DEF 14A 1 c80171_def14a.htm

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

 

SCHEDULE 14A INFORMATION

 

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

 

 

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ý Definitive Proxy Statement
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United Technologies 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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PROXY STATEMENT

 

Notice of the 2015 Annual Meeting
of Shareowners

 

 

 

OUR COMMITMENTS
DEFINE WHO WE ARE
AND HOW WE WORK.

 

THEY FOCUS OUR
BUSINESSES AND
MOVE US FORWARD.

 

Performance

 

Our customers have a choice, and how we perform determines whether they choose us. We aim high, set ambitious goals and deliver results, and we use customer feedback to recalibrate when necessary. We move quickly and make timely, well-reasoned decisions because our future depends on them. We invest authority where it needs to be, in the hands of the people closest to the customer and the work.

 

 

 

 

 

Opportunity

 

Our employees’ ideas and inspiration create opportunities constantly, and without limits. We improve continuously everything we do as a company and as individuals. We support and pursue lifelong learning to expand our knowledge and capabilities and to engage with the world outside UTC. Confidence spurs us to take prudent risks, to experiment, to cooperate with each other and, always, to learn from the consequences of our actions.

 

 

 

 

 

 

Innovation

 

We are a company of ideas that are nurtured by a commitment to research and development. The achievements of our founders inspire us to reach always for the next innovative and powerful and marketable idea. We seek and share ideas openly and encourage diversity of experience and opinion.

 

 

Responsibility

 

Successful businesses improve the human condition. We maintain the highest ethical, environmental and safety standards everywhere and we encourage and celebrate our employees’ active roles in their communities.

 

 

Results

 

We are a preferred investment because we meet aggressive targets whatever the economic environment. We communicate honestly and forthrightly to investors, and deliver consistently what we promise. We are a company of realists and optimists and we project these values in everything we do.

 


 
United Technologies Corporation
One Financial Plaza
Hartford, CT 06103

 

Notice of Annual Meeting of Shareowners

 

March 13, 2015

 

Meeting Information

 

TIME AND DATE:

 

April 27, 2015

2:00 p.m. Eastern Daylight Time (doors open at 1:30 p.m.)

 

LOCATION:

 

PGA National Resort, the British Open Ballroom

400 Avenue of the Champions

Palm Beach Gardens, Florida 33418

Agenda

 

1. Election of the eleven director nominees listed in the Proxy Statement.
   
2. Appointment of PricewaterhouseCoopers LLP as Independent Auditor for 2015.
   
3. An advisory vote to approve the compensation of our named executive officers.
   
4. Other business, if properly raised.


 

Who may vote:

 

If you owned shares of UTC Common Stock (“Common Stock”) at the close of business on March 2, 2015, you are entitled to vote at the meeting either in person or by proxy. YOUR VOTE IS VERY IMPORTANT. PLEASE SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.

 

How to attend:

 

Please request a ticket in advance by following the instructions on page 65. For security reasons, please be prepared to show photo identification. If you need special assistance because of a disability, please contact our Corporate Secretary’s Office by calling: 860-728-7870, sending an email to: corpsec@corphq.utc.com, or writing to: Corporate Secretary, UTC, One Financial Plaza, Hartford, CT 06103.

 

Election to receive electronic delivery of future annual meeting materials:

 

You can expedite delivery, avoid costly mailings and help us conserve natural resources by confirming in advance your preference for electronic delivery. For further information on how to take advantage of this cost-saving service, please see pages 68 and 69. You can always receive a printed copy on request.

 

By order of the Board of Directors.

 

Peter J. Graber-Lipperman

Vice President, Secretary & Associate General Counsel

 

Review Your Proxy Statement and Vote in One of Four Ways

 

VIA THE INTERNET
Visit the website listed on your proxy card

BY MAIL

Sign, date and return your proxy card in the enclosed envelope

 

BY TELEPHONE

Call the telephone number listed
on your proxy card

BY MOBILE DEVICE

Scan the QR code included with your proxy materials

 

Please refer to the enclosed proxy materials or the information forwarded by your bank, broker or other holder of record to see which voting methods are available to you.

 

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners i
 

Proxy Statement Summary

 

This summary highlights selected information in this Proxy Statement. Please review the entire Proxy Statement and UTC’s Annual Report for 2014 before voting your shares.

 

Annual Meeting Agenda

 

Proposal Page Numbers Required Vote Board Recommendation
Proposal 1: Election of Directors 1–8 Votes FOR a nominee must exceed votes AGAINST that nominee. FOR each director nominee
Proposal 2: Appointment of PricewaterhouseCoopers LLP as Independent Auditor for 2015 61–62 Approval by a majority of the votes making up the quorum. FOR
Proposal 3: Advisory, non-binding approval of Named Executive Officer Compensation 63–64 Votes FOR the proposal must exceed votes AGAINST it. FOR

 

Financial Performance

 

2014 was a year of strong financial performance for UTC, with a 4% increase in net sales, all of which was attributable to organic growth. In addition, we achieved a 10% increase in diluted earnings per share and a 7% increase in dividends paid to our shareowners. These accomplishments were all the more impressive considering our heavy investment in production development and the number of new products launched during the year.

 

 

ii Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

PROXY STATEMENT SUMMARY

 

Strategic Performance

 

In 2014, Pratt & Whitney and UTC Aerospace Systems (“UTAS”) had a number of strategic accomplishments, with over 50 new engine and system programs underway and an unprecedented ramp-up for the production of Pratt & Whitney’s revolutionary PurePower® Geared TurbofanTM (“GTF”) engine. Our integrated “go-to-market” strategy has positioned us to win multiple systems on many aircraft platforms, including the Embraer E2 and the recently unveiled Gulfstream G500 and G600 aircraft. The first flight of Airbus’ A320neo, which is powered by the GTF engine, has marked a new chapter in UTC’s history that is expected to bring Pratt & Whitney back to production levels last seen in the 1980s.

 

This year also brought significant strategic wins at Sikorsky Aircraft. These include, most notably, the U.S. Presidential Helicopter Program, the U.S. Air Force Combat Rescue Helicopter, and the selection of the Sikorsky-Boeing team to develop a helicopter for the U.S. Army’s Joint Multi-Role Technology Demonstrator program, paving the way for the next generation of vertical lift aircraft based on Sikorsky’s X2TM technology.

 

On the commercial side, UTC Building & Industrial Systems (“BIS”) celebrated its one-year anniversary as an organization centrally focused on delivering premium, integrated building solutions for an increasingly urban world. With the creation of BIS, we can now achieve more effective product and sales coordination, deliver greater synergies and serve our customers more efficiently. BIS’ expansive portfolio of high-technology building solutions positions UTC to win more projects and to capture additional market share well into the future. These efforts have already proven successful, resulting in contract wins at the Midfield Terminal Complex of the Abu Dhabi International Airport, where Otis will provide 335 units and Carrier will supply 16 expanded-capacity chillers.

 

 

COMPANY AWARDS IN 2014

 

Most Admired Aerospace & Defense Companies

Fortune Magazine

 

Most Respected Companies Barron’s 500

 

World’s Greenest Companies Newsweek Magazine

 

One of the best 2014 proxy disclosures

Corporate Secretary Magazine

 

America’s Top Corporations for

Women’s Business Enterprises

Women’s Business Enterprise National Council

 

Top Organizations for Multicultural

Business Opportunities DiversityBusiness.com

Finalist for exemplary Compensation Discussion & Analysis (CD&A) in a proxy disclosure

New York Stock Exchange’s Corporate Board Member Magazine

 

R&D 100 Award for the development of two breakthrough eco-friendly technologies

(EcoTuff® corrosion inhibitor and a portable aluminum deposition system) R&D Magazine

 

Best Chief Financial Officer in the Capital Goods/Industrials—Aerospace & Defense Sector as voted by both buy-side and sell-side analysts

Institutional Investor Magazine

 

One of the best places to work for lesbian, gay, bisexual and transgender employees

Human Rights Campaign’s 2015 Corporate Equality

 

Top Corporate Partner INROADS


 

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners iii
 

PROXY STATEMENT SUMMARY

 

Executive Compensation Overview

 

Our executive compensation program has four primary components: base salary, annual bonus, performance share units (“PSUs”) and stock appreciation rights (“SARs”). Each of these compensation elements serves a specific purpose in our compensation strategy. Base salary is an essential component to any market-competitive compensation program. Annual bonus motivates the achievement of short-term company and business unit goals. The Committee on Compensation & Executive Development (the “Committee”) views long-term compensation (i.e., PSUs and SARs) as the foundation of our program, which is why these elements make up the greatest portion of our senior management’s compensation. Long-term compensation opportunities drive our executives to focus on strategies that promote sustainable growth.

 

The following chart reflects the compensation decisions made by the Committee in 2014 for the three Named Executive Officers (“NEOs”) listed in the Summary Compensation Table who continue to serve as executive officers of the Company as of the date of this Proxy Statement.

 

TOTAL DIRECT COMPENSATION(1)(2)

 

 

(1) With respect to the other NEOs, Mr. Chênevert resigned as Chairman & Chief Executive Officer on November 23, 2014 and retired as an employee of the Company on January 3, 2015, Mr. Longo's role as Acting Chief Financial Officer ended on December 31, 2014, and Mr. Bellemare left UTC effective January 31, 2015.
   
(2) Total direct compensation, as discussed in detail on page 40, reflects compensation decisions made by the Committee based on its evaluation of each NEO’s performance during 2014. It includes: 2014 base salary adjustments, 2014 annual bonus and the long-term incentive grant made on January 2, 2015. It does not include other compensation shown in the Summary Compensation Table, which is not based on 2014 performance.

 

2014 PROGRAM CHANGES

 

The Committee made the following changes to UTC’s executive compensation program during or applicable to 2014:

 

For the portion of PSUs that vest contingent upon UTC’s total shareowner return (“TSR”) relative to the S&P 500, we now cap payouts at 100% of target if UTC generates a negative TSR over the applicable three-year performance period, even if relative TSR exceeds the target. This change became effective beginning with the PSUs granted on January 2, 2015.
   
To better align with market practice, our TSR threshold payout level for PSUs has been adjusted from 0% to 50%, effective beginning with PSUs granted on January 2, 2014.
   
UTC’s clawback policy has been updated to clarify that an executive’s negligence (including the negligent supervision of a subordinate) can be a basis for a clawback of compensation.
   
All Executive Leadership Group (“ELG”) members are no longer eligible for a 5% of base salary perquisite allowance.
   
To provide a more relevant peer comparison, Intel Corporation was removed from our Compensation Peer Group (“CPG”), while Chevron Corporation, Danaher Corporation and Eaton Corporation were added.

 

iv Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

PROXY STATEMENT SUMMARY

 

Director Experience

 

The Board of Directors and its Committee on Nominations and Governance believe that diversity in experience and perspective are of the utmost importance for achieving sound decisions that drive shareowner value. The Board also believes that varying periods of tenure among our directors provide a constructive blend of institutional knowledge with a fresh external viewpoint. The following charts reflect the broad experience and tenure of our Board of Directors:

 

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners v
 

PROXY STATEMENT SUMMARY

 

Board Nominees

 

You are being asked to cast votes for eleven directors. Directors are elected annually by majority voting.

 

All nominees meet the New York Stock Exchange (“NYSE”) governance standards for director independence, except for Mr. Hayes, who is not independent due to his position as an executive officer.

 

    Director Committee Other Public
Nominee Age Since Membership Company Boards
JOHN V. FARACI 65 2005 A – Member 2
Retired Chairman & Chief Executive Officer, International Paper     N&G – Member  
      F – Chair  
JEAN-PIERRE GARNIER 67 1997 N&G – Member 2
Chairman, Actelion Ltd.     C&ED – Chair  
      PIR – Member  
GREGORY J. HAYES 54 2014 F – Member 1
United Technologies Corp., President and Chief Executive Officer        
EDWARD A. KANGAS 70 2008 A – Chair 4
Former Chairman & Chief Executive Officer, Deloitte, Touche, Tohmatsu     N&G – Member  
      C&ED – Member  
ELLEN J. KULLMAN 59 2011 A – Member 1
Chair & Chief Executive Officer, DuPont     F – Member  
      PIR – Member  
MARSHALL O. LARSEN 66 2012 F – Member 3
Former Chairman, President & Chief Executive Officer, Goodrich Corp.     PIR – Member  
HAROLD McGRAW III 66 2003 N&G – Member 2
Chairman, McGraw Hill Financial, Inc.     C&ED – Member  
      F – Member  
RICHARD B. MYERS 73 2006 A – Member 3
Ret. General, U.S. Air Force, Former Chairman, U.S. Joint Chiefs of Staff     N&G – Member  
      C&ED – Member  
H. PATRICK SWYGERT 71 2001 A – Member 1
President Emeritus, Howard University     N&G – Chair  
      C&ED – Member  
ANDRÉ VILLENEUVE 70 1997 A – Member 0
Chairman, ICE Benchmark Administration Ltd.     F – Member  
      PIR – Member  
CHRISTINE TODD WHITMAN 68 2003 N&G – Member 1
President, Whitman Strategy Group     F – Member  
      PIR – Chair  

 

A Audit   N&G Nominations & Governance   C&ED Compensation & Executive Development   F Finance   PIR Public Issues Review

 

vi Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

PROXY STATEMENT SUMMARY

 

Governance Highlights

 

As part of UTC’s commitment to high ethical standards, our Board follows sound governance practices. These practices are described in more detail in our Corporate Governance Guidelines, which can be found in the Corporate Governance section of our website.

 

Independence 10 out of our 11 nominees are independent.
  Our CEO is the only management director.
  All of the Board Committees that meet regularly, other than the Finance Committee, are composed exclusively of independent directors.
Independent Chairman of In November 2014, the Board of Directors elected Edward A. Kangas to serve as non-executive Chairman of the Board.
the Board Mr. Kangas is independent under NYSE standards.
  The Chairman serves as liaison between management and the other non-management directors, presides at meetings of the Board and has authority to call meetings of the Board.
Executive Sessions The independent directors regularly meet in private without management.
  The Chairman presides at these executive sessions.
Board Oversight of The Board monitors UTC’s systematic approach to identifying and assessing risks faced by UTC and our business units.
Risk Management The Audit Committee reviews our overall enterprise risk management policies and practices, financial risk exposures and the delegation of risk oversight responsibilities to other Board Committees.
Stock Ownership Non-management directors must hold at least $520,000 of Common Stock (or Common Stock equivalents) within five years of joining
Requirements   the Board.
  Our CEO must, within five years of attaining that position, hold Common Stock (or Common Stock equivalents) valued at six times base salary.
  Members of our Executive Leadership Group must, within five years of appointment to the group, hold Common Stock (or Common Stock equivalents) valued at three times base salary.
Incentive Plans The goal setting processes for the annual and long-term incentive plans are annually reviewed by the Committee on Compensation &
    Executive Development to ensure that appropriate, rigorous, yet attainable targets are set.
  Repricing or cash buyouts of underwater options are strictly forbidden under the UTC Long-Term Incentive Plan.
  We do not allow pledging or hedging of UTC shares by our executives or our non-employee directors for any purpose.
  We have a robust clawback policy, which allows us to recoup compensation in the case of misconduct or negligence causing significant harm to the Corporation. We have adopted enhancements to this policy multiple times over the years.
Board Practices The Board and each of its committees conduct annual self-evaluations by completing a detailed questionnaire to assess whether each group is functioning effectively, to receive input on the performance of the Board and each committee and to consider areas in which directors believe performance could improve.
  The director candidate criteria are adjusted as needed to ensure that our Board as a whole continues to reflect the appropriate mix of skills and experience.
  Directors may not stand for election after age 72, absent special circumstances approved by the Board.
Accountability All directors stand for election annually.
  In uncontested elections, directors must be elected by a majority of votes cast.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners vii
 

Table of Contents

 


 

Important Notice Regarding the Availability of Proxy Materials for the Shareowner Meeting to be held on April 27, 2015. UTC’s Proxy Statement for the 2015 Annual Meeting, and our Annual Report to Shareowners for 2014 are both available free of charge at: www.proxyvote.com. References in this Proxy Statement and accompanying materials to Internet websites are for the convenience of readers. Information available at or through these websites is not incorporated by reference in this Proxy Statement.

 

viii Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

Proposal 1: Election of Directors

 

Proxy Statement. The Board of Directors of United Technologies Corporation (“UTC”, the “Company” or the “Corporation”) is soliciting proxies to be voted at our 2015 Annual Meeting of Shareowners on April 27, 2015 and at any postponed or reconvened meeting. We expect that this Proxy Statement will be mailed and made available to shareowners beginning on or about March 13, 2015. The meeting will address the three matters listed in the Notice of Meeting, the first of which is the election of directors.

 

We are seeking your support for the election of the eleven candidates that the Board has nominated to serve on the Board of Directors. We believe these nominees have qualifications consistent with our position as a large, diversified industrial corporation with operations throughout the world. We also believe these nominees have the experience and perspective to guide the Company as we innovate and develop new products, compete in a broad range of markets around the world, and adjust to rapidly changing technologies, business cycles and competition.

 

Board Membership Criteria and Nomination Process

 

The Board and its Committee on Nominations and Governance believe that it is important that our directors, as a group, have the following attributes:

 

       
EXPERIENCE   Senior business or government leadership experience
    Public company board experience
    International business or government experience
       
       
THOUGHT LEADERSHIP   An objective, independent and informed approach to complex and sensitive business decisions
    Extensive knowledge, experience and judgment
    An appreciation of the role of the corporation in society
    Diversity of perspectives and appreciation for multiple cultures
    Loyalty to the interests of UTC and its shareowners
    The highest integrity and ethical standards
       
       
SUBJECT MATTER   Global / international expertise
EXPERTISE   Industry / technical expertise
    Financial and accounting expertise
    Government or public policy expertise
    Regulatory compliance expertise
    Risk management expertise

 

Individuals on our Board also possess other particular skills and qualifications. These include experience in the financial services industry, the military, government and academia, expertise in sustainability and environmental issues, and knowledge of systems and technology.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 1
 

PROPOSAL 1 Election of Directors

 

Our Board believes it is critical to our success to have directors who represent the interests of shareowners by bringing a diversity of perspectives to Board deliberations and Company oversight. The Committee on Nominations and Governance regularly reviews with the Board the qualifications that are most important in selecting candidates to serve as directors, taking into account UTC’s diverse operations and the mix of capabilities and experience represented on the Board. As part of its annual evaluation of its effectiveness as a group, the Board considers whether its composition as a whole reflects a mix of skills and perspectives that is appropriate to meet the Company’s needs. Based on these considerations, the Board makes adjustments in the priorities given to different qualifications when identifying candidates.

 

Diversity

 

While we do not have a specific policy on diversity of the Board, our Corporate Governance Guidelines (“Governance Guidelines”) provide that candidates for the Board should have the ability to contribute to maintaining a diversity of perspectives in Board deliberations, in addition to being objective, independent and informed. The Board believes this diversity is critical to our success. The Committee on Nominations and Governance seeks accomplished and highly qualified candidates who have broad experience and perspective to oversee the global operations of a large and diversified industrial public company. We believe our Board reflects a broad diversity of professional backgrounds, skills and experiences.

