DEF 14A 1 s002687x1_def14a.htm DEF 14A

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No.  )

Filed by the Registrant ☒

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o   Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

☒   Definitive Proxy Statement

o   Definitive Additional Materials

o   Soliciting Material Pursuant to §240.14a-12

UNION PACIFIC CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Union Pacific Corporation
1400 Douglas Street, 19th Floor
Omaha, NE 68179

April 5, 2019

NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS

Date and Time
Thursday, May 16, 2019, at 8:00 a.m., Central Daylight Time
   
 
 
Place
Omaha Marriott Downtown at the Capitol District
222 North 10th Street
Omaha, Nebraska
   
 
 
Record Date
March 22, 2019
   
 
 
Items of Business
(1)
To elect the eleven directors named in the Proxy Statement, each to serve for a term of one year or until their successors are elected and qualified;
 
(2)
To ratify the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of the Company for 2019;
 
(3)
To approve, by non-binding vote, the compensation of the Company’s Named Executive Officers;
 
(4)
To consider and vote upon one shareholder proposal if properly presented at the Annual Meeting; and
 
(5)
To transact such other business as may properly come before the Annual Meeting.

Only shareholders of record at the close of business on March 22, 2019, are entitled to notice of, and to vote at, the Annual Meeting.

For your convenience, you may attend the Annual Meeting in person or listen via a live audio-only webcast. You may listen to the live audio-only webcast of the Annual Meeting via the Internet at www.virtualshareholdermeeting.com/UNP2019 when you enter your 16-digit control number included on your notice of Internet availability of proxy materials, on your proxy card or on the instructions that accompanied your proxy materials. Instructions on how to listen to the Annual Meeting via live audio-only webcast are posted at www.virtualshareholdermeeting.com/UNP2019.

Your vote is very important. New York Stock Exchange rules provide that if your shares are held by a broker, your broker will NOT be able to vote your shares on most matters presented at the Annual Meeting, including the election of directors, unless you provide voting instructions to your broker. We strongly encourage you to submit your proxy card to your broker or utilize your broker’s telephone or internet voting services (if available) and exercise your right to vote as a shareholder.

Rhonda S. Ferguson
Executive Vice President,
Chief Legal Officer and
Corporate Secretary

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UNION PACIFIC CORPORATION
PROXY STATEMENT

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PROXY SUMMARY

This summary highlights information contained elsewhere in this Proxy Statement. This summary does not contain all of the information that you should consider. You should read the entire Proxy Statement carefully before voting.

Meeting Information and Availability of Proxy Materials
Date and Time:
May 16, 2019, at 8:00 A.M., Central Daylight Time
Place:
Omaha Marriott Downtown at the Capitol District, 222 North 10th Street, Omaha, Nebraska
Record Date:
March 22, 2019

This Proxy Statement and the accompanying proxy card are being distributed and made available to shareholders on or about April 5, 2019.

Voting Matters and Board Recommendations
Matter
Our Board’s Recommendations
Proposal 1
Election of eleven (11) Director Nominees (page 8)
FOR Each Director Nominee
Proposal 2
Ratification of Appointment of Deloitte & Touche LLP as Independent Registered Public Accounting Firm for 2019 (page 39)
FOR
Proposal 3
Advisory Vote to Approve Executive Compensation (page 42)
FOR
Proposal 4
Shareholder Proposal Regarding Independent Chairman (page 84)
AGAINST
How to Vote

Even if you plan to attend the 2019 Annual Meeting of Shareholders in person, we encourage you to vote in advance of the meeting. You may vote using one the following voting methods. Make sure to have your proxy card or voting instruction form in hand and follow the instructions. Participants in Union Pacific’s thrift and retirement plans who hold Company stock through such plans will receive separate voting instructions. You can vote in one of three ways:

Record Holders
Beneficial Owners

Vote via the Internet
Follow the instructions set forth on
the voting instruction form provided by your broker with these proxy materials.
Go to www.proxyvote.com

Vote by telephone
Call toll free 1-800-690-6903 within the USA, US territories & Canada

Vote by mail
Complete, sign, date and return your proxy card in the envelope provided

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PROXY SUMMARY

Company Performance Highlights*

In 2018, the Company produced record financial results and finished the year with significant improvements in service reliability and efficiency, overcoming network congestion and excess operating costs incurred earlier in the year. We also embarked on a fundamental shift in our operating philosophy by adopting precision scheduled railroading (PSR) principles by launching Unified Plan 2020. Highlights of the Company’s 2018 operational and financial performance include:

Record financial performance, with adjusted earnings per share of $7.91, a 37% improvement compared to last year’s $5.79 per share
An all-time record operating ratio for 2018 of 62.7%, improving 0.1 point from 2017’s adjusted 62.8%
Operating income of more than $8.5 billion, an 8% increase compared to 2017’s adjusted $7.9 billion
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
Total shareholder return was 5.3% for 2018, compared with a negative 4.4% for the S&P 500

* 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

Governance Highlights

The Company’s commitment to strong corporate governance, effective risk management and strong independent oversight of management by the Board is reflected in our sound governance practices and policies. Governance Highlights include:

Board Composed of 91% Independent Directors (10 out of 11 Board Nominees)
Commitment to Board Refreshment (Three New Diverse Directors in Past Three Years, 27% of current composition)
Annual Election of Directors with Majority Voting Standard
Five Diverse Board Members/Nominees for Re-Election (45%)
Average Board Tenure is 7 years with current Board Nominees
“Proxy Access” Right
Active Lead Independent Director
Executive Sessions of Independent Directors at each Board and Committee Meeting
Board Strategic Oversight and review of Enterprise Risk Management
Four Fully Independent Board Committees
Stringent Director and Executive Officer Stock Ownership Guidelines (7x Annual Salary for CEO and 4x Annual Salary for other Named Executive Officers)


   

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PROXY SUMMARY

Shareholder Outreach

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 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.

We believe that the changes we made to our executive compensation program in 2018 – providing for a formula-based annual incentive bonus and eliminating the ability to earn performance share units based on annual performance – together with the revisions we made in prior years benefit shareholders and continue to align with our strategy and pay-for-performance philosophy.

In 2018, as part of our regular shareholder engagement, management participated in 13 investor conferences, numerous in-person investor meetings, and hosted more than 250 conference calls with analysts and investors.

   

Executive Compensation Highlights
In 2018 our executives participated in our new formula-based annual incentive plan where eighty percent (80%) of annual incentive cash bonuses paid to our executives, including the named executive officers (NEOs), was based on the attainment of specified Company financial performance goals (operating income (40%) and operating ratio (40%)), and the remaining (20%) was based on the Company’s performance against pre-established business objectives and individual executive performance
Under this new formula-based annual incentive plan, performance for 2018 resulted in an overall payout of 81% of target for each of the NEOs (except for Mr. Scott) as shown on page 55 of the Compensation Discussion and Analysis
The compensation earned in 2018 by Mr. Fritz and the other NEOs, as described in the Compensation Discussion and Analysis section of this Proxy Statement, reflects our policy of having a significant portion of our executives’ compensation tied to annual and long-term Company performance
In 2018, 74% of the target compensation opportunity provided to Mr. Fritz and 59% of the target compensation opportunity provided to the rest of the NEOs was in the form of long-term incentive equity awards
2018 long-term incentive awards consisted of 50% performance stock units, 40% stock options and 10% retention stock units; 2019 long-term incentive awards granted in February consisted of 60% performance stock units and 40% stock options
Performance stock unit awards granted in 2018 were subject to a 3-year average return on invested capital (“ROIC”) and a relative Operating Income Growth modifier (+/-25% of the award earned based on ROIC, depending on our Operating Income Growth compared to companies in the S&P 500 Industrials Index)
Based on our three-year average ROIC of 13.5% and our relative Operating Income Growth at the 37th percentile, performance stock units for the three-year performance period (2016-2018) ending in 2018 vested at 135% of target

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UNION PACIFIC CORPORATION
1400 Douglas Street, 19th Floor
Omaha, NE 68179
   
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 16, 2019

INFORMATION ABOUT THE ANNUAL MEETING, VOTING AND PROXIES

Important Notice Regarding the Availability of Proxy
Materials for the Shareholder Meeting to Be Held on May 16, 2019

This Proxy Statement and our 2018 Annual Report on Form 10-K are available at www.up.com under the
“Investors” caption link by selecting “Annual Reports/Form 10-Ks and Proxy Statements”
www.up.com/investors/annuals/index/shtml.

Date, Time and Place of Meeting

This Proxy Statement is being furnished to shareholders of Union Pacific Corporation (the Company) in connection with the solicitation of proxies by the Board of Directors of the Company (the Board) for use in voting at the Annual Meeting of Shareholders or any adjournment or postponement thereof (the Annual Meeting). The Annual Meeting will be held on Thursday, May 16, 2019, at 8:00 A.M., Central Daylight Time, at the Omaha Marriott Downtown at the Capitol District, 222 North 10th Street, Omaha, Nebraska. This Proxy Statement and the accompanying proxy card are being distributed and made available to shareholders of the Company on or about April 5, 2019.

