Board Corporate Governance Matters
BOARD CORPORATE GOVERNANCE MATTERS
Related Party Policy and Procedures
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Related Party Policy and ProceduresThe Board annually reviews related party transactions involving directors and director nominees in conjunction with making director independence determinations and preparing the annual Proxy Statement. We require that executive officers report any transactions with the Company under the
writtenStatement of Policy on Ethics and Business Conduct
Policy(Business Conduct Policy) that covers all Company employees. Under the Business Conduct Policy, the Audit Committee reviews any transaction reported by executive officers and refers any reported transactions to the Corporate Governance and Nominating Committee for evaluation pursuant to the Company’s Related Party Transaction Policies and Procedures (the Related Party Policy) described below.
Under the Company’s Related Party Policy, transactions with related parties are subject to approval or ratification by the Corporate Governance and Nominating Committee. Transactions subject to Committee review and approval include any transaction in which (i) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (ii) the Company is a participant, and (iii) any related party will have a direct or indirect interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity).
“Related party” is defined under the policy as any (i) person who is or was during the last fiscal year an executive officer or director of the Company or nominee for election as a director, (ii) greater than 5% beneficial owner of the Company’s common stock, or (iii) immediate family member of any of the foregoing. “Immediate family” member includes a person’s spouse, parents, stepparents, children, stepchildren, siblings, mothers and fathers-in-law, sons and daughters-in-law, and brothers and sisters-in-law and anyone residing in such person’s home (other than a tenant or employee).
If advance Corporate Governance and Nominating Committee approval of a transaction is not feasible, then the transaction will be considered and, if the Committee determines it to be appropriate, ratified at the Committee’s next regularly scheduled meeting. In determining whether to approve or ratify a transaction, the Committee will consider, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction.
Under the Related Party Policy, the Committee may pre-approve certain transactions, even if the aggregate amount involved exceeds $120,000. Such transactions include (i) any transaction with another company at which a related party’s only relationship is as an employee (other than an executive officer), direct or beneficial owner of less than 10% of that company’s shares, if the aggregate amount involved does not exceed the greater of $1 million or 2% of that company’s total annual revenues; and (ii) any charitable contribution, grant or endowment by the Company to a charitable organization, foundation, or university at which a related party’s only relationship is as an employee (other than an executive officer) or a director, if the aggregate amount involved does not exceed the lesser of $1 million or 2% of the charitable organization’s total annual receipts. Additionally, the Board has delegated to the Chair of the Committee the authority to pre-approve or ratify, as applicable, any transaction with any related party in which the aggregate amount involved is expected to be less than $1 million. At each regularly scheduled meeting of the Committee, a summary of each new transaction deemed pre-approved will be provided to the Committee for its review.
Related Party Transactions in
20182019
Since 1994, the Railroad has historically and routinely done business with Omaha Track, Inc. and its related companies (Omaha Track). Kelvin Whited, who became the Chief Financial Officer of Omaha Track in July 2015, is the spouse of Elizabeth F. Whited, who became the Company’s Executive Vice President and Chief Human Resources Officer in August 2018. Ms. Whited served as the Company’s Executive Vice President and Chief Marketing Officer until August 15, 2018, when she was appointed Executive Vice President and Chief Human Resources Officer.
In
2018,2019, the Railroad paid Omaha Track or its affiliates approximately
$15.1$19.9 million for tie disposal services, on-track scrap metal removal and railcar repairs. All of these transactions are managed by the Railroad’s Supply Department and Ms. Whited has no involvement in these matters.
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Board Corporate Governance Matters
BOARD CORPORATE GOVERNANCE MATTERS
Omaha Track has been a transload provider to customers of the Railroad for transload shipments of various materials. The Railroad paid Omaha Track approximately $351,150$9,400 in 20182019 in connection with these transload services. Ms. Whited is not involved in any commercial or rate discussions involving Omaha Track.
The Railroad provides transportation services to LyondellBasell. Mr. Patel is the Chief Executive Officer and a director of LyondellBasell and a director of the Company. Payments to the Railroad over the last three years from LyondellBasell are detailed on page
2320 of this Proxy Statement.
These transactions were ratified by the Corporate Governance and Nominating Committee under the Company’s Related Party Policy.
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BOARD CORPORATE GOVERNANCE MATTERS
Board
Corporate Governance MattersLeadership Structure
Board Leadership Structure
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The Board believes it is in the best interest of the Company for the Board to periodically evaluate the leadership structure of the Company and make a determination regarding whether to separate or combine the roles of Chairman and CEO based on circumstances at the time of its evaluation. By retaining flexibility to adjust the Company’s leadership structure, the Board is best able to provide for appropriate management and leadership of the Company and address any circumstances the Company may face. Per the Company’s Corporate Governance Guidelines and Policies, set forth on page 20 of this Proxy Statement, the Board annually will elect a Chairman of the Board, who may or may not be the CEO of the Company. Additionally, the Guidelines provide that if the individual elected as Chairman of the Board is not an independent director, the independent directors also will elect a lead independent director. The Board determined that having a combined Chairman and CEO at this time best allows the Board and management to focus on the oversight and implementation of the Company’s strategic initiatives and business plan to efficiently and effectively protect and enhance the Company’s long-term success and shareholder value.
In addition, the independent directors of the Board elected Mr. McCarthy as the lead independent director with the following responsibilities:
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| Preside at meetings of the Board at which the Chairman and CEO are not present, including executive sessions of the independent directors; |
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| Approve the flow of information sent to the Board, and approve the agenda, schedule and what materials are sent for the Board meetings; |
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| Serve as the liaison between the independent directors and the Chairman and CEO; |
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| Be available for consultation and communication with major shareholders as appropriate; |
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| Oversee the process of evaluating and compensating the Chairman and CEO (in conjunction with the Compensation and Benefits Committee); |
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| Assure that a succession plan is in place for the Chairman and CEO, as well as the lead independent director; |
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| Authorize or recommend the retention of consultants who report directly to the full Board; and |
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| Assist the Board and Company officers in compliance with, and implementation of, the Company’s governance guidelines and policies. |
The independent directors conducted executive sessions at all Board meetings in 2018.2019. Mr. McCarthy also has the authority to call executive sessions of the independent directors. The Board has adopted a number of strong corporate governance practices that provide effective, independent oversight of management, including:
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| Holding executive sessions of the non-management, independent directors after every Board meeting; |
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| Providing that only independent directors serve on key Board committees; and |
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| Conducting an annual performance evaluation of the Chairman and CEO by the independent directors. |
The Board believes that the current leadership structure and succession planning coupled with an active lead independent director provides effective oversight of management and responsiveness to shareholders, while also continuing the solid leadership of the Company and the Board necessary to effect execution of the Company’s strategic plans.
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Board Corporate Governance Matters
BOARD CORPORATE GOVERNANCE MATTERS
Risk Oversight of the Company
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Risk Oversight of the CompanyThe Board of Directors is responsible for overseeing the assessment and management of the critical enterprise risks affecting the Company. The Board delegates to the Audit Committee primary responsibility for oversight of managing risks related to
financial reporting, environmental matters and compliance.operations of the Company.
Management identifies and prioritizes enterprise risks (included in the risk factors disclosed in our Annual Report on Form 10-K) and regularly presents them to the Board for its review and consideration. The senior executives responsible for implementation of appropriate mitigation strategies for each of the Company’s enterprise risks, along with the chief compliance officer, provide reports directly to the Board during the year. The Audit Committee also receives reports throughout the year from the chief compliance officer and the senior executives responsible for financial reporting, cybersecurity and environmental matters.
In addition, the Audit Committee oversees the Company’s internal audit of enterprise risks selected for review and evaluation based upon the Company’s annual risk assessment model with the purpose of evaluating the effectiveness of mitigating controls and activities of Company personnel. The Company’s internal auditors present to the Audit Committee findings regarding the mitigating controls and processes for the enterprise risks selected for review. The Audit Committee, in turn, reports those findings to the entire Board. The Company’s enterprise risk management process is dynamic and continually monitored so that the Company can timely identify and address any potential risks that arise in the ever-changing economic, political, legal and technology threat environment in which the Company operates.
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BOARD CORPORATE GOVERNANCE MATTERS
Board
Corporate Governance Mattersof Directors Meetings and Committees
Board of Directors Meetings and Committees
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In accordance with applicable provisions of Utah law and the By-Laws of the Company, the business and affairs of the Company are managed under the direction of the Board. The Board has established standing Committees and adopted guidelines and policies to assist it in fulfilling its responsibilities as described below.
During
2018,2019, the Board met
sevensix times. None of the directors attended fewer than 75% of the aggregate number of meetings of the Board and the Committees on which he or she served.
The average attendance of all directors at Board and Committee meetings was 99%. TheOur Corporate Governance Guidelines and Policies
included in this Proxy Statement beginning on page 20 reflect our policy that all directors should attend the Annual Meeting. In accordance with this policy, all directors then serving attended last year’s Annual Meeting.
The Board currently maintains four standing committees − the Audit Committee, Finance Committee, Compensation and Benefits Committee, and Corporate Governance and Nominating Committee. Each of the committees operates under a written charter adopted by the Board, copies of which are available on the Company’s website at
www.up.com/investors/governance, and shareholders may obtain copies by contacting the Secretary of the Company at the address set forth on the notice page of this Proxy Statement. Each committee has the ability to retain outside advisors to assist it in the performance of its duties and responsibilities. All Board Committees are composed entirely of independent directors, satisfying both the independence standards of the NYSE and the Director Independence Standards set forth in the Company’s Corporate Governance Guidelines and Policies. Audit Committee members and Compensation and Benefits Committee members also satisfy the additional independence criteria applicable to Audit Committee and Compensation and Benefits Committee members under the listing standards of the NYSE.
Current Board Committee Membership and Meetings |
Director | Board | Audit | Finance | Compensation and Benefits | Corporate Governance and Nominating |
Andrew H. Card, Jr. | X | X | | X | |
Erroll B. Davis, Jr. | X | | | C | X |
William J. DeLaney | X | X | | X | |
David B. Dillon | X | C | | X | |
Lance M. Fritz | C | | | | |
Deborah C. Hopkins | X | | X | | X |
Jane H. Lute | X | X | | | X |
Michael R. McCarthy | X | | X | | C |
Thomas F. McLarty III | X | | C | | X |
Bhavesh V. Patel | X | | X | X | |
Jose H. Villarreal | X | X | | X | |
Meetings in 2018 | 8 | 12 | 4 | 6 | 6 |
C = Chair
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Board Corporate Governance Matters
BOARD CORPORATE GOVERNANCE MATTERS
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Met 12 timesThe Audit Committee assists the Board in fiscal 2018fulfilling its responsibilities for overseeing our financial reporting process and the audit of our financial statements.
Members
Andrew H. Card, Jr.
William J. DeLaney
David B. Dillon (Chair)
Jane H. Lute
Jose H. Villarreal
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The Audit Committee meets regularly with the independent registered public accounting firm of the Company, financial management, the internal auditors, the chief compliance officer and the general counselchief legal officer to provide oversight of the financial reporting process, internal control structure, and the Company’s compliance requirements and activities. The independent registered public accounting firm, the internal auditors, the chief compliance officer and the general counselchief legal officer have unrestricted access to the Committee and meet regularly with the Committee, without Company management representatives present, to discuss the results of their examinations, their opinions on the adequacy of internal controls and quality of financial reporting, and various legal matters. |
The Audit Committee assistshas established policies and procedures for the Board in fulfilling its responsibilities for overseeing our financial reporting process and the auditpre-approval of our financial statements. Specific duties and responsibilities of the Audit Committee include, among other things:
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Independent Registered Public Accounting Firm
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| Appointing, overseeing the work of, and compensatingall services provided by the independent registered public accounting firm;
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•firm (as described on page 36 of this Proxy Statement).The Audit Committee’s Report is included on page 37 of this Proxy Statement. | | | Discussing with the• Appoint, evaluate and retain our independent registered public accounting firm relationships with
• Maintain direct responsibility for the Companycompensation, termination and its independence;
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| Evaluatingoversight of our independent registered public accounting firm and evaluate the independent registered public accounting firm through assessments of quality control procedures; peer reviews, firm’s qualifications, performance and results of inquiries or investigations;
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independence
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| Participating in the selection of the independent registered public accounting firm’s lead engagement partner;
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| Establishing hiring policies with respect to employees Review and former employees of the independent registered public accounting firm; and
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| Determining whether to retain or, if appropriate, terminate the independent registered public accounting firm.
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Audit and Non-Audit Services; Financial Reporting; Audit Report
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| Reviewing and approving the scope of the annual audit plan and the audit fee;
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| Reviewing and discussingdiscuss earnings releases, audited annual financial statements and unaudited quarterly financial statements, including reviewing specific disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; and
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| Reviewing the adequacy of disclosures to be included in the Annual Report on Form 10-K regarding Review the Company’s contractual obligations and commercial commitments, including off-balance sheet financing arrangements.
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Board Corporate Governance Matters
policies
Audit Committee
(continued)
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Disclosure Controls; Internal Controls and Procedures
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| Reviewing the Company’s policies and procedures to maintain the adequacy and effectiveness of internal controls and disclosure controls;
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controls
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| Reviewing Review the scope, resources and results of the internal audit program, including participation in the General Auditor performance review; and
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review
• | Reviewing corporate policies and practices with respect to financial information and earnings guidance.
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Risk Oversight
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| Discussing with management reports on Oversee the CompanyCompany’s enterprise risk management programs, including oversight of risks related to financial reporting, cybersecurity, environmental and litigation matters, safety and compliance;
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| Overseeing program as well as the Company’s compliance program and risk assessments, including the annual enterprise risk management plan described in more detail above in the section titled Risk Oversight of the Company; and
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assessment
• | Overseeing Oversee the administration of the Company’s Code of Ethics for the Chief Executive Officer and Senior Financial Officers and the Statement of Policy on Ethics and Business Conduct for employees as well as policies concerning derivatives, environmental management, use of corporate aircraft, insider trading, related person and related party transactions, and officers’ travel and business expenses.
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Annual Review/Evaluation
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| Annually reviewing the Committee’s charter and performance.
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Pre-Approval of Audit and Non-Audit Services Policy
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The Audit Committee’s charter requires the Committee to approve in advance all audit engagement fees and the terms of all audit services to be provided by the independent registered public accounting firm. By approving the engagement, which is performed in conjunction with the first Board meeting of each year, the audit services are deemed to be pre-approved. As part of its pre-approval policy, the Committee considers whether the provision of any proposed non-audit services is consistent with auditor independence. With respect to non-audit services provided by the independent registered public accounting firm, the Audit Committee adopted and observes procedures that require the independent registered public accounting firm to present a budget for the three categories of non-audit services: (i) audit-related services, (ii) tax services and (iii) other services. The budget is detailed as to the particular services to be provided so that the Committee knows what services it is being requested to pre-approve in order to facilitate a well-reasoned assessment of the impact of the services on the auditor’s independence. After review and approval of the annual budget by the Committee, no further approval by the Committee is required to undertake the specific projects within the three categories of non-audit services. |
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Board Corporate Governance Matters
BOARD CORPORATE GOVERNANCE MATTERS
Finance Committee | The Finance Committee is responsible for assisting the Board with its review and oversight of the Company’s financial position, of the Company.financing plans and programs and dividend policy and actions. The Finance Committee’s responsibilitiesCommittee also assists the Board by reviewing strategic options and duties include, among other things:
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Met 4 times in fiscal 2018
Members
Deborah C. Hopkins
Michael R. McCarthy
Thomas F. McLarty III (Chair)
Bhavesh V. Patel
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Treasury Matters
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•opportunities for the Company, including acquisitions and divestitures.
| | | Reviewing or overseeing• Review and oversee significant treasury matters such as the Company’s capital structure, balance sheet, credit ratings, short- and short-and long-term financing plans and programs, derivative policy, share repurchases and dividend policy;
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policy
• | Reviewing Review the Company’s liquidity position, including the Company’s credit facilities;
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facilities
• | Overseeing Oversee the Company’s investor relations activities, including the Company’s interaction with the investor community; and
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community
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| Reviewing Review the performance of the Company’s internal investment committee that oversees the investment management of assets held by the Company’s pension, thrift and other funded employee benefit programs.
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programs
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Annual Review/Evaluation
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| Annually reviewing the Committee’s charter and performance. |
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Board Corporate Governance Matters
BOARD CORPORATE GOVERNANCE MATTERS
Met 6 times in fiscal 2018
Members
Andrew H. Card, Jr.
Erroll B. Davis, Jr. (Chair)
William J. DeLaney
David B. Dillon
Bhavesh V. Patel
Jose H. Villarreal |
The Compensation and Benefits Committee discharges the Board’s responsibilities relating to the compensation of senior executives and provides strategic oversight of our compensation structure, including equity compensation plans and benefits programs. Specific duties and responsibilities of the
The Compensation and Benefits Committee include, among other things:
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Executive Compensationannually reviews and Performance Goals
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| Reviewing and approvingapproves corporate goals and objectives relevant to the compensation of the Company’s CEO;
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•Chairman and CEO and certain other elected executives. The details of the processes and procedures involved are described in the Compensation Discussion and Analysis (CD&A). The independent members of the full Board ultimately make the final decisions regarding the Chairman and CEO’s compensation.The Compensation and Benefits Committee Report is included on page 57 of this Proxy Statement. | | | Evaluating• Evaluate the CEO’s performance and, together with the other independent directors, determining determine and approvingapprove the CEO’s compensation level based on such evaluation;
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| Reviewing and recommending to Oversee the Board for approval the compensation of the Company’s other elected executives and certain other senior executives as determined by the Committee or the Board;
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| Overseeing the Company’s executive incentive plans reviewing theand review amounts of awards and the individualsexecutives who will receive awards and referringrefer its determinations with respect to the annual incentive program to the Board for approval;approval
• Review the CD&A and
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| Reviewing and discussing the “Compensation Discussion and Analysis” (CD&A) and recommending recommend to the Board thatits inclusion in our Proxy Statement
• Oversee the CD&A be included in the Company’s Proxy Statement and Annual Report on Form 10-K.
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Equity Compensation Plans and Other Employee Benefit Plans
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| Overseeing the Company’s pension, thrift and equity compensation plans and reviewingreview and recommendingrecommend to the Board all material amendments to these plans; and
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plans
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| Overseeing Oversee the administration of the Company’s general compensation plans and employee benefit plans and periodically reviewingreview the Company’s benefit plans to assess whether thesesuch benefit plans remain competitive with comparably situated companies.
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Annual Review/Evaluation
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| Annually reviewing the Committee’s charter and performance.
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Compensation Risk Assessment
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In early 2019, the Committee, with the assistance of the Committee’s outside compensation consultant, conducted its annual compensation risk assessment of our executive compensation programs and confirmed that they were designed and operate within a system of guidelines and controls to avoid creating any material adverse risks to the Company. |
Compensation ConsultantUnder its charter, the Compensation and Benefits Committee has the authority to retain, terminate and approve fees for advisors and consultants as it deems necessary. The Committee, in its discretion, uses outside advisors and experts to assist it in performing its duties and fulfilling its responsibilities. The Committee has retained Frederic W. Cook & Co., Inc. (FW Cook) as its independent compensation consultant. A representative of FW Cook attends all Committee meetings. The Committee is solely responsible for the engagement and termination of this relationship. At its March 2020 meeting, the Committee reviewed and reaffirmed the engagement of FW Cook as the Committee’s compensation consultant and determined that the retention of FW Cook did not raise any conflicts of interest. 33
FW Cook advises the Committee on compensation philosophy and matters related to CEO and other executive and director compensation. The Committee annually requests that FW Cook update compensation and performance data on the peer companies selected by the Committee, as described on page 43 of this ProxyTABLE OF CONTENTS
Board Corporate Governance Matters
BOARD CORPORATE GOVERNANCE MATTERS
Compensation
and Benefits
Committee
(continued)Statement. In addition, the Committee periodically requests that FW Cook make presentations on various topics, such as compensation trends and best practices, regulatory changes, long-term incentive components and award mix and stock plan utilization. The Committee Chair reviews and approves all charges for these consulting services.
Under the Committee’s engagement, FW Cook also confers with management on a limited basis to promote consistency and efficiency. In such matters, FW Cook acts in its capacity as the Committee’s advisor, and the Committee Chair reviews and approves any major projects for which management requests the assistance of FW Cook. Such projects involve only the amount and form of executive or director compensation and may include analysis of competitive director compensation data, design and development of new compensation and stock plans, calculation of compensation amounts reported in this Proxy Statement and review of materials prior to distribution to the Committee to confirm that the materials conform with the Committee’s philosophy and policies. The Committee Chair reviews and approves all charges for any projects requested by management. During 2019, the Company paid fees to FW Cook only for advising on matters under the Committee’s purview. The Company did not pay any fees for additional projects or services. In early 2020, the Committee, with the assistance of FW Cook, conducted its annual compensation risk assessment of our executive compensation programs and confirmed that they were designed and operate within a system of guidelines and controls to avoid creating any material adverse risks to the Company. | Compensation ConsultantUnder its charter, the Committee has the authority to retain, terminate and approve fees for advisors and consultants as it deems necessary. The Committee, in its discretion, uses outside advisors and experts to assist it in performing its duties and fulfilling its responsibilities. Frederic W. Cook & Co., Inc. (FW Cook) is an independent compensation consulting firm that reports directly to the Committee. A representative of FW Cook regularly attends all Committee meetings. The Committee is solely responsible for the engagement and termination of this relationship. At its March 2019 meeting, the Committee reviewed and reaffirmed the engagement of FW Cook as the Committee’s compensation consultant and determined that the retention of FW Cook did not raise any conflicts of interest.
FW Cook advises the Committee on compensation philosophy and matters related to CEO and other executive and director compensation. The Committee annually requests that FW Cook update compensation and performance data on the peer companies selected by the Committee, as described in the CD&A beginning on page 45 of this Proxy Statement. In addition, the Committee periodically requests that FW Cook make presentations on various topics, such as compensation trends and best practices, regulatory changes, long-term incentive components and award mix and stock plan utilization. The Committee Chair reviews and approves all charges for these consulting services.
Under the Committee’s engagement, FW Cook also confers with management on a limited basis to promote consistency and efficiency. In such matters, FW Cook acts in its capacity as the Committee’s advisor, and the Committee Chair reviews and approves any major projects for which management requests the assistance of FW Cook. Such projects involve only the amount and form of executive or director compensation and may include analysis of competitive director compensation data, design and development of new compensation and stock plans, calculation of compensation amounts reported in this Proxy Statement and review of materials prior to distribution to the Committee to confirm that the materials conform with the Committee’s philosophy and policies. The Committee Chair reviews and approves all charges for any projects requested by management. During 2018, the Company paid fees to FW Cook only for advising on matters under the Committee’s purview. The Company did not pay any fees for additional projects or services.
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Board Corporate Governance Matters
BOARD CORPORATE GOVERNANCE MATTERS
| The Corporate Governance and Nominating Committee oversees and assists the Board in fulfilling its responsibilities relating to our corporate governance, including the practices, policies and director nominations and elections. Specific duties and responsibilitiesprocedures of the Corporate GovernanceBoard and Nominatingits committees.
The Committee include, among other things:
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Met 6 times in fiscal 2018
Members
Erroll B. Davis, Jr
Deborah C. Hopkins
Jane H. Lute
Michael R. McCarthy (Chair)
Thomas F. McLarty III
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also reviews the size, structure and needs of the Board Matters |
•
| Developing and recommendingBoard committees, reviews possible candidates for the Board and recommends director nominees to the Board the criteria for identifying and evaluating director candidates and periodically reviewing these criteria;
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•approval.
| | | Identifying• Identify and recommendingrecommend candidates to be nominated for election as directors at the Annual MeetingsMeeting or to fill Board vacancies consistent with criteria approved by the Board;
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•
| Reviewing Review the composition and activities of the Board, including, but not limited to, committee memberships, Board self-evaluation, Board size, continuing education, retirement policy and stock ownership requirements;
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requirements
• | Assessing the qualifications, contributions and independence of directors in determining whether to recommend them for election or reelection to the Board; and
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•
| Periodically reviewing Review the Board’s leadership structure, recommending changes to the Board aswhen appropriate, and overseeingoversee the election of athe lead independent director.
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director
• Oversee the Corporate Governance Guidelines and Other Policies, |
•
| Overseeing the Corporate Governance Guidelines and Policies discussed below, which promote Board independence, integrity and ethics, diversity (inclusive of gender, race, ethnicity and natural origin), and excellence in governance;
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•
| Overseeing the Company’s Code of Business Conduct and Ethics for Membersmembers of the Board of Directors;
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Directors
• | Establishing Establish policies and procedures for the review and approval of related party transactions including reviewing and approving all potential related party transactions as defined under SEC rules; and
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•
| Reviewing Review current trends in environmental, social and corporate governance (ESG) and recommendingrecommend to the Board for adoption new (or modifications of existing) practices, policies or procedures.
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Director Compensation and Stock Ownership
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procedures
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| Reviewing Review director compensation periodically to assess whether the compensation paid to non-management directors is competitive and reflects their duties and responsibilities asof Board members; and
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• members
| Adopting and monitoring compliance with stock ownership guidelines and policies for directors.
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Annual Review/Evaluation
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•
| Annually reviewing the Committee’s charter and performance; and
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•
| Overseeing the annual self-evaluation of the Board and its committee’s effectiveness and performance. |
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Board Corporate Governance Matters
BOARD CORPORATE GOVERNANCE MATTERS
Compensation Committee Interlocks and Insider Participation
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Codes of Conduct and EthicsDuring 2018, the following independent directors served on the Compensation and Benefits Committee: Andrew H. Card, Jr., Erroll B. Davis, Jr., William J. DeLaney, David B. Dillon, Bhavesh V. Patel and Jose H. Villarreal.
The Compensation and Benefits Committee has no interlocks or insider participation.
Codes of Conduct and Ethics
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The Board has adopted the Union Pacific Corporation Code of Ethics for the Chief Executive Officer and Senior Financial Officers, the Statement of Policy on Ethics and Business Conduct for employees (the Business Conduct Policy) and the Union Pacific Corporation Code of Business Conduct and Ethics for Members of the Board of Directors. We post these codes of conduct on our website at www.up.com/investors/governance, and printed copies are available to any shareholder upon request to the Secretary of the Company at the address set forth on the notice page of this Proxy Statement. To the extent permitted by SEC rules and the NYSE listing standards, we intend to disclose any future amendments to, or waivers from, certain provisions of these codes of conduct on our website.
Communications with the BoardCommunications with the Board
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Interested parties wishing to communicate with the Board may do so by U.S. mail c/o the Corporate Secretary, Union Pacific Corporation, 1400 Douglas Street, 19th Floor, Omaha, NE 68179. Communications intended for a specific director or directors (e.g., the lead independent director, a committee chairperson or all of the non-management directors) should be addressed to their attention and sent, by U.S. mail, to the address above. The Board has appointed and authorized the Corporate Secretary of the Company to process these communications and forward them to the appropriate directors. We forward
appropriate communications from shareholders directly to the appropriate Board member(s). If a communication is illegal, unduly hostile or threatening, or similarly inappropriate, the Corporate Secretary of the Company has the authority to disregard or take appropriate action regarding any such communication.
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Director Compensation in Fiscal Year 2018
DIRECTOR COMPENSATION IN FISCAL YEAR 2019 Non-Management Directors’ Fees and Compensation
In 2018, the Corporate Governance and Nominating Committee conducted a comprehensive review of our director compensation program to assess whether adjustments to the program
During 2019, non-employee directors were
appropriate. The Company’s non-management director compensation was last adjusted in 2010. The Corporate Governance and Nominating Committee considered the input and recommendations of the Compensation and Benefits Committeecompensated for their Board service as
well as the work conducted by FW Cook, the independent consultant for the Compensation Committee. The Compensation Committee reviewed the competitiveness of the Company’s director compensation levels and the structure of the director compensation program in light of public company practices and current corporate governance best practices. After thorough review and discussion, the Corporate Governance and Nominating Committee recommended the following changes to the Company’s director compensation, which were approved by the Board and made effective August 1, 2018: | • | Increased the annual retainer from $250,000 to $280,000, which is at the 50th percentile of our Peer Group companies (as listed on page 51); |
Required directors to invest $160,000 (previously $130,000) of their annual retainer in the Stock Unit Account described below;
Increased the additional annual retainer for the lead independent director from $25,000 to $30,000;
Increased the additional annual retainer for Board Committee chairs from $15,000 to $20,000; and
Eliminated the initial equity grant for newly elected directors (as described in the 2000 Directors Stock Plan section below).
Members of the Audit Committee continue to receive additional annual retainers of $10,000 each.shown below. Directors who are employees do not receive retainers or any other Board-related compensation.
Annual Retainer: $280,000 ($160,000 annual mandatory deferral into a Stock Unit Account, remainder may be deferred at the director’s election)
Annual Mandatory Deferral: $160,000 of their Annual Retainer deferred in the Stock Unit Account described below
Committee Chair Retainer: $20,000 for each standing Committee chair
Audit Committee Member Retainer: $10,000
Lead Director Retainer: $30,000
Stock Unit Grant and Deferred Compensation Plan for the Board of Directors Under our Stock Unit Grant and Deferred Compensation Plan for non-management directors, a director may, by December 31 of any year, elect to defer all or a portion of any compensation (in addition to the amount mentioned above that is required to be invested in their Stock Unit Account) for service as a director in the ensuing year or years, excluding reimbursements for expenses. Such deferred amounts may be invested, at the option of the director, in (i) a Fixed Rate Fund administered by the Company, (ii) a Stock Unit Account administered by the Company, or (iii) various notional accounts administered by The Vanguard Group. These accounts are unfunded, unsecured obligations of the Company. The Company Fixed Rate Fund bears interest equal to 120% of the applicable federal long-term rate compounded annually. The Stock Unit Account fluctuates in value based on changes in the price of our common stock, and equivalents to cash dividends paid on the common stock are deemed to be reinvested in the Stock Unit Account. The Vanguard Accounts are subject to earnings and value fluctuations from the investment performance of the notional accounts at Vanguard. Payment of all deferred amounts begins in January of the year following separation from service as a director. Deferred amounts may be paid, at the election of the director, in either a lump-sum or in up to 15 equal, annual installments.