 

Three director nominees have lived and worked outside the United States for substantial periods
   
Two director nominees serve on the board of a non-U.S. public company
   
Two director nominees are women
   
One director nominee is African American

 

The Committee considers candidates who are suggested by directors, management and shareowners and who meet the qualifications UTC seeks in its directors. A shareowner may recommend a director candidate by submitting a letter addressed to the Corporate Secretary. The Company may also engage search firms from time to time to assist in identifying and evaluating qualified candidates.

 

Nominees

 

Our entire Board is elected annually by our shareowners. The Board, upon the recommendation of the Committee on Nominations and Governance, has nominated the eleven individuals listed in this Proxy Statement, each of whom is a current director. The Board believes that each nominee brings to the Board a range of strong skills and extensive experience, as highlighted in each nominee’s biographical information on pages 3 through 8. The Board believes that the nominees as a group possess the appropriate skills to exercise the Board’s oversight responsibilities.

 

UTC’s Governance Guidelines require that directors retire from the Board as of the annual meeting after they reach age 72, absent special circumstances approved by the Board. In nominating the eleven candidates to stand for election at the 2015 Annual Meeting, the Board exercised this discretion with respect to General Richard B. Myers and H. Patrick Swygert. Due to General Myers’ extensive senior leadership experience involving military, global security and geopolitical issues relevant to UTC’s businesses, the Board determined that it is in the interest of the Company to waive the normal retirement policy to allow General Myers to stand for election in 2015. Mr. Swygert will have reached age 72 by the date of the Annual Meeting. In view of Mr. Swygert’s role as Chairman of the Committee on Nominations and Governance and as a member of two additional key Board committees, the Board also believes it is beneficial to waive the normal retirement policy to allow Mr. Swygert to stand for election in 2015.

 

If any of the Board’s nominees become unavailable prior to the Annual Meeting to serve as a director, the Board may select a replacement nominee or reduce the number of directors to be elected. The proxy holders will vote the shares for which they serve as proxy for any replacement candidate nominated by the Board.

 

2 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

PROPOSAL 1 Election of Directors

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREOWNERS VOTE FOR EACH OF THE FOLLOWING NOMINEES:

 

JOHN V. FARACI          
         

 

Retired Chairman &
Chief Executive Officer,
International Paper

Age: 65
Director since 2005

Committees:

Audit
Finance
Nominations & Governance

  MR. FARACI served as Chairman & Chief Executive Officer of International Paper (paper, packaging and distribution) from 2003 to 2014. Earlier in 2003, he was elected President and a director of International Paper, and previously served as Executive Vice President and Chief Financial Officer from 2000 to 2003. From 1995 to 1999, he was Chief Executive Officer and managing director of Carter Holt Harvey Ltd., a   former majority-owned subsidiary of International Paper, located in New Zealand. Mr. Faraci joined International Paper in 1974. He serves on the Boards of Directors of PPG Industries, Inc. and ConocoPhillips. Mr. Faraci also serves on the Boards of Directors of the National Fish and Wildlife Foundation and Denison University. He is a Trustee of the American Enterprise Institute and a member of the Council on Foreign Relations.
       
Skills and Expertise
   CEO EXPERIENCE
Retired CEO. Served as International Paper’s Chairman & CEO from 2003 through 2014.
       
BROAD INTERNATIONAL EXPOSURE

Extensive leadership experience at a large international corporation with worldwide operations. Experience overseeing extensive strategic changes in International Paper’s business portfolio. Commitment to responsible stewardship of natural resources and sustainability reporting.

       
HIGH LEVEL OF FINANCIAL EXPERTISE
Audit committee financial expert, based on oversight of CFO and prior experience as CFO.
       
       
       
       
       
       
       
JEAN-PIERRE GARNIER          
         

 

Chairman,
Actelion Ltd.

Age: 67

Director since 1997

Committees:

Compensation & Executive
Development
Nominations & Governance
Public Issues Review

  DR. GARNIER is Chairman of Actelion Ltd. (biopharmaceuticals) and an Operating Partner at Advent International (global private equity). He previously served as Chief Executive Officer of Pierre Fabre SA from 2008 to 2010 and as Chief Executive Officer and Executive Member of the Board of Directors of GlaxoSmithKline plc from 2000 to 2008. Dr. Garnier served as Chief Executive Officer of SmithKline Beecham plc in 2000 and as Chief Operating Officer and Executive Member of the Board of Directors of SmithKline Beecham plc from 1996 to 2000. Dr. Garnier also   is a director of Renault S.A. In 2009, he was made a Knight Commander of the British Empire. In 2007, he was promoted from Chevalier to Officier de la Légion d’Honneur of France. In 2006, he was named to the global list of top 20 CEOs by the Best Practice Institute. Dr. Garnier was previously Chairman of NormOxys, Inc. from 2010 to 2011, and a board member of the Stanford Advisory Council on Interdisciplinary Biosciences, Weill Cornell Medical College and the Dubai International Capital Advisory Board. He is a member of the Advisory Board of the Newman’s Own Foundation.
       
Skills and Expertise
BROAD INTERNATIONAL EXPOSURE
Extensive knowledge of international markets and operations acquired through service as a CEO and as a director of several large public companies, and also as chairman of several developing companies in Europe and the U.S.
       
CEO EXPERIENCE

Served as CEO for two large public companies. Experience overseeing the integration of large public companies post-merger.

       
HIGH LEVEL OF FINANCIAL LITERACY
Audit committee financial expert, based on oversight of CFO. Extensive expertise in executive compensation practices in U.S. and Europe.
       
       
       
       
       
       
       

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 3
 

PROPOSAL 1 Election of Directors

 

GREGORY J. HAYES          
         

 

President and Chief
Executive Officer,
United Technologies
Corporation

Age: 54
Director since 2014

Committees:

Executive
Finance

  MR. HAYES was elected President and Chief Executive Officer of United Technologies Corporation on November 23, 2014. He previously served as Senior Vice President & Chief Financial Officer of UTC from September 2008 through November 2014, as Vice President, Accounting and Finance from 2006 to 2008, as Vice President, Accounting and Controls from 2004 to 2006, as Vice President and Controller from 2003 to 2004, and as Vice President, Financial Planning & Analysis for the Hamilton Sundstrand segment of   UTC from 1999 to 2003. Mr. Hayes joined UTC in 1999 through the merger with Sundstrand Corporation, where he had been employed since 1989. He is a Certified Public Accountant. Mr. Hayes has been a member of the Board of Directors of Nucor Corporation since 2014, where he serves on the Audit Committee, the Compensation and Executive Development Committee and the Governance and Nominating Committee. Mr. Hayes is a member of the Board of Directors of the New England Air Museum.
       
Skills and Expertise
   HIGH LEVEL OF FINANCIAL EXPERTISE
Substantial financial and accounting oversight experience gained as CFO and in other senior financial positions with UTC and through service on the Audit Committee of the Board of Directors of Nucor Corporation.
       
CEO EXPERIENCE

Has served as UTC’s President and CEO since November 2014.

       
EXTENSIVE KNOWLEDGE OF COMPANY’S BUSINESS
Through six years of experience as CFO of UTC and previous senior financial leadership positions, has gained deep understanding of UTC’s operations, complex financial transactions and the operational and financial impact of numerous acquisitions, divestitures and restructuring actions, as well as the integration of major operations.
       
       
       
       
       
       
       

 

4 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

PROPOSAL 1 Election of Directors

 

EDWARD A. KANGAS          
         

 

Former Chairman &
Chief Executive Officer,
Deloitte, Touche,
Tohmatsu

Age: 70
Director since 2008

Committees:

Audit
Compensation & Executive
Development
Nominations & Governance

  MR. KANGAS was elected non-executive Chairman of the Board of Directors of United Technologies Corporation on November 23, 2014. He previously served as Chairman and Chief Executive Officer of Deloitte, Touche, Tohmatsu (audit and tax services) from 1989 to 2000. He has served as non-executive Chairman of the Board at Tenet Healthcare Corporation since July 2003, and   is a Board member of Hovnanian Enterprises Inc., Intuit Inc. and Intelsat S.A. Mr. Kangas previously served as a director of Allscripts Healthcare Solutions, Inc. from 2010 to 2012, and Eclipsys Corporation from 2004 to 2010. He is a past Chairman of the National Multiple Sclerosis Society and is a trustee of the Committee for Economic Development.
       
Skills and Expertise
   HIGH LEVEL OF FINANCIAL EXPERTISE
Extensive financial and accounting expertise acquired through oversight of audits of public companies in diverse industries.
       
CEO EXPERIENCE

Experience as CEO of a major accounting firm, in addition to his experience as chair of another public company.

       
RISK OVERSIGHT/MANAGEMENT EXPERIENCE
Through extensive experience with a major global accounting firm, qualifies as an audit committee financial expert and has acquired significant experience in risk management and oversight.
       
       
       
       
       
       
       
ELLEN J. KULLMAN          
         

 

Chair & Chief Executive
Officer, E.I. du Pont de
Nemours and Company

Age: 59

Director since 2011

Committees:

Audit
Finance
Public Issues Review

  MRS. KULLMAN has served as Chair of the Board of Directors of E.I. du Pont de Nemours and Company (basic materials and innovative products and services for diverse industries) since December 2009. She has also served as Chief Executive Officer of DuPont since January 2009 and as a director of DuPont since 2008. Mrs. Kullman served as President of DuPont from October 2008 to December 2008. From June 2006 through September 2008, she served as Executive Vice President. Prior to that, Mrs. Kullman was Group Vice President-DuPont Safety   & Protection. She is Chair of the U.S.-China Business Council and is a member of the U.S.-India CEO Forum, the Business Council, the National Academy of Engineering, the Board of Directors of Catalyst and the Board of Change the Equation (CTEq). Mrs. Kullman is co-chair of the National Academy of Engineering Committee on Changing the Conversation: From Research to Action. She also serves on the Board of Trustees of Tufts University and the Board of Overseers at Tufts University School of Engineering.
       
Skills and Expertise
   CEO EXPERIENCE
Active CEO of innovative S&P 100 company with global operations.
       
TECHNOLOGY-RELATED PRODUCT DEVELOPMENT/MARKETING

Through career at DuPont, has acquired extensive experience in the application of market-driven science to new product development.

       
BROAD INTERNATIONAL EXPOSURE
Based on experience acquired at DuPont, able to provide significant insights on implementation of business strategies in global markets.
       
       
       
       
       
       
       

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 5
 

PROPOSAL 1 Election of Directors

 

MARSHALL O. LARSEN          
         

 

Former Chairman,
President & Chief
Executive Officer,
Goodrich Corporation

Age: 66
Director since 2012

Committees:

Finance
Public Issues Review

  MR. LARSEN served as Chairman, President and Chief Executive Officer of Goodrich Corporation from 2003 until July 2012, when Goodrich was acquired by UTC. He was elected as President and Chief Operating Officer of Goodrich in February 2002, and as a director in April 2002. From 1995 through 2002, Mr. Larsen served as Executive Vice President of Goodrich and   President and Chief Operating Officer of Goodrich Aerospace. Mr. Larsen joined Goodrich in 1977. Mr. Larsen is a former Chairman of the U.S. Aerospace Industries Association, and serves as a director of Lowe’s Companies Inc., Becton, Dickinson and Company, and Air Lease Corporation. He is active in numerous community activities.
       
Skills and Expertise
   CEO EXPERIENCE
Through service as CEO of Goodrich Corporation, has acquired extensive business and leadership experience in aerospace industry.
       
EXTENSIVE KNOWLEDGE OF COMPANY’S BUSINESS, INDUSTRY AND OPERATIONS

In-depth knowledge of aerospace industry, conditions affecting the industry and key customers.

       
HIGH LEVEL OF FINANCIAL LITERACY
Based on oversight of CFO at Goodrich, acquired extensive financial knowledge. Extensive senior management experience has also provided broad knowledge of governance, regulatory and risk management issues facing large public companies.
       
       
       
       
       
       
       
HAROLD MCGRAW III          
         

 

Chairman, McGraw Hill
Financial, Inc.

Age: 66

Director since 2003

Committees:

Compensation & Executive
Development
Finance
Nominations & Governance

  MR. MCGRAW has been Chairman of the Board of McGraw Hill Financial, Inc. (ratings, benchmarks and analytics for financial markets) since 1999. He served as Chief Executive Officer of McGraw Hill from 1998 to November 2013 and as President and Chief Operating Officer from 1993 to November 2013. He is also a director of Phillips 66, and previously served as a director of ConocoPhillips from 2005 to 2012. Mr. McGraw is   Chairman of the Emergency Committee for American Trade, International Chamber of Commerce and the U.S. Trade Representative’s Advisory Committee for Trade Policy & Negotiations. He is the former Chairman of The Business Roundtable. In addition, he serves on the boards of the Asia Society, the Committee Encouraging Corporate Philanthropy, the New York Public Library and Carnegie Hall.
       
Skills and Expertise
   CEO EXPERIENCE
Has served as Chairman of McGraw Hill Financial since 1999 and previously served as CEO of that large global enterprise.
       
HIGH LEVEL OF FINANCIAL LITERACY

Expertise on transformational changes to business portfolios, with focus on enhancements to shareowner value.

       
BROAD INTERNATIONAL EXPOSURE
Through experience as CEO, service as a director at several large global companies and leadership roles in other organizations, has acquired broad knowledge of global trade and business activities in diverse and challenging economic conditions.
       
       
       
       
       
       
       

 

6 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

PROPOSAL 1 Election of Directors

 

RICHARD B. MYERS          
         

 

Ret. General, U.S. Air
Force and Former
Chairman, Joint Chiefs
of Staff

Age: 73
Director since 2006

Committees:

Audit
Compensation & Executive
Development
Nomination & Governance

  GENERAL MYERS, a retired U.S. Air Force General, served as Chairman of the U.S. Joint Chiefs of Staff from 2001 to 2005. He was the principal military adviser to the President, Secretary of Defense, and the National Security Council. He was appointed Vice Chairman by President Clinton, which included acting as Chairman of the Joint Requirements Oversight Council, Vice Chairman of the Defense Acquisition Board, and member of the National Security Council Deputies Committee and the Nuclear Weapons Council. He also serves on the boards of   Aon Corporation, Deere & Company, Northrop Grumman and Rivada Networks. General Myers is the Foundation Professor of Military History and Leadership at Kansas State University and holds the Colin Powell Chair for National Security Leadership, Ethics and Character at the National Defense University. He is a member of the Defense Health Board and Chairman of the USO Board of Governors. He also serves on the boards of several other non-profits, including Fisher House and MRIGlobal, and is Chairman of the Kansas State University Foundation.
       
Skills and Expertise
   GOVERNMENT AND GEOPOLITICAL EXPERIENCE
Extensive senior leadership experience with military, global security and geopolitical issues of significant relevance to UTC’s businesses.
       
EXTENSIVE KNOWLEDGE OF COMPANY’S BUSINESS, INDUSTRY AND OPERATIONS

Based on extensive experience in military and U.S. Government, provides important perspectives on opportunities and challenges for UTC’s government contracting businesses.

       
RISK OVERSIGHT/LEADERSHIP EXPERIENCE
Provides important insights into organizational adjustment to address diverse economic and strategic challenges.
       
       
       
       
       
       
       
H. PATRICK SWYGERT          
         

 

President Emeritus,
Howard University

Age: 71

Director since 2001

Committees:

Audit
Compensation & Executive
Development
Nominations & Governance

  MR. SWYGERT served as President of Howard University from 1995 to 2008. He served as President of the University at Albany, State University of New York from 1990 to 1995, and as Executive Vice President of Temple University from 1987 to 1990. Mr. Swygert also serves on the Board of Directors of The Hartford Financial   Services Group Inc. He is a member of the Advisory Council for the Smithsonian Institution’s National Museum of African American History and Culture and the D.C. Emancipation Commemoration Commission, and serves on the Board of the National Capital Medical Center.
       
Skills and Expertise
   HIGH LEVEL OF FINANCIAL LITERACY
Experience in leadership roles at major educational institutions, as well as service on board audit and risk committees at two public companies, has given him extensive knowledge of financial and disclosure considerations.
       
GOVERNMENT AND GEOPOLITICAL EXPERIENCE

Based upon his experience in senior leadership at three major universities and participation in other civic and government advisory organizations, provides important perspectives on organizational transformation, government relations, and cultural and civic issues.

       
RISK OVERSIGHT/MANAGEMENT EXPERIENCE
Through experience in strategic planning, risk management and governance, provides important insights into risk management and governance in diverse economic conditions.
       
       
       
       
       
       
       

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 7
 

PROPOSAL 1 Election of Directors

 

ANDRÉ VILLENEUVE          
         

 

Chairman, ICE
Benchmark Administration Limited

Age: 70
Director since 1997

Committees:

Audit
Finance
Public Issues Review

  MR. VILLENEUVE is Chairman of ICE Benchmark Administration Limited (part of The ICE Group). He was Chairman of the City of London’s International Regulatory Strategy Group, which works closely with the U.K. government on financial services regulatory issues, from 2007 to 2013. He is a member of the Advisory Council of TheCityUK. He was Chairman of NYSE Euronext LIFFE from 2003 to 2009. Mr. Villeneuve joined Reuters in 1967, was based in London, Belgium, Latin America and the U.S., and served as President, Reuters America from 1980 to 1990 and Executive Director of Reuters PLC from 1989 to 2000. He was Chairman of Instinet Corporation, an electronic   brokerage subsidiary of Reuters, from 1990 to 1999, and Executive Chairman from 1999 to 2002. He was Chairman of Promethee, the French think tank, from 1998 to 2002, and Non-Executive Director of Aviva PLC from 1996 to 2006 and of the Lloyd’s of London Franchise Board from 2010 to 2014. He was a member of the U.K. Chancellor’s High Level Financial Services Group, a non-executive director of IFSL (International Financial Services London), IFRI (Institut Français des Relations Internationales) and Euroarbitrage. Mr. Villeneuve is a Grand Officer of the Order of Leopold II of Belgium.
       
Skills and Expertise
   BROAD INTERNATIONAL EXPOSURE
Extensive business and financial experience in the U.K., Belgium, Latin America and the U.S.
       
HIGH LEVEL OF FINANCIAL LITERACY

Extensive expertise in financial markets and complex securities. Qualifies as audit committee financial expert.

       
GOVERNMENT AND GEOPOLITICAL EXPERIENCE
As a participant in several government advisory boards, has acquired significant insights into financial market and economic trends.
       
       
       
       
       
       
       
CHRISTINE TODD WHITMAN      
         

 

President, The Whitman
Strategy Group

Age: 68

Director since 2003

Committees:

Finance
Nominations & Governance
Public Issues Review

  GOVERNOR WHITMAN served as Administrator of the U.S. Environmental Protection Agency from January 2001 through June 2003. She was Governor of the State of New Jersey from 1994 through 2001. Governor Whitman has served as President of The Whitman Strategy Group (environmental and public policy consulting) since December 2004. She is a member of the Boards of Directors of Texas Instruments Incorporated and S.C. Johnson & Son, Inc. Governor Whitman is a   member of the Council on Foreign Relations and Chair of the Board of the American Security Project. In addition, she serves on the Board of Trustees of the Eisenhower Fellowship Foundation and as Chair of its Executive Committee, and on the Senior Advisory Committee of the Institute of Politics at Harvard University. Governor Whitman also is Co-Chair of the Clean Safe Energy Coalition and a member of the Board of Directors of the Center for Sustainable Shale Development.
       