Record Date, Outstanding Shares and Quorum

Only holders of record of the Company’s common stock at the close of business on March 22, 2019 (the Record Date), will be entitled to vote at the Annual Meeting. On the Record Date, we had 1,112,068,547 shares of common stock outstanding and entitled to vote. If a majority of the shares outstanding on the Record Date are present and entitled to vote on any matter at the Annual Meeting, we will have a quorum at the Annual Meeting. Any shares represented by proxies that are marked for, against or to abstain from voting on a proposal will be counted as present for the purpose of determining whether there is a quorum.

Internet Availability of Proxy Materials

Again this year, we are using the Securities and Exchange Commission (SEC) rule that allows companies to furnish their proxy materials over the Internet. As a result, we are mailing a notice of Internet availability of proxy materials instead of a paper copy of the proxy materials. All shareholders receiving the notice will have the ability to access the proxy materials over the Internet and may request to receive a paper copy of the proxy materials by mail. Instructions on how to access the proxy materials over the Internet or to request a paper copy may be found in the notice of Internet availability of proxy materials. In addition, the notice contains information on how you may request access to proxy materials in printed form by mail or electronically on an ongoing basis.

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INFORMATION ABOUT THE ANNUAL MEETING, VOTING AND PROXIES

Accessing Proxy Materials over the Internet

Your notice of Internet availability of proxy materials, proxy card or voting instruction card will contain instructions on how to:

View our proxy materials for the Annual Meeting on the Internet; and
Instruct us to send our future proxy materials to you electronically by email or the Internet.

Our proxy materials will be available during the voting period at www.proxyvote.com. From this website, you also will be able to vote prior to the Annual Meeting. To access this website, you will need your 16-digit control number included on your notice of Internet availability of proxy materials, on your proxy card or on the instructions that accompanied your proxy materials.

Your notice of Internet availability, proxy card or voting instruction card will contain instructions on how you may request proxy materials electronically on an ongoing basis. Choosing to access your future proxy materials electronically will help us conserve natural resources and reduce the costs of distributing our proxy materials.

Voting Rights

Holders of our common stock are entitled to one vote for each full share held as of the Record Date.

Under Proposal Number 1, directors will be elected by a majority of the votes cast by the shares of common stock present at the Annual Meeting (either in person or by proxy) and entitled to vote on the election of directors, which means that a nominee will be elected if he or she receives more “for” votes than “against” votes. Pursuant to Section 9 of Article I of the Company’s By-Laws and applicable laws of the State of Utah, a nominee who does not receive more “for” votes than “against” votes will be elected to a shortened term expiring on the earlier of: (i) 90 days after the day on which the Company certifies the voting results; or (ii) the day on which a person is selected by the Board to fill the office held by the director.

Approval of Proposal Number 2 (ratification of the appointment of the independent registered public accounting firm), Proposal Number 3 (advisory vote to approve executive compensation) and Proposal Number 4 (shareholder proposal regarding independent chairman) requires the affirmative vote of a majority of the votes cast on the proposal (either in person or by proxy).

If your shares are held in street name (that is, through a broker, bank, trustee, nominee or other holder of record), you are considered a beneficial owner of those shares. As the beneficial owner of those shares, you have the right to direct your broker, bank or nominee how to vote. If you do not provide voting instructions to your broker in advance of the Annual Meeting, New York Stock Exchange (NYSE) rules grant your broker discretionary authority to vote on the ratification of the independent registered accounting firm in Proposal Number 2. If you do not provide voting instructions, your broker will not have discretion to vote your shares on Proposal Numbers 1, 3 and 4 resulting in what is referred to as broker non-votes on those matters.

The Board recommends that you vote FOR each of the nominees in Proposal Number 1, FOR Proposal Numbers 2 and 3 and AGAINST Proposal Number 4.

In accordance with Utah law, abstentions and broker non-votes are not treated as votes cast and, therefore, are not counted in determining which directors are elected under Proposal Number 1 and which matters are approved under Proposal Numbers 2, 3 and 4.

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INFORMATION ABOUT THE ANNUAL MEETING, VOTING AND PROXIES

Solicitation and Voting of Proxies

Whether you hold shares directly as a shareholder of record or in street name (that is, through a broker, bank, trustee, nominee or other holder of record), you may direct how your shares are voted without participating in the Annual Meeting. There are three ways to vote by proxy:

Via the Internet — Shareholders who have received a notice of Internet availability of proxy materials by mail may submit proxies over the Internet by following the instructions on the notice. Shareholders who have received proxy materials by email may submit proxies over the Internet by following the instructions included in the email. Shareholders who have received a paper copy of a proxy card or voting instruction card by mail may submit proxies over the Internet by following the instructions on the proxy card or voting instruction card.
By Telephone — Shareholders who live in the United States or Canada may submit proxies by telephone by calling 1-800-690-6903 and following the instructions. Shareholders of record who have received a notice of Internet availability of proxy materials by mail must have the control number that appears on their notice available when voting. Shareholders of record who have received a proxy card by mail must have the control number that appears on their proxy card available when voting. Shareholders who hold shares in street name who have received proxy materials by email must have the control number included in the email available when voting.
By Mail —Shareholders who have received a paper copy of a proxy card or voting instruction card by mail may submit proxies by completing, signing and dating their proxy card or voting instruction card and mailing it in the accompanying pre-addressed envelope.

If you sign and return your proxy card but do not give any voting instructions, your shares will be voted “for” the election of each of the director nominees listed in Proposal Number 1 below, “for” Proposal Number 2, “for” Proposal Number 3, and “against” Proposal Number 4. To our knowledge, no other matters will be presented at the Annual Meeting. However, if any other matters of business are properly presented, the proxy holders named on the proxy card are authorized to vote the shares represented by proxies according to their judgment.

Confidential Voting Policy

The Board maintains a confidential voting policy pursuant to which Broadridge Financial Services, Inc. (Broadridge) receives shareholder proxies or voting instructions, and representatives of Broadridge, serving as independent inspectors of election, certify the vote. Proxies, as well as telephone and Internet voting instructions, will be kept confidential from management (except in certain cases where it may be necessary to meet legal requirements, including a contested proxy solicitation or where a shareholder writes comments on the proxy card). Reports concerning the vote may be made available to the Company, provided such reports do not reveal the vote of any particular shareholder.

Revocation of Proxies

After you submit your proxy you may revoke it at any time before voting takes place at the Annual Meeting. You can revoke your proxy in two ways: (i) deliver to the Secretary of the Company a written notice, dated later than the proxy you want to revoke, stating that the proxy is revoked or (ii) submit new telephone or Internet instructions or deliver a validly executed later-dated proxy. For this purpose, communications to the Secretary of the Company should be addressed to 1400 Douglas Street, 19th Floor, Omaha, Nebraska 68179 and must be received before the time that the proxy you wish to revoke is voted at the Annual Meeting. Please note that if your shares are held in street name (that is, a broker, bank, trustee or other nominee holds your shares on your behalf) and you wish to revoke a previously granted proxy, you must contact that entity and submit new voting instructions to your broker, bank, trustee or nominee.

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INFORMATION ABOUT THE ANNUAL MEETING, VOTING AND PROXIES

Expenses of Solicitation

The Company will pay the entire cost of preparing, printing, mailing and distributing the notices and proxy materials and soliciting votes. In addition to the mailing of the notices and proxy materials, proxies may be solicited by personal interview, telephone and electronic communication by the directors, officers and employees of the Company acting without special compensation. We also make arrangements with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation material to the street name holders of shares held of record by such individuals, and the Company will reimburse such custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in connection with such solicitation. In addition, the Company engaged Morrow Sodali, LLC, 470 West Avenue, Stamford, CT 06902, to solicit proxies on its behalf. The anticipated fees of Morrow Sodali LLC are $17,500, plus certain other customary fees and expenses.

Attending the Annual Meeting

Only shareholders as of the Record Date are entitled to attend the Annual Meeting. The Company reserves the right to require proof of stock ownership as of the Record Date and a government-issued photo identification of any person wishing to attend the Annual Meeting. You may obtain directions to the Annual Meeting by contacting the Secretary of the Company at the address set forth on the notice page of this Proxy Statement. Please note that the use of cameras (including via cell phone with photographic capabilities), recording devices and other electronic devices is strictly prohibited at the Annual Meeting.

For your convenience, you may also listen to the Annual Meeting via a live audio-only webcast. You may listen to the live audio-only webcast of the Annual Meeting via the Internet at www.virtualshareholdermeeting.com/UNP2019 when you enter your 16-digit control number included on your notice of Internet availability of proxy materials, on your proxy card or on the instructions that accompanied your proxy materials. Instructions on how to listen to the Annual Meeting via live audio-only webcast are posted at www.virtualshareholdermeeting.com/UNP2019.