2000 Directors Stock Plan
Under the 2000 Directors Stock Plan (the 2000 Plan) adopted by the shareholders on April 21, 2000, the Company may grant options to purchase shares of our common stock to non-management directors. Upon recommendation of the Corporate Governance and Nominating Committee in September 2007, the Board eliminated the annual grant of options for 2008 and future years. The Company did not award any options to non-management directors in
2018.The 2000 Plan provided that2019.
Previously, each non-management director, upon election to the Board of Directors, would receive a grant of 4,000 restricted shares of our common stock or restricted share units that represent the right to receive our common stock in the future (which number has been adjusted to reflect the Company’s two-for-one stock splits on May 28, 2008 and June 6, 2014). The restricted shares or share units vest on the date a director ceases to be a director by reason of death, disability or retirement, as defined in the 2000 Plan. During the restricted period, the director has the right to vote such restricted shares and receive dividends or
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Director Compensation in Fiscal Year 2018
dividend equivalents, but may not transfer or encumber such shares or units. The director would forfeit such shares or units upon ceasing to be a director for any reason other than death, disability or retirement. Effective August 1, 2018, the Board approved the elimination of this initial equity grant for newly elected directors.
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DIRECTOR COMPENSATION IN FISCAL YEAR 2019
Non-Management Director Compensation in Fiscal Year
20182019
The following table provides a summary of the compensation of our non-management directors for
2018.Name | Fees Earned or Paid in Cash | Stock Awards (a) | Option Awards | All Other Compensation (b) | Total Compensation |
Andrew H. Card, Jr. | $ | 272,500 | | $ | 0 | | $ | 0 | | $ | 34,218 | | $ | 306,718 | |
Erroll B. Davis, Jr. | | 279,583 | | | 0 | | | 0 | | | 35,842 | | | 315,425 | |
William J. DeLaney (d) | | 96,667 | | | 0 | | | 0 | | | 912 | | | 97,579 | |
David B. Dillon | | 289,583 | | | 0 | | | 0 | | | 9,938 | | | 299,521 | |
Deborah C. Hopkins | | 262,500 | | | 0 | | | 0 | | | 1,369 | | | 263,869 | |
Jane H. Lute | | 272,500 | | | 0 | | | 0 | | | 34,678 | | | 307,178 | |
Michael R. McCarthy | | 306,667 | | | 0 | | | 0 | | | 1,267 | | | 307,934 | |
Michael W. McConnell (c) | | 108,333 | | | 0 | | | 0 | | | 1,388 | | | 109,721 | |
Thomas F. McLarty III | | 279,583 | | | 0 | | | 0 | | | 37,660 | | | 317,243 | |
Bhavesh V. Patel | | 262,500 | | | 0 | | | 0 | | | 28,735 | | | 291,235 | |
Steven R. Rogel (c) | | 104,167 | | | 0 | | | 0 | | | 6,511 | | | 110,678 | |
Jose H. Villareal | | 272,500 | | | 0 | | | 0 | | | 9,005 | | | 281,505 | |
2019.
Andrew H. Card, Jr. | | | $290,000 | | | $0 | | | $0 | | | $10,841 | | | $300,841 |
Erroll B. Davis, Jr. | | | 300,000
| | | 0 | | | 0 | | | 38,500 | | | 338,500 |
William J. DeLaney | | | 290,000 | | | 0 | | | 0 | | | 8,657 | | | 298,657 |
David B. Dillon | | | 310,000 | | | 0 | | | 0 | | | 12,036 | | | 322,036 |
Deborah C. Hopkins | | | 285,833 | | | 0 | | | 0 | | | 11,563 | | | 297,396 |
Jane H. Lute | | | 290,000 | | | 0 | | | 0 | | | 31,944 | | | 321,944 |
Michael R. McCarthy | | | 330,000 | | | 0 | | | 0 | | | 26,411 | | | 356,411 |
Thomas F. McLarty III | | | 300,000 | | | 0 | | | 0 | | | 13,107 | | | 313,107 |
Bhavesh V. Patel | | | 280,000 | | | 0 | | | 0 | | | 26,688 | | | 306,688 |
Jose H. Villareal | | | 284,167 | | | 0 | | | 0 | | | 16,587 | | | 300,754 |
Christopher J. Williams (c) | | | 46,667 | | | 0 | | | 0 | | | 0 | | | 46,667 |
| (a)
| The following table provides the outstanding equity awards at fiscal year-end held by all individuals who served as non-management directors in 2018.2019. The Number of Shares in the Vesting Upon Termination column represents the shares granted to each director upon initial election to the Board and required to be held until his or her service as a member of the Board ends. |
Name | Number of Securities Underlying Unexercised Options | Number of Shares Vesting Upon Termination | Number of Units in Deferred Stock Unit Account |
Andrew H. Card Jr. | | 0 | | | 4,000 | | | 29,105 | |
Erroll B. Davis Jr. | | 0 | | | 4,000 | | | 35,978 | |
William J. Delaney | | 0 | | | 0 (e | ) | | 81 | |
David B. Dillon | | 0 | | | 4,000 | | | 5,864 | |
Deborah C. Hopkins | | 0 | | | 4,000 | | | 3,539 | |
Jane H. Lute | | 0 | | | 4,000 | | | 2,916 | |
Michael R. McCarthy | | 0 | | | 4,000 | | | 47,901 | |
Michael W. McConnell | | 0 | | | 4,000 | | | 70,264 | (f) |
Thomas F. McLarty III | | 0 | | | 4,000 | | | 28,469 | |
Bhavesh V. Patel | | 0 | | | 4,000 | | | 1,234 | |
Steven R. Rogel | | 0 | | | 4,000 | | | 47,641 | (f) |
Jose H. Villarreal | | 0 | | | 4,000 | | | 22,151 | |
Andrew H. Card Jr. | | | 0 | | | 4,000 | | | 30,782 |
Erroll B. Davis Jr. | | | 0 | | | 4,000 | | | 37,812 |
William J. Delaney | | | 0 | | | 0 (d) | | | 1,105 |
David B. Dillon | | | 0 | | | 4,000 | | | 7,019 |
Deborah C. Hopkins | | | 0 | | | 4,000 | | | 5,429 |
Jane H. Lute | | | 0 | | | 4,000 | | | 4,005 |
Michael R. McCarthy | | | 0 | | | 4,000 | | | 51,089 |
Thomas F. McLarty III | | | 0 | | | 4,000 | | | 30,133 |
Bhavesh V. Patel | | | 0 | | | 4,000 | | | 2,285 |
Jose H. Villarreal | | | 0 | | | 4,000 | | | 23,673 |
Christopher J. Williams | | | 0 | | | 0 (d) | | | 0 |
| (b)
| Excess liability insurance premiums paid in 20182019 for each non-management director were $1,267,$1,411, except for Mr. DeLaneyWilliams which was $0. For each of Mr. Card, Mr. Davis, Ms. Lute, Mr. McLartyMcCarthy and Mr. Patel, the Company matched $25,000 of each directors’ charitable contributions under the Company’s charitable matching gift program which is also available to all employees of the Company. The Company matched $10,000 in charitable contributions for Ms. Hopkins and $5,500 in charitable contributions for Mr. Villarreal. In addition, the Company began paying Nebraska state income taxes on behalf of nonresident directors in 2014 because of their travel to Nebraska required for Company business. The reimbursement covers the incremental cost of these nonresident directors’ taxes and the directors do not claim any tax benefits for the reimbursement in their resident states. The amounts shown in the table reflect additional federal and Nebraska income taxes paid in 20192020 for the applicable director’s service, and stock option exercises, if any, during the director’s service in 2018.2019. The Company does not consider this a perquisite and does not gross-up or pay any state income taxes that the directors incur in their normal work locations. |
| (c)
| Mr. McConnell and Mr. Rogel retired from the Board on May 10, 2018. |
| (d) | Mr. DeLaneyWilliams was elected to the Board on September 5, 2018.November 14, 2019. |
| (e)(d)
| Upon recommendation of the Corporate Governance and Nominating Committee, effective August 1, 2018, the Board eliminated the 4,000 share grant to non-management directors upon their election to the Board. |
| (f) | Mr. McConnell’s and Mr. Rogel’s Deferred Stock Unit Accounts were paid out on January 2, 2019. |
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PROPOSAL NUMBER 2 − Ratification of Appointment of Deloitte & Touche LLP as Independent Registered Public Accounting Firm for the Year Ending December 31, 20192020
The Audit Committee has appointed Deloitte & Touche LLP as the independent registered public accounting firm to audit the books and accounts of the Company and its consolidated subsidiaries for the year
20192020 and submits this selection for ratification by a vote of shareholders as a matter of good corporate governance. In the event that the Audit Committee’s selection of Deloitte & Touche LLP does not receive an affirmative vote of a majority of the votes cast, the Audit Committee will review its future selection of an independent registered public accounting firm.
The Audit Committee believes that the continued retention of Deloitte & Touche LLP as our independent registered public accounting firm is in the best interests of our shareholders as there are several benefits to the Company of having a long-tenured auditor.
Enhanced Audit Quality. Through more than 50 years of experience with the Company, Deloitte & Touche has gained institutional knowledge and deep expertise regarding the Company’s rail operations and business, accounting policies and practices and internal control over financial reporting.
Competitive Fee Structure. Due to Deloitte & Touche’s familiarity with the Company, audit fees are competitive with peer companies.
Avoids Costs Associated with New Auditor. Onboarding a new independent accountant is costly and requires a significant time commitment that could distract from management’s focus on financial reporting and controls.
The Company expects that a representative of Deloitte & Touche LLP will be present at the Annual Meeting and will have an opportunity to make a statement if such representative desires to do so and will be available to respond to appropriate questions by shareholders.
Vote Required for Approval
|
Vote Required for Approval Ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the year ending December 31,
20192020 requires the affirmative vote of a majority of the votes cast on this proposal at the Annual Meeting.
The Board recommends a vote FOR ratification of the appointment of Deloitte & Touche LLP as
independent registered public accounting firm for the year ending December 31, 2019.2020.
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Independent Registered Public Accounting Firm’s Fees and Services Aggregate fees billed to the Company for services rendered by our independent registered public accounting firm for each of the past two years are set forth below:
| Year Ended December 31, |
| 2018 | 2017 |
Audit Fees | $ | 2,838,350 | | $ | 2,681,139 | |
Audit-Related Fees | | 697,829 | | | 585,550 | |
Tax Fees | | 214,860 | | | 203,008 | |
All Other Fees | | 0 | | | 0 | |
Total | $ | 3,751,039 | | $ | 3,469,697 | |
Audit Fees | | | $2,974,700 | | | $2,838,350 |
Audit-Related Fees | | | 509,603 | | | 697,829 |
Tax Fees | | | 244,713 | | | 214,860 |
All Other Fees | | | 0 | | | 0 |
Total | | | $3,729,016 | | | $3,751,039 |
Audit Fees. Audit services included the integrated audit of financial statements and internal control, quarterly reviews, comfort letters provided in conjunction with the issuance of debt, and agreed-upon procedures performed on the Annual Report R-1 filed by Union Pacific Railroad Company with the Surface Transportation Board.
Audit-Related Fees.
Audit-related services included consultation on accounting standards and transactions, audits of employee benefit plans, and audits of subsidiary companies.
Tax Fees.
Tax fees included fees for corporate tax planning and consultation services and work performed for international tax compliance.
All Other Fees. No other services were provided to the Company by Deloitte & Touche LLP during the years ended December 31, 20182019 and 2017.2018.
Pre-Approval of Audit and Non-Audit Services Policy The Audit Committee’s charter requires the Committee to approve in advance all audit engagement fees and the terms of all audit services to be provided by the independent registered public accounting firm. By approving the engagement, which is performed in conjunction with the first Board meeting of each year, the audit services are deemed pre-approved. As part of its pre-approval policy, the Committee considers whether the provision of any proposed non-audit services is consistent with auditor independence. With respect to non-audit services provided by the independent registered accounting firm, the Audit Committee adopted and observes procedures that require the independent registered public accounting firm to present a budget for the three categories of non-audit services: (i) audit-related services, (ii) tax services and (iii) other services. The budget is detailed as to the particular services to be provided so that the Committee knows what services it is being requested to pre-approve in order to facilitate a well-reasoned assessment of the impact of the services on the auditor’s independence. After review and approval of the annual budget by the Committee, no further approval by the Committee is required to undertake specific projects within the three categories of non-audit services.
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The Audit Committee has reviewed and discussed with management the Company’s audited consolidated financial statements for the year ended December 31,
2018.2019. The Committee has discussed with the Company’s independent registered public accounting firm, Deloitte & Touche LLP, the matters required to be discussed with the Audit Committee under applicable Public Company Accounting Oversight Board (PCAOB) standards and SEC Rule 2-07 of Regulation S-X. The Committee also has received the written disclosure and correspondence from Deloitte & Touche LLP required by applicable requirements of the PCAOB regarding Deloitte & Touche LLP communications with the Committee concerning independence and has discussed their independence with them. Based on the foregoing reviews and discussions, the Committee recommended to the Board that the audited financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the year ended December 31,
2018,2019, for filing with the SEC.
| The Audit Committee
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| | David B. Dillon, Chair
|
| | Andrew H. Card, Jr.
|
| | William J. DeLaney
|
| | Jane H. Lute
|
| | Jose H. Villarreal
|
41
David B. Dillon, ChairAndrew H. Card, Jr.William J. DeLaneyDeborah C. HopkinsJane H. LuteChristopher J. WilliamsTABLE OF CONTENTS
PROPOSAL NUMBER 3 − Advisory Vote to Approve Executive Compensation The Board of Directors asks shareholders to support a non-binding, advisory resolution approving the Company’s executive compensation as reported in this Proxy Statement.
We design our executive compensation programs to support the Company’s long-term success. As described below in the Compensation Discussion and Analysis section of this Proxy Statement, the Compensation and Benefits Committee has structured the Company’s executive compensation programs to achieve key Company goals and objectives. We believe our compensation philosophy allows us to link realized pay to
a variety of performance measures and reward management
skillsefforts that produce consistent, long-term performance accompanied with effective risk management and execution of the Company’s strategy.
In 2018,2019, the Company produced record financial results and finished the year with significant improvements in service reliability and efficiency. The Company also embarked on a fundamental shiftproductivity despite significant weather events, including harsh winter conditions in the Midwest and Pacific Northwest that were followed by widespread flooding across the central and southern portions of our operating philosophy by adopting precision scheduled railroading (PSR) principles by launchingnetwork. We continued implementation of Unified Plan 2020.2020, the Company’s plan for operating a safe, reliable and efficient railroad by increasing reliability of our service product, reducing variability in network operations and improving resource utilization costs. Highlights of the Company’s performance*2019 operational and financial performance include:
Record financial performance, with earnings per share of $7.91,$8.38, a 37% improvement6% increase when compared to 2017 adjusted results of $5.79 per share;
2018;
An all-time record operating ratio for 20182019 of 62.7%60.6%, improving 0.1 point from last year’s adjusted operating ratio of 62.8%;
2.1 points lower than 2018;
Operating income of more than $8.5$8.6 billion, an 8% increase comparedflat with 2018 despite the 6% carload decline; and
Substantial improvement in key performance indicators year-over-year. For example, improvement in asset utilization and fewer car classifications led to 2017’s adjusted operating income of $7.8 billion;a 17% improvement in freight car terminal dwell and a 6% improvement in freight car velocity. We also saw a 13% improvement in locomotive productivity and 2% improvement in work force productivity
The reportable personal injury rate per 200,000 employee-hours was 0.82, although a 4% increase compared to 2017, this was the best safety performance for all Class I railroads for the 4th year in a row.
The Board urges shareholders to read the Compensation Discussion and Analysis, beginning on page 4542 of this Proxy Statement, which describes in more detail how our executive compensation policies and procedures, including many best practices, operate and are designed to align compensation with our Company strategy, goals and objectives. Shareholders should also review the Summary Compensation Table and related compensation tables and narrative, appearing on pages 6358 through 79,74, which provide detailed information regarding the compensation of our Named Executive Officers. The Compensation and Benefits Committee and the Board of Directors believe that the policies and procedures articulated in the Compensation Discussion and Analysis create effective incentives for achieving Company goals, including returns to shareholders, and that the compensation of our Named Executive Officers reported in this Proxy Statement has supported and directly contributed to the Company’s performance and success.
In accordance with Section 14A of the Securities Exchange Act of 1934, and as a matter of good corporate governance, the Board asks shareholders to approve the following advisory resolution at the Annual Meeting:
RESOLVED, that the shareholders of Union Pacific Corporation (the Company) approve, on an advisory basis, the compensation of the Company’s Named Executive Officers disclosed in the Compensation Discussion and Analysis, the Summary Compensation Table and the related compensation tables and narrative in the Proxy Statement for the Company’s
20192020 Annual Meeting of Shareholders.
This advisory resolution, commonly referred to as a “say on pay” resolution, is non-binding on the Board of Directors. Although non-binding, the Board and the Compensation and Benefits Committee will review and consider the voting results when evaluating the Company’s executive compensation programs.
The Board of Directors recommends a vote FOR the advisory resolution to approve executive
compensation.*See Item 7 of Union Pacific’s Annual Report on Form 10-K for the year ended December 31, 2018, for reconciliations to U.S. GAAP
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A LETTER FROM OUR COMPENSATION AND BENEFITS COMMITTEE Dear Fellow Union Pacific Shareholder:
We thank you for your continued support of Union
PacificPacific. As directors and
wishmembers of the Compensation and Benefits Committee, we take our responsibility to
shareyou very seriously. Our overarching compensation philosophy is to provide compensation opportunities that are competitive and motivating in an environment that has required continuing commitment and resilience of our employees and the leadership team. Our compensation philosophy is also highly performance based in order to align our management team with
you how the Committee continues to evolve our executive compensation program to support the Company’s
long-term strategic goals and
drive shareholder value.2018our shareholders’ long-term interests.
2019 Results and Unified Plan 2020
The Company’s full year financial results are a reflection of
During 2019, the executive team’s commitment to making significant improvements in service reliability and efficiency withCompany continued the ongoing implementation of the Company’s Unified Plan 2020. Unified Plan 2020, implements Precision Scheduled Railroading (PSR) principles and is an important part of the Company’s objective ofplan for operating a safe reliable and efficient railroad. As a resultrailroad by increasing the reliability of its service product, reducing variability in network operations and improving resource utilization costs. The year 2019 also presented extreme weather challenges as harsh winter weather, blizzard conditions and record snowfall caused weather disruptions across the momentum gained inMidwest and Pacific Northwest. Additionally, rainfall on top of frozen ground, covered with several inches of accumulated snow, led to rapid snowmelt and historic, catastrophic flooding across Nebraska, Iowa, Missouri and Minnesota. Ice jams, some several miles long, contributed to extensive damage and track washouts across the fourth quarter, 2018 sawCompany’s network. Despite all of these challenges, the Company deliver strongdelivered solid financial performance, including:
Earnings of $7.91$8.38 per share, representing a 37%6% improvement compared to 2017’s adjusted results of $5.79 per share*
2018
An all-time record operating ratio of 62.7%60.6%, 0.1 point better2.1 points lower than last year’s adjusted operating ratio of 62.8%*
2018
Operating income of more than $8.5$8.6 billion, an 8% increase compared to 2017’s adjusted operating income of $7.9 billion*flat with 2018 despite a 6% carload decline
Union Pacific returned $10.5$8.4 billion to its shareholders in the form of dividends and share repurchases and total shareholder return was 5.3%33.7% in 20182019 compared with a negative 4.4%31.5% shareholder return for the S&P 500.
Our Fiscal
20182019 Compensation Program
As the Company continues to implement Unified Plan 2020, we remain focused on a compensation program that supports the Company’s strategic goals and reflects our commitment to alignment of pay with performance. For fiscal year
2018, we changed from a discretionary annual bonus program to a2019, the Named Executive Officers’ (NEOs) formula-based incentive cash program
wherewas similar to 2018 with eighty percent (80%) of the target annual incentive cash bonus
is based on two key performance metrics: operating income (40%) and operating ratio (40%). The remaining 20% of an executive’s target incentive cash bonus
iswas based on the Committee’s evaluation of the Company’s performance against pre-established business objectives and individual executive performance in the key areas identified in the Company’s
overall six-track Value Strategy (World Class Safety, Excellent Customer Experience, Innovation, Resource Productivity, Maximized Franchisenew strategy wheel which we implemented in 2019 as set forth on page 51 of the Compensation Discussion & Analysis (CD&A).After thorough deliberation and
Engaged Team). We believeconsideration, including discussions with the
resultingCommittee’s compensation consultant, the Committee made an adjustment for weather related expenses incurred by the Company due to the historic and extreme flooding experienced during 2019. This adjustment to the calculation of our formulaic bonus program under the Company’s 2019 Annual Incentive Plan is detailed on page 50 of the CD&A. The Committee believes that the adjustment appropriately recognizes the significant productivity and operational improvements management and our entire workforce achieved during 2019 through the implementation of Unified Plan 2020. This adjustment resulted in an annual incentive
bonusesbonus payout for
2019 at 41% of target for Mr. Fritz and the
other NEOs,
areexcluding Mr. Vena. As described on page 46 of the CD&A, due to Mr. Vena’s critical role in the implementation of Unified Plan 2020, the Committee recommended, and the Board approved, an
accurate reflectionannual incentive bonus for 2019 for Mr. Vena at 150% of
Companytarget. Based on Mr. Vena’s performance in leading the Company’s achievement of an historic operating ratio of 60.6 %, the Committee also recommended, and
individualthe Board approved, vesting of the first tranche of his 2019 performance
during 2018.stock unit award at 100% of target, and also approved another performance-based long-term incentive grant. TABLE OF CONTENTS
Long-term equity incentives remain an integral part of our compensation program, as we believe they support alignment of our executives’ interests with the interests of our shareholders. During 2018, we again modified the mix of equity awards so that beginning withThe 2019 equity grants for the NEOs consisted of 60% (up from 50%) performance stock units (PSUs) will constitute 60% (up from 50%) of each executive’s long-term grants, including the NEO’s, and stock options will constituteconstituted the remaining 40% of award values, eliminating the use ofreflecting our decision to eliminate retention stock units from our executive compensation programprogram.
The Committee also approved a formalized policy for
executives.recoupment of incentive compensation described on page 44 which became effective January 1, 2020. This policy is meant to be consistent with, but also is more expansive than, the proposed “clawback” rules under the Dodd-Frank Wall Street and Consumer Protection Act. While such rules have not yet been finalized, the Committee believes adoption of the policy is consistent with good corporate governance principles.
Further detail on our compensation program is included in the Compensation DiscussionCD&A that follows.
Diversity and AnalysisOur Workforce
We are working to assist the Company in creating a 21st-century workforce that
follows.is gender-balanced and inclusive of top, diverse talent. The Company is committed to improving and strengthening performance to further build an inclusive workforce that reflects the diverse markets and communities it serves . A positive, inclusive and high-performing work environment is essential in order for employees to feel valued and able to fully contribute to the Company’s mission.
Ongoing Commitment to Shareholder Engagement
The Committee values the perspectives of the Company’s shareholders and the importance of shareholder feedback, as demonstrated by the continued evolution of our compensation program. We appreciate the strong support from shareholders on our
20182019 say-on-pay vote on executive compensation. As the Company moves forward with Unified Plan 2020, we are committed to maintaining a compensation structure that aligns pay with performance, drives long-term value creation and reflects the perspectives of our shareholders.
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Thank you for your continued support and investment in Union Pacific.
Respectfully,
The Compensation and Benefits Committee
Erroll B. Davis, Jr., Chair Andrew H. Card, Jr. William J. DeLaney David B. Dillon Bhavesh V. Patel Jose H. Villarreal | Respectfully,
|
| |
| The Compensation and Benefits Committee
|
| |
| Erroll B. Davis, Jr., Chair
|
| Andrew H. Card, Jr.
|
| William J. DeLaney
|
| David B. Dillon
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| Bhavesh V. Patel
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| Jose H. Villarreal
|
*See Item 7 of Union Pacific’s Annual Report on Form 10-K for the year ended December 31, 2018, for reconciliations to U.S. GAAP
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COMPENSATION DISCUSSION AND ANALYSISThis Compensation Discussion and Analysis describes the material elements of our executive compensation program and provides an overview of our executive compensation philosophy, policies and practices, and the corresponding pay decisions for our Named Executive Officers (NEOs) for and during fiscal year 2018.
For fiscal year ending December 31, 2018, our Named Executive Officers (NEOs) included our principal executive officer, our principal financial officer, and the three next most highly compensated executive officers. Pursuant to SEC rules, an additional NEO is also included for 2018.
Lance M. Fritz, Chairman, President and Chief Executive Officer (CEO);2019 Business Highlights
Robert M. Knight, Jr., Executive Vice President and Chief Financial Officer (CFO);
Rhonda S. Ferguson, Executive Vice President, Chief Legal Officer and Corporate Secretary;
Elizabeth F. Whited, Executive Vice President and Chief Human Resources Officer;
Lynden L. Tennison, formerly the Executive Vice President and Chief Strategy Officer; and
Cameron A. Scott, formerly the Executive Vice President and Chief Operating Officer;
Ms. Whited was elected Executive Vice President and Chief Human Resources Officer effective August 15, 2018. Ms. Whited previously served as Executive Vice President and Chief Marketing Officer. Mr. Scott served as Executive Vice President and Chief Operating Officer until August 15, 2018, and remained at the Company as Vice President until his retirement on February 28, 2019. Mr. Tennison retired from the Company on March 31, 2019.
Our 2018 Say-on-Pay Vote; Compensation Program for 2018
|
We were encouraged with the results of our say-on-pay vote at our 2018 Annual Meeting of Shareholders as we received shareholder support of 94% for our executive compensation program. The concerted efforts of our management team and the Compensation and Benefits Committee to increase engagement with our shareholders and to thoughtfully consider and incorporate shareholder feedback into our executive compensation program in 2018 were reflected in this vote.
At the 2018 Annual Meeting, shareholders showed strong support for the Company’s executive compensation program with approximately 94% of the votes cast approving the advisory resolution to approve the compensation of our NEOs.
|
In 2018, our Compensation Committee changed the annual cash bonus program for our executives from a discretionary annual bonus program to a formula-based incentive cash program. Under this new formula-based annual incentive plan, eighty percent (80%) of the target annual incentive cash bonuses paid to our executives, including the NEOs, were based on the attainment of pre-established objective Company financial performance goals, and the remaining twenty percent (20%) was based on the Committee’s evaluation of the Company’s execution of overall strategy and the achievement of pre-established business objectives, as well as individual executive performance in key areas such as safety, customer service, resource productivity, maximized franchise, innovation and employee engagement. In addition, for PSUs granted in 2018, the Committee decided to remove the ability to earn stock units annually. PSUs will only be earned after the full three-year performance period. As described above, during 2018, the Committee modified the mix of equity awards so that, beginning with 2019 equity grants, PSUs will constitute 60% of each executive’s long-term grants (up from 50%), and stock options will constitute the remaining 40% of award values, eliminating the use of retention stock units from our compensation program for executives.
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COMPENSATION DISCUSSION AND ANALYSIS
Formula-Based Objective Component
For 2018, the financial performance goals were weighted equally based on operating income (40%) and operating ratio (40%), which are key measures in the rail industry.
After the end of the fiscal year, the Committee certified the extent to which these pre-established operating income and operating ratio goals were achieved. For 2018, the non-formulaic portion was weighted at twenty percent (20%) of an executive’s target incentive cash bonus-potential, and, under our program, the Committee retains the discretion to award less than that amount. If the minimum performance thresholds for both operating income and operating ratio are not achieved, then no annual incentive cash bonus is paid to executives. For performance that exceeds target levels, the annual incentive plan payout is capped at 200% of target.
