — | $85.63 | 1/14/2026 | 16,557(11) | $2,112,176 | 35,200 | $4,490,464 | |||||||||||||||||||
4/1/2015 | — | 54,200(14) | — | $115.92 | 3/31/2025 | 4,623(14) | $589,756 | — | — | |||||||||||||||||||
1/2/2013 | 23,000 | — | — | $84.00 | 1/1/2023 | — | — | — | — | |||||||||||||||||||
1/3/2012 | 25,500 | — | — | $74.66 | 1/2/2022 | — | — | — | — | |||||||||||||||||||
1/3/2011 | 26,000 | — | — | $78.99 | 1/2/2021 | — | — | — | — |
Option Awards | Stock Awards | |||||||||||||||
Grant Date | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($)(1) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(2) | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(5) | ||||||||
D. GITLIN | ||||||||||||||||
1/2/2018 | — | 53,500(6) | $128.16 | 1/1/2028 | 6,645(9) | $707,560 | 32,200 | $3,428,656 | ||||||||
10/11/2017 | — | — | — | — | 34,957(16) | $3,722,221 | — | — | ||||||||
1/3/2017 | — | 55,000(7) | $110.83 | 1/2/2027 | 7,744(10) | $824,581 | 36,600 | $3,897,168 | ||||||||
1/4/2016 | — | 79,000(8) | $95.57 | 1/3/2026 | — | — | 18,328 | $1,951,565 | ||||||||
1/2/2015 | 46,000 | — | $115.04 | 1/1/2025 | — | — | — | — | ||||||||
1/2/2014 | 24,500 | — | $112.49 | 1/1/2024 | — | — | — | — | ||||||||
11/12/2013 | — | — | — | — | 15,753(11) | $1,677,379 | — | — | ||||||||
1/2/2013 | 18,900 | — | $84.00 | 1/1/2023 | — | — | — | — | ||||||||
8/1/2012 | 45,036 | — | $74.79 | 7/31/2022 | — | — | — | — |
(1) | The exercise price of each SAR is equal to the NYSE closing price of UTC Common Stock on the grant date. |
(2) | RSUs which include dividend equivalents (if applicable) earned during the vesting period which are reinvested as additional RSUs each time UTC pays a dividend to shareowners. The reinvested RSUs vest on the same date as the underlying RSUs. |
(3) | Calculated by multiplying the number of unvested RSUs by |
(4) | PSUs that are subject to vesting contingent on Company performance relative to pre-established performance goals measured over a three-year period and the executive’s continued employment, |
(5) | Calculated by multiplying the number of unvested |
(6) | SARs scheduled to vest on January 2, 2021, subject to the executive’s continued employment, except in certain limited circumstances as detailed in footnotes (2), (4) and (6) on pages 68-69. |
(7) | SARs scheduled to vest on January 3, 2020, subject to the executive’s continued employment, |
SARs that vested on January 4, 2019. | |
(9) | RSUs scheduled to vest on January |
RSUs scheduled to vest on January 3, 2020, subject to the executive’s continued employment, | |
(11) | ELG RSUs granted upon the executive’s appointment to the ELG which vest in the event of a mutually agreeable separation (as defined on page 66) following three years of ELG service or upon death, disability or change-in-control. These RSU awards earn dividend equivalents during the vesting period. |
(12) | One-time retention RSU award granted to Mr. Ortberg in accordance with his agreement to waive his rights and benefits under his Rockwell Collins change-in-control agreement and to assume certain post-employment restrictive covenants. This RSU award will vest on the third anniversary of the Rockwell Collins acquisition, subject to continued UTC employment, except in certain circumstances as detailed in footnotes (2), (4) and (6) on pages |
Rockwell Collins PSUs that converted to UTC RSUs on November 26, 2018 (the closing date of the acquisition), in accordance with the terms of the merger agreement between UTC and Rockwell Collins. The award was converted at the target performance level and will vest on October 2, 2020, subject to continued employment with UTC, except in certain circumstances as detailed in footnotes (2), (4) and (6) on pages 68-69. This RSU award does not earn dividend equivalents during the vesting period. | |
(14) | Rockwell Collins RSUs that were converted to UTC RSUs on November 26, 2018 (the close date of the acquisition), in accordance with the terms of the merger agreement between UTC and Rockwell Collins. This award vests in three equal annual installments on the anniversary of the grant date.At the time these awards were converted to UTC RSUs, two tranches were unvested, and remain subject to continued service vesting requirements, except in certain circumstances as detailed in footnotes (2), (4) and (6) on pages 68-69. This RSU award does not earn dividend equivalents during the vesting period. |
(15) | RSUs granted to |
Retention RSU award granted to Mr. Gitlin which will vest on October 11, 2020, subject to continued employment or earlier in the case of death, disability or change-in-control. | |
United TechnologiesNotice of |
COMPENSATION TABLES |
OPTIONS EXERCISED AND STOCK VESTED |
Option Awards | Stock Awards | |||||||
Number of Shares | Value Realized | Number of Shares | Value Realized | |||||
Name | Acquired on Exercise (#)(1) | on Exercise ($)(2) | Acquired on Vesting (#)(3) | on Vesting ($)(4) | ||||
G. Hayes | 54,500 | $1,930,477 | — | — | ||||
A. Johri | 17,750 | $969,699 | — | — | ||||
D. Gitlin | 28,300 | $1,001,188 | — | — | ||||
R. McDonough | — | — | 12,064 | $1,434,651 | ||||
R. Leduc | — | — | — | — |
Option Awards | Stock Awards | |||||||
Name | Number of Shares | Value Realized on Exercise ($)(2) |
| Number of Shares Acquired on Vesting (#)(3) | Value Realized on Vesting ($)(4) | |||
G. Hayes | — | — | 11,060 | $1,408,823 | ||||
A. Johri | 18,200 | $1,268,542 | 42,006 | $5,381,370 | ||||
R. Ortberg | — | — | — | — | ||||
J. Marks | — | — | — | — | ||||
D. Gitlin | — | — | 3,080 | $392,330 |
(1) | SARs exercised |
(2) | Calculated by multiplying the number of shares acquired upon exercise by the difference between the market price of UTC Common Stock on the exercise date and the grant price of the award. |
(3) | PSUs and RSUs that converted to shares of UTC Common Stock on a one-for-one basis upon vesting in 2018. PSUs granted on January 2, 2015 vested at 28% of target on February 12, 2018, based on performance through December 31, 2017. Mr. Johri elected to defer the receipt of his vested PSUs in the amount of $337,834 into the UTC PSU Deferral Plan, as detailed on pages 65-66. |
(4) | Calculated by multiplying the number of vested PSUs and RSUs by the market price of UTC Common Stock on the vesting date. |
PENSION BENEFITS |
Overview of Plans.Salaried employees hired before January 1, 2010, participate in the UTC Employee Retirement Plan (“ERP”) and the UTC Pension Preservation Plan (“PPP”), as described in detail below. The ERP is a tax-qualified plan subject to Internal Revenue Code (“IRC”) provisions that, as of December 31, 2017,2018, limit recognized annual compensation to $270,000$275,000 and annual retirement benefits to $215,000.
$220,000.
The PPP is an unfunded, nonqualified retirement plan that utilizes the same benefit formula, retirement eligibility and vesting provisions as the ERP, but provides benefits that cannot be accrued under the ERP due to the Internal Revenue CodeIRC limits described above.
Pension Benefit Formula.Through the end of 2014, both the ERP and PPP used a traditional final average earnings (“FAE”) retirement benefit formula for salaried employees hired prior to July 1, 2002. Under this formula, the plans provideprovided an annual benefit equal to 2% of the executive’s earnings (defined below) for each year of service up to a maximum of 20 years, plus 1% of earnings for each year of service thereafter, minus 1.5% of the executive’s Social Security benefit for each year of service (up to a maximum of 50% offset of the annual Social Security benefit). Earnings recognized under this formula consist of the highest average annual base salary and annual bonus received over any consecutive five calendar-year period ending on or before December 31, 2014. The FAE formula does not recognize long-term incentive compensation earnings.
compensation.
Effective December 31, 2014, for employees hired prior to July 1, 2002, the FAE formula was replaced by a cash balance formula. Employees hired after June 30, 2002, but prior to January 1, 2010, including Mr. McDonough, participateaccrue benefits under this cash balance formula for all of their years of service.formula. The cash balance formula credits a participant’s account with amounts that grow each month through two types of credits — pay credits and interest credits. Pay credits range from 3% to 8% of base salary and annual bonus, depending on the participant’s age. Interest credits are based on 30-year U.S. Treasury Bond yields and are subject to annual adjustments but cannot fall below 3.8%.
Distribution Options.The following distribution options are available for election by Plan participants:
Plan | FAE Benefit Formula | Cash Balance Benefit Formula | ||
Employee Retirement Plan | ●Annuity payments | ●Annuity payments | ||
| ||||
Pension Preservation Plan | ||||
●Annuity payments ●Two- to 10-year annual installments |
* | Uses a discount rate equal to the Barclay’s Capital Municipal Bond Index averaged over five years (currently |
United TechnologiesNotice of |
COMPENSATION TABLES |
Vesting and Retirement.Under both the ERP and the PPP, vesting requires three years of service. The normal retirement age under both the FAE and the cash balance benefit formulas is 65, but the FAE formula also provides full retirement benefits at age 62 for a participant who retires with at least 10 years of service. Early retirement benefits also are also available under the FAE formula beginning at age 55 with at least 10 years of service, reduced by 0.2% for each month by which retirement precedes age 62. The value of the cash balance account is not impacted by an employee’s age at retirement. As of December 31, 2017,2018, Messrs. Hayes and Johri were eligible for early retirement under the FAE formula.
Other Formulas Used.Benefits shown below for Mr. Hayes also include amounts accrued under a different formula used in a predecessor Sundstrand predecessor pension plan that was merged into UTC’s pension plans, upon the acquisition of Sundstrand Corporation. Benefits shown for Mr. Ortberg are based on the formula under the frozen Rockwell Collins qualified and nonqualified pension plans which merged into the UTC ERP and PPP, respectively, as of December 31, 2018.