Skills and Expertise
   GOVERNMENT AND GEOPOLITICAL EXPERIENCE
Extensive senior leadership experience in U.S. and state executive functions. Provides important perspectives on environmental, public policy and government relations issues.
       
RISK OVERSIGHT/MANAGEMENT EXPERIENCE

Through her career in government and private industry, has acquired extensive expertise in management and oversight of complex environmental and other risks and public policy matters.

       
EXTENSIVE GOVERNANCE EXPERIENCE
Based on experience as a director of several large companies, as well as her service in government, provides important insights into effective governance and leadership structures.
       
       
       
       
       
       
       

 

8 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

Corporate Governance

 

Our Commitment to Sound Corporate Governance

 

UTC is committed to strong corporate governance practices designed to maintain high standards of oversight, integrity and ethics, while promoting growth in long-term shareowner value.

 

Our governance structure enables independent, experienced and accomplished directors to provide advice, insight and oversight to advance the interests of the Company and our shareowners. UTC has long maintained sound governance standards, as reflected in our Code of Ethics and Governance Guidelines and in our systematic approach to risk management. We are committed to transparent financial reporting and strong internal controls.

 

We encourage you to visit the Corporate Governance section of our website (http://www.utc.com/Our-Company/Corporate-Governance/Pages/default.aspx) where you will find detailed information about corporate governance at UTC, including:
   
Our Governance Guidelines
Charters for our Board Committees
Our Code of Ethics
Our Certificate of Incorporation and Bylaws
Information about our Ombudsman/DIALOG program, which allows UTC employees to raise questions confidentially and outside the usual management channels
How shareowners and other interested persons may address concerns to the Board of Directors

 

Board Leadership Structure

 

INDEPENDENT CHAIRMAN

 

On November 23, 2014, the Board elected Edward A. Kangas, an independent director, to serve as non-executive Chairman of the Board.

 

In February 2015, the Board approved changes to UTC’s Bylaws and Governance Guidelines to define the responsibilities of a non-executive Chairman, which are more fully described below.

 

The Committee on Nominations and Governance periodically reviews our governance practices and leadership structure. Under UTC’s Governance Guidelines, the Board has no fixed policy on whether or not to have a non-executive chairman. The Board believes this determination should be made based on the Company’s best interests in light of the circumstances at the time and experience. In deciding which board leadership structure it believes will provide the most effective leadership and board oversight for the Company, the Board considers a range of factors including, but not limited to: the Company’s operating and financial performance under the existing board leadership structure; recent or anticipated changes in the Chief Executive Officer role; the effectiveness of current processes and structures for Board interaction with and oversight of management; the Board’s desire for additional measures during periods of transition; and the importance, at any particular time, of maintaining a single voice in leadership communications and Board oversight, both internally and with investors. The Board has combined and separated the Chairman and Chief Executive Officer positions in the past and

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 9
 

CORPORATE GOVERNANCE

 

will continue to exercise its judgment under the circumstances at the time to determine the board leadership structure that it believes will provide appropriate leadership, direction and oversight, while facilitating the effective functioning of both the Board and management. Taking these considerations into account, the Board has concluded that the separation of the roles of Chairman and Chief Executive Officer best serves the interests of shareowners and the Company at this time.

 

The Board believes it is important to maintain flexibility as to the Board’s leadership structure, but firmly supports maintaining a non-management director in a leadership role at all times, whether as non-executive Chairman or Lead Director. Accordingly, on February 2, 2015, the Board approved changes to UTC’s Bylaws and Governance Guidelines to require that the Board elect a non-management director to serve as Lead Director when the role of Chairman is held by the Chief Executive Officer or another UTC executive. The Board believes that when the roles of Chairman and Chief Executive Officer are combined, having a Lead Director to coordinate the activities of the independent directors and to serve as a liaison between the Board and management will enhance the effectiveness of the independent directors, and provide a channel for non-management directors to candidly raise issues or concerns for Board consideration.

 

The defined duties and authority of the non-executive Chairman include:
   
presiding at meetings of the Board of Directors and shareowners;
presiding at executive sessions of the non-management directors and providing feedback to the CEO;
having authority to call meetings of the directors and of shareowners;
at the request of the Board of Directors, serving as liaison between the Board and the CEO;
in conjunction with the CEO, planning and organizing the activities of the Board, including agendas and schedules for meetings; and
annually communicating to the CEO the Board’s evaluation of his or her performance.

 

The Board believes that the existence of an independent, non-executive Chairman or Lead Director, with defined responsibilities that include participation in planning meeting agendas, also enhances oversight of risk management. The Chairman or a Lead Director, and any of the other non-management directors, are free at any time to raise matters at Board and committee meetings.

 

UTC’s non-management directors meet in regularly scheduled executive sessions without any members of management present, and in additional executive sessions as requested by directors. In practice, these executive sessions occur before or after most Board meetings. The purpose of these executive sessions is to promote open and candid discussion among the non-management directors.

 

Director Independence

 

The Board has adopted independence standards for directors that satisfy the corporate governance requirements for companies listed on the New York Stock Exchange (“NYSE”). You can find more details about these standards in our Governance Guidelines.

 

The Board has determined that each of the nominees for election at the Annual Meeting, other than Mr. Hayes, is independent of UTC under these independence standards. Specifically, none of the nominees, other than Mr. Hayes, has a business, financial, family or other relationship with UTC that is considered to be material under UTC’s independence standards (other than their relationship as a director and shareowner). In determining the independence of our directors, the Board considered the relevant facts and circumstances bearing on the independence of each of the nominees, including charitable contributions that UTC made to non-profit organizations with which some nominees are or have been associated. It also considered sales and purchases of products and services, in the ordinary course of business, between UTC (or its subsidiaries) and companies where some nominees are or have been employed as executive officers.

 

10 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

CORPORATE GOVERNANCE

 

In all cases that the Board considered for 2012, 2013 and 2014, the payments UTC made or received and the charitable contributions UTC made fell well below the thresholds in our independence standards (the greater of $1 million or 2% of total gross revenues of the other organization). None of the payments made or received by UTC exceeded the greater of $1 million or 0.5% of the other organization’s total revenues. The following table shows the relationships that existed in 2014 and were considered by the Board in determining the independence of nominees.

 

DIRECTOR INDEPENDENCE DETERMINATIONS: RELATIONSHIPS CONSIDERED

 

Director Organization and Director’s Relationship Type of Transaction, Relationship or
Arrangement of Organization with UTC
Total 2014
Payments
JOHN V. FARACI International Paper (Corporation)
Chairman & CEO (until his retirement from those positions late in 2014)
Sales to UTC of paper products; purchases from UTC, principally of elevator and air conditioning services and products. $5,682,563;
$2,036,018
EDWARD A. KANGAS Tenet Healthcare (Corporation)
Non-Executive Chairman
Purchases from UTC of elevator services and products. $645,722
ELLEN J. KULLMAN DuPont (Corporation)
Chair & Chief Executive Officer
Sales to UTC of materials; purchases from UTC, principally of elevator and air conditioning services and industrial products. $32,677,272; $2,424,554
HAROLD MCGRAW III McGraw Hill Financial, Inc. (Corporation)
Chairman
Fees paid by UTC for credit ratings in connection with debt securities issued by UTC and fees for industry statistics and reports. $2,592,589
RICHARD B. MYERS United Services Organization (USO)
(Non-profit supporting U.S. troops and families)
Chairman
Contributions received from UTC. (1)
H. PATRICK SWYGERT Howard University (Educational Institution)
Professor, former President
Purchases from UTC, principally of elevator maintenance services; contributions and recruiting fees received from UTC. $457,143
  Eisenhower Fellowship Foundation
(Non-profit providing fellowships to mid-career emerging leaders)
Board member
Contributions received from UTC. (1)
CHRISTINE T. WHITMAN Eisenhower Fellowship Foundation
(Non-profit providing fellowships to mid-career emerging leaders)
Board member
Contributions received from UTC. (1)

 

(1) The total amount of UTC’s contributions for 2014 to any individual non-profit organization identified in this table did not exceed $300,000 and the average contribution was approximately $150,000.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 11
 

CORPORATE GOVERNANCE

 

Majority Voting for Directors

 

Under UTC’s Bylaws, in order for a director to be elected at the annual meeting in an uncontested election, a majority of the votes cast with respect to the director’s election must be cast “for” the director. Abstentions and broker non-votes are not considered votes cast. In an uncontested election of directors, any incumbent director who receives a greater number of votes “against” than votes “for” his or her election must, under UTC’s Governance Guidelines, promptly tender a resignation to the Committee on Nominations and Governance. The Committee must then recommend to the Board, within 90 days after the election, whether to accept or reject the resignation. The director who tendered a resignation may not participate in this decision. Regardless of whether the Board accepts or rejects the tendered resignation, the Company must then promptly file a Report on Form 8-K with the Securities and Exchange Commission (“SEC”) in which it publicly discloses and explains the Board’s decision.

 

If a director’s resignation is accepted, the Committee also will recommend to the Board whether the vacancy should be filled or the size of the Board should be reduced.

 

Board Committees

 

The five standing committees of the Board are: the Audit Committee, the Committee on Nominations and Governance, the Committee on Compensation and Executive Development, the Finance Committee and the Public Issues Review Committee. Each of these Committees, other than the Finance Committee, is composed exclusively of directors determined by the Board to be independent. The Chair of each Committee reports to the Board on actions taken at each meeting. Each of the Committees listed below has authority to retain independent advisers to assist in the fulfillment of its responsibilities, to approve the adviser’s fees and to terminate their engagements.

 

The charter of each Committee is available on UTC’s website at: http://www.utc.com/Our-Company/Corporate-Governance/Pages/Governance-Documents-and-Policies.aspx.

 

AUDIT COMMITTEE

2014 Meetings: 8

 

 

Edward A. Kangas (Chair)

 

John V. Faraci

 

Ellen J. Kullman

 

Richard B. Myers

 

H. Patrick Swygert

 

André Villeneuve

The Audit Committee assists the Board in its oversight of the reliability and integrity of UTC’s financial statements, the qualifications and independence of the Independent Auditor, and UTC’s policies and practices to assess and manage exposure to risk. Each year the Committee nominates, for appointment by shareowners, an accounting firm to serve as Independent Auditor. The Committee is responsible for the compensation, retention and oversight of the Independent Auditor. The Board has determined that Directors Faraci, Kangas, Kullman and Villeneuve each are “audit committee financial experts”, as that term is defined in SEC rules.
   
COMMITTEE ON NOMINATIONS AND GOVERNANCE

2014 Meetings: 4

 

 

H. Patrick Swygert (Chair)

 

John V. Faraci

 

Jean-Pierre Garnier

 

Edward A. Kangas

 

Harold McGraw III

 

Richard B. Myers

 

Christine T. Whitman

The Committee on Nominations and Governance identifies and periodically reviews the qualifications that the Board uses to select candidates for service as a director. When there is a vacancy on the Board, the Committee identifies, evaluates and recommends candidates to be nominated by the Board for election by our shareowners (or to be elected by the Board if it chooses to fill a vacancy arising between shareowner meetings). The Committee seeks to identify the most capable candidates available who meet the Board’s criteria for nomination and who will be able to serve the best interests of all shareowners. The Committee also reviews and recommends to the Board appropriate governance practices and compensation for directors. The Committee assesses the effectiveness of UTC’s nomination policies on an annual basis, as part of the Board’s evaluation of its effectiveness as a group. For more information about how the Committee identifies candidates, see the discussion of Board membership criteria and the nomination process in Proposal 1—Election of Directors on pages 1 and 2 of this Proxy Statement.

 

12 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

CORPORATE GOVERNANCE

 

COMMITTEE ON COMPENSATION AND EXECUTIVE DEVELOPMENT

2014 Meetings: 6

 

 

Jean-Pierre Garnier (Chair)

 

Edward A. Kangas

 

Harold McGraw III

 

Richard B. Myers

 

H. Patrick Swygert

 

The Committee on Compensation and Executive Development has the responsibilities described in the Compensation Discussion and Analysis that begins on page 22 of this Proxy Statement. These include reviewing and overseeing executive compensation and development programs, determining what corporate goals and objectives are relevant to CEO compensation and setting the CEO’s compensation based on an evaluation of performance in light of these goals and objectives. In addition, the Committee reviews and administers long-term incentive plans and annual incentive compensation and oversees compensation policies and practices as they relate to risk management.

 

The Committee also makes compensation decisions affecting the executive officers and the members of UTC’s Executive Leadership Group (the “ELG”), consisting of approximately 25 to 30 of UTC’s most senior executives. The CEO and the Senior Vice President, Human Resources & Organization determine the compensation of other executives and oversee compensation program administration. The Committee also reviews our programs and policies for management development and succession.

 

While the President and CEO and the Senior Vice President, Human Resources & Organization attend Committee meetings regularly by invitation, the Committee, subject to Board oversight, is the final decision-maker regarding the compensation paid to each of the named executive officers listed in UTC’s proxy statement and the other members of the ELG. It also oversees compensation practices for other executive officers. The Committee considers certain matters in executive session.

   
FINANCE COMMITTEE  

2014 Meetings: 4

 

 

John V. Faraci (Chair)

 

Gregory J. Hayes

 

Ellen J. Kullman

 

Marshall O. Larsen

 

Harold McGraw III

 

André Villeneuve

 

Christine T. Whitman

The Finance Committee reviews, and as appropriate makes recommendations to the Board on, the management of the Company’s financial resources and strategies. It considers plans for significant acquisitions and divestitures and their potential financial impact, and monitors progress on pending and completed transactions. The Committee also reviews significant financing programs in support of business objectives; policies with respect to investments and uses of cash; significant capital appropriations; dividend policies; share repurchase programs; risks and exposures related to capital structure, liquidity, financing, pension funding and investment performance; insurance programs; investment of pension assets and other significant transactions.
   
PUBLIC ISSUES REVIEW COMMITTEE

2014 Meetings: 4

 

 

Christine T. Whitman (Chair)

 

Jean-Pierre Garnier

 

Ellen J. Kullman

 

Marshall O. Larsen

 

André Villeneuve

The Public Issues Review Committee reviews and monitors UTC’s positions and responses to significant public policy issues, including: our policies and objectives with respect to safety and the environment and the Company’s compliance with related laws and regulations in the U.S. and other countries; plans and performance related to ensuring equal employment opportunities; significant legislative and regulatory issues that may affect the Company and its operations; actions and objectives to further corporate social responsibility; policies and priorities for contributions to charitable, educational and other tax-exempt organizations involved in the arts, civic and community affairs, education and health and human services; community relations programs; and our conduct of public policy and government relations activities, including the activities of UTC’s political action committee. The Committee also reviews UTC’s annual Corporate Responsibility Report and oversees risk management policies and practices with regard to social responsibility, reputation, safety and the environment.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 13
 

CORPORATE GOVERNANCE

 

Meeting Attendance

 

The Board met eight times during 2014. Each director attended 75% or more of the aggregate number of meetings of the Board and committees on which he or she served. The Board’s policy is that each director, if standing for re-election, should attend the Annual Meeting of Shareowners unless there is an unavoidable scheduling conflict. All of the current directors attended the last Annual Meeting held in April 2014.

 

Director Stock Ownership Requirements

 

To strengthen alignment with the interests of shareowners, non-management directors are required to own shares of Common Stock, deferred stock units or other Common Stock equivalents having a value equal to at least five times the annual base cash retainer. Non-management directors must achieve this ownership level within five years after first becoming a member of the Board. In 2014, the base cash retainer was $104,000, thereby establishing an ownership requirement of at least $520,000. Each of the non-management directors is in compliance with this ownership requirement.

 

How We Manage Risk

 

OUR RISK MANAGEMENT FRAMEWORK

 

During 2014, UTC revised its enterprise risk management policies to conform to the criteria established in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013. Under our policies, the presidents of major business units are responsible for identifying risks that could affect achievement of business goals and strategies, assessing the likelihood and potential impact of significant risks, prioritizing the risks that are identified and the actions to be taken to address these risks. The presidents of major business units report to the CEO on actions to monitor and manage significant risks in order to remain within UTC’s range of risk tolerance.

 

14 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

CORPORATE GOVERNANCE

 

BOARD RISK OVERSIGHT

 

The CEO, Chief Financial Officer and General Counsel periodically report on UTC’s risk management policies and practices to relevant Board committees and to the full Board. The Audit Committee annually reviews major financial risk exposures and a number of operational, compliance, reputational and strategic risks, as well as practices to monitor and manage those risks. The Audit Committee also reviews UTC’s overall policies and practices for enterprise risk management, including the delegation of oversight for particular areas of risk to the appropriate Board committees. As a whole, the Board reviews risk management practices and a number of significant risks in the course of its review of corporate strategy, business plans, reports of Board committee meetings and other presentations.

 

Board and Committee Risk Oversight Responsibilities

 

Board/Committee Primary Areas of Risk Oversight
Full Board Risk management process and structure, strategic risks associated with UTC’s business plan, and other significant risks such as major litigation, business development risks and succession planning.
Audit Committee Major financial risk exposures; significant operational, compliance, reputational, strategic and cyber security risks; and overall policies and practices for enterprise risk management.
Committee on Nominations
and Governance
Risks and exposures related to corporate governance, leadership structure, effectiveness of Board and committee oversight; and review of director candidates, conflicts of interest and director independence.
Committee on Compensation
and Executive Development
Risks related to executive recruitment, assessment, development, retention and succession policies and programs; and risks associated with compensation policies and practices, including incentive compensation.
Finance Committee Risks and exposures related to capital structure, liquidity, financing, pension funding and investment performance, and significant capital transactions, including acquisitions and divestitures.
Public Issues Review Committee Risks related to the environment and workplace safety, equal employment opportunity, responses to important public issues, government relations and other matters involving reputational risks.

 

COMPENSATION AND RISK MITIGATION

 

The Committee on Compensation and Executive Development (the “Committee”) believes that executive compensation should be contingent on performance relative to pre-established targets and objectives. Our executives must achieve these targets and objectives in a manner consistent with UTC’s ethical standards and internal policies. The Committee firmly believes that executive compensation should not reward accomplishments that compromise UTC’s standards or long-term shareowner value.

 

Compensation arrangements, if not properly designed and administered, can encourage excessive risk taking and jeopardize long-term Company performance and shareowner value. Therefore, one of the goals of UTC’s executive compensation program is to motivate executives in a manner that appropriately balances financial opportunity and risk. UTC mitigates compensation-related risk to its long-term performance, ethical standards and reputation by monitoring risk under our Enterprise Risk Management (“ERM”) program.