Non-Formulaic Component
Everything the Company does is built on our vision, mission and values — including our six-track Value Strategy. For 2018, the non-formulaic portion was weighted at twenty percent (20%) of an executive’s target incentive cash bonus and was based on the Company’s performance against pre-established business objectives and individual executive performance in the key areas identified in our overall six-track Value Strategy. When aligned, this strategy adds value to our four stakeholders — employees are engaged and recognize their role; the communities we serve are partners; we help our customers win in their markets; and our shareholders are pleased with the returns generated. Our six-track Value Strategy is:
| • | World-Class Safety — Our safety strategy incorporates individual accountability, data-driven processes and a relentless examination of every deviation to understand root causes, eliminate incidents and mitigate risk. To assess this Value Track, we look at employee reportable injury rate, crossing incidents rate, and rail equipment reportable rate. |
| • | Excellent Customer Experience — More than our service product, the customer experience is about anticipating needs, quickly responding, keeping commitments, offering solutions and making customers |
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COMPENSATION DISCUSSION AND ANALYSIS
want to do more business with the Company. The customer experience plays a critical role in our ability to execute our growth strategy, making it vital employees understand customer issues and work to improve them. To assess this Value Track, we look at revenue growth, our service delivery index, and our net promoter score.
| • | Innovation — Ever-present throughout the Railroad, innovation is about not being satisfied with current results and developing new thinking through a combination of “Little I” and “Big I” approaches. “Little I” projects use UP Way tools to improve work and make fundamental process improvements, while “Big I” encompasses large-scale projects that may require significant investments. To assess this Value Track, we look at the extent to which our executives have directed organization and advancement of innovation activities, and developed, adopted and deployed processes for cultivating innovation and technology driven operations. |
| • | Resource Productivity — Getting the most out of what we have, resource productivity means turning railcars faster, making assets last longer, having fuel take us further and designing processes to be smarter. The Grow to 55 plus Zero (G55+0) initiative, or growing to an operating ratio of 55% with zero injuries, is a mindset and strategy to improve the Company’s competitiveness, whether it’s through lowering daily expenses, and capital expenditure or increasing fuel efficiency. To assess this Value Track, we look at cost savings achieved during the year under our G55+0 productivity initiatives. |
| • | Maximized Franchise — More than our physical footprint on a map, maximized franchise includes our assets, employees and their expertise, service products, market reach, and proprietary technology. It is critical to our overall strategy that helps us explore and expand our markets. To assess this Value Track, we look at customer growth and the number of completed industrial development projects. |
| • | Engaged Team — When employees are empowered and respected, they feel connected to the Company. This inspires passion and dedication, while leveraging diverse talents and creating the best ideas and strategies. Every employee needs to be engaged in making his or her work safer, more productive and with a better outcome. To assess this Value Track, we look at employee engagement and Company culture initiatives. |
For 2018, the following are certain quantitative and qualitative measurements in each of the six Value Tracks, as indicated above. The attainment of these measures and continued focus on the six-track Value Strategy will enable the Company to add value for the Company’s four stakeholders — shareholders, customers, employees and communities.
World Class Safety
|
| ✔
| Employee Reportable Injury Rate
|
| ✔
| Crossing Incidents Rate
|
| ✔
| Rail Equipment Reportable Rate
|
| | |
Excellent Customer Experience
|
| ✔
| Revenue Growth
|
| ✔
| Service Delivery Index
|
| ✔
| Net Promoter Score
|
| | |
Innovation
|
| ✔
| Organize and advance Innovation activities
|
| ✔
| Develop, adopt and deploy processes for cultivating Innovation and Technology Driven Operations
|
| | | |
Resource Productivity
|
| ✔
| G55+0 Productivity
| |
| | | |
Maximized Franchise
|
| ✔
| Customer Growth
|
| ✔
| Industrial Development Projects
|
| | | |
Engaged Team
|
| ✔
| Employee Engagement
|
| ✔
| Company Culture Initiatives
|
TABLE OF CONTENTS
COMPENSATION DISCUSSION AND ANALYSIS
Union Pacific Railroad Company (the Railroad) is the principal operating company of Union Pacific Corporation (the Company). One of America’s most recognized companies, the Railroad links 23 states in the western two-thirds of the country by rail, providing a critical link in the global supply chain. The Railroad’s diversified business mix includes Agricultural Products, Energy, PremiumIndustrial and Industrial Products.Premium. We serve many of the fastest-growing U.S. population centers, operate from all major West Coast and Gulf Coast ports to eastern gateways, connect with Canada’s rail systems and are the only railroad serving all six major Mexico gateways. Our freight traffic consists of bulk, manifest and premium business. Bulk traffic primarily consists of coal, grain, soda ash, ethanol rock and crude oilrock shipped. Manifest traffic includes individual carload or less than train-load business involving commodities such as lumber, steel, paper, food and chemicals. The transportation of finished vehicles, auto parts, intermodal containers and truck trailers are included as part of our premium business. The Railroad provides value to its roughly 10,000 customers by delivering products in a safe, reliable, fuel-efficient and environmentally responsible manner.
Safety: During 2018, we continued our focus on safety to reduce risk and eliminate incidents for our employees, our customers and the public. Despite our efforts, our reportable personal injury incidents per 200,000 employee-hours of 0.82 increased 4% from 2017, which was our second best year on record. 2016 was our all-time annual record of 0.75 personal injury incidents per 200,000 employee hours. This was the best safety performance for all Class I railroads for the fourth year in a row.
Our
reportable derailment incident rate per million train miles of 3.28 and crossing incidents rate of 2.69 increased 12% and 5%, respectively, compared to 2017. We remain intently focused on improving employee and public safety with programs such as Courage to Care, Total Safety Culture, and UP Way (our continuous improvement culture). The next step to improve our industry-leading employee safety performance is decentralizing safety planning and implementation. This new approach will give those closest to the work the authority, and responsibility, to adapt safety measures that best fit their individual work environments, which include considerations such as weather, geography and overall territory work conditions.Service and Operations: We entered 2018 with network congestion on key routes and terminals, compounded by high freight car inventory levels that negatively impacted operational performance during the first half of the year. On October 1, 2018, we began implementation of the first phase of ouroperating plan, Unified Plan 2020, which included several initiatives focused onimplements Precision Scheduled Railroading principles, coupled with our own best practices. It is an important part of the Company’s objective to operating a safe, reliable and efficient railroad by increasing the reliability of our service product, reducing variability in network operations, and improving resource utilization costs.
utilization.
Safety: While 2019 was a year of significant operational change at the Company, we remained committed to the safety of our employees, our customers and the public. As we implemented Unified Plan 2020, we remained focused on identifying and managing risk and training our employees as their work environment changed. Despite these efforts, our safety results were not good enough. Our personal injury incidents per 200,000 employee-hours increased 11% from 2018 and our reportable derailment incident rate per million train miles increased 30%. In addition to using and expanding the deployment of Total Safety Culture and Courage to Care, we implemented COMMIT (Coaching, Observing, Mentoring and Motivating with Integrity and Trust) throughout our operations. All of these programs allow us to identify and implement best practices for employee and operational safety.
Service and Operations: The year began with a result, network operations improved significantlyseries of significant weather events. Heavy snowfall and harsh winter conditions in the fourth quarterMidwest and Pacific Northwest were followed by widespread flooding across the central and southern portions of 2018. We reduced our active locomotive fleetnetwork. Despite the disruptions, we remained focused on the implementation of Unified Plan 2020.
Although our operational changes were impacted by
625 locomotivesweather in the early part of 2019, our key performance indicators improved substantially year-over-year. Improvement in asset utilization and
reduced operatingfewer car
inventory by more than 10% comparedclassifications led to
September 30, 2018, while handling relatively similar volume levels. As reference, average17% improvement in freight car terminal dwell
as reported to the AAR improved 14% to 26.7 hoursand 6% improvement in
the fourth quarter compared to the first half of 2018. On a full year basis, average terminal dwell improvedfreight car velocity. We also saw 13% improvement in locomotive productivity and 2%
while average train speed decreased 4% compared to 2017.improvement in work force productivity.
Financial Results
: In 2018,2019, the Company generated operating income of more than $8.5$8.6 billion, anflat with 2018 despite the 6% carload decline. Lower volumes, productivity initiatives and lower fuel prices drove operating expenses down 8% increase compared to 2017 adjusted results (non-GAAP). Volume growth, combinedfrom 2018. These factors coupled with coreimproved pricing and productivity gains, generated solid financial performance improvement and more than offset the impact of excess network costs, higher fuel prices,the revenue decline and other cost hurdles, including state and local taxes, depreciation, and inflation. Our 2018 operating ratio wasdrove an all-time record 62.7%,60.6% operating ratio, improving 0.1 point2.1 points from 2017 adjusted results (non-GAAP).2018. Net income of nearly $6.0 billion translated into earnings of $7.91$8.38 per diluted share.share, up 6% from last year.
Our net return on invested capital of
15.1% increased 1.4 points15.0% decreased 0.1 point compared to
2017 adjusted results (non-GAAP).2018. We increased our quarterly dividend with two 10 percent increases, resulting in dividends paid in
20182019 totaling
$2.3$2.6 billion. In addition, we repurchased
57.235 million
Union Pacific shares,
of Company common stock totaling more than $8.2 billion. Betweendecreasing our full-year average share count by 6 percent. Combining dividends and share repurchases,
weUnion Pacific returned
$10.5$8.4 billion to our shareholders in
2018.2019.
Please also refer to the Company’s Annual Report on Form 10-K for a complete analysis of the Company’s
20182019 financial and operating performance and non-GAAP reconciliation.
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COMPENSATION DISCUSSION AND ANALYSIS
Summary of 2018 Compensation Decisions
|
In February 2018, upon review of competitive market data, including our Peer Group, as well as taking into considerationExecutive Compensation Philosophy and the Company’s internal pay structure, the Committee approved salary increases for all NEOs ranging from 3% to 15% that placed each NEO generally around the 25th percentile.
| • | Our new 2018 formula-based incentive cash program resulted in an overall payout of 81% of target for each NEO (except for Mr. Scott). Even though financial performance improved on a year-over-year basis, the Company did not achieve a majority of its business objectives as outlined on pages 55 and 56, and the Committee awarded the non-formulaic component at 25% of target. |
The value of our long-term incentive awards for our NEOs were generally higher in 2018 to better align their compensation with their level of duties and responsibilities, their pay with performance, and to position them more competitively in their respective positions.
2018 long-term incentive awards consisted of 50% performance stock units, 40% stock options and 10% retention stock units (which are service-based restricted stock units). For 2019, we eliminated the use of retention stock units from our compensation program for executives and increased performance stock units to 60% of the NEOs’ long-term incentive awards.
Performance stock units for the three-year performance period ending in 2018 vested at 135% of target.
The Committee reviews Total Direct Compensation for each of the NEOs on an annual basis prior to the first Board meeting of the year. Total Direct Compensation consists of (i) cash compensation (Total Cash Compensation) comprised of base salary and annual cash bonus, and (ii) stock-based compensation under our long-term incentive compensation programs. Each component is described more fully below. The Committee also periodically reviews other elements of compensation, including deferred compensation, perquisites, benefits, including retirement plans, and change-in-control severance payments.
The following table summarizes the 2018 Total Direct Compensation the Committee approved for each NEO. This table is supplementary and is not intended to replace the Summary Compensation Table.
2018 Total Direct Compensation Versus Peer Group
Name | Total 2018 Cash Comp | Grant Date Value of Target 2018 LTI Award | Total 2018 Direct Comp (1) | vs. Peer Group |
Lance M. Fritz | $ | 3,350,000 | | $ | 9,750,000 | | $ | 13,100,000 | | 50P-75P |
Robert M. Knight, Jr. | | 1,879,000 | | | 3,400,000 | | | 5,279,000 | | Above 75P |
Rhonda S. Ferguson | | 1,212,000 | | | 1,500,000 | | | 2,712,000 | | Below 25P |
Elizabeth F. Whited | | 1,205,000 | | | 1,500,000 | | | 2,705,000 | | Below 25P |
Lynden L. Tennison (2) | | 1,131,000 | | | 1,200,000 | | | 2,331,000 | | Below 25P |
Cameron A. Scott (3) | | 1,180,000 | | | 2,000,000 | | | 3,180,000 | | 25P - 50P |
| (1) | The compensation elements included in the table above reflect the components of annual compensation considered and evaluated by the Committee in its decision-making process. The table excludes compensation amounts based on changes in pension value and nonqualified deferred compensation earnings as reported in the Summary Compensation Table on page 63. The Committee considers these pension and deferral compensation programs in the context of its assessment of the overall design of the Company’s compensation program and not as an element of annual compensation decisions. Likewise, in its annual compensation decisions the Committee does not consider the items included as “All Other Compensation” in the Summary Compensation Table, and these items are, therefore, also excluded from the table above. |
| (2) | Mr. Tennison retired on March 31, 2019. |
| (3) | Mr. Scott retired on February 28, 2019. |
Compensation-Setting ProcessTABLE OF CONTENTS
COMPENSATION DISCUSSION AND ANALYSIS
Executive Compensation Philosophy and the Compensation-Setting Process
|
The Company’s executive compensation philosophy is to:
| • | Pay for Performance — By aligning a significant portion of the executive’s opportunity for compensation to annual (short-term) and long-term Company strategy, we tie pay to performance. Integration of the Company’s critical business objectives (safety, service, and financial performance) with the Company’s strategy and compensation programs also allows its pay structure to reflect individual performance and management effectiveness, along with other qualitative factors, which contribute to the Company’s performance. |
Pay for Performance — We tie pay to performance by aligning a significant portion of the executive’s opportunity for compensation to annual (short-term) and long-term Company strategy. We also integrate the Company’s critical business objectives (safety, service, and financial performance) into the Company’s strategy and compensation programs to reflect individual performance and management effectiveness, along with other qualitative factors, which contribute to the Company’s performance.
| • | Align with Shareholder Interests — By providing equity incentives, we link a substantial portion of executive compensation to both short-term and long-term financial performance that benefits our shareholders and aligns the interests of management with those of our shareholders. |
Align with Shareholder Interests — We link a substantial portion of executive compensation to both short-term and long-term financial performance that benefits our shareholders and aligns the interests of management with those of our shareholders by providing equity incentives.
| • | Attract and Retain Top Talent — By structuring compensation levels to reflect the competitive marketplace for similar positions at other comparable peer group companies, we are able to attract and retain key executives critical to our long-term success. |
Attract and Retain Top Talent — We are able to attract and retain key executives critical to our long-term success by structuring compensation levels to reflect the competitive marketplace for similar positions at other comparable peer group companies.
The Compensation and Benefits Committee believes this compensation philosophy allows us to reward behavior that produces consistent, long-term performance accompanied with effective risk management and execution of the Company’s strategy.
To guide its executive compensation decisions, the
The Committee carefully evaluates and considers a number of factors in connection with its executive compensation decisions, including:
| ✔
| Company performance;performance against objectives; |
| ✔
| Guidance from the Committee’s compensation consultant; |
| ✔
| Appropriate peer comparisons. |
Company Performance. As described above, under the Company’s annual incentive cash program, the Company measures its performance against a formulaic component based on pre-established operating income and operating ratio targets, as well as a non-formulaic component based on the Committee’s evaluation of certain business objectives related to safety, service and financial performance outlined on pages 4649 and 4750. The Committee recommends the operating income and operating ratio targets to the Board for approval each February. Management also develops the Company’s overall strategy and the corresponding business objectives and presents them to the Board annually in February. After Board approval, the Committee incorporates the objectives into the compensation program with the assistance and advice from the Finance Committee of the Board. The Board monitors the Company’s progress concerning execution of its strategy and its business objectives during the year. At the end of the year, the Board assesses the Company’s achievement of these objectives. In February, subsequent to the performance year, management presents to the Committee the Company’s operating income and operating ratio results, its achievement compared to the business objectives, and its relative performance compared to the Peer Group.
Guidance from Compensation Consultant and Input from CEO.
The Committee reviews and recommends the compensation of all NEOs to the Board for its approval. The CEO provides the Committee with his evaluation of the performance of the other NEOs (excluding himself) and his recommendations for their compensation. The Committee also receives information and recommendations from its independent compensation consultant (FW Cook) on matters related to the NEOs’ (including the CEO’s) and other executives’ compensation. The Committee then determines (with advice from the Board, and assistance from its consultant) a bonus and equity award for the Company’s CEO.For more information on the operation of the Committee, including information on its compensation consultant, see
the Compensation and Benefits Committee section on pages
3329 and
3430 of this Proxy Statement.
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COMPENSATION DISCUSSION AND ANALYSIS
Executive Compensation Philosophy and the Compensation-Setting Process
Peer Companies. The Committee benchmarks salary, Target Total Cash Compensation and Target Total Direct Compensation for the NEOs against competitive market information. To assess competitive market information, the Committee looks primarily to pay data from the proxy statements of the Company’s Peer Group. The proxy information reviewed by the Committee consists of comparable data for the CEO and CFO positions and the next three highest paid individuals at each Peer Group company. The Committee also reviews relevant data provided by FW Cook, the Committee’s compensation consultant, for purposes of evaluating the compensation for the CEO and Chairman.
As further discussed below, the Committee generally seeks to establish base salaries below the median of the Peer Group, reflecting the Committee’s philosophy that a greater proportion of the cash component of the executives’ compensation should be incentive-based. The Committee generally targets a range around the median of the Peer Group for Target Total Cash Compensation and Target Total Direct Compensation. Actual
totalTotal Direct Compensation and
TargetActual Total Cash Compensation may be greater or less than targeted percentiles, depending upon whether and to what degree the Company achieves its business objectives (as described above).
Other factors considered in setting target compensation levels may include the individual performance of each NEO and his or her position relative to the Company’s current internal pay structure or changes in personnel or compensation at the Peer Group companies. In addition, the Committee particularly focuses on competitive pay for railroad executives within the Peer Group and the performance of other comparable railroads. In comparing the executive positions with comparable positions at companies within the Peer Group, the Committee and FW Cook review and consider any adjustments that may be required to account for significant differences in tenure or functional responsibilities.
For compensation decisions made in 2018,2019, the Company’s Peer Group consisted of the following 1715 companies listed below.
3M
| Altria Group
| Canadian National |
| | Canadian Pacific | | | CSX |
Deere & Co.Co | | | Delta Airlines | | | Exelon |
Du Pont (El) De NemoursFedEx
| Exelon | FedEx
|
General Dynamics
| Halliburton | Honeywell International | | | NextEra Energy |
Medtronic
| Norfolk Southern | | | Northrop Grumman | | | Raytheon |
Southern Co. | | | UPSSouthwest Airlines
| | | UPS |
The Committee selected this Peer Group with the assistance of its compensation consultant, FW Cook, after considering U.S. based public companies in the same Global Industry Classification System (GICS) Industry Group with comparable revenues and market capitalization and other U.S.-based public companies with comparable (i) revenues, (ii) operating income, (iii) total assets, (iv) market capitalization and (v) employees, while excluding pharmaceuticals, high-tech, insurance and financial services companies. These comparative financial measures and the number of employees for the 20172018 Peer Group are summarized below and were used for compensation decisions made in 2018.
| Peer Group | Union Pacific |
| Median | 75th Percentile | Company Data | Percentile Rank |
Net Revenue | $ | 27,209 | | $ | 31,999 | | $ | 21,240 | | | 35th | |
Operating Income | $ | 3,975 | | $ | 5,797 | | $ | 8,061 | | | 95th | |
Total Assets | $ | 39,672 | | $ | 60,987 | | $ | 57,806 | | | 72nd | |
Market Capitalization | $ | 52,938 | | $ | 98,925 | | $ | 90,398 | | | 72nd | |
Employees | | 55,238 | | | 99,772 | | | 42,919 | | | 44th | |
2019.Net Revenue | | | $27,058 | | | $39,560 | | | $22,832 | | | 39th |
Operating Income | | | $4,414 | | | $5,118 | | | $8,517 | | | 100th |
Total Assets | | | $49,589 | | | $65,189 | | | $59,147 | | | 68th |
Market Capitalization | | | $53,380 | | | $61,332 | | | $108,411 | | | 98th |
Employees | | | 58,803 | | | 82,500 | | | 41,992 | | | 45th |
Dollars in millions. Median/Percentiles determined by FW Cook using Standard & Poor’s Capital IQ Service, Form 8-K filings and Peer Group company information. The financial information provided above is derived from data as of fiscal year ending December 31, 2017,2018, except as of November 2017September 2018 for FedEx,Exelon and Southern Co., October 20172018 for Deere & Co and Medtronic, and September 2017 for Altria, Exelon, Southern Co. and UPS.November 2018 for FedEx. Market Capitalization is a 12-month average as of December 31, 2017.
2018.
TABLE OF CONTENTS
COMPENSATION DISCUSSION AND ANALYSIS
Executive Compensation Philosophy and the Compensation-Setting Process
The Company periodically reviews the Peer Group to determine if changes are necessary. In September 2018, the Committee approved changes to the Peer Group. The Peer Group now consists of the following 15 companies listed below.
Canadian National
| Canadian Pacific
| CSX
|
Deere & Co.
| Delta Airlines
| Exelon
|
FedEx
| Honeywell International
| NextEra Energy
|
Norfolk Southern
| Northrop Grumman
| Raytheon
|
Southern Co.
| Southwest Airlines
| UPS
|
Compensation Best PracticesCompensation Best Practices
|
We endeavor to maintain strong governance standards in our policies and practices related to executive compensation. Below is a summary of key executive compensation and governance practices in place during 2018.
2019. | ✔ | | | Emphasize Performance-Based Variable Compensation | | | ✘✗
| | | No Repricing or Back-Dating of Options Allowed | |
| ✔ | | | Utilize a Compensation Recoupment Policy | | | ✘✗
| | | No Individual Supplemental Executive Retirement Plans | |
| ✔ | | | Tie Compensation to Short-and-Long-Term Performance | | | ✘✗
| | | No Tax Gross-Up Payments Allowed for NEOs, including Change-in-Control | |
| ✔ | | | Allow Only Minimal Perquisites | | | ✘✗
| | | No Employment Agreements with any of our Executive Officers, including NEOs | |
| ✔ | | | Utilize Double Trigger Change-in-Control Plan | | | ✘✗
| | | NEOs are Prohibited from Pledging and Hedging Company Stock | |
| ✔ | | | Target Base Salaries Below the Median of our Peer Group | | | | | | | |
| ✔ | | | Enforce Stringent Executive Stock Ownership Guidelines | | | | | | | |
| ✔ | | | Conduct Annual Compensation Risk Assessment | | | | | | | |
| ✔ | | | Require Trading Plans for Executive Officers (as set forth on page 77) and Directors | | | | | | | |
Effective January 1, 2020, the Company adopted its Policy for Recoupment of Incentive Compensation. This policy allows the Board’s Compensation and Benefits Committee to require Company executives to repay to the Company certain incentive compensation (or if such incentive compensation has not been paid or settled, the Company may cancel such incentive compensation) if the Committee determines either (a) that a financial restatement is required due to the Company’s material non-compliance with financial reporting requirements or if there was a material error in incentive compensation calculations, or (b) if the executive engaged in certain types of detrimental conduct, as more particularly described in the policy. This policy is meant to be consistent with, but also is more expansive than, the proposed “clawback” rules under the Dodd-Frank Wall Street and Consumer Protection Act. While such rules have not yet been finalized, the Company nevertheless implemented this recoupment policy because we believe it is consistent with good corporate governance principles.
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Elements of Our
Named Executive
Compensation ProgramOfficers
| • Hired January 14, 2019
• $600,000 salary
• $750,000 annual incentive target
• $4,000,000 equity award comprised of 60% performance stock units prorated annually based on Operating Income and Operating Ratio and 40% stock options, with two-year vest | | | | |
To help lead implementation of our Unified Plan 2020, Mr. Vena became Chief Operating Officer effective January 14, 2019. Mr. Vena previously served as Executive Vice President and Chief Operating Officer of Canadian National Railway Company, where he was responsible for implementing its highly successful Precision Scheduled Railroad operating model. At time of hire, his annual base salary was $600,000 with an annual target bonus opportunity of $750,000, payout of which is dependent on the Company’s formulaic bonus program under the Company’s 2019 Annual Incentive Plan.
Mr. Vena also received a $4,000,000 equity grant award consisting of 60% performance stock units and 40% stock options, each with a two year vesting period, prorated and payable annually based on the Company’s operating income and operating ratio. As previously disclosed, Mr. Vena’s initial performance stock unit award was subject to review for potential adjustment after the end of the year based on performance.
At its February 2020 meeting, the Compensation and Benefits Committee reviewed the critical role and accomplishments of Mr. Vena in the implementation of Unified Plan 2020. Based on Mr. Vena’s performance in leading the Company’s achievement of an historic operating ratio of 60.6%, the Committee recommended, and the Board approved, vesting of the first tranche of his 2019 performance stock unit award at 100%. In addition, the Compensation and Benefits Committee recommended, and the Board approved, payment to Mr. Vena of an annual incentive bonus for 2019 of $1,125,000 at 150% of target. The Committee will review the second tranche of Mr. Vena’s performance stock unit award for potential adjustment at the end of 2020.
Likewise, in recognition of the role and accomplishments of Mr. Vena in the implementation of Unified Plan 2020, the Compensation and Benefits Committee in March 2020 recommended, and the Board approved, a $4,000,000 equity grant award subject to vesting over two years. The new grant consisted of 40% stock options and 60% performance stock units, with a two year vesting period, and the number of performance stock units payable based on the Company’s 2020 operating ratio.
A significant portionTABLE OF CONTENTS
Named Executive Officers
| • Increased base salary by 5.0%
• LTI target unchanged
• Annual incentive target unchanged
• Increased Total Target Direct Compensation by 0.8%
| | | | |
Ms. Ferguson has been our Executive Vice President, Chief Legal Officer and Corporate Secretary for almost 4 years. The Compensation and Benefits Committee increased Ms. Ferguson’s salary for 2019 to $485,000, a 5.0% increase, and maintained Ms. Ferguson’s 2019 Annual Incentive Plan bonus target of $750,000. Ms. Ferguson received an annual incentive bonus for 2019 of $308,000 at 41% of target based on the formulaic bonus program under the Company’s 2019 Annual Incentive Plan. The Committee made no change to Ms. Ferguson’s long-term incentive target grant value of approximately $1,500,000 consisting of 60% performance stock units and 40% stock options granted on February 7, 2019. Ms. Ferguson’s 2017 grant of performance stock units paid out at 200% of target.
| • Increased base salary by 2.0%
• LTI target unchanged
• Annual incentive target unchanged
• Increased Total Target Direct Compensation by 0.3% | | | | |
Ms. Whited has been our Executive Vice President and Chief Human Resources Officer for almost 2 years after previously serving as the Company’s Executive Vice President and Chief Marketing Officer. The Compensation and Benefits Committee increased Ms. Whited’s salary for 2019 to $464,000, a 2.0% increase, and maintained Ms. Whited’s 2019 Annual Incentive Plan bonus target of $750,000. Ms. Whited received an annual incentive bonus for 2019 of $308,000 at 41% of target based on the formulaic bonus program under the Company’s 2019 Annual Incentive Plan. The Committee made no change to Ms. Whited’s long-term incentive target value of approximately $1,500,000 consisting of 60% performance stock units and 40% stock options granted on February 7, 2019. Ms. Whited’s 2017 grant of performance stock units paid out at 200% of target.
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Fiscal Year 2019 Total Compensation Mix The majority of the compensation awarded to our CEO and other NEOs, is performance-based, variable compensation and “at-risk.” This is illustrated in the charts below that show the pay mix for Mr. Fritz, our CEO, and for our other NEOs as a group based on the target total direct compensation received by these executives in fiscal 2018.2019.
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Elements of Our Executive Compensation Program The CEO reviews base salaries and prior year performance and accomplishments for the other NEOs and recommends a base salary for the coming year for each. The Committee considers and evaluates these base salary recommendations. Among many considerations, the Committee
primarily considers:reviews: (i) the executive’s position and responsibility in the organization, (ii) the executive’s experience and expertise, (iii) Company performance, (iv) individual accomplishments and job performance during the year, (v) Peer Group pay data, (vi) internal benchmarking relative to the Company’s pay structure, and (vii) current salary. In making salary recommendations to the Board of Directors, the Committee exercises subjective judgment in evaluating
allmany factors
andbut applies no specific weights to
the above factors.any factor. The Committee,
alone, with input from its compensation consultant, and the Board’s review of CEO performance, assesses and determines the base salary of the CEO for subsequent Board approval.
In February
20182019 and
2019,2020, the Committee reviewed each of our NEO’s base salary. Upon review of competitive market data, including our Peer Group, the Committee approved the salary increases shown below.
Name | 2017 Salary | Increase for 2018 | 2018 Salary | vs. Peer Group | Increase for 2019 | 2019 Salary |
Lance M. Fritz | $ | 1,100,000 | | | 5 | % | $ | 1,150,000 | | 25P-50P | 2.2% | $1,175,000 |
Robert M. Knight, Jr. | | 589,000 | | | 3 | % | | 604,000 | | 25P-50P | 2.5% | 619,000 |
Rhonda S. Ferguson | | 440,000 | | | 5 | % | | 462,000 | | Below 25P | 5.0% | 485,000 |
Elizabeth F. Whited | | 400,000 | | | 14 | % | | 455,000 | | Below 25P | 2.0% | 464,000 |
Lynden L. Tennison (1) | | 388,000 | | | 10 | % | | 425,000 | | Below 25P | 0.0% | 425,000 |
Cameron A. Scott (2) | | 496,000 | | | (23 | )% | | 380,000 | | Below 25P | 0.0% | 380,000 |
Lance M. Fritz | | | $1,150,000 | | | 2.2% | | | $1,175,000 | | | 25P-50P | | | 2.1% | | | $1,200,000 |
Vincenzo J. Vena | | | (1) | | | — | | | 600,000 | | | Below 25P | | | 3.3% | | | 620,000 |
Robert M. Knight, Jr. | | | 604,000 | | | 2.5% | | | 619,000 | | | 25P-50P | | | 0.0% | | | (2) |
Rhonda S. Ferguson | | | 462,000 | | | 5.0% | | | 485,000 | | | Below 25P | | | 3.1% | | | 500,000 |
Elizabeth F. Whited | | | 455,000 | | | 2.0% | | | 464,000 | | | Below 25P | | | 3.0% | | | 478,000 |
| (1)
| Mr. TennisonVena was elected on January 14, 2019. |
(2)
| Mr. Knight retired on MarchDecember 31, 2019. |
| (2) | Mr. Scott retired on February 28, 2019. |
20182019 Annual Incentive Plan
In February 2018, the Committee adopted a formula-based incentive cash program to replace the prior years’ discretionary annual cash bonus arrangement. Under the new annual incentive plan, eighty
Eighty percent (80%) of the target annual incentive cash bonuses paid to executives, including the NEOs, are based on the attainment
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Elements of Our Executive Compensation Program
of pre-established objective Company financial performance goals, and the remainder (20%) is based on the Company’s performance against business objectives and individual executive performance in key areas such as safety, customer service, resource productivity, maximized franchise, innovation and employee engagement. The financial performance goals were based on operating income (40%) and operating ratio (40%), which are key performance measures in the rail industry.