Number of Years of | Present Value of | Payments During Last | ||||||
Name | Plan Name | Credited Service (#) | Accumulated Benefit ($)(1) | Fiscal Year ($) | ||||
G. Hayes | UTC Employee Retirement Plan | 28 | $1,425,336 | — | ||||
UTC Pension Preservation Plan | 28 | $9,638,274 | — | |||||
Total | $11,063,610 | — | ||||||
A. Johri(2) | UTC Employee Retirement Plan | 15 | $814,149 | — | ||||
UTC Pension Preservation Plan | 15 | $1,696,037 | — | |||||
Total | $2,510,186 | — | ||||||
D. Gitlin | UTC Employee Retirement Plan | 20 | $701,742 | — | ||||
UTC Pension Preservation Plan | 20 | $1,278,361 | — | |||||
Total | $1,980,103 | — | ||||||
R. McDonough | UTC Employee Retirement Plan | 10 | $268,072 | — | ||||
UTC Pension Preservation Plan | 10 | $812,363 | — | |||||
Total | $1,080,435 | — | ||||||
R. Leduc(2) | UTC Employee Retirement Plan | 36 | $1,800,718 | $103,158 | ||||
UTC Pension Preservation Plan | 36 | $3,521,372 | $459,544 | |||||
Total | $5,322,090 | $562,702 |
Name | Plan Name | Number of Years of Credited Service (#) | Present Value of Accumulated Benefit ($)(1) | Payments During Last Fiscal Year ($) | ||||
G. Hayes | UTC Employee Retirement Plan | 29 | $1,355,349 | — | ||||
UTC Pension Preservation Plan | 29 | $10,526,882 | — | |||||
Total | $11,882,231 | — | ||||||
A. Johri(2) | UTC Employee Retirement Plan | 15 | $756,700 | — | ||||
UTC Pension Preservation Plan | 15 | $1,699,475 | — | |||||
Total | $2,456,175 | — | ||||||
R. Ortberg | UTC Employee Retirement Plan(3) | 19 | $718,044 | — | ||||
UTC Pension Preservation Plan(3) | 19 | $381,077 | — | |||||
Total | $1,099,121 | — | ||||||
J. Marks(4) | UTC Employee Retirement Plan | — | — | — | ||||
UTC Pension Preservation Plan | — | — | — | |||||
Total | — | — | ||||||
D. Gitlin | UTC Employee Retirement Plan | 21 | $633,872 | — | ||||
UTC Pension Preservation Plan | 21 | $1,306,345 | — | |||||
Total | $1,940,217 | — |
(1) | The assumptions used to determine the present value of the accumulated pension benefit |
PPP (with the exception of a monthly life annuity for Mr. Ortberg’s PPP benefit, consistent with his election). | |
(2) | Mr. Johri |
(3) | The present value of the accumulated benefits shown for Mr. Ortberg are based on benefits earned under the legacy Rockwell Collins qualified and nonqualified defined benefit pension plans which were frozen in 2006 and have since merged into the equivalent UTC pension plans. The number of years of credited service for Mr. Ortberg reflects the years of service he had when the plans were frozen. Benefit calculations are based on age, years of service, and average annual base salary and annual bonus. Payments to Mr. Ortberg from the legacy Rockwell Collins nonqualified pension plan are payable upon separation from service as a monthly life annuity. A portion of Mr. Ortberg’s accrued nonqualified pension benefits were previously distributed to him in a lump-sum payment in accordance with the change-in-control provisions in that plan. |
(4) | Ms. Marks was hired by UTC after January 1, 2010, and therefore does not participate in UTC’s legacy pension plans. |
United TechnologiesNotice of |
COMPENSATION TABLES |
NONQUALIFIED DEFERRED COMPENSATION |
UTC offers the following nonqualified deferred compensation programs:
Plan Name | Description | |
UTC Savings | The SRP is a nonqualified, unfunded deferred compensation arrangement that offers participants the opportunity to defer up to 6% of pay (base salary plus annual bonus) above the annual Internal Revenue Code compensation limit ($ | |
Company Automatic | Salaried employees, including NEOs, hired on or after January 1, 2010, do not participate in UTC’s pension plans. These employees do, however, receive age-based Company automatic contributions | |
UTC Deferred | The DCP is a nonqualified, unfunded deferred compensation arrangement that offers participants the opportunity to defer up to 50% of base salary and up to 70% of annual bonus until retirement or for a fixed period, | |
UTC PSU | The PSU Deferral Plan allows executives to defer between 10% and 100% of their vested PSU awards that would otherwise be settled in unrestricted shares of UTC Common Stock. The deferred portion of the PSU award is converted into deferred stock units that accrue dividend equivalents. Distributions from the plan are made in |
Executive | Registrant | Aggregate | Aggregate | Aggregate | ||||||||
Contributions | Contributions | Earnings in | Withdrawals/ | Balance at | ||||||||
Name | Plan(1) | in Last FY ($)(2) | in Last FY ($)(3) | Last FY ($)(4) | Distributions ($) | Last FYE ($)(5) | ||||||
G. Hayes | UTC Deferred Compensation Plan | $0 | $0 | $173,965 | $0 | $1,466,891 | ||||||
UTC Savings Restoration Plan | $253,800 | $152,280 | $384,064 | $0 | $2,371,364 | |||||||
A. Johri | UTC Deferred Compensation Plan | $0 | $0 | $92,364 | $0 | $808,983 | ||||||
UTC Savings Restoration Plan | $100,875 | $60,525 | $48,481 | -$25,066(6) | $375,723 | |||||||
UTC Company Automatic Contribution Excess Plan | $0 | $92,469 | $4,481 | $0 | $172,135 | |||||||
D. Gitlin | UTC Savings Restoration Plan | $86,550 | $51,930 | $100,868 | $0 | $650,017 | ||||||
R. Leduc | UTC Savings Restoration Plan | $67,050 | $40,230 | $35,606 | $0 | $301,269 | ||||||
UTC Company Automatic Contribution Excess Plan | $0 | $61,462 | $2,650 | $0 | $108,693 |
Name | Plan | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($)(2) | Aggregate Earnings in Last FY ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($)(4) | ||||||
G. Hayes | UTC Deferred Compensation Plan | $0 | $0 | -$134,093 | $0 | $780,248 | ||||||
UTC Savings Restoration Plan | $276,000 | $165,600 | -$238,031 | $0 | $2,574,933 | |||||||
Sundstrand Corporation Deferred Compensation Plan | $0 | $0 | $27,959 | $0 | $580,509 | |||||||
A. Johri | UTC Deferred Compensation Plan | $0 | $0 | -$39,194 | $0 | $769,789 | ||||||
UTC Savings Restoration Plan | $102,900 | $61,740 | -$48,385 | -$28,622(5) | $463,356 | |||||||
UTC Company Automatic Contribution Excess Plan | $0 | $94,325 | $8,711 | $0 | $275,171 | |||||||
UTC PSU Deferral Plan(6) | $337,834 | $0 | -$49,115 | $0 | $288,719 | |||||||
R. Ortberg | Rockwell Collins Deferred Compensation Plan(7) | $0 | $0 | -$46,219 | $0 | $624,488 | ||||||
Rockwell Collins Non-Qualified Savings Plan(8) | $7,203 | $9,904 | -$708 | $0 | $20,382 | |||||||
J. Marks | UTC Savings Restoration Plan | $43,625 | $6,563 | -$3,462 | $0 | $46,726 | ||||||
UTC Company Automatic Contribution Excess Plan | $0 | $49,156 | $893 | $0 | $50,049 | |||||||
D. Gitlin | UTC Savings Restoration Plan | $103,500 | $62,100 | -$82,834 | $0 | $732,783 |
(1) | |
Amounts shown in this column are included in the All Other Compensation column of the Summary Compensation | |
The sum of contributions (both by the executive and UTC) and credited earnings on those deferrals, less withdrawals. Of these totals, the following amounts have been included in the Summary Compensation Table in prior years: |
65 |
COMPENSATION TABLES |
(5) | Mr. Johri’s 2013 separation from service triggered distributions of his previously accrued |
Mr. Johri elected to defer the receipt of |
INVESTMENT OPTIONS
Amounts deferred by participants under the SRP, CACEP and/or DCP may be allocated to one or more of the following hypothetical investment accounts:
POTENTIAL PAYMENTS ON TERMINATION OR CHANGE-IN-CONTROL |
SEVERANCE BENEFITS
Over the last 10 years, the Committee has made a number of modifications to the ELG severance program to align with market best practices and to serve the evolving needs of the Company. Changes are generally prospectiveThese changes were applied prospectively due to existing contractual commitments. BenefitTherefore, benefit eligibility therefore, depends on the datewhen the executive was appointed to the ELG. TheELG, as shown in the table below outlines these modifications:
below:
ELG Appointment Date | ||||||||
Prior to January 2006 | Between January 2006 and | On or after May 2013 | ||||||
ELG Cash Separation | 2.5x base salary | 2.5x base salary | No cash benefit | |||||
Conditions to Receive | ●Mutually agreeable separation prior to age 62, and ●3+ years as an ELG member, or ●Change-in-control |
| N/A | |||||
ELG RSU Award* | No award granted | Grant value equal to 2x base salary at time of grant | Grant value up to $2 million, depending on role | |||||
Conditions to Vest in | N/A | |||||||
NEO Participation | Gregory Hayes | N/A | Akhil Johri | |||||
David Gitlin | ||||||||
Judy Marks |
* | ELG RSUs receive dividend equivalents during the vesting period that are reinvested as additional RSUs and are subject to the same vesting conditions as the underlying award. |
A mutually agreeable separation occurs when:
| An ELG member’s position with UTC has been eliminated or diminished by a divestiture, restructuring, shift in priorities or similar event; |
● |
|
● | An executive retires at age 65 or older. |
Voluntary terminations prior to age 62 or terminations related to misconduct do not qualify as mutually agreeable separations.
Receipt of the ELG cash separation benefit and the ELG RSU award is contingent upon execution ofthe executive entering into an agreement containing the following restrictive covenants made by the executive for the protection of UTC: (i) non-compete;non-competition; (ii) employee non-solicitation; (iii) non-disparagement; (iv) protection of confidential, sensitive and proprietary information; and (v) post-termination cooperation. The ELG separation benefit is not treated as compensation for purposes of determining benefits under UTC’s pension plans or any other benefit programs. Distributions are subject to certain restrictions imposed by Internal Revenue Code Section 409A.
66 | United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement |
COMPENSATION TABLES |
Agreement with Robert K. Ortberg.In anticipation of Mr. Ortberg’s continuing role with the Company following the acquisition of Rockwell Collins, Mr. Ortberg agreed to waive his rights and benefits under his Rockwell Collins change-in-control agreement. UTC then granted Mr. Ortberg a one-time, retention RSU award valued at $9,875,022. The award vests three years from the acquisition date, subject to Mr. Ortberg’s continued employment with UTC. Vesting will accelerate in the event of an adverse change to the terms and conditions of his employment, as detailed on pages 68-69. Under the terms of this agreement, Mr. Ortberg is subject to post-termination restrictive covenants that protect UTC, including restrictions on competitive activities, customer and employee solicitation and disclosure of Company information and intellectual property. This compensation strategy focuses on retaining Mr. Ortberg and better serves UTC’s interests.
Mr. Ortberg was appointed to the ELG upon the close of the Rockwell Collins acquisition. However, he did not receive an ELG RSU award in connection with his appointment. His retention RSU award described above includes restrictive covenants substantially similar to those applicable to the ELG RSU award.
CHANGE-IN-CONTROL BENEFITS
Change-in-control severance protection under our legacy Senior Executive Severance Plan (“SESP”) was designed to ensure continuity of management in potential change-in-control situations. In response to changing market practices, we closed this program to new participants effective June 2009. Accordingly, Mr. Hayes is the only NEO who remains eligible for the SESP benefit. ExecutivesNEOs appointed to the ELG on or after June 2009 do not participate in the SESP and are instead covered by the standard ELG severance benefit (as previously discussed)RSU award which would vest in the event of a qualifying termination following a change-in-control.
TheFor Mr. Hayes, the SESP provides a cash severance benefit of 2.99x the sum of base salary and target annual bonus for the year in which termination occurs, subject to various restrictive covenants. The SESP cash severance is reduced by 1/36th for each month that termination occurs after age 62 and, accordingly, is completely phased out at age 65.
A change-in-control generally occurs upon:
| The acquisition of 20% of UTC’s outstanding shares by a person or a group;
|
● | Incumbent directors no longer |
● |
|
Benefits under both the legacy SESP, and the UTC 2018 Long-Term Incentive Plan (“LTIP”)and the predecessor long-term incentive plan are subject to a “double trigger,” meaningtrigger” where benefits are provided only provided if a change-in-control is followed by an involuntary termination of employment or termination of employmentby the executive for “good reason” within two years following a change-in-control event.change-in-control. “Good reason” generally includes material adverse changes in an executive’s compensation, responsibilities, authority, reporting relationship or work location. Under the LTIP, upon a qualifying termination following a change-in-control or in the event of death, the vesting of outstanding equity awards will be accelerated, usingaccelerated. For performance-based awards, acceleration will occur at either the greater of actual or target performance levels for performance-based awards.
(for the 2018 LTIP) or at target performance (for the predecessor plan).
United TechnologiesNotice of |
COMPENSATION TABLES |
The table below estimates the value of payments and benefits that each NEO would have been entitled to receive had employment terminated on December 31, 2017,2018, under various hypothetical circumstances. Under UTC’s programs, benefit eligibility and the value of benefits an executive is entitled tomay receive vary depending on the reason for termination and whether the executive is eligible for retirement at that time.
