What is the main purpose of the new Long Term Plan approved by Union Pacific?

The main purpose of the Long Term Plan is to motivate and reward key executives by closely aligning their interests with those of Union Pacific shareholders. It achieves this through stock unit grants that are contingent on meeting specific company financial and operational performance goals over a three-year period.

How is executive performance measured under the new Long Term Plan?

Executive performance is primarily measured by the company's annual Return on Invested Capital (ROIC). The Compensation and Benefits Committee will calculate ROIC, with potential adjustments for special transactions or events. The achievement of ROIC targets over the three-year performance period determines the number of stock units earned.

What are the potential payout structures for executives under the Plan?

Executives can earn stock units incrementally over the three-year performance period. They may earn up to one-third of their target grant based on year one ROIC. For year two, they can earn additional units, bringing the cumulative potential to two-thirds of the target based on the average ROIC of the first two years. In year three, they can earn up to 200% of their target grant based on the average ROIC across all three years. A minimum ROIC target must be met to receive any payout.

Are there any other conditions for executives to receive payouts or for the company to gain tax benefits?

Yes, in addition to meeting the ROIC performance targets, stock units earned under the Plan are also conditioned on the satisfaction of a minimum Operating Income condition. This condition is necessary for the company to achieve tax deductibility for the stock units earned by the executives.

UNP 8-K: Material Agreements

Summary

Union Pacific Corporation (UNP) filed an amendment to its Form 8-K on January 27, 2006, to clarify a material event that occurred on January 26, 2006. The primary focus of this amendment is the Board of Directors' approval of a new Long Term Plan (the Plan) designed to incentivize and reward key executives. This Plan utilizes grants of stock units tied to a three-year performance and service period, with payouts contingent on achieving specific financial and operational goals, thereby aligning executive interests with shareholder value.

Key Highlights

1Union Pacific's Board of Directors approved a new Long Term Plan for key executives on January 26, 2006.
2The Plan involves grants of stock units subject to a three-year performance and service period.
3Performance is measured primarily by annual Return on Invested Capital (ROIC) as determined by the Compensation and Benefits Committee.
4Payouts for stock units are contingent on achieving defined ROIC performance targets over the three-year period.
5Executives may earn up to one-third of target units in year one, two-thirds in year two (cumulative average), and up to 200% in year three (cumulative average).
6A minimum Operating Income condition must also be met for tax deductibility of earned stock units.
7Dividend equivalents will accrue on earned stock units, and grants are subject to the company's 2005 Stock Incentive Plan with a 750,000-unit limit per executive over 36 months.

UNION PACIFIC CORP 8-K/A Report, Material Agreement (Jan 27, 2006)

Summary

Key Highlights

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