Information Regarding the Company

References to the Company’s website included in this Proxy Statement and in the Company’s 2018 Annual Report on Form 10-K are provided as a convenience and do not constitute, and should not be deemed, an incorporation by reference of the information contained in, or available through, the website.

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PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS

The Board currently consists of eleven members. The Corporate Governance and Nominating Committee of the Board proposed, and the Board recommended, that the eleven individuals currently serving as directors each be nominated for re-election to the Board at the Annual Meeting. Each of the nominees has consented to being named as a nominee and to serve if elected. If any nominee(s) for director for any reason should become unavailable for election, it is intended that discretionary authority will be exercised by the persons named in the enclosed proxy in respect of the election of such other person(s) as the Board shall nominate.

Vote Required for Approval

Directors will be elected by a majority of the votes cast by the shares present at the Annual Meeting and entitled to vote on the election of directors, which means that a nominee will be elected if he or she receives more “for” votes than “against” votes. Pursuant to Section 9 of Article I of the Company’s By-Laws and applicable laws of the State of Utah, if a nominee does not receive more “for” votes than “against” votes, he or she will be elected to a shortened term that terminates on the earlier of: (i) 90 days after the day on which the Company certifies the voting results; or (ii) the day on which a person is selected by the Board to fill the office held by the director.

The Board recommends a vote FOR the election of each of the nominated directors.

Directors/Nominees

The following identifies the Company’s nominees for election to the Board. Each of the nominees currently serves as a director. Each nominee, if elected, will serve for a term of one year or until his or her successor is elected and qualified.

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PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS


 
Andrew H. Card, Jr., age 71


Former White House Chief of Staff
   
Director since: 2006
   
Board Committees: Audit, Compensation and Benefits
   
Board Skills and Experience: Economics/Finance, Risk Management Experience, Government and Regulatory Expertise, International/Global Expertise, Publicly Traded Company Experience
   
Mr. Card most recently served as the President of Franklin Pierce University from January 12, 2015 until August 1, 2016. Mr. Card previously served as the Executive Director of the Office of the Provost and Vice President for Academic Affairs at Texas A&M University from September 2013 until he became President of Franklin Pierce University. From July 2011 to August 2013, Mr. Card served as acting dean of The Bush School of Government and Public Service at Texas A&M University. Mr. Card served as Chief of Staff to President George W. Bush from November 2000 to April 2006. Prior to joining the White House, Mr. Card served as Vice President-Government Relations for General Motors Corporation, one of the world’s largest auto makers. From 1993 to 1998, Mr. Card was President and Chief Executive Officer of the American Automobile Manufacturers Association. Mr. Card served as the 11th Secretary of Transportation under President George H.W. Bush from 1992 to 1993. He also served as a Deputy Assistant to the President and Director of Intergovernmental Affairs for President Ronald Reagan. Mr. Card served on the board of Lorillard, Inc. from August 2011 to 2015.
Qualifications
We believe Mr. Card’s skills, attributes and qualifications to sit on our Board include his extensive senior-level experience in the federal government and the transportation industry, his record of business leadership and his invaluable experience in economic and international affairs.

   
 
Erroll B. Davis, Jr., age 74

   
Former Chairman, President and Chief Executive Officer Alliant Energy Corporation
   
Director since: 2004
   
Board Committees: Compensation and Benefits (Chair), Corporate Governance and Nominating
   
Board Skills and Experience: Economics/Finance, Operations, Risk Management Experience, Customer Perspective, Government and Regulatory Expertise, International/Global Expertise, Investor Perspective, CEO Experience, Publicly Traded Company Experience
   
Mr. Davis was appointed the interim superintendent of the Atlanta Public Schools on July 1, 2011, and most recently served as its superintendent from August 15, 2011 until July 7, 2014. Mr. Davis was the Chancellor of the University System of Georgia from February 2006 to June 2011. From 1998 until July 2005, Mr. Davis was President and Chief Executive Officer of Alliant Energy Corporation, an energy holding company. He also served as Chairman of Alliant from April 2000 until January 31, 2006. Mr. Davis was a director of PPG Industries, Inc. from 1994 to 2007, a director of BP plc from 1998 to 2010, and served as a director of General Motors Corporation from 2009 to 2015.
Qualifications
We believe Mr. Davis’s skills, attributes and qualifications to sit on our Board include his valuable business and strategic leadership experience from his service as the Chief Executive Officer of Alliant Energy Corporation, his knowledge of rail operations from a customer perspective and his extensive service and experience on boards of other public companies.

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PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS


 
William J. DeLaney, age 63

   
Former Chief Executive Officer Sysco Corporation
   
Director since: 2018
   
Board Committees: Audit, Compensation and Benefits
   
Board Skills and Experience: Economics/Finance, Operations, Risk Management Experience, Customer Perspective, Government and Regulatory Expertise, International/Global Expertise, Investor Perspective, CEO Experience, Publicly Traded Company Experience, Wall Street Experience
   
Mr. DeLaney was elected a director of Union Pacific in September 2018. Mr. DeLaney served as Chief Executive Officer of Sysco Corporation (Sysco) a food marketing and distribution company, from March 2009 until his retirement in December 2017. Previously, Mr. DeLaney served as President from March 2010 to January 2016, as Executive Vice President and Chief Financial Officer from July 2007 to October 2009 and held positions of increasing responsibility at Sysco and its subsidiaries for more than twenty-five years. Mr. DeLaney served as a director of Sysco from 2009 to 2017. Mr. DeLaney currently serves as a director of Cigna Corporation and Sanmina Corporation.
Qualifications
We believe Mr. DeLaney’s skills, attributes and qualifications to sit on our Board include his valuable business and strategic leadership experience from his service as the Chief Executive Officer of Sysco Corporation, his knowledge of rail operations from a customer perspective, his finance background, and extensive service and experience on boards of other public companies.

   
 
David B. Dillon, age 67

   
Former Chairman and CEO The Kroger Co.
   
Director since: 2014
   
Board Committees: Audit (Chair), Compensation and Benefits
   
Board Skills and Experience: Economics/Finance, Operations, Risk Management Experience, Customer Perspective, Legal, Investor Perspective, CEO Experience, Publicly Traded Company Experience
   
Mr. Dillon retired as the Chairman of the Board of The Kroger Co. and from The Kroger Co. Board of Directors on December 31, 2014, where he was Chairman since 2004 and was the Chief Executive Officer of The Kroger Co. from 2003 through 2013. Mr. Dillon served as the President of The Kroger Co. from 1995 to 2003. Mr. Dillon was elected Executive Vice President of The Kroger Co. in 1990 and was President of Dillon Companies, Inc. from 1986 to 1995. Mr. Dillon was a director of Convergys Corporation from 2000 to 2011 and served as a director of The Kroger Co. from 1995 to 2014 and DIRECTV from 2011 to 2015. In August 2015, Mr. Dillon became a director of the 3M Company. Mr. Dillon became a director of Hallmark Cards, Inc. in December 2018.
Qualifications
We believe Mr. Dillon’s skills, attributes and qualifications to sit on our Board include his valuable retail business and strategic leadership experience as a result of his years of service as the Chief Executive Officer of The Kroger Co., his ability to understand complex logistic operations and his skills in financial and audit matters, along with his service and experience on boards of other public companies.

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PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS


 
Lance M. Fritz, age 56

Chairman, President and Chief Executive Officer Union Pacific Corporation and Union Pacific Railroad Company
   
Director since: 2015
   
Board Skills and Experience: Operations, Risk Management Experience, Customer Perspective, Government and Regulatory Expertise, Investor Perspective, CEO Experience
   
Mr. Fritz was elected President and Chief Executive Officer of the Company on February 5, 2015, and elected Chairman of the Board effective October 1, 2015. Prior to being named President and Chief Executive Officer, Mr. Fritz served as President and Chief Operating Officer of the Railroad since February 2014 and was Executive Vice President-Operations from September 2010 until February 2014. Mr. Fritz was the Vice-President-Labor Relations of the Railroad from 2008 until his election as Vice President-Operations in January 2010. Mr. Fritz held several executive positions in the Railroad’s Operating Department from 2005 through 2008, including Regional Vice President-Southern Region and Regional Vice President-Northern Region. Prior to joining the Railroad, Mr. Fritz served in various executive positions with Fiskars, Inc., Cooper Industries and General Electric.
Qualifications
We believe Mr. Fritz’s skills, attributes and qualifications to sit on our Board include his extensive operating and business experience with the Company.

