DEF 14A 1 utc3495271-def14a.htm DEFINITIVE PROXY STATEMENT

Table of Contents

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

SCHEDULE 14A

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

Filed by the Registrant Filed by a Party other than the Registrant      

CHECK THE APPROPRIATE BOX:
  Preliminary Proxy Statement
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
  Definitive Additional Materials
Soliciting Material Under Rule 14a-12

United Technologies Corporation

(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
  No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
Fee paid previously with preliminary materials:
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:


Table of Contents



Table of Contents



Table of Contents

March 18, 2019

Notice of 2019 Annual Meeting of Shareowners

      Meeting Information      
 
DATE AND TIME:       LOCATION:       Your vote is very important. Please submit your proxy or voting instructions as soon as possible.
April 29, 2019
8:00 a.m. Eastern Time
(doors open at 7:30 a.m.)
UTC Center for Intelligent Buildings
13995 Pasteur Boulevard
Palm Beach Gardens, Florida 33418
           
           

Agenda

1 Election of the Thirteen Director Nominees Listed in the Proxy Statement
      
2 Advisory Vote to Approve Executive Compensation
 
3 Appoint PricewaterhouseCoopers LLP to Serve as Independent Auditor for 2019
 
4
Approve an Amendment to the Restated Certificate of Incorporation to Eliminate Supermajority Voting for Certain Business Combinations
 
 
5 Ratify the 15% Special Meeting Ownership Threshold in the Company’s Bylaws
 
6 Other Business, if Properly Presented

Who may vote:
If you owned shares of UTC Common Stock at the close of business on February 28, 2019, you are entitled to receive this notice of the Annual Meeting and to vote at the meeting, either in person or by proxy.

How to attend:
Please request a ticket in advance by following the instructions on page 77.

Please review the Proxy Statement and vote in one of the four ways described below.

By Order of the Board of Directors.

Peter J. Graber-Lipperman
Corporate Vice President, Secretary & Associate General Counsel

Voting methods available to you:

THE INTERNET

Visit the website on your proxy card.

BY TELEPHONE

Call the telephone number on your proxy card.

BY MAIL

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

IN PERSON

Attend the Annual Meeting in Palm Beach Gardens, Florida. See pages 77-78 for instructions on how to attend and vote in person.

 

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      i     


Table of Contents

TABLE OF CONTENTS

Notice of 2019 Annual Meeting of Shareowners       i
Proxy Summary 1
CORPORATE GOVERNANCE
PROPOSAL 1:
Election of Directors 6
Nominees 9
Corporate Governance 17
Corporate Responsibility 23
Compensation of Directors 28
Share Ownership 30
EXECUTIVE COMPENSATION
PROPOSAL 2:
Advisory Vote to Approve Executive Compensation 32
Compensation Discussion and Analysis 33
Executive Summary 33
How We Make Pay Decisions and Assess Our Programs 38
Our Principal Elements of Compensation 41
CEO Pay Overview 46
How We Assess Pay-for-Performance 48
Pay Decisions for the Other NEOs 50
Other Compensation Elements 54
Other Executive Compensation Policies and Practices 56
Report of the Compensation Committee 57
Compensation Tables 58
CEO Pay Ratio 70
AUDIT
Report of the Audit Committee 72
PROPOSAL 3:
Appoint an Independent Auditor for 2019 73
OTHER PROPOSALS
PROPOSAL 4:
Approve an Amendment to the Restated Certificate of Incorporation 75
PROPOSAL 5:
Ratify the 15% Special Meeting Ownership Threshold in the Company’s Bylaws 76
OTHER SHAREOWNER INFORMATION
Frequently Asked Questions About the Annual Meeting 77
Other Important Information 82
APPENDICES
Appendix A: Reconciliation of GAAP Measures to Corresponding Non-GAAP Measures 86
Appendix B: Financial Performance Metrics Used in UTC’s Incentive Compensation Plans 88
Appendix C: Proposed Amendment to the Corporation’s Restated Certificate of Incorporation 89

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareowners to be held on April 29, 2019. This Notice of the 2019 Annual Meeting of Shareowners and Proxy Statement, and UTC’s 2018 Annual Report are both available free of charge at www.proxyvote.com. References in either document to our website are for the convenience of readers, and information available at or through our website is not a part of nor is it incorporated by reference in the Proxy Statement or Annual Report.

The Board of Directors of United Technologies Corporation (“UTC”, the “Company” or the “Corporation”) is soliciting proxies to be voted at our 2019 Annual Meeting of Shareowners on April 29, 2019, 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 18, 2019. At the meeting, votes will be taken on the five matters listed in the Notice of Meeting.

     ii      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement

Table of Contents

 
PROXY

Summary

      ANNUAL MEETING AGENDA

1

     

PROPOSAL 1:
Election of Directors
PAGES 6–16
BOARD RECOMMENDATION: FOR
EACH DIRECTOR NOMINEE

 

2

PROPOSAL 2:
Advisory Vote to Approve
Executive Compensation

PAGE 32
BOARD RECOMMENDATION: FOR

 
3

PROPOSAL 3:
Appoint
PricewaterhouseCoopers LLP
to Serve as Independent Auditor
for 2019

PAGES 73–74
BOARD RECOMMENDATION: FOR

 
4

PROPOSAL 4:
Approve an Amendment
to the Restated Certificate
of Incorporation

PAGE 75
BOARD RECOMMENDATION: FOR

 
5

PROPOSAL 5:
Ratify the 15% Special Meeting
Ownership Threshold in
the Company’s Bylaws

PAGE 76
BOARD RECOMMENDATION: FOR


            16%
net income
growth
 
14%
diluted EPS
growth
 
8%
organic sales
growth
The summary below highlights selected information in this Proxy Statement. Please review the entire Proxy Statement and UTC’s 2018 Annual Report before voting your shares.

2018 Performance Highlights

Strategic Highlights

2018 was a transformational year for UTC. With two bold steps, we have positioned our businesses to deliver strong, long-term value to our shareowners, greater opportunity to our employees, and world-class products and services to our customers well into the future.

First, we completed our acquisition of Rockwell Collins, making UTC the preeminent systems and component supplier to the aerospace and defense industry. Our new Collins Aerospace Systems (“Collins Aerospace”) business unit, which combined UTC Aerospace Systems with Rockwell Collins, will enable us to offer customers a full suite of systems throughout an entire aircraft. Just as important, this acquisition will enhance our ability to develop electrical, mechanical and software solutions, and to deliver even more innovative products and services to our customers.

Second, we conducted a rigorous yearlong portfolio review, culminating in our plan to separate UTC into three industry-leading companies. Under this plan, both Carrier and Otis will become independent companies, while Collins Aerospace and Pratt & Whitney will remain under the UTC umbrella. Each company is expected to have the resources, capital and strategic flexibility to drive the continued innovation required to meet the evolving needs of their respective customers and markets.

Financial Highlights

We also delivered solid financial results. Notably, we achieved 14% diluted earnings per share (“EPS”) growth (GAAP and non-GAAP), results that exceeded the expectations we communicated to investors at the beginning of the year. At the same time, sales growth was 11% (GAAP), which included 8% organic growth (non-GAAP), demonstrating how our investments in innovation are paying off across all business lines. We also delivered cash flow from continuing operations of $6.3 billion (GAAP) and free cash flow of $4.4 billion (non-GAAP), while returning $2.5 billion to shareowners through dividends and share buybacks during 2018.

Net Sales
(in billions)
      Diluted Earnings Per Share
($ per share)

GAAP

Non-GAAP(1)

 

Cash Flow(2)
(in billions)

Net Income
(in billions)

GAAP

Non-GAAP(1)


(1) See Appendix A on pages 86-87 for more information regarding these non-GAAP financial measures.
(2) “GAAP cash flow” is cash flow from continuing operations while “Non-GAAP cash flow” is free cash flow.



United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      1     


Table of Contents

 
PROXY SUMMARY

Executive Compensation Overview

Compensation Committee’s 2018 Pay Decisions and Program Changes

As discussed in detail on pages 41-46, the Compensation Committee (the “Committee”) makes annual pay decisions on three principal components of our executive compensation program: base salary, annual bonus and long-term incentives (“LTI”). Total direct compensation for each Named Executive Officer (“NEO”) shown in the chart below, reflects the Committee’s assessment of Company, business unit and individual performance in 2018. For this reason, it includes the February 2019 LTI grant values approved by the Committee. This differs from the January 2018 LTI award values shown in the Summary Compensation Table on page 58, which reflect the Committee’s assessment of 2017 performance and is based on accounting valuations. Importantly, while total direct compensation provides a useful picture of the Committee’s 2018 pay decisions, the actual value an executive earns will ultimately depend on the Company’s stock price and future performance against pre-established goals.

2018 NEO TOTAL DIRECT COMPENSATION  

                Base
Salary
($K)
Annual
Bonus
($K)
LTI
($K)
Total
($K)
        Base Salary         Annual Bonus        

LTI

                       

Gregory J. Hayes

72% $1,600 $3,500 $13,000 $18,100

Akhil Johri

68% $900 $1,200 $4,500 $6,600

Robert K. Ortberg

96% $112 * $140 * $6,000 $6,252

Judith F. Marks

70% $875 $900 $4,100 $5,875

David L. Gitlin

65% $900 $1,300 $4,100 $6,300
 
 

“At-Risk” Compensation

 

* Reflects a pro-rata portion of Mr. Ortberg’s base salary and the target annual bonus paid to him for the portion of the year that he was a UTC employee (November 26, 2018, the closing date of the Rockwell Collins acquisition, through December 31, 2018). Mr. Ortberg’s annualized 2018 base salary of $1,170,500 was previously approved by the Rockwell Collins Compensation Committee prior to UTC’s acquisition of the company.

RECENT CHANGES TO OUR COMPENSATION PROGRAM  

What 
we changed
      Why  we changed it

We changed our annual bonus funding formula for business unit executives.

Beginning in 2019, the annual bonus funding formula for business unit executives will be based solely on business unit performance. Previously, 60% of funding was based on business unit performance and 40% on UTC’s overall performance.

With the announcement of our intention to separate UTC, Otis and Carrier into independent companies, the Committee believes business unit executives should focus on segment performance during the pre-separation transition period.

 

The mix of LTI for our Executive Leadership Group (“ELG”) has changed.

Beginning with the 2019 awards, ELG members (which include each of our NEOs) received 50% of their annual LTI awards in stock appreciation rights (“SARs”) and 50% in performance share units (“PSUs”).

Over the past two years, the Committee had included restricted stock units (“RSUs”) in the ELG LTI mix to enhance retention during a period of significant business investment. With the Company’s announcement to separate into three independent companies, the Committee believes that a return to the prior LTI structure of 50% SARs and 50% PSUs will help drive long-term performance during the transition period and beyond.


     2      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

 
PROXY SUMMARY

How We Align Pay with Performance

Our compensation program is designed to reward strong financial performance and strategic leadership that drives long-term, sustainable shareowner value. The largest portion of compensation for our CEO and our other NEOs is “at-risk” compensation — annual bonuses and long-term incentive awards that are contingent on Company performance relative to five key financial metrics.

Why these metrics? The Committee believes that these five metrics are essential indicators of the long-term financial health of our Company and therefore serve the fundamental objective of our executive compensation program: the alignment of executive pay with the interests of our shareowners. The Committee also believes that each of these metrics measure a particularly salient aspect of Company performance:

Annual Bonus Metrics       PSU Metrics
Earnings measures the immediate impact of operating decisions on the Company’s annual performance. (For Corporate executive bonuses, we use net income, a UTC-wide goal; for each business unit we use earnings before interest and taxes (“EBIT”) as the relevant “earnings” metric.)
 
Free Cash Flow (“FCF”) measures the Company’s ability to generate cash to fund our operations and key business investments, whether that means funding critical research and development, strategic acquisitions, paying down debt, or distributing earnings to shareowners.
3-Year EPS Growth measures the Company’s ability to create long-term, sustainable value that will ultimately drive total shareowner return.
 
3-Year Return on Invested Capital (“ROIC”) measures the efficiency with which we allocate capital resources, taking into account not just the quantity of earnings, but also the quality of earnings and investments that drive sustainable growth.
 
3-Year Relative Total Shareowner Return (“TSR”) measures our ability to return value to our shareowners relative to competing investment opportunities and is consistent with our program’s pay-for-performance objectives.

How 2018 Performance Affected Incentive Payouts

The table below shows UTC’s performance measured against the pre-established performance goals set for our 2018 annual bonus and the 3-year performance cycle for our 2016 PSU awards.


Incentive Plans(1)           Performance
Results
          Performance
Factor
          Payout
Factor
2018 Annual Bonus(2) 125%(3)
Earnings (net income) $5.9 billion 152%
Free Cash Flow $4.9 billion 95%
2016 PSUs 116%
3-Year EPS Growth 4.4% 98%
3-Year ROIC 11.1% 131%
3-Year Relative TSR vs. Companies within the S&P 500 Index 54.9th %ile 120%

(1) Performance goals and results are based on non-GAAP financial measures. See Appendix B on page 88 for definitions of the performance metrics used for our incentive compensation plans. For additional details on how these goals and results were measured, see pages 42-43.
(2) Reflects annual bonus goals and results for UTC. Business unit goals and results differ. Refer to pages 42-43 for additional details.
(3) The Committee used its discretion and reduced the calculated payout factor from 129% to 125%. See page 43 for additional details on this adjustment.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      3     


Table of Contents

 
PROXY SUMMARY

Governance and Board Highlights

UTC is committed to strong corporate governance practices, which the Board believes are critical to achieving long-term shareowner value and which strengthen Board and Management accountability. The following are highlights of our governance framework and the diversity of our Board:

INDEPENDENT AND ENGAGED BOARD  

92%

of our director nominees are independent

                    

All

standing committees (except Finance) are comprised entirely of independent directors

 

99%

overall attendance by directors at nine Board meetings in 2018

 

98%

overall attendance by directors at committee meetings in 2018

 

75%

or more of the Board and applicable committee meetings were attended by each director in 2018

 
100%

director attendance at the 2018 Annual Meeting


REFRESHED BOARD  

+7

new independent directors since 2016

                    
-5

independent directors retired since 2016

   
75%

of independent director nominees have served less than 9 years

GOVERNANCE BEST PRACTICES  

Annual election of all directors
Majority voting for directors in uncontested elections
Robust Lead Director role with explicit responsibilities
Proxy access
Shareowners can act by written consent
15% of shareowners can call special meetings
Independent directors meet regularly without Management
Board regularly reviews strategic direction and priorities
Board regularly reviews significant risks, including cybersecurity risk
Board regularly reviews government relations activities
Annual advisory vote on executive compensation
Rigorous stock ownership requirements for directors and senior management
No hedging, short sales or pledging of UTC securities
Annual Board, committee and director evaluations
Active and ongoing shareowner engagement


DIVERSITY IN BACKGROUND OF THE DIRECTOR NOMINEES  

                             
 
current or former CEOs

women and people of color

current or former CFOs or Chief Investment Officers

with STEM degrees

worked outside the United States

worked in government


DIVERSITY IN TENURE OF THE NOMINEES  

<3 years

We believe that diversity in experience and perspective on the Board are of the utmost importance for reaching sound decisions that drive shareowner value.