Payment Type | G. Hayes | A. Johri | D. Gitlin | R. McDonough | R. Leduc | ||||||||||
Involuntary Termination (for cause) | |||||||||||||||
Cash Payment | $0 | $0 | $0 | $0 | $0 | ||||||||||
Pension Benefit(1) | $12,779,320 | $2,450,965 | $1,357,504 | $801,938 | $0 | ||||||||||
SAR Award Value(2) | $0 | $0 | $0 | $0 | $0 | ||||||||||
Stock Award Value(2) | $0 | $0 | $0 | $0 | $0 | ||||||||||
Sub-Total | $12,779,320 | $2,450,965 | $1,357,504 | $801,938 | $0 | ||||||||||
Less: Vested Pension | ($12,779,320 | ) | ($2,450,965 | ) | ($1,357,504 | ) | ($801,938 | ) | $0 | ||||||
Amount Triggered due to Termination | $0 | $0 | $0 | $0 | $0 | ||||||||||
Voluntary Termination | |||||||||||||||
Cash Payment | $0 | $0 | $0 | $0 | $0 | ||||||||||
Pension Benefit(1) | $12,779,320 | $2,450,965 | $1,357,504 | $801,938 | $0 | ||||||||||
SAR Award Value(3)(4) | $32,531,525 | $7,572,589 | $3,569,933 | $12,718,499 | $7,305,115 | ||||||||||
Stock Award Value(3)(4) | $14,933,344 | $4,734,888 | $0 | $7,167,903 | $4,490,464 | ||||||||||
Sub-Total | $60,244,189 | $14,758,442 | $4,927,437 | $20,688,340 | $11,795,579 | ||||||||||
Less: Vested Pension and Equity | ($60,244,189 | ) | ($14,758,442 | ) | ($4,927,437 | ) | ($20,688,340 | ) | ($11,795,579 | ) | |||||
Amount Triggered due to Termination | $0 | $0 | $0 | $0 | $0 | ||||||||||
Involuntary Termination (not for cause) | |||||||||||||||
Cash Payment(5) | $3,750,000 | $0 | $0 | $2,250,000 | $0 | ||||||||||
Pension Benefit(1) | $12,779,320 | $2,450,965 | $1,357,504 | $801,938 | $0 | ||||||||||
SAR Award Value(3)(6) | $32,531,525 | $7,572,589 | $5,831,657 | $12,718,499 | $7,305,115 | ||||||||||
Stock Award Value(3)(6)(7) | $14,933,344 | $6,409,627 | $5,046,032 | $7,167,903 | $4,490,464 | ||||||||||
Sub-Total | $63,994,189 | $16,433,181 | $12,235,193 | $22,938,340 | $11,795,579 | ||||||||||
Less: Vested Pension and Equity | ($60,244,189 | ) | ($14,758,442 | ) | ($4,927,437 | ) | ($20,688,340 | ) | ($11,795,579 | ) | |||||
Amount Triggered due to Termination | $3,750,000 | $1,674,739 | $7,307,756 | $2,250,000 | $0 | ||||||||||
Termination Following a Change-in-Control | |||||||||||||||
Cash Payment(8) | $12,333,750 | $0 | $0 | $2,250,000 | $0 | ||||||||||
Pension Benefit(1) | $12,779,320 | $2,450,965 | $1,357,504 | $801,938 | $0 | ||||||||||
SAR Award Value(9) | $35,059,265 | $10,121,237 | $7,595,013 | $13,639,199 | $8,857,245 | ||||||||||
Stock Award Value(9) | $17,291,348 | $12,322,879 | $12,036,995 | $8,775,795 | $8,248,038 | ||||||||||
Sub-Total | $77,463,683 | $24,895,081 | $20,989,512 | $25,466,932 | $17,105,283 | ||||||||||
Less: Vested Pension and Equity | ($53,482,979 | ) | ($12,564,238 | ) | ($4,927,437 | ) | ($17,320,492 | ) | ($9,550,347 | ) | |||||
Amount Triggered due to Termination | $23,980,704 | $12,330,843 | $16,062,075 | $8,146,440 | $7,554,936 |
Payment Type | G. Hayes | A. Johri | R. Ortberg | J. Marks | D. Gitlin | |||||
Involuntary Termination (for cause) | ||||||||||
Cash Payment | $0 | $0 | $0 | $0 | $0 | |||||
Pension Benefit(1) | $13,546,111 | $2,482,139 | $513,095 | $0 | $1,500,390 | |||||
SAR Award Value(2) | $0 | $0 | $0 | $0 | $0 | |||||
Stock Award Value(2) | $0 | $0 | $0 | $0 | $0 | |||||
Sub-Total | $13,546,111 | $2,482,139 | $513,095 | $0 | $1,500,390 | |||||
Less: Vested Pension | -$13,546,111 | -$2,482,139 | -$513,095 | $0 | -$1,500,390 | |||||
Amount Triggered due to Termination | $0 | $0 | $0 | $0 | $0 | |||||
Voluntary Termination | ||||||||||
Cash Payment | $0 | $0 | $0 | $0 | $0 | |||||
Pension Benefit(1) | $13,546,111 | $2,482,139 | $513,095 | $0 | $1,500,390 | |||||
SAR Award Value(3)(4) | $14,996,210 | $2,779,958 | $0 | $0 | $1,852,063 | |||||
Stock Award Value(3)(4) | $19,585,292 | $6,556,293 | $1,490,507 | $0 | $0 | |||||
Sub-Total | $48,127,613 | $11,818,390 | $2,003,602 | $0 | $3,352,453 | |||||
Less: Vested Pension and Equity | -$48,127,613 | -$11,818,390 | -$2,003,602 | $0 | -$3,352,453 | |||||
Amount Triggered due to Termination | $0 | $0 | $0 | $0 | $0 | |||||
Involuntary Termination (not for cause) | ||||||||||
Cash Payment(5) | $4,000,000 | $0 | $0 | $0 | $0 | |||||
Pension Benefit(1) | $13,546,111 | $2,482,139 | $513,095 | $0 | $1,500,390 | |||||
SAR Award Value(3)(6) | $14,996,210 | $2,779,958 | $0 | $0 | $2,713,953 | |||||
Stock Award Value(3)(6)(7) | $19,585,292 | $7,985,468 | $13,891,807 | $0 | $6,776,813 | |||||
Sub-Total | $52,127,613 | $13,247,565 | $14,404,902 | $0 | $10,991,156 | |||||
Less: Vested Pension and Equity | -$48,127,613 | -$11,818,390 | -$2,003,602 | $0 | -$3,352,453 | |||||
Amount Triggered due to Termination | $4,000,000 | $1,429,175 | $12,401,300 | $0 | $7,638,703 | |||||
Termination Following a Change-in-Control | ||||||||||
Cash Payment(8) | $13,156,000 | $0 | $0 | $0 | $0 | |||||
Pension Benefit(1) | $13,546,111 | $2,482,139 | $513,095 | $0 | $1,500,390 | |||||
SAR Award Value(9) | $14,996,210 | $2,779,958 | $0 | $0 | $2,713,953 | |||||
Stock Award Value(9) | $21,495,117 | $8,575,899 | $13,891,807 | $5,157,679 | $12,546,219 | |||||
Sub-Total | $63,193,438 | $13,837,996 | $14,404,902 | $5,157,679 | $16,760,562 | |||||
Less: Vested Pension and Equity | -$42,750,373 | -$9,986,934 | -$2,003,602 | $0 | -$3,352,453 | |||||
Amount Triggered due to Termination | $20,443,065 | $3,851,062 | $12,401,300 | $5,157,679 | $13,408,109 |
(1) | Estimated lump-sum value of the nonqualified portion of the retirement benefits accrued under UTC’s pension plans, assuming retirement or termination on December 31, |
(2) | Outstanding equity awards will be forfeited upon involuntary termination (for cause). |
(3) | Equity awards are valued based on the closing price of UTC Common Stock on the NYSE ($ |
(4) | SARs and RSUs |
68 | United TechnologiesNotice of |
COMPENSATION TABLES |
(5) | ELG cash separation benefit equal to 2.5x base salary payable as a lump-sum in the event of a mutually agreeable separation (defined on page |
(6) | |
(7) | ELG RSUs will vest in the case of mutually agreeable separation (as defined on page |
(8) | |
(9) | In the event of qualifying termination |
United TechnologiesNotice of |
CEO |
Background
As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC adopted a rule requiring companies to disclose the ratio of the median employee’s total annual compensation relative to total annual compensation of the CEO. The following section provides details onexplains the methodology that we used, in accordance with the SEC rules, to identify the median employee as well asand to calculate the 2017 results of this analysis, which were both determined in accordance with the SEC disclosure rules.2018 ratio.
How We Identified the Median Employee
UTC used the following parameters to identify the employee whose pay was at the median of all UTC employees globally.
Consistently Applied Compensation Measure
Consistently Applied Compensation Measure |
The compensation measure we used to identify the median employee was gross cash compensation paid to employees from October 1, 20162017 to September 30, 2017.2018. Gross cash compensation varies by country and is based on local pay practices, but generally includes:
● | Base salary (including any local allowances) |
● | Incentive pay (including cash bonuses, sales incentives and other variable pay programs) |
● | Any other cash awards or payments(1) |
Employees Included |
For the purposes of identifying the median employee, we included all active UTC employees (excluding the CEO) on October 1, 2017,2018, located in 48the 40 countries in which UTC has operations. UTC’s employee population in these 4840 countries represents 95% (or 197,116)202,584) of our 207,464213,106 active employees on that date. As of October 1, 2017,2018, our global population consisted of 67,58669,410 U.S. employees and 139,878143,696 non-U.S. employees.
Employees Excluded |
Employees Excluded
We excluded 10,34810,522 employees from 3640 countries under the SEC’s de minimis exemption(2)and an estimated 65930,599 employees from 2219 businesses acquired by UTC in 2017.2018.(3)
Methodology and Material Assumptions
Methodology and Material Assumptions |
Annualized pay.Pay was annualized for employees who worked a partial year between October 1, 2016,2017 and September 30, 2017.2018. Partial-year employees include mid-year hires, employees on paid or unpaid leave, and employees on active military duty.
Foreign exchange rates.Foreign currencies were converted into U.S. dollars as of October 1, 2017,2018, based on the average daily spot rates during September 2017.
2018.
Unavailable data.In a few jurisdictions, sufficient employee-level compensation data was unavailable for the full period. This impacted 2,3924,988 of our employees. In such cases, UTC used known data for these employees and annualized the full year or employment period. Sensitivity testing was then completed to ensure this population did not materially impact the outcome of the median employee.
(1) | In some countries, due to differences in payroll systems and local laws and regulations, gains realized on the vesting and/or exercise of equity awards, as well as company contributions to government-sponsored |
(2) | The countries and approximate number of UTC employees excluded from the calculation are as follows: |
(3) | In accordance with the SEC’s rules, the following entities acquired in |
United TechnologiesNotice of |
CEO PAY RATIO |
Calculating the Ratio
Summary Compensation Table Values
Summary Compensation Table Values |
Once we identified the median employee using gross cash compensation as our compensation measure, we then calculated the 20172018 total compensation for our CEO and the median employee for the full year using the same methodology required by the SEC for reporting in the Summary Compensation Table (see page 5458 of this Proxy Statement). For the CEO and the median employee, the Summary Compensation Table values include employee fringe benefits, such as company contributions to healthcare and retirement plans.
Results
Results |
The 20172018 total annual compensation value for Mr. Hayes was $17,027,493$18,418,315 and for UTC’s global median employee was $72,433,$71,799, resulting in a ratio of 235:257:1.
With approximately 67% of our employees located outside the United States, UTC has operations in nearly every country in the world. We believe paying competitive wages targeted at the median of local labor markets within our diverse industry segments is essential to ensuring a productive, engaged workforce and a sustainable business. Consequently, a global ratio may not be particularly informative without any context for foreign labor markets and the diversity in the roles of UTC’s employees around the world.
Comparing UTC’s Ratio to Other Companies
A number of factors unrelated to compensation significantly impact this calculation and are particularly important when comparing UTC’s ratio to ratios at other companies. These factors include: industry-specific pay differentials, company and organizational structure (e.g., outsourcing vs.versus insourcing), and the geographic location of employee populations.
United TechnologiesNotice of |
3
LONG-TERM INCENTIVE PLAN
Q&A Regarding the Plan
How Does the Plan Benefit Shareowners?
The Board believes that the Plan will serve its intended purpose of:
How Does the Plan Protect the Interest of Shareowners?
The following features have been incorporated into the Plan to protect shareowners’ interest and mitigate potential risk:
In addition, UTC’s policy prohibits UTC executives and directors from hedging or pledging UTC shares (see page 52 for details).
What Will Happen to the Shares Remaining in the Prior Plan?
Currently, equity awards are being granted under the Prior Plan. If Proposal 3 is approved by shareowners, no new awards will be granted under the Prior Plan, except for shares issued for awards outstanding under the Prior Plan, including dividends reinvested relative to such awards. Following shareowner approval of this Proposal 3, shares remaining available for new awards under the Prior Plan (including shares that are forfeited, terminate, expire, lapse without being exercised or are settled for cash) will become issuable under the Plan.
If shareowners do not approve this Proposal 3, the authorized shares remaining under the Prior Plan will continue to be available for future grants.
What is the Rate at which Shares Have Been Used under the Prior Plan?
Burn Rate.Measures how quickly UTC is using the shares available for incentive plan purposes. Higher burn rates indicate shares are being used more quickly.
How Much has the Prior Plan Diluted Shares Outstanding?
Overhang.Measures the extent to which long-term incentives awarded to employees and non-employee directors dilute the Company’s outstanding shares. The higher the overhang, the greater the dilutive impact.
What Are the Individual Award Limits under the Plan?
Individual participants (except non-employee directors) may not be granted awards in excess of 1,000,000 shares (for stock appreciation rights and stock options), 500,000 shares (for restricted stock, restricted stock units or performance shares or any other type of “full-value award”), and $10,000,000 (for cash-denominated awards) in any single calendar year. Non-employee directors of UTC may not be granted awards under the Plan which, in combination with any cash retainer fees, exceed $1,500,000 during any single calendar year.
How Many Awards Are Outstanding and How Many Shares Remain Issuable under the Prior Plan?
The following table provides the outstanding options, warrants and rights, as well as the shares that remain available for issuance under the Prior Plan:
Will the Plan Be Impacted by the Conversion of Rockwell Collins Equity Awards to UTC Equity Awards upon the Closing of UTC’s Acquisition of Rockwell Collins?
Under the terms of the merger agreement between UTC and Rockwell Collins, equity awards granted after the transaction announcement date, but before the closing of the acquisition, will be converted into UTC equity awards. However, because these awards were granted under Rockwell Collins’ long-term incentive plans, which are being assumed by UTC, the Rockwell Collins converted equity awards will not reduce the awards available for future issuance under the Plan.
How Long Will the Shares Authorized under the Plan Last?
The authorized reserve consisting of (i) 35 million shares of Common Stock, plus (ii) the number of shares available for new awards under the Prior Plan as of the Effective Date of the Plan (approximately 24.8 million shares) is expected to be sufficient for Plan awards for approximately three to five years. After utilization of these shares, continued grants of awards under the Plan would require additional shareowner approval.
UTC believes that the authorization of 35 million shares, in addition to the shares remaining available under the Prior Plan, is appropriate in part because the merger with Rockwell Collins will significantly increase the number of employees eligible for UTC equity awards and any remaining shares in Rockwell Collins’ long-term incentive plans will not be used for future UTC equity awards.
Who Administers the Plan?
The Plan will be administered by the Board or, if the Board elects, by the Compensation Committee or any other committee of the Board as designated by the Board from time to time (including, with respect to awards to non-employee directors, the Committee on Governance and Public Policy). All references in this proposal to the “Committee” refer to the Board as a whole or the applicable committee designated by the Board. Subject to applicable law, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members or other persons it selects, provided that no delegation of authority will be permitted that would cause a transaction pursuant to the Plan to be subject to (and not exempt from) Section 16(b) of the Securities Exchange Act of 1934, as amended.
Subject to the terms and conditions of the Plan, the Committee will have absolute authority to administer the Plan, including the authority to select the eligible individuals to receive awards, to determine the type of each award, the number of shares to be granted, and the terms and conditions of the awards. The Committee also has authority to adopt procedures or sub-plans as necessary or advisable to comply with foreign legal or regulatory provisions for awards granted to participants outside of the United States.
New Plan Benefits.As of the date of this Proxy Statement, no awards have been granted under the Plan. All awards to be made under the Plan are subject to the future exercise of discretion by the Committee or its delegates, and accordingly are not presently determinable.
How Are Shares Counted under the Plan?
Who Is Eligible to Participate in the Plan?
Directors, officers and employees of UTC and its subsidiaries and affiliates, and prospective directors, officers and employees who have accepted offers of employment from UTC and its subsidiaries and affiliates are eligible to receive awards under the Plan. As of December 31, 2017, there were 13 directors and 204,651 employees of UTC and its subsidiaries and affiliates.
Which Types of Awards Can the Committee Grant under the Plan?
Stock Appreciation Rights and Stock Options.Stock appreciation rights and stock options entitle the participant to receive an amount in cash or shares with a value equal to the product of: (i) the difference between the fair market value of one share on the exercise date less the fair market value of one share on the grant date (“the spread”), multiplied by (ii) the number of stock appreciation rights or stock options that have been exercised. Stock options granted under the Plan may either be incentive stock options (“ISOs”), which are intended to qualify for favorable treatment to the recipient under U.S. federal tax law, or nonqualified stock options, which do not qualify for this favorable tax treatment. The exercise price will be determined by the Committee and provided in the applicable award agreement, and will not be less than the fair market value (as defined in the
Plan) on the grant date. In no event may any stock appreciation right or stock option granted under this Plan be amended (other than as described on page 73 under “Plan and Award Adjustments”) to: (i) decrease the exercise price; (ii) cancel in exchange for cash or other awards or in conjunction with the grant of any new stock appreciation right or stock option with a lower exercise price; or (iii) be subject to any action that would be treated, under the applicable stock exchange listing standards or for accounting purposes, as a “repricing,” unless such amendment, cancellation or action is approved by shareowners. The term of each stock appreciation right and stock option is fixed by the Committee, but cannot be more than 10 years after the grant date. The effect of a participant’s termination of service on any award held by the participant will be described in the applicable award agreement.