   
 
Deborah C. Hopkins, age 64

Former Chief Executive Officer Citi Ventures and Former Chief Innovation Officer Citi
   
Director since: 2017
   
Board Committees: Finance, Corporate Governance and Nominating
   
Board Skills and Experience: Economics/Finance, Operations, Risk Management Experience, International/Global Expertise, Wall Street Experience, Technology, Investor Perspective, CEO Experience, Publicly Traded Company Experience
   
Ms. Hopkins was the founder and Chief Executive Officer of Citi Ventures and Citi’s Chief Innovation Officer from May of 2008 until her retirement on December 31, 2016. Ms. Hopkins joined Citi in 2003 as Head of Corporate Strategy and was later appointed Chief Operations and Technology Officer. Prior to joining Citi, Ms. Hopkins served as the Chief Financial Officer at Boeing and then Lucent Technologies, General Auditor of General Motors before being named Vice President of Finance at General Motors Europe, and Corporate Controller at Unisys. Ms. Hopkins was a director of DuPont from 2000 to 2005 and served as a director of Qlik Technologies from 2011 to August 2016. In January 2017, Ms. Hopkins became a director of Marsh and McLennan Companies and in September 2018, Ms. Hopkins became a director of Virtusa Corporation. Ms. Hopkins is also a member of the board of directors of Deep Instinct, Inc.
Qualifications
We believe Ms. Hopkins’s skills, attributes and qualifications to sit on our Board include her significant leadership positions in finance, technology and innovation at various multinational companies and service and experience on boards of other public companies.

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PROPOSAL NUMBER 1 – ELECTION OF DIRECTORS


 
Jane H. Lute, age 62

President and Chief Executive Officer SICPA, North America
   
Director since: 2016
   
Board Committees: Audit, Corporate Governance and Nominating
   
Board Skills and Experience: Operations, Risk Management Experience, Government and Regulatory Expertise, Legal, International/Global Expertise, Technology, CEO Experience
   
Ms. Lute is the President and CEO of SICPA North America, a company that specializes in providing solutions to protect the integrity and value of products, processes, and documents. Ms. Lute also serves as Special Advisor to the Secretary-General of the United Nations, where she has held several positions in peacekeeping and peace building. Previously, Ms. Lute served as Deputy Secretary for the U.S. Department of Homeland Security from 2009-2013. She also served as Chief Executive Officer of the Center for Internet Security (CIS), an operating not-for-profit organization and home of the Multi-State Information Sharing and Analysis Center (MS-ISAC) providing cybersecurity services for state, local, tribal and territorial governments. She began her distinguished career in the United States Army and served on the National Security Council staff under both Presidents George H.W. Bush and William Jefferson Clinton. Ms. Lute holds a Ph.D. in political science from Stanford University and a J.D. from Georgetown University. She is a member of the Virginia bar.
Qualifications
We believe Ms. Lute’s skills, attributes and qualifications to sit on our Board include her unique and invaluable knowledge and leadership experience gained through her extensive military and government service, including her service at the U.S. Department of Homeland Security and the United Nations, and her expertise with cybersecurity matters.

   
 
Michael R. McCarthy, age 67

   
   
   
Chairman McCarthy Group, LLC
   
Director since: 2008
   
Lead Independent Director: 2016 - Present
   
Board Committees: Finance, Corporate Governance and Nominating (Chair)
   
Board Skills and Experience: Economics/Finance, Risk Management Experience, Customer Perspective, Wall Street Experience, Investor Perspective, CEO Experience, Publicly Traded Company Experience
   
Mr. McCarthy serves as chairman of McCarthy Group, LLC, a private investment group, which he co-founded in 1986. Mr. McCarthy has served as a director of Peter Kiewit Sons’, Inc. since 2001, and Cabela’s Incorporated from 1996 to 2017. Mr. McCarthy currently serves as our lead independent director.
Qualifications
We believe Mr. McCarthy’s skills, attributes and qualifications to sit on our Board include his extensive experience in providing strategic and operational advice to businesses in various sectors of the economy, his background in forming and leading successful investment companies and his financial expertise, along with his service and experience on boards of other public companies.

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Thomas F. McLarty III, age 72

  
President McLarty Associates
   
Director since: 2006
   
Board Committees: Finance (Chair), Corporate Governance and Nominating
   
Board Skills and Experience: Risk Management Experience, Customer Perspective, Government and Regulatory Expertise, International/Global Expertise, Wall Street Experience, CEO Experience, Publicly Traded Company Experience
   
Mr. McLarty has been President of McLarty Associates (formerly Kissinger McLarty Associates), an international strategic advisory and advocacy firm, since 1999. From 1992 to 1997, Mr. McLarty served in several positions in the Clinton White House, including Chief of Staff to the President, Counselor to the President and Special Envoy for the Americas. In 1998, Mr. McLarty returned to be Chairman and President of the McLarty Companies, a fourth generation family-owned transportation business. From 1983 to 1992, Mr. McLarty served as Chairman and Chief Executive Officer of Arkla, Inc., a Fortune 500 natural gas company. Mr. McLarty was a director of Acxiom Corporation from 1999 until 2010.
Qualifications
We believe Mr. McLarty’s skills, attributes and qualifications to sit on our Board include his valuable business leadership experience from his time as the Chief Executive Officer of Arkla, Inc., his extensive exposure and expertise in international business and regulatory matters gained as President of McLarty Associates, his significant experience in government service at the highest levels, along with his service and experience on boards of other public companies.

   
 
Bhavesh V. Patel, age 52

   
   
Chief Executive Officer of LyondellBasell Industries, N.V.
   
Director since: 2017
   
Board Committees: Finance, Compensation and Benefits
   
Board Skills and Experience: Economics/Finance, Operations, Risk Management Experience, Customer Perspective, International/Global Expertise, Investor Perspective, CEO Experience, Publicly Traded Company Experience
   
Mr. Patel is the Chief Executive Officer and a director of LyondellBasell Industries N.V. (LyondellBasell), an international plastics, chemical and refining company. Mr. Patel joined LyondellBasell in March 2010 and, prior to being named CEO, held a variety of senior leadership roles, including Senior Vice President, Olefins and Polyolefins − Americas; Senior Vice President, Olefins and Polyolefins - Europe, Asia and International, based in the Netherlands; and Executive Vice President, Olefins and Polyolefins - Europe, Asia and International. Patel was named CEO and Chairman of the company’s management board in January 2015. Prior to joining LyondellBasell, Patel held multiple leadership positions at Chevron Phillips Chemical Company. He worked for Chevron Corporation and its affiliates for more than 20 years.
Qualifications
We believe Mr. Patel’s skills, attributes and qualifications to sit on our Board include his extensive business and leadership experience gained from his several senior positions at Chevron Phillips and LyondellBasell, and as the current Chief Executive Officer of LyondellBasell, one of the largest plastics, chemical and refining companies in the world. Additionally, his international and global expertise and knowledge of rail operations from a customer perspective is valuable to our Board.

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Jose H. Villarreal, age 65

   
Advisor Akin, Gump, Strauss, Hauer & Feld LLP
   
Director since: 2009
   
Board Committees: Audit, Compensation and Benefits
   
Board Skills and Experience: Risk Management Experience, Government and Regulatory Expertise, Legal, International/Global Expertise, Publicly Traded Company Experience
   
Mr. Villarreal was a partner with Akin, Gump, Strauss Hauer & Feld, LLP, a law firm, from 1994 through 2008 and has served as a non-employee advisor to the firm since 2008. Prior thereto, Mr. Villarreal served as assistant attorney general in the Public Finance Division of the Texas attorney general’s office. Mr. Villarreal also served in senior roles in numerous presidential campaigns. Mr. Villarreal was a director of Wal-Mart Stores, Inc. from 1998 to 2006, First Solar, Inc. from 2007 to 2012, and PMI Group, Inc. from 2005 to 2013. Mr. Villarreal served as United States Commissioner General to the Shanghai 2010 World Expo.
Qualifications
We believe Mr. Villarreal’s skills, attributes and qualifications to sit on our Board include his legal, regulatory and compliance expertise, his extensive government affairs experience from his service in state and federal public offices and positions and involvement in presidential campaigns and his significant service and experience on boards of other public companies.

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Director Qualifications and Experience

The Corporate Governance and Nominating Committee considered the character, experience, qualifications and skills of each director nominee when determining whether he or she should serve as a director of the Company. Consistent with the stated criteria for director nominees described on pages 17 and 19 below and included in the Company’s Corporate Governance Guidelines and Policies, the Committee determined that each director nominee exhibits a high degree of integrity, has significant professional accomplishments, and has proven leadership experience. Each director nominee is or has been a leader in his or her respective field and brings diverse talents and perspectives to the Board. The Committee also considered the experience and qualifications that each director nominee brings to the Board outlined above in each director’s biographical information, as well as service on boards of other public companies.

The Committee utilizes the following list of skills, attributes and qualities that are particularly relevant to the Company when evaluating director nominees.