3-8 years

≥9 years


     4      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

 
PROXY SUMMARY

BOARD NOMINEES  

Skills and Expertise
LLOYD J. AUSTIN III
General, U. S. Army (Retired) and Former Commander
of U. S. Central Command
2016 2
DIANE M. BRYANT
Technology Industry Executive
 
2017 1
JOHN V. FARACI
Retired Chairman & Chief Executive Officer,
International Paper
2005 2
JEAN-PIERRE GARNIER
Chairman, Idorsia Pharmaceuticals Ltd.
 
1997 3
GREGORY J. HAYES
Chairman & Chief Executive Officer,
United Technologies Corporation
2014 0
CHRISTOPHER J. KEARNEY
Retired Chairman, SPX FLOW, Inc.
 
2018 1
ELLEN J. KULLMAN
INDEPENDENT LEAD DIRECTOR
Retired Chair & Chief Executive Officer,
E. I. du Pont de Nemours and Company
2011 3
MARSHALL O. LARSEN
Retired Chairman, President & Chief Executive Officer,
Goodrich Corporation
2012 3
HAROLD W. MCGRAW III
Chairman Emeritus, S&P Global Inc.
(formerly McGraw Hill Financial, Inc.)
2003 1
MARGARET L. O’SULLIVAN
Professor, Harvard University Kennedy School
 
2017 0
DENISE L. RAMOS
Retired Chief Executive Officer, ITT Inc.
 
2018 1
FREDRIC G. REYNOLDS
Retired Executive Vice President & Chief Financial
Officer, CBS Corporation
2016 2
BRIAN C. ROGERS
Non-Executive Chairman, T. Rowe Price Group, Inc.
 
2016 2

All directors, except Mr. Hayes, are independent.
All directors are elected annually by majority vote.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      5     


Table of Contents

 
PROPOSAL 1

Election of Directors

  

We are seeking your support for the election of the thirteen individuals that the Board has nominated to serve on the Board of Directors for a one-year term beginning on the date of the Annual Meeting. We believe that the nominees have the qualifications consistent with our position as a large, diversified industrial corporation with worldwide operations. We also believe that the nominees have the experience and perspective to guide the Company as we separate into three independent companies, and as we adjust to rapidly changing technologies, business cycles and competitive environments.

   

Criteria for Board Membership

The Board and the Committee on Governance and Public Policy (the “Governance Committee”) believe that there are general attributes all directors must exhibit and that other key skills and expertise should be represented on the Board as a whole, but not necessarily by each director.

The following attributes are essential for all UTC directors and we believe that our current directors exhibit these attributes:

Objectivity and independence in making informed business decisions

Extensive knowledge, experience and judgment

The highest integrity

Diversity of perspective

A willingness to devote the extensive time necessary to fulfill a director’s duties

An appreciation for the role of the corporation in society

Loyalty to the interests of UTC and its shareowners

While we do not have a policy on Board diversity, a director’s ability to contribute to the diversity of perspectives necessary in Board deliberations is an attribute that is critical to the Company’s long-term success.

Key Skills and Expertise

The Board and the Governance Committee have identified the following principal skills and expertise that are essential to effective oversight in light of the Company’s business requirements and strategy:

 
Financial
Leadership of a financial firm, management of an enterprise’s finance function or of a large P&L, resulting in proficiency in complex financial management, financial reporting processes, capital allocation, capital markets, and mergers and acquisitions — representing the importance we place on accurate financial reporting, and robust financial controls and compliance.
 
 
 
Government
Directors who have served in senior positions in the government or the military provide constructive insights about how significant government policies and public policy issues may affect our Company and how to effectively respond to those matters.
 

     6      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

PROPOSAL 1 ELECTION OF DIRECTORS

 
International
UTC has operations around the world and a significant portion of our sales come from outside the United States. Directors with international experience thus provide valuable business, political and cultural perspectives.
 

 
Knowledge
of Company/
Industry
Knowledge of or experience in UTC’s specific industries, whether acquired through service as a senior leader in one of these industries, as an institutional investor, through longer-term service on the UTC Board or through experience with an industrial company that transformed its portfolio of businesses.
 

 
Risk
Management/
Oversight
This experience is critical to the Board’s role in overseeing and understanding major risk exposures, including significant financial, operational, compliance, reputational, strategic, country, political, and cybersecurity risks.
 

 
Senior
Leadership
Extensive leadership experience with a significant enterprise, resulting in a practical understanding of organizations, processes and strategic planning, along with demonstrated strengths in developing talent, succession planning, and driving change and long-term growth.
 

 
Technology and
Innovation
Experience in research and development, engineering, science, digital media or technology. This translates into an understanding of UTC’s technological innovations, development and marketing challenges, how to anticipate technological trends, and how to generate disruptive innovation — all of which helps us to execute our business objectives and strategy.
 

The chart below illustrates the diverse set of key skills and areas of expertise represented on our Board. Each director’s biography highlights the three key skills and areas of expertise upon which the Board particularly relies in addition to describing each director’s significant work experience and service.

KEY SKILLS AND EXPERTISE  


United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      7     


Table of Contents

PROPOSAL 1 ELECTION OF DIRECTORS

Director Orientation and Education

Director Orientation

New directors participate in an orientation program to familiarize them with the roles and responsibilities of the Board, including topics tailored to each director’s committee assignments. New directors also learn about the Company’s strategy, our business units, financial statements, significant financial, accounting and risk management issues, and our compliance programs.

Director Continuing Education

As part of the directors’ continuing education, the Board strives to visit at least one of UTC’s business units each year. This gives directors a firsthand understanding of the business unit’s operations and facilitates interactions with employees and key executives. For example, in 2018 directors visited two facilities in Florida (Carrier’s Center for Intelligent Buildings, a state-of-the-art building technology and customer experience center, and a Pratt & Whitney test facility) and two facilities in Connecticut (Pratt & Whitney’s new Engineering & Technology Center and the United Technologies Research Center).

Directors also are encouraged to attend outside continuing education programs. Additional presentations and materials, including updates on recent business developments and on topical and beneficial subjects, are provided from time to time to certain directors or to all directors, as appropriate.

Board Self-Evaluation Process

The Board appreciates that robust and constructive self-evaluation is an essential element of good corporate governance, Board effectiveness, and continuous improvement. To this end, the Board evaluates annually its own performance and that of the standing committees and individual directors.

The Governance Committee is responsible for and oversees the design and the manner in which the annual self-evaluation is completed.

The Lead Director or non-Executive Chairman (as applicable) and the Governance Committee Chair jointly lead the self-evaluation process.

The self-evaluation informs the Board’s consideration of the following:

Board roles

Opportunities to increase the Board’s effectiveness, including the addition of new skills and expertise

Refreshment objectives, including composition and diversity

Succession planning

As part of the 2018 evaluation process, each of the independent directors conferred with Mrs. Kullman, our Lead Director, or Mr. Rogers, the Chair of the Governance Committee, to provide practical feedback and allow for the candid assessment of peer contributions and performance. Afterwards, Mrs. Kullman and Mr. Rogers collaborated to provide a summary of the assessment, which the Board discussed in its private session.

The self-evaluation process has generated improvements to our corporate governance practices and the Board’s effectiveness, including:

Expanding the Lead Director’s role and responsibilities

Allocating more time to private sessions of the independent directors

Restructuring the standing committees to allocate more time to strategy discussion at the meetings of the full Board

Improving the Board’s self-evaluation process itself

Board Refreshment and Nominating Process

The Governance Committee regularly reviews with the Board the key skills and expertise that are most important in selecting candidates to serve as directors, taking into account UTC’s varied operations and the mix of capabilities and experience represented on the Board already. As part of the Board’s annual evaluation of its overall effectiveness, the Board considers the following with regard to its composition:

     8      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

PROPOSAL 1 ELECTION OF DIRECTORS

Does the Board reflect the diversity of experience, skills and perspectives that continuously enhance its ability to carry out its oversight role and need to effectively support UTC’s growth and strategy?

Based on these considerations, the Board adjusts the priority it gives to various director qualifications when identifying candidates.

Outcomes Since 2016:

Seven new independent directors
More diverse Board
Technology & cyber expertise
Senior government & military experience
Enhanced financial expertise
Industrial spin-off experience

Our Governance Guidelines require that directors retire at the annual meeting after reaching age 72, unless the Board makes an exception to the policy in special circumstances. The Governance Guidelines and Bylaws, however, do not impose term limits because the Board believes that a director who serves for an extended period develops a deep understanding of the Company’s history, practices and strategy, and is therefore uniquely positioned to provide insight and perspective regarding UTC’s current operations and strategic direction. Nonetheless, the Board’s self-evaluation process, including individual director evaluations, contributes to the Governance Committee’s consideration of each incumbent’s skills and experience as part of the nomination and refreshment process.

The Governance Committee considers candidates recommended by directors, Management and shareowners who meet the qualifications UTC seeks in its directors. A shareowner may recommend a director candidate by submitting a letter addressed to the UTC Corporate Secretary (see page 81 for contact information). The Governance Committee also may engage search firms to assist in identifying and evaluating qualified candidates and to ensure that the Committee is considering a larger and diverse pool of potential candidates.

Nominees

The Board, upon the recommendation of the Governance Committee, has nominated for election to the Board the thirteen individuals listed in this Proxy Statement. All are current directors of UTC and were elected by the shareowners at the 2018 Annual Meeting, except for Mr. Kearney and Ms. Ramos who joined the Board in December 2018.

Christine Todd Whitman is not standing for re-election. Having reached the mandatory retirement age in the Governance Guidelines, she will retire from the Board on April 29, 2019. Management and the directors extend their sincere appreciation to Governor Whitman for her years of dedicated service to UTC.

Mr. Kearney and Ms. Ramos possess particularly relevant experience in light of UTC’s intention to separate into three independent companies, as discussed on page 1. Among other attributes, Mr. Kearney brings to the Board and its committees (Audit and Finance) skills and expertise in Senior Leadership, Risk Management/Oversight, and Knowledge of the Company/Industry (see pages 6-7 for descriptions of these skills). Moreover, Mr. Kearney served as Chairman, President & CEO at the industrial company SPX Corporation. In that role, he led the company through a portfolio transformation resulting in the spin-off of SPX FLOW, where he served in a similar position until his recent retirement. Ms. Ramos brings to the Board and its committees (Audit and Compensation) skills and expertise in Senior Leadership, Technology and Innovation, and Knowledge of the Company/Industry, among other desired attributes. Ms. Ramos has served as the chief financial officer of two companies, including ITT Corporation, which, during her tenure as CFO, separated into three publicly traded companies. One of these companies was ITT Inc., a diversified manufacturer of industrial products where Ms. Ramos recently served as President & CEO.

If, prior to the 2019 Annual Meeting, any nominee becomes unavailable to serve, the Board may select a replacement nominee or reduce the number of directors to be elected. If the Board selects a replacement nominee, the proxy holders will vote the shares for which they serve as proxy for that replacement nominee.

      The Board of Directors recommends a vote
FOR each of the following nominees:

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      9     


Table of Contents

PROPOSAL 1 ELECTION OF DIRECTORS

Experience:

Commander, U.S. Central Command (military leadership), 2013-2016
33rd Vice Chief of Staff of the U.S. Army, 2012-2013
Commander of United States Forces — Iraq, 2010-2011

Other Current Directorships:

Nucor Corporation, since 2017
Tenet Healthcare Corporation, since 2018
Guest Services, Inc. (non-public)

Other Leadership Experience and Service:

Former Class of 1951 Leadership Chair for the Study of Leadership, U.S. Military Academy at West Point, 2016-2018
Board of Trustees, Auburn University
Board of Trustees, Carnegie Corporation of New York
Council on Foreign Relations


Experience:

Chief Operating Officer, Google Cloud (technology and innovation), 2017-2018
Group President, Data Center Group, Intel Corporation (advanced technology, enterprise, cloud and communications infrastructure), 2017
Executive Vice President and General Manager, Data Center Group, Intel Corporation, 2012-2017
Corporate Vice President and Chief Information Officer, Intel Corporation, 2008-2012

Other Current Directorships:

Broadcom Inc., since 2019

Other Leadership Experience and Service:

Chancellor’s Board of Advisors, University of California-Davis
Dean’s Executive Committee, University of California-Davis College of Engineering
Former Executive Sponsor, Network of Intel African American Employees
Former Member, Anita Borg Institute Technical Board
Established Diane Bryant Endowed Scholarship Fund for Diversity in Engineering at the University of California-Davis


     10      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

PROPOSAL 1 ELECTION OF DIRECTORS

Experience:

Operating Partner, Advent International (global private equity), since 2016
Chairman & Chief Executive Officer, International Paper (paper, packaging and distribution), 2003-2014
Executive Vice President and Chief Financial Officer, International Paper, 2000-2003
Chief Executive Officer and Managing Director, Carter Holt Harvey, Ltd. (former New Zealand subsidiary of International Paper), 1995-1999

Other Current Directorships:

ConocoPhillips Company, since 2015
PPG Industries, Inc., since 2012

Other Leadership Experience and Service:

Board of Trustees, American Enterprise Institute
Council on Foreign Relations
Chairman, Board of Trustees, Denison University
Board of Directors, National Fish and Wildlife Foundation
Advisory Board, Royal Bank of Canada


United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      11     


Table of Contents

PROPOSAL 1 ELECTION OF DIRECTORS

Experience:

Chairman of the Board of Directors (non-executive), Idorsia Pharmaceuticals Ltd. (biopharmaceuticals), since 2017
Operating Partner, Advent International (global private equity), since 2011
Actelion Ltd., Chairman of the Board of Directors (non-executive), 2011-2017
Chief Executive Officer, Pierre Fabre S.A. (pharmaceuticals), 2008-2010
Chief Executive Officer and Executive Member of the Board of Directors, GlaxoSmithKline plc (pharmaceuticals), 2000-2008
Chief Executive Officer, SmithKline Beecham plc (pharmaceuticals), 2000

 

Chief Operating Officer and Executive Member of the Board of Directors, SmithKline Beecham plc, 1996-2000

Other Current Directorships:

Chairman of the Board of Directors (non-executive), CARMAT, since December 2018
Radius Health, Inc., since 2015

Former Public Company Directorships:

Renault S.A., 2009-2016

Other Leadership Experience and Service:

Advisory Board, Newman’s Own Foundation
Board of Trustees, Max Planck Florida Institute for Neuroscience
Knight Commander of the Order of the British Empire
Officier de la Légion d’Honneur of France


Experience:

Chairman & Chief Executive Officer, United Technologies Corporation, since 2016
President, Chief Executive Officer and Director, United Technologies Corporation, 2014-2016
Senior Vice President and Chief Financial Officer, United Technologies Corporation, 2008-2014
Various senior positions since joining UTC in 1999 through the merger with Sundstrand Corporation, including Vice President, Accounting and Finance, and responsibility for UTC’s Corporate Strategy function

Former Public Company Directorships:

Nucor Corporation, 2014-2018


     12      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

PROPOSAL 1 ELECTION OF DIRECTORS

Experience:

Managing Partner, Eagle Marsh Holdings, LLC (business and real estate investments), since 2016
Chairman, SPX FLOW, Inc. (global supplier of highly engineered flow components, process equipment and turnkey solutions for the power and energy, food and beverage, and industrial markets), 2016-2017
Chairman, President & Chief Executive Officer, SPX FLOW, Inc., 2015
Chairman, President & Chief Executive Officer, SPX Corporation (global multi-industry manufacturer), 2007-2015
President & Chief Executive Officer, SPX Corporation, 2004-2007
Vice President, Secretary and General Counsel, SPX Corporation, 1997-2004

Other Current Directorships:

Nucor Corporation, since 2008

Former Public Company Directorships:

Polypore International Inc., 2012-2015

Other Leadership Experience and Service: 

Advisory Board, Warburg Pincus, LLC
Former Chairman, Foundation for the Carolinas


Experience:

Chair & Chief Executive Officer, E. I. du Pont de Nemours and Company (provider of basic materials and innovative products and services for diverse industries), 2009-2015
President, E. I. du Pont de Nemours and Company, 2008
Executive Vice President, E. I. du Pont de Nemours and Company, 2006-2008
Group Vice President, E. I. du Pont de Nemours and Company, 1998-2006

Other Current Directorships:

Amgen Inc., since 2016
Goldman Sachs, since 2016
Dell Technologies Inc., since 2016 (public company since December 2018)
Carbon3D, Inc. (non-public)

Other Leadership Experience and Service:

Co-Chair, Paradigm for Parity
National Academy of Engineering
Board of Advisors, Tufts University School of Engineering
Board of Trustees, Northwestern University
The Business Council
North American Advisory Council, Temasek Holdings


United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      13     


Table of Contents

PROPOSAL 1 ELECTION OF DIRECTORS

Experience:

Chairman, President & Chief Executive Officer, Goodrich Corporation (supplier of systems and services to the aerospace and defense industry), 2003-2012
President, Chief Operating Officer and Director, Goodrich Corporation, 2002-2003
Executive Vice President, Goodrich Corporation, and President and Chief Operating Officer, Goodrich Aerospace, 1995-2002

Other Current Directorships:

Air Lease Corporation, since 2014
Becton, Dickinson and Company, since 2007
Lowe’s Companies, Inc., since 2004

Other Leadership Experience and Service:

Dean’s Advisory Council, Krannert School of Management, Purdue University

Experience:

Chairman Emeritus, S&P Global Inc. (formerly McGraw Hill Financial, Inc.) (ratings, benchmarks and analytics for financial reports), since 2015
Chairman, McGraw Hill Financial, Inc., 1999-2015
President and Chief Executive Officer, The McGraw-Hill Companies, 1998-2013
President and Chief Operating Officer, The McGraw-Hill Companies, 1993-1998

Other Current Directorships:

Phillips 66 Company, since 2012

Other Leadership Experience and Service:

Board of Trustees, Asia Society
Former Chairman, Business Roundtable
Board of Trustees, Carnegie Hall
Director Emeritus, Committee Encouraging Corporate Philanthropy
Board of Trustees, New York Public Library
Chairman, U.S. Council for International Business
U.S. Trade Representative’s Advisory Committee for Trade Policy and Negotiations


     14      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

PROPOSAL 1 ELECTION OF DIRECTORS

Experience:

Jeane Kirkpatrick Professor of the Practice of International Affairs, Harvard University Kennedy School (higher education), since 2009
Director of the Geopolitics of Energy Project, Harvard University Kennedy School, since 2011
Lecturer and Senior Fellow, Harvard University Kennedy School, 2008-2009
Deputy National Security Advisor for Iraq and Afghanistan, National Security Council, 2005-2007
Special Assistant to the President, National Security Council, 2004-2007
Deputy Director (Governance), Iraq Coalition Provisional Authority, 2003-2004
Principal Advisor to the President’s Special Envoy to the Northern Ireland Peace Process, U.S. Department of State, 2001-2003
Fellow, The Brookings Institution, 1997-2001

Other Leadership Experience and Service:

Aspen Strategy Group
Adjunct Senior Fellow, Council on Foreign Relations
Advisory Council, George W. Bush Institute Women’s Initiative
Board of Trustees, The German Marshall Fund of the United States
Board of Trustees, The International Crisis Group
International Advisory Board, Linklaters LLP
Board of Directors, The Mission Continues
North America Chair, The Trilateral Commission

 

Experience:

Chief Executive Officer & President, ITT Inc. (formerly ITT Corporation – a diversified manufacturer of critical components and customized technology solutions), 2011-2018
Senior Vice President and Chief Financial Officer, ITT Corporation, 2007-2011
Chief Financial Officer, Furniture Brands International (home furnishings), 2005-2007
Senior Vice President & Corporate Treasurer, Yum! Brands, Inc., and Chief Financial Officer, KFC Corporation (U.S. Division), 2000-2005

Other Current Directorships:

Phillips 66 Company, since 2016

Former Public Company Directorships:

ITT Inc., 2011-2018
Praxair, Inc., 2014-2016


United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      15     


Table of Contents

PROPOSAL 1 ELECTION OF DIRECTORS

Experience:

Executive Vice President and Chief Financial Officer, CBS Corporation (mass media), 2005-2009
President and Chief Executive Officer, Viacom Television Stations Group (CBS predecessor), 2001-2005
Executive Vice President and Chief Financial Officer, Viacom, Inc., 2000-2001
Executive Vice President and Chief Financial Officer, Westinghouse Electric Corporation, 1994-2000
Various positions at PepsiCo, Inc., 1982-1994

Other Current Directorships:

Hess Corporation, since 2013
Mondelēz International, Inc. (formerly Kraft Foods, Inc.), since 2007
MGM Holdings, Inc. (non-public)
NEP Group, Inc. (non-public)
Pinterest (non-public)

Former Public Company Directorships:

AOL, Inc., 2009-2015

 

Experience:

Chairman of the Board of Directors, T. Rowe Price Group, Inc. (investment management), 2007-2017
Chief Investment Officer, T. Rowe Price Group, Inc., 2004-2017
Various other senior leadership roles since joining T. Rowe Price Group, Inc., in 1982

Other Current Directorships:

Chairman of the Board (non-executive), T. Rowe Price Group, Inc., since 2017
Lowe’s Companies, Inc., since 2018

Other Leadership Experience and Service:

Chairman, Finance Committee, Archdiocese of Baltimore
Board of Directors, Harvard Management Company
Board of Trustees, Johns Hopkins Medicine


     16      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

 
CORPORATE

Governance

Our Commitment to Sound Corporate Governance

UTC is committed to strong corporate governance practices that are designed to maintain high standards of oversight, accountability, integrity and ethics while promoting long-term growth in 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 strived to maintain sound governance standards, as reflected in our Code of Ethics, Governance Guidelines, our systematic approach to risk management, and in our commitment to transparent financial reporting and strong internal controls.

We encourage you to visit the Corporate Governance section of our website (www.utc.com) where you can access information about corporate governance at UTC, including:

Governance Guidelines
Board Committee Charters
Certificate of Incorporation and Bylaws
Code of Ethics
Director Independence Policy
Related Person Transactions Policy
Public Activities
Stock ownership requirements
Information about our Ombudsman Program, which allows UTC’s employees and other stakeholders to raise questions confidentially and outside the usual management channels
Information about how to communicate concerns to the Board of Directors

Shareowner Engagement

The Board and Management believe in transparent and open communication with investors. Over the years, those engagements have improved our corporate governance practices, increased shareowner rights, changed the Board’s composition, and improved the design of our executive compensation program and disclosure.

Each fall we solicit feedback from our largest shareowners on changes that the Board (or a Committee) is considering regarding UTC’s executive compensation program and our corporate governance practices. In the spring, after the proxy statement is filed, our discussions generally focus on the clarity and effectiveness of our disclosures and on matters that are of interest to investors. We also have discussed other topics with investors, such as leadership structure, corporate social responsibility, and UTC’s diversity and sustainability initiatives.

In addition, Management and independent directors routinely engage with our shareowners on financial performance, capital allocation and business strategy. In 2018, Management hosted the Investor and Analyst Meeting, presented at five industry conferences, hosted shareowners at UTC’s Corporate Headquarters and visited shareowners in the Americas and Europe.

In 2018, we engaged with institutional investors holding more than 350 million shares of UTC Common Stock, which represents over 40% of our shares outstanding.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      17     


Table of Contents

CORPORATE GOVERNANCE

Board Leadership Structure

Chairman and CEO Roles

The Governance Committee routinely reviews our governance practices and board leadership structure. Under our Corporate Governance Guidelines, the Board does not have a policy on whether the CEO also is permitted to serve as Chairman of the Board. Instead, the Board selects the structure that it believes will provide the most effective leadership and oversight for the Company in the circumstances. In making this decision at any given point in time, the Board considers a range of factors, including: the Company’s operating and financial performance; any recent or anticipated changes in the CEO role; the effectiveness of the processes and structures for Board interaction with and oversight of Management; and the importance of maintaining a single voice in leadership communications and Board oversight, both internally and with investors.

Lead Director Responsibilities

Under our Corporate Governance Guidelines, the Board designates a non-employee director to serve as Lead Director when the Chairman is not independent. The Lead Director’s responsibilities include the following and essentially mirror the non-executive Chairman’s responsibilities under UTC’s Guidelines and Bylaws:

Calls and presides over private sessions of the independent directors or special meetings of the Board of Directors
Serves as a liaison between the independent directors and the Chairman
Engages with significant constituencies, as requested
Works with the Chairman to plan and set the agenda for Board meetings
Oversees the evaluation and compensation of the CEO’s performance
Facilitates succession planning and management development
Works jointly with the Chair of the Governance Committee to lead the Board’s annual self-evaluation process
Authorizes retention of outside advisors and consultants who report to the Board on board-wide issues

The Board believes that a non-executive Chairman or Lead Director with well-defined responsibilities enhances the effectiveness of the independent directors, improves risk management and oversight, and provides a channel for independent directors to candidly raise issues or concerns for Board consideration.

UTC’s independent directors meet in regularly scheduled private sessions without Management and in additional sessions when requested. In practice, the private sessions occur before or after most Board meetings.

     18      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

CORPORATE GOVERNANCE

Board Committees

Our Board has four standing committees: Audit, Governance and Public Policy, Compensation and Finance. Except for the Finance Committee (which includes our CEO as a member), each standing committee is composed exclusively of independent directors. Each standing committee has the authority to retain independent advisors to assist in the fulfillment of its responsibilities, to approve the fees paid to those advisors and to terminate their engagements.

All committee charters, which are reviewed by each committee annually, are available on the Corporate Governance section of UTC’s website (see page 17).

Fredric G. Reynolds
(Chair)

Lloyd J. Austin III
Diane M. Bryant
Christopher J. Kearney*
Margaret L. O’Sullivan
Denise L. Ramos*

2018 Meetings: 8

Assists the Board in overseeing: the integrity of UTC’s financial statements; the independence, qualifications and performance of UTC’s internal and external auditors; the Company’s compliance with its policies and procedures, internal controls, Code of Ethics, and applicable laws and regulations; and policies and procedures relating to risk assessment and management
Nominates, for appointment by shareowners, an accounting firm to serve as UTC’s independent auditor and maintains responsibility for compensation, retention and oversight of the auditor
Pre-approves all auditing services and permitted non-audit services to be performed for UTC by its independent auditor
Reviews and approves the appointment and replacement of the senior Internal Audit executive

The Board determined in 2018 that Messrs. Reynolds and Kearney, and Ms. Ramos each are “audit committee financial experts,” as that term is defined in the Securities and Exchange Commission (“SEC”) rules.

Brian C. Rogers
(Chair)

Lloyd J. Austin III
Jean-Pierre Garnier
Marshall O. Larsen
Harold W. McGraw III
Margaret L. O’Sullivan
Christine Todd Whitman

2018 Meetings: 4

Identifies and recommends qualified candidates for election to the Board
Develops and recommends appropriate corporate governance guidelines
Oversees the design and conduct of the annual self-evaluation of the Board, its committees and individual directors
Recommends appropriate compensation of directors
Submits to the Board recommendations for committee assignments
Reviews and monitors the orientation of new Board members and the continuing education of all directors
Reviews and oversees UTC’s positions on significant public issues and corporate social responsibility, including diversity, the environment and safety

* Appointed to the Committee effective December 10, 2018.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      19     


Table of Contents

CORPORATE GOVERNANCE

Jean-Pierre Garnier
(Chair)

John V. Faraci
Ellen J. Kullman
Harold W. McGraw III
Denise L. Ramos*
Brian C. Rogers

2018 Meetings: 5

Reviews UTC’s executive compensation policies and practices to ensure that they adequately and appropriately align executive and shareowner interests
Reviews and approves the design of and sets performance goals for the annual bonus and long-term incentive awards for executives
Evaluates the performance of UTC, the business units and the NEOs relative to the pre-established performance goals set by the Committee for the annual and long-term incentive programs
Approves compensation levels for ELG members and executive officers
Reviews a risk assessment of UTC’s compensation policies, plans and practices

John V. Faraci
(Chair)

Diane M. Bryant
Gregory J. Hayes
Christopher J. Kearney*
Ellen J. Kullman
Marshall O. Larsen
Fredric G. Reynolds
Christine Todd Whitman

2018 Meetings: 5

Reviews and monitors the management of UTC’s financial resources and financial risks
Considers plans for significant acquisitions and divestitures and their potential financial impact, and monitors progress on pending and completed transactions
Reviews significant financing programs in support of business objectives
Reviews significant capital appropriations
Reviews policies and programs related to: dividends and share repurchases; financing, working and long-term capital requirements; managing foreign exchange exposure, interest rates and raw material prices; investment of pension assets; and insurance and risk management

* Appointed to the Committee effective December 10, 2018.

Director Independence

Under UTC’s Director Independence Policy and New York Stock Exchange (“NYSE”) listing standards a majority of our directors must be independent; meaning, the director does not have a direct or indirect material relationship with UTC (other than as a director). The Director Independence Policy guides the independence determination and includes the categories of relationships that the Board has determined are not material relationships that would impair a director’s independence. The policy is available on our Company website (see page 17).

Before joining the Board and annually thereafter, each director completes a questionnaire seeking information about relationships and transactions that may require disclosure, that may affect the independence determination, or that may affect the heightened independence standards that apply to members of the Audit and Compensation Committees. The Governance Committee’s assessment of independence considers all known relevant facts and circumstances about those relationships bearing on the independence of a director or nominee. The assessment also considers sales and purchases of products and services, in the ordinary course of business, between UTC (including its subsidiaries) and other companies or charitable organizations where directors and nominees (and their immediate family members) may have relationships pertinent to the independence determination.

In each of the past three years, the annual payments UTC made or received for products and services as well as UTC’s charitable contributions fell well below the thresholds in our Independence Policy and NYSE listing standards (the greater of $1 million or 2% of the other company or organization’s total gross revenues). The Board has determined that each of the nominees for election at the 2019 Annual Meeting, other than Mr. Hayes, are independent under UTC’s Independence Policy and NYSE listing standard because none of the nominees, other than Mr. Hayes, has a business, financial, family or other relationship with UTC that is considered material.