 

Enterprise Risk Management Program. The Board of Directors annually reviews the ERM to identify, monitor and manage risk throughout the Company and its business units. The ERM program recognizes executive compensation as a potential risk factor. UTC mitigates this risk in the following ways:

 

Emphasizing Long-Term Performance. Long-term incentives are the cornerstone of UTC’s executive compensation program. As shown in the chart on page 37, 63% of the value of Mr. Hayes’ compensation derives from long-term incentives, compared to the 23% that is attributable to his annual cash bonus. A significant stake in future performance and share value helps mitigate the risk that our executives will pursue short-term opportunities that create undue risk to future Company performance.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 15
 

CORPORATE GOVERNANCE

 

Aligning Employee and Shareowner Interests. The Committee’s selection of performance metrics is also designed to set an appropriate balance between short- and long-term objectives. Long-term incentive awards, which include Stock Appreciation Rights (“SARs”) and Performance Share Units (“PSUs”), make up the largest portion of compensation for our senior executives. SARs have a three-year vesting period and a ten-year term, with compensation delivered contingent on share price appreciation. The vesting of our PSUs is based on an earnings per share (“EPS”) growth metric and a relative total shareowner return (“TSR”) metric, both measured over a three-year period. The Committee believes these metrics provide an appropriate measure of long-term financial performance and sustainable growth. We believe these broad-based measures correlate with shareowner value and, by design, do not reward selective or narrow objectives that could be achieved independent of the Company’s overall best interests.
   
Requiring Rigorous Executive Share Ownership. To further encourage a long-term focus on sustainable performance and shareowner value creation, we also require our senior executives to own a significant amount of UTC Common Stock or stock units. Our CEO, Mr. Hayes, has a share ownership requirement equal to six times his base salary. Share holdings of other ELG members must equal at least three times their base salary within five years of appointment to the ELG. Non-employee directors are also required to own shares or stock units equal to five times the cash portion of the annual base retainer.
   
Prohibiting Hedging. To avoid undermining the goals of our share ownership policy, UTC prohibits directors and executive officers from entering into short sales of our securities or similar transactions where potential gains are linked to a decline in the value of our Common Stock. Recipients of equity awards may not enter into any agreement that has the effect of transferring or exchanging any economic interest in an award for any other consideration.
   
Maintaining a Comprehensive Clawback Policy. UTC has a comprehensive policy on recoupment (“clawback”) of executive compensation. This policy applies to both our annual and long-term compensation programs. Clawbacks can result in significant financial penalties and award forfeitures. In the event of a financial restatement or recalculation of a financial metric applicable to an award, the Company has the right to recover annual bonus payments and gains realized from vested long-term incentive awards from any executive (including all NEOs) involved in an action found to have caused the restatement or recalculation. The amount subject to recoupment will, at a minimum, equal the difference between what the executive received and what the executive would have received under the corrected financial metrics over at least the three-year period before the restatement. Clawbacks of bonuses, long-term incentive awards and compensation realized from prior awards also may be triggered by violations of our Code of Ethics, failure to meet employee health and safety standards or exposing UTC to excessive risk, as determined under the ERM program. Our policy provides the Company the right to recover compensation when an executive’s negligence (including the negligent supervision of a subordinate) causes significant harm to UTC’s interests. The policy also permits public disclosure of the circumstances surrounding the Committee’s decision to seek recoupment where the Committee determines such disclosure is appropriate and would not expose the Company to legal risk.
   
Upholding Strict Post-Employment Covenants. ELG members may not engage in activities after termination or retirement that are detrimental to UTC, such as disclosing proprietary information, soliciting UTC employees and engaging in competitive activities. Violations can result in a clawback of long-term incentive awards.

 

16 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

Compensation of Directors

 

Annual Retainer

 

2014 Retainers. In 2014, the compensation of non-employee directors consisted of a retainer that was paid partially in cash and partially in deferred stock units (“DSUs”). If a director served in multiple roles, his or her annual cash retainer and annual DSU award was based on the capacity for which the level of compensation was the highest. The following table shows the annual retainer amounts in effect for non-employee directors for service from April 2014 to April 2015:

 

Element Base Retainer Non-Executive
Chairman of
the Board
Audit
Committee
Chair
Committee on
Compensation
and Executive
Development
Chair
Other
Committee
Chairs
Audit
Committee
Member
Cash $104,000 $184,000 $120,000 $112,000 $110,000 $116,000
Deferred Stock Units $156,000 $276,000 $180,000 $168,000 $165,000 $174,000
Total $260,000 $460,000 $300,000 $280,000 $275,000 $290,000

 

Non-employee directors receive 40% of their total annual retainer in cash and 60% in DSUs. Alternatively, they may elect to receive their entire retainer in DSUs. The number of DSUs credited to each director in 2014 was calculated by dividing the cash value of the director’s compensation by $117.70, the NYSE closing price per share of UTC Common Stock (“Common Stock”) on April 28, 2014, the date of the 2014 Annual Meeting. Directors do not receive additional compensation for attending regularly scheduled Board and Committee meetings. However, non-employee directors receive an additional $5,000 for each special meeting they attend in person. There was one special meeting of the Board in 2014.

 

Following termination of a non-employee director’s service, DSUs are converted into shares of Common Stock. The distribution of shares of Common Stock can be made in either a lump-sum payment upon retirement or in ten- or fifteen-year installments.

 

On November 23, 2014, Mr. Kangas was elected non-executive Chairman of the Board. Following a comprehensive review of the market compensation for this role, the Committee on Nominations and Governance approved a $200,000 incremental retainer in addition to the current base retainer for non-employee directors.

 

Changes for 2015. Effective April 27, 2015, the base retainer for non-employee directors will increase by $20,000 to $280,000. Committee Chairs will receive an additional $5,000, except for the Finance Committee Chair, who will receive an additional $10,000 above the base retainer. The Audit Committee Chair will not receive an additional increase. These adjustments were made to better align non-employee director compensation with the market. The percentage allocation between cash and DSUs did not change.

 

One-Time RSU Awards for New Directors

 

Non-employee directors receive a one-time $100,000 restricted stock unit (“RSU”) award when first elected to the Board. This award vests ratably over five years and is distributed to the director in shares of Common Stock upon retirement, termination or death. No director received an RSU award in 2014.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 17
 

COMPENSATION OF DIRECTORS

 

TREATMENT OF DIVIDENDS

 

When UTC pays a dividend on Common Stock, each director’s DSUs and RSUs are credited with additional DSUs and RSUs, equal in value to the dividend paid on the corresponding number of shares of Common Stock.

 

2014 DIRECTOR COMPENSATION

 

Name Fees Earned or Paid
in Cash ($)(1)
Stock Awards ($)(2) All Other
Compensation ($)
Total ($)
EDWARD A. KANGAS(3) $5,000 $370,000 $0 $375,000
JOHN V. FARACI $5,000 $290,000 $0 $295,000
JEAN-PIERRE GARNIER $5,000 $280,000 $0 $285,000
JAMIE S. GORELICK $0 $260,000 $2,070 $262,070
ELLEN J. KULLMAN $121,000 $174,000 $747 $295,747
MARSHALL O. LARSEN $5,000 $260,000 $1,946 $266,946
HAROLD MCGRAW III $109,000 $156,000 $0 $265,000
RICHARD B. MYERS $121,000 $174,000 $0 $295,000
H. PATRICK SWYGERT $121,000 $174,000 $16,533(4) $311,533
ANDRÉ VILLENEUVE $5,000 $290,000 $0 $295,000
CHRISTINE T. WHITMAN $115,000 $165,000 $0 $280,000

 

(1) Consists of the 2014 annual cash retainer that directors did not elect to receive in DSUs and an additional $5,000 paid to each non-employee director who attended a special 2014 Board meeting in person.
   
(2) Consists of the grant date fair value of DSU awards credited to the account of the director, including the portion of the annual cash retainer that the director elected to receive in DSUs, calculated in accordance with the Compensation—Stock Compensation Topic of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”). The assumptions made in the valuation of these awards can be found in Note 12, Employee Benefit Plans, to the Consolidated Financial Statements in Exhibit 13 to UTC’s 2014 Annual Report on Form 10-K. As of December 31, 2014, non-employee directors held the following:

 

Name Number of Unvested RSUs
Attributable to Initial
$100,000 RSU Grant
Number of Deferred
Stock Units, Restricted
Stock and Vested RSUs
Number of Outstanding
Stock Options
       
Edward A. Kangas 29,716
John V. Faraci 37,942
Jean-Pierre Garnier 74,492 6,000
Jamie S. Gorelick 44,821
Ellen J. Kullman 253 8,395
Marshall O. Larsen 761 8,955
Harold McGraw III 44,453 6,000
Richard B. Myers 24,030
H. Patrick Swygert 52,288
André Villeneuve 69,922
Christine T. Whitman 28,696 6,000

 

(3) For his services as Lead Director, Mr. Kangas’ annual retainer was $40,000 above the base retainer for non-employee directors and for his services as the non-executive Chairman of the Board, Mr. Kangas’ annual retainer was $200,000 above the base retainer for non-employee directors. In determining his 2014 compensation, these amounts were prorated for the portion of the director compensation cycle that he held these positions.
   
(4) Consists of a premium payment on a life insurance policy used to fund Mr. Swygert’s participation in the Directors’ Charitable Gift Program. Mr. Swygert is the only non-employee director for whom UTC still pays a premium, as this program was closed to directors elected after February 2003. Mr. Swygert derives no financial benefit from this program. All insurance proceeds are payable to up to four charitable organizations designated by him and tax deductions accrue solely to UTC.

 

18 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

Stock Ownership Information

 

This section contains required information about certain “beneficial owners” of our Common Stock as that term is defined under SEC rules.

 

Directors, Board Nominees, and Executive Officers

 

The following table shows the number of shares of Common Stock beneficially owned, as of March 2, 2015, by each of our current directors, each of whom is a nominee for election as a director, by each of the named executive officers listed in the Summary Compensation Table on page 49 of this Proxy Statement, and by all of the current directors and executive officers as a group. Each director and executive officer, and the directors and executive officers as a group, beneficially owned less than 1% of the outstanding shares of Common Stock as of that date. Except as explained in the footnotes to the following table, each person listed, and the members of the group, had sole voting power and sole investment power with respect to the shares shown.

 

Name Shares Beneficially Owned
John V. Faraci 37,942
Jean-Pierre Garnier 92,202
Gregory J. Hayes 273,951(1)
Edward A. Kangas 29,716
Ellen J. Kullman 8,648
Marshall O. Larsen 15,148
Harold McGraw III 54,058
Richard B. Myers 24,030
H. Patrick Swygert 53,288
André Villeneuve 69,922
Christine T. Whitman 39,346
Alain M. Bellemare(2) 209,087
Louis R. Chênevert(3) 1,886,183(4)
Geraud Darnis 600,949(5)
Charles D. Gill, Jr. 210,560(6)
Peter F. Longo(7) 33,630
Directors & Executive Officers as a group (21 in total) 1,947,337(8)

 

(1) Includes 2,066 shares of Common Stock for which Mr. Hayes’ spouse holds voting and investment power.
   
(2) As previously disclosed, Alain M. Bellemare, President & Chief Executive Officer of UTC Propulsion & Aerospace Systems, left the Company at the end of January 2015. He no longer serves as an executive officer of the Company.
   
(3) As previously disclosed, Louis R. Chenêvert resigned as Chairman & Chief Executive Officer, effective November 23, 2014.
   
(4) Includes 28,146 shares held in a family charitable foundation. Mr. Chenêvert shares with family members voting and dispositive power with respect to such shares.
   
(5) Includes 11,834 shares of Common Stock for which Mr. Darnis’ spouse holds voting and investment power.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 19
 

STOCK OWNERSHIP INFORMATION

 

(6) Includes 1,546 shares of Common Stock for which Mr. Gill’s spouse holds voting and investment power.
   
(7) As previously disclosed, Peter F. Longo served as Acting Chief Financial Officer from November 23, 2014 through December 31, 2014.
   
(8) Consists of holdings of those directors and executive officers who continue to serve in such positions as of March 2, 2015. Excludes holdings of Messrs. Bellemare, Chênevert and Longo as they no longer served in such a position as of that date.

 

The preceding table includes shares as to which the listed person or the members of the group had the right to acquire beneficial ownership at any time within 60 days after March 2, 2015 by exercising stock appreciation rights (“SARs”) or stock options and, in the case of non-management directors, upon the settlement of restricted stock units (“RSUs”) or deferred stock units (“DSUs”) as a result of their resignation or retirement from the Board as set forth in the following table. The preceding table also includes, for all but one of the executive officers, Savings Restoration Plan Units credited to the account of the officer in respect of the Company contributions to match 60% of the officer’s payroll contributions to his or her account under the Plan.

 

Name Shares as to which listed
person has right to acquire
beneficial ownership
within 60 days by exercise
of stock options or SARs(1)
Shares as to which listed
person has right to acquire
ownership within 60 days
upon conversion of RSUs
Shares as to which listed
person has right to acquire
ownership within 60 days
upon conversion of DSUs
J. Faraci 2,138 35,804
J. Garnier 6,000 68,092
G. Hayes 186,107
E. Kangas 2,406 27,310
E. Kullman 1,388 7,260
M. Larsen 1,332 8,384
H. McGraw III 6,000 2,855 41,598
R. Myers 1,887 22,143
H. Swygert 3,575 48,713
A. Villeneuve 65,122
C. Whitman 6,000 2,855 25,841
A. Bellemare 122,612
L. Chênevert 1,200,752
G. Darnis 450,818
C. Gill, Jr. 169,233
P. Longo 23,595
Directors & Executive Officers
as a group (21 in total)(2)
1,119,471 18,436 350,267

 

(1) For the executive officers, includes the net number of shares of Common Stock issuable upon exercise of vested SARs. Following vesting, SARs are exerciseable for an amount of shares of Common Stock having a value equal to the increase in value of a share of Common Stock from the date the SARs were granted through the date of exercise, times the number of SARs granted. For purposes of this table, the net number of shares of Common Stock issuable has been estimated using the NYSE closing price for a share of Common Stock on December 31, 2014, which was $115.00.
   
(2) Consists of holdings of those directors and executive officers who continue to serve in such positions as of March 2, 2015. Excludes holdings of Messrs. Bellemare, Chênevert and Longo as they no longer served in such a position as of that date.

 

20 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

STOCK OWNERSHIP INFORMATION

 

Beneficial Owners of More Than 5% of UTC Common Stock

 

The following table shows all holders known to us to be beneficial owners of more than 5% of the outstanding shares of Common Stock as of December 31, 2014.

 

Name and Address Shares Percent of Class
State Street Corporation(1)
State Street Financial Center
One Lincoln Street
Boston, MA 02111
105,379,932 11.6%
BlackRock, Inc.(2)
55 East 52nd Street
New York, NY 10022
51,933,863 5.7%
The Vanguard Group
100 Vanguard Boulevard
Malvern, PA 19355
50,504,078 5.5%

 

(1) State Street Corporation, acting in various fiduciary capacities, reported in an SEC filing that as of December 31, 2014 it held sole voting power with respect to zero shares of Common Stock, shared voting power with respect to 105,379,932 shares of Common Stock, sole dispositive power with respect to zero shares of Common Stock, and shared dispositive power with respect to 105,379,932 shares of Common Stock. State Street Corporation also reported that its wholly-owned subsidiary, State Street Bank & Trust Company, held 62,752,549 of these shares in its capacity as Trustee for UTC’s Employee Savings Plan Master Trust. State Street Corporation disclaims beneficial ownership of the reported shares, except in its fiduciary capacity.
   
(2) BlackRock, Inc., reporting on behalf of various subsidiaries, reported in an SEC filing that as of December 31, 2014 it held sole voting power with respect to 42,541,111 shares of Common Stock, shared voting power with respect to zero shares of Common Stock, sole dispositive power with respect to 51,933,863 shares of Common Stock, and shared dispositive power with respect to zero shares of Common Stock.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 21
 

Executive Compensation:
Compensation Discussion and Analysis

 

In this section, we discuss our compensation philosophy and describe the compensation program for our President and Chief Executive Officer (“CEO”) and our senior leadership team. We explain how our Board’s Committee on Compensation and Executive Development (the “Committee”) determines compensation for our senior executives and its rationale for specific 2014 decisions. We also discuss the evolution of our program and how it is structured to advance its fundamental objective: aligning our executive’s compensation with the long-term interests of UTC shareowners.

 

Executive Summary

 

Our executive compensation program is designed to reward financial results and effective strategic leadership, key elements in building sustainable value for shareowners. We believe our program’s performance metrics align the interests of our shareowners and senior executives by correlating the timing and amount of actual pay to our short-, medium- and long-term performance. Our program requires ethical and responsible conduct in pursuit of these goals.

 

We actively seek and highly value feedback from shareowners and their advisors concerning our compensation program. Since our last Annual Meeting of Shareowners, senior management has communicated directly with institutional investors holding over 330 million shares of UTC Common Stock (“Common Stock”).

 

In addition, we carefully benchmark our executive compensation decisions against a relevant group of peer companies—all of which are potential competitors for the caliber of executive talent required to manage a complex, global and multi-industry company like UTC.

 

As a result of our effective program design, our continued shareowner engagement and our rigorous benchmarking process, we achieved 93% support from our shareowners for our 2014 Say-on-Pay proposal. This level of support was even higher than 2013, which we interpreted as an endorsement of our compensation program and policies.

 

In 2014, our Say-on-Pay proposal received 93% support from our shareowners.

 

2014 PERFORMANCE

 

We delivered robust financial and operating performance in 2014, as evidenced by our solid earnings growth and organic sales growth. Our 2014 compensation decisions recognize this performance, while also reinforcing our long-term focus.

 

This long-term focus is reflected in several key strategic accomplishments that, in our view, position UTC well not only for the next five to ten years, but for the next 40+ years. These accomplishments are expected to fuel UTC’s organic sales growth through 2020 at a rate which will significantly outpace growth in global gross domestic product. They include:

 

Pratt & Whitney and UTC Aerospace Systems’ (“UTAS”) next generation product wins are expected to generate nearly $900 billion in potential future revenues over the life of these programs.
   
Over 50 new aerospace engine and system programs are currently underway, the highest number ever seen at UTC.

 

22 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

The successful first flight of the Airbus A320neo aircraft powered by two Pratt & Whitney PW1100G-JM engines and supported by numerous components and systems from UTAS.
   
Sikorsky attained key strategic program wins that present opportunities for over $15 billion in future potential revenues over the course of these programs. They include:

 

  The Turkish Utility Helicopter Program;
     
  The U.S. Presidential Helicopter Program; and
     
  The U.S. Air Force Combat Rescue Helicopter Program.

 

UTC Building & Industrial Systems (“UTC BIS”) was awarded a contract for the Midfield Terminal Complex at the Abu Dhabi International Airport, where Otis will provide 335 units and Carrier will supply 16 expanded-capacity chillers.
   
UTC BIS was also awarded a contract by the Land Transport Authority of Singapore to supply and install 411 escalators and 167 GeN2® elevators for a Mass Rapid Transit project—the largest new equipment project win in Otis’ 160-year history.