If the minimum performance thresholds for both operating income and operating ratio are not achieved, then no annual incentive cash bonus is paid to executives. For performance that exceeds target levels, the annual incentive plan payout is capped at 200% of target.
When determining individual annual incentive bonus targets for each of the NEOs, the Committee generally targeted the 50th50th percentile of Target Total Cash Compensation. In light of Mr. Knight’s contributions performance and long tenure with the Company,performance, the Committee recommended his annual incentive bonus target be set above the 75th75th percentile of our Peer Group. These individual annual incentive bonus targets for each of the NEOs were approved by the Committee and then recommended to the Board and approved.
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Elements of Our Executive Compensation Program
2019 Target Total Cash Compensation Versus Peer Group
Name | 2018 Salary | 2018 TARGET Bonus | Total 2018 TARGET tOTAL Cash Comp | vs. Peer Group |
Lance M. Fritz | $ | 1,150,000 | | $ | 2,200,000 | | $ | 3,350,000 | | 50P - 75P |
Robert M. Knight, Jr. | | 604,000 | | | 1,275,000 | | | 1,879,000 | | Above 75P |
Rhonda S. Ferguson | | 462,000 | | | 750,000 | | | 1,212,000 | | 25P - 50P |
Elizabeth F. Whited | | 455,000 | | | 750,000 | | | 1,205,000 | | 25P - 50P |
Lynden L. Tennison (1) | | 425,000 | | | 706,000 | | | 1,131,000 | | 25P - 50P |
Cameron A. Scott (2) | | 380,000 | | | 800,000 | | | 1,180,000 | | 25P - 50P |
Lance M. Fritz | | | $1,175,000 | | | $2,200,000 | | | $3,375,000 | | | 50P - 75P |
Vincenzo J. Vena(1) | | | 600,000 | | | 750,000 | | | 1,350,000 | | | 25P - 50P |
Robert M. Knight, Jr.(2) | | | 619,000 | | | 1,275,000 | | | 1,894,000 | | | Above 75P |
Rhonda S. Ferguson | | | 485,000 | | | 750,000 | | | 1,235,000 | | | 25P - 50P |
Elizabeth F. Whited | | | 464,000 | | | 750,000 | | | 1,214,000 | | | 25P - 50P |
| (1)
| Mr. TennisonVena was elected on January 14, 2019. |
(2)
| Mr. Knight retired on MarchDecember 31, 2019. |
| (2) | Mr. Scott retired on February 28, 2019. |
Formulaic Component
Annual incentive compensation supports the Compensation Committee’s pay-for-performance philosophy and further aligns individual goals with Company goals as set forth in the Company’s annual operating plan. For
2018,2019, the Committee selected Operating Income and Operating Ratio as the key financial metrics to focus on both absolute and relative operating performance. The tables below display the respective weightings of the relevant performance measures and the aggregate actual performance for the annual cash bonus reported for the NEOs for
2018.2018 Performance | Operating income 40% | Operating ratio 40% | Non-formulaic 20% |
Maximum – 200% Payout | $ | 10,225 | | | 60.0 | % | | 200 | % |
Target – 100% Payout | | 8,521 | | | 62.0 | % | | 100 | % |
Threshold – 50% Payout | | 6,817 | | | 64.0 | % | | 50 | % |
2018 Actual | | 8,517 | | | 62.4 | %* | | 25 | % |
Performance Achieved – Weighted Average Payout = 81% | | 100 | % | | 90 | % | | 25 | % |
2019.
Maximum – 200% Payout | | | $10,792 | | | 59.0% | | | 200% |
Target – 100% Payout | | | 9,384 | | | 60.5% | | | 100% |
Threshold – 50% Payout | | | 8,915 | | | 61.0% | | | 50% |
2019 Actual* | | | 8,738** | | | 60.6%** | | | 25% |
Performance Achieved – Weighted Average Payout = 41% | | | 0% | | | 90% | | | 25% |
| *
| The 20182019 annual incentive plan design includes an adjustment ofto operating ratio for the reported fuel expense and fuel revenue from the actual price to the price assumed in the Board approved financial plan. |
| | ACTUAL | | |
Name | 2018 Target bonus | Operating Income 40% | Operating ratio 40% | non-formulaic 20% | 2018 TOTAL ANNUAL INCENTIVE BONUS | 2018 overall payout (as a % OF TARGET) |
Lance M. Fritz | $ | 2,200,000 | | $ | 880,000 | | | 792,000 | | | 109,000 | | $ | 1,781,000 | | | 81 | % |
Robert M. Knight, Jr. | | 1,275,000 | | | 510,000 | | | 459,000 | | | 64,000 | | | 1,033,000 | | | 81 | % |
Rhonda S. Ferguson | | 750,000 | | | 300,000 | | | 270,000 | | | 38,000 | | | 608,000 | | | 81 | % |
Elizabeth F. Whited | | 750,000 | | | 300,000 | | | 270,000 | | | 38,000 | | | 608,000 | | | 81 | % |
Lynden L. Tennison | | 706,000 | | | 282,400 | | | 254,160 | | | 35,440 | | | 572,000 | | | 81 | % |
Cameron A. Scott | | 800,000 | | | 320,000 | | | 288,000 | | | 0 | | | 608,000 | | | 76 | % |
**
| Special transactions or events, such as weather or accounting special charges, that impact operating income by $50 million or more in any year are subject to the Compensation and Benefit’s Committee’s approval for inclusion or exclusion in the adjusted Operating Ratio and Operating Income calculations. In 2019, the Committee made an adjustment to the 2019 Annual Incentive Plan to exclude the effect of the extraordinary weather events. The Committee believes that the adjustment appropriately recognizes the significant productivity and operational improvements management achieved during 2019 through the implementation of Unified Plan 2020. The actual results as reported in the 2019 Annual Report on Form 10-K for the year ended December 31, 2019, for operating income was $8.6 billion, and for operating ratio was 60.6%. |
Lance M. Fritz | | | $2,200,000 | | | $0 | | | 792,000 | | | 110,000 | | | $902,000 | | | 41% |
Vincenzo J. Vena | | | 750,000 | | | — | | | — | | | — | | | 1,125,000 | | | 150%* |
Robert M. Knight, Jr. | | | 1,275,000 | | | 0 | | | 459,000 | | | 64,000 | | | 523,000 | | | 41% |
Rhonda S. Ferguson | | | 750,000 | | | 0 | | | 270,000 | | | 38,000 | | | 308,000 | | | 41% |
Elizabeth F. Whited | | | 750,000 | | | 0 | | | 270,000 | | | 38,000 | | | 308,000 | | | 41% |
*
| The Compensation and Benefits Committee reviewed the critical role and accomplishments of Mr. Vena in the implementation of Unified Plan 2020. Based on Mr. Vena’s performance in leading the Company’s achievement of an historic operating ratio of 60.6%, the Committee recommended, and the Board approved, payment to Mr. Vena of an annual incentive bonus for 2019 of $1,125,000 at 150% of target. |
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In 2018, we revised our Company strategy and focused on its rollout and implementation in 2019. The six value tracks used in our previous strategy live on in our strategy wheel, providing employees a clearer picture of the Company’s strategic intent. The individual strategic elements work together to turn the wheel, driving Union Pacific forward:
Safest and Most Reliable Freight Rail Products and Services. Everything we do must be done safely, or we don’t do it – that’s our promise to each other. We also must be reliable, so customers trust we’ll deliver on our promises. Unified Plan 2020, our new operating plan, accomplishes this by creating an achievable transportation plan customers can count on.
Highly Efficient Operations. Driving down cost and removing waste helps us to be more competitive, enabling us to enter new markets. The faster we turn our assets – whether it’s a locomotive or a freight car – the more we can do with our investment.
Industry-Leading Customer Experience. Continuously improving the customer journey provides higher levels of service and better transparency into customers’ transportation supply chains, helping them win in their markets.
Secure Appropriate Business. Selling products that fit our business model versus developing boutique services builds a consistent, balanced network. We will continue finding solutions customers value, but they also must optimize our network.
Best-in-Industry Cash Returns. Each employee plays a role, from getting price on a contract to finding efficiencies in everyday work. This gives shareholders confidence in our ability to create financial returns, allowing us to invest in and grow our business.
Optimal Investment. Every dollar spent must drive safe, reliable and efficient results. We invest in areas customers are willing to pay for, whether it’s improving car cycle time, updating track infrastructure on vital corridors or developing digital tools that help them plan their business.
Proud and Engaged Workforce. The wheel turns when our employees work toward the same goals. It takes the best employees in the industry to become the best freight railroad in North America – we have that, and there is nothing stopping us from achieving our vision.
As we transform our railroad into the safest, most reliable and most efficient in North America, our values will continue guiding us: Our passion for performance will help us win; our high ethical standards will ensure we don’t win at the expense of any one stakeholder; and teamwork will make sure we win together.
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Based on the Committee’s evaluation of the Company’s achievement of its business objectives and individual executive performance in the key areas identified in our
six-track Value Strategy (as described on pages 46 and 47 of this Compensation Discussion and Analysis),strategy wheel above, the Committee exercised its discretion to award this component at 25% of
target.target for the Named Executive Officers, excluding Mr. Vena. Among other factors, the Committee also
considersconsidered the Company’s financial performance as compared to the Company’s peer group measured by growth in total revenue, operating income, diluted earnings per share from continuing operations (EPS) and ROIC. In addition, the Committee
comparescompared the Company’s total shareholder return with those of the Peer Group.
Long-Term
Equity Incentive Compensation
The components of long-term incentive compensation are:
| | | Performance Stock Units
Performance stock units are payable based on the attainment and certification of average annual ROIC for a three-year period and a relative operating Income Growth Modifier (+/- 25% of the award earned based on the ROIC achieved) compared to the S&P 500 Industrials Index. |
| | | |
| | | Stock Options
Stock option awards become fully exercisable only if the executive remains an employee through a three-year vesting period. One-third of each stock option grant vests each year over the three-year vesting period. |
performance stock units, which are earned based on three-year average ROIC subject to a relative three-year Operating Income Growth modifier, and vest at the end of the three-year performance period;
retention stock units, which vest in full after a four-year period; and
stock options, with an exercise price based on the closing price of our stock on the date of grant and that vest one-third each year over a three-year period.
The Committee generally seeks to award long-term incentives with grant date fair values that range between 50% and 75% of each NEO’s Target Total Direct Compensation making it the largest element of their Total Direct Compensation. In setting the size of long-term incentive awards, the Committee considers the individual performance of the NEO as well as the Target Total Direct Compensation opportunities of similarly situated executives of the Company’s Peer Group. The CEO recommends to the Committee an aggregate value of long-term incentive awards for each of the NEOs (other than himself, a determination reserved for the Committee, taking into account advice from its compensation consultant and the Board’s evaluation of the CEO). The Committee considers these recommendations and determines the final amounts awarded to each NEO. The Committee may vary the mix of each component of equity compensation to some degree depending on Company and individual performance and retention risk regarding an executive.
The long-term incentive awards granted by the Committee in February
20182019 reflected the Committee’s desire to provide long-term incentive compensation to ensure the continued efforts of the NEOs to meet the long-term goals and strategic plans of the Company and to align this element of their compensation with the long-term interests of the Company’s shareholders. The majority of our long-term incentive compensation is performance-based. The annual long-term incentive program grants for the NEOs in
20182019 included the following targeted mix of equity compensation based on grant date fair value:
50%60% performance
stock units, 10% retention stock units and 40% stock options. The long-term incentive awards for the NEOs and a description of the terms of these awards are set forth on pages
6560 and
6661 in the Grants of Plan-Based Awards in Fiscal Year
20182019 Table and accompanying narrative discussion.
In February
2018,2019, the Committee awarded the NEOs,
other than Mr. Vena, performance stock units
(PSUs) that are payable based on the attainment and certification of average annual ROIC, as adjusted, for a three-year period (Performance Period) and a relative Operating Income Growth
(OIG) modifier
(+/-25% of the award earned based on the ROIC achieved) compared to the S&P 500 Industrials
Index.Index, which can increase or decrease payment by up to 25% of the stock units earned under the ROIC performance criteria. Payout of the 2019 performance stock units will continue to be capped at 200% of the target number of stock units. The threshold, target and maximum number of performance stock units that may be earned by each NEO is set forth on page 60 in the Grants of Plan-Based Awards in Fiscal Year 2019 Table.TABLE OF CONTENTS
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We define ROIC as net operating profit after taxes, divided by average invested capital. The Committee may adjust ROIC to reflect the effect of special
or strategic transactions or events, such as excluding the impact of significant gains on sales of real estate, tax adjustments, accounting charges, or reclassifications. The Committee selected ROIC because it is one of our key measurements that
indicateindicates success in making long-term capital investment decisions that improve financial and operational performance and increase shareholder value. In addition, the Board emphasizes ROIC as a key focus area for the Company.
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The ROIC performance criteria isare set with rigorous analysis of current and projected business levels and changes in the economic environment that may impact the Company’s ability to achieve levels of return reported in previous periods
PERFORMANCE PERIOD | ROIC THRESHOLD | ROIC TARGET | ROIC MAXIMUM |
2016 – 2018 | | 11.0 | % | | 13.0 | % | | 14.0 | % |
2017 – 2019 | | 11.0 | % | | 12.5 | % | | 14.0 | % |
2018 – 2020 | | 13.8 | % | | 14.8 | % | | 15.8 | % |
periods.2017 – 2019 | | | 11.0% | | | 12.5% | | | 14.0% |
2018 – 2020 | | | 13.8% | | | 14.8% | | | 15.8% |
2019 – 2021 | | | 15.1% | | | 16.8% | | | 18.1% |
The performance stock units granted in 20162017, 2018 and 20172019 generally vest three years from the date of grant subject to the achievement of the ROIC performance criteria. Performance stock units that are earned during any year
Upon completion of
the Performance Period will be paid out in shares of our common stock at the end of the Performance Period and are not subject to any further performance criteria. At the end of year one of the Performance Period, the executive may earn up to one-third of the target number of performance stock units granted to him or her based on the first year of ROIC performance achieved. At the end of year two, the executive may earn additional performance stock units up to a total of two-thirds of the target number of performance stock units granted to such executive based on the average of the first two years of ROIC performance achieved.During year three of the Performance Period, the executive may earn up to two times the target number of performance stock units (less any units earned in years one and two) granted to that executive based on the average annual ROIC performance achieved over all three years of the program. In addition, to ROIC, the actual number of stock units earned inat the third yearend of the Performance Period will be adjusted up or down by a percentage not to exceed 25% (subject to a maximum of two times the target number of stock units granted) based on the Company’s Operating Income Growth (OIG) over the Performance Period as compared to the OIG of the companies in S&P 500 Industrials Index.
If the Company does not meet the threshold ROIC level
in any year,for the three-year performance period, executives will not earn any performance stock
units in that year. The Company will pay dividend equivalents between the time performance stock units are earned and the payment date.units. The Company does not pay dividend equivalents on unearned performance stock units.
Beginning with
With respect to performance stock units granted in 2017, executives could earn up to one-third of the target number of performance stock units granted to him or her based on each of the first two years of ROIC performance achieved, and dividend equivalents were paid on the earned performance stock units. As described above, this annual vesting feature and the associated dividend equivalents were removed for the performance stock units granted in 2018
the ability to earn stock units annually was removed. Performance stock units will only be earned after the full three-year performance period. Additionally, dividend equivalents will only be paid based on the actual performance achieved at the end of the three-year performance period. For 2018, new ROIC performance targets were set subject to a relative Operating Income Growth modifier, which can increase or decrease payment by up to 25% of the stock units earned. The 2018 grant of performance stock units will continue to be capped at 200%. The threshold, target and
maximum number of performance stock units that may be earned by each NEO is set forth on page 65 in the Grants of Plan-Based Awards in Fiscal Year 2018 Table.2019.
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Since the inception of our long-term performance stock unit awards in 2006, theThe Committee has certified the ROIC results as shown in the graph below.
below for performance years 2010-2019. | *
| See item 7 of Union Pacific’s Annual Report on Form 10-K for the year ended December 31, 2018,2019, for reconciliations to U.S. GAAP. For 2017, the Committee’s ROIC certification included adjustments for the benefits of the Tax Act and the impact of the Company’s workforce reduction program. For 2017-2019, the Committee’s ROIC certification included adjustments for the benefits of the Tax Act. |
In February 2019,2020, the PSUs granted for the 2016-182017-19 performance period were settled at an overall payout of 135%200% of target, based on performance over the three-year performance period against pre-established goals for ROIC (150% of target payout), adjusted by ourROIC. Our relative OIG was in the 58th percentile so the modifier (-10% basedhad no effect on the 37th percentile).
final payout.
Performance stock units earned under
each of the
2016, 2017
and 2018 grants for each of the NEOs are included as Earned Performance Stock Units in the Stock Awards column of the Outstanding Equity Awards at
20182019 Fiscal Year-End Table on page
6762.
The table below summarizes how the performance stock units granted in
2016, 2017
and 2018 were earned,
to date.Performance Period | Average ROIC | Percent of Target Achieved to Date | Percent of Target Earned (1) |
2016 – 2018 | | 13.5 | % | | 135 | % | 135% of the target number of stock units |
2017 – 2019 | | 14.0 | % | | 200 | % | 200% of 2/3 of the target number of stock units |
2018 – 2020 | | 15.0 | % | | 130 | % | No stock units earned until the end of the performance period |
and how the performance stock units granted in 2018 and 2019 are tracking as of the end of 2019.2017 – 2019 | | | 14.1% | | | 200% | | | 200% of the target number of stock units |
2018 – 2020 | | | 15.1% | | | 135% | | | No stock units earned until the end of the performance period |
2019 – 2021 | | | 15.0% | | | 0% | | | No stock units earned until the end of the performance period |
| (1) | Years one and two of each Performance Period are capped at 1/3 and 2/3, respectively, of the target number of stock units granted and are subject to continued employment throughout the Performance Period. Amounts earned at the conclusion of the Performance Period may be different depending on future years’ performance. |
The table below shows the application of the OIG modifier based on the Company’s Operating Income Growth percentile.
0% - 10% | | | -25% |
11% - 20% | | | -20% |
21% - 30% | | | -15% |
31% - 40% | | | -10% |
41% - 60% | | | No Effect |
61% - 70% | | | +10% |
71% - 80% | | | +15% |
81% - 90% | | | +20% |
91% - 100% | | | +25% |
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Retention Stock Units
Retention stock unit awards typically provide for vesting in full after a four-year period of continued service. Executives holding retention stock units have the right to receive a cash payment equivalent to dividends in such amounts as dividends are paid on our common stock. To the extent the Company believes it is permissible by law, the Company continues to delay payment of retention stock units granted on or before November 2, 2017 to a NEO who is also a “covered employee” for purposes of Section 162(m) of the Internal Revenue Code (Code) if the Company anticipates that such payment, if made, would not be deductible due to the application of Section 162(m) of the Code. In that case, payment is delayed until the first taxable year in which the Company anticipates its tax deduction would no longer be limited by Section 162(m) of the Code.
Under the recent Tax Act, Section 162(m) of the Code was amended to expand the individuals considered covered employees and repeal the performance-based compensation exemption for taxable years beginning after December 31, 2017. Accordingly, compensation (including performance-based compensation) paid to a covered employee in excess of $1 million will not be deductible unless it qualifies for transition relief available for certain arrangements in place on November 2, 2017.
At this time, the Company does not anticipate delaying payment for retention stock units or performance-based compensation granted after November 2, 2017 that are subject to Section 162(m) of the Code. The Company will continue to evaluate this practice in response to any new IRS guidance.
Stock Options
Stock option awards become fully exercisable only if the executive remains an employee through a three-year vesting period. One-third of each stock option grant vests each year over the three-year vesting period.
2019 Long-Term Incentive Awards
2020 Compensation Decisions
In February 2019,2020, the Compensation and Benefits Committee reviewed and consideredapproved the Company’s executionfollowing compensation changes for the NEOs and the Board of its overall strategiesDirectors reviewed and its safety, service,approved Mr. Fritz’s compensation.
The following table summarizes adjustments made to CEO and
2018 financial performance, as the primary factor in determining each NEO’s annual long-term incentive awards. In addition, the Committee took into consideration each NEO’s strategic responsibilities, performance and accomplishments during the year, tenure, and award levels relative to the 2018 Peer Group. The Committee awarded eachother NEO
the long-term incentive awards as shown in the table below.2019 Long-Term Incentive Awards
| Total Grant Date Fair Value of 2019 LTI Award | Stock Options (40% of LTI Award) | Performance Stock Units |
Name | Threshold | Target (60% of LTI Award) | Maximum |
Lance M. Fritz | $ | 9,750,000 | | | 128,415 | | | 18,104 | | | 36,208 | | | 72,416 | |
Robert M. Knight, Jr. | | 3,400,000 | | | 44,781 | | | 6,314 | | | 12,627 | | | 25,254 | |
Rhonda S. Ferguson | | 1,500,000 | | | 19,758 | | | 2,786 | | | 5,571 | | | 11,142 | |
Elizabeth F. Whited | | 1,500,000 | | | 19,758 | | | 2,786 | | | 5,571 | | | 11,142 | |
Lynden L. Tennison (1) | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Cameron A. Scott (2) | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
compensation for 2020.
Lance M. Fritz | | | 2.1% | | | No change | | | +$750,000 |
Vincenzo J. Vena (1) | | | 3.3% | | | +$100,000 | | | +$4,000,000 |
Robert M. Knight, Jr. (2) | | | 0.0% | | | N/A | | | N/A |
Rhonda S. Ferguson | | | 3.1% | | | No change | | | No change |
Elizabeth F. Whited | | | 3.0% | | | No change | | | No change |
(1)
| On March 19, 2020, the Compensation and Benefits Committee recommended, and the Board approved, a $4,000,000 grant subject to vesting over two years, consisting of 40% stock options and 60% performance stock units. |
(2)
| Mr. TennisonKnight retired on MarchDecember 31, 2019. |
| (2) | Mr. Scott retired on February 28, 2019. |
Other CompensationPerquisites Other Compensation
|
Perquisites
The Committee reviews perquisites periodically for both appropriateness and effectiveness. Key executives, including the NEOs, receive tax and financial counseling services and personal excess liability coverage. In 2016, the Committee eliminated the requirement for the CEO to use Company aircraft for all air travel and set
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a limitation for personal flights at $90,000 for the CEO and $45,000 for the other NEOs. Executives will pay for any personal flights beyond these limits. Income is imputed to the CEO and NEOs for personal travel below the limits and tax gross-ups are not provided. All use of Company aircraft must be approved in advance by the CEO or a specifically authorized delegate.
designate.
The value of perquisites provided to the NEOs by the Company is not a significant portion of
eachany of the NEOs’ compensation on an annual basis. Due to the relatively low cost to the Company of these perquisites, combined with the policy regarding use of Company aircraft, the Committee does not consider perquisites in its analyses of Total Direct Compensation for the CEO and the other NEOs.
The Committee, pursuant to its charter, is responsible for oversight of our deferred compensation arrangements. Management and the Committee believe that deferred compensation arrangements are important benefits that contribute to the Company’s competitive compensation arrangements and help attract and retain executives. The Company’s deferred compensation programs allow for elective deferrals of (i) salary, (ii) bonus (iii) performance stock units, and (iv) retention stock units, which accrue earnings during the deferral period as described on page
7368. These deferrals are not funded and there are no mechanisms in place (such as insurance or trusts) to protect the executives from any inability of the Company to pay these amounts in the future. More detailed descriptions of the features of our non-qualified deferred compensation plans begin on page
7268. In addition to these non-qualified deferred compensation benefits, the Company allows its executives to participate in its tax qualified 401(k) plan on terms and conditions similar to the Company’s other employees.
Pension Plan and Supplemental Pension Plan
The Company sponsors a tax-qualified defined benefit Pension Plan and a non-qualified excess Supplemental Pension Plan. Management and the Committee believe that the defined benefit Pension Plan and the Supplemental Pension Plan (with respect to our executives, including the NEOs) provide employees with a competitive retirement benefit. The Company offers the Supplemental Pension Plan to allow executives to receive pension benefits for compensation and benefits that exceed government imposed limits applicable to
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defined benefit plans and to allow for the inclusion of compensation that has been deferred, which cannot be included as compensation under the defined benefit Pension Plan. Benefit amounts are based on the employee’s years of service, salary, bonus and age. More detailed descriptions of the Pension Plan and Supplemental Pension Plan are set forth on pages
7065 and
71.66.Other Policies and Considerations
|
Other Policies and ConsiderationsChange-in-Control Arrangements
The NEOs do not have individual severance agreements or employment agreements with the Company. In November 2000, the Board adopted the Union Pacific Corporation Key Employee Continuity Plan (the Continuity Plan). The purpose of the Continuity Plan is to assure the smooth transition of management and effective operation of the Company in the event of a change-in-control by providing (i) sufficient economic security to allow key executives to focus on overall shareholder value without concern about personal financial interests and (ii) severance benefits in the event their employment with the Company is terminated within two years following a change-in-control.
The Continuity Plan provides severance benefits to certain senior level executives, including the NEOs, in the event (i) a change-in-control occurs and (ii) the covered executive is involuntarily terminated or constructively discharged within two years following the change-in-control. This two-step requirement will allow the new controlling party to retain certain executives and terminate others with the obligation to provide the benefits set forth in the Continuity Plan. Severance benefits are the same for all covered executives, except for the multiple used to determine an executive’s lump-sum severance payment. The lump-sum severance payment is equal to three times the sum of base salary plus the average of the annual bonus payments earned in the three most recent calendar years for Mr. Fritz, two times this sum for each of Mr.
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Ms. Ferguson and Ms. Whited and one and a half times this sum forWhited. Mr. Scott.Knight is no longer subject to severance benefits after December 31, 2019 due to his retirement. The Committee determined these multiples based upon competitive practices at the time the plan was adopted. At its February 2014 meeting, the Committee recommended, and the Board approved, an amendment of the Continuity Plan to remove the excise tax gross-up. As a result, none of the Company’s executives, including the NEOs, are eligible to receive any excise tax gross-up on any severance payment received under the Continuity Plan.
In September 2003, the Board adopted the Union Pacific Corporation Policy Regarding Shareholder Approval of Future Severance Agreements (Severance Policy). Under this Severance Policy, the Company agreed not to enter into a future severance agreement with a senior executive that provides for benefits in an amount generally exceeding 2.99 times salary plus bonus unless such agreement is approved by a vote of our shareholders.
Payments and certain severance benefits for the NEOs upon a change-in-control, as well as a description of the Continuity Plan are set forth on pages
7570 through
78.74.
Deductibility of Grandfathered
CompensationDue to the amendment to Section 162(m) of the Code noted above, compensation paid to covered employees in excess of $1 million will not be deductible unless it qualifies for transition relief available for certain arrangements in place on November 2, 2017 (“Grandfathered Compensation”).
For Grandfathered Compensation intended to satisfy the requirements of Section 162(m) of the Code for performance based compensation, the Committee has, where it deemed appropriate, taken steps intended to preserve the deductibility of said compensation to the CEO and certain executive officers.
In order to allow for deductibility under Section 162(m) of the Code, annual bonus and performance stock unit awards were subject to operating income criteria (as defined under the programs) and, together with stock options, were granted under a plan that was intended to satisfy the requirements of Section 162(m) of the Code for performance-based compensation. In order to allow for tax deductibility of the annual cash bonus, the Company’s shareholder-approved bonus plan provides that the maximum amount payable to the CEO with respect to any year may not exceed 0.25% of Operating Income (as defined in the plan) for that fiscal year and may not exceed 0.15% of Operating Income for that fiscal year in the case of any other executive. However, because there are uncertainties as to the application and interpretation of Section 162(m) of the Code and the transition relief described above, it is possible that the Company’s deductions may be challenged or disallowed. Accordingly, there is no certainty that elements of any Grandfathered Compensation discussed in this Proxy Statement will in fact be deductible by the Company.
Further, the Committee has always retained discretion to award compensation that is not deductible under Section 162(m) of the Code. Compensation that does not qualify for the transition relief, such as salary, taxable perquisites and other taxable compensation for the CEO and certain other NEOs, is deductible up to $1.0 million in any year.
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Compensation and Benefits Committee Report The Committee reviewed and discussed with management the CD&A and, based on that review and discussion, the Committee recommended to the Board of Directors that the CD&A be included in the Company’s
20192020 Proxy Statement and Annual Report on Form 10-K for the year ended December 31,
2018.2019. | The Compensation and Benefits Committee
|
| | Erroll B. Davis, Jr., Chair
|
| | Andrew H. Card, Jr.
|
| | William J. DeLaney
|
| | David B. Dillon
|
| | Bhavesh V. Patel
|
| | The Compensation and Benefits Committee Erroll B. Davis, Jr., Chair Andrew H. Card, Jr. William J. DeLaney David B. Dillon Bhavesh V. Patel Jose H. Villarreal |
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Summary Compensation Table
|
TableThe following table provides a summary of compensation awarded to, earned by or paid to the NEOs, including salary, bonus, the value of stock awards and option awards and other compensation for
2019, 2018
2017 and
2016.2017.