     20      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

CORPORATE GOVERNANCE

How We Manage Risk

Our Risk Management Framework

UTC encounters a range of risks, including legal, financial, operational, strategic, and reputational. And among these broad categories, specific risks include human capital, market conditions, the overall political climate, and the impact of disruptive events, such as natural disasters.

To manage these risks, UTC has implemented a comprehensive enterprise risk management (“ERM”) program that conforms to the Enterprise Risk – Management Integrated Framework established by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As part of UTC’s ERM program, each business unit president is responsible for identifying and reporting to the Chairman & CEO – as part of a mid-year compliance review – the notable business and compliance risks that could affect the business’ operating plan and strategic initiatives, assessing the likelihood and potential impact of the pertinent risks, and designing the mitigation plans. The Chairman & CEO, Chief Financial Officer, and General Counsel report to the Board at least annually on business unit risks, functional risks and the associated mitigation plans.

The Board’s Role in Risk Management

The full Board is responsible for the oversight of UTC’s risk management process and structure, while the Audit Committee oversees UTC’s overall policies and practices for enterprise risk management. In addition, responsibility for the oversight of specific risk categories is allocated among the Board and its committees as follows:

BOARD RISK OVERSIGHT: AREAS OF RESPONSIBILITY  

Full Board of Directors

Risk management program
Major strategies and business objectives
Most significant risks, such as major litigation
Succession planning
Government relations

Audit Committee

Financial
Operational
Compliance
Reputational
Strategic
Cybersecurity

Committee on Governance and Public Policy

Corporate governance
Director candidate review
Conflicts of interest
Director independence
Environment
Safety
Equal employment opportunity
Public policy issues

Compensation Committee

Compensation and benefits policies, practices and plans
Incentive plan performance metrics and goals
Compensation levels for senior leaders
Compensation plan design
Executive retention

Finance Committee

Capital structure
Financing
Pensions
Capital transactions
Foreign exchange, interest rates and raw material prices

Compensation Risk and Mitigation

The Compensation Committee believes that executive compensation payouts must align with the Company’s financial performance, be earned in a manner consistent with UTC’s Code of Ethics, promote long-term, sustainable value for shareowners, and strike a balance between appropriate levels of financial opportunity and risk. Through UTC’s ERM framework, the Compensation Committee identifies, monitors and mitigates compensation risk in the following ways:

Emphasis on Long-Term Performance. Long-term incentives are the cornerstone of UTC’s executive compensation program. Our LTI program incorporates long-term financial performance metrics which align executive and shareowner interests.
 
Rigorous Share Ownership Requirements. UTC maintains significant share ownership requirements for our senior executives and directors. These requirements are intended to reduce risk by aligning the economic interests of executives and directors with those of our shareowners. A significant stake in future performance discourages the pursuit of short-term opportunities that can create excessive risk.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      21     


Table of Contents

CORPORATE GOVERNANCE

Prohibition on Short Sales, Pledging and Hedging of UTC Securities. UTC prohibits directors, officers and employees from entering into transactions involving short sales of our securities. Further, directors and executive officers are prohibited from pledging or assigning an interest in UTC stock, stock options or other equity interests as collateral for a loan. Transactions in put options, call options or other derivative securities that have the effect of hedging the value of UTC securities also are prohibited, whether or not those securities were granted to or held, directly or indirectly, by a director, officer or employee.
 
Clawback Policy. UTC maintains a comprehensive policy on recoupment (see page 56 for more details) that applies to both annual and long-term incentive compensation. The policy allows UTC to clawback compensation in a number of circumstances including, but not limited to, financial restatements, compensation earned as a result of financial miscalculations, violations of UTC’s Code of Ethics and violations of post-employment restrictive covenants.
 
Post-Employment Covenants. Executive Leadership Group members (which include each of our NEOs) may not engage in post-employment activities detrimental to UTC, such as disclosing proprietary information, soliciting UTC employees or engaging in competitive activities.

Public Policy Engagement

UTC’s government relations initiatives are intended to educate and inform officials and the public on a broad range of public policy issues that are important to our businesses. These initiatives are consistent with the interests of UTC’s shareowners and are not based on the personal agendas of individual directors, officers or employees. The Board reviews and monitors the Company’s government relations activities, including the activities of the United Technologies Corporation Federal Political Action Committee (“UTC PAC”), which is funded entirely by voluntary employee contributions.

UTC does not make political contributions to candidates for federal office. The UTC PAC is nonpartisan and supports candidates for federal office and the national political organizations of both major parties — thus providing employees, regardless of their political affiliations, with a legal and ethical way to speak with a unified voice on issues that are important to our Company. The UTC PAC’s contributions are available on our website (see page 17).

UTC does not contribute to candidates for state and local office or to state and local party committees. We also do not make contributions to fund communications to the public that expressly advocate the election or defeat of a federal candidate, nor do we provide funding to support or oppose ballot measures.

UTC’s federal lobbying activities and expenditures can be reviewed through the reports filed with Congress that can be accessed through our Company website (see page 17). UTC’s state lobbying activities, which also are available through our website, are generally limited to 10 states and involve issues such as building safety and related building codes, economic development, and various business regulation issues.

   

For the third consecutive year, UTC was recognized as a “Trendsetter” by the nonprofit and nonpartisan Center for Political Accountability (“CPA”) placing UTC among the 57 companies in the S&P 500 that received the highest scores on the CPA-Zicklin Index for Corporate Political Disclosure and Accountability.

   

     22      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

   
CORPORATE

Responsibility

Corporate Sustainability

UTC has long recognized the value of sustainable practices, and since 1992 has implemented sustainability initiatives throughout our value chain. We believe our operations should not compromise the environmental or economic health of future generations, and we also have seen firsthand how responsible management practices provide value to our operations, employees, customers, shareowners and the communities where we operate.

We believe that trends in urbanization and population growth will continue to increase demand for more sustainable products and behaviors. Each of UTC’s major businesses is critical to modern life and the continuing development of prosperous economies around the world. As a recognized leader in these sectors, UTC is well-positioned to reduce the impact of urbanization and population growth on the environment. We offer our customers the most cutting-edge, sustainable technologies, while continually working to reduce the environmental footprint of our manufacturing facilities. Some of these technologies are highlighted on the inside front cover of this Proxy Statement and others include:


Aerospace
 
Since entering into service in early 2016, Pratt & Whitney’s Geared Turbofan (“GTF”) engine has demonstrated its ability to reduce fuel burn by 16%, NOx emissions by 50% to the regulatory standard and the noise footprint by 75%.
    

50%
reduction of NOx emissions

     
Collins Aerospace’s next generation nacelle system, featuring a 360-degree acoustically smooth inlet, helps reduce noise from aircraft powered by engines like Pratt & Whitney’s GTF engine.

Less
noise pollution

     
Collins Aerospace’s SmartProbe Air Data System reduces the number of sensors and pneumatic pressure lines, resulting in weight savings of up to 50% when compared to traditional systems, thereby reducing fuel burn.

Reduces
fuel burn

Commercial Buildings

 
Otis’ Gen2 machine uses flexible polyurethane steel-reinforced belts in place of steel cables and features ReGen drive technology – innovations that reduce energy consumption by 75% under normal operation compared to conventional systems without regenerative technology.
    

75%
reduction in energy consumption

     

 

Food Transportation

     
Carrier’s NaturaLINE unit combines a natural refrigerant CO2 with energy-efficient technology to reduce the carbon footprint of marine container refrigeration by 28%, when compared to previous Carrier equipment using conventional synthetic refrigerants.

28%
reduction in carbon footprint



United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      23     


Table of Contents

CORPORATE RESPONSIBILITY

       Since 1997 we have achieved:
   
 

35%

    

62%

    

all during a period when we nearly
tripled our sales

 

reduction in our greenhouse gas emissions

reduction in water consumption

 

Progress Toward Our 2020 Environmental Sustainability Goals

We set five-year environmental sustainability goals for which we track progress on an annual basis. Our current goals are for the period between 2016 and 2020. We are committed to a targeted reduction in environmental impacts, irrespective of business growth. As a result, we measure our progress towards these goals in absolute terms, rather than adjusting for the opening or closing of manufacturing facilities.(1) In 2018, we saw progress in all of our goals:

FIVE-YEAR ENVIRONMENTAL SUSTAINABILITY GOALS(2)   


(1) Consistent with the Greenhouse Gas Protocol, UTC’s goals and targets are adjusted to reflect the impact of acquired companies at the time of acquisition and to remove divested companies from UTC’s measured performance. For example, goals and actual performance were recalibrated in 2013 to account for the Goodrich acquisition and in 2015 to reflect the sale of Sikorsky. UTC’s goals and targets are not adjusted for the opening of new facilities due to organic growth or for the closing of facilities without a divestiture. Actual levels reflect data reported quarterly by UTC sites under common reporting and quality standards. Reported data are reviewed and consolidated by UTC’s Corporate Office. UTC annually submits site energy use and greenhouse gas emissions data for independent review based on International Standards Organization 14064 Part 3 criteria for the validation of greenhouse gas assertions.
(2) The 2020 goals and progress toward these goals are compared to the following 2015 adjusted baselines: greenhouse gas emissions (2.0 million mtCO2e), hazardous waste generation (60.6 million pounds), chlorinated and brominated solvent air chemical emissions (149,325 pounds), water use (1.77 billion gallons) and total industrial waste recycled (77%).

2018 Recognition for Sustainability Practices

CDP (formerly the Carbon Disclosure Project)
The CDP rated UTC as a “leadership company” with an A- rating for our actions and performance to reduce greenhouse gas emissions and mitigate climate change.

We are committed to a targeted reduction in
environmental impacts, regardless of business growth.

     24      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

CORPORATE RESPONSIBILITY

Corporate Citizenship

UTC takes great pride in building a diverse work environment, supporting lifelong employee learning, and contributing to charitable and community causes. In the same way that we set the highest standards for our business operations, we apply the highest corporate responsibility standards and rigorous performance measurements to these efforts.

UTC’s Commitment to Diversity and Inclusion

We are committed to creating a diverse, inclusive workforce and nurturing an environment where all employees can be themselves and share ideas openly. Our efforts focus on advancing gender parity, encouraging employee-led engagement and enhancing opportunities for professionals who want to return to work after voluntary time away.

Advancing Gender Parity

UTC is committed to the advancement of women in leadership positions. In 2017, we joined the Paradigm for Parity (“P4P”) coalition and put this commitment into action by adopting the P4P five-point roadmap shown below. As a signatory to P4P, we set a goal to achieve 50% women in leadership roles by 2030. Several activities currently underway are advancing our efforts towards achieving our goal, including our Inclusive Leaders Curriculum training for managers and other employees. We also recognize that sponsorship is important to career advancement so we provide a framework for high-performing women to have that support and visibility.


Employee Engagement

We support and encourage our employees to join Employee Resource Groups (“ERGs”), which foster advocacy, professional development, education and mentoring, along with community outreach. We support nine global ERGs (African-American, Asian-American, Disability, Generational, Hispanic-American, LGBTQ Pride, Military Veterans, Professional and Women) with more than 100 chapters and an estimated 5,000 members.

Opportunities to Re-enter the Workforce

We understand that returning to work after a career break can be challenging. The UTC Re-Empower Program, launched in 2017, eases this transition by helping professionals bring their knowledge, experience and creativity back to the workforce after voluntary time off. This program offers on-the-job experience, career guidance and mentoring over a 16-week period.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      25     


Table of Contents

CORPORATE RESPONSIBILITY

2018 Recognition for Diversity and Inclusion

Among America’s Best Employers for Women

      

Among Best Places to Work for LGBTQ Equality

UTC was ranked among Forbes’ best employers for women through its opinion survey of 40,000 Americans, including 25,000 women, working for companies with at least 1,000 employees.

UTC earned a 100% rating from the Human Rights Campaign Foundation’s Corporate Equality Index, along with the distinction of being one of the Best Places to Work for LGBTQ Equality.

 

Among Best Places to Work for Employment Disability Inclusion

Among Noteworthy Companies for Diversity Practices

UTC was recognized by the Disability Equality Index (“DEI”), a joint initiative between Disability:IN and the American Association of People with Disabilities, as a 2018 DEI Best Place to Work.

UTC was named a noteworthy company by DiversityInc, which recognizes the top U.S. companies for diversity and inclusion management, with a focus on hiring, retaining and promoting women, minorities, people with disabilities, LGBTQ employees and veterans.

 

Among Best Places for Women to Work

Among Best Companies for Latinas to Work

UTC was recognized by Fairygodboss as the ninth best workplace for women in 2018. This ranking was determined by a survey around overall job satisfaction, equal treatment at work and whether female employees would recommend that other women work for their employer.

For the sixth straight year, UTC was ranked among the top 10 best places to work for Latinas out of 50 companies honored by Latina Style Magazine.


“Innovation is our lifeblood. UTC’s future depends on our ability to attract, develop and retain the best talent. After all, companies don’t innovate – people do. That’s why we are committed to fostering a diverse, inclusive workforce. It’s the right thing to do and an imperative for a global growing business.”

Gregory J. Hayes, Chairman & Chief Executive Officer

     26      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

CORPORATE RESPONSIBILITY

Our Employee Scholar Program

At UTC, we support a culture of lifelong learning in which our employees are encouraged to expand their knowledge and capabilities to maintain their competitive skills in an ever-changing world. We aspire to maintain a highly educated workforce capable of the innovation required of our technology-driven company.

Our Employee Scholar Program has been in place for more than 20 years and has been consistently recognized as one of the most comprehensive company-sponsored employee education programs in the world.

40,200+ $1.3 billion 6,000+ 60+

degrees earned since 1996

invested since 1996

employees participated in 2018

countries with participating employees in 2018


UTC Gives Back to the Community

At UTC, we are committed to enhancing the quality of life everywhere we do business because we believe positive engagement builds vibrant communities. Through financial contributions and employee volunteerism, UTC and our employees support thousands of civic, cultural, economic and social welfare organizations around the globe that share in our mission of making the world a better place.

Since 2012, we have invested more than $250 million in the communities where we operate, an amount that includes in excess of $20 million in employee contributions and company matching grants. UTC’s corporate responsibility commitments are bolstered by the impact that our employees have close to home and around the world. Whether mentoring students in STEM (science, technology, engineering and math) subjects, teaching lessons in environmental stewardship or providing disaster relief, our employees contribute their expertise, creativity and passion to help build resilient communities.

We continue to support leading nonprofit organizations worldwide through grants and the work of UTC employees who donate their time and energy.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      27     


Table of Contents

 
COMPENSATION

of Directors

Pay Structure

Annual Retainer

The following chart shows annual retainers for non-employee directors for the April 2018 to April 2019 Board cycle. 40% is payable in cash and the remaining 60% is payable in deferred stock units (“DSUs”), although a director also may elect to receive 100% of the retainer in DSUs.