 

2014 Financial Results
   
Net sales increased by 4% to $65.1 billion
   
Diluted earnings per share increased by 10% to $6.82
   
$5.6 billion in free cash flow
   
Dividends per share increased by 7%, marking the 78th consecutive year our shareowners have received dividends

 

FINANCIAL RESULTS (3 AND 10 YEARS)*

 

 

* For 2012 and 2014, net income and diluted earnings per share metrics reflect continuing operations, as reported in the 2014 Annual Report on Form 10-K. 2005 net income, diluted earnings per share, and net sales represent values reported in the 2005 Annual Report on Form 10-K and subsequently restated for the effect of new accounting standards. The 2005 amounts have not been adjusted for discontinued operations. For the definitions of net income, earnings, free cash flow and other measures used for our incentive compensation plans and for a reconciliation from cash flow to free cash flow, refer to page 47 of this Proxy Statement.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 23
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

SHAREOWNER VALUE CREATION

 

The Committee believes that long-term incentive goals should directly correlate with the creation of long-term shareowner value. This concept is an essential component of our Guiding Principles, as discussed on page 28. Our ability to generate sustainable TSR over a ten-year period ending on December 31, 2014 is noteworthy and we believe that our executive compensation program design has contributed to this achievement. UTC’s 11% annualized TSR over this period significantly outpaced the Dow Jones Industrial Average (8%), the S&P 500 (8%) and our Compensation Peer Group (7%) (our Compensation Peer Group (“CPG”) is detailed on page 30). The following chart illustrates UTC’s performance relative to differing comparator groups and time periods.

 

TOTAL SHAREOWNER RETURN: UTC VS. PEER GROUPS*

 

 

 

* TSR values are provided by S&P Capital IQ and are calculated on an annualized basis as of December 31, 2014. For the Compensation Peer Group composite values, returns are calculated individually for each peer company, then a weighted average is calculated based on each company’s market capitalization at the beginning of the measurement period.

 

Response to 2014 Say-on-Pay Vote

 

Each year, we carefully consider our shareowner Say-on-Pay results from the preceding year. In 2014, 93% of the votes submitted (excluding abstentions and broker non-votes) supported our 2013 executive compensation decisions. This result was three percentage points higher than the 90% favorable vote we received in 2013 with respect to our 2012 compensation decisions. We interpreted the results of the 2014 vote—and positive three-year voting trend—as an endorsement of our compensation program’s design and direction.

 

Our 2014 Outreach Program

 

In 2014, we continued to engage with our shareowners to solicit their feedback on UTC’s executive compensation program. We also sought input from third-party consultants and proxy advisory firms.

 

Analysis of Shareowner Feedback

 

As it does each year, the Committee considered shareowner feedback in its ongoing assessment of our compensation elements. This feedback, along with factors such as external market data and staff compensation recommendations, helps the Committee in its review of our program.

 

24 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

CEO TRANSITION

 

Mr. Hayes served as Senior Vice President & Chief Financial Officer (“SVP & CFO”) until November 23, 2014. Upon Mr. Chênevert’s resignation as Chairman & Chief Executive Officer on November 23, 2014, the Board of Directors elected Mr. Hayes to the position of President and Chief Executive Officer of the Company. In recognition of Mr. Hayes’ new role and increased responsibilities, the Committee took the following actions:

 

Increased his base salary from $920,000 (his base salary as of April 1, 2014) to $1.3 million
   
Increased his target annual bonus opportunity from 100% to 165% of base salary (pro-rating these percentages based on the portion of the year for which he served as SVP & CFO and the portion for which he served as President and CEO)

 

For 2014, the Committee approved a $1.6 million annual bonus for Mr. Hayes based on a favorable assessment of his overall performance. This amount substantially aligned with the annual bonus financial performance factor for the Company (see page 34 for a discussion of this performance factor). Based on this performance assessment and Mr. Hayes’ expanded role, the Committee also increased his 2015 long-term incentive (“LTI”) grant (granted on January 2, 2015) to $8.03 million in order to better align his award with that of peer company CEOs.

 

The chart below outlines Mr. Hayes’ total direct compensation for the past three years. The amounts for 2014 reflect the Committee’s pay decisions associated with Mr. Hayes’ transition to the role of President and CEO, while the 2013 and 2012 amounts reflect the Committee’s pay decisions related to his performance as SVP & CFO.

 

CEO TOTAL DIRECT COMPENSATION(1)

 

 

 

(1) Total direct compensation is described in detail on page 40 of this Proxy Statement.
   
(2) Reflects the grant date fair value of Mr. Hayes’ January 2, 2015 long-term incentive award, calculated in accordance with the Compensation - Stock Compensation Topic of the FASB ASC, but excluding the effects of estimated forfeitures. The grant consists of 165,500 SARs and 39,500 PSUs. The NYSE closing price of our Common Stock on the date of grant was $115.04 per share.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 25
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

Our Core Executive Compensation Practices

 

We continually monitor the evolution of best compensation practices and make changes to our programs as necessary to achieve sound corporate governance. Some of the most important practices incorporated into our program include the following:

 

REVIEW OF PAY VERSUS PERFORMANCE. The Committee continually reviews the relationship between CEO compensation and Company performance.

 

 

MEDIAN COMPENSATION TARGETS. All compensation elements for our executives are targeted at the median of our CPG.

 

 

RIGOROUS AND DIVERSIFIED PERFORMANCE METRICS.

The Committee annually reviews performance goals for our annual and long-term incentive awards to confirm that we are using diversified and rigorous, yet attainable targets.

 

 

CLAWBACK OF COMPENSATION. We continue to monitor our clawback policy and make changes when necessary, as the Committee believes this policy is a critical element of sound corporate governance. In this regard, we have made revisions twice since 2011 that have further strengthened our policy.

 

 

SUBSTANTIAL SHARE OWNERSHIP GUIDELINES. Our share ownership requirements are as follows: six times base salary for the CEO; three times base salary for other members of the ELG (including our other NEOs); and five times the base annual cash retainer for non-employee directors.

 

 

NO PLEDGING OF SHARES. Our directors and executive officers are not permitted to pledge UTC shares as collateral for loans or for any other purpose.

 

 

NO HEDGING. UTC does not allow directors and executive officers to enter into short sales of UTC Common Stock or similar transactions where potential gains are linked to a decline in the price of our shares.

 

 

NO REPRICING. Stock option and SAR exercise prices are set at the grant date market price and may not be reduced or replaced with stock options or SARs with a lower exercise price without shareowner approval (except to adjust for stock splits or similar transactions).

 

 

NO CASH BUYOUTS OF UNDERWATER STOCK OPTIONS OR SARS. UTC does not allow buyouts of underwater stock options or SARs under any circumstance. Award recipients may not sell, assign or transfer their interest in any long-term incentive award (including underwater stock options and SARs) to a third party in exchange for cash or other consideration.

 

 

MARKET-COMPETITIVE RETIREMENT PROGRAMS.

We eliminated defined benefit pensions for executives hired on or after January 1, 2010. For legacy executives, we ceased using the traditional final average earnings pension formula on December 31, 2014 and replaced it with a cash balance formula.

 

 

NO PERQUISITE ALLOWANCES. A cash perquisite allowance was eliminated for individuals appointed to the ELG after June 2012, and was eliminated for all ELG members, including our NEOs, in 2014.

 

 

NO EMPLOYMENT CONTRACTS. The Committee believes that fixed-term executive employment contracts that guarantee minimum levels of compensation over multiple years do not enhance shareowner value. Accordingly, our NEOs do not have employment contracts.

 

 

ELIMINATION OF CASH SEVERANCE. To better align our program with our shareowners’ interests, the Committee eliminated the cash severance benefit for ELG members appointed on or after May 2013. Members will continue to receive a one-time RSU award upon appointment to the ELG that may, under certain circumstances, vest when they leave the Company.

 

 

RESTRICTIVE COVENANTS. Our ELG members are subject to restrictive covenants upon separation from UTC, including non-compete, non-solicitation and non-disclosure obligations.

 

 

26 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

OUR CORE EXECUTIVE COMPENSATION PRACTICES (CONTINUED)

 

LIMITATIONS ON CHANGE-IN-CONTROL

ARRANGEMENTS. We terminated our change-in-control program for ELG members appointed on or after June 2009. We also substantially reduced benefits for those ELG members still in the program. For example, we do not provide excise tax reimbursements or gross-ups, and we no longer continue retirement benefit accruals or healthcare benefits following a change-in-control.

 

 

USE OF DOUBLE TRIGGERS. All change-in-control severance arrangements for pre-2009 ELG members have a double, rather than a single, trigger for benefit eligibility. This means that a change-in-control will not automatically entitle an executive to severance benefits; the executive must also lose his or her job or suffer a significant adverse change to employment terms and conditions.

 

REVIEW OF COMPENSATION PEER GROUP. Our CPG is reviewed periodically by the Committee and adjusted, when necessary, to ensure that its composition remains a relevant and appropriate comparison for our executive compensation program.

 

 

REVIEW OF COMMITTEE CHARTER. The Committee reviews its charter regularly to maintain strong oversight and governance practices.

 

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 27
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

How We Make Compensation Decisions

 

OUR EXECUTIVE COMPENSATION PHILOSOPHY

 

The Committee believes that executive compensation opportunities must align with and enhance long-term shareowner value. This core philosophy is embedded in all aspects of our executive compensation program and is reflected in an important set of guiding principles. We believe that the application of these principles enables us to create a meaningful link between long-term, sustainable growth for our shareowners and compensation outcomes.

 

GUIDING PRINCIPLES

 

RESPONSIBILITY
  COMPETITIVENESS
Compensation should take into account each executive’s responsibility to act in accordance with our ethical, environmental, health and safety objectives at all times. Financial and operating performance must not compromise these values. A complete commitment to ethical and corporate responsibility is a fundamental principle incorporated into all aspects of our compensation program.   Total compensation should be sufficiently competitive to attract, retain and motivate a leadership team capable of maximizing UTC’s performance. Each element should be benchmarked relative to peers.

 

PAY-FOR-PERFORMANCE
  BALANCE
A substantial portion of compensation should be variable, contingent and directly linked to individual, Company and business unit performance.   The portion of total compensation contingent on performance should increase with an executive’s level of responsibility. Annual and long-term incentive compensation opportunities should reward the appropriate balance of short- and long-term financial and strategic business results.

 

LONG-TERM FOCUS
  SHAREOWNER ALIGNMENT
For our most senior executives, long-term stock-based compensation opportunities should significantly outweigh short-term cash-based opportunities. Annual objectives should complement sustainable, long-term performance.   The financial interests of executives should be aligned with the long-term interests of our shareowners through stock-based compensation and performance metrics that correlate with long-term shareowner value.

 

ROLE OF THE COMMITTEE ON COMPENSATION AND EXECUTIVE DEVELOPMENT

 

The Committee, which consists of five independent directors, is responsible for overseeing the development and administration of our executive compensation program.

 

Responsibilities. The Committee makes all compensation decisions concerning our CEO and the other members of our Executive Leadership Group (“ELG”), subject to review by the other independent directors. The ELG is made up of between 25 to 30 of our most senior executives, including each of our current 2014 Named Executive Officers (“NEOs”) listed in the Summary Compensation Table on page 49 of this Proxy Statement.

 

The Committee’s other responsibilities include:

 

  à Designing executive compensation plans and programs
     
  à Considering input from UTC’s shareowners regarding executive compensation decisions and policies
     
  à Reviewing and approving incentive plan targets and objectives
     
  à Assessing each ELG member’s performance relative to these targets and objectives

 

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EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

  à Evaluating the competitiveness of each ELG member’s total compensation package
     
  à Approving changes to compensation elements for ELG members, including base salary and annual and long-term incentive opportunities and awards

 

The Senior Vice President, Human Resources & Organization, along with UTC’s Human Resources staff and an independent compensation consultant, assist the Committee with these tasks.

 

The Committee’s charter, which sets out the Committee’s responsibilities, can be found on our website at:
http://www.utc.com/Our-Company/Corporate-Governance/Pages/Governance-Documents-and-Policies.aspx

 

Performance Evaluation Process. The Committee has established a process for evaluating the performance of the Company, the President and CEO and the other ELG members. At its first meeting every year, the Committee reviews financial, strategic and operational objectives for the CEO, both for the upcoming year and for a longer-term period. At this meeting, the Committee also evaluates the performance of the President and CEO and other NEOs for the previous year.

 

The Committee uses a combination of qualitative and quantitative factors to conduct a broad and balanced assessment of performance relative to both internal and external measures.

 

OVERVIEW OF EVALUATION PROCESS

 

Performance Against Internal Measures Performance Against External Measures
   
Achievement versus previously established goals— •  Performance relative to key financial metrics.
strategic, financial and operational. •  Share price performance versus peers over various time periods.

 

ROLE OF THE CEO

 

Our CEO has no role in the Committee’s determination of his compensation. For the other members of the ELG, including the NEOs, the CEO presents the Committee with recommendations for each element of compensation. He bases these recommendations upon his assessment of each individual’s performance, the performance of each executive’s business unit and/or function, benchmark information and retention risk. The Committee reviews the CEO’s recommendations, makes appropriate adjustments and approves compensation changes at its discretion, subject to review by the other independent directors.

 

ROLE OF THE COMPENSATION CONSULTANT

 

The Committee retained Pearl Meyer & Partners (“Pearl Meyer”) to serve as its executive compensation consultant for 2014. While Pearl Meyer may make recommendations on the form and amount of compensation, the Committee makes all decisions regarding the compensation of our NEOs and other ELG members.

 

During 2014, Pearl Meyer advised the Committee on a variety of subjects, including compensation plan design and trends, pay-for-performance analytics, benchmarking norms and other such matters. Pearl Meyer reports directly to the Committee, participates in meetings as requested and communicates with the Committee Chair between meetings as necessary. Pearl Meyer attended four meetings in person in 2014.

 

Prior to engaging Pearl Meyer, the Committee reviewed the firm’s qualifications, as well as its independence and any potential conflicts of interest. Pearl Meyer does not perform other services for or receive other fees from UTC, other than incidental amounts (less than $6,000 in 2014) related to participation in certain business-related surveys. The Committee has the sole authority to modify or approve Pearl Meyer’s compensation, determine the nature and scope of its services, evaluate its performance, terminate the engagement and hire a replacement or additional consultant at any time.

 

The Committee also utilizes market data provided by Towers Watson and Aon Hewitt for benchmarking and other purposes. This benchmark data consists of information that is generally available to other Towers Watson and Aon Hewitt clients. Neither Towers Watson nor Aon Hewitt made recommendations to the Committee or management on peer group composition or on the form, amount or design of executive compensation in 2014.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 29
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

Competitive Positioning

 

PEER GROUP BENCHMARKING

 

We compare our executive compensation program to programs at the 26 companies that make up our Compensation Peer Group (“CPG”). The Committee believes that these companies provide a relevant comparison based on their similarity to UTC in size and complexity, taking into account factors such as revenue, market capitalization, global scope of operations and diversified product portfolios. Like UTC, 12 of these 26 companies are Dow Jones Industrial Average components. The CPG is constructed to serve the specific purpose of benchmarking executive compensation. We do not use the financial performance of the CPG as a target for our executive compensation awards. The CPG’s composition reflects a mix of both industry and non-industry peers that we view as realistic competitors for the senior executive talent UTC seeks. In its 2014 review of the CPG, the Committee removed Intel Corporation and added Chevron, Danaher and Eaton. Chevron, like UTC, is a Dow Jones Industrial Average and Fortune 100 company, with broad service offerings. Similar to UTC, Danaher and Eaton are industrial manufacturing companies that require a highly technical pool of executive talent.

 

We also monitor other Fortune 100 companies, as well as data from a broader range of companies, for insight on general compensation trends and to supplement CPG data when appropriate.

 

THE COMPENSATION PEER GROUP INCLUDES

THE FOLLOWING COMPANIES:

 

 

Companies in Blue represent DJIA companies

 

PEER GROUP DATA*

 

    Market  
  Revenue Capitalization  
  (in millions) (in millions) Employees
25th Percentile $32,592 $46,504 72,675
50th Percentile $47,603 $70,294 114,667
75th Percentile $90,766 $170,369 127,059
UTC $65,100 $104,578 211,500
UTC Rank 62% 68% 77%

 

*Peer company data provided by S&P Capital IQ. Revenue and employee data reflect the most recent publically available information (as of February 26, 2015). In certain cases, S&P Capital IQ has made adjustments to revenue to reflect non-operating income or expense, equity in earnings of unconsolidated subsidiaries, interest income, and non-recurring special items such as discontinued operations or gains on the sale of securities. Market capitalization for peer companies is calculated based on publically available shares outstanding as of December 31, 2014


 

30 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

OUR COMPENSATION BENCHMARKS

 

To ensure that our executive compensation program is sufficiently competitive, the Committee believes that the value of each UTC compensation element should be targeted to align with market benchmarks. UTC therefore targets base salary, annual bonus and long-term incentive awards at the median of the CPG.

 

All compensation targets are aligned with our Compensation Peer Group median.

 

As part of its annual review process, the Committee evaluates each element of our executive population’s compensation relative to the market. Individual compensation may fall above or below these market benchmarks based on the Committee’s discretion. In exercising its discretion, the Committee may consider Company and individual performance, job scope, retention risk and other factors that it determines are relevant to its evaluation.

 

How We Structure Our Executive Compensation

 

PRINCIPAL ELEMENTS OF COMPENSATION

 

The following elements make up our executive compensation program:

 

BASE SALARY
ANNUAL BONUS
LONG-TERM INCENTIVES
RETIREMENT BENEFITS
             
        •  Performance Share Units   •  Pension
        •  Stock Appreciation Rights   •  Pension Preservation
            •  401(k) Savings Plan
            •  Savings Restoration Plan

 

LINKING PAY TO PERFORMANCE

 

The Committee uses a combination of performance metrics and time horizons to promote and reward superior financial performance.

 

PERFORMANCE METRICS AND TIME HORIZONS

 

  Short-Term Medium-Term Long-Term
  1-YEAR 3 YEARS 10 YEARS
       
  Annual Bonus Performance Share Units Stock Appreciation Rights
  •  Earnings •  EPS Growth •  Share Price Appreciation
  •  Free Cash Flow to •  Relative TSR  
     Net Income Ratio    
  •  Individual    
     Achievements    


 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 31
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

BASE SALARY

 

To help UTC attract and retain the most qualified executive talent, we provide competitive base salaries to our executives targeted at the CPG median. Base salary constitutes a significant portion of our NEOs’ fixed compensation (which also includes pension benefits and other benefits such as health, life and disability insurance). Each year the Committee reviews recommendations from the CEO regarding base salary adjustments for ELG members, including the other NEOs. The Committee has complete discretion to modify or approve these recommendations. The CEO has no input and does not participate in any way in the Committee’s determination of his own base salary. Actual salaries will vary from the CPG median target based on factors such as job scope and responsibilities, experience, tenure, individual performance, retention risk, external market data and internal pay equity.

 

ANNUAL INCENTIVE COMPENSATION

 

Overview

 

Our NEOs’ 2014 annual incentive awards were determined based on three distinct elements:

 

ANNUAL INCENTIVE AWARD

 

 

(1) Mr. Hayes’ 2014 annual bonus target was prorated for the portion of the year for which he served as SVP & CFO and for the portion of the year for which he served as President and CEO.
(2) Earnings and the ratio of free cash to net income under the UTC Annual Executive Incentive Compensation Plan are defined for both the Corporate Office and our business units on page 47. Refer to page 33 for details on how we weight each performance metric specifically for Corporate Office and business unit executives.