Name and Principal Position | Year | Salary | Bonus | Stock Awards (a) | Option Awards (b) | non-equity incentive plan compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings (c) | All Other Compensation (d) | Total Compensation (e) |
Lance M. Fritz Chairman, President & CEO | | 2018 | | $ | 1,141,667 | | | 0 | | $ | 5,850,190 | | $ | 3,900,049 | | | 1,781,000 | | $ | 1,098,926 | | $ | 115,121 | | $ | 13,886,920 | |
| 2017 | | | 1,083,333 | | | 2,100,000 | | | 4,800,280 | | | 3,200,000 | | | 0 | | | 2,491,149 | | | 119,468 | | | 13,794,237 | |
| 2016 | | | 1,000,000 | | | 1,850,000 | | | 4,200,120 | | | 2,800,032 | | | 0 | | | 1,686,329 | | | 106,656 | | | 11,643,137 | |
Robert M. Knight, Jr. EVP & Chief Financial Officer | | 2018 | | | 601,500 | | | 0 | | | 2,040,337 | | | 1,360,034 | | | 1,033,000 | | | —(h | ) | | 35,539 | | | 5,070,410 | |
| 2017 | | | 586,667 | | | 1,500,000 | | | 1,860,367 | | | 1,240,041 | | | 0 | | | 2,044,815 | | | 65,779 | | | 7,297,669 | |
| 2016 | | | 575,000 | | | 1,275,000 | | | 1,800,095 | | | 1,200,024 | | | 0 | | | 957,309 | | | 110,813 | | | 5,918,241 | |
Rhonda S. Ferguson EVP Chief Legal Officer & Corp Secretary (f) | | 2018 | | | 458,333 | | | 0 | | | 900,365 | | | 600,048 | | | 608,000 | | | 0 | | | 51,175 | | | 2,617,921 | |
| 2017 | | | 433,333 | | | 825,000 | | | 600,236 | | | 400,048 | | | 0 | | | 0 | | | 31,822 | | | 2,290,439 | |
| 2016 | | | 200,000 | | | 720,000 | | | 400,017 | | | 0 | | | 0 | | | 0 | | | 59,746 | | | 1,379,763 | |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | 2018 | | | 438,958 | | | 0 | | | 900,365 | | | 600,048 | | | 608,000 | | | 653,157 | | | 19,007 | | | 3,219,535 | |
| 2017 | | | 396,500 | | | 775,000 | | | 450,016 | | | 300,009 | | | 0 | | | 683,617 | | | 15,922 | | | 2,621,064 | |
| 2016 | | | 288,333 | | | 285,000 | | | 342,181 | | | 227,995 | | | 0 | | | 277,513 | | | 9,713 | | | 1,430,735 | |
Lynden L. Tennison Retired EVP & Chief Strategy Officer | | 2018 | | | 407,583 | | | 0 | | | 720,192 | | | 480,012 | | | 572,000 | | | —(h | ) | | 13,495 | | | 2,193,282 | |
| 2017 | | | 386,167 | | | 675,000 | | | 720,090 | | | 480,004 | | | 0 | | | 906,650 | | | 12,806 | | | 3,180,717 | |
| 2016 | | | 377,000 | | | 640,000 | | | 690,177 | | | 460,008 | | | 0 | | | 430,373 | | | 9,888 | | | 2,607,447 | |
Cameron A. Scott Retired Vice President (g) | | 2018 | | | 321,458 | | | 0 | | | 1,200,154 | | | 800,020 | | | 608,000 | | | 129,677 | | | 25,304 | | | 3,084,613 | |
| 2017 | | | 490,667 | | | 885,000 | | | 960,335 | | | 640,023 | | | 0 | | | 1,653,325 | | | 11,652 | | | 4,641,002 | |
| 2016 | | | 457,500 | | | 815,000 | | | 900,198 | | | 600,029 | | | 0 | | | 1,211,403 | | | 17,901 | | | 4,002,031 | |
Lance M. Fritz Chairman, President & CEO | | | 2019 | | | $1,170,835 | | | $0 | | | $5,850,127 | | | $3,900,028 | | | $902,000 | | | $3,053,874 | | | $141,536 | | | $15,018,400 |
| 2018 | | | 1,141,667 | | | 0 | | | 5,850,190 | | | 3,900,049 | | | 1,781,000 | | | 1,098,926 | | | 115,121 | | | 13,886,920 |
| 2017 | | | 1,083,333 | | | 2,100,000 | | | 4,800,280 | | | 3,200,000 | | | 0 | | | 2,491,149 | | | 1 19,468 | | | 13,794,237 |
Vincenzo J. Vena Chief Operating Officer (f) | | | 2019 | | | 579,032 | | | 0 | | | 2,400,068 | | | 1,599,991 | | | 1,125,000 | | | 0 | | | 96,936 | | | 5,801,027 |
Robert M. Knight, Jr. Retired EVP & Chief Financial Officer | | | 2019 | | | 616,500 | | | 0 | | | 2,040,144 | | | 1,360,021 | | | 523,000 | | | 3,031,325 | | | 47,697 | | | 7,618,687 |
| 2018 | | | 601,500 | | | 0 | | | 2,040,337 | | | 1,360,034 | | | 1,033,000 | | | —(e) | | | 35,539 | | | 5,070,410 |
| 2017 | | | 586,667 | | | 1,500,000 | | | 1,860,367 | | | 1,240,041 | | | 0 | | | 2,044,815 | | | 65,779 | | | 7,297,669 |
Rhonda S. Ferguson EVP Chief Legal Officer & Corp Secretary | | | 2019 | | | 481,167 | | | 0 | | | 900,106 | | | 600,060 | | | 308,000 | | | 0 | | | 25,924 | | | 2,315,257 |
| 2018 | | | 458,333 | | | 0 | | | 900,365 | | | 600,048 | | | 608,000 | | | 0 | | | 51,175 | | | 2,617,921 |
| 2017 | | | 433,333 | | | 825,000 | | | 600,236 | | | 400,048 | | | 0 | | | 0 | | | 31,822 | | | 2,290,439 |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | | 2019 | | | 462,500 | | | 0 | | | 900,106 | | | 600,060 | | | 308,000 | | | 1,994,999 | | | 16,586 | | | 4,282,251 |
| 2018 | | | 438,958 | | | 0 | | | 900,365 | | | 600,048 | | | 608,000 | | | 653,157 | | | 19,007 | | | 3,219,535 |
| 2017 | | | 396,500 | | | 775,000 | | | 450,016 | | | 300,009 | | | 0 | | | 683,617 | | | 15,922 | | | 2,621,064 |
(a)
| (a) | Amounts reported in the Stock Awards column reflect grant date fair value as calculated in accordance with FASB ASC Topic 718, including performance stock units, which are valued based on target performance achieved. Refer to the Grants of Plan-Based Awards in Fiscal Year 20182019 Table on page 6560 for the separate grant date fair values of the retention stock units and performance stock units granted in 2018.2019. The grant date fair value is calculated on the number of stock units and performance stock units at target multiplied by the closing stock price on the date of grant. Dividend equivalents that accrue or are payable on retention stock units and earned performance stock units are reflected in the grant date fair value of such awards and, therefore, pursuant to SEC rules, are not separately reported in the Summary Compensation Table when actually paid to the NEOs. The maximum value of performance stock units for 20182019 for Mr. Fritz is $9,750,317,$11,700,253, for Mr. Vena is $4,800,137, for Mr. Knight is $3,400,437,$4,080,289, for Ms. Ferguson $1,500,567,$1,800,213, and for Ms. Whited is $1,500,567, for Mr. Tennison is $1,200,154 and for Mr. Scott is $2,000,257.$1,800,213. |
| (b)
| Amounts reported in the Option Awards column reflect grant date fair value as calculated in accordance with FASB ASC Topic 718. The following table shows the assumptions used to calculate the grant date fair value of Option Awards. |
| 2018 | 2017 | 2016 |
Risk-free interest rate | | 2.58 | % | | 1.97 | % | | 1.25 | % |
Dividend yield | | 2.3 | % | | 2.3 | % | | 2.9 | % |
Expected life (years) | | 5.3 | | | 5.3 | | | 5.1 | |
Volatility | | 21.09 | % | | 21.73 | % | | 23.22 | % |
Grant date fair value per option of options granted | $ | 21.70 | | $ | 18.19 | | $ | 11.36 | |
Risk-free interest rate | | | 2.47% | | | 2.53% | | | 2.58% | | | 1.97% |
Dividend yield | | | 2.18% | | | 2.08% | | | 2.3% | | | 2.3% |
Expected life (years) | | | 5.2 | | | 5.1 | | | 5.3 | | | 5.3 |
Volatility | | | 22.70% | | | 22.77% | | | 21.09% | | | 21.73% |
Grant date fair value per option of options granted | | | $30.37 | | | $29.38 | | | $21.70 | | | $18.19 |
| (c)
| The amounts reported are the aggregate change in the actuarial present value of the accumulated benefit under the Company’s Pension Plan and Supplemental Pension Plan. The pension values fluctuate due to changes in the discount rate, discount period, and the value of the accrued annual pension benefit for each NEO. If the discount rate and discount period assumptions had not changed, the increase in the present value of the accrued annual pension benefit would have been $515,058 for Mr. Fritz, $234,885 for Mr. Knight and $799,171 for Ms. Whited. These assumption changes have no impact on the actual pension benefits payable under the Company’s defined benefit pension plans. |
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assumptions had not changed, the increase in the present value of the accrued annual pension benefit would have been $1,032,142 for Mr. Fritz, $260,259 for Mr. Knight, $1,030,122 for Ms. Whited, $221,760 for Mr. Tennison and $1,284,813 for Mr. Scott. These assumption changes have no impact on the actual pension benefits payable under the Company’s defined benefit pension plans.
| (d)
| The following table provides a summary of the All Other Compensation column that includes all perquisites. |
Summary of All Other Compensation
| | Perquisites | | | | |
Name and Principal Position | Year | Use of Corporate Assets (x) | Tax and Financial Counseling Services | Excess Liability Premium | Tax Reimburse- ments (y) | Company- Matched Thrift Plan Contributions | Relocation (z) | Total All Other Compensation |
Lance M. Fritz Chairman, President & CEO | | 2018 | | $ | 64,604 | | $ | 15,000 | | $ | 1,267 | | $ | 0 | | $ | 34,250 | | $ | 0 | | $ | 115,121 | |
| 2017 | | | 70,268 | | | 12,026 | | | 1,221 | | | 3,453 | | | 32,500 | | | 0 | | | 119,468 | |
| 2016 | | | 63,753 | | | 3,500 | | | 1,067 | | | 8,336 | | | 30,000 | | | 0 | | | 106,656 | |
Robert M. Knight, Jr. EVP & Chief Financial Officer | | 2018 | | | 0 | | | 15,000 | | | 1,267 | | | 1,227 | | | 18,045 | | | 0 | | | 35,539 | |
| 2017 | | | 10,738 | | | 15,000 | | | 1,221 | | | 21,220 | | | 17,600 | | | 0 | | | 65,779 | |
| 2016 | | | 9,170 | | | 15,000 | | | 1,067 | | | 68,326 | | | 17,250 | | | 0 | | | 110,813 | |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary (f) | | 2018 | | | 23,018 | | | 13,140 | | | 1,267 | | | 0 | | | 13,750 | | | 0 | | | 51,175 | |
| 2017 | | | 4,966 | | | 12,635 | | | 1,221 | | | 0 | | | 13,000 | | | 0 | | | 31,822 | |
| 2016 | | | 8,360 | | | 9,878 | | | 0 | | | 0 | | | 0 | | | 41,508 | | | 59,746 | |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | 2018 | | | 0 | | | 4,569 | | | 1,267 | | | 0 | | | 13,171 | | | 0 | | | 19,007 | |
| 2017 | | | 0 | | | 3,352 | | | 675 | | | 0 | | | 11,895 | | | 0 | | | 15,922 | |
| 2016 | | | 0 | | | 1,200 | | | 563 | | | 0 | | | 7,950 | | | 0 | | | 9,713 | |
Lynden L. Tennison Retired EVP & Chief Strategy Officer (g) | | 2018 | | | 0 | | | 0 | | | 1,267 | | | 0 | | | 12,228 | | | 0 | | | 13,495 | |
| 2017 | | | 0 | | | 0 | | | 1,221 | | | 0 | | | 11,585 | | | 0 | | | 12,806 | |
| 2016 | | | 871 | | | 0 | | | 1,067 | | | 0 | | | 7,950 | | | 0 | | | 9,888 | |
Cameron A. Scott Retired Vice President (g) | | 2018 | | | 15,012 | | | 775 | | | 1,267 | | | 0 | | | 8,250 | | | 0 | | | 25,304 | |
| 2017 | | | 0 | | | 4,651 | | | 1,221 | | | 0 | | | 5,780 | | | 0 | | | 11,652 | |
| 2016 | | | 11,229 | | | 0 | | | 1,067 | | | 0 | | | 5,605 | | | 0 | | | 17,901 | |
Lance M. Fritz Chairman, President & CEO | | | 2019 | | | $90,000 | | | $15,000 | | | $1,411 | | | $0 | | | $35,125 | | | $0 | | | $141,536 |
| 2018 | | | 64,604 | | | 15,000 | | | 1,267 | | | 0 | | | 34,250 | | | 0 | | | 115,121 |
| 2017 | | | 70,268 | | | 12,026 | | | 1,221 | | | 3,453 | | | 32,500 | | | 0 | | | 119,468 |
Vincenzo J. Vena Chief Operating Officer | | | 2019 | | | 16,391 | | | 15,000 | | | 705 | | | 0 | | | 15,058 | | | 49,782 | | | 96,936 |
Robert M. Knight, Jr. Retired EVP & Chief Financial Officer | | | 2019 | | | 12,791 | | | 15,000 | | | 1,411 | | | 0 | | | 18,495 | | | 0 | | | 47,697 |
| 2018 | | | 0 | | | 15,000 | | | 1,267 | | | 1,227 | | | 18,045 | | | 0 | | | 35,539 |
| 2017 | | | 10,738 | | | 15,000 | | | 1,221 | | | 21,220 | | | 17,600 | | | 0 | | | 65,779 |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary | | | 2019 | | | 2,448 | | | 13,665 | | | 1,411 | | | 0 | | | 8,400 | | | 0 | | | 25,924 |
| 2018 | | | 23,018 | | | 13,140 | | | 1,267 | | | 0 | | | 13,750 | | | 0 | | | 51,175 |
| 2017 | | | 4,966 | | | 12,635 | | | 1,221 | | | 0 | | | 13,000 | | | 0 | | | 31,822 |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | | 2019 | | | 0 | | | 1,300 | | | 1,411 | | | 0 | | | 13,875 | | | 0 | | | 16,586 |
| 2018 | | | 0 | | | 4,569 | | | 1,267 | | | 0 | | | 13,171 | | | 0 | | | 19,007 |
| 2017 | | | 0 | | | 3,352 | | | 675 | | | 0 | | | 11,895 | | | 0 | | | 15,922 |
| (x)
| The aggregate incremental cost for use of corporate aircraft is computed by multiplying the variable cost per air mile by the number of miles used for travel other than for Company business (including empty plane miles). The variable cost per air mile is the cost incurred for flying the plane divided by the number of miles flown. Costs may include jet fuel, catering, or pilot personal expenses. |
| (y)
| The Company reimburses employees for certain nonresident state income taxes because of their travel on Company business. The reimbursement covers only the incremental cost of these nonresident taxes. The amounts shown in the table reflect additional federal and state taxes paid for the applicable executive. The Company does not consider this a perquisite and does not gross-up or pay any state income taxes that the employees incur in their normal work locations. |
| (z)
| In 2016, Ms. Ferguson2019, Mr. Vena relocated to Omaha, Nebraska from Solon, Ohio.Scottsdale, Arizona. The Company’s relocation package elements include monetary allowances and moving services to help employees relocate. The packages are designed to meet the business needs of the Company and the personal needs of employees and their families. Relocation packages apply to all nonagreement employees, based on set criteria such as distance and duration of the assignment, destination for the assignment, family size, and other needs as applicable. |
| (e) | For comparison purposes, refer to the 2018 Total Direct Compensation Versus Peer Group Table on page 49, which provides a summary of the total compensation approved by the Committee for 2018. |
| (f)
| The amount reported in the Bonus column in 2016 includes a signing bonus in the amount of $300,000. |
| (g) | Mr. Tennison retired on March 31, 2019. Mr. Scott was Executive Vice President, Chief Operating Officer until August 15, 2018. Mr. Scott remained at the Company as Vice President until his retirement on February 28, 2019. |
| (h) | The2018 change in pension value for Mr. Knight was a negative $582,757, and for Mr. Tennison was a negative $157,351.$582,757. |
(f)
| Mr. Vena was elected on January 14, 2019. |
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Executive Compensation
Grants of Plan-Based Awards in Fiscal Year 2019 Grants of Plan-Based Awards in Fiscal Year 2018
|
The following table sets forth additional information concerning Stock Awards and Option Awards reported in the Summary Compensation Table as part of the NEOs’ compensation for 2018.
Name and Principal Position | Grant Date | Award Type | Estimated Future Payouts Under non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards (a) | Grant Date Fair Value of Stock and Option Awards (b) |
Threshold | Target | Maximum | Threshold | Target | Maximum |
Lance M. Fritz Chairman, President & CEO | | 2/8/2018 | | Performance Stock Units | | | | | | | | | | | 19,523 | | | 39,045 | | | 78,090 | | | | | | | | | | | $ | 4,875,159 | |
| 2/8/2018 | | Retention Stock Units | | | | | | | | | | | | | | | | | | | | 7,809 | | | | | | | | | 975,031 | |
| 2/8/2018 | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | 179,739 | | $ | 124.86 | | | 3,900,049 | |
| | | | $ | 1,100,000 | | $ | 2,200,000 | | $ | 4,400,000 | | | | | | | | | | | | | | | | | | | | | | |
Robert M. Knight, Jr. EVP & Chief Financial Officer | | 2/8/2018 | | Performance Stock Units | | | | | | | | | | | 6,809 | | | 13,617 | | | 27,234 | | | | | | | | | | | | 1,700,219 | |
| 2/8/2018 | | Retention Stock Units | | | | | | | | | | | | | | | | | | | | 2,724 | | | | | | | | | 340,118 | |
| 2/8/2018 | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | 62,679 | | $ | 124.86 | | | 1,360,034 | |
| | | | | 637,000 | | | 1,275,000 | | | 2,550,000 | | | | | | | | | | | | | | | | | | | | | | |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary | | 2/8/2018 | | Performance Stock Units | | | | | | | | | | | 3,005 | | | 6,009 | | | 12,018 | | | | | | | | | | | | 750,284 | |
| 2/8/2018 | | Retention Stock Units | | | | | | | | | | | | | | | | | | | | 1,202 | | | | | | | | | 150,081 | |
| 2/8/2018 | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | 27,654 | | $ | 124.86 | | | 600,048 | |
| | | | | 375,000 | | | 750,000 | | | 1,500,000 | | | | | | | | | | | | | | | | | | | | | | |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | 2/8/2018 | | Performance Stock Units | | | | | | | | | | | 3,005 | | | 6,009 | | | 12,018 | | | | | | | | | | | | 750,284 | |
| 2/8/2018 | | Retention Stock Units | | | | | | | | | | | | | | | | | | | | 1,202 | | | | | | | | | 150,081 | |
| 2/8/2018 | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | 27,654 | | $ | 124.86 | | | 600,048 | |
| | | | | 375,000 | | | 750,000 | | | 1,500,000 | | | | | | | | | | | | | | | | | | | | | | |
Lynden L. Tennison Retired EVP & Chief Strategy Officer | | 2/8/2018 | | Performance Stock Units | | | | | | | | | | | 2,403 | | | 4,806 | | | 9,612 | | | | | | | | | | | | 600,077 | |
| 2/8/2018 | | Retention Stock Units | | | | | | | | | | | | | | | | | | | | 962 | | | | | | | | | 120,115 | |
| 2/8/2018 | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | 22,122 | | $ | 124.86 | | | 480,012 | |
| | | | | 353,000 | | | 706,000 | | | 1,412,000 | | | | | | | | | | | | | | | | | | | | | | |
Cameron A. Scott Retired Vice President | | 2/8/2018 | | Performance Stock Units | | | | | | | | | | | 4,005 | | | 8,010 | | | 16,020 | | | | | | | | | | | | 1,000,129 | |
| 2/8/2018 | | Retention Stock Units | | | | | | | | | | | | | | | | | | | | 1,602 | | | | | | | | | 200,025 | |
| 2/8/2018 | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | 36,870 | | $ | 124.86 | | | 800,020 | |
| | | | | 400,000 | | | 800,000 | | | 1,600,000 | | | | | | | | | | | | | | | | | | | | | | |
2019.
Lance M. Fritz Chairman, President & CEO | | | 2/7/2019 | | | Performance Stock Units | | | | | | | | | | | | 18,104 | | | 36,208 | | | 72,416 | | | | | | | | | | | | $5,850,127 |
| 2/7/2019 | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | 128,415 | | | $161.57 | | | 3,900,028 |
| | | | | | | $1,100,000 | | | $2,200,000 | | | $4,400,000 | | | | | | | | | | | | | | | | | | | | | |
Vincenzo J. Vena Chief Operating Officer (c) | | | 1/14/2019 | | | Performance Stock Units | | | | | | | | | | | | 7,798 | | | 15,596 | | | 31,192 | | | | | | | | | | | | 2,400,068 |
| 1/14/2019 | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | 54,450 | | | $153.89 | | | 1,599,901 |
| | | | | | | 375,000 | | | 750,000 | | | 1,500,000 | | | | | | | | | | | | | | | | | | | | | |
Robert M. Knight, Jr. Retired EVP & Chief Financial Officer | | | 2/7/2019 | | | Performance Stock Units | | | | | | | | | | | | 6,314 | | | 12,627 | | | 25,254 | | | | | | | | | | | | 2,040,144 |
| 2/7/2019 | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | 44,781 | | | $161.57 | | | 1,360,021 |
| | | | | | | 637,500 | | | 1,275,000 | | | 2,550,000 | | | | | | | | | | | | | | | | | | | | | |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary | | | 2/7/2019 | | | Performance Stock Units | | | | | | | | | | | | 2,786 | | | 5,571 | | | 11,142 | | | | | | | | | | | | 900,106 |
| 2/7/2019 | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | 19,758 | | | $161.57 | | | 600,060 |
| | | | | | | 375,000 | | | 750,000 | | | 1,500,000 | | | | | | | | | | | | | | | | | | | | | |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | | 2/7/2019 | | | Performance Stock Units | | | | | | | | | | | | 2,786 | | | 5,571 | | | 11,142 | | | | | | | | | | | | 900,106 |
| 2/7/2019 | | | Stock Options | | | | | | | | | | | | | | | | | | | | | | | | 19,758 | | | $161.57 | | | 600,060 |
| | | | | | | 375,000 | | | 750,000 | | | 1,500,000 | | | | | | | | | | | | | | | | | | | | | |
| (a)
| The Exercise Price is the closing price of our common stock on February 8, 2018,7, 2019, the date of grant. |
(b)
| (b) | Amounts reported reflect grant date fair value as calculated in accordance with FASB ASC Topic 718. Performance Stock Units are valued based on target performance achieved. Refer to Footnote (b) to the Summary Compensation Table on page 6358 for the assumptions made in calculating the grant date fair value of Stock Options. |
(c)
| Mr. Vena received a $4,000,000 equity grant consisting of 60% performance stock units and 40% stock options, each with a two year vesting period, prorated and payable annually based on the Company’s operating income and operating ratio. |
TABLE OF CONTENTS
Executive Compensation
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
|
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards TableAnnual bonuses are awarded under the Executive Incentive Plan, which allows the Committee to establish performance objectives annually in order to adjust to the changing business climate; provided that annual bonuses may not exceed 0.25% of operating income for the CEO or 0.15% of operating income for each other “covered employee” who is subject to Section 162(m) of the Code. The Committee determines bonuses for the NEOs by evaluating a combination of corporate and individual performance, as more fully described beginning on page
4549.
On February
8, 2018,7, 2019, the Committee granted performance
stock units, retention stock units and stock options to each of the
NEOs.NEOs, other than Mr. Vena. Performance stock units actually earned will be subject to continued employment through February
8, 2021.7, 2022. After the three year Performance Period covering fiscal years
20182019 through
2020,2021, the executive may earn up to two times the target number of performance stock units granted to that executive based on the average annual ROIC performance achieved over all three years of the program. In addition to ROIC, the actual number of stock units earned after the third year of the Performance Period will be adjusted up or down by a percentage not to exceed 25% (subject to a maximum of two times the target number of stock units granted) based on the Company’s Operating Income Growth (OIG) over the Performance Period as compared to the OIG of the companies in S&P 500 Industrials Index.
If the Company does not meet the threshold ROIC level, executives are not entitled to any payout of their performance stock units. Prior to the satisfaction of the ROIC performance criteria
and continued employment requirement, the Company does not pay dividend equivalents on the performance stock units.
Performance stock units that have been earned over the three-year performance period will be paid out in Company common stock after the end of the performance period, subject to the executive’s continued employment. In addition, a participant may elect to defer the payment of the stock units earned
and the associated dividend equivalents on those stock units pursuant to the Company’s Deferred Compensation Plan described on page
7368.
If the stock units are deferred, associated dividend equivalents paid on or after the date such stock units are earned also are deferred under the Deferred Compensation Plan.
Stock option grants vest one-third of total each year over a three-year period from the grant date of February
8, 2018.7, 2019. The maximum term of stock options is 10 years.
The retention stock units vest in full on February 8, 2022. Stock option
grants and retention stock unit grants are subject to continued employment. Vesting or forfeiture of these awards may occur upon termination of employment or a change-in-control as described further below and in the Potential Payments Upon Separation from Service, Change-In-Control or Death or Disability section below.
As part of the February
20182019 grants of performance
stock units, retention stock units and stock options, the Committee provided for the lapse of the continued employment requirement applicable to the award if an executive attains age 62 with 10 years of service under the Company pension plan, so long as the executive remained employed until September 30 in the year of grant. This same provision was contained in the stock award agreements for non-executive employees.
Mr. Vena’s 2019 equity grants are described on page 46 of the Compensation Discussion and Analysis. Retention stock units
granted prior to 2019 generally vest after a four-year period of continued service. Executives holding retention stock units have the right to receive a cash payment equivalent to dividends in such amounts as dividends are paid on our common stock. To the extent permissible by law, the Company delays payment of retention stock units
granted before November 2, 2017 (which are not performance based) to a NEO who is also a “covered employee” for purposes of Section 162(m) of the Code if the Company anticipates that such payment, if made, would not be deductible due to the application of Section 162(m) of the Code. The shares that are subject to this delayed distribution are reflected below in the Nonqualified Deferred Compensation at
20182019 Fiscal Year-End
table.Table. The Company delays payment until the first taxable year in which the Company anticipates that the tax deduction would no longer be limited by Section 162(m) of the Code. As noted previously, the Company is evaluating whether to continue its practice of delaying payment for retention stock units that are subject to Section 162(m) of the Code.