Role                   Cash ($)    Deferred
          Stock Units ($)
                  Total ($)
All Directors (base retainer) $120,000 $180,000 $300,000
Incremental Amount Above Base Retainer*
Lead Director $32,000 $48,000 $80,000
Audit Committee Chair $16,000 $24,000 $40,000
Audit Committee Member $12,000 $18,000 $30,000
Compensation Committee Chair $10,000 $15,000 $25,000
Finance Committee Chair $10,000 $15,000 $25,000
Committee on Governance and Public Policy Chair $10,000 $15,000 $25,000

* Directors serving in multiple leadership roles receive incremental compensation for each role.

Directors do not receive additional compensation for attending regularly scheduled Board or committee meetings, but do receive an additional $5,000 for each special meeting attended in person. The directors did not attend any special Board or committee meetings in person during 2018.

Annual retainers are paid each year following the Annual Meeting. New directors joining the Board between the Annual Meeting and the end of September receive 100% of the annual retainer. Directors joining the Board between October and the next Annual Meeting receive 50% of the annual retainer. After a non-employee director leaves the Board, DSUs are converted into shares of UTC Common Stock, payable either in a lump-sum or in 10- or 15-year installments in accordance with the director’s prior elections.

Effective at the 2019 Annual Meeting, the total base retainer will be $310,000, comprised of $124,000 in cash and $186,000 in DSUs. There are no changes to the incremental role-based retainers.

New Director Restricted Stock Unit (“RSU”) Award

Non-employee directors receive a one-time $100,000 RSU award when first elected to the Board. This award vests in equal portions over five years and is distributed in shares of UTC Common Stock upon termination of service. Mr. Kearney and Ms. Ramos each received this award when they joined the Board in December 2018.

Treatment of Dividends

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

     28      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION OF DIRECTORS

2018 Director Compensation

Name Fees Earned or
          Paid in Cash ($)
Stock
          Awards ($)(1)
All Other
   Compensation ($)(2)
               Total ($)
Lloyd J. Austin III    $132,000    $198,000    $6,236    $336,236
Diane M. Bryant $0 $330,000 $857 $330,857
John V. Faraci $0 $325,000 $1,236 $326,236
Jean-Pierre Garnier $0 $325,000 $1,236 $326,236
Christopher J. Kearney(3) $0 $265,000 $0 $265,000
Ellen J. Kullman $0 $380,000 $1,236 $381,236
Marshall O. Larsen $132,000 $198,000 $1,236 $331,236
Harold W. McGraw III $120,000 $180,000 $1,236 $301,236
Margaret L. O’Sullivan $132,000 $198,000 $857 $330,857
Denise L. Ramos(3) $0 $265,000 $0 $265,000
Fredric G. Reynolds $136,000 $204,000 $1,236 $341,236
Brian C. Rogers $0 $325,000 $1,236 $326,236
Christine T. Whitman $120,000 $180,000 $857 $300,857

(1) Stock Awards consist of the grant date fair value of DSU and RSU awards credited to the director’s account, including any portion of the annual cash retainer that the director elected to receive as DSUs. The value of DSU and RSU awards has been calculated in accordance with the Compensation — Stock Compensation Topic of the FASB ASC using assumptions described in Note 12: Employee Benefit Plans, to the Consolidated Financial Statements in Exhibit 13 to UTC’s 2018 Annual Report on Form 10-K. The number of units credited to each director in 2018 was calculated by dividing the value of the award by $120.15, the NYSE closing price per share of UTC Common Stock on April 30, 2018, which was the date of the 2018 Annual Meeting. For directors who joined the Board following the Annual Meeting, the number of DSUs and RSUs was based on the NYSE closing price of UTC Common Stock effective on the date of his or her appointment. Since DSU awards vest on the grant date, but are not distributed until the director leaves the Board, the only unvested units as of December 31, 2018 are the following unvested portions of the new director RSU awards: L. Austin III, 562 units; D. Bryant, 541 units; C. Kearney, 837 units; M. O’Sullivan, 666 units; D. Ramos, 837 units; F. Reynolds, 419 units; and B. Rogers, 419 units. The aggregate number of shares underlying awards outstanding for each director can be found in the table on page 30.
(2) Amounts in this column include incidental benefits and matching contributions made to eligible universities, colleges and certain other eligible nonprofit organizations under the Company’s matching gift program that covers non-employee directors as well as company employees.
(3) Mr. Kearney and Ms. Ramos were elected to the Board effective December 10, 2018. In accordance with the Board’s annual retainer policy, they received 50% of the total value of the annual retainer for their Board service from the date of election until the date of the 2019 Annual Meeting. They also received the new director RSU award in 2018.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      29     


Table of Contents

 
SHARE

Ownership

Share Ownership Requirements

Our rigorous share ownership requirements detailed below promote and strengthen the alignment of our non-employee directors and Management with the interests of our shareowners.

6X       5X       4X       3X
base salary for the Chairman & CEO annual base cash retainer for independent directors base salary for the CFO and business unit CEO and presidents base salary for other ELG members
 

Non-employee directors must achieve their required ownership level within five years of joining the Board and ELG members (including the NEOs) must achieve theirs within five years of appointment to the ELG. If ownership requirements are not met after this five-year period, the individual is not permitted to sell UTC shares until achieving the required level. All directors and ELG members currently comply with their respective ownership requirements or are on track to meet them within the five-year period.

Beneficial Share Ownership of Directors and Executive Officers

The following table shows information as of February 18, 2019, regarding the beneficial ownership of UTC Common Stock by: (i) each director and nominee; (ii) each NEO; (iii) and the directors and executive officers as a group. None of these individuals or the group as a whole beneficially owned more than 1% of UTC Common Stock as of that date. Unless otherwise noted, each person named in the table has sole voting power and sole investment power.

Directors and Executive Officers    SARs Exercisable
     within 60 days(1)
        RSUs Convertible
to Shares within
60 days(2)
        DSUs Convertible
to Shares within
60 days(3)
             Total Shares
Beneficially
Owned(4)
L. Austin III 424 5,104 5,528
D. Bryant 403 7,208 7,611
J. Faraci 2,352 51,025 53,377
J. Garnier 86,549 104,659
D. Gitlin 25,488 50,733 (5)
G. Hayes 112,690 271,286 (6)
A. Johri 26,108 65,643
C. Kearney 1,381 3,123
E. Kullman 1,526 20,083 21,615 (6)
M. Larsen 1,465 17,021 23,918 (5)
J. Marks 87
H. McGraw III 3,141 52,191 58,937
R. Ortberg 92,884
M. O’Sullivan 189 3,088 3,277
D. Ramos 1,381 1,381
F. Reynolds 704 6,437 29,366
B. Rogers 704 9,844 15,548 (5)
C. Whitman 3,141 36,104 46,095
Directors & Executive Officers
as a group (25 in total)(7)(8)(9)
1,275,045

     30      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

SHARE OWNERSHIP

(1) The SARs in the table reflect the net number of shares of UTC Common Stock that would be issued to the executive officers if their vested SARs were exercised within 60 days of February 18, 2019. Once vested, each SAR can be exercised for the number of shares of UTC Common Stock having a value equal to the increase in value of a share of UTC Common Stock from the date the SAR was granted through the exercise date. The net number of shares of UTC Common Stock was calculated using $106.48 per share, which was the NYSE closing price on the last trading day in 2018.
(2) The non-employee director RSUs vest in equal portions over five years and are distributed in shares of UTC Common Stock upon termination of service. The table reflects the vested portion of the RSUs, which are the number of shares in which the director and nominee has the right to acquire beneficial ownership at any time within 60 days after February 18, 2019, following termination of service.
(3) The non-employee director DSUs are converted into UTC Common Stock upon termination of service. The table reflects the number of shares in which the director and nominee has the right to acquire beneficial ownership at any time within 60 days after February 18, 2019, following termination of service.
(4) Includes stock units credited to the executive officer under the UTC Savings Restoration Plan (“SRP”) that are converted into shares of UTC Common Stock following retirement or separation of employment. As of February 18, 2019, the NEOs held the following units in the SRP: D. Gitlin (2,380 units); G. Hayes (7,929 units); A. Johri (1,545 units); J. Marks (54 units); and R. Ortberg (61 units). The executive officers as a group held 30,345 units in the SRP.
(5) Includes shares for which voting and investment power is jointly held by the director or NEO: D. Gitlin (20,093 shares); M. Larsen (5,432 shares); and B. Rogers (5,000 shares).
(6) Includes shares for which a spouse holds sole voting and investment power: G. Hayes (2,183 shares); and E. Kullman (6 shares).
(7) Reflects the holdings of directors and executive officers as of February 18, 2019. A complete list of UTC’s executive officers is included in the Company’s 2018 Annual Report on Form 10-K.
(8) Includes 7,301 shares for which the spouse of an executive officer who is not an NEO shares voting and investment power.
(9) Includes 1,546 shares for which the spouse of an executive officer who is not an NEO holds sole voting and investment power, and 22 shares for which the same executive officer shares voting and investment power with a spouse.

Certain Beneficial Owners

The following table shows all holders known to UTC to be beneficial owners of more than 5% of the outstanding shares of Common Stock as of December 31, 2018.

Name and Address    Shares    Percent of Class
State Street Corporation(1)
State Street Financial Center 89,786,914 10.4%
One Lincoln Street
Boston, MA 02111
The Vanguard Group(2)
100 Vanguard Boulevard
Malvern, PA 19355 65,593,077 7.6%
BlackRock, Inc.(3)
55 East 52nd Street
New York, NY 10055 54,035,145 6.3%

(1) State Street Corporation reported in an SEC filing that, as of December 31, 2018, it held sole voting power with respect to zero shares of Common Stock, shared voting power with respect to 81,137,873 shares of Common Stock, sole dispositive power with respect to zero shares of Common Stock, and shared dispositive power with respect to 89,777,522 shares of Common Stock. State Street Corporation also reported that its wholly owned subsidiary, State Street Bank and Trust Company, is the trustee for the UTC Common Stock in the UTC Employee Savings Plan Master Trust, which beneficially owns 5.9% of Common Stock of UTC, and that in this capacity State Street Bank and Trust Company has dispositive power and voting power over the shares in certain circumstances.
(2) The Vanguard Group reported in an SEC filing that, as of December 31, 2018, it held sole voting power with respect to 919,135 shares of Common Stock, shared voting power with respect to 197,765 shares of Common Stock, sole dispositive power with respect to 64,469,610 shares of Common Stock, and shared dispositive power with respect to 1,123,467 shares of Common Stock.
(3) BlackRock, Inc., reported in an SEC filing that, as of December 31, 2018, it held sole voting power with respect to 47,755,974 shares of Common Stock and sole dispositive power with respect to 54,035,145 shares of Common Stock.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      31     


Table of Contents

 
PROPOSAL 2

Advisory Vote to Approve

EXECUTIVE COMPENSATION

  

Each year we ask shareowners to approve, on an advisory basis, the compensation of UTC’s Named Executive Officers (“NEOs”). Before voting, we encourage you to read and consider the Compensation Discussion and Analysis on pages 33-56, along with the compensation tables on pages 58-69.

   

How is Shareowner Feedback Considered?

UTC values and considers shareowner opinions when making executive compensation decisions. Over the years, shareowner input has substantially contributed to our executive compensation program’s Guiding Principles, which can be found on page 34 of this Proxy Statement. We actively engage in annual discussions with investors on executive compensation matters. The Compensation Committee uses this feedback in its annual evaluation and management of our program. Shareowner feedback also is reflected in our ongoing effort to enhance the clarity and transparency of the compensation disclosures in this Proxy Statement.

Why Should I Vote “FOR” this Proposal?

Our executive compensation program is structured to advance its fundamental objective: aligning our executives’ compensation with the long-term interests of UTC shareowners. Our program is designed to reward financial performance and effective strategic leadership, key elements in building sustainable shareowner value. The performance metrics used in our incentive plans align with shareowner interests by correlating the timing and amount of actual payouts to our short-, medium- and long-term performance. Compensation opportunities are structured to reward the appropriate balance of financial, strategic and operational business results, and to require ethical and responsible conduct in pursuit of these goals. The Board and its Compensation Committee believe that UTC’s executive compensation program has effectively aligned pay with performance, while facilitating the retention of highly talented executives who are critical to our long-term success.

Accordingly, the Board recommends that shareowners vote FOR the following resolution:

“RESOLVED, that the compensation of UTC’s NEOs, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and related information provided in this Proxy Statement, is hereby APPROVED on an advisory basis.”

As a matter of law, the approval or disapproval of this Proposal 2 may not be construed as overruling any decision by UTC or the Board, or as imposing any duty or obligation on UTC, the Board or any individual director.

      The Board of Directors recommends a vote FOR this proposal.

     32      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

 
COMPENSATION

Discussion and Analysis

2018 NAMED EXECUTIVE OFFICERS

      GREGORY J. HAYES         JUDITH F. MARKS
Chairman & CEO President, Otis
AKHIL JOHRI DAVID L. GITLIN
Executive Vice President &
Chief Financial Officer
President & Chief
Operating Officer,
Collins Aerospace
ROBERT K. ORTBERG
CEO, Collins Aerospace


  

In this section, we discuss our compensation philosophy and explain how our executive compensation program is structured to advance our fundamental objective of aligning our executives’ compensation with the long-term interests of UTC shareowners. We also explain how the Compensation Committee of the Board (the “Committee”) determines compensation for the members of our Executive Leadership Group (“ELG”), which is comprised of approximately 30 of our most senior executives and includes each of the NEOs listed above. This discussion also explains the Committee’s rationale for specific 2018 pay decisions.

   

Executive Summary

Investor Engagement

SHAREOWNER OUTREACH EFFORTS

We actively seek and highly value feedback from shareowners and their advisors. The Committee annually considers this feedback along with factors such as external market data and staff and consultant recommendations in its ongoing assessment of the effectiveness of our program.

96%
support

RESPONSE TO OUR 2018 SAY-ON-PAY VOTE

Each year we consider the results of our advisory vote on executive compensation (“say-on-pay”) from the prior year. In 2018, 96% of the votes cast (excluding abstentions and broker non-votes) voted in favor of the Committee’s 2017 executive compensation decisions. We interpreted this result as an endorsement of our compensation program’s design and direction.

2018 SHAREOWNER FEEDBACK

This past year, shareowners also expressed support for our recent executive compensation program changes, which are discussed in detail in the Proxy Summary on page 2.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      33     


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Our Executive Compensation Philosophy

The Committee believes that there must be a meaningful link between the compensation paid to our executives and our goal of long-term, sustainable growth for our shareowners. This core philosophy is embedded in the following principles, which guide all aspects of our compensation program:

UTC’S GUIDING PRINCIPLES FOR EXECUTIVE COMPENSATION  

Competitiveness Long-Term Focus Balance

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.

     

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 portion of total compensation contingent on performance should increase with an executive’s level of responsibility. Annual and long-term incentive opportunities should reward the appropriate balance of short-, medium- and long-term financial, strategic and operational business results.

     

Pay-for-Performance

Responsibility

Shareowner Alignment

A substantial portion of compensation should be variable, contingent and directly linked to individual, company and business unit performance.

A complete commitment to ethical and corporate responsibility is a fundamental principle incorporated into all aspects of our compensation program. Compensation should take into account each executive’s responsibility to act at all times in accordance with our Code of Ethics and our environmental, health and safety objectives. Financial, strategic and operational performance must not compromise these values.

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.