 

Target Annual Incentive Award

 

The Committee approves the target annual incentive award for each ELG member’s position, including the positions held by our NEOs. Target annual incentive awards are equal to a percentage of base salary and vary among executives based on specific roles and responsibilities within the organization. While target award levels generally reflect values that approximate the median of the CPG, actual award payouts are based on both the financial and individual performance factors.

 

Each year in its annual review of executive compensation, the Committee considers whether any adjustments to annual incentive award target percentages are appropriate. This past year, it adjusted the target percentages for certain ELG members, either to reflect expanded roles and responsibilities or to maintain market competitiveness. Target annual incentive awards for each of the NEOs, except Mr. Longo, were adjusted (see “Annual Incentive Award” graphic above for individual NEO targets).

 

32 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

How We Determine Annual Incentive Award Payouts

 

Actual award payouts are based on both financial and individual performance, as shown in the graphic on page 32.

 

Financial Performance Factor

 

To determine the financial performance factors, the Committee measures Company and business unit performance relative to two pre-established financial metrics:

 

Earnings. The earnings target for the Company is a fixed net income goal that the Committee sets each December for the following year and aligns with the expected performance the Company communicated externally to investors at that time. Earnings targets for our business units are based on each business’ anticipated opportunities and challenges for the upcoming year.

 

Free Cash Flow to Net Income (“FCF / NI”) Ratio. The Company’s target FCF / NI ratio is set to generally align with the expected performance communicated to investors each December for the following year. FCF / NI ratio targets are established for each business unit based on their strategic business plan for the year and contribute to the overall goal set for the Company. For the definition of how we calculate the ratio of FCF / NI for both UTC and our business units, refer to page 47 of this Proxy Statement.

 

Performance relative to these targets determines the financial performance factors for our Corporate Office executives and for each of our business units. The Committee reviews the calculated financial performance factors relative to target and retains discretion to adjust the final factor (see “Use of Discretion” on page 34).

 

The annual bonus pool is determined by multiplying the financial performance factors by the aggregate target annual bonus amounts for the Corporate Office and each business unit. The resulting Corporate Office and business unit pools are then allocated among eligible executives based on individual performance (see page 34 for details on the individual performance factor).

 

The metrics and weightings used to determine the Company and business unit’s financial performance factors for 2014 are as follows:

 

CORPORATE(1)(2)   BUSINESS UNITS(1)(2)(3)
     
 

 

(1) Financial performance factors are subject to discretionary adjustments by the Committee.
(2) Refer to page 47 to see how we calculate earnings and the ratio of FCF / NI for our Corporate and business unit executives.
(3) Business unit financial performance measurements reflect UTC’s business unit segment reporting. Otis and UTC Climate, Controls & Security (“UTC CCS”) each continue to report their financial and operational results as separate segments, which is consistent with how we allocate resources and measure performance of these businesses.
(4) UTC performance (comprised of UTC Earnings weighted at 24% and UTC FCF / NI weighted at 16%) makes up 40% of the entire financial performance factor for business unit executives.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 33
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

The Committee believes that the methodology described above accomplishes the following objectives:

 

Aligns incentives with our annual strategic business plan;
   
Establishes challenging but achievable bonus targets for our executives; and
   
Sets targets that are consistent with the assessment of opportunities and risks for the upcoming year, as communicated to our investors.

 

Individual Performance Factor

 

Our NEOs also begin the year with individual strategic, operational and/or financial objectives. Based on Mr. Hayes’ assessment of each NEO’s performance against these objectives, he may recommend that the Committee make a discretionary adjustment to increase or decrease the bonus determined by the financial performance factor. The Committee considers these recommendations and makes adjustments as it deems appropriate. Mr. Hayes plays no role in the Committee’s determination of his own annual incentive award.

 

Use of Discretion

 

The Committee sets annual bonus targets with the objective of offering payout opportunities that align with Company, business unit and individual performance. However, the Committee retains the authority to make upward or downward adjustments if it determines that performance relative to pre-established targets does not accurately reflect the overall quality of performance for the year. While the financial metrics remain the primary basis for determining actual bonus amounts, the Committee has made discretionary adjustments in the past to both financial performance factors and individual performance factors. Examples of situations that could result in a positive or negative adjustment include:

 

Material, unforeseen circumstances beyond management’s control that have a positive or negative effect on financial performance relative to the established targets or certain non-recurring charges or credits unrelated to measured performance targets
   
An executive’s performance relative to specific individual annual objectives
   
An executive’s failure to adhere to UTC’s Code of Ethics, Enterprise Risk Management program or other Company policies

 

Financial Performance Goals and Results for 2014

 

Earnings. The 2014 earnings target for UTC was set at the net income level that corresponds to the midpoint of the 2014 EPS range we communicated to investors in December 2013, when we projected an EPS range of $6.55 to $6.85. The midpoint of this range was $6.70 per share, which corresponded to a net income target of $6.145 billion. For 2014, actual net income equaled $6.220 billion, adjusted to $6.243 billion for annual bonus purposes after eliminating the impact of a non-recurring charge unrelated to operating performance for an issue predating the performance period.

 

The Committee also approved specific earnings growth goals for each business unit. These goals ranged between 6% and 15%, and reflected the Committee’s assessment of each business unit’s external market conditions and the specific challenges and opportunities anticipated for 2014.

 

Free Cash Flow to Net Income Ratio. In December 2013, the Committee approved a FCF / NI goal equal to 92% for the Company. The Committee believes that cash flow performance is a relevant measure of the overall quality and sustainability of earnings. For each business unit, the FCF / NI target was set at a level which, if attained, would achieve the FCF / NI target established for the entire Company. For 2014, UTC’s free cash flow equaled 90% of net income.

 

2014 Results. Earnings performance equaled 122% of target and the FCF / NI ratio equaled 98% of target, resulting in a blended financial performance factor of 112% of target for the Company.

 

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EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

LONG-TERM INCENTIVE COMPENSATION

 

Types of Incentives Used

 

Our NEOs receive two types of annual equity-based long-term incentive awards: Performance Share Units (“PSUs”) and Stock Appreciation Rights (“SARs”). For 2014, PSUs comprised slightly more than half of ELG members’ annual long-term incentive awards. The remaining portion of their annual long-term incentive award was granted in the form of SARs. The number of PSUs and SARs awarded is based on a target value. These awards are subject to a three-year vesting period and other terms and conditions, as described in the award statements and the United Technologies Long-Term Incentive Plan (“LTIP”).

 

The Committee also approves special equity grants from time-to-time for purposes such as recruitment, retention or to drive the achievement of certain strategic performance goals. These grants can be issued in different forms, as appropriate, including SARs, PSUs, restricted stock, restricted stock units or performance-based SARs. A special performance-based SAR grant was issued to Mr. Darnis during 2014, as described on page 51.

 

Performance Share Units

 

PSUs vest at the end of a three-year performance measurement period, if and to the extent the Company has met the performance goals established by the Committee. Each vested PSU converts into one share of Common Stock. Unvested PSUs do not earn dividends.

 

Metrics

 

The Committee believes both absolute and relative metrics provide appropriate goals for our long-term incentive awards. Our PSU awards currently use two metrics: an absolute earnings per share (“EPS”) growth metric and a relative total shareowner return (“TSR”) versus the S&P 500 metric (see page 47 for details on how we calculate these metrics). Each metric receives a 50% weighting. Vesting is determined independently for each metric.

 

Setting Performance Goals

 

Earnings Per Share Growth. The Committee approved a three-year EPS compound annual growth rate of 10% as the target for the 2014 PSU grant. This goal is based on our three-year strategic business plan and represents a challenging, yet attainable goal that aligns with the expectations we communicated to shareowners in the December prior to the beginning of the performance period.

 

Relative Total Shareowner Return. For the 2014 PSU grant, the Committee set a cumulative three-year TSR performance target at the 50th percentile relative to the S&P 500.

 

We believe that comparing UTC’s TSR to companies within the S&P 500 provides an appropriate benchmark for measuring our share price performance as a large capitalization company. We do not set TSR goals relative to the performance of our CPG, which serves the specific purpose of measuring the competitiveness of our compensation program. We believe the S&P 500 provides a more comprehensive and relevant comparison for our share price performance. Also, unlike the CPG, the S&P 500 is not a self-selected, customized benchmark.

 

Generally, our PSUs are designed to deliver median compensation at target levels of EPS growth and relative TSR performance. As a result, below-target performance levels will generate below-median payouts and above-target performance levels will generate above-median payouts.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 35
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

The following charts show the percentage of the 2014 PSUs that will vest based on the levels of performance achieved for each metric:

 

EPS GROWTH (WEIGHTED 50%) TSR VS. S&P 500 (WEIGHTED 50%)
   
   

 

Performance Awards Vesting

 

PSUs granted at the start of 2012 vested at 90% of target. We believe this result, based on 0% relative TSR vesting and 180% EPS growth vesting, aligns with the overall performance of the Company during the 2012-2014 performance period and the corresponding value received by our shareowners during those three years.

 

Additionally, the performance period associated with the first tranche of the special performance-based SAR award granted in 2012 to Mr. Bellemare and Mr. Longo ended on December 31, 2014. 50% of the SARs granted vested at 99% of target, based on performance relative to earnings, revenue, return on sales and organizational objectives. The remaining 50% of SARs granted are subject to performance targets measured through December 31, 2016.

 

Stock Appreciation Rights

 

SARs entitle the award recipient to receive, at the time of exercise, shares of UTC Common Stock with a market value equal to the difference between the exercise price (the closing price of Common Stock on the date of grant) and the market price of Common Stock on the date the SARs are exercised. SARs vest and become exercisable after three years and expire ten years from the date of grant. If the employment of the executive terminates prior to the vesting date, the award is forfeited, except in the case of death, disability, qualifying retirement or qualifying separation following a change-in-control.

 

It is the Committee’s view that prior SAR and stock option awards have provided an important stock-based incentive for management to achieve objectives that are aligned with shareowners’ long-term interests, including productivity, innovation, growth and business balance. SAR awards directly link NEO compensation to share price appreciation, reflecting the creation of long-term value for both executives and shareowners. The ten-year term of these awards has been a driving force behind our long-term performance, as measured by our ten-year TSR, which outpaced both the Dow Jones Industrial Average and the S&P 500. For the ten-year period ending on December 31, 2014, UTC’s cumulative TSR equaled 176%, significantly exceeding the performance of the Dow Jones Industrial Average at 114% and the S&P 500 at 110%.

 

EMPHASIS ON “AT RISK” PAY

 

“At risk” compensation — meaning compensation that is directly contingent on performance — made up 86% of our CEO’s and 87% of our other NEOs’ compensation received for 2014 (i.e., base salary, annual bonus and long-term incentives). Annual bonuses and long-term incentive awards are subject to the achievement of pre-established performance targets and are designed to link directly to shareowner value. Base salary and other fixed elements of compensation are essential to any compensation program and necessary for the recruitment and retention of top talent. However, we believe that “at risk” compensation for our most senior executives should significantly outweigh base salaries. Our 2014 compensation reflects this philosophy.

 

36 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

The following charts show the basic pay mix for our CEO and other NEOs for 2014, which illustrates the significant portion of compensation that is “at risk.”

 

PAY MIX

 

CEO*   OTHER NEOs*
     
 

 

* For both pay mix charts, the base salary and annual and long-term incentive awards shown reflect the values disclosed in the Summary Compensation Table on page 49. The above charts exclude Mr. Chênevert’s compensation, as he was not eligible for a 2014 annual incentive award.

 

OTHER COMPENSATION ELEMENTS

 

Retirement and Deferred Compensation Benefits

 

The Committee maintains retirement and deferred compensation plans to help UTC attract and retain the most highly talented senior executives. Over the years, the Committee has modified these programs to ensure competitive alignment with an evolving market. We believe the overall value of our retirement and deferred compensation programs are consistent with the marketplace and approximates the CPG median.

 

The Pension Benefits table on page 55 and the Nonqualified Deferred Compensation table on page 56 detail the retirement benefits and deferred compensation values for each of our NEOs. All of the NEOs are eligible to participate in the following retirement and deferred compensation plans:

 

Plan*   Description
UTC Employee Retirement Plan   Employees, including our NEOs, who were hired before January 1, 2010, are eligible to participate in this tax-qualified pension plan. Effective December 31, 2014, participating employees who were covered by the final average earnings (“FAE”) formula of this plan transitioned to a cash balance formula. As a result, the cash balance formula, which had already been in effect for newer plan participants, will now apply to all participants who were covered by the FAE as of December 31, 2014.
Pension Preservation Plan   An unfunded, non-qualified retirement plan utilizing the same benefit formula, compensation recognition, retirement eligibility and vesting provisions as the tax-qualified UTC Employee Retirement Plan. It provides pension benefits not provided by the qualified pension plan because of Internal Revenue Code limits.
UTC 401(k) Savings Plan   Employees may contribute to this plan and receive a matching contribution in the form of UTC Common Stock. Employees hired on or after January 1, 2010 are not eligible to participate in the UTC Employee Retirement Plan and instead receive an additional age-based Company automatic contribution to their UTC 401(k) Savings Plan.
UTC Savings Restoration Plan   An unfunded program that credits employee and Company matching contributions at the same rate as the UTC 401(k) Savings Plan to the extent such contributions would exceed Internal Revenue Code limits.
UTC Deferred Compensation Plan   A non-qualified, unfunded deferred compensation arrangement that offers participants the opportunity to defer up to 50% of base salary and up to 70% of annual bonus. Executives may also defer receipt of their PSU awards.

 

* Detailed descriptions of each of these plans and the benefits they provide appear on pages 55 to 57.

 

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EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

Perquisites and Other Benefits

 

We provide insurance coverage and other benefits to our senior executives. The Committee believes these benefits are consistent with market practice and contribute to recruitment and retention.

 

Perquisite/Benefits   Description
ELG Life Insurance   Current and former ELG members receive life insurance coverage equal to three times their base salary at age 62 (projected or actual).
ELG Long-Term Disability   The ELG long-term disability program provides an annual benefit equal to 80% of base salary plus target annual bonus following disability.
Healthcare   ELG members are covered under the same health benefit program we offer to our other employees.
Executive Physical   ELG members are eligible for a comprehensive annual executive physical.
Executive Leased-Vehicle   UTC provides executives with an annual allowance that may be applied towards the use of a leased-vehicle. The value of the allowance varies with grade level. Leased-vehicle costs above the annual allowance are paid directly by the executive.
Aircraft Usage   As of January 2015, the Committee modified its policy on personal use of the Corporate aircraft. Mr. Hayes may now use the Corporate aircraft for up to 50 hours per year with reimbursement of expenses to the Company for personal utilization above this limit. Personal use of the Corporate aircraft by our President and CEO aligns with our security policy, and the Committee believes that it optimizes the most efficient use of Mr. Hayes’ time. Under this policy, Mr. Hayes may also fly commercially, subject to review by UTC security personnel.

 

Severance and Retention Arrangements

 

ELG members participate in severance and retention arrangements consistent with practices in effect at the majority of our CPG companies. We believe such arrangements help UTC maintain a competitive compensation program. In addition to the market competitive nature of our severance arrangements, separated ELG members must adhere to restrictive covenants designed to protect UTC’s interests, including non-compete, non-solicitation and non-disclosure obligations.

 

Severance Program

 

Over the years, the Committee has made a number of modifications to the ELG severance program to both align with market best practices and to serve the evolving needs of the Company. The following chart outlines these modifications.

 


ELG Appointment Date
  Prior to January 2006 Between January 2006
and April 2013
On or after May 2013
Separation Cash Benefit 2.5x base salary 2.5x base salary No cash benefit
Conditions to
Receive Cash Benefit

- Mutually agreeable separation

- 3+ years as ELG member

 

- Mutually agreeable separation prior to age 62

- 3+ years as ELG member

N/A
ELG RSU Award No award granted Grant equal to 2x base salary at time of grant Grant equal to 2x base salary at time of grant
Conditions to vest
in the ELG RSU Award
N/A

- Mutually agreeable separation on or after age 62

- 3+ years as ELG member

- Mutually agreeable separation

- 3+ years as ELG member

NEO Participation Gregory Hayes
Geraud Darnis
Alain Bellemare
Charles Gill, Jr. Peter Longo

 

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EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

ELG RSU awards are granted upon appointment to the ELG. The awards are eligible to vest after three years of service as an ELG member following mutually agreeable separation, which is discussed in footnote 2 of the Potential Payments on Termination or Change-in-Control table on page 59. Dividend equivalents are earned on unvested RSUs and are reinvested as additional RSUs.

 

The Committee’s most recent change to the ELG severance program eliminated the cash separation benefit entirely, further aligning the long-term interests of both our executives and shareowners.

 

Change-in-Control Benefits

 

We have maintained a senior executive change-in-control severance protection program since 1981. This program is designed to help ensure continuity of management in a potential change-in-control situation. However, in response to changing market practices, we closed this program to new participants effective June 2009, and eliminated the following benefits for existing participants:

 

Excise tax gross-ups
   
Three-year continuation of healthcare and other benefits
   
Crediting of three additional years of service under our qualified and supplemental pension plans
   
Unilateral right to voluntarily resign with benefits

 

The program currently in effect for legacy participants includes the following:

 

A cash severance benefit of 2.99 times the sum of base salary and the executive’s current target bonus for the year in which termination occurs
   
Accelerated vesting of long-term incentive awards, including PSUs at target levels
   
Benefits under the program are subject to a “double trigger,” meaning they are provided only if a change-in-control is followed by involuntary termination or termination for “good reason.” “Good reason” generally includes material adverse changes in an executive’s compensation, responsibilities, authority, reporting relationship or work location

 

Executives who receive benefits under this program are not eligible for the ELG cash separation benefit.

 

Role of Severance and Retention Benefits in Compensation Program

 

The Committee believes that with the modifications described above, the terms and conditions of our severance arrangements and change-in-control agreements for ELG members are market-competitive relative to our CPG and provide participating executives with a reasonable level of financial security. Because severance and change-in-control benefits are contingent on future events, they operate as a form of insurance rather than as a principal component of compensation strategy. The Committee, therefore, does not take these benefits into account when setting other elements of compensation or measuring total direct compensation.