TABLE OF CONTENTS
Executive Compensation
Outstanding Equity Awards at 2018 Fiscal Year-End
|
Outstanding Equity Awards at 2019 Fiscal Year-EndThe following table sets forth additional information concerning Option Awards and Stock Awards held by the NEOs as of our most recent fiscal year-end, including awards granted during
20182019 and described in the tables above.
| Option Awards | Stock Awards |
| | | | | Earned Performance Stock Units and Retention Units | Performance Stock Units |
Name and Principal Position | Number of Securities Underlying Unexercised Options (Exercisable) | Number of Securities Underlying Unexercised Options (Unexercisable) (a) | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock Held That Have Not Vested (b) | Market Value of Shares or Units of Stock Held That Have Not Vested (c) | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (a) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested (c) |
Lance M. Fritz Chairman, President & CEO | | 0 | | | 179,739 | | $ | 124.86 | | | 2/8/2028 | | | 118,481 | | $ | 16,377,622 | | | 151,898 | | $ | 20,996,861 | |
| 58,633 | | | 117,266 | | $ | 107.30 | | | 2/2/2027 | | | | | | | | | | | | | |
| 164,298 | | | 82,149 | | $ | 75.52 | | | 2/4/2026 | | | | | | | | | | | | | |
| 107,643 | | | 0 | | $ | 122.85 | | | 2/5/2025 | | | | | | | | | | | | | |
Robert M. Knight, Jr. EVP & Chief Financial Officer | | 0 | | | 62,679 | | $ | 124.86 | | | 2/8/2028 | | | 49,691 | | | 6,868,766 | | | 56,827 | | | 7,855,217 | |
| 22,721 | | | 45,442 | | $ | 107.30 | | | 2/2/2027 | | | | | | | | | | | | | |
| 0 | | | 35,207 | | $ | 75.52 | | | 2/4/2026 | | | | | | | | | | | | | |
| 55,617 | | | 0 | | $ | 122.85 | | | 2/5/2025 | | | | | | | | | | | | | |
| 55,512 | | | 0 | | $ | 87.56 | | | 2/6/2024 | | | | | | | | | | | | | |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary | | 0 | | | 27,654 | | $ | 124.86 | | | 2/8/2028 | | | 9.822 | | | 1,357,695 | | | 18,234 | | | 2,520,486 | |
| 7,330 | | | 14,660 | | $ | 107.30 | | | 2/2/2027 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | 0 | | | 27,654 | | $ | 124.86 | | | 2/8/2028 | | | 10,682 | | | 1,476,621 | | | 18,642 | | | 2,576,884 | |
| 5,497 | | | 10,994 | | $ | 107.30 | | | 2/2/2027 | | | | | | | | | | | | | |
| 13,380 | | | 6,690 | | $ | 75.52 | | | 2/4/2026 | | | | | | | | | | | | | |
| 9,510 | | | 0 | | $ | 122.85 | | | 2/5/2025 | | | | | | | | | | | | | |
| 8,826 | | | 0 | | $ | 87.56 | | | 2/6/2024 | | | | | | | | | | | | | |
| 9,612 | | | 0 | | $ | 66.00 | | | 2/7/2023 | | | | | | | | | | | | | |
Lynden L. Tennison Retired EVP & Chief Strategy Officer | | 0 | | | 22,122 | | $ | 124.86 | | | 2/8/2028 | | | 19,074 | | | 2,636,537 | | | 21,028 | | | 2,906,700 | |
| 8,795 | | | 17,590 | | $ | 107.30 | | | 2/2/2027 | | | | | | | | | | | | | |
| 0 | | | 13,496 | | $ | 75.52 | | | 2/4/2026 | | | | | | | | | | | | | |
| 21,960 | | | 0 | | $ | 122.85 | | | 2/5/2025 | | | | | | | | | | | | | |
| 21,810 | | | 0 | | $ | 87.56 | | | 2/6/2024 | | | | | | | | | | | | | |
| 22,878 | | | 0 | | $ | 66.00 | | | 2/7/2023 | | | | | | | | | | | | | |
Cameron A. Scott Retired Vice President | | 0 | | | 36,870 | | $ | 124.86 | | | 2/8/2028 | | | 24,233 | | | 3,349,790 | | | 31,130 | | | 4,303,100 | |
| 11,727 | | | 23,454 | | $ | 107.30 | | | 2/2/2027 | | | | | | | | | | | | | |
| 17,604 | | | 17,604 | | $ | 75.52 | | | 2/4/2026 | | | | | | | | | | | | | |
| 16,149 | | | 0 | | $ | 122.85 | | | 2/5/2025 | | | | | | | | | | | | | |
| 10,116 | | | 0 | | $ | 87.56 | | | 2/6/2024 | | | | | | | | | | | | | |
Lance M. Fritz Chairman, President & CEO | | | 0 | | | 128,415 | | | $161.57 | | | 2/7/2029 | | | 108,366 | | | $19,591,489 | | | 150,506 | | | $27,209,980 |
| 59,913 | | | 119,826 | | | $124.86 | | | 2/8/2028 | | | | | | | | | | | | |
| 117,266 | | | 58,633 | | | $107.30 | | | 2/2/2027 | | | | | | | | | | | | |
| 107,643 | | | 0 | | | $122.85 | | | 2/5/2025 | | | | | | | | | | | | |
Vincenzo J. Vena Chief Operating Officer | | | 0 | | | 54,450 | | | $153.89 | | | 1/14/2029 | | | 7,798 | | | 1,409,800 | | | 15,596 | | | 2,819,601 |
Robert M. Knight, Jr. Retired EVP & Chief Financial Officer | | | 0 | | | 44,781 | | | $161.57 | | | 2/7/2029 | | | 42,455 | | | 7,675,439 | | | 52,488 | | | 9,489,306 |
| 20,893 | | | 41,786 | | | $124.86 | | | 2/8/2028 | | | | | | | | | | | | |
| 45,442 | | | 22,721 | | | $107.30 | | | 2/2/2027 | | | | | | | | | | | | |
| 35,207 | | | 0 | | | $75.52 | | | 2/4/2026 | | | | | | | | | | | | |
| 55,617 | | | 0 | | | $122.85 | | | 2/5/2025 | | | | | | | | | | | | |
| 55,512 | | | 0 | | | $87.56 | | | 2/6/2024 | | | | | | | | | | | | |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary | | | 0 | | | 19,758 | | | $161.57 | | | 2/7/2029 | | | 16,038 | | | 2,899,510 | | | 23,160 | | | 4,187,096 |
| 9,218 | | | 18,436 | | | $124.86 | | | 2/8/2028 | | | | | | | | | | | | |
| 0 | | | 7,330 | | | $107.30 | | | 2/2/2027 | | | | | | | | | | | | |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | | 0 | | | 19,758 | | | $161.57 | | | 2/7/2029 | | | 10,401 | | | 1,880,397 | | | 23,160 | | | 4,187,096 |
| 9,218 | | | 18,436 | | | $124.86 | | | 2/8/2028 | | | | | | | | | | | | |
| 10,994 | | | 5,497 | | | $107.30 | | | 2/2/2027 | | | | | | | | | | | | |
| 10,000 | | | 0 | | | $75.52 | | | 2/4/2026 | | | | | | | | | | | | |
| 9,510 | | | 0 | | | $122.85 | | | 2/5/2025 | | | | | | | | | | | | |
| 8,826 | | | 0 | | | $87.56 | | | 2/6/2024 | | | | | | | | | | | | |
| (a)
| The following table reflects the scheduled vesting dates for all unvested stock options as shown in the Number of Securities Underlying Unexercised Options (Unexercisable) column, unvested stock units as shown in the Number of Shares or Units of Stock Held That Have Not Vested column and unearned performance units as shown in the Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested column in the above table. |
TABLE OF CONTENTS
Name and Principal Position | Number of Securities Underlying Unexercised and Unvested Options (i) | Option Vest Date | Option Expiration Date | Number of Units of Stock Held That Have Not Vested (ii) | Unearned Performance Units (iii) | Unit Vest Date |
Lance M. Fritz Chairman, President & CEO | | 59,913 | | | 2/8/2021 | | | 2/8/2028 | | | 7,809 | | | | | | 2/8/2022 | |
| 59,913 | | | 2/8/2020 | | | 2/8/2028 | | | 7,456 | | | | | | 2/2/2021 | |
| 59,913 | | | 2/8/2019 | | | 2/8/2028 | | | 0 | | | 78,090 | | | 2/8/2021 | |
| 58,633 | | | 2/2/2020 | | | 2/2/2027 | | | 18,539 | | | | | | 2/4/2020 | |
| 58,633 | | | 2/2/2019 | | | 2/2/2027 | | | 24,854 | | | 49,708 | | | 2/2/2020 | |
| 82,149 | | | 2/4/2019 | | | 2/4/2026 | | | 9,769 | | | | | | 2/5/2019 | |
| | | | | | | | | | 50,054 | | | 24,100 | | | 2/4/2019 | |
Robert M. Knight, Jr. EVP & Chief Financial Officer | | 20,893 | | | 2/8/2021 | | | 2/8/2028 | | | 2,724 | | | | | | 2/8/2022 | |
| 20,893 | | | 2/8/2020 | | | 2/8/2028 | | | 2,890 | | | | | | 2/2/2021 | |
| 20,893 | | | 2/8/2019 | | | 2/8/2028 | | | 0 | | | 27,234 | | | 2/8/2021 | |
| 22,721 | | | 2/2/2020 | | | 2/2/2027 | | | 7,945 | | | | | | 2/4/2020 | |
| 22,721 | | | 2/2/2019 | | | 2/2/2027 | | | 9,632 | | | 19,264 | | | 2/2/2020 | |
| 35,207 | | | 2/4/2019 | | | 2/4/2026 | | | 5,047 | | | | | | 2/5/2019 | |
| | | | | | | | | | 21,453 | | | 10,329 | | | 2/4/2019 | |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary | | 9,218 | | | 2/8/2021 | | | 2/8/2028 | | | 1,202 | | | | | | 2/8/2022 | |
| 9,218 | | | 2/8/2020 | | | 2/8/2028 | | | 932 | | | | | | 2/2/2021 | |
| 9,218 | | | 2/8/2019 | | | 2/8/2028 | | | 0 | | | 12,018 | | | 2/8/2021 | |
| 7,330 | | | 2/2/2020 | | | 2/2/2027 | | | 4,580 | | | | | | 7/1/2020 | |
| 7,330 | | | 2/2/2019 | | | 2/2/2027 | | | 3,108 | | | 6,216 | | | 2/2/2020 | |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | 9,218 | | | 2/8/2021 | | | 2/8/2028 | | | 1,202 | | | | | | 2/8/2022 | |
| 9,218 | | | 2/8/2020 | | | 2/8/2028 | | | 699 | | | | | | 2/2/2021 | |
| 9,218 | | | 2/8/2019 | | | 2/8/2028 | | | 0 | | | 12,018 | | | 2/8/2021 | |
| 5,497 | | | 2/2/2020 | | | 2/2/2027 | | | 1,510 | | | | | | 2/4/2020 | |
| 5,497 | | | 2/2/2019 | | | 2/2/2027 | | | 2,330 | | | 4,660 | | | 2/2/2020 | |
| 6,690 | | | 2/4/2019 | | | 2/4/2026 | | | 863 | | | | | | 2/5/2019 | |
| | | | | | | | | | 4,078 | | | 1,964 | | | 2/4/2019 | |
Lynden L. Tennison EVP & Chief Strategy Officer | | 7,374 | | | 2/8/2021 | | | 2/8/2028 | | | 962 | | | | | | 2/8/2022 | |
| 7,374 | | | 2/8/2020 | | | 2/8/2028 | | | 1,119 | | | | | | 2/2/2021 | |
| 7,374 | | | 2/8/2019 | | | 2/8/2028 | | | 0 | | | 9,612 | | | 2/8/2021 | |
| 8,795 | | | 2/2/2020 | | | 2/2/2027 | | | 3,046 | | | | | | 2/4/2020 | |
| 8,795 | | | 2/2/2019 | | | 2/2/2027 | | | 3,728 | | | 7,456 | | | 2/2/2020 | |
| 13,496 | | | 2/4/2019 | | | 2/4/2026 | | | 1,993 | | | | | | 2/5/2019 | |
| | | | | | | | | | 8,226 | | | 3,960 | | | 2/4/2019 | |
Cameron A. Scott Retired Vice President | | 12,290 | | | 2/8/2021 | | | 2/8/2028 | | | 1,602 | | | | | | 2/8/2022 | |
| 12,290 | | | 2/8/2020 | | | 2/8/2028 | | | 1,492 | | | | | | 2/2/2021 | |
| 12,290 | | | 2/8/2019 | | | 2/8/2028 | | | 0 | | | 16,020 | | | 2/8/2021 | |
| 11,727 | | | 2/2/2020 | | | 2/2/2027 | | | 3,973 | | | | | | 2/4/2020 | |
| 11,727 | | | 2/2/2019 | | | 2/2/2027 | | | 4,972 | | | 9,944 | | | 2/2/2020 | |
| 17,604 | | | 2/4/2019 | | | 2/4/2026 | | | 1,466 | | | | | | 2/5/2019 | |
| | | | | | | | | | 10,728 | | | 5,166 | | | 2/4/2019 | |
Lance M. Fritz Chairman, President & CEO | | | 42,805 | | | 2/7/2022 | | | 2/7/2029 | | | 7,809 | | | | | | 2/8/2022 |
| 42,805 | | | 2/7/2021 | | | 2/7/2029 | | | 0 | | | 72,416 | | | 2/7/2022 |
| 42,805 | | | 2/7/2020 | | | 2/7/2029 | | | 7,456 | | | | | | 2/2/2021 |
| 59,913 | | | 2/8/2021 | | | 2/8/2028 | | | 0 | | | 78,090 | | | 2/8/2021 |
| 59,913 | | | 2/8/2020 | | | 2/8/2028 | | | 18,539 | | | | | | 2/4/2020 |
| 58,633 | | | 2/2/2020 | | | 2/2/2027 | | | 74,562 | | | 0 | | | 2/2/2020 |
Vincenzo J. Vena Chief Operating Officer | | | 27,225 | | | 1/14/2021 | | | 1/14/2029 | | | 0 | | | 15,596 | | | 2/8/2021 |
| 27,225 | | | 1/14/2020 | | | 1/14/2029 | | | 7,798 | | | 0 | | | 2/6/2020 |
Robert M. Knight, Jr. Retired EVP & Chief Financial Officer | | | 14,927 | | | 2/7/2022 | | | 2/7/2029 | | | 2,724 | | | | | | 2/8/2022 |
| 14,927 | | | 2/7/2021 | | | 2/7/2029 | | | 0 | | | 25,254 | | | 2/7/2022 |
| 14,927 | | | 2/7/2020 | | | 2/7/2029 | | | 2,890 | | | | | | 2/2/2021 |
| 20,893 | | | 2/8/2021 | | | 2/8/2028 | | | 0 | | | 27,234 | | | 2/8/2021 |
| 20,893 | | | 2/8/2020 | | | 2/8/2028 | | | 7,945 | | | | | | 2/4/2020 |
| 22,721 | | | 2/2/2020 | | | 2/2/2027 | | | 28,896 | | | 0 | | | 2/2/2020 |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary | | | 6,586 | | | 2/7/2022 | | | 2/7/2029 | | | 1,202 | | | | | | 2/8/2022 |
| 6,586 | | | 2/7/2021 | | | 2/7/2029 | | | 0 | | | 11,142 | | | 2/7/2022 |
| 6,586 | | | 2/7/2020 | | | 2/7/2029 | | | 932 | | | | | | 2/2/2021 |
| 9,218 | | | 2/8/2021 | | | 2/8/2028 | | | 0 | | | 12,018 | | | 2/8/2021 |
| 9,218 | | | 2/8/2020 | | | 2/8/2028 | | | 4,580 | | | | | | 7/1/2020 |
| 7,330 | | | 2/2/2020 | | | 2/2/2027 | | | 9,324 | | | 0 | | | 2/2/2020 |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | | 6,586 | | | 2/7/2022 | | | 2/7/2029 | | | 1,202 | | | | | | 2/8/2022 |
| 6,586 | | | 2/7/2021 | | | 2/7/2029 | | | 0 | | | 11,142 | | | 2/7/2022 |
| 6,586 | | | 2/7/2020 | | | 2/7/2029 | | | 699 | | | | | | 2/2/2021 |
| 9,218 | | | 2/8/2021 | | | 2/8/2028 | | | 0 | | | 12,018 | | | 2/8/2021 |
| 9,218 | | | 2/8/2020 | | | 2/8/2028 | | | 1,510 | | | | | | 2/4/2020 |
| 5,497 | | | 2/2/2020 | | | 2/2/2027 | | | 6,990 | | | 0 | | | 2/2/2020 |
| (i)
| Reflects a stock option grant that vests one-third of the total each year for three years from the date of grant. |
| (ii)
| Reflects performance stock units granted on February 4, 2016, February 2, 2017, and February 8, 2018 and February 7, 2019 that have been earned, but not yet vested and paid out, and unvested retention stock units as of December 31, 2018.2019. For Mr. Vena, reflects performance stock units granted on January 14, 2019 that have been earned, but not yet vested and paid out. |
| (iii)
| Reflects the maximum amount of performance stock units that may be earned under the grants of performance stock units February 2, 20178, 2018 and February 8, 2018.7, 2019. These performance stock units are each subject to a three-year performance period ending December 31, 20192020 and December 31, 2020,2021, respectively. For Mr. Vena, reflects the maximum amount of performance stock units that may be earned under his January 14, 2019 grant of performance stock units. |
TABLE OF CONTENTS
| (b)
| Dividends paid in 20182019 on outstanding stock awards for each of our NEOs were as follows: Mr. Fritz, $318,680;$303,710; Mr. Knight, $104,089;$85,807; Ms. Ferguson, $25,300;$36,341; and Ms. Whited, $25,465; Mr. Tennison, $39,921; and Mr. Scott, $52,247.$27,650. |
| (c)
| Reflects the closing price per share of the common stock on the last business day of the fiscal year multiplied by the number of shares. The closing price per share was $138.23$180.79 on December 31, 2018.2019. |
TABLE OF CONTENTS
Executive Compensation
Option Exercises and Stock Vested in Fiscal Year 2019Option Exercises and Stock Vested in Fiscal Year 2018
|
The following table shows a summary of the stock options exercised by the NEOs and stock awards that vested during the year.
| Option Awards | Stock Awards |
Name and Principal Position | Number of Shares Acquired on Exercise | Value Realized Upon Exercise (a) | Number of Shares Acquired on Vesting (b) | Value Realized Upon Vesting (a) |
Lance M. Fritz Chairman, President & CEO | | 49,566 | | $ | 3,023,526 | | | 17,435 | | | 2,212,863 | |
Robert M. Knight, Jr. EVP & Chief Financial Officer | | 35,207 | | | 2,618,345 | | | 58,137 | | | 7,586,569 | |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary | | 0 | | | 0 | | | 0 | | | 0 | |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | 12,668 | | | 1,078,695 | | | 2,054 | | | 262,866 | |
Lynden L. Tennison Retired EVP & Chief Strategy Officer | | 26,992 | | | 2,380,155 | | | 4,906 | | | 628,376 | |
Cameron A. Scott Retired Vice President | | 0 | | | 0 | | | 2,924 | | | 372,425 | |
Lance M. Fritz Chairman, President & CEO | | | 246,447 | | | $21,906,673 | | | 59,822 | | | $9,662,803 |
Vincenzo J. Vena Chief Operating Officer | | | 0 | | | 0 | | | 0 | | | 0 |
Robert M. Knight, Jr. Retired EVP & Chief Financial Officer | | | 0 | | | 0 | | | 26,499 | | | 4,280,081 |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary | | | 14,660 | | | 974,321 | | | 0 | | | 0 |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | | 19,682 | | | 2,122,041 | | | 4,941 | | | 798,084 |
| (a)
| Value Realized Upon Exercise is calculated based upon the difference between the market price of the Company’s common stock at the time of exercise and the exercise price of the options. Value Realized Upon Vesting is calculated based upon the fair market value of the Company’s common stock on the day of vesting times the number of shares vested. |
(b)
| (b) | The number of these stock units that have been deferred under the Company’s Deferred Compensation Plan are 5,712 shares for Mr. Fritz and 1,018863 shares for Ms. Whited. A description of the features of the Company’s Deferred Compensation Program is set forth on pages 7268 − 7570. |
TABLE OF CONTENTS
Pension Benefits at 2018 Fiscal Year-End
|
Pension Benefits at 2019 Fiscal Year-EndThe table below sets forth the estimated present value of accumulated benefits payable under the Company’s defined benefit pension plans to the NEOs upon normal retirement at age 65 based on service and annual earnings (base salary and bonus, as described below)considered by the plans for the period through December 31,
2018.2019. The present value was calculated as of December 31,
2018,2019, based on the benefit at the normal retirement age of 65 paid in the form of a single life annuity. The present value factors used to determine the reported amounts are based on the sex distinct, white collar, Mercer Industry Longevity Experience Study Retiree Table for the Auto, Industrial Goods and Transportation industry group projected using Scale
MP-2017MP-2018 as of December 31,
20172018 to Scale MP-2018 as of December 31, 2018, and the discount rate as disclosed in Note 6 in the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. For purposes of reporting the change in pension value in the Summary Compensation Table, present value factors for the year ended December 31,
2018,2019, were based on the sex distinct, white collar, Mercer Industry Longevity Experience Study Retiree Table for the Auto, Industrial Goods and Transportation industry group projected using Scale
MP2017,MP2019, and the discount rate as disclosed in Note 6 in the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31,
2018.2019. For both mortality tables, no pre-retirement decrements (i.e., death, disability) were assumed.
Name and Principal Position | Plan Name | Number of Years Credited Service | Present Value of Accumulated Benefit (a) | Payments During Last Fiscal Year |
Lance M. Fritz Chairman, President & CEO | Basic Plan | | 18.5000 | | $ | 732,818 | | $ | 0 | |
Supplemental Plan | | 18.5000 | | | 8,627,812 | | | 0 | |
Robert M. Knight, Jr. EVP & Chief Financial Officer | Basic Plan | | 38.5833 | | | 1,752,621 | | | 0 | |
Supplemental Plan | | 38.5833 | | | 12,976,627 | | | 0 | |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary (b) | Basic Plan | | 2.5000 | | | 0 | | | 0 | |
Supplemental Plan | | 2.5000 | | | 0 | | | 0 | |
Elizabeth F. Whited EVP & Chief Human Resources Officer | Basic Plan | | 31.0000 | | | 1,039,754 | | | 0 | |
Supplemental Plan | | 31.0000 | | | 2,492,757 | | | 0 | |
Lynden L. Tennison Retired EVP & Chief Strategy Officer | Basic Plan | | 26.0000 | | | 1,206,315 | | | 0 | |
Supplemental Plan | | 26.0000 | | | 4,247,386 | | | 0 | |
Cameron A. Scott Retired Vice President | Basic Plan | | 27.5000 | | | 1,108,907 | | | 0 | |
Supplemental Plan | | 27.5000 | | | 5,106,403 | | | 0 | |
Lance M. Fritz Chairman, President & CEO | | | Basic Plan | | | 19.5000 | | | $983,276 | | | $0 |
| Supplemental Plan | | | 19.5000 | | | 11,429,162 | | | 0 |
Vincenzo J. Vena Chief Operating Officer (b) | | | Basic Plan | | | 0 | | | 0 | | | 0 |
| Supplemental Plan | | | 0 | | | 0 | | | 0 |
Robert M. Knight, Jr. Retired EVP & Chief Financial Officer | | | Basic Plan | | | 39.5833 | | | 2,141,026 | | | 0 |
| Supplemental Plan | | | 39.5833 | | | 15,619,547 | | | 0 |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary (c) | | | Basic Plan | | | 3.5000 | | | 0 | | | 0 |
| Supplemental Plan | | | 3.5000 | | | 0 | | | 0 |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | | Basic Plan | | | 32.0000 | | | 1,366,364 | | | 0 |
| Supplemental Plan | | | 32.0000 | | | 4,161,145 | | | 0 |
| (a)
| Present values for Messrs. Fritz Knight, Tennison and ScottKnight are based on the single life annuity payable at age 65 and include the present values of the joint life benefit (amount payable to the surviving spouse upon participant’s death). As of December 31, 2018,2019, Ms. Whited was not eligible for the surviving spouse benefit. We do not have a lump-sum payment option under our plans. |
(b)
| (b)Mr. Vena was elected Chief Operating Officer on January 14, 2019. A pension benefit is not offered to employees after the plans closed to new entrants on January 1, 2018. |
(c)
| Ms. Ferguson was elected Executive Vice President and Chief Legal Officer on July 1, 2016. A pension benefit is not offered to employees until they obtain at least five years of vesting service. |
Pensions for our NEOs are provided through the Pension Plan for Salaried Employees of Union Pacific Corporation and Affiliates (Basic Plan) and the Supplemental Pension Plan for Officers and Managers of Union Pacific Corporation and Affiliates (Supplemental Plan). The pension benefit formula for both the Basic Plan and the Supplemental Plan is (i) 1.667% of final average compensation times credited service (up to 30 years), plus (ii) 1% of final average compensation times credited service above 30 years (not to exceed 40 years) minus (iii) 1.5% of Social Security or Railroad Retirement benefit times credited service (not to exceed 40 years). The amount of the annual pension benefit from both Plans is based upon final average compensation for the 36 consecutive months of highest regular compensation (base salary and up to three annual bonus plan awards within the 36-month period) within the 120-month period immediately preceding retirement. Credited service includes the years and months of service as a non-agreement employee and may include certain periods of agreement service or service with an acquired company. Both the Basic Plan and
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the Supplemental Plan were amended effective January 1, 2018 to provide that an employee hired or rehired on or after January 1, 2018, or who otherwise was not accruing a benefit under the Basic Plan on December 31, 2017 is not eligible to participate in the Basic Plan or the Supplemental Plan.
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Executive Compensation
The Supplemental Plan is an unfunded non-contributory plan that, unlike the Basic Plan, provides for the grant of additional years of service and deemed age, for the inclusion of compensation in excess of IRS prescribed limits ($
275,000280,000 for
2018)2019) and deferred annual bonuses in the calculation of final average compensation and for any benefit in excess of limitations provided for under Section 415(b) of the Code (for
2018,2019, the lesser of 100% of the executive’s compensation or
$220,000)$225,000). The Committee may grant additional years of service and deemed age credit to any participant as it determines appropriate.
Under both the Basic Plan and the Supplemental Plan, an executive’s age and vesting service upon termination of employment with the Company determines whether the executive is eligible for a normal retirement, early retirement, postponed retirement, or a vested benefit. Vesting service generally includes all service while an employee is with the Company, whether or not the employment counts as credited service. Normal retirement is offered to employees who end their employment at or after age 65 and benefits are not reduced. Early retirement is offered to employees who end their employment between ages 55 and 65 and have at least ten years of vesting service. Postponed retirement is when an employee continues employment past age 65. The benefit is reduced if payments begin before age 65, to reflect the expectation that benefits will be paid over a longer period of time. A vested benefit is offered to employees who end their employment before age 65 with at least five years of vesting service but less than ten years of vesting service. This benefit is available as early as age 55. The benefit is reduced if payments begin before age 65. However, those reductions will be greater than those applied if the employee was eligible for early retirement. As of December 31,
2018,2019, Mr. Fritz
Mr. Knight, Mr. Tennison and Mr.
ScottKnight were eligible for early retirement under both Plans. Ms. Whited was eligible for vested benefits under both Plans. Ms. Ferguson was elected Executive Vice President and Chief Legal Officer on July 1, 2016. A pension benefit is not offered to employees until they obtain at least five years of vesting service.
Mr. Vena was elected Chief Operating Officer on January 14, 2019. A pension benefit is not offered to employees after the Plans closed to new entrants on January 1, 2018.
Benefits from both Plans are normally paid as a single life annuity providing monthly benefits for the employee’s life. The employee may waive the single life annuity to receive the benefit in a different optional form. Subject to eligibility conditions, the available optional forms of benefit include: 25%, 50%, 75%, or 100% Joint and Survivor Annuity; 10-Year Certain and Continuous; or Level Income. All optional forms of benefit are actuarially equal in value to the single life annuity. The Plans do not offer a lump-sum payment as an optional form. No NEO received any payments under either Plan during
2018.2019.
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Nonqualified Deferred Compensation at 2018 Fiscal Year-End
|
Nonqualified Deferred Compensation at 2019 Fiscal Year-EndThe Company has two non-qualified deferred compensation plans: the Supplemental Thrift Plan, which permits an executive to defer amounts from base salary; and the Deferred Compensation Plan, which permits deferral of bonuses awarded under the Executive Incentive Plan and deferral of stock unit awards made under the 2004 Stock Incentive Plan and the 2013 Stock Incentive Plan (the Stock Incentive Plans). Each of these arrangements represents unfunded, unsecured obligations of the Company. The table below shows NEO and Company allocations under these arrangements, earnings accrued on all amounts that the NEOs have deferred under the plans and the balances under each plan as of December 31,
2018.2019. Executive incentive bonus deferrals and stock unit award deferrals under the Deferred Compensation Plan are shown separately.
Name and Principal Position | Plan Name | Executive Contributions in Last Fiscal Year (a) | Company Contributions in Last Fiscal Year (b) | Aggregate Earnings/ (Loss) in Last Fiscal Year (c) | Aggregate Withdrawals/ Distributions | Aggregate Balance at Last Fiscal Year End (d) (e) |
Lance M. Fritz Chairman, President & CEO | Supplemental Thrift | $ | 52,001 | | $ | 26,000 | | $ | (52,415 | ) | $ | 0 | | $ | 474,201 | |
Executive Incentive Deferral | | 0 | | | 0 | | | 5,743 | | | 0 | | | 191,021 | |
Deferral of Stock Unit Awards | | 714,932 | | | 0 | | | 435,508 | | | 0 | | | 3,238,130 | |
Robert M. Knight, Jr. EVP & Chief Financial Officer | Supplemental Thrift | | 19,590 | | | 9,795 | | | (53,102 | ) | | 0 | | | 561,908 | |
Executive Incentive Deferral | | 0 | | | 0 | | | (13,687 | ) | | 0 | | | 146,857 | |
Deferral of Stock Unit Awards | | 0 | | | 0 | | | 1,371,452 | | | 0 | | | 27,231,649 | |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary | Supplemental Thrift | | 12,833 | | | 5,500 | | | (2,492 | ) | | 0 | | | 32,579 | |
Executive Incentive Deferral | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Deferral of Stock Unit Awards | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Elizabeth F. Whited EVP & Chief Human Resources Officer | Supplemental Thrift | | 13,121 | | | 4,921 | | | (1,298 | ) | | 0 | | | 29,960 | |
Executive Incentive Deferral | | 0 | | | 0 | | | (15,750 | ) | | 0 | | | 482,683 | |
Deferral of Stock Unit Awards | | 113,971 | | | 0 | | | 15,824 | | | 0 | | | 312,161 | |
Lynden L. Tennison Retired EVP & Chief Strategy Officer | Supplemental Thrift | | 7,955 | | | 3,977 | | | (6,032 | ) | | 0 | | | 205,572 | |
Executive Incentive Deferral | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Deferral of Stock Unit Awards | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Cameron A. Scott Retired Vice President | Supplemental Thrift | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Executive Incentive Deferral | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Deferral of Stock Unit Awards | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Lance M. Fritz Chairman, President & CEO | | | Supplemental Thrift | | | $53,450 | | | $26,725 | | | $138,474 | | | $0 | | | $692,850 |
| Executive Incentive Deferral | | | 0 | | | 0 | | | 7,258 | | | 0 | | | 198,280 |
| Deferral of Stock Unit Awards | | | 0 | | | 0 | | | 996,996 | | | 0 | | | 4,235,126 |
Vincenzo J. Vena Chief Operating Officer | | | Supplemental Thrift | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 |
| Executive Incentive Deferral | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 |
| Deferral of Stock Unit Awards | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 |
Robert M. Knight, Jr. Retired EVP & Chief Financial Officer | | | Supplemental Thrift | | | 290,190 | | | 10,095 | | | 157,527 | | | 0 | | | 749,721 |
| Executive Incentive Deferral | | | 0 | | | 0 | | | 39,231 | | | 0 | | | 186,088 |
| Deferral of Stock Unit Awards | | | 0 | | | 0 | | | 9,168,655 | | | 0 | | | 36,400,304 |
Rhonda S. Ferguson EVP, Chief Legal Officer & Corp Secretary | | | Supplemental Thrift | | | 0 | | | 0 | | | 8,856 | | | 0 | | | 41,435 |
| Executive Incentive Deferral | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 |
| Deferral of Stock Unit Awards | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | | Supplemental Thrift | | | 16,425 | | | 5,475 | | | 2,375 | | | 0 | | | 54,235 |
| Executive Incentive Deferral | | | 121,600 | | | 0 | | | 95,576 | | | 118,303 | | | 581,556 |
| Deferral of Stock Unit Awards | | | 139,202 | | | 0 | | | 118,462 | | | 0 | | | 569,825 |
| (a)
| Executive Contributions in the Last Fiscal Year under the Supplemental Thrift Plan are amounts that are also reported in the Salary column in the Summary Compensation Table.Table |
| (b)
| Company Contributions in the Last Fiscal Year were reported as All Other Compensation in the Summary Compensation Table for 2018.2019. |
| (c)
| Aggregate Earnings on deferred stock unit awards represent appreciation in the value of Company common stock and dividend equivalents, which are deemed to be reinvested in Company common stock. |
| (d)
| Amounts reported in Aggregate Balance at Last Fiscal Year End that were reported in the Salary column of the Summary Compensation Table for 20172018 and 2016,2017, but deferred under the Supplemental Thrift Plan are, for Mr. Fritz, $48,800$52,001 and $44,100;$48,800; Mr. Knight, $19,000$19,590 and $18,600;$19,000; Ms. Ferguson, $11,443$12,833 and $0;$11,433; and Ms. Whited $7,590$13,121 and $0; and Mr. Tennison $11,617 and $0,$7,590, respectively. Amounts reported in Aggregate Balance at Last Fiscal Year End that were reported in the All Other Compensation column of the Summary Compensation Table for 20172018 and 2016,2017, representing Company contributions to the Supplemental Thrift Plan are, for Mr. Fritz, $24,400$26,000 and $22,050;$24,400; Mr. Knight, $9,500$9,795 and $9,300;$9,500; Ms. Ferguson, $4,900$5,500 and $0;$4,900; and Ms. Whited $3,795$4,921 and $0; and Mr. Tennison $3,485 and $0,$3,795, respectively. |
| (e)
| The Aggregate Balance at Last Fiscal Year End for deferred stock unit awards represents 23,426 shares of Company common stock for Mr. Fritz, 197,002201,340 shares for Mr. Knight and 2,2583,152 shares for Ms. Whited. |
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Executive Compensation
Supplemental Thrift Plan.