A stock option that is intended to qualify as an ISO may not be granted to an eligible individual who at grant owns more than 10% of the total combined voting power of all classes of stock of UTC, unless at the time the exercise price of such ISO is at least 110% of the fair market value of a share and is not exercisable after the fifth anniversary of the grant date. In addition, the aggregate fair market value of the shares at grant for which ISOs become exercisable by a participant during any calendar year may not exceed $100,000.
Restricted Stock and Restricted Stock Units.Shares of restricted stock are actual shares of Common Stock issued to a participant. The Committee determines: (i) the participants eligible to receive restricted stock; (ii) the timing of grants; (iii) the number of shares to be awarded; (iv) the vesting conditions of awards; (v) the conditions in which an award may be subject to forfeiture; and (vi) any other terms and conditions of the award, in addition to those contained in the Plan. A participant holding restricted shares will have all the rights of a shareowner of UTC holding shares of Common Stock, including, if applicable, the right to vote the shares and the right to receive any dividends (except as otherwise noted under the question “Can Equity Awards Earn Dividends or Dividend Equivalents under the Plan?” below).
Restricted stock units, which include deferred stock units and performance share units, are awards denominated in shares that will be settled, subject to the applicable award’s terms and conditions, in a specified number of shares of Common Stock or cash equal to the fair market value of the number of shares of Common Stock. The Committee may require that restricted stock units vest based on either the continued service of the participant, the attainment of performance goals or a combination of both. Restricted stock units will be settled upon vesting or at a later time if permitted pursuant to a deferred compensation arrangement. Certain restricted stock unit awards may be eligible for dividends or dividend equivalents.
Performance Awards.The grant or vesting of awards under the Plan may be conditioned on the achievement of performance goals established by the Committee, which may be based on attainment of specified levels of one or more of the following measures, or of any other measures determined by the Committee in its discretion including: stock price, total shareholder return, earnings (whether based on earnings before taxes, earnings before interest and taxes or earnings before interest, taxes, depreciation and amortization), earnings per share, return on equity, return on sales, return on assets or operating or net assets, market share, objective customer service measures or indices, pre- or after-tax income, net income, cash flow (before or after dividends or other adjustments), free cash flow, cash flow per share (before or after dividends or other adjustments), gross margin, working capital and gross inventory turnover, risk-based capital, revenues, revenue growth, return on capital (whether based on return on total capital or return on invested capital), cost control, gross profit, operating profit, unit volume, sales, in each case with respect to the Corporation or any one or more Subsidiaries, divisions, business units or business segments thereof, either in absolute terms or relative to the performance of one or more other companies (including an index covering multiple companies).
Other Stock-Based Awards.Other stock-based awards are awards under the Plan not otherwise specifically described in the Plan that are valued by reference to, or otherwise relate to, shares of Common Stock, and which are subject to terms and conditions consistent with the terms of the Plan that are determined by the Committee.
Cash Awards.Cash awards are awards under the Plan that are denominated and payable in cash and which are subject to such terms and conditions consistent with the terms of the Plan as are determined by the Committee.
Can Equity Awards Earn Dividends or Dividend Equivalents under the Plan?
Any dividends or dividend equivalents credited with respect to any award under the Plan will be subject to the same time and/or performance-based vesting conditions applicable to such award and will, if vested, be delivered or paid at the same time as the underlying award. The award agreement will specify if the award is subject to dividend or dividend equivalent payments. Stock appreciation rights and stock options cannot receive dividend or dividend equivalent payments under the Plan.
Does the Plan Have a Minimum Vesting Period Requirement?
The Committee may not grant awards with a designated vesting period of less than one year, except for awards granted to a maximum of 5% of the authorized share reserve under the Plan.
Additional Information about the Plan
Plan and Award Adjustments
The Committee has discretion to make adjustments to the Plan and outstanding awards in limited circumstances, as described below.
Corporate Transactions and Other Corporate Events.In the event of a: (i) a merger, consolidation, acquisition of property or shares, stock rights offering, liquidation, disposition for consideration of an equity interest in a subsidiary or affiliate, or similar event affecting UTC or any of its subsidiaries; or (ii) a stock dividend, stock split, reverse stock split, reorganization, share combination, or recapitalization or similar event affecting the capital structure of UTC, or a disaffiliation, separation or spinoff, or other extraordinary dividend, the Committee or the Board may in its discretion, in the case of events described in clause (i) and (ii), make such substitutions or adjustments as it deems appropriate and equitable to: (A) the aggregate number and kind of shares or other securities reserved for issuance and delivery under the Plan; (B) the various maximum limitations on the grants to individuals of certain types of awards; (C) the number and kind of shares or other securities subject to outstanding awards; (D) financial goals or results relating to a performance goal; and (E) the exercise price of outstanding awards. In the case of certain corporate transactions, such an adjustment may consist of cancellation of outstanding awards in exchange for payments of cash, property or a combination of both having an aggregate value equal to the value of such awards, which in the case of an option may be the excess, if any of the deal consideration per share over the per share exercise price.
Change-in-Control.Upon a change-in-control of UTC, participants will be granted replacement awards by the acquiring or surviving company that are of the same type held prior to the change-in-control. Performance awards will be converted into replacement time-based awards for the remainder of the applicable performance period (or such shorter period determined by the Committee), with the number of underlying shares determined based on the greater of actual performance through the latest practicable date prior to the change-in-control and target performance. Replacement awards will generally continue to vest on the same schedule as the original awards, except that, if a participant’s employment is terminated by UTC other than for cause, or if the participant terminates for “good reason,” in each case, within the 24 months following the change-in-control, then the participant’s replacement awards will become vested in full. In the event an acquiring or surviving company refuses to issue replacement awards, or if the acquiring or surviving company is not a publicly held company, then all awards will become vested in full, with performance awards vesting at the greater of actual performance through the latest practicable date prior to the change-in-control and target performance. The terms “cause,” “good reason” and “change-in-control” are defined in the Plan.
Plan and Award Amendments.The Committee may amend, alter or discontinue the Plan at any time, subject to two limitations. First, no amendment, alteration or discontinuance may materially impair the rights of a participant with respect to a previously granted award without the participant’s consent (unless the amendment is required to comply with applicable law, stock exchange rules, tax rules or accounting rules). Second, an amendment must receive approval of shareowners, if required by applicable law, or the applicable stock exchange listing standards. The Committee may unilaterally amend the terms of any outstanding award, but no such amendment shall, without the participant’s consent and except as otherwise described above, materially impair the rights of any participant with respect to an award, except such an amendment made to cause this Plan or award to comply with applicable law, applicable stock exchange listing standards or accounting rules.
Clawback Provisions
The Committee has the authority, in the event of certain types of misconduct or upon the occurrence of specified events to cancel awards, including vested awards, and to recoup gains realized by participants from previous awards.
Federal Income Tax Consequences
The following discussion is intended only as a brief summary of the material U.S. Federal income tax rules that are generally relevant to Plan awards as of the date of this Proxy Statement. The laws governing the tax aspects of awards are highly technical and such laws might change. The following discussion does not address state, local or non-U.S. income tax rules applicable to awards under the Plan.
SARs and Stock Options.Upon the exercise of a SAR or stock option, an award recipient will recognize ordinary income equal to the spread which will constitute compensation taxable to the recipient as ordinary income. UTC will generally be entitled to a corresponding federal income tax deduction equal to the amount of ordinary income recognized by the recipient. Upon the sale of UTC Common Stock acquired upon exercise, the recipient will generally recognize a long- or short-term capital gain or loss, depending on whether the recipient held the share for more than one year from the date of exercise. With respect to ISOs, a recipient generally will not recognize taxable income when the ISO is exercised, unless the recipient is subject to the alternative minimum tax. If the recipient sells the shares more than two years after the ISO was granted and more than one year after the ISO was exercised, the recipient will recognize a long-term capital gain or loss, measured by the difference between the sale price and the exercise price of the shares. UTC will not receive a tax deduction with respect to the exercise of an ISO if the ISO holding period is satisfied. Award recipients do not recognize any taxable income, and UTC is not entitled to a deduction upon the grant of a stock appreciation right, a nonqualified stock option or an ISO.
Other Awards.The recipient of a restricted stock, restricted stock units, other stock-based awards or cash awards will generally not recognize taxable income at the time of grant as long as the award is subject to a substantial risk of forfeiture as a result of performance-based and/or service-based vesting requirements. The recipient will generally recognize ordinary income when the substantial risk of forfeiture expires or is removed unless, in the case of an award other than restricted stock, the cash to be paid or shares to be delivered are deferred until sometime after the vesting date, in which case, the recipient will generally recognize ordinary income upon receipt of such cash or shares. UTC will generally be entitled to a corresponding deduction equal to the amount of income the recipient recognizes. If the recipient holds shares received upon settlement of an award for more than one year, the capital gain or loss when the recipient sells the shares will be long-term.
IRC Section162(m).In general, Section 162(m) of the U.S. tax code limits UTC’s compensation deduction to $1,000,000 paid in any tax year to any “covered employee” as defined under Section 162(m). Section 162(m) may result in all or a portion of the awards granted under the Plan to “covered employees” failing to be deductible to UTC for federal income tax purposes.
The Audit Committee (the “Committee”) assists the Board of Directors in its oversight responsibilities relating to: the integrity of UTC’s financial accounting and reporting processes and the adequacy of its system of internal controls and processes to assure compliance with Company policies and procedures, its Code of Ethics, and applicable laws and regulations. The Committee annually nominates an independent auditor for appointment by the shareowners, and evaluatesstatements; the independence, qualifications and performance of UTC’s internal and independent auditors. Specificexternal auditors; the Company’s compliance with its policies and procedures, internal controls, Code of Ethics and applicable laws and regulations; policies and procedures with respect to risk assessment and management; and such other responsibilities ofas delegated by the CommitteeBoard from time to time. The Committee’s specific responsibilities and duties are set forth in the Audit Committee Charter adopted by the Board, which is available on the Company’s website.
Management has the primary responsibility for the financial statements and the financial reporting processes, including the system of internal accounting controls. PricewaterhouseCoopers LLP (“PwC”), the Company’s Independent Auditor, is responsible for expressing an opinion on the conformity of the Company’s audited financial statements with generally accepted accounting principles and on the effectiveness of the Company’s internal control over financial reporting.
In fulfillingperforming its oversight responsibilities, the Committee has reviewed and discussed with Management and the Independent Auditor UTC’s audited financial statements as of and for the year ended December 31, 2017,2018, as well as the representations of Managementmanagement and the Independent Auditor’sindependent auditor’s opinion thereon regarding UTC’s internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act. The Committee discussed with UTC’s internal and independent auditors the overall scope and plans for their respective audits. The Committee met with the internal and independent auditors, with and without Management present, to discuss the results of their examinations, the evaluation of UTC’s internal controls, Management’smanagement’s representations regarding internal control over financial reporting, and the overall quality of UTC’s financial reporting.
The Committee has discussed with UTC’s Independent Auditorindependent auditor the matters required by the Public Company Accounting and Oversight Board’s (“PCAOB”) Auditing Standard No. 161301Communications with Audit Committees.Committees. It has also discussed with UTC’s Independent Auditorindependent auditor its independence from UTC and its Management,management, including the written disclosures and letter from UTC’s Independent Auditorindependent auditor required by the PCAOB’s Rule 3526,Communication with Audit Committees Concerning Independence, as approved by the SEC. The Committee has concluded that PwC’s provision of non-audit services as described in the table on pages 76-7773 is compatible with PwC’s independence.
UTC’s Independent Auditor represented to the Committee that UTC’s audited financial statements were fairly presented in accordance with generally accepted accounting principles in the United States of America. Based on the reviews and discussions referred to above, the Committee has recommended to the Board of Directors that the audited financial statements be included in UTC’s Annual Report on Form 10-K for the year ended December 31, 2017,2018 for filing with the SEC. The Committee nominates the firm of PwCPricewaterhouseCoopers LLP for appointment by the shareowners as UTC’s Independent Auditor for 2018.
2019.
AUDIT COMMITTEE | |
Fredric G. Reynolds, Chair | Diane M. Bryant | Margaret L. O’Sullivan | |
Lloyd J. Austin III | Christopher J. Kearney | ||
Denise L. Ramos |
72 | United TechnologiesNotice of |
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PROPOSAL |
AUDITOR FOR 2018
2019
As required by our Bylaws, we are asking shareowners to vote on a proposaltoappoint a firm of independent registered public accountants to serve as the Company’s Independent Auditoruntil the next annual meeting. PricewaterhouseCoopers LLP (“PwC”), an independent registered public accounting firm, served as UTC’s Independent Auditor in 2020. | ||
Frequently Asked Questions About the Auditor
How Is the Auditor Reviewed by the Company?
How Is the Auditor Reviewed by the Company? |
The Audit Committee is directly responsible for the nomination, compensation, retention and oversight of the Company’s Independent Auditor. To fulfill this responsibility, the Committee engages in a comprehensive annual evaluation of the Independent Auditor’s qualifications, performance and independence, and periodically considers the advisability and potential impact of selecting a different independent registered public accounting firm to serve in that capacity.
Is the Audit Partner Rotated?
