Summary
United Parcel Service Inc. (UPS) filed an 8-K on November 8, 2010, detailing changes to its executive compensation programs, effective January 1, 2011. The primary focus of these changes is to further strengthen the link between executive pay and company performance. Notably, UPS is moving towards making 100% of long-term incentives performance-based by eliminating time-vested Restricted Performance Units (RPUs) starting in 2012, with their value to be incorporated into revised Management Incentive Program (MIP) targets. This strategic shift aims to better align executive interests with those of shareholders by emphasizing measurable results.
Key Highlights
- 1Changes to executive compensation programs designed to enhance pay-for-performance alignment are effective January 1, 2011.
- 2Time-vested RPUs in the Long-Term Incentive (LTI) program will be eliminated effective January 1, 2012, moving towards 100% performance-based long-term incentives.
- 3The value of eliminated time-vested RPUs will be incorporated into revised MIP award targets.
- 4Stock options will continue to be granted annually to reward performance over a multi-year period.
- 5The Management Incentive Program (MIP) is revised to better link business performance with incentive compensation and satisfy IRS Section 162(m) requirements.
- 6Maximum MIP awards for executive officers in 2011 will be capped at 0.5% of the Company's net income.
- 7The Compensation Committee retains discretion to reduce (but not increase) final MIP awards based on various performance and economic factors.
Frequently Asked Questions
The primary goal is to strengthen the direct link between executive pay and the company's performance, ensuring that compensation is more closely tied to measurable business results and shareholder value.
Starting January 1, 2012, time-vested Restricted Performance Units (RPUs) will be eliminated. The company aims for 100% of long-term incentives to be performance-based. The value from the eliminated RPUs will be integrated into revised Management Incentive Program (MIP) targets.
The MIP is being revised for calendar year 2011 to tie awards to company net income. The total pool of potential MIP awards for executive officers will be a maximum of 0.5% of the Company's audited net income for 2011. The Compensation Committee will have discretion to adjust individual awards, including reducing them below target.
No, executive bonuses under the MIP are not guaranteed. The Compensation Committee has the discretion to reduce final awards based on factors such as company performance, economic conditions, and individual performance. Furthermore, if UPS does not achieve net income in a performance period, no MIP awards will be payable to executive officers.