The Supplemental Thrift Plan is available to executives who otherwise participate in the Company’s Thrift Plan, which is a defined contribution plan intended to be a plan qualified under Section 401(a) of the Code. The Qualified Thrift Plan permits executives to contribute, on a pre-tax, Roth and/or after-tax basis from 2% to 75% (combined) of base salary through payroll deductions. An executive is not permitted to defer amounts from base salary under the terms of the Supplemental Thrift Plan until the earlier of the following: (i) the amount of base salary paid to the executive during the year equals the IRS prescribed limit ($275,000280,000 for 2018)2019); or (ii) the contributions to the Qualified Thrift Plan made by or on behalf of the executive (including matching contributions) equal the IRS prescribed annual addition limit under Section 415(c) of the Code ($55,00056,000 in 2018)2019). An executive who has elected to participate in the Supplemental Thrift Plan before the start of the calendar year in which one of these limits is reached will have payroll deductions on a pre-tax basis continued from his/her base pay for the remainder of the calendar year at a percentage that may differ from the percentage rate(s) the executive elected under the Qualified Thrift Plan as of the first day of the calendar year. Under the Supplemental Thrift Plan, the executive may defer from 2% to 75% of base salary. Currently and unless the changes described in the following paragraph apply to the executive, the Company credits a matching amount equal to 50 cents of each dollar an executive defers to the Supplemental Thrift Plan for a pay period up to 6% of the executive’s base pay.The Supplemental Thrift Plan was amended effective January 1, 2018, as part of the changes made to the Company’s overall retirement plan design strategy, including closing the Company’s pension plan for certain employees (see pages
7065 and
71)66). The Supplemental Thrift Plan changes will apply to an executive hired or rehired by the Company on or after January 1, 2018, or who was not accruing a benefit under the Pension Plan for Salaried Employees of Union Pacific Corporation and Affiliates on December 31, 2017 (a “Post-2017 Executive”). The same general rules described above regarding executive deferrals continue to apply to Post-2017 Executives, except that the matching amount the Company credits under the Supplemental Thrift Plan is $1 for every dollar a Post-2017 Executive defers to the Supplemental Thrift Plan for a pay period up to 6% of the Post-2017 Executive’s base salary. Furthermore, a Non-Elective Contribution feature (“NEC”) was added to both the Qualified Thrift Plan and Supplemental Thrift Plan. The NEC amount equals 3% of the Post-2017 Executive’s base salary for the calendar year. The NEC amount credited on behalf of a Post-2017 Executive under the Supplemental Thrift Plan for a calendar year is the difference between the NEC calculated under the terms of the Qualified Thrift Plan (but determined without regard to the IRS limits described in the paragraph above) and the amount of the NEC actually contributed to the Qualified Thrift Plan on behalf of the Post-2017 Executive after taking into account those limits. The NEC amount contributed to the Qualified Thrift Plan or credited to the Supplemental Thrift Plan is determined in January of the year immediately following the year to which the NEC is attributable.
Deferred Compensation Plan. The Deferred Compensation Plan allows for the deferral of all or a portion of a bonus awarded under the Executive Incentive Plan and for the deferral of payment of stock units, both retention and performance based, awarded under the Stock Incentive Plan. An executive must elect by June 30th of the calendar year for which the bonus amount is awarded whether to defer any or all of his or her bonus award for such year. For retention stock units, an executive’s election to defer payment of a vested award must be made prior to the beginning of the calendar year for which the retention stock unit award is granted to the executive. For performance stock units, an executive must elect by June 30th of the first year of the three year performance period whether to defer the payment of the entire award of vested and earned performance stock units. Rate of Return Provisions
Notional accounts in the Supplemental Thrift Plan are deemed to be invested in one or more of the investment options offered in the Qualified Thrift Plan, as selected by the participating executive. Notional accounts in the Deferred Compensation Plan for bonus amounts deferred currently can be invested in the same investment options, along with the Company’s Fixed Rate Fund that bears interest equal to 120% of the Applicable Federal Long-Term Annual rate for January of the applicable year. The Vanguard Group administers all notional accounts. Executives can generally transfer amounts between investment funds each business day. Earnings reflect the increase or decrease in the value of those investment funds and any interest or dividends earned by those funds, to the same extent as if amounts were actually invested in those investment funds.
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Notional accounts in the Deferred Compensation Plan for stock units deferred are invested in notional shares of the Company’s common stock. The value of each stock unit deferred is equivalent to that of one share of Company common stock. Amounts equivalent to the dividends paid on Company common stock are added to an executive’s notional account when actual dividends are paid and are credited as reinvested in additional notional shares. These amounts are tracked through notional accounts maintained by the Company.
Payment Elections, Withdrawals and Distributions
The Company adopted amended and restated plans effective as of January 1, 2009, in order to satisfy the requirements of Section 409A of the Code. Non-qualified deferred compensation amounts not subject to Section 409A of the Code, (i.e., amounts credited to an executive’s notional account as of December 31, 2004, and earnings thereon), are available for distribution or withdrawal in accordance with the terms of the Grandfathered Component of the Supplemental Thrift Plan or the Grandfathered Component of the Deferred Compensation Plan, as applicable. Non-qualified deferred compensation amounts subject to Section 409A of the Code, (i.e., amounts credited to an executive’s notional account on and after January 1, 2005, and earnings thereon), are available for distribution in accordance with the terms of the Non-Grandfathered Component of the Supplemental Thrift Plan or Non-Grandfathered Component of the Deferred Compensation Plan, as applicable.
409A Non-Grandfathered Components-Supplemental Thrift and Deferred Compensation Plans
NEOs made payment elections with respect to their then-existing notional account balances under the Non-Grandfathered Component of both the Supplemental Thrift Plan and the Deferred Compensation Plan prior to the end of 2008.
Generally speaking, NEOs who first participated in the Non-Grandfathered Component of the Supplemental Thrift Plan in 2009 or later may make a payment election under the Non-Grandfathered Component of the Supplemental Thrift Plan in the calendar year prior to the calendar year his or her initial deferral election becomes effective. A payment election made under the Non-Grandfathered Component of the Supplemental Thrift Plan also will apply with respect to compensation an executive elects to defer in the future under the Non-Grandfathered Component of the Supplemental Thrift Plan. Executives may make a separate payment election with respect to each bonus, retention stock unit or performance stock unit award deferred under the Non-Grandfathered Component of the Deferred Compensation Plan at the same time the deferral election is made. Generally, the same payment option must be elected for all awards of the same type (i.e., bonus or stock units) deferred to separation from service under the Non-Grandfathered Deferred Compensation Plan.
The Non-Grandfathered Component of both the Supplemental Thrift Plan and Deferred Compensation Plan provide the following payment options: (i) a single lump-sum distribution at separation from service or in January of the next year following separation from service, (ii) annual installments over a period not exceeding 15 years, with the initial installment being paid as soon as administratively practicable following the executive’s separation from service or in January of the year next following such separation from service, or (iii) a single lump-sum distribution in January of a specified year that is not earlier than 2 years and not later than 15 years following the executive’s separation from service. However, if the executive first participates in the Non-Grandfathered Component of the Supplemental Thrift Plan after December 31, 2017, the single sum or installment payments described above cannot be made or commence before the January of the year following the year in which the executive separates from service. The Non-Grandfathered Component of the Deferred Compensation Plan also permits an executive to elect to receive payment at the earlier of: (i) July of a year specified by the executive, or (ii) separation from service. In no case, however, will an amount payable on account of a NEO’s separation from service be paid from either Non-Grandfathered Component before the date that is six months after such executive’s separation from service.
Generally speaking, under both plans, an executive who does not make a timely election will receive the Non-Grandfathered Component of his or her notional account at the time of his or her separation from service in a single lump-sum payment, subject to the six-month delay as described in the last sentence of the immediately preceding paragraph. However, an executive who first participates in the Non-Grandfathered Component of the Supplemental Thrift Plan after December 31, 2017 and who does not make a timely election
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Executive Compensation
will receive his or her notional account in January of the year following the executive’s separation from service, subject to the six-month delay rule. In the event an executive dies before receiving payment of his or her entire notional account balance, the unpaid balance is paid in a single lump-sum to the executive’s beneficiary.
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Generally, no withdrawals are permitted from the notional accounts maintained in connection with the Non-Grandfathered Components of either the Supplemental Thrift Plan or the Deferred Compensation Plan prior to the executive’s separation from service.
Under the terms applicable to the Non-Grandfathered Components of the Deferred Compensation Plan and the Supplemental Thrift Plan, an executive may modify his or her payment election if such modification election is made prior to the executive’s separation from service and at least 12 months prior to the date payments would have commenced in accordance with the prior election. In addition, the modification must have the effect of postponing the payment commencement date by at least five years.
409A Grandfathered Components-SupplementalComponents—Supplemental Thrift and Deferred Compensation Plans
An executive can take a withdrawal in cash from the Grandfathered Component of his or her notional account under the Supplemental Thrift Plan or the Deferred Compensation Plan prior to separation from service, provided that 10% of the amount withdrawn will be irrevocably forfeited by the executive.
Following an executive’s separation from service, the general rule is that an executive’s notional account under the Grandfathered Component of either plan is distributed in a single sum cash payment as soon as administratively practicable. However, an executive can elect at least six months prior to his or her separation from service and in the calendar year preceding such separation from service that such component be paid under one of the following payment options: (i) a single sum cash payment at separation from service or in January of the year next following his or her separation from service, (ii) annual installments over a period not exceeding 15 years, with the initial installment being paid as soon as administratively practicable following the executive’s separation from service or in January of the year next following such separation from service, or (iii) a single sum cash payment in January of a specified year that is not later than 15 years following the executive’s separation from service. The Grandfathered Component of the Deferred Compensation Plan also permits an executive to elect to receive payment at the earlier of: (i) July of a year specified by the executive, or (ii) separation from service. This election may be changed at least six months prior to the scheduled payment date and in the calendar year preceding such date. With respect to the Grandfathered Component of the Supplemental Thrift Plan, an executive’s payment election applies to the executive’s entire notional account balance. With respect to the Grandfathered Component of the Deferred Compensation Plan, an executive may make a separate payment election for each bonus award under the Executive Incentive Plan or stock unit award under the Stock Incentive Plan; provided that the executive must elect the same payment option for all such awards of the same type (i.e., bonus or stock units) deferred to separation from service.
Potential Payments Upon Separation from Service, Change-In-Control or Death or Disability
|
Potential Payments Upon Separation from Service, Change-In-Control or Death or Disability The information below describes certain compensation that would have become payable by the Company under existing plans assuming a separation from service or change-in-control and separation from service occurred on December 31,
20182019 (based upon the Company’s closing stock price on December 31,
20182019 of
$138.23)$180.79), given the NEOs’ current compensation and service levels as of such date. The benefits discussed below are in addition to those generally available to all salaried employees, such as distributions under the qualified Pension Plan for Salaried Employees, health care benefits and disability benefits. In addition, these benefits do not take into account any arrangements that do not currently exist but may be offered by the Company in connection with an actual separation from service or a change-in-control or other factors that may vary from time to time. Due to the number of different factors that affect the nature and amount of any benefits provided in connection with these events, actual amounts payable to any of the NEOs should a separation from service or change-in-control occur during the year will likely differ, perhaps significantly, from the amounts reported below. Factors that could affect such amounts include the timing during the year of the event, the Company’s stock price, the target amounts payable under annual and long-term incentive arrangements that are in place at the time of the event, and the executive’s age.
Mr. Scott retired February 28, 2019. In connection with Mr. Scott’s retirement and in consideration for his service to the Company, the Board of Directors of the Company, acting upon the recommendation of the Compensation and Benefits Committee, approved on February 7, 2019, the pro rata vesting of all of Mr. Scott’s
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outstanding retention stock unitsMr. Knight retired December 31, 2019 and began receiving the pro-rataamounts shown in the Pension Benefits at 2019 Fiscal Year End Table on page 65 and in the Non Qualified Deferred Compensation at 2019 Fiscal Year End Table on page 67. The terms of Mr. Knight’s equity awards as described in the Narrative Disclosure to the Summary Compensation Table and Grants of Plan-Based Awards Table on page 60 provided for vesting upon attainment of his outstanding performance stock unit awards. The amountage 62 with 10 years of shares, if any, receivedservice under the pro-rata vesting will depend on the achievement of the applicable performance criteria at the end of the performance period.Company’s pension plan provided he remain employed through September 30, 2019. The remainder ofCompensation and Benefits Committee did not waive any restriction periods or employment requirements in connection with Mr. Scott’sKnight’s unvested outstanding stock awards were forfeited upon his retirement.
equity awards. All references to “NEOs” that follow in this section titled Potential Payments Upon Separation from Service,
Change-In-Control or Death or Disability exclude Mr. Knight.
Separation from Service
In the event of the separation from service of any of the NEOs on December 31,
2018,2019, for any reason, the executive would be entitled to the executive’s accumulated retirement benefits under the Basic and Supplemental Plans in the payment forms set forth in the Pension Benefits at
20182019 Fiscal Year-End Table on page
7065. Under both Plans, the executive must be at least age 55 and have 5 years of service (including deemed service under the Supplemental Plan) with the Company, or at least age 65 regardless of years of service, for benefits to be payable immediately. Assuming a termination date of December 31,
2018, Messrs.2019, Mr. Fritz
Knight, Tennison and Scott werewas eligible to begin benefits immediately at January 1,
2019.2020. The monthly amount payable as a single life annuity under the Supplemental Plan for Mr. Fritz was
$46,280, Mr. Knight was $75,494, Mr. Tennison was $24,361 and for Mr. Scott was $27,359.$52,542. Assuming a termination date of December 31,
2018,2019, Ms. Whited would be eligible to begin her benefit on August 1, 2020. The monthly amount payable as a single life annuity under the Supplemental Plan for Ms. Whited would be
$9,944.$15,486.
Each of the NEOs would also be entitled to the amount shown in the Nonqualified Deferred Compensation at
20182019 Fiscal Year-End Table on page
7267. Notional returns continue to be credited and debited under these plans through the actual payment date, so amounts may differ at the time of an actual separation from service or change-in-control.
For any unvested equity awards, the Compensation and Benefits Committee may, but is not required to, waive the related restriction period and/or employment requirements. As described in the Narrative Disclosure to the Summary Compensation Table and Grants of Plan-Based Awards Table on page
66,61, the
20182019 equity awards provided for satisfaction of the continued employment requirement if an executive attains age 62 with 10 years of service under the Company’s pension plan and remains employed until September 30th in the year of grant.
The Continuity Plan provides severance benefits to the NEOs in the event (i) a change-in-control occurs and (ii) the NEO incurs a severance within the two-year period following such change-in-control. Severance means a separation from service (as such term is defined in Section 409A of the Code and the regulations promulgated thereunder): (i) by the Company other than for cause or pursuant to mandatory retirement policies in existence prior to the change-in-control, or (ii) by the NEO for good reason.
Under the Continuity Plan, a change-in-control means any of the following:
any “person,” as defined in the Exchange Act, becomes the “beneficial owner,” as defined in the Exchange Act, of 20% or more of our outstanding voting securities;
there is a change in 50% of the composition of the Board of Directors (such change must be due to new directors not recommended by the Board);
a merger, consolidation or reorganization that results in our shareholders holding 50% or less of the outstanding voting securities of the post-transaction entity; or
a liquidation, dissolution or sale of all or substantially all of our assets.
The Continuity Plan defines a severance “for cause” if it is for any of the following reasons: (i) the NEO has willfully and continually failed to substantially perform his duties, or (ii) the NEO has willfully engaged in conduct that is demonstrably injurious to the Company, monetarily or otherwise.
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Executive Compensation
A severance of the NEO is for “good reason” if it is for any of the following reasons: (i) the assignment to the NEO of duties that are materially inconsistent with the NEO’s duties immediately prior to the change-in-control or any material diminution in the nature or scope of the NEO’s responsibilities from those in effect immediately prior to the change-in-control; (ii) a reduction in the NEO’s base salary or annual bonus
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opportunity in effect immediately prior to the change-in-control; provided, however, that such reduction results in a material diminution in the total package of compensation and benefits provided to the NEO; (iii) a material reduction in the NEO’s pension, thrift, medical or long term disability benefits provided to the NEO immediately prior to the change-in-control; provided, however, that such reduction results in a material diminution in the total package of compensation and benefits provided to the NEO; or (iv) the failure by any successor, to all or substantially all of the business and/or assets of the Company, to expressly assume and agree to perform under the Continuity Plan.
In the event of a qualifying severance following a change-in-control, each of the NEOs receives a lump-sum severance payment equal to the sum of (i) his annual base salary in effect at the time of his severance and (ii) the average annual bonus earned under the Executive Incentive Plan in the most recent three calendar years; multiplied by 3 for Mr. Fritz and by 2 for Mr.
Knight,Vena, Ms. Ferguson
and Ms.
Whited, Mr. Tennison and by 1.5 for Mr. Scott.Whited. The Continuity Plan also provides for automatic vesting in the Company’s Supplemental Pension Plan and the receipt of an additional three years of age and service credit, not to exceed age 65 and 40 years of service. The age and service credit is solely for purposes of determining the amount of any benefit from the Company’s Supplemental Pension Plan.
The Continuity Plan provides in the event of a qualifying severance following a change-in-control that all restrictions on outstanding retention stock units awarded to each NEO lapse and all unvested stock options granted to each NEO vest and become exercisable for a period of three years (or five years if the NEO is retirement eligible) from the NEO’s separation from service. In no event will the period exceed the remaining term of the option. For outstanding performance stock units, the NEO will be entitled to receive shares equal to the number of performance stock units at the greater of (i) the target level of performance criteria or (ii) the level of performance criteria actually achieved through the end of each year prior to the date of the change-in-control and through the end of the most recent fiscal quarter ending prior to the date of the change-in-control.
Other benefits under the Continuity Plan include the continuation of health insurance and dental insurance for three years following a NEO’s severance (or, if sooner, until the NEO attains the age of 52, at which time the NEO is eligible to receive benefits under the Company’s retiree medical benefit plans); provided, however, that (i) the NEO will pay the fair market value of such coverage (active or retiree, as applicable) as determined under Section 61 of the Code and the regulations promulgated thereunder, and (ii) benefit amounts received by the NEO will be reduced by any benefits received by the NEO from a subsequent employer.
At its February 2014 meeting, the Committee recommended, and the Board approved, the amendment of the Continuity Plan to remove the excise tax gross-up. As a result, none of the NEOs are currently eligible to receive any excise tax gross-up on any severance payment received under the Continuity Plan.
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The table below sets forth the estimated value of the severance payments, welfare benefits, accelerated equity awards and additional pension benefits for each NEO, assuming a change-in-control had occurred as of December 31, 2018,2019, and the NEO’s employment had immediately terminated without cause or for good reason as of that date. Amounts are reported without any reduction for possible delay in the commencement or timing of payments.
Name and Principal Position | Cash Severance Payment (a) | Supplemental Pension Plan Enhancement (b) | Accelerated Vesting of Stock Options (c) | Accelerated Vesting of Retention Stock and Performance Stock Units (d) | Other (e) | Pre-Tax Total |
Lance M. Fritz Chairman, President & CEO | $ | 9,400,000 | | $ | 2,617,548 | | $ | 11,181,712 | | $ | 18,412,424 | | $ | 25,533 | | $ | 41,637,217 | (f) |
Robert M. Knight, Jr. EVP & Chief Financial Officer | | 3,958,000 | | | 1,635,450 | | | 4,451,370 | | | 9,416,642 | | | 25,553 | | | 19,486,996 | |
Rhonda S. Ferguson EVP Chief Legal Officer & Corp Secretary | | 2,469,000 | | | 401,540 | | | 823,168 | | | 2,403,129 | | | 46,548 | | | 6,143,384 | |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | 1,813,333 | | | 1,357,616 | | | 1,129,308 | | | 2,468,283 | | | 46,548 | | | 6,815,040 | |
Lynden L. Tennison Retired EVP & Chief Strategy Officer | | 2,373,333 | | | 1,155,547 | | | 1,686,164 | | | 3,558,455 | | | 25,533 | | | 8,799,031 | |
Cameron A. Scott Retired Vice President | | 1,850,000 | | | 1,460,661 | | | 2,322,331 | | | 4,544,734 | | | 25,533 | | | 10,203,258 | (f) |
Lance M. Fritz Chairman, President & CEO | | | $2,621,938 | | | $3,483,516 | | | $13,478,944 | | | $33,196,478 | | | $25,761 | | | $52,806,637(f) |
Vincenzo J. Vena Chief Operating Officer | | | 1,200,000 | | | 0 | | | 1,464,705 | | | 2,819,605 | | | 47,736 | | | 5,532,041 |
Rhonda S. Ferguson EVP Chief Legal Officer & Corp Secretary | | | 2,515,000 | | | 706,535 | | | 1,949,556 | | | 4,993,058 | | | 47,736 | | | 10,221,885 |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | | 1,149,655 | | | 1,652,366 | | | 1,814,849 | | | 3,973,944 | | | 47,736 | | | 8,638,550(f) |
| (a)
| This amount is based on 20182019 salary and three-year average bonus multiplied by the Continuity Plan severance multiple. |
| (b)
| This amount represents the present value of an additional three years of service credit (up to a maximum of 40 years), three years of Supplemental Plan age (up to a maximum of 65 years), and reductions for early retirement. |
| (c)
| This amount is based upon the difference between the exercise price of the options and the Company’s closing stock price on December 31, 2018,2019, of $138.23.$180.79. |
| (d)
| This amount is based on the Company’s closing stock price on December 31, 2018,2019, of $138.23$180.79 and assumed a payout of performance stock unitsuntis at target levels forof performance cycles ending December 31, 20192020 and December 31, 2020;2021; assumes 135%200% of target earned for performance cycle ending December 31, 2018.2019. |
| (e)
| For a termination as of December 31, 2018,2019, this amount includes the cost of medical premiums paid by the Company for three years and assumes no benefit reduction from a subsequent employer. |
| (f)
| The amount of accelerated vesting of equityseverance benefits in this table was reduced by $5,080,041$6,828,062 for Mr. Fritz and $255,856$838,345 for Mr. ScottMs. Whited in order to avoid the characterization of the total severance benefit as an excess parachute payment under Section 280G of the Code. |
Death or Disability
In the event the NEO ceases to be an employee by way of death or disability under the Company’s long-term disability plan, the NEO would be entitled to receive shares of stock equal to the number of outstanding performance stock units earned through the end of the fiscal year ending prior to the date of his death or disability. All unvested retention stock units and stock options would vest immediately. The NEO or his designated beneficiary will have the lesser of five years from the date of death or disability or the remaining life of the option to exercise any outstanding stock options.
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Set forth below is the estimated value of the accelerated vesting of performance stock units, retention stock units and stock options for each NEO, as of December 31, 2018.
Name | Accelerated Vesting of Performance Stock Units (a) | Accelerated Vesting of Retention Stock Units (b) | Accelerated Vesting of Stock Options (c) |
Lance M. Fritz Chairman, President & CEO | $ | 12,153,458 | | $ | 6,023,096 | | $ | 11,181,712 | |
Robert M. Knight, Jr. EVP & Chief Financial Officer | | 4,924,167 | | | 2,571,907 | | | 4,451,370 | |
Rhonda S. Ferguson EVP Chief Legal Officer & Corp Secretary | | 706,494 | | | 928,076 | | | 823,168 | |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | 1,162,653 | | | 590,795 | | | 1,129,308 | |
Lynden L. Tennison Retired EVP & Chief Strategy Officer | | 1,873,708 | | | 984,198 | | | 1,686,164 | |
Cameron A. Scott Retired Vice President | | 2,539,285 | | | 1,179,517 | | | 2,322,331 | |
2019.
Lance M. Fritz Chairman, President & CEO | | | $20,367,982 | | | $6,111,425 | | | $13,478,944 |
Vincenzo J. Vena Chief Operating Officer | | | 1,409,800 | | | 0 | | | 1,464,705 |
Rhonda S. Ferguson EVP Chief Legal Officer & Corp Secretary | | | 2,745,658 | | | 1,213,824 | | | 1,949,556 |
Elizabeth F. Whited EVP & Chief Human Resources Officer | | | 2,323,694 | | | 616,675 | | | 1,814,849 |
(a)
| (a)The amount is based on the Company’s closing stock price on December 31, 2019, of $180,79 and assumed a payout of performance stock units at target levels of performance ending December 31, 2020 and December 31, 2021; assumes 200% of target earned for performance cycle ending December 31, 2019. For Mr. Vena, assumes 100% of target earned for performance cycle ending December 31, 2019. |
(b)
| Amounts are calculated based on the Company’s closing stock price on December 31, 2018,2019, of $138.23 multiplied by the performance stock units earned through the end of the 2018 performance year. |
| (b) | Amounts are calculated based on the Company’s closing stock price on December 31, 2018, of $138.23$180.79 multiplied by retention stock units that are unvested on December 31, 2018.2019. |
| (c)
| Amounts are calculated based on the number of unvested option shares multiplied by the difference in the Company’s closing stock price on December 31, 2018,2019, of $138.23$180.79 and the exercise price on the grant date. |
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The median 20182019 annual total compensation of all our employees who were employed as of December 31, 20182019 was $79,902.$79,446. The 20182019 annual total compensation of Lance M. Fritz, our Chief Executive Officer (CEO), was $13,886,920.$15,018,400. The resulting CEO pay ratio of these amounts was 174:189:1. The median employee is a skilled signalmanyardman whose compensation is subject to a national collective bargaining agreement.
In determining the median employee, we utilized reasonable estimates. We identified the median employee by examining the
20182019 W-2 box 1 income (Taxable Income) for all individuals who were employed by us on December 31,
2018,2019, other than our CEO. We included all employees, whether employed on a full-time, part-time or seasonal basis except that we excluded our
3329 non-U.S. employees, who are based in Mexico, under the SEC’s de minimis exemption, since these employees represent less than 0.1% of our approximately
46,50042,800 employees. Taxable income for non-seasonal employees who were not employed for the full-year was annualized. The employees were then ranked based on Taxable Income and the median employee selected.
After identifying the median employee based on Taxable Income, we calculated annual total compensation for such employee using the same methodology we use for our Named Executive Officers as set forth in the
20182019 Summary Compensation Table on page
6358.
The SEC’s rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. As a result, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
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Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the number of shares of common stock beneficially owned as of March 22, 201920, 2020 (except as otherwise noted), by (i) each person known to the Company to own more than 5% of the Company’s common stock, (ii) each Named Executive Officer (as defined in the CD&A section of this Proxy Statement under Executive Compensation), (iii) each director or director nominee and (iv) all current directors and executive officers (as designated in the Company’s 20182019 Annual Report on Form 10-K) as a group. The table also sets forth ownership information concerning stock units, the value of which is measured by the price of the common stock. Stock units do not confer voting rights and are not considered beneficially owned shares under SEC rules. The number of common shares and stock units included in the table are adjusted to reflect the Company’s two-for-one stock split on June 6, 2014.