Is the Audit Partner Rotated? |
In accordance with SEC rules and PwC policies, audit partners are subject to rotation requirements that limit the number of consecutive years an individual partner may provide service to our Company. For lead and concurring audit partners, the maximum number of consecutive years of service in that capacity is five years. The selection process for selection of the Company’s lead audit partner pursuant to this rotation policy includes a meeting ofbetween the ChairmanChair of the Audit Committee withand the candidate for the role as well as consideration of the candidate’s qualificationscandidate by the full Committee and with management.Management.
Will the Auditor Attend the Annual Meeting?
Will the Auditor Attend the Annual Meeting? |
Representatives of PwC will be present atattend the 20182019 Annual Meeting,Meeting. The representatives will have an opportunity to make any statements they desire, and will also be available to respond to appropriate questions from shareowners.
What Were the Auditor’s Fees in 2017 and 2016?
(in thousands) | Audit | Audit-Related | Tax | All Other Fees | Total | |||||
2016 | $39,744 | $5,676 | $18,183 | $557 | $64,160 | |||||
2017 | $38,370 | $6,637 | $17,000 | $1,320 | $63,327 |
What Were the Auditor’s Fees in 2018 and 2017? |
(in thousands) | Audit | Audit-Related | Tax | All Other Fees | Total | |||||
2017 | $38,370 | $6,637 | $17,000 | $1,320 | $63,327 | |||||
2018 | $45,100 | $8,291 | $20,826 | $418 | $74,635 |
Audit Fees.Fees in both years consisted of fees for the audit of UTC’s consolidated annual financial statements and the effectiveness of its internal control over financial reporting, the review of interim financial statements in UTC’s quarterly reports on Form 10-Q and the performance of audits in accordance with statutory requirements. Audit fees for statutory audits were $16,900,000 in 2018 and $16,400,000 in 20172017. In 2018, the Audit fees also included non-recurring fees for integrated and $16,900,000 in 2016.
statutory audits related to the adoption of new accounting standards and integrated audit fees associated with the acquisition of Rockwell Collins.
Audit-Related Fees.Fees in both years consisted of audit-related fees for financial and tax due diligence assistance related to acquisition and disposition activity, employee benefit plan audits, advice regarding the application of generally accepted accounting principles for proposed transactions, special reports pursuant to agreed-upon procedures, contractually required audits and compliance assessments. Audit-related fees in 20172018 also included services related to our proposed acquisitionapproximately $4,000,000 of Rockwell Collins, including financial and tax due diligence, and regulatory filings.
fees associated with carve out audits for the divestment of certain businesses, of which approximately $850,000 of these fees were reimbursed by the acquirer of a divested business.
United TechnologiesNotice of | 73 |
PROPOSAL 3 |
APPOINT AN INDEPENDENT AUDITOR FOR |
Tax Fees.In 2018, tax fees consisted of approximately $9,846,000 for U.S. and non-U.S. tax compliance, related planning and assistance with tax refund claims and expatriate tax services, and approximately $10,980,000 for tax consulting and advisory services that included fees associated with the plan to separate UTC into three independent companies. In 2017, tax fees consisted of approximately $11,000,000 for U.S. and non-U.S. tax compliance, related planning and assistance with tax refund claims and expatriate tax services, and approximately $6,000,000 for tax consulting and advisory services. In 2016, tax fees consisted of approximately $12,773,000 for U.S. and non-U.S. tax compliance, related planning and assistance with tax refund claims and expatriate tax services, and approximately $5,410,000 for tax consulting and advisory services.
All Other Fees.In 2017,2018, all other fees primarily consisted of accounting research software, government compliance, cybersecurity risk assessment and proxy consulting services. All other fees in 20162017 primarily consisted of accounting research software, benchmarking,cybersecurity risk assessment, government compliance, and otherproxy consulting services.
How Does the Committee Monitor and Control Non-Audit Services?
How Does the Committee Monitor and Control Non-Audit Services? |
The Audit Committee has adopted procedures requiring its review and approval in advance of all particular engagements for services provided by UTC’s Independent Auditor. Consistent with applicable laws, the procedures permit limited amounts of services, other than audit, review or attest services, to be approved by one or more members of the Committee pursuant to authority delegated by the Committee, provided the Committee subsequently is informed of each particular service approved by delegation. All of the engagements and fees for 20172018 and 20162017 were approved by the Committee. The Committee reviews with PwC whether the non-audit services to be provided are compatible with maintaining the firm’s independence. The Board also has adopted the policy that in any year fees paid to the Independent Auditor for non-audit services shall not exceed the fees paid for audit and audit-related services. Non-audit services consist of those described above, as included in the tax fees and all other fees categories.
Why Should I Vote FOR This Proposal?
Why Should I Vote FOR This Proposal? |
Through its review process, the Audit Committee determined that PwC has acquired extensive knowledge of the Company’s operations, performance and development through its previous service as the Company’s Independent Auditor. The Audit Committee and the Board of Directors believe that the continued retention of PwC as our Independent Auditor is in the best interest of the Company and our shareowners.
The Board of Directors recommends a vote FOR the appointment of |
74 | United TechnologiesNotice of |
5
PROPOSAL |
TO THE RESTATED CERTIFICATE OF INCORPORATION TO ELIMINATE SUPERMAJORITY VOTING FOR CERTAIN BUSINESS COMBINATIONS
The Board unanimously recommends that shareownersapprove an amendment to the Company’s Restated Certificate of Incorporation | ||
Why Should I Vote FOR This Proposal? |
Why Should I Vote FOR This Proposal?
Background on the Current Supermajority Requirement.Article Ninth of theUTC’s Restated Certificate of Incorporation (“Certificate”) currently requires a vote of 80% of the Company’s outstanding shares to repeal Article Ninth or to approve certain business combinations with an interested party, which is a party that owns 10% or more of the Company’s outstanding common stock — referred to as an “interested party” in the Certificate — or to repeal Article Ninth of the Certificate.stock. Article Ninth is the only provision in the Company’s Certificate or Bylaws requiring a supermajority vote.
Article Ninth was approved by the Company’s shareowners in 1983 and was designed to ensure that the interests of all shareowners were adequately represented and to provide protectionprotect against a self-interested action by large shareowners by requiring broad shareowner consensus to make certain fundamental changes. While such protections can be beneficial to shareowners in certain instances, the Board is aware that shareowners generally oppose supermajority provisions such as this one, and now believes that thesesuch provisions also can limit in certain circumstances the ability of shareowners to effectively participate in corporate governance.
The Board also is cognizant that shareowners generally oppose supermajority provisions such as the one in our Certificate. Indeed, when Management presented the same proposal for shareowner approval at the 2018 Annual Meeting, it received nearly a 99% favorable vote; but, notwithstanding the Company’s concerted efforts to increase turnout, the proposal still fell short because less than 80% of the outstanding shares voted in favor of repeal.
Why We Now Propose to Eliminate This Requirement.After careful consideration of shareowners’The Committee carefully considered the input andfrom shareowners – including the broad, albeit insufficient, support that the same proposal received at the 2018 Annual Meeting – as well as the advantages and disadvantages of maintaining the supermajority vote requirements in ArticleNinth, including as described above, the Board, upon the recommendation of Ninth. In turn, the Committee on Governancerecommended and Public Policy,the Board unanimously adopted a resolution on February 5, 2018,4, 2019, authorizing and declaring it advisable and in the best interests of the Company to amend the Certificate to eliminate the supermajority voting provisions contained in Article Ninth by deleting Article Ninth in its entirety, and recommended the submission of this amendment for shareowner approval.approval again in 2019.
What Happens If This Proposal Is Approved?
What Happens If This Proposal Is Approved? |
The proposed amendment would delete the current Article Ninth from our Certificate of Incorporation. A copy of the proposed amendment, marked with strike-outs to show the deletions, is included in Appendix DC on pages 104-106.
89-91.
If this proposal is approved, the amended Certificate would become effective upon the filing of a Certificate of Amendment with the State of Delaware, which the Company would file promptly following the shareowner vote. Thereafter, there will be no supermajority provisions in the Company’s Certificate or Bylaws and approval of any business combinations would be subject to the approval of the requisite number of shareholdersshareowners required under the Delaware General Corporation Law (the “DGCL”). Any future amendments to the Certificate would require the approval of owners of a majority of the outstanding shares of common stock pursuant to Section 242 of the DGCL.
The Board of Directors recommends a vote FOR this proposal to amend the Company’s Restated Certificate of |
United TechnologiesNotice of | 75 |
6
PROPOSAL |
Shareowner ProposalRatify the 15% Special Meeting
OWNERSHIP THRESHOLD IN THE COMPANY’S BYLAWS
| ||
Why Should I Vote FOR This Proposal? |
Scores of Fortune 500 companies allow 10% of sharesBackground on Shareowners’ Right to callCall a special meeting. Special meetings allow shareowners to vote on important matters, such as electing new directors that can arise between annual meetings. This proposal may be particularly timely because we may have a need for board refreshment after 2018 with 3 directors with more than 14-years long-tenure:
We did not have an independent board chairman and had a weak Lead Director. Edward Kangas was Lead Director at age 73 and was distracted by work on 4 Boards. Our Lead Director also cannot call a special shareholder meeting, but our CEO can.
Marshall Larsen received 22% in negatively votes. This compares unfavorably to another director who received only 1% in negative votes.
Any claim that a shareholder right to call a special meeting can be costly - may be largely moot. If shareholders have a good reason to call a special meeting — our board should be able to take positive responding action to make a special meeting unnecessary.
Please vote for improved corporate governance: Special Shareowner Meetings — Proposal 6”
Why Does the Board Recommend a Vote AGAINST This Proposal?
The Company’s shareowners already have a right to call a special meeting under the UTC Bylaws. The Board believes that shareowners should have the ability to raise issues of substantial importance where a reasonably high proportion of our shareowners agree that a special meeting is required. In the Board’s judgment, the current threshold for calling a special meeting is appropriate when considered in conjunction with all of the other shareowner rights reflected in the Company’s corporate governance policies and processes. Accordingly, the Board recommends a vote AGAINST this proposal.
Meeting.In October 2017, the UTC Board proactively adopted an amendment toamended the Company’s Bylaws to provide that shareowners collectively owning at least 25% of the Company’s Common Stock may call a special meeting upon written request to the Secretary of the Corporation. The Bylaws previously did not provide for the right of shareowners to call a special meeting.
UTC subsequently received a shareowner proposal, which was voted on at the 2018 Annual Meeting, to amend the Bylaws to reduce the threshold from 25% to 10%. The proposal received support from about 47% of the voted shares.
The outcome of the vote prompted engagement with shareowners holding a significant portion of the Company’s Secretary. Whenoutstanding Common Stock. The feedback was mixed. Some shareowners favored the 25% threshold, some favored a 10% threshold and others thought that, while the 25% threshold was too high, a 10% threshold was too low.
The Governance Committee then considered shareowner feedback, the 2018 shareowner vote, an analysis of voting outcomes on similar proposals at other companies, and benchmarking data of proxy peer companies. In October 2018, the Committee recommended — and the Board adopted this provision,approved — an amendment to the Bylaws that reduced the threshold to 15% because it carefully consideredbest reflected the range of feedback from shareowners regarding the appropriate ownership threshold for calling a special meeting and determinedmeeting.
Why Are We Asking Shareowners to Ratify the Reduced Ownership Threshold for Special Meetings? |
While the amendment to the Bylaws in October 2018 took effect immediately, the Board announced its intention in the Form 8-K that was filed with the SEC disclosing the change (and other matters) that the 25%Company would seek shareowner ratification of the 15% ownership threshold strikes an appropriate balance between assuringat the 2019 Annual Meeting.
The Board recommends that shareowners haveratify the ability to call a special meeting and protecting against a small minority of shareowners, including those with special interests, triggering the significant expense and distraction of multiple meetings in a single year to pursue matters that are not widely viewed as requiring the immediate attention of our shareowners or for reasons that may not beexisting 15% threshold in the best interestsBylaws. The Board will consider a vote in favor of the Companyratification as a vote to maintain the 15% ownership threshold. If the threshold provision is not ratified, the Board expects to engage with shareowners again and the vast majority of our shareowners. The Company also determined at the time it adoptedto consider what actions, if any, should be taken with regard to the special meeting provision that the threshold is in the best of interests of the Company based on its size and shareownerthreshold.
The Board of Directors recommends a vote FOR this proposal to ratify the 15% Special Meeting Ownership Threshold in the Company’s Bylaws. |
76 | United TechnologiesNotice of |
About the Annual Meeting
very important. |
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base, including consideration that several institutional shareowners each hold more than 5% of our outstanding Common Stock. See page 28 for more information regardingWe are providing these proxy materials to you in connection with the solicitation by the share ownership of these institutions.
The Board has carefully reviewed and considered this proposal and believes that reducing the threshold required to call a special meeting to 10% is not in the best interests of the majority of our shareowners.
We Are Committed to Strong and Effective Corporate Governance Practices and Shareowner Engagement.
A lower threshold also is unnecessary in light of the Company’s history of strong governance policies and practices, including a strong independent Lead Director, robust board refreshment practices (including 5 new independent directors since 2016), and direct shareowner engagement. Moreover, in addition to shareowners’ right to call a special meeting, the Bylaws provide that the Board, the Chairman, or the CEO also may call a special meeting of the shareowners. The Company’s leaders frequently meet with shareowners to discuss our strategy, operational performance and governance practices. This year, in response to discussions with shareowners, the Board is recommending that shareowners approve an amendment to the Certificate of Incorporation to remove supermajority vote provisions related to certain business combination transactions. This demonstrated commitment to an ongoing and responsive dialogue with our shareowners and our strong and effective corporate governance practices — including annual director elections with a majority voting standard, a “proxy access” right for nominating directors (which the Board proactively adopted in 2015), shareowners’ existing, meaningful right to call special meetings, and shareowners’ right to act by written consent — ensure the Board’s accountability without the potential for significant expense and burden associated with a lower special meeting threshold.
of United Technologies |
Who Can Vote in Person at the Meeting? |
AboutAll registered shareowners are entitled to vote at the Annual Meeting if you owned shares of UTC Common Stock at the close of business on February 28, 2019, which is referred to as the “record date.” A list of registered shareowners entitled to vote at the meeting will be available at UTC’s offices (see page 81 for the address) during the ten days prior to the meeting and at the meeting.