Economics/Finance − Background in finance, banking, economics, and the securities and financial markets, both domestic and international;
Operations − Knowledge or experience in the transportation industry, particularly the rail industry and rail operations;
Risk Management Experience − Senior executive level experience in risk management, strategic planning or compliance activities;
Customer Perspective − A strong understanding of rail customer perspectives;
Government and Regulatory Expertise − Experience in regulatory, political and governmental affairs or public service in legislative or executive positions in Washington D.C. or state government, especially in states where the Company has a significant operating presence;
Legal − Possesses a law degree or experience in the legal profession;
International/Global Expertise − An international background or global expertise given the significant rail interchange operations with Mexican and Canadian rail systems, along with the Company’s extensive international marketing efforts;
Wall Street Experience − Background or experience with an investment or brokerage firm, investment banking or similar Wall Street financial expertise;
Technology − Senior executive level or board experience in information technology, cybersecurity, information systems or information technology issues for a public or private entity;
Investor Perspective − A strong understanding of institutional investors;
CEO Experience − Business and strategic management experience gained from prior or current service as a chief executive officer; and
Publicly Traded Company Experience − Prior or current service as a CEO or director at other publicly traded companies.

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Below we identify the balance of skills and qualifications each director nominee brings to the Board. The fact that a particular skill or qualification is not designated does not mean the director nominee does not possess that particular attribute. Rather, the skills and qualifications noted below are those reviewed by the Corporate Governance and Nominating Committee and the Board in making nomination decisions and as part of the Board succession planning process. We believe the combination of the skills and qualifications shown below demonstrates how the Board is well-positioned to provide strategic oversight and guidance to management.

Union Pacific Director Skills and Qualifications Matrix

 
Andrew H. Card, Jr.
Erroll B. Davis, Jr.*
William J. Delaney
David B. Dillon
Lance M. Fritz
Deborah C. Hopkins*
Jane H. Lute*
Michael R. McCarthy
Thomas F. McLarty III
Bhavesh V. Patel*
Jose H. Villarreal*
Number of Directors
with Skill / Experience
/ Attribute
Economics/Finance — Background in finance, banking, economics, and the securities and financial markets, both domestic and international
X
X
X
X
 
X
 
X
 
X
 
7/11
Operations — Knowledge or experience in the transportation industry, particularly the rail industry and rail operations
 
X
X
X
X
X
X
 
 
X
 
7/11
Risk Management Experience — Senior executive level experience in risk management, strategic planning or compliance activities
X
X
X
X
X
X
X
X
X
X
X
11/11
Customer Perspective — A strong understanding of rail customer perspectives
 
X
X
X
X
 
 
X
X
X
 
7/11
Government and Regulatory Expertise — Experience in regulatory, political and governmental affairs or public service in legislative or executive positions in Washington D.C. or state government, especially in states where the Company has a significant operating presence
X
X
X
 
X
 
X
 
X
 
X
7/11
Legal — Possesses a law degree or experience in the legal profession
 
 
 
X
 
 
X
 
 
 
X
3/11
International/Global Expertise — An international background or global expertise given the significant rail interchange operations with Mexican and Canadian rail systems, along with the Company’s extensive international marketing efforts
X
X
X
 
 
X
X
 
X
X
X
8/11
Wall Street Experience — Background or experience with an investment or brokerage firm, investment banking or similar Wall Street financial expertise
 
 
 
 
 
X
 
X
X
 
 
3/11
Technology — Senior executive level or board experience in information technology, cybersecurity, information systems or information technology issues for a public or private entity;
 
 
 
 
 
X
X
 
 
 
 
2/11
Investor Perspective — A strong understanding of institutional investors
 
X
X
X
X
X
 
X
 
X
 
7/11
CEO Experience — Business and strategic management experience gained from prior or current service as a chief executive officer
 
X
X
X
X
X
X
X
X
X
 
9/11
Publicly Traded Company Experience — Prior or current service as a CEO or director at other publicly traded companies
X
X
X
X
 
X
 
X
X
X
X
9/11
* Director nominee with gender or ethnic diversity
 
X
 
 
 
X
X
 
 
X
X
5/11
Age (Years)
71
74
63
67
56
64
62
67
72
52
65
65 Avg.
Age
Tenure (Years of Service)
12
14
1
5
4
2
3
10
12
2
10
7 Avg.
Tenure

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Board Refreshment

The Corporate Governance and Nominating Committee is responsible for developing and periodically reviewing and recommending to the Board the appropriate skills and characteristics required of Board members in the context of the current composition of the Board. Such criteria, as described in the Company’s Corporate Governance Guidelines and Policies, include: business and management experience; familiarity with the business, customers and suppliers of the Company; varying and complementary talents, backgrounds and perspectives; diversity (inclusive of gender, race, ethnicity and national origin); and relevant legal, regulatory and stock exchange requirements applicable to the Board and certain of its Committees.

All potential new Board candidates should exhibit a high degree of integrity and ethics consistent with the values of the Company and the Board. In all our director nominee searches, the Committee is committed to actively seeking out highly qualified women (Ms. Lute and Ms. Hopkins) and other diverse candidates (Messrs. Davis, Patel and Villarreal), for consideration as nominees to the Board. The Committee ultimately seeks to identify and nominate candidates with diverse talents, backgrounds and perspectives who will enhance and complement the skills and expertise of the Board and satisfy the Board membership criteria included in the Company’s Corporate Governance Guidelines and Policies. In determining the independence of a candidate, the Committee relies upon the independence standards adopted by the Board. In addition, the Committee requires that all candidates:

Exhibit a high degree of integrity and ethics consistent with the values of the Company and the Board;
Have demonstrable and significant professional accomplishments; and
Have effective management and leadership capabilities.

The Committee also values familiarity with the rail transportation industry and considers the number of other public boards on which candidates serve when determining whether the individual circumstances of each candidate will allow the candidate sufficient time to effectively serve on the Board and contribute to its function and activities.

The Committee meets at the first Board meeting of each year to consider the inclusion of nominees in the Company’s proxy statement. During this meeting, the Committee considers each nominee by:

Reviewing relevant information provided by the nominee in his or her mandatory Company questionnaire;
Applying the criteria listed above; and
Assessing the performance of the Board and each nominee during the previous year with respect to current members of the Board.

As part of the Committee’s oversight of the Board’s self-evaluation process, the Committee assesses the effectiveness of the criteria listed above when evaluating all new director candidates and when assessing the composition of the Board. The Committee will consider candidates recommended by shareholders under the same standards after concluding that any such recommendations comply with the requirements outlined below. During 2018, the Company retained the services of Heidrick & Struggles to help identify and evaluate suitable candidates for consideration to replace retiring directors. Mr. DeLaney was first identified by Russell Reynolds as a director candidate.

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Board Tenure

We believe that Board tenure diversity is important and directors with many years of service provide the Board with a deep knowledge of our Company, while newer directors lend fresh perspectives. The chart below reflects the Board tenure of our current directors. The average tenure of all directors currently serving on our Board and nominated for re-election is seven years.


Evaluation of Board and Committee Effectiveness and Performance

The Corporate Governance and Nominating Committee is responsible for overseeing the annual self-evaluation process of the Board and its committees, which is used by the Board and each committee to assess their effectiveness and performance and opportunities for improvement. In addition, each committee reviews its Charter annually and reports to the Corporate Governance and Nominating Committee and the Board on its self-evaluation and review of its Charter.

During 2018, an independent third party interviewed each member of the Board, as well as two recently retired directors, as part of the annual self-evaluation process of the Board and its committees. In November 2018, the independent third party presented the results to the Board. The presentation contained a summary of recommendations and items for discussion regarding Board and committee effectiveness based on these interviews. The recommendations provided will assist the Board’s efforts to improve its key functions of overseeing the Company’s overall governance and the enterprise risk profile of the Company, reviewing the Company’s strategic plan, monitoring strategy implementation and generally overseeing management’s operations of the business.

The Corporate Governance and Nominating Committee will provide oversight for each committee and the Board as the directors continue discussing the results of this evaluation and work to address the recommendations.

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Consideration of Director Nominees and Proxy Access

The Company’s By-Laws provide for “proxy access” for certain director candidates nominated by shareholders. Under the By-Laws, a shareholder or group of shareholders who have continuously held for three years a number of shares of Company common stock equal to three percent of the outstanding shares of Company common stock may request that the Company include in the Company’s proxy materials director nominees representing up to the greater of two directors or 20% of the current number of directors. Eligible shareholders wishing to have such candidates included in the Company’s Proxy Statement for the 2020 Annual Meeting of Shareholders should provide the information specified in the By-Laws to the Secretary of the Company in writing during the period beginning on November 7, 2019 and ending on December 7, 2019, and should include the information and representations required by the proxy access provisions set forth in the Company’s By-Laws.