Principal Components of Compensation

The following table summarizes the principal components of our executive compensation program. The Committee structures these elements to promote and reward financial performance through a variety of performance metrics and time horizons. For additional details on each of these components refer to pages 41-46.

Pay Component    Time Horizon    Performance Measures    Purpose
Base Salary 1 year Individual achievement Attract and retain talent
Annual Bonus 1 year Earnings
Free cash flow Drive near-term performance goals
Individual achievement
Performance Share Units 3 years Adjusted earnings per share Drive medium-term performance goals
Return on invested capital
Total shareowner return vs. the S&P 500
Share price appreciation
Restricted Stock Units 3 years Share price appreciation Retain talent
Stock Appreciation Rights 10 years Share price appreciation Drive long-term share price appreciation

     34      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

2018 Performance Highlights

STRATEGIC HIGHLIGHTS

Two transformational changes to our company occurred in 2018.

First, on November 26, 2018, we completed the acquisition of Rockwell Collins, making UTC the preeminent systems and component supplier to the aerospace and defense industry. The merged business, Collins Aerospace, will be able to offer customers a full suite of systems throughout an entire aircraft. This acquisition enhances our capabilities in the development of intelligent aircraft, integrated and optimized aircraft products and services, and advanced defense systems.

Second, we completed a comprehensive business portfolio review and subsequently announced our intention to separate our commercial businesses – Carrier and Otis – into independent companies. As standalone companies, we believe Carrier and Otis will have the resources, capital and strategic flexibility to focus on the unique needs of their respective customers. We further believe that focused companies perform better, offer greater transparency to investors and bring operating discipline and enhanced competitiveness within their specific industries. We expect this proposed separation to be tax free to our shareowners for U.S. federal income tax purposes and to be completed by mid-year 2020.

OPERATIONAL HIGHLIGHTS

Pratt & Whitney: Achieved net sales growth of 20% (GAAP), which included 14% organic growth (non-GAAP), while nearly doubling the 2017 production of the GTF engine and, for the first time in over 30 years, manufactured more than 1,000 large commercial and military engines.

Collins Aerospace: Secured a number of substantial product placement wins from key customers – examples include a contract to provide an advanced nacelle system for Dassault Aviation’s Falcon 6X business jet, selection by Boeing to provide its ACES 5 ejection seat and a fully integrated landing gear system for the U.S. Air Force’s new T-X jet trainer, and development of the main electric power generation system for South Korea’s KF-X fighter.

Otis: Saw the launch of the IoT-enabled Otis ONE service platform, which collects real-time performance data to help predict and prevent equipment shutdowns. This digital ecosystem combines Otis’ decades of experience in remote elevator monitoring with the latest in data analytics, machine learning and the Internet of Things.

Carrier: Through its investments in innovation and research and development, Carrier launched more than 100 products in 2018. During the same period, Carrier achieved net sales and organic growth of 6% (GAAP and non-GAAP).


“Our decision to separate UTC into three companies is a pivotal moment in our history and will best position each independent company to drive sustained growth, lead its industry in innovation and customer focus, and maximize value creation.”

Gregory J. Hayes, Chairman & Chief Executive Officer
 


United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      35     


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

FINANCIAL HIGHLIGHTS*

In 2018, we delivered strong financial results. We achieved 14% diluted EPS growth (GAAP and non-GAAP) and increased sales by 11% (GAAP), which included organic growth of 8% (non-GAAP) — our best in over a decade. We also generated $6.3 billion of cash flow from continuing operations (GAAP) and free cash flow of $4.4 billion (non-GAAP), while spending $4.0 billion in company- and customer-funded research and development. Further, we continued our 82-year tradition of paying a dividend to shareowners and increased the dividends paid in 2018 by 4.2%.

GAAP FINANCIAL MEASURES*       NON-GAAP FINANCIAL MEASURES*

NET SALES (in billions)
 

DILUTED EPS ($ per share)

CASH FLOW FROM OPERATIONS (in billions)

NET INCOME (in billions)
 

ADJUSTED NET SALES (in billions)

ADJUSTED DILUTED EPS ($ per share)

FREE CASH FLOW (in billions)

ADJUSTED NET INCOME (in billions)


* See Appendix A on pages 86-87 for additional information regarding these GAAP and non-GAAP financial measures.

16% 14% 8%
net income
growth
diluted EPS
growth
organic sales
growth

     36      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Shareowner Value Creation

DIVIDENDS PAID (PER COMMON SHARE)  



82nd $2.5 billion 4.2% increase

consecutive year we paid dividends to shareowners

paid in 2018 to investors through dividends and share buybacks

in dividends per share paid to shareowners during 2018

During his four-plus years as CEO, Mr. Hayes has led UTC’s efforts to invest in the development of innovative products and to execute transformative, strategic transactions, while focusing on efforts to more rapidly and efficiently satisfy our customers’ needs. For example, the strong customer demand for Pratt & Whitney’s game-changing GTF engine continues, with more than 1,300 firm and option orders in 2018. The historic Rockwell Collins acquisition was successfully completed in the last quarter of 2018 and our new Collins Aerospace business unit is poised to become one of the world’s leading aerospace systems and component suppliers. UTC’s investment in digital technologies is producing results in each of our business units. For example, Carrier’s Automated Logic business developed the new OptiFlex virtual integrator platform that enables building operators to monitor up to 50,000 data points from various building systems, subsystems and devices using a single computer server. Further, Pratt & Whitney’s FAST solution, which is used for predictive and preventive aircraft maintenance, continues to expand on a growing number of aircraft platforms.

 

Over the last four years, we have spent $15.5 billion in company- and customer-funded research and development.

 

In short, we believe we have built a solid foundation for future UTC earnings growth following a multi-year cycle of heavy product and strategic investments. The chart below illustrates UTC’s annualized TSR compared to our Compensation Peer Group (“CPG”) and other major market indices over varying time periods.

TOTAL SHAREOWNER RETURN (AS OF DECEMBER 31, 2018)*  

 

*

TSR values are provided by S&P Capital IQ and are calculated on an annualized basis as of December 31, 2018. The CPG composite returns are determined by calculating the TSR for each peer company, then a weighted average is applied based on each company’s market capitalization at the beginning of the measurement period.


United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      37     


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

How 2018 Performance Affected Incentive Payouts

As previously discussed on page 3, the Committee utilizes five key financial metrics that it believes are essential to the long-term financial health of our Company. The chart below shows UTC’s performance against these pre-established financial goals set for our 2018 annual bonus and our 2016-2018 PSU awards.

Incentive Plans(1)           Threshold                  Target           Maximum                  Actual    Payout Factor
2018 Annual Bonus(2)
UTC Earnings (net income) $5.1 billion $5.6 billion $6.2 billion $5.9 billion 152%
UTC Free Cash Flow $3.8 billion $5.0 billion $6.3 billion $4.9 billion 95%
Calculated UTC Financial Performance Factor 129% (3) 
Committee Approved UTC Financial Performance Factor 125% (3) 
2016-2018 Performance Share Units
EPS Growth 1.5% 4.5% 7.5% 4.4% 98%
Return on Invested Capital 9% 10.5% 12.5% 11.1% 131%
UTC’s TSR rank vs. S&P 500 companies(4) 25th %ile 50th %ile 75th %ile 54.9th %ile 120%
Committee Approved Payout Factor 116%

(1)

Performance goals and results are based on non-GAAP financial measures. See Appendix B on page 88 for details.

(2)

Reflects annual bonus goals and results for the UTC financial performance factor. Business unit goals and results differ. See pages 42-43 for details.

(3)

The Committee used its discretion and reduced the calculated payout factor from 129% to 125%. See page 43 for additional details on this adjustment.

(4)

TSR is calculated using a 60-day average stock price at the beginning and end of the performance period for UTC and the companies within the S&P 500 Index at the beginning of the performance period.

How We Make Pay Decisions and Assess Our Programs

WHO DOES WHAT  

Compensation Committee
Oversees our programs

Sets financial, strategic and operational goals and objectives for the Company, the business units and the CEO, as they relate to the annual and long-term incentive programs.
Assesses Company, business unit and NEO performance relative to the pre-established goals and objectives set for the year.
Approves CEO pay adjustments based on its assessment of CEO performance.
Reviews the CEO’s recommendations for pay changes for ELG members and executive officers, and makes adjustments as appropriate.
Evaluates the competitiveness of the compensation packages for ELG members and executive officers.
Approves all executive compensation program design changes, including severance, change-in-control and supplemental benefit arrangements.
Reviews risk assessments of UTC’s compensation plans, policies and practices.
Considers shareowner input regarding executive compensation decisions and policies.
All decisions are subject to review by the other independent directors.

CEO
Provides selective input to the Committee

Considers the performance of each ELG member/executive officer, his or her business unit and/or function, market benchmarks, internal equity and retention risk when determining pay recommendations.
Presents the Committee with recommendations for each principal element of compensation for ELG members (including the other NEOs) and executive officers.
Does not have any role in the Committee’s determination of his own compensation.
 

Management and the Independent Consultant
Provide insight and assistance

The Executive Vice President & Chief Human Resources Officer, along with UTC’s Human Resources staff and the independent compensation consultant, provide insights on program design and compensation market data to assist the Committee with its decisions. Management also has been delegated oversight responsibility of executive compensation plan administration.

Shareowners
Provide feedback on our programs

In assessing our program each year, the Committee reviews the feedback received from shareowners. This feedback, along with other factors, helps the Committee in its decisions and its ongoing assessment of the effectiveness of our program.


     38      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Role of Independent Compensation Consultant

The Compensation Committee retained Pearl Meyer & Partners (“Pearl Meyer”) to serve as its executive compensation consultant for 2018. Although 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 2018, Pearl Meyer advised the Committee on a variety of subjects, including compensation plan design and trends, pay-for-performance analytics, benchmarking data and related matters. Pearl Meyer reports directly to the Committee, participates in meetings as requested and communicates with the Committee Chair between meetings as necessary. A Pearl Meyer representative attended each of the five Committee meetings in 2018.

Prior to engaging Pearl Meyer, the Committee reviewed the firm’s qualifications, independence and any potential conflicts of interest. Pearl Meyer does not perform other services for or receive other fees from UTC (except for an incidental amount of $9,400 in 2018 for participation in certain business surveys). The Committee therefore determined that Pearl Meyer qualified as an independent consultant. 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 uses market data from other compensation consulting firms for benchmarking and other purposes. However, this benchmark data is generally available broadly to these firms’ other consulting clients. No other consulting firm made recommendations to the Committee or Management on peer group composition or on the form, amount or design of executive compensation in 2018.

Our Compensation Peer Group

How We Use Peer Group Data. We compare our executive compensation program to those at the 23 companies that make up our Compensation Peer Group (“CPG”). Data from a broader range of companies, including the Fortune 100, are used for insight into general compensation trends and to supplement CPG data when necessary and appropriate. To maintain a sufficiently competitive executive compensation program, the Committee believes the target value of each principal element of compensation should approximate the market median of the companies UTC views as competitors for executive talent. The Committee annually evaluates each compensation element relative to the market for each ELG member’s role and makes adjustments as necessary. However, individual compensation may vary from market median benchmarks based on the Committee’s assessment of Company, business unit/function and individual performance, job scope, retention risk, tenure, and other factors that it determines to be relevant to its evaluation.

How Our Compensation Peer Group is Constructed. The CPG’s composition reflects a mix of both industry and non-industry peers that the Committee views as competitors for senior executive talent. Like UTC, 11 of these 23 companies are Dow Jones Industrial Average components. In its 2018 review, the Committee made no adjustments to the CPG. The Committee believes the companies in the CPG provide a relevant comparison based on their similarity to UTC in size, geographic footprint and operational complexity, taking into account factors such as revenue, market capitalization, global scope of operations, manufacturing footprint, research and development activities, and diversified product portfolios. The CPG is constructed to serve the specific purpose of benchmarking executive compensation. For this reason, we do not use the relative financial performance of the CPG as a performance metric in our incentive compensation programs.

We target compensation to approximate the market median.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      39     


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

OUR COMPENSATION PEER GROUP  

Companies in Blue represent Dow Jones Industrial Average components.

Aerospace & Defense
Boeing
General Dynamics
Lockheed Martin
Northrop Grumman
Raytheon

Equipment & Machinery
3M
Caterpillar
Deere
Eaton
Emerson Electric
Johnson Controls

Technology/Communications
AT&T
Cisco
IBM
Verizon

Consumer Packaged Goods
Johnson & Johnson
Procter & Gamble

Oil & Gas
Chevron

 

Chemicals
DowDuPont

Diversified Industrials
General Electric
Honeywell

Automotive
General Motors

Pharmaceuticals
Pfizer


PEER GROUP DATA*  

   Net Sales
(in billions)
   Market
Capitalization
(in billions)
   Employees
25th percentile $34.5 $46.9 89,750
50th percentile $53.8 $97.8 104,000
75th percentile $93.6 $201.3 128,550
UTC $66.5 $91.9 240,200
UTC Rank 59th 49th 98th

*

Peer company data is provided by S&P Capital IQ. Net sales and employee data reflect the most recent publicly available information (as of February 21, 2019). Net sales are based on continuing operations, as reported, in accordance with U.S. GAAP financial reporting standards. Market capitalization for peer companies is calculated based on shares outstanding as of December 31, 2018.


Timeline for Compensation Decisions

The Committee followed the below process to make 2018 annual pay decisions for each of the principal components of compensation included in total direct compensation as detailed on pages 2 and 46:

February 2018 April 2018 December 2018 February 1, 2019 February 5, 2019 1st Quarter of 2019

2018 base salary adjustments were approved.

Performance goals for the 2018 annual bonuses were approved.

2018 base salary adjustments took effect.

Review of preliminary 2018 Company/ business unit/individual performance.

Review of final 2018 Company/business unit/ individual performance.

Financial performance factors and individual payout levels for 2018 annual bonuses were approved.

Performance goals for the 2019-2021 PSU awards were approved.

2019 LTI award values were approved.

2019 LTI awards granted.

2018 annual bonuses paid.


     40      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Our Principal Elements of Compensation

Base Salary

To attract and retain talented and qualified executives, we provide competitive base salaries, which we target at the market median. Each year the Committee reviews the CEO’s recommendations for base salary adjustments for ELG members relative to peer market data for similar roles. The Committee has complete discretion to modify or approve the CEO’s recommendations. The CEO has no involvement in the Committee’s determination of his own base salary. Actual salaries may vary from market medians based on factors such as job scope and responsibilities, experience, tenure, individual performance, retention risk, and internal pay equity.

Annual Bonus

OUR OBJECTIVES

The Committee believes its methodology for determining annual bonus awards accomplishes the following objectives:

Sets financial performance goals that are consistent with the Committee’s assessment of the opportunities and risks for the upcoming year, as communicated to investors.
 
Establishes challenging but achievable performance goals for our executives.
 
Provides incentive opportunities that are market competitive.
 
Allows the Committee to make discretionary adjustments if it determines that measured performance does not fully align with its assessment of overall performance.