If, on the record date, you are a beneficial owner of shares held in street name and wish to vote in person at the Annual Meeting, then you must obtain a valid proxy from the bank, brokerage firm or other intermediary that holds your shares and present it to the Inspector of Election at the meeting.
How Do I AttendWe will hold our Annual Meeting on April 29, 2019, at 8:00 a.m. Eastern Time at the Meeting?UTC Center for Intelligent Buildings, 13995 Pasteur Boulevard, Palm Beach Gardens, Florida 33418.
May I Attend the Annual Meeting? |
You or your authorized proxy canmay attend the Annual Meeting if you were a registered or beneficial shareowner of UTC Common Stock or if you owned shares through an employee savings plan at the close of business on March 2, 2018.
DoesFebruary 28, 2019. Please see below about how to request a ticket to the Company Have a Policy About Directors’ Attendance at the Annual Meeting?meeting.
Does the Company Have a Policy About Directors’ Attendance at the Annual Meeting? |
The Company does not have a written policy requiring that directors attend the Annual Meeting, but directors are encouraged to do so — unless there is an unavoidable scheduling conflict. All directors at the time attended the 20172018 Annual Meeting.
How Do I Request a Ticket in Advance of the Meeting?
How Do I Request a Ticket in Advance of the Meeting? |
To request an admission ticket to the Annual Meeting, please contact our Corporate Secretary’s Office (see page 8581 for contact information). Seating at the Annual Meeting is limited and requests for tickets will be processed in the order in which they are received.
Beneficial Shareowners.If you own shares in street name through an account with a | |
● | |
Registered Shareowners.If your shares are registered in your name with UTC’s stock registrar and transfer agent, Computershare Trust Company, N.A. (“Computershare”), or if you own shares through |
For security reasons, please be prepared to show a form of government-issued photo identification when presenting your ticket for admission to the meeting.
If you forget to bring your ticket, you will be admitted to the meeting only if you provide photo identification. If you do not request a ticket in advance, you will be admitted only if space is available and you provide photo identification and satisfactory evidence that you were a registered or beneficial shareowner of Common Stock as of the record date.
If you need special assistance at the meeting because of a disability, please contact our Corporate Secretary’s Office (see page 8581 for contact information).
We ask that shareowners request tickets in advance to attend. |
United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement | 77 |
How Many Votes Must Be Present in Order to Hold the Annual Meeting?
FREQUENTLY ASKED QUESTIONS ABOUT THE ANNUAL MEETING |
What is the Quorum Requirement for the Annual Meeting? |
Under the Company’s Bylaws, we can conducta quorum is required to transact business at the Annual Meeting only if theMeeting. The holders of a majority of the outstanding shares onof UTC Common Stock as of the record date, are present either in person or by proxy. The presence of at least that number of shares constitutesproxy and entitled to vote, will constitute a “quorum.”quorum. As of the record date, 800,086,193862,332,297 shares of Common Stock were issued and outstanding.
We ask that shareowners request
tickets in advance to attend.
Registered Shareowners.
How Do I Vote?
Shares Held Directly in Your Name.
VOTE ON THE INTERNET | VOTE BY TELEPHONE | VOTE BY MAIL | VOTE AT THEANNUAL MEETING |
Internet and telephone voting facilities will be available 24 hoursa day until 11:59 p.m. Eastern Time on April
| Vote Processing, c/o Broadridge Financial Solutions 51 Mercedes Way Edgewood, NY 11717 |
Shares OwnedBeneficial Shareowners.If you own shares in street name through an Accountaccount with a Bank, Broker, Trusteebank, brokerage firm or Other Intermediary (“Street Name”).Yourother intermediary, then your intermediary will send you printed copies of the proxy materials or provide instructions on how to access proxy materials electronically. You are entitled to direct the intermediary how to vote your shares by following the voting instructions that the intermediary provides to you.
Shares Held in a UTC Employee Savings Plan.You can direct the voting of your proportionate interest in shares of UTC Common Stock held by the ESOP Fund and the Common Stock Fund under a UTC employee savings plan by returning a voting instruction card or by providing voting instructions viaby the Internet or by telephone. If you do not provide voting instructions (or if your instructions are incomplete or unclear) as to one or more of the matters to be voted on, the savings plan trustee will vote your proportionate interest in shares held by the ESOP Fund for the voting choice that receives the greatest number of votes based on voting instructions received from ESOP Fund participants. Similarly, the trustee will vote your uninstructed proportionate interest in shares held by the Common Stock Fund for the voting choice that receives the greatest number of votes based on voting instructions received from the Common Stock Fund participants. For shares of Common Stock held in the ESOP Fund that are not allocated to participant accounts, the trustee will make the voting choice that receives the greatest number of votes from those ESOP Fund participants who have submitted voting instructions.
Shares Held in the Rockwell Collins Retirement Savings Plan.If shares of UTC Common Stock are attributable to your account under the Rockwell Collins Retirement Savings Plan, you may direct the plan trustee to vote such shares by returning a voting instruction card or by providing voting instructions by the Internet or by telephone. If you do not provide voting instructions, then the trustee will not vote the shares attributable to your account. The trustee will vote the shares of UTC Common Stock in the Plan that have not been credited to the participants’ accounts in the same proportion on each proposal that the participants’ credited and instructed shares have been voted.
78 | United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement |
FREQUENTLY ASKED QUESTIONS ABOUT THE ANNUAL MEETING |
Shares Held in the B/E Aerospace, Inc. Savings Plan.If shares of UTC Common Stock are attributable to your account under the B/E Aerospace, Inc. Savings Plan, you may direct the plan trustee to vote such shares by returning a voting instruction card or by providing voting instructions by the Internet or by telephone. If you do not timely provide voting instructions, then the trustee will vote the shares attributable to your account in the same proportion to the shares held in the Plan for which directions were timely received.
Earlier Voting Deadline for UTCParticipants in an Employee Savings Plan Participants.Plan.Broadridge Financial Solutions must receive your voting instructions by 11:00 a.m. Eastern Time on April 26, 2018,25, 2019, so that it will have time to tabulate all voting instructions of participants and communicate those instructions to the trustee,trustees, who will vote the shares held by the savings plan.plans. Because the trustee istrustees are designated to vote on your behalf, you will not be able to vote your shares held in thea savings plan in person at the Annual Meeting.
Changing Your Vote.If you hold shares directly in your name:
are a registered shareowner:
●If you voted by telephone or the Internet, access the method you used and follow the instructions given for revoking a | ●Write to the UTC Corporate Secretary (see page | ||
●If you mailed a signed proxy card, mail a new proxy card with a later date (which will override your earlier proxy card). | ●Vote in person at the Annual |
If you hold your shares in “street name”are a beneficial shareowner, ask your bank, broker, trusteebrokerage firm or other intermediary for instructions onabout how to revoke or change your voting instructions.
How Will My Shares Be Voted?
How Will My Shares Be Voted? |
Each share of UTC Common Stock is entitled to one vote. Your shares will be voted in accordance with your instructions. In addition, if you have returned a signed proxy card or submitted voting instructions by telephone or the Internet, the proxy holders will have, and intend to exercise, discretion to vote your shares (other than shares held in a UTC employee savings plan) in accordance with their best judgment on any matters not identified in this Proxy Statement that are brought to a vote at the Annual Meeting. We do not know of any such additional matters at this time.
time, however.
If your shares are registered in your name and you sign and return a proxy card or vote by telephone or the Internet butdo notgive voting instructions on a particular matter, the proxy holders will be authorized to vote your shares on that matter in accordance with the Board’s recommendation. If you hold your shares through an account with a broker anddo notgive voting instructions on a matter, your broker is permitted under the New York Stock Exchange rules to vote your shares in its discretion only on Proposal 43 (appointment of the Independent Auditor) and is required to withhold a vote on each of the other Proposals, resulting in a so-called “broker non-vote.” The impact of abstentions and broker non-votes on the overall voting results is shown in the table below.
How Do Voting Abstentions and Broker Non-Votes Affect the Voting Results?
How Do Voting Abstentions and Broker Non-Votes Affect the Voting Results? |
Matter | Vote Required for Approval | Impact of Abstentions | Impact of Broker Non-Votes | |||
Election of Directors | Votes FOR a nominee must exceed 50% of the votes cast | Not counted as votes cast; no impact on outcome. | Not counted as votes cast; no impact on outcome. | |||
Advisory Vote on Executive Compensation | Votes FOR the proposal must exceed votes AGAINST it. | Not counted as votes cast; no impact on outcome. | Not counted as votes cast; no impact on outcome. | |||
Approval by a majority of the votes making up the quorum. | Counted toward quorum; impact is the same as a vote AGAINST. | |||||
Not applicable. | ||||||
Approve an Amendment to the Restated Certificate of Incorporation | Votes FOR must meet or exceed 80% of the outstanding shares. | Impact is the same as a vote AGAINST. | Impact is the same as a vote AGAINST. | |||
Votes FOR the proposal must exceed votes AGAINST it. | Not counted as votes cast; no impact on outcome. | Not counted as votes cast; no impact on outcome. |
United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement | 79 |
What Happens if a Director in an Uncontested Election Receives More Votes “Against” than “For” His or Her Election?
FREQUENTLY ASKED QUESTIONS ABOUT THE ANNUAL MEETING |
What Happens if a Director in an Uncontested Election Receives More Votes “Against” than “For” His or Her Election? |
In an uncontested election of directors, any nominee for director who is an incumbent director and who receives a greater number of votes cast “against” than votes “for” his or her election must, under UTC’s Governance Guidelines, promptly tender his or her resignation to the Chair of the Committee on Governance and Public Policy (the “Governance Committee”)Committee following certification of the shareowner vote. The Governance Committee must promptly make a recommendation to the Board about whether to accept or reject the tendered resignation. The director who tendered a resignation may not participate in the Committee’s recommendation or the Board’s consideration.
Under our Governance Guidelines, the Board must act on the Governance Committee’s recommendation no later than 90 days after the date of the shareowners’ meeting. Regardless of whether the Board accepts or rejects the resignation, UTC must promptly file a Report on Form 8-K with the Securities and Exchange CommissionSEC that explains the process by which the decision was reached and, if applicable, the reasons for rejecting the tendered resignation.
If a director’s resignation is accepted, the Governance Committee also will recommend to the Board whether to fill the vacancy or to reduce the size of the Board. Under the UTC Bylaws, a vacancy arising in these circumstances may be filled, at the discretion of the Board, by a majority vote of the directors or at a special meeting of shareowners called by the Board.
Who Is Counting the Votes?
Who Counts the Votes? |
Broadridge Financial Solutions (“Broadridge”), an independent entity, will receive and tabulate the votes in connection withvotes. At the Annual Meeting. AMeeting, a representative of Broadridge will act as the independent Inspector of Election and in this capacity will supervise the voting, decide the validity of proxies and certify the results.
Broadridge has been instructed thatto keep the vote of each shareowner must be kept confidential and the vote may not be disclosed, except in legal proceedings or for the purpose of soliciting shareowner votes in a contested proxy solicitation.
How May the Company Solicit My Proxy?
How May the Company Solicit My Proxy? |
Employees of UTC may solicit proxies on behalf of the Board of Directors by mail, email, in person and by telephone. These employees will not receive any additional compensation for these activities. UTC will bear the cost of soliciting proxies and will reimburse banks, brokers, trusteesbrokerage firms and other intermediaries for their reasonable out-of-pocket expenses for forwarding proxy materials to shareowners. UTC has retained Georgeson, Inc., to assist in distributing proxy materials and soliciting proxies for a fee of $16,000 plus expenses.
Why Did I Receive a Notice of Internet Availability?
Why Did I Receive a Notice of Internet Availability? |
To conserve natural resources and reduce costs, we are sending most shareowners a brief Notice of Internet Availability of Proxy Materials (“Notice”), as permitted by SEC rules. ThisThe Notice explains how you can access UTC’s proxy materials on the Internet and how to obtain printed copies if you prefer. It also explains how you can choose either electronic or print delivery of proxy materials for future annual meetings.
How Can I Receive My Proxy Materials Electronically?
How Can I Receive My Proxy Materials Electronically? |
To saveconserve resources and reduce costs, we encourage shareowners to access their proxy materials electronically.
If you hold sharesare a registered in your name,shareowner, you can sign up atwww.computershare-na.com/greento get electronic access to proxy materials for future meetings, rather than receiving them in the mail. Once you sign up, you will receive an email each year explaining how to access UTC’s Annual Report and Proxy Statement, and how to vote online. Your enrollment for electronic access will remain in effect unless you cancel it, which you can do up to two weeks before the record date for any future annual meeting.
If you own your shares in “street name”are a beneficial shareowner you may be able to obtain electronic access to proxy materials by contacting your broker, bank, trusteebrokerage firm or other intermediary, or by contacting Broadridge athttp://enroll.icsdelivery.com/utc.utc.
80 | United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement |
What Materials Are Mailed to Me When I Share the Same Address as Another UTC Shareowner?
FREQUENTLY ASKED QUESTIONS ABOUT THE ANNUAL MEETING |
What Materials Are Mailed to Me When I Share the Same Address as Another UTC Shareowner? |
If you share an address with one or more other UTC shareowners, you may have received only a single copy of the Annual Report, Proxy Statement or Notice of Internet Availability of Proxy Materials for your entire household. This practice, known as “householding,” is intended to reduce printing and mailing costs.