The Corporate Governance and Nominating Committee will consider and evaluate individuals for service on the Board suggested by directors and other interested parties. Shareholders desiring to recommend candidates for consideration at the 2020 Annual Meeting should advise the Secretary of the Company in writing during the period beginning on January 17, 2020 and ending on February 16, 2020, and should include the following information required by the nomination procedures set forth in the Company’s By-Laws, as well as any other information that would assist the Committee in evaluating the recommended candidates: (i) the name, age, and business and residence addresses of the candidate, (ii) the principal occupation of the candidate, and (iii) the number of shares of Company common stock beneficially owned by the candidate. A shareholder should also provide (i) his or her name and address, (ii) the number of shares of Company common stock beneficially owned by such shareholder, (iii) a description of all arrangements between himself or herself and the candidate and any other person pursuant to which the recommendation for nomination is being made, and (iv) the candidate’s written consent agreeing to any resulting nomination and to serve as a director if elected. The By-Laws are available on the Company’s website at www.up.com/investors/governance, and shareholders may obtain a printed copy by contacting the Secretary of the Company at the address set forth on the notice page of this Proxy Statement.

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We are committed to implementing and following high standards of corporate governance, which we believe are important to the success of our business and create shareholder value.


Corporate Governance Guidelines and Policies

The Board has adopted the guidelines and policies set forth below, and, with ongoing input from the Corporate Governance and Nominating Committee, will continue to assess the appropriateness of these guidelines and policies and implement such changes and adopt such additions as may be necessary or desirable to promote the effective governance of the Company. We post these guidelines and policies on our website at www.up.com/investors/governance.

Director Independence. All members of the Board are independent except for Mr. Fritz. All members of the Audit, Compensation and Benefits and Corporate Governance and Nominating Committees are independent. An “independent” director is a director who, as determined by the Board in its business judgment, meets the NYSE definition of “independence” as well as the Director Independence Standards adopted by the Board and set forth in the section titled “Director Independence Standards.” In addition, directors who serve on the Audit Committee and on the Compensation and Benefits Committee must meet additional independence criteria applicable to audit committee members and compensation committee members, respectively, under NYSE listing standards, as described in the section titled “Audit Committee and Compensation and Benefits Committee Independence Criteria.” Independence is determined annually by the Board based on the recommendation of the Corporate Governance and Nominating Committee.

Board Membership Criteria. The Corporate Governance and Nominating Committee is responsible for developing and periodically reviewing the appropriate skills and characteristics required of Board members in the context of the current make-up of the Board. The Corporate Governance and Nominating Committee develops and recommends membership criteria to the Board. Such criteria include: business and management experience; familiarity with the business, customers and suppliers of the Company; varying and complementary talents, backgrounds and perspectives; diversity (inclusive of gender, race, ethnicity and national origin); and relevant regulatory and stock exchange membership requirements for the Board and its committees. All potential new Board candidates should exhibit a high degree of integrity and ethics consistent with the values of the Company and the Board. When searching for new directors, the Committee actively seeks highly qualified diverse candidates for consideration as nominees to the Board as part of the Committee’s regular process.

Selection of Director Nominee Candidates. The Corporate Governance and Nominating Committee is responsible for recommending to the Board the selection of director nominee candidates.

Board Size. The Board’s guideline is to maintain a Board size of 10 to 14 members with no more than two management directors. The Board currently comprises 11 members with one management director.

Election of Directors-Majority Voting. In uncontested director elections, directors are elected by majority vote, pursuant to the Company’s By-Laws, and under Utah corporate law, any director who is not re-elected ceases to serve on the Board no later than 90 days after the voting results are certified.

Retirement Age for Non-management Directors. Non-management directors who are 75 years of age will not be eligible to stand for election to the Board at the next Annual Meeting of Shareholders. Non-management directors who turn 75 during their term are eligible to finish out that term. The Corporate Governance and Nominating Committee may consider a director’s nomination beyond the age of 75 if it believes that the nomination is in the best interest of the shareholders.

Director Orientation and Continuing Education. Upon election to the Board, new members are provided with a comprehensive set of materials on the operations, finances, governance and business plan of the Company, visit at least two major facilities during the first year of service and meet informally with as many members of senior management as practical. The Board encourages directors to periodically attend appropriate continuing education programs and sessions and obtain and review appropriate materials to assist them in

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performing their Board responsibilities. The Company recommends continuing education programs and sessions to directors and pays any fees and expenses associated with attendance at continuing education programs and sessions. Directors are expected to participate in continuing education at least once every other year.

Change in Principal Occupation. Upon a director’s retirement, resignation or other significant change in professional duties and responsibilities, the director shall submit his or her resignation from the Board to the Corporate Governance and Nominating Committee for its consideration and recommendation as to acceptance.

Service on Outside Boards. When the CEO or another senior officer of the Company is invited to serve on outside boards of directors, the CEO will present the issue to the Corporate Governance and Nominating Committee for review and approval. Directors must notify the Board prior to accepting a position on the board of another company. No member of the Audit Committee may serve on the audit committees of more than three public companies.

Board Leadership. The Board annually elects a Chairman of the Board, who may or may not be the CEO of the Company. If the individual elected as Chairman of the Board is not an independent director, the independent directors also elect a lead independent director. The lead independent director serves for a period of at least one year. The lead independent director’s responsibilities include: (1) presiding at meetings of the Board at which the Chairman and CEO is not present, including executive sessions of the independent directors; (2) approving the flow of information sent to the Board, and approving the agenda, schedule and what materials are sent for Board meetings; (3) serving as the liaison or facilitating working relationships between the independent directors and the Chairman and CEO; (4) being available for consultation and communication with major shareholders as appropriate; (5) in conjunction with the Compensation and Benefits Committee, overseeing the process of evaluating and compensating the Chairman and CEO; (6) assuring that a succession plan is in place for the Chairman and CEO, as well as the lead independent director; (7) authorizing or recommending the retention of consultants who report directly to the full Board; and (8) assisting 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. 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.

Board Committees. The current standing committees are the Audit Committee, Finance Committee, Compensation and Benefits Committee and the Corporate Governance and Nominating Committee. The Board has the authority to create additional committees. The Board periodically reviews committee service and assignments, along with the respective committee chair positions, and, if appropriate, recommends rotation of members.

Board Meeting Agendas. The directors and management of the Company may originate action items relating to the business and affairs of the Company for the Board agenda and the scheduling of reports on aspects of parent or subsidiary operations.

Board Committee Meeting Agendas. The departments of the Company that administer the area of responsibility charged to each committee may submit items for inclusion on committee agendas, and committee members may suggest topics for inclusion or request additional information with respect to any program previously reviewed by the committee.

Distribution of Board Materials. Information and materials for Board consideration are generally distributed to directors at least five days in advance of the meeting, with additional time provided when the complexity of an issue demands, unless an issue for Board consideration arises without sufficient time to complete distribution of materials within this time frame. Additionally in some cases, due to the timing or the sensitive nature of an issue, materials may be presented only at the Board meeting.

Board Presentations. The Board encourages broad management participation in Board presentations and the involvement of those managers who are directly responsible for the recommendations or other matters before the Board.

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Strategic Planning Review. Management presents an annual strategic plan to the Board for its review and the Board makes such recommendations to management regarding the strategic plan as it deems necessary.

Reporting to the Board of Directors. The Board receives reporting on at least an annual basis by (1) the Chief Compliance Officer with respect to the Company’s compliance program; (2) the Chief Safety Officer with respect to the safety performance of the Company’s railroad operations, including applicable safety metrics and Federal Railroad Administration (FRA) regulatory developments and compliance; and (3) the General Counsel with respect to updates on relevant legal and regulatory matters.

Safety of Railroad Operations. Management presents an annual strategic safety plan to the Board for its review and assessment, and the Board makes such recommendations to management regarding the strategic plan as it deems necessary.

Director Access to Management and Outside Advisors. The Company provides each director with access to the management of the Company. The Board and committees, as set forth in the applicable committee charter, have the right to consult and retain outside counsel and other advisors at the expense of the Company.

Director Attendance at Board Meetings. Directors are expected to attend in person all regularly scheduled Board and committee meetings and the Company’s Annual Meeting and to participate telephonically when they are unable to attend in person.

Executive Sessions of Independent Directors. Regularly scheduled sessions of independent directors are held at every meeting of the Board. The lead independent director presides at these sessions and has the authority to call additional executive sessions as appropriate.

Board Member Compensation. Non-management Board members generally are paid an annual retainer valued between the median and seventy-fifth percentile of compensation at comparable companies, and the retainer is reviewed periodically by the Corporate Governance and Nominating Committee. A substantial portion of the annual retainer is paid in Common Stock equivalents, which are not payable until after termination of service from the Board.

Board Member Equity Ownership. Board members must own equity in the Company equal to at least five times the cash portion of the annual retainer, with such ownership goal to be reached within five years of joining the Board, unless special circumstances of a member as determined by the Board delay the achievement of the ownership goal. Board members who have met their applicable ownership goal may sell shares of Company common stock that exceed their ownership goal pursuant to a written trading plan designed to comply with Securities and Exchange Commission Rule 10b5-1 and in compliance with the Company’s trading policy for Board members.