 

The Potential Payments on Termination or Change-in-Control table on page 58 sets forth the estimated values and details of the termination benefits each NEO would receive under various hypothetical scenarios.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 39
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

How We View Executive Compensation

 

The Summary Compensation Table on page 49 provides annual compensation data in accordance with SEC requirements. This uniform format is helpful for cross-company comparisons. However, the Committee feels that the SEC-mandated format does not fully represent all of its annual compensation decisions and, in particular, does not provide the basis for a valid CEO pay-for-performance assessment. Therefore, when reviewing annual compensation, the Committee uses several alternative calculation methodologies, as described in this section and summarized in the chart below:

 

  Summary
Compensation Table
Total Direct
Compensation
Realizable Compensation Realized Compensation
Purpose SEC-mandated
compensation disclosure
Reflects the Committee’s
compensation decisions
based on 2014 performance
Used to evaluate pay-for-
performance alignment
Used to evaluate pay-for-performance alignment
Pay Elements

Actual pay received
during year:

 

Base salary paid in 2014

Annual bonus for 2014   performance

Dividend equivalents

All other compensation

 

Future pay opportunities that may or may not be realized such as:

 

Accounting value of equity awards (SARs and PSUs) granted in 2014

Change in actuarial value of pension benefit

 

Base salary set in 2014

Annual bonus for 2014 performance

Accounting value of equity awards (SARs and PSUs) granted in January 2015, reflecting 2014 performance

 

Excludes:

 

Pay elements outside the scope of the Committee’s annual compensation decisions such as:

 

Change in actuarial value of pension benefit

Dividend equivalents

All other compensation

 

Three-year average of:

 

Base salary

Annual bonus

Dividend equivalents

In-the-money value of equity awards (SARs and PSUs) granted during the prior three fiscal years (calculated based on the stock price at the end of the third year)

Other direct(1) compensation

 

Excludes:

 

Change in actuarial value of pension benefit

Other indirect(2) compensation

Single-year measure of compensation earned:

 

Base salary paid in 2014

Annual bonus for 2014 performance

Dividend equivalents

Gains on options / SARs exercised and vested PSUs

Other direct(1) compensation

 

Excludes:

 

Change in actuarial value of pension benefit

Other indirect(2) compensation

 

 

(1) Other direct compensation includes personal use of the Corporate aircraft, leased-vehicle payments and other miscellaneous compensation elements.
(2) Other indirect compensation includes insurance premiums and Company contributions to non-qualified deferred compensation plans and the UTC 401(k) Savings Plan.

 

TOTAL DIRECT COMPENSATION

 

Unlike the amounts reported in the Summary Compensation Table, total direct compensation includes only pay elements that directly reflect the Committee’s assessment of Company and individual performance for the current year. For example, the Summary Compensation Table shows the grant date fair value of long-term incentive awards granted in January 2014, reflecting the Committee’s assessment of 2013 performance. In contrast, total direct compensation reflects 2014 performance by instead including the grant date fair value of awards granted in January 2015. Other elements included in the Summary Compensation Table—changes in pension values, dividend equivalent payments and other formulaic compensation elements—are outside the scope of the Committee’s annual pay decisions. Therefore, excluding these elements from total direct compensation renders a more accurate and current assessment of executive compensation at UTC.

 

40 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

MR. HAYES: 2014 SUMMARY COMPENSATION TABLE VS. TOTAL DIRECT COMPENSATION

 

Compensation Element   2014 Summary Compensation Table
(in thousands)
  2014 Total Direct Compensation
(in thousands)
 
Base Salary   $950   $1,300  
Annual Bonus   $1,600   $1,600  
Stock Awards   $2,333   $4,752  
    (1/2/14 grant date)   (1/2/15 grant date)  
Option Awards   $2,030   $3,280  
    (1/2/14 grant date)   (1/2/15 grant date)  
Non-Equity Incentive Compensation*   $54      
Change in Pension Value   $1,825   N/A  
All Other Compensation   $194      
Total   $8,986   $10,932  

 

* Reflects dividend equivalents paid in cash under the legacy Continuous Improvement Incentive Program.

 

REALIZABLE COMPENSATION

 

The Committee does not believe that the Summary Compensation Table or total direct compensation values adequately measure CEO compensation for the purpose of assessing the alignment of pay with performance. Both methods utilize estimated values of long-term incentive awards at the time of grant. As might be expected, however, an estimated value can differ significantly from the actual value paid.

 

Therefore, the Committee also considers “realizable compensation,” which measures compensation based on the average annual amount of salary, annual bonus, long-term incentive awards, non-equity incentive compensation and other direct compensation elements over the preceding three years. Realizable compensation plays an important role in helping the Committee assess our compensation program’s alignment with shareowners’ long-term interests. It captures the impact of UTC’s current share price performance on previously granted long-term incentive awards by using the “in-the-money” value for these awards, rather than a grant date fair value. The “in-the-money” value is defined as the difference between the closing price of our Common Stock at the end of the three-year measurement period and the closing price of our Common Stock on the grant date. By using this end-of-year stock price, realizable compensation directly correlates the executive’s benefit with the return our shareowners received from investing in our Common Stock over the same period. An example of this alignment is shown in the decrease in Mr. Hayes’ realizable compensation from 2013 to 2014.

 

Unlike the values reported in the Summary Compensation Table, the calculation of realizable compensation excludes any change in the value of the executive’s pension benefits during the year. The change in pension value shown in the Summary Compensation Table does not represent actual payments to be received upon retirement. It is merely an actuarial estimate of the change in benefit from the preceding year’s estimate that is heavily influenced by actuarial assumptions and external economic factors like fluctuating interest rates. In addition, Mr. Hayes and the other NEOs participate in a broad-based pension plan with the same benefit formula that applies to all U.S. salaried employees. This pension plan does not measure individual or Company performance as assessed by the Committee and is therefore, in the Committee’s view, irrelevant to the pay-for-performance assessment.

 

Realizable compensation also excludes other indirect compensation elements, such as Company contributions to the UTC 401(k) Savings Plan and our non-qualified deferred compensation plans, as well as life insurance premiums. Since these elements are also not based on performance, the Committee does not consider them relevant to the assessment of the CEO’s pay relative to his performance.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 41
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

MR. HAYES: THREE-YEAR HISTORY OF REALIZABLE COMPENSATION

 

Pay Elements Calculation Methodology 2012* 2013* 2014*
Base Salary Average annual base salary for the year shown and the preceding two years. $718 $805 $883
Annual Bonus Average annual bonus for the year shown and the preceding two years. $1,157 $1,173 $1,300
Stock Awards Average annual value of vested and unvested PSU awards granted in the year shown and the preceding two years, calculated based on the share price at the end of the year shown. For the completed three-year performance cycles, the calculation is based on the actual number of shares vested. For the two uncompleted three-year performance cycles, the calculation assumes that the target number of shares is earned. $2,445 $3,474 $2,832
Option Awards Average annual in-the-money value of SAR awards (vested and unvested) granted in the year shown and the preceding two years, calculated based on the share price at the end of the year shown. $700 $3,850 $2,806
Non-Equity Incentive
Compensation
Average annual value of dividend equivalents paid in cash for the year shown and the preceding two years for awards granted prior to 2006 under the Continuous Improvement Incentive Program. This legacy program expired at the end of 2014. $317 $324 $236
Other Direct Compensation Average annual value of other direct compensation for the year shown and the preceding two years. Excludes other indirect compensation elements such as life insurance premiums and Company contributions to the UTC 401(k) Savings Plan and to our non-qualified deferred compensation plans. $41 $48 $46
Total Realizable Compensation $5,378 $9,674 $8,103

 

* Compensation values shown in thousands. Mr. Hayes served as SVP & CFO until November 23, 2014, when he was elected President and CEO.

 

The following table shows the actual or assumed vesting levels used for Mr. Hayes’ PSUs in the preceding table:

 

Grant Date   Actual Shares Vested   Vesting (as % of target)
1/4/2010   24,056   97%
1/3/2011   36,312   136%
1/3/2012   29,070   90%
1/3/2013   Awards not yet vested; target number of shares reflected
1/2/2014  

 

REALIZED COMPENSATION

 

When assessing CEO pay-for-performance alignment, the Committee also reviews “realized compensation” which represents the amount of compensation actually paid during the year, as opposed to amounts that may or may not be paid in the future. Realized compensation incorporates the gains actually received during the year upon the vesting of PSUs and the exercise of stock options or SARs. Evaluating realized compensation provides the Committee with an additional relevant measure to assess the robustness of our pay-for-performance relationship. Realized compensation demonstrates the strength of the correlation between high cash and equity payouts in years of strong performance and low cash and equity payouts in years of weak performance. Although the decision to exercise stock options and SARs resides with the executive and therefore may not always correlate with Company performance, the timing of exercises often does align with stock price appreciation. Changes in pension values and other indirect compensation elements are excluded from realized compensation for the same reasons noted in the discussion of realizable compensation on page 41.

 

42 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

MR. HAYES: THREE-YEAR HISTORY OF REALIZED COMPENSATION

 

Pay Elements  Calculation Methodology  2012*   2013*   2014* 
Base Salary  Base salary paid during the year shown.  $830   $870   $950 
Annual Bonus  Annual bonus paid for performance during the year shown.  $1,200   $1,100   $1,600 
Stock Awards  Realized gains on PSUs that vested during the year shown.  $1,327   $2,156   $4,052 
Option Awards  Realized gains on stock options and SARs exercised during the year shown.  $0   $15,387   $2,990 
Non-Equity Incentive Compensation  Value of dividend equivalents paid in cash during the year shown on awards granted prior to 2006 under the Continuous Improvement Incentive Program. This legacy program expired at the end of 2014.  $345   $308   $54 
Other Direct Compensation  Value of other direct compensation for the year shown. Excludes other indirect compensation elements such as life insurance premiums, Company contributions to the UTC 401(k) Savings Plan and our non-qualified deferred compensation plans.  $47   $56   $34 
Total Realized Compensation     $3,749   $19,877   $9,680 

 

* Compensation values shown in thousands. Mr. Hayes served as SVP & CFO until November 23, 2014, when he was elected President and CEO.

 

SUMMARY COMPENSATION TABLE VS. REALIZABLE AND REALIZED COMPENSATION

 

The following chart compares the Summary Compensation Table values reported for Mr. Hayes for the past three years to his realizable and realized compensation for the same time period. As the chart shows, the correlation between TSR and realizable and realized compensation is stronger than the correlation between TSR and Summary Compensation Table values.

 

 

* Refer to page 42 to see how we calculate realizable compensation and to the table above for the calculation of realized compensation.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 43
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

Pay Decisions For Named Executive Officers (NEOs)

 

In this section, we review and explain the Committee’s 2014 compensation decisions for each of our NEOs.

 

GREGORY HAYES, PRESIDENT AND CHIEF EXECUTIVE OFFICER

 

Driven by the Committee’s favorable evaluation of Mr. Hayes’ performance during 2014, coupled with his election as President and Chief Executive Officer of the Company, Mr. Hayes’ total direct compensation increased to $10.9 million in 2014.

 

MR. HAYES: THREE-YEAR HISTORY OF TOTAL DIRECT COMPENSATION

 

   Committee Pay Decisions*
Compensation Element  2012    2013    2014  
Base Salary
Increased to $920,000 effective April 1, 2014, and subsequently increased to $1.3 million effective November 23, 2014
  $840   $880   $1,300 
Annual Bonus Award
2014 annual bonus aligns with the financial performance factor for the Company which equaled to 112% of target
  $1,200   $1,100   $1,600 
Long-Term Incentive Award  Reflects 1/2/13 Grant   Reflects 1/2/14 Grant   Reflects 1/2/15 Grant 
Stock Appreciation Rights and Performance Share Units            
   $2,030 SARs   $2,030 SARs   $3,280 SARs 
   + $2,402 PSUs   + $2,333 PSUs   + $4,752 PSUs 
   $4,432   $4,363   $8,032 
Total  $6,472   $6,343   $10,932 

 

* Compensation values shown in thousands. Mr. Hayes served as SVP & CFO until November 23, 2014, when he was elected President and CEO.

 

The Board’s favorable assessment of Mr. Hayes included a review of UTC’s performance relative to pre-established financial goals, as well as Mr. Hayes’ individual performance and leadership, both as SVP & CFO and as President and CEO.

 

With respect to annual bonus performance metrics, UTC achieved net income of $6.220 billion in 2014, a 9.4% increase from 2013 and above the $6.145 billion target. The ratio of free cash flow to net income equaled 90%, compared to the 92% target. In combination, these results generated a financial performance factor for the Corporate Office bonus pool of 112% of target.

 

The Committee considered these results, along with the individual performance considerations listed below and awarded Mr. Hayes a $1.6 million annual bonus, an amount that closely aligns with the Corporate financial performance factor.

 

Individual Performance Highlights

 

  Outstanding leadership during the CEO transition period
     
  As CFO through November 22, 2014, he was instrumental in delivering 10% EPS growth
     
  Key involvement in multiple strategic wins across UTC’s aerospace businesses
     
  Leadership in positioning UTC to maximize revenue growth through research and development investments
     
  Recognition by Institutional Investor Magazine as the best CFO in the Aerospace and Defense sector
     
  Strategic leadership in identifying growth opportunities in emerging markets

 

44 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

OTHER NAMED EXECUTIVE OFFICERS

 

The Committee bases compensation decisions for NEOs on their individual performance, the overall performance of the Company and business unit performance, where applicable. After reviewing these factors, the Committee determines compensation for the year for each of the key elements of compensation.

 

The following table summarizes the Committee’s decisions for the 2014 performance year. Unlike the Summary Compensation Table, which includes the long-term incentive awards granted in calendar year 2014, total direct compensation shown in the following table instead includes long-term incentive awards granted in January 2015, reflecting a more direct tie to 2014 performance.

 

2014 NEO TOTAL DIRECT COMPENSATION

 

Compensation Element (in thousands)  Longo    Darnis    Bellemare    Gill  
Base Salary  $420   $1,050   $900   $685 
Annual Incentive Award  $500   $1,200   $1,000   $750 
Stock Appreciation Rights  $367   $1,823   $1,278   $1,278 
Performance Share Units  $529   $2,647   $1,853   $1,853 
Total Direct Compensation  $1,816   $6,720   $5,031   $4,566 

 

Peter Longo, Acting Chief Financial Officer

Until November 23, 2014, Mr. Longo served as Vice President, Finance & Chief Financial Officer of UTC Propulsion & Aerospace Systems (“UTC PAS”). Effective from November 23, 2014 through the end of the year, he served as Acting Chief Financial Officer of UTC. For purposes of annual bonus determination, the weighted performance of the Company and UTC PAS generated a financial performance factor of 103% of target. The Committee considered these results, along with Mr. Longo’s individual performance, and awarded Mr. Longo a $500,000 annual bonus. This amount was above the financial performance factor and reflected a favorable assessment of his performance as Acting Chief Financial Officer during the CEO transition period.

 

In 2014, Mr. Longo also received a salary increase from $400,000 to $420,000 to better align with competitive market practice.

 

Geraud Darnis, President & Chief Executive Officer, UTC Building & Industrial Systems

For purposes of annual bonus determination, the weighted performance of the Company and UTC Building & Industrial Systems (“UTC BIS”) generated a financial performance factor of 100% of target. Based on these results, along with the individual performance considerations listed below, the Committee awarded Mr. Darnis an annual bonus of $1.2 million, an amount slightly above the financial performance factor.

 

Individual Performance Highlights

 

  Effective leadership in driving organic sales growth of 6% for Otis and 3% for UTC Climate, Controls & Security (“UTC CCS”), both of which are double that of 2013
     
  The continued successful integration of UTC CCS and Otis
     
  Financial performance leading to an operating profit of $2.6 billion for Otis and $2.8 billion for UTC CCS
     
  BIS’ growth in emerging markets through effectively leveraging key partners and instituting best-in-class customer support
     
  Successful geographic realignment of the BIS businesses to serve customers more efficiently
     
  His oversight of several significant new product launches within the BIS portfolio

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 45
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

Mr. Darnis received a salary increase in 2014 from $1,000,000 to $1,050,000 in recognition of his expanded responsibilities under the BIS organization.

 

The Committee also granted Mr. Darnis a special performance-based SAR award at the beginning of 2014 for purposes of linking long-term incentives with the successful integration of UTC CCS and Otis (refer to the Grants of Plan-Based Awards table on page 51 for more detail on this award).

 

Alain Bellemare, President & Chief Executive Officer, UTC Propulsion & Aerospace Systems

For purposes of annual bonus determination, the weighted performance of the Company and UTC PAS generated a financial performance factor of 103% of target. Based on these results, along with the individual performance considerations related to several strategic aerospace accomplishments listed below, the Committee awarded Mr. Bellemare an annual bonus of $1 million, an amount which aligns with the financial performance factor calculation.

 

Individual Performance Highlights

 

  First successful flight of the A320neo aircraft
     
  6,200 firm and option orders for the PurePower® Geared TurbofanTM engine, a revolutionary technology that substantially improves fuel burn and reduces noise and emissions
     
  Pratt & Whitney’s expanded market share in the fast-growing single-aisle and regional aircraft segments
     
  His efforts in driving progress to bring 50 new engine and aerospace systems into service over the next few years, collectively representing more than $900 billion of potential future sales over the life of these programs
     
  Successful roll-outs of multiple aerospace systems to be provided by UTAS for Sikorsky’s S-97 Raider, Mitsubishi’s MRJ aircraft and Embraer’s KC 390, with the latter two powered by Pratt & Whitney engines

 

In 2014, Mr. Bellemare also received a salary increase from $825,000 to $900,000 to align his salary more closely with market peers.

 

Charles Gill, Jr., Senior Vice President & General Counsel

For purposes of annual bonus determination, the Company’s financial performance factor was 112% of target. The Committee considered this result, along with the individual performance considerations listed below, and awarded Mr. Gill a $750,000 annual bonus, an amount slightly above the financial performance factor.

 

Individual Performance Highlights

 

  Effective leadership of UTC’s global legal and regulatory affairs, corporate governance, ethics and compliance functions, as well as UTC’s environmental, health and safety programs
     
  Management of the Company’s most significant intellectual property, litigation and transactional matters
     
  Oversight of the Company’s ongoing and successful efforts to enhance international trade compliance programs
     
  Effective counsel and guidance on a wide range of material business matters, including senior executive leadership transitions
     
  Recognition by the International Institute for Conflict Prevention & Resolution’s 2014 Corporate Leadership Award, for his efforts towards efficient and effective methods of conflict resolution

 

Mr. Gill also received a salary increase in 2014 from $650,000 to $685,000 to better align his salary with the market median.

 

Louis Chênevert, Former Chairman & Chief Executive Officer

The Committee increased Mr. Chênevert’s base salary from $1,775,000 to $1,900,000 in April 2014. Mr. Chênevert resigned as Chairman & Chief Executive Officer of the Company prior to the end of the year and was therefore not eligible for an annual bonus payment for 2014.

 

46 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

EXECUTIVE COMPENSATION Compensation Discussion and Analysis

 

Program Administration

 

PERFORMANCE MEASURES USED IN DETERMINING INCENTIVE COMPENSATION(1)

 

Plan   Metric   Corporate Office   Business Units
ANNUAL INCENTIVE   Earnings   Net income, as defined below.  

Earnings before interest and taxes less:

 

•  Restructuring costs;

•  Non-recurring items; and

•  Impact of significant acquisitions/divestitures

    Free Cash Flow   Consolidated net cash flow provided by operating activities, less capital expenditures (as reported in the 2014 Annual Report on Form 10-K). The reconciliation of cash flow to free cash flow is as follows:  

Internal measure based on:

 

•  Net cash; less

•  Capital expenditures;

•  Adjusted for the net cash flow impact of restructuring and other costs and non-recurring items

        (in millions)   2005(2)   2012   2013   2014  
        Cash flow from operating activities   $4,334   $6,605   $7,505   $7,336  
        Less: capital expenditures   $929   $1,389   $1,688   $1,711    
        Free cash flow   $3,405   $5,216   $5,817   $5,625    
    Net Income   UTC net income attributable to common shareowners, as reported in the 2014 Annual Report on Form 10-K.   Internal measure consisting of each business unit’s respective share of UTC net income attributable to common shareowners, with adjustments for the net income impact of restructuring and other costs and non-recurring items.
LONG-TERM INCENTIVE   Earnings Per Share   Diluted earnings per share, subject to adjustments in the event of extraordinary, non-recurring items unrelated to Company performance.
    Total Shareowner Return   Total investment return on Common Stock between two points in time, using a trailing 60-day average, calculated to account for changes in share price and reinvested dividends.