If you are a registered shareowner and you prefer to receive a separate Annual Report, Proxy Statement or Notice of Internet Availability of Proxy Materials this year or in the future, or if you are receiving multiple copies at your address and would like to enroll in “householding” and receive a single copy, please contact UTC’s stock registrar and transfer agent, Computershare at 1-800-488-9281. If you own your shares in “street name,”are a beneficial shareowner, please contact your broker, bank, trusteebrokerage firm or other intermediary to make your request. There is no charge for separate copies.
How Can I Receive a Copy of the Company’s 2017 Annual Report on Form 10-K?
UTC will provide, without charge, a copy of the UTC Annual Report on Form 10-K for 2017 to any shareowner upon a request directed to the UTC Corporate Secretary (see below for contact information).
How Do I Submit Proposals and Nominations for the 2019 Annual Meeting?
How Do I Submit Proposals and Nominations for the 2020 Annual Meeting? |
Shareowner Proposals.To submit a shareowner proposal to be considered for inclusion in UTC’s Proxy Statement for the 20192020 Annual Meeting under SEC Rule 14a-8, you must send the proposal to our Corporate Secretary. The Corporate Secretary must receive the proposal in writing by November 19, 2018.
2019.
To introduce a proposal for vote at the 20192020 Annual Meeting (other than a shareowner proposal included in the Proxy Statement in accordance with SEC Rule 14a-8), UTC’s Bylaws require that the shareowner send advance written notice to the UTC Corporate Secretary for receipt no earlier than December 31, 2018,2019, and no later than January 30, 2019.2020. This notice must include the information specified by Section 1.10 of the Bylaws, a copy of which is available on our website listed below.
Director Nominations at the 20192020 Annual Meeting.UTC’s Bylaws require that a shareowner who wishes to nominate a candidate for election as a director at the 20192020 Annual Meeting (other than pursuant to the “proxy access” provisions of Section 1.12 of the Bylaws) must send advance written notice to the UTC Corporate Secretary for receipt no earlier than December 31, 2018,2019, and no later than January 30, 2019.2020. This notice must include the information, documents and agreements specified by Section 1.10 of the Bylaws, a copy of which is available on our website listed below.
Director Nominations by Proxy Access.UTC’s Bylaws require that an eligible shareowner who wishes to have a nominee of that shareowner included in UTC’s proxy materials for the 20192020 Annual Meeting pursuant to the “proxy access” provisions of Section 1.12 of the Bylaws must send advance written notice to the UTC Corporate Secretary for receipt no earlier than October 20, 2018,2019, and no later than November 19, 2018.2019. This notice must include the information, documents and agreements specified by Section 1.12 of the Bylaws, a copy of which is available on our website listed below.
How Do I Contact the Corporate Secretary’s Office?
Our Bylawsare available under the Corporate Governance section of the Company website at www.utc.com. |
How Do I Contact the Corporate Secretary’s Office? |
Shareowners may contact UTC’s Corporate Secretary’s Office in one of the three methods shown below:
Communication Method | Contact Information | |
Write a letter | UTC Corporate Secretary | |
United Technologies Corporation | ||
10 Farm Springs Road | ||
Farmington, CT 06032 | ||
Send an email | corpsec@corphq.utc.com | |
Call | 1-860-728-7870 |
United TechnologiesNotice of |
OTHER |
Cautionary Note Concerning Factors That May Affect Future Results.This Proxy Statement contains statements which, to the extent they are not statements of historical or present fact, constitute “forward-looking statements” under the securities laws. From time to time, oral or written forward-looking statements may also be included in other information released to the public. These forward-looking statements are intended to provide management’s current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. Forward-looking statements can be identified by the use of words such as “believe,” “expect,” “expectations,” “plans,” “strategy,” “prospects,” “estimate,” “project,” “target,” “anticipate,” “will,” “should,” “see,” “guidance,” “outlook,”“outlook”, “confident” and other words of similar meaning in connection with a discussion of future operating or financial performance.performance or the separation transactions. Forward-looking statements may include, among other things, statements relating to future sales, earnings, cash flow, results of operations, uses of cash, share repurchases, tax rates and other measures of financial performance or potential future plans, strategies or transactions of United Technologies or the combined companyindependent companies following United Technologies’ pending acquisition of Rockwell Collins,expected separation into three independent companies, the anticipated benefits of the pending acquisition of Rockwell Collins or of the separation transactions, including estimated synergies resulting from the Rockwell Collins transaction, the expected timing of completion of the transactionseparation transactions, estimated costs associated with such transactions and other statements that are not historical facts. All forward-looking statements involve risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the U.S. Private Securities Litigation Reform Act of 1995. Such risks, uncertainties and other factors include, without limitation:
the effect of economic conditions in the industries and markets in which we | |
challenges in the development, production, delivery, support, performance and realization of the anticipated benefits (including expected returns under customer contracts) of advanced technologies and new products and services; | |
the scope, nature, impact or timing of the expected separation transactions and other acquisition and divestiture activity, | |
future levels of indebtedness, including indebtedness | |
future availability of credit and factors that may affect such availability, including credit market conditions and our capital structure; |
the timing and scope of future repurchases of our common stock, which may be suspended at any time due to various factors, including market conditions and the level of other investing activities and uses of cash; | |
delays and disruption in delivery of materials and services from suppliers; | |
company and customer-directed cost reduction efforts and restructuring costs and savings and other consequences thereof; | |
new business and investment opportunities; | |
our ability to realize the intended benefits of organizational changes; | |
the anticipated benefits of diversification and balance of operations across product lines, regions and industries; | |
the outcome of legal proceedings, investigations and other contingencies; | |
pension plan assumptions and future contributions; | |
the impact of the negotiation of collective bargaining agreements and labor disputes; | |
the effect of changes in political conditions in the U.S. and other countries in which we |
United TechnologiesNotice of |
OTHER IMPORTANT INFORMATION |
the effect of changes in tax (including the U.S. tax reform enacted on December 22, | |
negative effects of the Rockwell Collins acquisition or the announcement or | |
risks relating to the | |
● | |
● | the expected benefits and timing of the separation transactions, and the risk that conditions to the separation transactions will not be satisfied and/or that the separation transactions will not be completed within the expected time frame, on the expected terms or at all; |
● | the expected qualification of the separation transactions as tax-free transactions for U.S. federal income tax purposes; |
● | the possibility that any consents or approvals required in connection with the expected separation transactions will not be received or obtained within the expected time frame, on the expected terms or at all; |
● | expected financing transactions undertaken in connection with the separation transactions and risks associated with additional indebtedness; |
● | the risk that dissynergy costs, costs of restructuring transactions and other costs incurred in connection with the expected separation transactions will exceed our estimates; and |
● | the impact of the expected separation transactions on our businesses and the risk that the separation transactions may be more difficult, time-consuming or costly than expected, including the impact on our resources, systems, procedures and controls, diversion of management’s attention and the impact on relationships with customers, suppliers, employees and other business counterparties. |
In addition, our 20172018 Annual Report on Form 10-K includes important information as to risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements. See the “Notes to Consolidated Financial Statements” under the heading “Note 18: Contingent Liabilities,” the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Business Overview,” “Results of Operations,” “Liquidity and Financial Condition,” and “Critical Accounting Estimates,” and the section titled “Risk Factors.” Our Form 10-K also includes important information as to these factors in the “Business” section under the headings “General,” “Description of Business by Segment” and “Other Matters Relating to Our Business as a Whole,” and in the “Legal Proceedings” section. Additional important information as to these factors is included in our 20172018 Annual Report in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under the headings “Restructuring Costs,” “Environmental Matters” and “Governmental Matters.” The forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Additional information as to factors that may cause actual results to differ materially from those expressed or implied in the forward-looking statements is disclosed from time to time in our other filings with the SEC.
Corporate Governance Information, Code of Ethics and How to Contact the Board.UTC’s Corporate Governance Guidelines (and related documents), the charters for each Board Committee and UTC’s Code of Ethics are available on UTC’s website provided on page 16.17. Printed copies will be provided, without charge, to any shareowner upon a request addressed to the Corporate Secretary through the contact information provided on page 85.81. The Code of Ethics applies to all directors and employees, including the principal executive, financial and accounting officers. Shareowners and other interested persons may send communications to the Board, the Lead Director or one or more independent directors by (i) using the contact information provided on the Corporate Governance section of UTC’s website by accessing sequentially “Who We Are,” “Corporate Governance,” “Board of Directors,” and “Contact UTC’s Board,”at www.utc.com, by (ii) letter addressed to theUTC Corporate Secretary (see(see page 8581 for contact information), or by (iii) contacting the UTC Ombudsman at1-800-871-9065. Communications relating to UTC’s accounting, internal controls, auditing matters or business practices will be reviewed by the UTC Global Ethics and& Compliance Officer and reported to the Audit Committee pursuant to the UTC Governance Guidelines. All other communications will be reviewed by the UTC Corporate Secretary and reported to the Board, as appropriate, pursuant to the Governance Guidelines.
United TechnologiesNotice of |
OTHER IMPORTANT INFORMATION |
Transactions with Related Persons.Persons.UTC has a written policy for the review of transactions with related persons. The Related Person Transactions Policy requires review, approval or ratification of transactions exceeding $120,000 in which UTC is a participant and in which a UTC director, executive officer, a beneficial owner of five percent or more of UTC’s outstanding shares, or an immediate family member of any of the foregoing persons has a direct or indirect material interest. Any such transactions must be reported for review by the UTC Corporate Secretary who will, in consultation with the Corporate Vice President, Global Ethics & Compliance, assess whether the transaction is a transaction with a related person, as such term is defined under UTC’s policy and the relevant SEC rules. Following this review, the Board’s Committee on Governance and Public Policy (the “Governance Committee”)Committee must determine whether the transaction can be approved or not, based on whether the transaction is determined to be in, or not inconsistent with, the best interests of UTC and its shareowners. In making this determination, the Governance Committee must take into consideration whether the transaction is on terms no less favorable to UTC than those available with other parties and the related person’s interest in the transaction. UTC’s policy generally permits employment of relatives of related persons possessing qualifications consistent with UTC’s requirements for non-related persons in similar circumstances, provided the employment is approved by the Executive Vice President & Chief Human Resources Officer and the Corporate Vice President, Global Ethics & Compliance.
State Street Corporation (“State Street”), acting in various fiduciary capacities, filed a Schedule 13G with the SEC reporting that as of December 31, 2017,2018, State Street and certain of its subsidiaries collectively were the beneficial owners of more than five percent of UTC’s outstanding shares of Common Stock. A subsidiary of State Street is the trustee for the UTC Employee Savings Plan Master Trust. Other State Street subsidiaries provide investment management services. During 2017,2018, the UTC Employee Savings Plan Master Trust paid State Street and its subsidiaries approximately $2,184,601$4,761,187 for services as trustee, as investment managers and for administrative and other services.
BlackRock, Inc. (“BlackRock”) filed a Schedule 13G with the SEC reporting that as of December 31, 2017,2018 BlackRock and certain subsidiaries collectively were the beneficial owners of more than five percent of UTC’s outstanding shares of Common Stock. During 2017,2018, BlackRock acted as an investment manager for certain assets within UTC’s pension plans and employee savings plan. BlackRock received approximately $1,997,642$2,660,794 for such services.
Maurice Castonguay, an employee of Pratt & Whitney, since 1986, is the brother-in-law of Robert J. Bailey, UTC’s Corporate Vice President, & Controller, and an executive officer of UTC who assumed this position in September 2016.UTC. In 2017,2018, Mr. Castonguay received approximately $154,000$185,330 in total compensation, consisting of his salary and participation in employee benefit plans and programs generally made available to employees of similar responsibility levels.
Sean Dwyer, an employee of Carrier since 2016, is the son-in-law of UTC’s Chairman & CEO, Greg Hayes. In 2018, Mr. Castonguay’sDwyer received approximately $140,999 in total compensation, consisting of his salary and participation in 2016 was approximately $150,000employee benefit plans and thus should have been disclosed in the 2017 Proxy Statement, but was mistakenly omitted.
programs generally made available to employees of similar responsibility levels.
Garrett Griffiths, an employee of UTC’s Corporate Office, is the son-in-law of Pratt & Whitney President Robert F. Leduc, an executive officer of UTC. In 2017,2018, Mr. Griffiths received approximately $184,000$244,549 in total compensation, consisting of his salary and participation in employee benefit plans and programs generally made available to employees of similar responsibility levels.
William M. Sullivan,David Kullman, an employee of UTC Aerospace Systems,Otis since 2016, is the son-in-lawson of John V. Faraci,Ellen J. Kullman, a UTC Director. In 2017,2018, Mr. SullivanKullman received approximately $177,000$127,200 in total compensation, consisting of his salary and participation in employee benefit plans and programs generally made available to employees of similar responsibility levels.
William M. Sullivan, an employee of Collins Aerospace Systems, is the son-in-law of John V. Faraci, a UTC Director. In 2018, Mr. Sullivan received approximately $203,214 in total compensation, consisting of his salary and participation in employee benefit plans and programs generally made available to employees of similar responsibility levels.
Emiliya S. West, an employee of UTC’s Corporate Office, is the sister-in-law of UTC’s Chairman & CEO, Greg Hayes. In 2017,2018, Ms. West received approximately $132,000$136,426 in total compensation, consisting of her salary and participation in employee benefit plans and programs generally made available to employees of similar responsibility levels.
Each of the relationships described above was reviewed and approved in accordance with UTC’s Related Person Transactions Policy, which is available on our website listed on page 16.17.