Evaluation of the Chairman and the CEO. The performance of the Chairman and the CEO is evaluated annually by the independent directors during an executive session led by the Chair of the Corporate Governance and Nominating Committee. The evaluation includes an assessment of individual elements of performance in major categories such as leadership, strategic planning, financial performance, operations, human resources, external relations and communications, and Board relations. The Compensation and Benefits Committee then meets following the executive session to determine the appropriate level of compensation to be awarded to the Chairman and the CEO and senior management of the Company. The lead independent director and the Chair of the Compensation and Benefits Committee then review with the Chairman and the CEO their respective performance and any recommended areas for improvement.

Succession Planning. The Board is responsible for overseeing the succession planning process for the CEO and other senior executive positions. The CEO periodically reports to an executive session of the Board on succession planning, including an assessment of senior managers and their potential to succeed him or her. The CEO also makes available to the Board, on a continuing basis, the CEO’s recommendation concerning who should assume the CEO’s role in the event the CEO becomes unable or unwilling to perform his or her duties. This process enables the Board to maintain its oversight of the program for effective senior management development and succession as well as emergency succession plans.

Evaluation of Board and Committee Performance. The Board and its committees, to the extent required by their respective charters, conduct self-evaluations annually to assess their performance. The Board and

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committee evaluation process in 2018 involved an independent third party that facilitated interviews and comments from the directors related to the effectiveness of the Board and its committees. The summary report for the Board and each of the committees will be used for discussion of Board and committee performance and any recommended improvements.

Evaluation of Director Performance. The Corporate Governance and Nominating Committee assesses the contributions and independence of current directors in connection with considering their renomination to stand for election to the Board.

Director Attendance at Annual Shareholder Meetings. It is the policy of this Company that all directors shall attend the Annual Meeting of Shareholders.

Future Severance Agreements. The Company shall not 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 the Company’s shareholders. The full text of the policy may be found on the Company’s website at www.up.com/investors/governance/severance.pdf.

Confidential Voting. It is the Board’s policy that all shareholder proxies, consents, ballots and voting materials that identify the votes of specific shareholders be kept confidential from the Company with access to proxies, consents, ballots and other shareholder voting records to be limited to inspectors of election who are not employees of the Company, except as may be required by law or to assist in the pursuit or defense of claims or judicial actions or in the event of a contested proxy solicitation.

Amendments. The Board may amend, waive, suspend or repeal any of these guidelines and policies at any time, with or without public notice, as it determines necessary or appropriate, in the exercise of the Board’s judgment or fiduciary duties.

Director Independence

To assist it in making determinations of a director’s independence, the Board has adopted the independence standards set forth below. The Board affirmatively determined that former directors Messrs. McConnell and Rogel, and, except for Mr. Fritz, all remaining current directors, who are also director nominees, Ms. Hopkins and Ms. Lute and Messrs. Card, Davis, DeLaney, Dillon, McCarthy, McLarty, Patel, and Villarreal, have no material relationship with the Company or any of its consolidated subsidiaries, including Union Pacific Railroad Company (the Railroad), (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company) and is independent within the meaning of the applicable listing standards of the NYSE and the Director Independence Standards adopted by the Board. Additionally, the Board determined that all Board Committees are comprised entirely of independent directors and that all members of the Audit Committee, Compensation and Benefits Committee and Finance Committee meet the additional independence standards applicable to such committee members as set forth below.

The Board’s independence determination included a review of the payments over the last three years between the Railroad and LyondellBasell Industries, N.V. (LyondellBasell). Mr. Patel is the Chief Executive Officer of LyondellBasell. LyondellBasell paid the Railroad approximately $115 million, $112 million and $105 million for transportation services in 2018, 2017 and 2016 respectively. These amounts were significantly less than 2% of LyondellBasell’s consolidated gross revenues for any of the past three years (0.3% for 2018, 0.3% for 2017 and 0.3% for 2016).

Director Independence Standards

An “independent” director is a director whom the Board has affirmatively determined has no material relationship with the Company or any of its consolidated subsidiaries either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. Accordingly, a director is also not independent if:

(1) the director is, or within the last three years has been, an employee of the Company or an immediate family member of the director is, or within the last three years has been, an executive officer of the Company;

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(2) the director (a) or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor; (b) is a current employee of such a firm; (c) has an immediate family member who is a current employee of such firm and personally works on the Company’s audit; or (d) or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company’s audit within that time;
(3) the director, or a member of the director’s immediate family, is, or within the last three years has been, an executive officer of another company where any of the Company’s present executives at the same time serves or served on that company’s compensation committee;
(4) the director, or a member of the director’s immediate family, received or has received during any 12-month period within the last three years any direct compensation from the Company in excess of $120,000, other than compensation for Board service and pension or other forms of deferred compensation for prior service with the Company, and compensation received by the director’s immediate family member for service as a non-executive employee of the Company;
(5) the director is a current employee of a company, including a professional services firm, that has made payments to or received payments from the Company, or during any of the last three years has made payments to or received payments from the Company, for property or services in an amount that, in any of the last three fiscal years, exceeded the greater of $1 million or 2% of the other company’s or firm’s consolidated gross revenues;
(6) a member of the director’s immediate family is a current executive officer of another company, or a partner, principal or member of a professional services firm, that has made payments to or received payments from the Company, or during any of the last three fiscal years has made payments to or received payments from the Company, for property or services in an amount that, in any of the last three fiscal years, exceeded the greater of $1 million or 2% of the other company’s or firm’s consolidated gross revenues; and
(7) the director is an executive officer, director or trustee of a non-profit organization to which the Company or Union Pacific Foundation makes, or within the last three years has made, payments that, in any single fiscal year, exceeded the greater of $1 million or 2% of the non-profit organization’s consolidated gross revenues (amounts that the Company or Union Pacific Foundation contribute under matching gifts programs are not included in the payments calculated for purposes of this standard).

For purposes of these standards, an “immediate family” member includes a director’s spouse, parents, children, siblings, mother and father-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than a domestic employee) who shares the director’s home.

Audit Committee and Compensation and Benefits Committee Independence Criteria

In addition to the Board’s Director Independence Standards above, a director is not considered independent for purposes of serving on the Audit Committee or the Compensation and Benefits Committee, and may not serve on such committees, if the director: (a) accepts, directly or indirectly, from the Company or any of its subsidiaries, any consulting, advisory, or other compensatory fee, other than Board and committee fees and fixed amounts of compensation under a retirement plan (including deferred compensation) for prior service with the Company; or (b) is an “affiliated person” of the Company or any of its subsidiaries; each as determined in accordance with NYSE and SEC rules and regulations.

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Related Party Policy and Procedures

The 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 written 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 2018

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, the Railroad paid Omaha Track or its affiliates approximately $15.1 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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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 in 2018 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 23 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 Leadership Structure

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:

Preside at meetings of the Board at which the Chairman and CEO are not present, including executive sessions of the independent directors;
Approve the flow of information sent to the Board, and approve the agenda, schedule and what materials are sent for the Board meetings;
Serve as the liaison between the independent directors and the Chairman and CEO;
Be available for consultation and communication with major shareholders as appropriate;
Oversee the process of evaluating and compensating the Chairman and CEO (in conjunction with the Compensation and Benefits Committee);
Assure that a succession plan is in place for the Chairman and CEO, as well as the lead independent director;
Authorize or recommend the retention of consultants who report directly to the full Board; and
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. 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:

Holding executive sessions of the non-management, independent directors after every Board meeting;
Providing that only independent directors serve on key Board committees; and
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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Risk Oversight of the Company

The 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.

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 of Directors Meetings and Committees

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, the Board met seven 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%. The 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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Audit Committee
The Board has determined that all members of the Audit Committee are independent directors and satisfy the additional independence criteria under NYSE listing standards applicable to audit committee members. The Board also reviewed the experience and training of the members of the Committee and determined that each member is financially literate and that at least one member has accounting or related financial management expertise. Additionally, the Board determined that Mr. DeLaney and Mr. Dillon qualify as “audit committee financial experts” within the meaning of the rules and regulations of the SEC.
   

Met 12 times in fiscal 2018
   
Members
Andrew H. Card, Jr.
William J. DeLaney
David B. Dillon (Chair)
Jane H. Lute
Jose H. Villarreal
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 counsel 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 counsel 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 assists the Board in fulfilling its responsibilities for overseeing our financial reporting process and the audit of our financial statements. Specific duties and responsibilities of the Audit Committee include, among other things:
   
Independent Registered Public Accounting Firm
   •
Appointing, overseeing the work of, and compensating the independent registered public accounting firm;
   •
Discussing with the public accounting firm relationships with the Company and its independence;
   •
Evaluating the independent registered public accounting firm through assessments of quality control procedures; peer reviews, and results of inquiries or investigations;
   •
Participating in the selection of the independent registered public accounting firm’s lead engagement partner;
   •
Establishing hiring policies with respect to employees and former employees of the independent registered public accounting firm; and
   •
Determining whether to retain or, if appropriate, terminate the independent registered public accounting firm.
   