 

(1) All performance measures are based on the performance of continuing operations, unless otherwise noted.
(2) 2005 amounts have not been restated for discontinued operations.

 

DILUTION AND DEDUCTIBILITY

 

Under the United Technologies Long-Term Incentive Plan (“LTIP”), as approved by our shareowners, the total number of shares of equity-based awards issued in 2014 was approximately 1% of shares outstanding and within LTIP share limitations. As of the end of 2014, the total number of shares that could be issued under the LTIP, and all predecessor plans, was approximately 10% of shares outstanding (calculated on a fully diluted basis), which is at approximately the CPG median. UTC’s diluted earnings per share reflect all such shares.

 

The Committee considers tax deductibility among many other factors when making compensation decisions. To the extent consistent with other compensation objectives, the Committee attempts to maximize UTC’s tax deduction relative to compensation paid. Internal Revenue Code Section 162(m) limits UTC’s deduction to $1 million for annual compensation paid to the CEO and each of the three other most highly compensated NEOs (excluding the CFO). However, this limitation does not apply to compensation that qualifies as “performance-based compensation” within the meaning of Section 162(m). Annual bonuses, SARs and performance-based long-term incentive awards are generally intended to qualify as performance-based compensation exempt from the $1 million deduction limit. Other compensation elements are subject to the $1 million deduction limit.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 47
 

Report of the Committee on Compensation and Executive Development

 

The Committee on Compensation and Executive Development establishes and oversees the design and function of UTC’s executive compensation program. We have reviewed and discussed the foregoing Compensation Discussion and Analysis with the management of the Company and recommended to the Board of Directors that the Compensation Discussion and Analysis be included in UTC’s Proxy Statement for the 2015 Annual Meeting.

 

Committee on Compensation and Executive Development
Jean-Pierre Garnier, Chair Richard B. Myers
   
Edward A. Kangas H. Patrick Swygert
   
Harold McGraw III  

 

48 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

Compensation Tables

 

SUMMARY COMPENSATION TABLE

 

Year Salary ($) Bonus ($)(1) Stock Awards
($)(2)
Option Awards
($)(3)
Non-Equity
Incentive Plan
Compensation
($)(4)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)(5)
All Other
Compensation
($)(6)
Total ($) Total Without
Change in
Pension
Value ($)
Gregory Hayes(7) President and Chief Executive Officer          
2014 $949,583 $1,600,000 $2,332,626 $2,029,885 $54,280 $1,825,890 $193,910 $8,986,174 $7,169,083
2013 $870,000 $1,100,000 $2,401,885 $2,029,790 $307,972 $714,459 $206,967 $7,631,073 $6,924,841
2012 $830,000 $1,200,000 $2,667,496 $2,415,600 $345,486 $1,581,208 $192,701 $9,232,491 $7,660,266
Peter Longo(8) Acting Chief Financial Officer          
2014 $415,000 $500,000 $501,375 $425,850 $88,618 $858,268 $128,137 $2,917,248 $2,058,980
Geraud Darnis President & Chief Executive Officer, UTC Building & Industrial Systems      
2014 $1,037,500 $1,200,000 $2,257,380 $5,897,475 $177,000 $2,340,071 $200,843 $13,110,269 $10,770,198
2013 $982,500 $1,100,000 $2,374,383 $2,001,335 $548,140 $670,607 $253,504 $7,930,469 $7,259,862
2012 $922,500 $1,250,000 $2,502,326 $2,267,100 $797,790 $2,371,977 $163,239 $10,274,932 $7,902,955
Alain Bellemare(9) President & Chief Executive Officer, UTC Propulsion & Aerospace Systems    
2014 $881,250 $1,000,000 $2,257,380 $1,958,910 $0 $1,663,495 $220,646 $7,981,681 $6,318,186
2013 $816,667 $1,050,000 $2,264,373 $1,906,485 $68,480 $408,341 $228,691 $6,743,037 $6,334,696
2012 $712,500 $1,150,000 $2,502,326 $5,996,918 $150,220 $877,856 $127,261 $11,517,081 $10,639,225
Charles Gill, Jr. Senior Vice President & General Counsel          
2014 $676,250 $750,000 $1,655,412 $1,433,695 $0 $1,833,339 $146,588 $6,495,284 $4,661,945
Louis Chênevert(10) Former Chairman & Chief Executive Officer        
2014 $1,869,583 $0 $7,110,747 $6,174,825 $188,800 $11,227,997(11) $536,030 $27,107,982 $15,879,985
2013 $1,756,250 $3,400,000 $6,380,580 $5,387,480 $697,376 $2,077,574 $575,056 $20,274,316 $18,196,742
2012 $1,700,000 $3,500,000 $7,804,283 $7,029,000 $1,185,637 $5,772,241 $571,164 $27,562,325 $21,790,084

 

(1) Bonus. Cash bonuses are provided under the UTC Annual Executive Incentive Compensation Plan. Bonus payments under this plan are primarily based on measured performance against pre-established targets. However, as discussed in the Compensation Discussion and Analysis (“CD&A”) beginning on page 22, the Committee retains discretion to adjust bonus amounts. Consequently, we report annual bonuses in the Bonus column of the Summary Compensation Table, rather than in the Non-Equity Incentive Plan Compensation column.
(2)
 
Stock Awards. Amounts in this column reflect the grant date fair value of PSUs and RSUs issued under the LTIP, calculated in accordance with the Compensation-Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. The assumptions made in calculating the value of these awards are set forth in Note 12, Employee Benefit Plans, to the Consolidated Financial Statements in Exhibit 13 to UTC’s 2014 Annual Report on Form 10-K (“2014 Form 10-K”). PSU awards are discussed in the CD&A and in footnote (2) to the Grants of Plan-Based Awards table on page 51 of this Proxy Statement. The grant date fair values shown for PSU awards granted to our NEOs in 2014 assume target level performance. If the highest level of performance is achieved, the grant date fair values would be: Mr. Hayes, $3,311,916; Mr. Longo, $694,434; Mr. Darnis, $3,205,080; Mr. Bellemare, $3,205,080; Mr. Gill, $2,350,392; and Mr. Chênevert, $10,096,002.
(3) Option Awards. Amounts in this column reflect the grant date fair value of SARs and performance-based SARs granted under the LTIP, calculated in accordance with the Compensation-Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures. The assumptions made in the valuation of these awards are set forth in Note 12, Employee Benefit Plans, to the Consolidated Financial Statements in Exhibit 13 to UTC’s 2014 Form 10-K.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 49
 

COMPENSATION TABLES

 

(4) Non-Equity Incentive Plan Compensation. Under the Continuous Improvement Incentive Program, a legacy cash-based long-term incentive program, an executive could earn, depending on performance relative to pre-established three-year targets, the right to receive up to seven years of quarterly cash dividend equivalent payments equal to the dividend paid on the number of shares of Common Stock underlying certain unexercised stock options. The last awards under this program were granted in 2005, and all awards expired on December 31, 2014. The amounts in this column consist of quarterly cash dividend equivalent payments received in 2014 pursuant to awards earned in prior years.
(5) Change in Pension Value and Nonqualified Deferred Compensation Earnings. Amounts in this column reflect the increase during 2014 in the actuarial present value of each executive’s accumulated benefit under UTC’s defined benefit plans. Actuarial value computations are based on the assumptions established in accordance with the Compensation–Retirement Benefits Topic of the FASB ASC and discussed in Note 12, Employee Benefit Plans, to the Consolidated Financial Statements in Exhibit 13 to UTC’s 2014 Form 10-K. UTC does not provide above-market rates of return (defined by SEC rules as a rate that exceeds 120% of the federal long-term rate) under the UTC Deferred Compensation Plan. However, an above-market interest rate is paid under the frozen Sundstrand Corporation Deferred Compensation Plan, which was assumed by UTC upon the acquisition of Sundstrand in 1999. Mr. Hayes accrued $8,799 in above-market earnings under this plan in 2014.
(6) All Other Compensation. The 2014 amounts in this column consist of the following items:

 

Name Personal Use
of Corporate
Aircraft(a)
Leased-Vehicle
Expenses(b)
Insurance
Premiums(c)
401(k)
Company Match
Nonqualified
Deferred
Compensation
Plan Match(d)
Miscellaneous(e) Total ($)
G. Hayes $13,865 $20,618 $85,642 $9,360 $64,425 $0 $193,910
P. Longo $0 $30,489 $68,308 $9,360 $19,980 $0 $128,137
G. Darnis $0 $56,005 $68,068 $9,360 $63,015 $4,395 $200,843
A. Bellemare $0 $37,846 $113,275 $9,360 $60,165 $0 $220,646
C. Gill, Jr. $0 $35,091 $57,557 $9,360 $40,185 $4,395 $146,588
L. Chênevert $115,476 $34,242 $195,000 $9,360 $177,465 $4,487 $536,030

 

  (a) UTC permits the Chief Executive Officer to use the corporate aircraft for personal travel for reasons of efficiency and security. Amounts in this column reflect incremental variable operating costs incurred in connection with personal travel. Variable operating costs include fuel, calculated on the basis of aircraft-specific average consumption rates and fleet average fuel costs, fleet average landing and handling fees, additional crew lodging and meal allowances, catering and hourly maintenance contract charges, when applicable. Because fleet-wide aircraft utilization is primarily for business purposes (i.e., approximately 99% in 2014), capital and other fixed expenditures are not treated as variable operating costs relative to personal use. Mr. Chênevert’s personal aircraft amount included $4,088 for travel to outside Board meetings.
  (b) Consists of the annual costs associated with a leased-vehicle, paid by UTC on behalf of the executive.
  (c) Reflects the premium paid on behalf of the executive under the ELG life insurance program. Under this program, UTC pays the premiums on a permanent cash value life insurance contract owned by the executive. Life insurance benefits equal approximately three times the executive’s projected base salary at age 62. If vested (age 55 or older with five years of service as an ELG member), UTC funds the policy to maintain coverage following retirement.
  (d) Reflects the dollar value of UTC matching contributions credited under the UTC Savings Restoration Plan (“SRP”). Under the SRP, participants are credited with a benefit equal to the UTC matching contribution that the executive would have received under the terms of the UTC 401(k) Savings Plan but for Internal Revenue Code limits. Amounts included in this column for Mr. Darnis reflect a match make up for 2014. Details on our non-qualified deferred compensation plans are provided on pages 56 and 57 of this Proxy Statement.
  (e) Consists of costs associated with annual executive physicals and other incidental benefits.

 

(7) Mr. Hayes served as Senior Vice President & Chief Financial Officer of the Company until November 23, 2014, and as President and Chief Executive Officer effective November 23, 2014.
(8) Mr. Longo served as Vice President, Finance & Chief Financial Officer of UTC Propulsion & Aerospace Systems until November 23, 2014, when he assumed the role of Acting Chief Financial Officer upon Mr. Hayes’ appointment to the position of President and Chief Executive Officer. He served in this position through December 31, 2014.
(9) Mr. Bellemare left the Company effective January 31, 2015.
(10) Mr. Chênevert resigned as Chairman & Chief Executive Officer of the Company effective November 23, 2014, and retired from the Company effective January 3, 2015. No cash severance benefits were paid to Mr. Chênevert in connection with his retirement. However, the Company has agreed to provide continued medical coverage for up to two years following retirement, which if fully utilized, would have a value of approximately $23,600.
(11) The estimated present value of the accrued benefit earned under the non-qualified UTC Pension Preservation Plan increased as a result of Mr. Chênevert’s early retirement prior to age 62. Accounting rules utilize different assumptions for active and retired plan participants, which in this case resulted in an increase in the estimated present value.

 

50 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

COMPENSATION TABLES

 

GRANTS OF PLAN-BASED AWARDS

 

        All Other
Stock
Awards:
All Other
Option
Awards:
Exercise or Grant Date
  Estimated Future Payouts under Equity
Incentive Plan Awards(2)
Number of
Shares of
Number of
Securities
Base Price
of Option
Fair Value
of Stock
Grant Date(1) Threshold (#) Target (#) Maximum (#) Stock or
Units (#)
Underlying
Options (#)(3)
Awards
($/Sh)(4)
and Option
Awards ($)(5)
G. Hayes              
1/2/2014 4,650 18,600 37,200 $2,332,626
1/2/2014 71,500 $112.49 $2,029,885
P. Longo              
1/2/2014 975 3,900 7,800 $489,099
1/2/2014 15,000 $112.49 $425,850
2/10/2014 110(6) $12,276
G. Darnis              
1/2/2014 4,500 18,000 36,000 $2,257,380
1/2/2014 69,000 $112.49 $1,958,910
1/2/2014(7) 128,575 139,000 $112.49 $3,938,565
A. Bellemare              
1/2/2014 4,500 18,000 36,000 $2,257,380
1/2/2014 69,000 $112.49 $1,958,910
C. Gill, Jr.              
1/2/2014 3,300 13,200 26,400 $1,655,412
1/2/2014 50,500 $112.49 $1,433,695
L. Chênevert              
1/2/2014 14,175 56,700 113,400 $7,110,747
1/2/2014 217,500 $112.49 $6,174,825

 

(1) The Committee approves annual long-term incentive awards for the following year at its December meeting. The Committee specifies the first business day of the calendar year as the award grant date to coincide with calendar year-based performance measurement periods.
(2) Consists of the number of PSUs granted under the LTIP subject to vesting based on three-year performance targets. Each PSU corresponds to one share of Common Stock. 50% of the PSU award vests subject to a three-year EPS growth target and 50% vests subject to a cumulative three-year relative TSR target. The vesting range is between 25% and 200% of the target vesting level. Unvested PSUs do not receive dividend equivalent payments. Vested PSUs are settled in unrestricted shares of Common Stock following the Committee’s review and approval of performance achievement levels. PSUs held for at least one year as of the date of qualifying retirement or upon disability remain eligible to vest at the end of the three-year performance cycle. Upon death or separation following a change-in-control, PSUs will vest at target-level performance. In all other circumstances, PSUs are forfeited upon termination of employment before the end of the performance period.
(3) Consists of the number of SARs granted under the LTIP during 2014. The SARs granted on January 2, 2014 become exercisable after three years of service from the grant date, or earlier in the case of qualifying retirement (provided the SARs have been held for at least one year from the grant date) or death.
(4) The exercise price is equal to the NYSE closing price of our Common Stock on the grant date.
(5) Reflects the grant date fair value of equity awards granted in 2014 with vesting assumed at 100% of target and calculated in accordance with the Compensation-Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures.
(6) Reflects an administrative adjustment to a previously granted ELG RSU award.
(7) On January 1, 2014, the Committee approved a special performance-based SAR award to select senior executives at UTC BIS with performance targets aimed at driving growth. The vesting of the awards (50% with a performance period ending on December 31, 2015, and 50% with a performance period ending on December 31, 2017) is determined based on UTC BIS’ performance relative to the following metrics: (1) earnings before interest and taxes (weighted at 50% of the total award); (2) sales (weighted at 25% of the total award); (3) return on sales (weighted at 15% of the total award); and (4) organizational objectives (weighted at 10% of the total award). The portion of the award based on earnings before interest and taxes will not vest if performance is less than 90% of target. No vesting will occur if performance is less than 95% of target with respect to the other three metrics. Vesting may not exceed 100% of target. These SARs have a ten-year term from the date of grant and do not receive dividend equivalent payments. The two performance measurement periods are independent; there is no opportunity on the second vesting date to make up for a shortfall on the first vesting date. Accelerated vesting of the entire award would occur upon death or a qualifying separation following a change-in-control.

 

Proxy Statement and Notice of 2015 Annual Meeting of Shareowners 51
 

COMPENSATION TABLES

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

   Option Awards  Stock Awards
Name  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
   Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
   Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
   Option
Exercise
Price ($)(1)
   Option
Expiration
Date
   Number of
Shares or
Units of Stock
That Have Not
Vested (#)(2)
   Market Value
of Shares or
Units of Stock
That Have Not
Vested ($)(3)
   Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)(4)
   Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)(5)
 
G. Hayes                                    
      71,500(6)     $112.49   1/1/2024         18,600   $2,139,000(9)
      107,000(7)     $84.00   1/1/2023         26,200   $3,013,000(10)
      122,000(8)     $74.66   1/2/2022         29,070   $3,343,050(11)
   103,000         $78.99   1/2/2021             
   86,000         $71.63   1/3/2020             
   90,000         $70.81   4/8/2018             
   54,500         $75.21   1/1/2018             
   55,500         $62.81   1/2/2017             
P. Longo                                    
                  112   $12,880       
      15,000(6)     $112.49   1/1/2024         3,900   $448,500(9)
                  10,775   $1,239,125       
   33,288(12)     33,626(12)  $91.05   4/30/2023             
      12,600(7)     $84.00   1/1/2023         3,080   $354,200(10)
      12,700(8)     $74.66   1/2/2022         3,033   $348,795(11)
   11,800         $78.99   1/2/2021             
   10,700         $71.63   1/3/2020             
   12,900         $75.21   1/1/2018             
G. Darnis                                    
      69,000(6)     $112.49   1/1/2024         18,000   $2,070,000(9)
         139,000(13)  $112.49   1/1/2024             
      105,500(7)     $84.00   1/1/2023         25,900   $2,978,500(10)
      114,500(8)     $74.66   1/2/2022         27,270   $3,136,050(11)
   88,500         $78.99   1/2/2021             
   85,500         $71.63   1/3/2020             
   142,500         $54.95   1/1/2019             
   120,000         $70.81   4/8/2018             
   95,000         $75.21   1/1/2018             
   102,000         $62.81   1/2/2017             
   200,000         $57.84   3/7/2016             
   101,500         $56.53   1/2/2016             

 

52 Proxy Statement and Notice of 2015 Annual Meeting of Shareowners
 

COMPENSATION TABLES

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (CONTINUED)

 

   Option Awards  Stock Awards
Name  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
   Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
   Equity
Incentive
Plan Awards:

Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
   Option
Exercise
Price ($)(1)
   Option
Expiration
Date
   Number of
Shares or
Units of Stock
That Have Not
Vested (#)(2)
   Market Value
of Shares or
Units of Stock
That Have Not
Vested ($)(3)
   Equity
Incentive
Plan Awards:

Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)(4)
   Equity
Incentive
Plan Awards:

Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)(5)
 
A. Bellemare                                    
      69,000(6)     $112.49   1/1/2024         18,000   $2,070,000(9)
      100,500(7)     $84.00   1/1/2023         24,700   $2,840,500(10)
   99,906(12)     100,915(12)  $74.79   7/31/2022             
      114,500(8)     $74.66   1/2/2022         27,270   $3,136,050(11)
   76,000         $78.99   1/2/2021             
   80,500         $71.63   1/3/2020             
   79,000         $54.95   1/1/2019             
   38,000         $75.21   1/1/2018             
   32,000         $62.81   1/2/2017             
C. Gill, Jr.                                    
      50,500(6)     $112.49   1/1/2024         13,200   $1,518,000(9)
      73,000(7)