84 | United TechnologiesNotice of 2019 Annual Meeting of Shareowners and Proxy Statement |
OTHER IMPORTANT INFORMATION |
Section 16(a) Beneficial Ownership Reporting Compliance.Compliance.Section 16(a) of the Securities Exchange Act of 1934, as amended, requires certain of our officers as well as each director and any beneficial owner of more than 10% of UTC Common Stock to file reports with the SEC regarding their holdings and transactions in UTC’s equity securities. Based upon a review of these reports as filed with the SEC during or with respect to 2017,2018, and upon written confirmation from our directors and officers, we believe that each director and covered officer met these filing requirements.
requirements, except that there were inadvertent delays in reporting the following: on behalf of Charles D. Gill, Gregory J. Hayes, and Robert F. Leduc we filed late Form 4’s relating to the UTC Common Stock that each acquired through their respective ownership of Rockwell Collins common stock, which was converted to cash and UTC Common Stock when UTC acquired Rockwell Collins in November 2018. UTC is not aware of any beneficial owners of more than 10% of UTC Common Stock for purposes of Section 16(a).
Incorporation by Reference.Reference.In connection with our discussion of director and executive compensation, we have incorporated by reference in this Proxy Statement certain information from Note 12,12: Employee Benefit Plans, to the Consolidated Financial Statements in Exhibit 13 to UTC’s 20172018 Annual Report on Form 10-K filed on February 8, 2018;7, 2019; these are the only portions of such filings that are incorporated by reference in this Proxy Statement.
Company Names, Trademarks and Trade Names.Names.United Technologies Corporation and its subsidiaries’ names, abbreviations thereof, logos, and product and service designators are either the registered or unregistered trademarks or trade names of United Technologies Corporation and its subsidiaries. Names of other companies and organizations, abbreviations thereof, logos of other companies and organizations, and product and service designators of other companies are either the registered or unregistered trademarks or trade names of their respective owners.
United TechnologiesNotice of |
APPENDIX A |
Reconciliation
OF NON-GAAPGAAP MEASURES TO CORRESPONDING GAAPNON-GAAP MEASURES
RECONCILIATION OF NET SALES |
(dollars in millions) | 2017 | 2016 | 2015 | |||
Net sales | $59,837 | $57,244 | $56,098 | |||
Adjustments to net sales: | ||||||
Pratt & Whitney — charge resulting from customer contract matters | $385 | $184 | $142 | |||
UTC Aerospace Systems — charge resulting from customer contract matters | — | — | $210 | |||
Adjusted net sales | $60,222 | $57,428 | $56,450 |
(dollars in millions) | 2018 | 2017 | 2016 | |||
Net sales | $66,501 | $59,837 | $57,244 | |||
Adjustments to net sales: | ||||||
Pratt & Whitney — charge resulting from customer contract matters | — | $385 | $184 | |||
Adjusted net sales | $66,501 | $60,222 | $57,428 |
RECONCILIATION OF NET INCOME FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREOWNERS AND | |
DILUTED EARNINGS PER SHARE (GAAP) TO CORRESPONDING NON-GAAP MEASURES |
(dollars in millions, except per share amounts) | 2018 | 2017 | 2016 | |||
Net income attributable to common shareowners | $5,269 | $4,552 | $5,055 | |||
Less: Income (loss) from discontinued operations attributable to common shareowners | — | — | $10 | |||
Net income from continuing operations attributable to common shareowners | $5,269 | $4,552 | $5,065 | |||
Adjustments to net income from continuing operations attributable to common shareowners: | ||||||
Restructuring costs | $307 | $253 | $290 | |||
Significant non-recurring and non-operational charges (gains) | ($214) | ($143) | $550 | |||
Significant non-recurring and non-operational items included in net interest expense | $42 | ($3) | $140 | |||
Income tax expense (benefit) on restructuring costs and significant non-recurring and non-operational items | ($5) | ($11) | ($354) | |||
Significant non-recurring and non-operational charges (gains) recorded within income tax expense | $773 | $667 | ($231) | |||
Significant non-recurring and non-operational items included in noncontrolling interest | ($7) | — | — | |||
Total adjustments to net income from continuing operations attributable to common shareowners | $896 | $763 | $395 | |||
Adjusted net income from continuing operations attributable to common shareowners | $6,165 | $5,315 | $5,460 | |||
Weighted average diluted shares outstanding | 810 | 799 | 826 | |||
Diluted earnings per share — net income attributable to common shareowners | $6.50 | $5.70 | $6.12 | |||
Net income (loss) from discontinued operations | — | — | ($0.01) | |||
Diluted earnings per share — net income from continuing operations attributable to common shareowners | $6.50 | $5.70 | $6.13 | |||
Impact of non-recurring and non-operational charges (gains) on diluted earnings per share | $1.11 | $0.95 | $0.48 | |||
Adjusted diluted earnings per share — net income from continuing operations attributable to common shareowners | $7.61 | $6.65 | $6.61 |
(dollars in millions) | UTC Climate, Controls & Security | Otis | Pratt & Whitney | UTC Aerospace Systems | Segment Sales | Eliminations & Other | Consolidated Net Sales | |||||||
Net sales | $17,812 | $12,341 | $16,160 | $14,691 | $61,004 | ($1,167) | $59,837 | |||||||
Adjustments to net sales: | ||||||||||||||
Pratt & Whitney — charge resulting from customer contract matters | — | — | $385 | — | $385 | — | $385 | |||||||
Adjusted net sales | $17,812 | $12,341 | $16,545 | $14,691 | $61,389 | ($1,167) | $60,222 |
RECONCILIATION OF ADJUSTED NET INCOME FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREOWNERS AND ADJUSTED DILUTED EARNINGS PER SHARE TO CORRESPONDING GAAP MEASURES
(dollars in millions, except per share amounts) | 2017 | 2016 | 2015 | |||
Net income attributable to common shareowners | $4,552 | $5,055 | $7,608 | |||
Less: Income (loss) from discontinued operations attributable to common shareowners | — | $10 | ($3,612) | |||
Net income from continuing operations attributable to common shareowners | $4,552 | $5,065 | $3,996 | |||
Adjustments to net income from continuing operations attributable to common shareowners: | ||||||
Restructuring costs | $253 | $290 | $396 | |||
Significant non-recurring and non-operational charges (gains) | ($143) | $550 | $1,446 | |||
Significant non-recurring and non-operational items included in net interest expense | ($3) | $140 | — | |||
Income tax expense (benefit) on restructuring costs and significant non-recurring and non-operational items | ($11) | ($354) | ($617) | |||
Significant non-recurring and non-operational charges (gains) recorded within income tax expense | $667 | ($231) | $342 | |||
Total adjustments to net income from continuing operations attributable to common shareowners | $763 | $395 | $1,567 | |||
Adjusted net income from continuing operations attributable to common shareowners | $5,315 | $5,460 | $5,563 | |||
Weighted average diluted shares outstanding | 799 | 826 | 883 | |||
Diluted earnings per share — Net income attributable to common shareowners | $5.70 | $6.12 | $8.61 | |||
Net income (loss) from discontinued operations | — | ($0.01) | $4.09 | |||
Diluted earnings per share — Net income from continuing operations attributable to common shareowners | $5.70 | $6.13 | $4.53 | |||
Impact of non-recurring and non-operational charges (gains) on diluted earnings per share | $0.95 | $0.48 | $1.77 | |||
Adjusted diluted earnings per share — Net income from continuing operations attributable to common shareowners | $6.65 | $6.61 | $6.30 |
FLOW (NON-GAAP) |
(dollars in millions) | 2018 | 2017 | 2016 | |||
Cash flow provided by operating activities of continuing operations | $6,322 | $5,631 | $6,412 | |||
Less: Capital expenditures | $1,902 | $2,014 | $1,699 | |||
Free cash flow from continuing operations | $4,420 | $3,617 | $4,713 |
86 | United TechnologiesNotice of |
APPENDIX A |
RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS TO FREE CASH FLOW
(dollars in millions) | 2017 | 2016 | 2015 | |||||
Cash flow provided by operating activities of continuing operations | $5,631 | $6,412 | $6,755 | |||||
Less: Capital expenditures | $2,014 | $1,699 | $1,652 | |||||
Free cash flow from continuing operations | $3,617 | $4,713 | $5,103 |
RECONCILIATION OF |
RECONCILIATION OF 2018 NET SALES GROWTH (GAAP) TO ORGANIC SALES GROWTH (NON-GAAP) |
UTC Climate, Controls & Security | Otis | Pratt & Whitney | UTC Aerospace Systems | Total Net Sales | ||||||
Net sales growth | 6% | 4% | 9% | 2% | 5% | |||||
Adjustments to net sales growth: | ||||||||||
Foreign currency translation | 1% | — | 1% | — | 0% | |||||
Acquisitions and divestitures, net | 1% | 1% | — | — | 1% | |||||
Other | — | 1% | (1%) | — | — | |||||
Organic sales | 4% | 2% | 9% | 2% | 4% |
Carrier | Otis | Pratt & Whitney | Collins Aerospace | Total Net Sales | ||||||
Net sales growth | 6% | 5% | 20% | 13% | 11% | |||||
Adjustments to net sales growth: | ||||||||||
Foreign currency translation | 1% | 1% | — | — | 1% | |||||
Acquisitions and divestitures, net | (1%) | — | — | 5% | 1% | |||||
Other | 0% | 1% | 6% | — | 1% | |||||
Organic sales growth | 6% | 3% | 14% | 8% | 8% |
USE AND DEFINITIONS OF NON-GAAP FINANCIAL MEASURES
United Technologies Corporation (the “Company”)The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”).
We supplement the reporting of our financial information determined under GAAP with certain non-GAAP financial information. The non-GAAP information presented provides investors with additional useful information, but should not be considered in isolation or as substitutes for the related GAAP measures. Moreover, other companies may define non-GAAP measures differently, which limits the usefulness of these measures for comparisons with such other companies. We encourage investors to review our financial statements and publicly filed reports in their entirety and not to rely on any single financial measure.
Adjusted net sales, organic sales, adjusted net income and adjusted diluted EPS are non-GAAP financial measures. Adjusted net sales represents consolidated net sales from continuing operations (a GAAP measure), excluding significant items of a non-recurring andand/or non-operational nature (hereinafter referred to as “other significant items”). Organic sales represents consolidated net sales (a GAAP measure), excluding the impact of foreign currency translation, acquisitions and divestitures completed in the preceding twelve months and other significant items. Adjusted net income represents net income from continuing operations (a GAAP measure), excluding restructuring costs and other significant items. Adjusted diluted EPS represents diluted earnings per share from continuing operations (a GAAP measure), excluding restructuring costs and other significant items. Management believes that the non-GAAP measures just mentioned are useful in providing period-to-period comparisons of the results of the Company’s ongoing operational performance.
Free cash flow is a non-GAAP financial measure that represents cash flow from operations (a GAAP measure) less capital expenditures. Management believes free cash flow is a useful measure of liquidity and an additional basis for assessing UTC’s ability to fund its activities, including the financing of acquisitions, debt service, repurchases of UTC’s common stock and distribution of earnings to shareholders.
A reconciliation of the non-GAAP measures to the corresponding amounts prepared in accordance with GAAP appears in the tables above and on the prior page. The tables provide additional information as to the items and amounts that have been excluded from the adjusted measures.
United TechnologiesNotice of |
APPENDIX B |
METRICS USED IN UTC’S INCENTIVE COMPENSATION PLANS
All performance measures are based on performance of continuing operations, unless otherwise noted.
Plan |
The Restated Certificate of Incorporation would be amended and restated to reflect the following amendment, with deletion of the Article Ninth and replacing the clause with “[Reserved]”:
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UNITED TECHNOLOGIES CORPORATION The Board of Directors recommends a voteFOR each of the following director nominees: 1. Election of Directors For Against Abstain 1a. Lloyd J. Austin III 1b. Diane M. Bryant 1c. John V. Faraci 1d. Jean-Pierre Garnier 1e. Gregory J. Hayes 1f. Christopher J. Kearney 1g. Ellen J. Kullman 1h. Marshall O. Larsen 1i. Harold W. McGraw III 1j. Margaret L. O’Sullivan The Board of Directors recommends a voteFOR the following proposals: For Against Abstain Advisory Vote to Approve Executive Compensation. Appoint PricewaterhouseCoopers LLP to Serve as Independent Auditor for 2019. Approve an Amendment to the Restated Certificate of Incorporation to Eliminate Supermajority Voting for Certain Business Combinations. Ratify the 15% Special Meeting Ownership Threshold in the Company's Bylaws. 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. Annual Meeting of Shareowners of United Technologies Corporation UTC Center for Intelligent Buildings The purpose of the meeting is to consider the following matters: Election of the Advisory Vote to Approve Executive Compensation Appoint PricewaterhouseCoopers LLP to Serve as Independent Auditor for Approve an Amendment to the Restated Certificate of Incorporation to Eliminate Supermajority Voting for Certain Business Combinations Ratify the 15% Special Meeting Ownership Threshold in the Company's Bylaws Other business, if properly presented TICKET REQUESTS:We ask that shareowners request a ticket in advance to attend. Seating at the Annual Meeting is limited and requests for tickets will be processed in the order in which they are received. Please email your request tocorpsec@corphq.utc.com or write to the UTC Corporate Secretary, 10 Farm Springs Road, Farmington, CT 06032. Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: PROXY This Proxy is Solicited on Behalf of the Board of Directors of United Technologies Corporation. The undersigned hereby appoints John V. Faraci, Jean-Pierre Garnier and Ellen J. Kullman, and each of them, each with power of substitution and revocation, as proxies for the undersigned to act and vote at the Annual Meeting of Shareowners of United Technologies Corporation to be held on April This Proxy Card also constitutes voting instructions to the The undersigned hereby revokes all proxies previously given by the undersigned to vote at the Annual Meeting of Shareowners or any adjournment or postponement thereof. You are encouraged to specify your choices by marking the appropriate boxes (SEE REVERSE SIDE), but you need not mark any boxes if you wish to vote in accordance with the Board of Directors’ recommendations. The proxies designated above cannot vote these shares unless you sign and return this Proxy Card. (If you noted any Address Changes above, please mark the corresponding box on the reverse side.) |