 
Audit and Non-Audit Services; Financial Reporting; Audit Report
   •
Reviewing and approving the scope of the annual audit plan and the audit fee;
   •
Reviewing and discussing 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
   •
Reviewing the adequacy of disclosures to be included in the Annual Report on Form 10-K regarding the Company’s contractual obligations and commercial commitments, including off-balance sheet financing arrangements.

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Audit Committee
(continued)
   
Disclosure Controls; Internal Controls and Procedures
      
      
      
      
      
      
      
   •
Reviewing the Company’s policies and procedures to maintain the adequacy and effectiveness of internal controls and disclosure controls;
   •
Reviewing the scope, resources and results of the internal audit program, including participation in the General Auditor performance review; and
   •
Reviewing corporate policies and practices with respect to financial information and earnings guidance.
   
 
Risk Oversight
   •
Discussing with management reports on the Company enterprise risk management programs, including oversight of risks related to financial reporting, cybersecurity, environmental and litigation matters, safety and compliance;
   •
Overseeing 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
   •
Overseeing 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.
   
 
Annual Review/Evaluation
   •
Annually reviewing the Committee’s charter and performance.
   
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 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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Audit Committee
(continued)
If the Company determines that it requires any other non-audit services after approval of the budget, either the Committee Chair or the full Committee must pre-approve the additional non-audit services, depending on the anticipated cost of the services. In addition, the Committee Chair must review and approve any projects involving non-audit services that exceed budget costs during the year. Any non-audit services pre-approved by the Committee Chair pursuant to delegated authority and any projects involving non-audit services that exceed budget costs will be reported to the full Committee at the next regularly scheduled Committee meeting.

      
      
      
      
      
      
      

   
   
   

Finance Committee
The Finance Committee is responsible for assisting the Board with its review and oversight of the financial position of the Company. The Finance Committee’s responsibilities and duties include, among other things:
   

Met 4 times in fiscal 2018
   
Members
Deborah C. Hopkins
Michael R. McCarthy
Thomas F. McLarty III (Chair)
Bhavesh V. Patel
Treasury Matters
   •
Reviewing or overseeing significant treasury matters such as the Company’s capital structure, balance sheet, credit ratings, short- and long-term financing plans and programs, derivative policy, share repurchases and dividend policy;
   •
Reviewing the Company’s liquidity position, including the Company’s credit facilities;
   •
Overseeing the Company’s investor relations activities, including the Company’s interaction with the investor community; and
   •
Reviewing 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.
   
 
Annual Review/Evaluation
   •
Annually reviewing the Committee’s charter and performance.

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Compensation
and Benefits
Committee
The Board has determined that all members of the Compensation and Benefits Committee are independent directors and satisfy the additional independence criteria under NYSE listing standards applicable to compensation committee members.
   

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 Compensation and Benefits Committee include, among other things:
   
Executive Compensation and Performance Goals
   •
Reviewing and approving corporate goals and objectives relevant to the compensation of the Company’s CEO;
   •
Evaluating the CEO’s performance and, together with the other independent directors, determining and approving the CEO’s compensation level based on such evaluation;
   •
Reviewing and recommending to 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;
   •
Overseeing the Company’s executive incentive plans, reviewing the amounts of awards and the individuals who will receive awards and referring its determinations with respect to the annual incentive program to the Board for approval; and
   •
Reviewing and discussing the “Compensation Discussion and Analysis” (CD&A) and recommending to the Board that the CD&A be included in the Company’s Proxy Statement and Annual Report on Form 10-K.
   
Equity Compensation Plans and Other Employee Benefit Plans
   •
Overseeing the Company’s pension, thrift and equity compensation plans and reviewing and recommending to the Board all material amendments to these plans; and
   •
Overseeing the administration of the Company’s general compensation plans and employee benefit plans and periodically reviewing the Company’s benefit plans to assess whether these benefit plans remain competitive with comparably situated companies.
   
Annual Review/Evaluation
   •
Annually reviewing the Committee’s charter and performance.
   
Compensation Risk Assessment
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.

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Compensation
and Benefits
Committee
(continued)
Compensation Consultant
Under 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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Corporate Governance and Nominating
Committee
The Corporate Governance and Nominating Committee oversees and assists the Board in fulfilling its responsibilities relating to our corporate governance and director nominations and elections. Specific duties and responsibilities of the Corporate Governance and Nominating Committee include, among other things:

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
Board Matters
   •
Developing and recommending to the Board the criteria for identifying and evaluating director candidates and periodically reviewing these criteria;
   •
Identifying and recommending candidates to be nominated for election as directors at Annual Meetings or to fill Board vacancies, consistent with criteria approved by the Board;
   •
Reviewing 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;
   •
Assessing the qualifications, contributions and independence of directors in determining whether to recommend them for election or reelection to the Board; and
   •
Periodically reviewing the Board’s leadership structure, recommending changes to the Board as appropriate, and overseeing the election of a lead independent director.
   
 
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;
   •
Overseeing the Company’s Code of Business Conduct and Ethics for Members of the Board of Directors;
   •
Establishing 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
   •
Reviewing current trends in environmental, social and corporate governance (ESG) and recommending to the Board for adoption new (or modifications of existing) practices, policies or procedures.
   
 
Director Compensation and Stock Ownership
   •
Reviewing director compensation periodically to assess whether the compensation paid to non-management directors is competitive and reflects their duties and responsibilities as Board members; and
   •
Adopting and monitoring compliance with stock ownership guidelines and policies for directors.
   
 
Annual Review/Evaluation
   •
Annually reviewing the Committee’s charter and performance; and
   •
Overseeing the annual self-evaluation of the Board and its committee’s effectiveness and performance.

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Compensation Committee Interlocks and Insider Participation

During 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

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 Board

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 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 2018

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 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 Committee 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. Directors who are employees do not receive retainers or any other Board-related compensation.

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 that 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.

Non-Management Director Compensation in Fiscal Year 2018

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
 
(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. 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
 
(b) Excess liability insurance premiums paid in 2018 for each non-management director were $1,267, except for Mr. DeLaney which was $0. For each of Mr. Card, Mr. Davis, Ms. Lute, Mr. McLarty 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. 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 2019 for the applicable director’s service, and stock option exercises, if any, during the director’s service in 2018. 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. DeLaney was elected to the Board on September 5, 2018.
(e) 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, 2019

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 2019 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

Ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2019 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.

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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. 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, 2018 and 2017.

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Audit Committee Report

The Audit Committee has reviewed and discussed with management the Company’s audited consolidated financial statements for the year ended December 31, 2018. 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, for filing with the SEC.

 
The Audit Committee
 
 
David B. Dillon, Chair
 
 
Andrew H. Card, Jr.
 
 
William J. DeLaney
 
 
Jane H. Lute
 
 
Jose H. Villarreal

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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 skills that produce consistent, long-term performance accompanied with effective risk management and execution of the Company’s strategy.

In 2018, 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 shift in our operating philosophy by adopting precision scheduled railroading (PSR) principles by launching Unified Plan 2020. Highlights of the Company’s performance* include:

Record financial performance, with earnings per share of $7.91, a 37% improvement compared to 2017 adjusted results of $5.79 per share;
An all-time record operating ratio for 2018 of 62.7%, improving 0.1 point from last year’s adjusted operating ratio of 62.8%;
Operating income of more than $8.5 billion, an 8% increase compared to 2017’s adjusted operating income of $7.8 billion; and
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 45 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 63 through 79, 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 2019 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 Pacific and wish to share 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.

2018 Results and Unified Plan 2020

The Company’s full year financial results are a reflection of the executive team’s commitment to making significant improvements in service reliability and efficiency with 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 of operating a safe, reliable and efficient railroad. As a result of the momentum gained in the fourth quarter, 2018 saw the Company deliver strong financial performance, including:

Earnings of $7.91 per share, representing a 37% improvement compared to 2017’s adjusted results of $5.79 per share*
An all-time record operating ratio of 62.7%, 0.1 point better than last year’s adjusted operating ratio of 62.8%*
Operating income of more than $8.5 billion, an 8% increase compared to 2017’s adjusted operating income of $7.9 billion*

Union Pacific returned $10.5 billion to its shareholders in the form of dividends and share repurchases and total shareholder return was 5.3% in 2018 compared with a negative 4.4% shareholder return for the S&P 500.

Our Fiscal 2018 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 a formula-based incentive cash program where 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 is 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 Franchise and Engaged Team). We believe the resulting incentive bonuses for the NEOs are an accurate reflection of Company and individual performance during 2018.

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 with 2019 equity grants, 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 constitute the remaining 40% of award values, eliminating the use of retention stock units from our compensation program for executives.

Further detail on our compensation program is included in the Compensation Discussion and Analysis that follows.

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 2018 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

*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 ANALYSIS

This 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.


Named Executive Officers

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);
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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