ANNUAL BONUS TARGETS

The Committee approves annual bonus target levels based on relevant market data for each ELG member’s role. Target levels are expressed as a percentage of base salary and generally approximate the market median. The 2018 annual bonus targets for each NEO are shown below:

NEO                                 ANNUAL BONUS TARGET
Gregory J. Hayes 175%
Akhil Johri 100%
Robert K. Ortberg 125%
Judith F. Marks 100%
David L. Gitlin 100%

SETTING FINANCIAL PERFORMANCE METRICS AND GOALS FOR 2018

For 2018, the Committee established annual performance goals at threshold, target and maximum levels for two financial metrics: earnings and free cash flow (“FCF”). Performance relative to these pre-established goals determines the financial performance factors for UTC and each business unit.

The charts below show the weighting of each financial metric. UTC’s financial performance factor determines the annual bonus pool for Corporate executives, while a blend of the UTC factor and business unit-specific financial performance factors are used to determine the pool for business unit executives for 2018.

UTC FINANCIAL PERFORMANCE FACTOR                                 BUSINESS UNIT FINANCIAL PERFORMANCE FACTORS                                        
     

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      41     


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

BACKGROUND ON FINANCIAL PERFORMANCE METRICS AND GOALS  

UTC Earnings   UTC FCF   Business Unit Earnings   Business Unit FCF

How are performance metrics defined for annual bonus purposes?

UTC’s net income, adjusted for restructuring, non-recurring and other significant, non-operational items.*

UTC FCF, adjusted for restructuring, non-recurring and other significant, non-operational items.*

Business unit earnings before interest and taxes (“EBIT”) at constant currency, adjusted for restructuring, non-recurring and other significant, non-operational items, and the impact of acquisitions/ divestitures.*

Business unit FCF, adjusted for restructuring, non-recurring and other significant, non-operational items.*

Why has the Committee selected these metrics?

The Committee believes that adjusted net income is an appropriate UTC-wide goal because it includes the impact of items such as tax, interest and foreign exchange fluctuations, which are managed at the Corporate level and thus relevant to assessing UTC’s overall performance.

The Committee believes that FCF performance is a relevant measure of the Company’s ability to generate cash to fund our operations and key business investments.

The Committee believes operating earnings growth, exclusive of tax, interest and foreign exchange exposure should be the focus of business unit performance.

The Committee believes that FCF performance is a relevant measure of the business units’ ability to generate cash to fund our operations and key business investments.

Why does the Company use non-GAAP financial performance goals for annual bonus purposes?

The Committee believes annual bonuses should not be positively or negatively impacted by short-term decisions made in the best interest of UTC’s long-term business strategies. Using non-GAAP performance measures encourages decision-making that considers long-term value creation that does not conflict with short-term incentive metrics. Adjustments for restructuring, non-recurring and other significant, non-operational items and acquisitions and divestures, provides a more stable performance assessment of the Company’s core business, and aligns compensation opportunities with the non-GAAP financial expectations we communicate to investors.

How did the Committee set performance goals?

An adjusted net income goal was set to correspond to the expected adjusted EPS range communicated to investors for the year.

The UTC FCF goal was set to align with the performance expectations communicated to investors for the year.

Adjusted EBIT goals were set to contribute to the overall adjusted UTC net income goal and reflect each business unit’s anticipated opportunities and challenges for the year.

FCF goals were set to contribute to the overall UTC goal and to align with each business unit’s strategic business plan for the year.

What goals did the Committee set for 2018?

A $5.6 billion adjusted net income goal was set to correspond to an adjusted EPS of $7.00, which fell within the EPS range communicated to investors at the beginning of the year.

$5.0 billion FCF goal.

Adjusted EBIT goals ranged from $1.5 to $3.1 billion.

FCF goals ranged from $1.0 to $2.1 billion.


* See Appendix B on page 88 for a detailed definition on how we calculate earnings and FCF for the purposes of determining the UTC and business unit financial performance factors.

PAYOUT FACTORS

Payout factors begin at 50% of target (for threshold-level performance) and are capped at 200% of target (for maximum-level performance). There are no payouts for below threshold-level performance and at no point can the Committee approve a payout factor above 200% of target.

UTC Earnings Goal*              Threshold              Target              Maximum
Adjusted Net Income $5.1 billion $5.6 billion $6.2 billion
Payout Factor (as a % of target) 50% 100% 200%
 
UTC Free Cash Flow Goal* Threshold Target Maximum
Free Cash Flow $3.8 billion $5.0 billion $6.3 billion
Payout Factor (as a % of target) 50% 100% 200%

* Reflects the goals set for the UTC financial performance factor. Earnings and FCF goals for our business units vary.

     42      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

HOW 2018 FINANCIAL PERFORMANCE RESULTS LED TO THE FINANCIAL PERFORMANCE FACTORS  

  UTC Earnings   UTC FCF   Business Unit Earnings   Business Units FCF

What 2018 financial results were used to determine the financial performance factors?

UTC’s adjusted 2018 net income was $6.2 billion. The Committee subsequently adjusted out the benefit of the Rockwell Collins acquisition, which was completed in the last quarter of the performance period, and neutralized the effect of the Tax Reform and Jobs Act. The resulting net income used for annual bonus purposes was $5.9 billion.

UTC’s free cash flow was $4.4 billion, which was adjusted to $4.9 billion for annual bonus purposes to exclude restructuring, non-recurring and other significant, non-operational items, including the benefit of the Rockwell Collins acquisition that occurred in the last quarter of the performance period.

Adjusted business unit EBIT ranged from $1.6 to $3.1 billion.

Free cash flow results for the business units ranged from $1.2 to $2.0 billion.

What were the payout factors for each metric?

152% of target.

95% of target.

Ranged from 77% to 114% of target.

Ranged from 80% to 200% of target.

What were the calculated financial performance factors?

The weighted earnings and free cash flow payout factors resulted in a blended UTC financial performance factor of 129% of target.

After incorporating the UTC factor, the weighted earnings and free cash flow payout factors resulted in blended financial performance factors for the business units ranging from 99% to 141% of target.

Did the Committee make any adjustments to the calculated financial performance factors?

The Committee used its discretion and reduced the calculated UTC financial performance factor from 129% to 125% of target to account for certain issues with a Pratt & Whitney supplier program, which it deemed relevant to assessing the overall performance of the Company. See “Committee’s Use of Discretion in Annual Bonus Awards” below for more details.

The Committee used its discretion and adjusted some of the business units’ calculated financial performance factors upward and others downward to account for various items it deemed relevant to assessing overall performance. After these adjustments, the business unit factors ranged from 95% to 130% of target. See “Committee’s Use of Discretion in Annual Bonus Awards” below for more details.

POOL DETERMINATION

Annual bonus funding pools are calculated by first multiplying each executive’s annual bonus target value (base salary x target bonus percentage) by the applicable UTC or business unit financial performance factor approved by the Committee. These amounts are then aggregated to determine award pools for Corporate executives and each business unit, and are subsequently allocated among eligible executives based on individual performance.

INDIVIDUAL PERFORMANCE

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

COMMITTEE’S USE OF DISCRETION IN ANNUAL BONUS AWARDS

As previously discussed, the annual bonus program is designed to closely align individual payouts with performance relative to pre-established goals. However, the Committee retains the authority to make upward or downward adjustments if it determines that Company, business unit and/or individual performance measured by the metrics does not accurately reflect the overall quality of performance for the year. Although the achievement of financial performance goals remains the primary basis for determining actual annual bonus amounts, the Committee has previously made positive and negative discretionary adjustments to financial performance factors and as a result of individual performance. Examples of situations that could result in discretionary adjustment include:

Material, unforeseen circumstances beyond Management’s control that affected financial performance results relative to the established goals or certain non-recurring charges or credits unrelated to operating performance;
 
Tax or accounting rule adjustments that positively or negatively impact performance;
 
Changes to the Company’s capital structure;
 
An executive’s performance relative to specific individual annual objectives; or
 
An executive’s failure to adhere to UTC’s Code of Ethics, Enterprise Risk Management program or other Company policies.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      43     


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Long-Term Incentive Awards

Each year the Committee reviews the design of our LTI awards to ensure consistency with our program’s fundamental objective of aligning the interests of executives and shareowners while attracting and retaining talented senior leaders. Our annual LTI awards are subject to three-year, service-based (and in the case of PSUs, performance-based) vesting requirements, with limited exceptions for death, disability, retirement, change-in-control and certain qualifying involuntary terminations.

2018 LTI VEHICLES

The Committee approves a total LTI award value for each NEO at its meeting prior to the grant date. For the January 2, 2018 grant, our NEOs received their annual award weighted in the LTI vehicles shown in the chart to the right. The number of PSUs, SARs and RSUs awarded is determined based on the 30-day average of UTC’s closing stock price prior to the grant date. This method has been adopted as a mechanism to stabilize the impact of potential volatility of UTC’s stock price on the date of grant. However, because the award value is ultimately determined based on the closing price of UTC Common Stock on the grant date and other accounting valuation assumptions, the value approved by the Committee differs from the grant date fair value shown in the Summary Compensation Table on page 58.

2018 NEO LTI MIX  

PERFORMANCE SHARE UNITS

PSUs vest at the end of a three-year performance period if, and to the extent that, the Company achieves performance goals established by the Committee. When a PSU vests, it converts into one share of UTC Common Stock. Unvested PSUs do not earn dividend equivalents. PSUs are designed to deliver market median compensation at target levels of performance. Performance below or above target levels will result in payouts that differ from the market median.

Performance Metrics and Goals for the 2018-2020 PSUs. On January 2, 2018, the Committee granted PSU awards subject to pre-established three-year performance goals. On November 26, 2018, UTC completed the $30+ billion (including debt) acquisition of Rockwell Collins. Given the significant change to the Company’s capital structure and the financial impact of this transaction, the Committee adjusted the performance goals for the 2018 and 2017 PSUs to neutralize the impact of the transaction. This adjustment was necessary to maintain the same level of challenge as the originally established performance goals and is in accordance with plan provisions designed to maintain the integrity of the performance goals in such scenarios. The adjusted goals for 2018 PSUs are described below.

EARNINGS PER SHARE GROWTH (“EPS”)  

     

EPS Growth (weighted 35%)

Three-year EPS compound annual growth rate goal was set at 9.5%.
 
Aligned with our mid-range strategic business plan.
 
Reflects what the Committee determined to be a challenging yet attainable target.

RETURN ON INVESTED CAPITAL (“ROIC”)  

     

Return on Invested Capital (weighted 35%)

ROIC goal was set at 8.6%.
 
ROIC is calculated using a quarterly average over the three-year performance period.
 
Incentivizes our executives to make disciplined capital allocation decisions.

     44      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

TOTAL SHAREOWNER RETURN (“TSR”) VS. S&P 500  

Relative TSR (weighted 30%)

Cumulative three-year TSR goal was set at the 50th percentile relative to the companies within the S&P 500 Index at the beginning of the performance period.
Vesting does not occur if UTC’s TSR ranks below the 25th percentile and is capped at 200% of target if TSR reaches the 75th percentile.
If UTC’s three-year TSR is negative, the payout for this portion of the award is capped at 100% of target regardless of UTC’s relative performance vs. the S&P 500 companies.
Beginning and end periods measured using a 60-day average.

Why We Compare UTC’s TSR to the TSR of the Companies within the S&P 500 Index. The Committee believes that comparing UTC’s TSR to the companies within the S&P 500 provides an appropriate benchmark for measuring our share price performance as a large capitalization company. The Committee does not set TSR goals relative to the performance of the CPG (see pages 39-40 for more details on our peer group) because the CPG is used solely to measure the competitiveness of our executive compensation program. The Committee believes the S&P 500 provides a more comprehensive and relevant comparison for our share price performance and, unlike the CPG, is not a self-selected, customized benchmark based on a limited number of companies.

What the Committee Considers when Setting Performance Goals. When setting financial performance goals for our PSU awards, the Committee considers various long-term business factors, including, but not limited to, planned share buybacks, macroeconomic market trends, pension headwinds/tailwinds and cost reduction plans. Certain items such as unplanned share buybacks, restructuring charges, and non-recurring and non-operational items may be excluded from performance results, as appropriate, to maintain the validity of the targets as originally formulated. See Appendix B on page 88 for a definition of how we calculate these metrics.

PSU Vesting (2016-2018 Performance Period). PSU awards granted on January 4, 2016, were subject to vesting based on UTC’s three-year performance relative to pre-established EPS growth, ROIC and relative TSR goals. The performance results used to determine the final payout factor for the 2016-2018 performance period were as follows:

Metric       Weight       Threshold       Target       Maximum       Actual       Payout Factor
3-Year EPS Growth 35% 1.5% 4.5% 7.5% 4.4% 98%
12-Quarter Average ROIC 35% 9% 10.5% 12.5% 11.1% 131%
3-Year TSR vs. the S&P 500 30% 25th %ile 50th %ile 75th %ile 54.9th %ile 120%
Final Payout Factor 116%

The 2018 GAAP diluted EPS of $6.50 was adjusted to $7.61 to account for the impact of restructuring, non-recurring and other significant items unrelated to operational performance (see Appendix A on pages 86-87 for details on GAAP and non-GAAP financial measures). For PSU vesting purposes, the Committee neutralized the impact of the Rockwell Collins acquisition (completed in the last quarter of the performance period) and the effects of the Tax Reform and Jobs Act (passed into law in the middle of the performance period), resulting in diluted EPS of $7.17. These adjustments are in accordance with plan provisions and were made to maintain the integrity of the original goals, which did not anticipate these significant events.

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 market price of UTC Common Stock on the date the SARs are exercised and the exercise price that was set at the grant date (i.e., the closing price of UTC Common Stock on the date of grant). SARs vest and become exercisable after three years and expire 10 years from the grant date.

To align shareowner and executive interests, SAR awards directly link NEO compensation to share price appreciation. The Committee believes the 10-year term of these awards incentivizes long-term shareowner value creation.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      45     


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

RESTRICTED STOCK UNITS

Since 2017, ELG members (including each of our NEOs) have received 20% of their annual total LTI award in the form of RSUs. RSUs vest three years from the grant date and earn dividend equivalents during the vesting period that are reinvested as additional RSUs each time UTC pays a dividend to shareowners. The reinvested RSUs vest on the same date as the underlying RSUs. The Committee believes this time-based vesting vehicle has enhanced senior executive retention during a period of significant business investment and market volatility. RSUs have less upside potential than SARs, but have a stabilizing effect on the value of LTIP grants.

SPECIAL EQUITY-BASED AWARDS

The Committee also may, from time to time, approve special equity grants for purposes such as recruitment, retention and recognition, or to drive the achievement of specific strategic performance goals. These special grants may be in the form of PSUs, SARs, RSUs, restricted stock or performance-based SARs. Since these grants are awarded for special purposes, we do not include them in total direct compensation which is intended to show the Committee’s annual pay decisions as it relates to its evaluation of executive performance.

