Senior Executive Severance

2010 – United Technologies Corp.

 

 

RESOLVED, that shareholders of United Technologies Corp. ("UTC") urge the Committee on Compensation and Executive Development (the "Committee") to adopt a policy on severance for senior executives that includes the following principles and disclose the policy to shareholders no later than six months after UTC's annual meeting of shareholders:

 

1. Severance arrangements shall take into account the amount of UTC stock owned by an executive, the benefits payable under any retirement plan(s) in which the executive is a participant and the amount of compensation deferred by the executive.

2. Severance payments following a change in control shall be triggered only if (a) a change in control occurs and (b) the executive is involuntarily terminated (other than for cause) or resigns for good reason.

3. Tax gross-ups on golden parachute payments shall not be provided.

 

Supporting Statement: As long-term shareholders, we favor compensation policies and practices that serve to retain valuable executives while tying senior executive pay tightly to company performance. We believe that many severance arrangements violate these principles by promising more generous benefits than necessary, in light of executives' accumulated equity stakes and pension benefits and by providing costly tax gross-ups.

 

In our view, the principles advanced in this proposal will bring more discipline to the process of establishing severance arrangements at UTC. Although UTC currently uses a "double trigger" for change of control payments, there is no policy mandating that this always be the case. UTC currently provides tax gross-up payments with respect to severance payments made on a change of control to executives who were part of the executive leadership group prior to June 10, 2009. (New members of that group will not be entitled to gross-up payments as a result of a change in the relevant plan.). There is no indication in UTC's proxy statement that the Committee considers (or has a policy regarding consideration of) an executive's stock ownership, pension benefits or deferred compensation balance in formulating severance arrangements.

 

The Task Force on Executive Compensation of The Conference Board recently issued recommendations endorsing several of the principles urged in this proposal. The Task Force recommended that, absent a finding of special justification, companies refrain from providing "overly generous" severance benefits-including severance arrangements that do not have the "double trigger" described in this proposal-and tax gross-ups. (The Conference Board Task Force on Executive Compensation, at 9 (Sept. 2009)) Severance payments, the Task Force stated, should not "unjustly enrich" the executive; they "should be reasonable and serve the purpose of bridging the period during which the executive is unemployed." (Id. at 21.) The Task Force noted that every dollar of full excise tax gross-up costs a company between $2.50 and $3.00 as a result of the tax-on-tax effect. (Id. at 21, 35.)

 

We urge shareholders to vote for this proposal.