NAME | NUMBER OF SHARES BENEFICIALLY OWNED (a) | STOCK UNITS (b) | PERCENT OF SHARES OUTSTANDING |
Andrew H. Card, Jr. | | 18,400 | | | 29,564 | | | | * |
Erroll B. Davis, Jr. | | 5,261 | | | 36,478 | | | | * |
William J. DeLaney | | 0 | | | 371 | | | | |
David B. Dillon | | 4,000 | | | 6,189 | | | | * |
Rhonda S. Ferguson | | 23,878 | | | 39,198 | | | | * |
Lance M. Fritz | | 674,721 | | | 258,872 | | | | * |
Deborah C. Hopkins | | 4,174 | | | 4,067 | | | | * |
Robert M. Knight, Jr. | | 517,886 | | | 94,943 | | | | * |
Jane H. Lute | | 4,051 | | | 3,224 | | | | * |
Michael R. McCarthy | | 54,864 | | | 48,778 | | | | * |
Thomas F. McLarty III | | 4,000 | | | 28,925 | | | | * |
Bhavesh V. Patel | | 4,063 | | | 1,532 | | | | * |
Lynden L. Tennison | | 137,986 | | | 25,923 | | | | |
Jose H. Villarreal | | 4,914 | | | 22,570 | | | | * |
Elizabeth F. Whited | | 101,131 | | | 33,561 | | | | * |
The Vanguard Group (c) | | 61,182,023 | | | 0 | | | 8.30 | % |
BlackRock, Inc. (d) | | 48,020,051 | | | 0 | | | 6.50 | % |
All current directors and executive officers as a group (17 people) | | | | | | | | | * |
Andrew H. Card, Jr. | | | 18,400 | | | 31,166 | | | * |
Erroll B. Davis, Jr. | | | 5,377 | | | 38,232 | | | * |
William J. DeLaney | | | 5,000 | | | 1,331 | | | * |
David B. Dillon | | | 4,000 | | | 7,276 | | | * |
Rhonda S. Ferguson | | | 37,684 | | | 39,546 | | | * |
Lance M. Fritz | | | 873,910 | | | 233,473 | | | * |
Deborah C. Hopkins | | | 4,265 | | | 5,856 | | | * |
Robert M. Knight, Jr. | | | 259,511 | | | 40,133 | | | * |
Jane H. Lute | | | 4,051 | | | 4,246 | | | * |
Michael R. McCarthy | | | 54,864 | | | 51,813 | | | * |
Thomas F. McLarty III | | | 4,000 | | | 30,513 | | | * |
Bhavesh V. Patel | | | 4,173 | | | 2,516 | | | * |
Vincenzo J. Vena | | | 34,801 | | | 55,056 | | | * |
Jose H. Villarreal | | | 5,022 | | | 24,018 | | | * |
Elizabeth F. Whited | | | 109,701 | | | 34,733 | | | * |
Christopher J. Williams | | | 0 | | | 146 | | | * |
The Vanguard Group (c) | | | 59,984,985 | | | 0 | | | 8.64% |
BlackRock, Inc. (d) | | | 46,163,868 | | | 0 | | | 6.60% |
All current directors and executive officers as a group (19 people) | | | 1,371,198 | | | 626,109 | | | * |
* Indicates ownership of less than 1%
| (a)
| Includes the maximum number of shares of common stock that may be acquired within 60 days of March 22, 2019,20, 2020, upon the exercise of stock options as follows: Ms. Ferguson 23,878;28,352; Mr. Fritz 284,822;446,173; Mr. Knight 212,671;0; Mr. Tennison 82,230Vena 27,225 and Ms. Whited 68,230;54,849; and all current directors and executive officers as a group 732,471.670,938. Also included in the number of shares owned by Mr. Fritz, Mr. Knight and Ms. Whited are 23,425; 197,002;41,964; 158,822; and 3,12111,651 deferred stock units, respectively, representing deferred stock option exercise gains and vested retention stock units which they will acquire as shares of common stock at termination of employment or a future designated date. |
(b)
| (b) | Consists of stock units payable in cash to non-management directors after retirement and held in their Stock Unit Accounts. For a discussion of the Stock Unit Grant and Deferred Compensation Plan for non-management directors, see page 3733. These amounts for the Named Executive Officers consist of 39,198; 258,872; 94,94339,546; 223,473; 40,133; 55,056 and 33,56134,733 unvested stock units owned by Ms. Ferguson, Mr. Fritz, Mr. Knight, Mr. TennisonVena, and Ms. Whited awarded under Company stock plans. Stock units do not confer voting rights and are not considered beneficially owned shares of common stock under SEC rules. |
| (c)
| Based solely upon information contained in Schedule 13G/A filed on February 11, 2019,10, 2020, reporting that, as of December 31, 2018,2019, this holder held sole and shared voting power over 1,047,3381,265,478 and 235,376250,727 of these shares, respectively, and sole and shared dispositive power over 60,056,37658,719,131 and 1,125,6471,265,854 of these shares, respectively. The address of The Vanguard Group is 100 Vanguard Boulevard, Malvern, PA 19355. |
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Security Ownership of Certain Beneficial Owners and Management
| (d)
| Based solely upon information contained in Schedule 13G/A filed on February 6, 2019,5, 2020, reporting that, as of December 31, 2018,2019 this holder held sole and shared voting power over 41,256,96539,452,657 and 0 of these shares, respectively, and sole and shared dispositive power over 48,020,05146,163,868 and 0 of these shares, respectively. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. |
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Security Ownership of Certain Beneficial Owners and Management
The following table summarizes the equity compensation plans under which our common stock may be issued as of December 31. 2019:
Equity Compensation Plan Information
Equity compensation plans approved by security holders | | | 4,549,180(1) | | | $113.35(2) | | | 70,318,887(3) |
Total | | | 4,549,180 | | | $113.35 | | | 70,318,887 |
(1)
| Includes 1,047,593 retention units that do not have an exercise price. Does not include 1,659,991 retention shares that have been issued and are outstanding. |
(2)
| Does not include the retention shares described above in footnote 1. |
(3)
| Consists of 68,948,687 share of Company common stock available for issuance under the Union Pacific Corporation 2013 Stock Ownership RequirementsIncentive Plan and 1,370,200 shares of Company common stock available for Executivesissuance under the Union Pacific Corporation 2000 Directors Plan. |
Stock Ownership Requirements for Executives The Company’s Compensation and Benefits Committee believes that stock ownership will better align the interests of our executives, including the Named Executive Officers, with those of our shareholders by enhancing the focus of executives on the long-term success of the Company. We require our executives to achieve and maintain a specified amount of stock ownership acquired primarily through the exercise of options and the receipt of retention stock or retention stock units under our equity compensation programs. Our Stock Ownership Guidelines require that the CEO hold at least seven (7) times annual salary and that the other Named Executive Officers hold at least four (4) times annual salary in stock or stock units. Until the required ownership target is achieved, executives must retain all of the shares of stock they receive from our plans, net of the shares of stock required, if any, to cover tax expense and the cost of exercising options. We do not include the following types of equity interests when calculating stock ownership under these guidelines: (i) unexercised stock options, (ii) unvested retention shares or units, and (iii) any investment in the Company stock fund under the Thrift Plan, the Supplemental Thrift Plan or the Executive Incentive Deferral Plan. As of December 31,
2018,2019, all of the Named Executive Officers were in compliance with stock ownership requirements.
Trading in Derivatives of Our Common Stock Is Prohibited
|
Hedging Our Common Stock Is ProhibitedThe
Company
policy prohibits directors and
all employees (including
the Named Executive Officers)our officers) from hedging
activities,Union Pacific common stock, such as (i) buying, selling or writing puts, calls or options related to our common stock and (ii) executing straddles, equity swaps and similar derivative arrangements
linked tothat hedge our common stock. In addition, directors and executive officers may not pledge, deliver as collateral, or maintain a margin account
or otherwise subjectwith respect to shares of our common
stock to any other prohibited security arrangement.stock. Sales of Our Common Stock by Executive Officers and Directors Under Rule 10b5-1 Trading PlansExecutive Officers and Directors Under Rule 10b5-1 Trading Plans |
Executive officers (including the Named Executive Officers)Officers and certain other executives in key positions) and directors who meet their applicable ownership requirements as described above may sell shares of our common stock subject to the following restrictions:
Executive officers and directors may only sell shares of our common stock that exceed their ownership target (the Eligible Shares).
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Security Ownership of Certain Beneficial Owners and Management
Eligible Shares may be sold only pursuant to a written trading plan designed to comply with SEC Rule 10b5-1, that:
was adopted when a quarterly trading blackout was not in effect and when such executive officer or director was not in possession of material nonpublic information regarding the Company,
has been reviewed and approved by the General Counsel’s office,
Chief Legal Officer,
has been disclosed to the public in a manner determined by the General Counsel’s officeChief Legal Officer (public disclosure may not be required for certain executives who are not executive officers), and
has been in effect for at least 20 trading days from the date of disclosure of the trading plan to the public or approval by the General Counsel’s officeChief Legal Officer for trading plans not announced.
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Security Ownership of Certain Beneficial Owners and Management
The total sales by an executive officer or director of Eligible Shares during any calendar year may not exceed 50% of the total shares of our common stock beneficially owned by such executive officer or director using the immediately preceding February 1st measurement date.
For purposes of this policy, the number of shares beneficially owned by an executive officer or director includes shares and units deferred by the executive officer or director and excludes any shares disclaimed by the executive officer or director for purposes of reporting beneficial ownership under Section 16 reporting of the Securities Exchange Act of 1934 (Exchange Act). All of the reporting obligations of the executive officer or director under Section 16 apply to sales made pursuant to a 10b5-1 trading plan.
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PROPOSAL NUMBER 4 – Shareholder Proposal Regarding Independent Board Chairman
John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, CA 90278, the owner ofwho reported owning 100 shares of the Company’s common stock, has submitted the following proposal. The proposal and supporting statement are presented as received in accordance with SEC rules, and the Company disclaims any responsibility for their content. If properly presented at the annual meeting by or on behalf of the proponent, the Board of Directors recommends a vote AGAINST this proposal.
proposal.
Shareholders request our Board of Directors to adopt as policy, and amend our governing documents as necessary, to require
henceforth that the Chair of the Board of Directors, whenever possible
to be an independent member of the Board.
TheAlthough it would be better to have an immediate transition to an independent Board Chairman, the Board would have the discretion to phase in this policy for the next Chief Executive Officer
transition, implemented so it does not violate any existing agreement.transition.
If the Board determines that a Chairman, who was independent when selected is no longer independent, the Board shall select a new Chairman who satisfies the requirements of the policy within a reasonable amount of time. Compliance with this policy is waived
ifin the unlikely event that no independent director is available and willing to serve as
Chairman.Chairman under the succession planning program of the company. This proposal requests that all the necessary steps be taken to accomplish the above.
Caterpillar
This proposal topic won 50%-plus support at 5 major U.S. companies in 2013 including 73%-support at Netflix.
Lead Director Michael McCarthy is
an example of a company changing course and naming an independent board chairman. Caterpillar had opposed a shareholder proposalno substitute for an independent
board chairman at its annual meeting. Wells Fargo also changed courseBoard Chairman. Mr. McCarthy was rejected in 2019 by more shareholders than any other director except our combined Chairman and
named an independent board chairman.This proposal topic also won impressive 45%-support at our 2017 annual meeting. This 45%-support would have been higher (perhaps 51%) if small shareholders had the same access to corporate governance information as large shareholders. Fortunately our company returned to an in-person annual meeting format in 2018 after experimenting with a computer linkup meeting format.
Meanwhile there are many challenges that face our company that need to be well managedCEO, Lance Fritz. Mr. McCarthy is apparently retired and prevented from reoccurring that could be helped by having an independent chairman run theserves on no other major Board of Directors to keep his skills up to date. Mr. McCarthy has apparantly never served on any other major Board of Directors.
An independent Chairman is best positioned to build up the oversight capabilities of our directors while our CEO
focusesaddresses the challenging day-to-day issues facing the company. The roles of Chairman of the Board and CEO are fundamentally different and should not be held by the same person. There should be a clear division of responsibilities between these positions to insure a balance of power and authority on
challenges like these:$2 Million settlement over railroad worker fatality in Kansas City, Missouri
August 2018
Lawsuit over alleged disability discrimination, Nebraska
August 2018
Lawsuit over alleged inadequate maintenance of drainage system causing flood damage in 2016,
Texas
July 2018
Train caught fire in Texarkana
June 2018
$5 Million penalty over employee injury in a railcar bridge accident
May 2018
Train derailment in Weatherford, Texas
February 2018
Employee asbestos exposure lawsuits
February 2018
Purported Class Action over alleged inaccurate wage statements, California
January 2018
Lawsuit over alleged retaliation and termination due to military deployment
January 2018
Lawsuit over chronic illness developed due to alleged exposure to substances at workplace
December 2017
the Board. TABLE OF CONTENTS
PROPOSAL NUMBER 4 – Shareholder Proposal Regarding Independent Board Chairman
Lawsuit over alleged harassment, retaliation and disability discrimination, Nebraska
November 2017
Lawsuit over employee death due to alleged exposure to substances at workplace
November 2017
Lawsuit over alleged wrongful termination due to disability, Texas
October 2017
Lawsuit over employee death due to alleged exposure to toxic substances
October 2017
Employee fatally struck by train in Arlington, Texas
September 2017
EEOC: Race discrimination Class Action
August 2017
$525,000 Penalty over air pollution/gas leak, California.
August 2017
Please vote yes: Independent Board Chairman - Proposal 4
Recommendation of the Board of Directors
|
Recommendation of the Board of Directors First, we note that similar proposals regarding an independent board chairman were made at our annual meetings in the last 5 years. In 2019, the proposal received support from approximately 29% of voted shares and 25% of outstanding shares. This support was down from 45% of voted shares and 40% of outstanding shares in 2017, the year in which it received its greatest support out of all the years that the proposal has been made. We believe this reflects our shareholders’ recognition of the strength and independence of our fully engaged Board and the actions the Board has taken to implement robust corporate governance practices at Union Pacific.
The Board of Directors opposes the proposal because it believes it to be inshareholders are best served through the best interestBoard’s existing practice of the Company for the Board to periodically evaluateevaluating the leadership structure of the CompanyBoard and make a determination regardingdetermining whether to separate or combine the roles of Chairman and CEO based on circumstances at the time of its evaluation. By retaining flexibility to adjust the Company’s leadership structure, the Board is best able to provide for appropriate management and leadership of the Company and address any circumstances the Company may face, as no single leadership model is universally or permanently appropriate in all circumstances. The Board believes that this flexibility has served the Company and its shareholders well during recent leadership transitions and has allowed the Board to operate efficiently and effectively to protect and enhance our long-term success and shareholder value. The proposal, however, deprives the Board of the flexibility to act in the shareholders’ best interests by applying a “one-size-fits-all” approach to structuring the Board rather than permitting the Board to organize its functions and manage its operations in the manner it determines to be most productive and efficient.
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PROPOSAL NUMBER 4 – Shareholder Proposal Regarding Independent Board Chairman
The Board’s Existing Policies Ensure that Independent Directors Operate Effectively on the
Board. Board. The Board’s current policies demonstrate the Board’s continuing commitment to strong corporate governance, effective risk management and an empowered and independent Board. As described on page 2724 of this Proxy Statement, if the individual elected as Chairman is not an independent director, the independent directors also elect a lead independent director. As discussed in the Board Leadership Structure section and inof this Proxy Statement, under the Company’s Corporate Governance Guidelines and Policies, the lead independent director (i) presides at meetings of the Board at which the Chairman and CEO is not present, including executive sessions of the independent directors; (ii) approves the flow of information sent to the Board, and approves the agenda, schedule and what materials are sent for Board meetings; (iii) serves as the liaison or facilitates working relationships between the independent directors and the Chairman and CEO; (iv) is available for consultation and communication with major shareholders as appropriate; (v) in conjunction with the Compensation and Benefits Committee, oversees the process of evaluating and compensating the Chairman and CEO; (vi) assures that a succession plan is in place for the Chairman and CEO, as well as the lead independent director; (vii) authorizes or recommends the retention of consultants who report directly to the full Board; and (viii) assists the Board and Company officers in compliance with, and implementation of, the Company’s governance guidelines and policies. The lead independent director also has the authority to call executive sessions of the independent directors. In addition, the lead independent director will often act as Chair of the Corporate Governance and Nominating Committee, fulfilling the designated duties and responsibilities set forth in the Committee’s Charter. Because the Company’s policies ensure that there will be a lead independentTABLE OF CONTENTS
PROPOSAL NUMBER 4 – Shareholder Proposal Regarding Independent Board Chairman
director at any time that the Chairman is not independent, including times during which the positions of Chairman and CEO are both held by the same person, it is unnecessary to permanently separate the Chairman and CEO positions. Additional information about the lead independent director’s responsibilities is provided on page 2124 of this Proxy Statement.
The Company Maintains Effective and Progressive Governance
Practices.Practices. The Board believes that effective independence and oversight are currently being maintained through the Board Leadership Structure detailed beginning on page 2124 of this Proxy Statement, and through the Company’s sound Corporate Governance Guidelines and Policies as set forth on pages 20 through 23 of this Proxy Statement and which also can be found on our website.website at www.up.com/investors/governance. The independence of the Board as a whole satisfies both Company and New York Stock Exchange guidelines and independence standards, as 10 of 11 current directors (and 10 out of 11 director nominees) are outside independent directors, and the Audit, Compensation, Finance, and Governance Committees are all composed entirely of independent outside directors. Moreover, the Board routinely holds scheduled sessions of independent directors at each Board meeting, and each director may originate action items for the Board’s agenda. The Board is deeply engaged in overseeing the Company’s strategy, including implementation of Unified Plan 2020, our strategy for operating a safe, reliable and efficient railroad by increasing reliability of our service product, reducing variability in network operations and improving resource utilization costs, as well as our safety enhancement and risk management activities. In addition, the Board has adopted practices that increase its accountability to shareholders including, the adoption of “proxy access” By-Law provisions.provisions, and recently, a formalized policy for recoupment of incentive compensation that is consistent with, but also more expansive than, the proposed “clawback” rules under the Dodd-Frank Wall Street and Consumer Protection Act.
The proponent provides no evidence demonstrating, or even suggesting, that requiring an independent Chairman of the Board improves corporate performance or increases shareholder value. In fact, the proponent’s listing of what appears to be routine, non-material litigation matters involvinginaccurate assertions about the CompanyCompany’s current lead independent director, Mr. McCarthy, in no way demonstrates that requiring an independent Chairman of the Board would improve corporate performance. Pages 12 and 16 of this Proxy provide accurate information on Mr. McCarthy’s qualifications to sit on the Company’s Board, including information regarding his current and past work history, as well as information on his current and past experience serving on the boards of other public companies. Similarly, the Company’s current report on Form 8-K, filed with the SEC on May 17, 2019, discloses the actual level of votes against Mr. McCarthy at the Company’s 2019 annual shareholder meeting, and reflects that almost 97% of the votes cast supported his re-election. Mr. McCarthy has committed the time and effort to effectively help lead the Board.
The Board believes that adopting a policy to restrict the Board’s discretion in selecting the Chairman would deprive the Board of the valuable flexibility to exercise its business judgment in selecting the most qualified
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PROPOSAL NUMBER 4 – Shareholder Proposal Regarding Independent Board Chairman
and appropriate individual to lead the Board. The Board further believes that adopting such a policy would not provide any benefit to the Company or its shareholders, particularly in light of the Company’s policies requiring an independent lead director at any time when the Chairman is not independent.
In view of the strong independent oversight of management by the Board, the Company’s sound governance practices and the business success that the Board has fostered and overseen, the Board believes the standard that would be imposed under the proposal is not productive.
The Board of Directors respectfully requests that shareholders vote AGAINST Proposal
4.4.
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Other Matters
PROPOSAL NUMBER 5 – Shareholder Proposal Regarding Climate Assessment Report James McRitchie, 9295 Yorkship Court, Elk Grove, CA 95758, who reported owning 80 shares of the Company’s common stock, has submitted the following proposal. The proposal and supporting statement are presented as received in accordance with SEC rules, and the Company disclaims any responsibility for their content.If properly presented at the annual meeting by or on behalf of the proponent, the Board of Directors recommends a vote AGAINST this proposal.
Resolved: Shareholders request Union Pacific (or “Company”) issue a report, at reasonable cost and omitting proprietary information, describing if, and how, it plans to reduce or offset its total contribution to climate change and align its operations with the Paris Agreement’s goal of maintaining global temperature increases well below 2 degrees Celsius.
Supporting Statement: Shareholders seek information, among other issues reported at board and management discretion, on the relative benefits and drawbacks of integrating actions, such as:
Adopting overall short-, medium-, and long-term, absolute greenhouse gas emissions reduction targets for the Company’s full carbon footprint, aligned with the Paris Agreement;
Increasing the scale, pace and rigor of initiatives aimed at reducing the carbon intensity of Union Pacific’s services and operations;
Increasing investments in route and switchyard electrifications [https://grist.org/climate-energy/how-we-can-turn-railroads-into-a-climate-solution/], as well as renewable energy resources, such as wind and solar.
Background: In 2018, the Intergovernmental Panel on Climate Change advised that net carbon emissions must fall 45% by 2030 and reach net zero by 2050 to limit warming below 1.5 degrees Celsius, thereby preventing the worst consequences of climate change.
The Fourth National Climate Assessment report (2018) finds with continued growth in emissions, “annual losses in some U.S. economic sectors are projected to reach hundreds of billions of dollars by 2100.”
Climate change impacts present risks to investors such as increased supply chain disruptions, reduced resource availability, lost production, commodity price volatility, infrastructure damage, political instability, and reduced worker efficiency, among other factors that can disrupt company operations.
The U.S. Energy Information Administration identifies the transportation sector as the largest producer of greenhouse gas emissions and its emissions are steadily increasing.
Union Pacific has implemented various initiatives to improve efficiency and reduce emissions, but greenhouse gas emissions from its locomotives increased from 2017 to 2018. While Union Pacific does have a modest goal of reducing locomotive fuel consumption by 1.5% in total from 2018 through 2020, the company lacks comprehensive greenhouse gas reduction goals and plans.
More than 690 leading companies, including DHL Group, have committed to reduce emissions in line with Paris Agreement goals. Deutch Bahn (a German railway company with 318,000 employees) has a goal to use 100% renewable energy by 2038 [https://ir.deutschebahn.com/en/news-presentations/news/detail/deutsch-bahn-is-focusing-solely-on-powerful-rail/]
Ramping up the scale, pace and rigor of climate-related efforts may help Union Pacific unlock opportunities for growth as major business customers demand environmental accountability from suppliers. It may also help prepare for future carbon-related regulations.
Similar resolutions won majority votes recently at Genesee & Wyoming [https://engagements.ceres.org/ceres_engagementdetailpage?recID=a0I1H00000C4a0TQAR], Anadarko, Exxon Mobil, Kinder Morgan, Middleby, Occidental, and Range Resources.
Given the impact of climate change on Union Pacific, the economy, environment, and human systems, and the short amount of time in which to address it, our Company has a clear responsibility to investors and stakeholders to account for whether, and how, it plans to reduce or offset ongoing climate contributions.
Vote FOR Climate Assessment Report – Proposal 5
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PROPOSAL NUMBER 5 – Shareholder Proposal Regarding Climate Assessment Report
Since 2008, we have invested roughly $3.8 billion in purchasing more than 1,500 locomotives that all meet the EPA’s tier standards for emissions, some of which also meet the EPA’s stringent Tier 4 emissions standards, which reduce particulate emissions from diesel locomotives by as much as 90% and nitrogen oxide emissions by as much as 80%. At the same time, Union Pacific also retired more than 1,950 older, less fuel efficient locomotives.
We continue to diligently work toward our previously announced fuel consumption goal of reducing locomotive consumption by 1.5% in total through 2020. For example, we have worked to optimize fuel consumption by expanding the use of our energy management system (EMS), which will allow high-horsepower locomotives that are equipped with EMS to use the system, similar to cruise control, in all locations that utilize Positive Train Control (PTC). PTC provides the two-way communication and data needed to optimize this EMS technology.
The proposal fails to acknowledge or recognize the significant measures the Company already takes, which are based on carefully planned and executed strategies developed and implemented by the Company’s management, with Board oversight. The proposal also ignores the reports and other information the Company already makes available to its shareholders and other stakeholders. Union Pacific maintains its steadfast commitment to sustainable practices and acting as a responsible steward of the environment, and will continue to evaluate areas where it can continue to enhance both its commitment to informing our shareholders and stakeholders on our goals and accomplishments. However, the Board does not believe requiring the Company to incur the additional cost and expense to provide the didactic report on the pros and cons of generalized propositions, as requested in this proposal, would result in improved environmental stewardship, better company performance, or increased shareholder value. Instead, we believe that the additional report requested by the proposal would result in an unnecessary and unproductive use of the Company’s time and resources and negatively burden shareholder value, and that the interests of the Company’s shareholders are better served by the deliberate, thoughtful decisions and analysis of Company management, made with Board oversight.
The Board of Directors respectfully requests that shareholders vote AGAINST Proposal 5.
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Under SEC rules, any shareholder who wishes to present a proposal to be included in our Proxy Statement and introduced at our
20202021 Annual Meeting of Shareholders must submit the proposal to the Secretary of the Company so that it is received no later than the close of business on December
7, 2019,4, 2020, and must satisfy the other requirements of SEC Rule 14a-8. Any shareholder who instead wishes to bring a proposal directly before the Company’s next Annual Meeting of Shareholders (other than certain proposals submitted only pursuant to SEC Rule 14a-8) must provide written notice of the proposal to the Secretary of the Company no earlier than January
17, 2020,14, 2021, and no later than the close of business on February
16, 2020,13, 2021, and must otherwise provide the information and comply with the procedures set forth in the Company’s By-Laws, a copy of which is available on the Company’s website at
www.up.com/investors/governance. Shareholders may obtain a printed copy of the Company’s By-Laws by contacting the Secretary of the Company at the address set forth on the notice page of this Proxy Statement. If a shareholder wishing to make such a proposal fails to comply with the forgoing notice provision and does not also satisfy the requirements of SEC Rule14a-4(c)(1), the Company may exercise discretionary voting authority over proxies it solicits in determining how to vote on the proposal.
Any eligible shareholder wishing to nominate director candidates for inclusion in our Proxy Statement under our proxy access By-Law provisions should refer to page
19 for applicable procedures and submission requirements.
Section 16(a) Beneficial Ownership Reporting Compliance
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Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires the Company’s executive officers, directors and persons who own more than 10% of a registered class of the Company’s equity securities to file initial reports of ownership and reports of changes in ownership of the Company’s common stock with the SEC. SEC regulations require executive officers, directors and greater than 10% shareholders to furnish the Company with copies of all forms they file pursuant to Section 16(a). As a matter of practice, the Company’s administrative staff assists the Company’s executive officers and directors in preparing initial reports of ownership and reports of changes in ownership and filing such reports with the SEC. Based solely on a review of the copies of such forms furnished to the Company and written representations from the Company’s executive officers and directors,
thethere was one late filing. Mr. Patel failed to file a Form 4 due to a purchase on May 18, 2018, of 20 shares of Company
believes that all Section 16(a)common stock in a managed S&P 500 account. The late Form 4 filing
requirements were met during 2018.Delivery of Documents to Shareholders Sharing an Address
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was made on January 6, 2020.Delivery of Documents to Shareholders Sharing an Address The broker, bank or other nominee for any shareholder who is a beneficial owner, but not the record holder, of the Company’s common stock may deliver only one copy of the Company’s Proxy Statement and annual report to multiple shareholders who share the same address, unless that broker, bank or other nominee has received contrary instructions from one or more of the shareholders. The Company will deliver promptly, upon written or oral request, a separate copy of the Proxy Statement and annual report to a shareholder at a shared address to which a single copy of the documents was delivered. A shareholder who wishes to receive a separate copy of the Proxy Statement and annual report, now or in the future, should submit a request to the Secretary of the Company by telephone at 402-544-5000 or by submitting a written request to the Secretary of the Company at the address listed below. Beneficial owners sharing an address who are receiving multiple copies of proxy materials and annual reports and wish to receive a single copy of such materials in the future will need to contact their broker, bank or other nominee to request that only a single copy of each document be mailed to all shareholders at the shared address in the future.
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Availability of Annual Report on Form 10-K
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Availability of Annual Report on Form 10-K
If you would like an additional copy of the Annual Report on Form 10-K for the year ended
December 31, 2018,2019, you may find this document at www.up.com under the “Investors” caption link. Alternatively, any shareholder wishing to receive, without charge, a copy of this document should send a written request to: Corporate Secretary, Union Pacific Corporation, 1400 Douglas Street, 19th Floor, Omaha, NE 68179.68179.
The references to the Company’s website in this Proxy Statement do not constitute, and should not be deemed, an incorporation by reference of the information contained on, or available through, the website. Therefore, such information should not be considered part of this Proxy Statement.
The Board does not currently intend to bring any other business before the Annual Meeting, and is not aware of any other business to be brought before the Annual Meeting. If any other business is properly brought before the Annual Meeting, the proxies will be voted in accordance with the judgment of the proxy holders.
Whether or not you plan to attend the Annual Meeting, please vote by telephone or Internet or
complete, sign, date and promptly return the accompanying proxy card in the enclosed envelope.
Rhonda S. Ferguson
Executive Vice President,
Chief Legal Officer and
Corporate Secretary