CEO Pay Overview

CEO PAY FOR 2018  

$1.6M
$3.5M
175% target $13.0M
base salary annual bonus annual bonus LTI award
6.7% increase in 2018 aligned with the UTC performance factor of 125% No change from prior year approved by the Committee in February 2019 and aligned with the market median

Total Direct Compensation

Unlike the amounts reported in the Summary Compensation Table, total direct compensation, shown in the chart below for each year, represents the annual pay decisions by the Committee that specifically reflect its assessment of Company, business unit and individual performance. For example, 2018 total direct compensation includes the LTI values approved by the Committee for awards made in early February 2019 because these awards reflect its assessment of 2018 performance. The Summary Compensation Table, by contrast, shows the grant date fair value of the January 2018 LTI awards, which reflects the Committee’s assessment of 2017 performance. Further, due to the valuation methodology used to determine the number of shares granted (see page 44), the LTI award values approved by the Committee, and included in total direct compensation, differ from the accounting grant date fair value ultimately reported in the Summary Compensation Table in the following year. Other elements included in the Summary Compensation Table, such as changes in pension values and other formulaic compensation components are excluded from total direct compensation because they do not relate to performance and are outside the scope of the Committee’s annual pay decisions. The Committee therefore believes that total direct compensation renders a more accurate and up-to-date reflection of its assessment of performance.

CEO TOTAL DIRECT COMPENSATION  

2016
Reflects January 2017 LTI Grant

 

2017
Reflects January 2018 LTI Grant

 
 

2018
Reflects February 2019 LTI Grant

 
 

     46      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Pay Decisions for the CEO


TOTAL DIRECT COMPENSATION
$18.10 MILLION


The Committee assessed Mr. Hayes’ 2018 performance favorably. Under his leadership, UTC successfully executed its 2018 financial, strategic and operational objectives in tandem with closing the Rockwell Collins acquisition and conducting an in-depth analysis of the Company’s business portfolio. The Committee’s compensation decisions below reflect his ability to deliver near-term performance while focusing on long-term strategic initiatives.

Base Salary. The Committee increased Mr. Hayes’ base salary from $1.5 to $1.6 million, effective April 2018, consistent with the market median for our Compensation Peer Group (“CPG”).

Annual Bonus. UTC’s 2018 annual bonus factor is determined based on adjusted net income and free cash flow performance against pre-established goals. 2018 adjusted net income of $5.9 billion used for annual bonus purposes exceeded the $5.6 billion goal, resulting in a payout factor of 152% for the earnings metric. Free cash flow used for annual bonus purposes equaled $4.9 billion, compared to the $5.0 billion goal. This resulted in a 95% payout factor for the UTC cash flow metric. In combination, these results generated a UTC financial performance factor of 129%. The Committee subsequently adjusted the calculated factor to 125%, as discussed in detail on page 43.

       

The Committee used this adjusted factor and awarded Mr. Hayes a $3.5 million annual bonus, an amount that aligned with the Company’s adjusted performance factor of 125%.

LTI. The Committee approved a 2019 long-term incentive award of $13 million, an amount that exceeds the value of Mr. Hayes’ 2018 grant and aligns with the CPG market median for his role. As previously noted, due to differences in valuation methodologies (see page 44 for details), the grant date fair value of this award will be reported as $13.4 million in next year’s Summary Compensation Table.

INDIVIDUAL PERFORMANCE HIGHLIGHTS

Delivery of strong financial performance in 2018, including diluted EPS growth of 14% (GAAP and non-GAAP) and net income growth of 16% (GAAP and non-GAAP). In addition, net sales growth was 11% (GAAP), which included organic growth of 8% (non-GAAP).
Successful completion of the $30+ billion (including debt) Rockwell Collins acquisition, one of the largest aerospace acquisitions in history.
Completion of the Company’s portfolio review which resulted in our plan to separate UTC, Carrier and Otis into three standalone companies, allowing these businesses to focus on their core competencies and unique competitive challenges.
Continued commitment to innovation, as evidenced by UTC’s strategic purchase of Predikto, Inc., a cloud-based analytics software company, with expertise that enables customers to predict, prevent and control equipment failures.
Effectively driving a high-performance culture while emphasizing ethical standards, transparency and corporate responsibility.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      47     


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

How We Assess Pay-for-Performance

The Summary Compensation Table on page 58 provides annual compensation data presented in accordance with the Securities and Exchange Commission’s (“SEC”) requirements. While helpful for cross-company comparisons, this SEC-mandated format uses accounting conventions to estimate values of long-term incentive awards at the time of grant. As might be expected, these estimated values can differ significantly from the actual value that is ultimately earned from these awards. Because the Committee believes this format does not adequately measure CEO compensation for the purpose of assessing pay-for-performance alignment, it also considers realizable and realized compensation as supplemental measures in its evaluation of CEO pay-for-performance. These measures are described in detail below.

Summary Compensation Table    Realizable Compensation    Realized Compensation
Basic concept
Uses SEC methodology, which includes a mix of both compensation actually earned during the year and future contingent pay opportunities. Three-year average compensation measure that captures how UTC’s year-end stock price affects the in-the-money value(1) of previously granted equity awards. Includes only pay actually earned during the year, including any gains realized on equity awards that were granted in prior years.
Purpose
SEC-mandated compensation disclosure. Used to evaluate pay-for-performance alignment by correlating the value of an executive’s long-term incentive awards with the returns our shareowners receive from investing in UTC stock over the same period. Used to evaluate pay-for-performance alignment by focusing on the strength of the correlation between UTC’s stock performance and the actual cash and equity payouts earned by our CEO during the year.
How it is calculated
Sum of: Three-Year Average of: Sum of:
Base salary paid during the year Base salary paid Base salary paid during the year
Annual bonus earned for the applicable year’s performance Annual bonus earned Annual bonus earned for the applicable year’s performance
Accounting grant date fair value of equity awards granted during the year reflecting prior year’s performance In-the-money value(1) of equity awards granted during the prior three fiscal years, calculated using the stock price at the end of the third year Gains realized on equity awards exercised and vested during the year

All other compensation Other direct(2) compensation Other direct(2) compensation
Change in the actuarial value of pension benefits Excludes: Excludes:
Above-market earnings of nonqualified deferred compensation
Change in the actuarial present value of pension benefits
Above-market earnings of nonqualified deferred compensation
Other indirect(3) compensation
Change in the actuarial present value of pension benefits
Above-market earnings of nonqualified deferred compensation
Other indirect(3) compensation

Future pay opportunities that may or may not be realized.
(1) Defined as the difference between the closing stock price of UTC Common Stock at the end of the fiscal year and the exercise price of the award (if any) multiplied by the number of shares underlying equity awards. For PSU awards for which the vesting factor is not yet known, the target number of shares is used.
(2) Includes personal use of the Corporate aircraft, leased vehicle expenses, financial planning, security benefits, healthcare benefits and other miscellaneous items.
(3) Includes insurance premiums and Company contributions to nonqualified deferred compensation plans and defined contribution retirement plans.

     48      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

The following charts compare the Summary Compensation Table values reported for Mr. Hayes for the past three years to his realizable and realized compensation for the same period. These supplemental methodologies provide the Committee with relevant measures to assess the pay-for-performance relationship by focusing on the strength of the correlation between UTC’s stock price performance and compensation realizable and realized during these time periods. The Committee believes that the design of our executive compensation program, with its significant focus on “at-risk” pay, reinforces its key objectives of driving long-term shareowner value, aligning executive and shareowner interests, and rewarding pay-for-performance.

CEO PAY-FOR-PERFORMANCE  


*

Refer to the table on page 48 to see how we calculate realizable and realized compensation.


Our program’s fundamental objective is to drive
long-term shareowner value,
align executive
and shareowner interests, and reward
pay-for-performance.
    

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      49     


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Pay Decisions for the Other NEOs

The Committee makes annual compensation decisions for our NEOs based on their individual performance and the overall performance of the Company (and the business unit and/or function, where applicable). The following pages show each NEO’s 2018 total direct compensation values. As discussed on page 46, total direct compensation includes only those pay elements that relate to the Committee’s assessment of 2018 performance (i.e., it includes 2019 LTI grants that reflected 2018 performance, rather than 2018 LTI grants that reflected 2017 performance). We also provide individual performance highlights that contributed to the Committee’s pay decisions for each NEO.


TOTAL DIRECT COMPENSATION
$6.60 MILLION
INDIVIDUAL PERFORMANCE HIGHLIGHTS

Effective management of UTC’s Finance function, as evidenced by our strong 2018 financial performance, including:
14% diluted EPS growth (GAAP and non-GAAP), an amount that exceeded the expectations we communicated to investors at the beginning of the year;
Net sales growth of 11% (GAAP), which included organic growth of 8% (non-GAAP); and
Growth in net income from continuing operations of 16% (GAAP and non-GAAP).
Leadership in driving UTC’s disciplined capital allocation strategy, including:
$2.5 billion returned to shareowners in 2018 through dividends and share repurchases; and
$4.0 billion in company- and customer-funded investments in research and development.
Significant role in completing the Rockwell Collins acquisition and the business portfolio review that culminated in our plan to separate UTC, Carrier and Otis into three independent companies.
Ranked best CFO in the Aerospace and Defense Electronics sector by Institutional Investor magazine based on a survey of analysts and shareowners.

 

    

Base Salary. During 2018, Mr. Johri received a merit increase to his base salary from $860,000 to $900,000. This increase reflected the Committee’s favorable assessment of his performance, as well as its efforts to keep Mr. Johri’s base salary aligned with the CPG and Fortune 100 market medians for his role. Following this increase, Mr. Johri’s base salary closely aligns with the market median.

Annual Bonus. The Committee considered the UTC adjusted financial performance factor of 125% (as previously discussed on page 43), Mr. Johri’s effective leadership of UTC’s Finance function and the individual performance considerations noted here, and awarded him a $1.2 million annual bonus for 2018. This amount is closely aligned with the adjusted 125% UTC financial performance factor.

LTI. In consideration of Mr. Johri’s strong 2018 performance, the Committee approved a $4.5 million 2019 LTI award, an amount above the CPG and Fortune 100 market medians for his role. As previously noted, due to differences in valuation methodologies, the grant date fair value of this award will be reported as $4.6 million in next year’s Summary Compensation Table.


     50      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS


TOTAL DIRECT COMPENSATION
and Mr. Ortberg wished to continue his employment with the Company following the acquisition. Accordingly, we reached an agreement whereby Mr. Ortberg waived his rights and benefits under his change-in-control agreement. In exchange, the Company agreed to grant Mr. Ortberg an RSU award valued at $9.875 million following the closing. Importantly, Mr. Ortberg’s agreement with UTC provides for certain post-termination restrictive covenants that protect UTC’s interests, including non-competition, customer and employee non-solicitation, non-disclosure, and intellectual property protections. In replacing a contingent change-in-control severance benefit with a stock-based retention award with important restrictive covenants, this compensation strategy serves the best interest of the Company.

INDIVIDUAL PERFORMANCE HIGHLIGHTS

During 2018, Mr. Ortberg effectively led Rockwell Collins to the successful closing of its merger with UTC.
Notwithstanding the challenges of the merger process, under Mr. Ortberg’s leadership, Rockwell Collins delivered solid operational and strategic results in 2018, positioning the new Collins Aerospace business for the future. Examples include:
Successful delivery of the OLED F-35 advanced helmet display system for safety of flight evaluation, an outstanding technical achievement.
Entry into service of the Flight Operations and Maintenance Exchanger (FOMAX) program, which positions Collins Aerospace as a leader in connected aviation with real-time secure data gathering and transmissions during all phases of flight.
Meeting key milestones for the Boeing 777X.
Exceeding cost and sales synergy goals for the B/E Aerospace acquisition.
Maintained outstanding employee engagement throughout the 15-month merger approval process.
(1) Includes Rockwell Collins years of service.
(2) Reflects a prorated portion of base salary and annual bonus paid to Mr. Ortberg for the portion of the year he was a UTC employee.
$6.25 MILLION
    
Mr. Ortberg served in the role of Chairman, President and CEO of Rockwell Collins until UTC’s acquisition of the company on November 26, 2018. Upon the completion of the acquisition, Mr. Ortberg became CEO of the combined Collins Aerospace business, and UTC and Mr. Ortberg entered into an agreement that provided for the following:

Base Salary. Mr. Ortberg’s full-year base salary remained at its pre-acquisition level of $1,170,500 following the closing.

Annual Bonus.
Mr. Ortberg’s target annual bonus was reduced from 150% to 125% of base salary following the acquisition. Since the acquisition of Rockwell Collins did not close until November 26, 2018, UTC elected to pay Mr. Ortberg a pro-rata portion of his target annual bonus ($140,300) for the period between the closing and December 31, 2018.

LTI. The value of Mr. Ortberg’s 2019 annual LTI grant was reduced to $6.0 million from his last Rockwell Collins LTI award of $7.3 million. As previously noted, due to differences in valuation methodologies, the grant date fair value of this award will be reported as $6.2 million in next year’s Summary Compensation Table.

Other Compensation Elements. Under the terms of Mr. Ortberg’s Rockwell Collins change-in-control agreement, he had the right to terminate his employment with UTC for “good reason” within two years following the acquisition, and receive severance and benefit continuation. The Company, however, wanted to retain Mr. Ortberg and eliminate his incentive to terminate,


United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      51     


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS


TOTAL DIRECT COMPENSATION

INDIVIDUAL PERFORMANCE HIGHLIGHTS
$5.88 MILLION

    

Leading Otis’ significant efforts to digitalize the entire business, including the 2018 launch of the Otis ONE digital platform, which collects real-time performance data to help predict and prevent equipment shutdowns.
Major contract wins for some of the world’s largest and most complex projects, including:
Installation of 171 escalators and moving walkways for SNCF French Rail, which includes a 15-year maintenance contract and “mid-life” renovations.
More than 200 units to be installed in the new Resorts World Las Vegas entertainment complex.
More than 2,500 units for metro, rail and airport projects in 11 cities across China.
Selected to provide nine super double-deck elevators for the iconic Haikou Twin Towers project on Hainan Island off the coast of southern China.
Exceeded 2 million units under maintenance contracts for the first time in Otis’ history.

Base Salary. Ms. Marks received a base salary increase from $850,000 to $875,000 in 2018. This increase reflected the Committee’s favorable assessment of her performance in her short tenure as President of Otis. Ms. Marks’ base salary is now closely aligned with our CPG market median.

Annual Bonus. The unadjusted UTC financial performance factor (129%, as discussed on page 43) and the Otis factor (78%), resulted in a blended financial performance factor of 99% of target. The Committee subsequently used its discretion and reduced the Otis factor to 95% of target. Based on this factor, along with the individual performance considerations noted here, the Committee awarded Ms. Marks an annual bonus of $900,000, an amount that is slightly above Otis’ blended financial performance factor.

LTI. In consideration of Ms. Marks’ strong 2018 performance, the Committee approved a $4.1 million 2019 LTI award, an amount above the CPG market median for her role. As previously noted, due to differences in valuation methodologies, the grant date fair value of this award will be reported as $4.2 million in next year’s Summary Compensation Table.

Other Compensation Elements. Ms. Marks joined UTC in late 2017 as President of Otis. In early 2018, UTC paid Ms. Marks a one-time $500,000 cash sign-on bonus to offset compensation she forfeited with her former employer.


     52      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS


TOTAL DIRECT COMPENSATION
$6.30 MILLION

Mr. Gitlin served in the role of President, UTC Aerospace Systems (“UTAS”), until the completion of the Rockwell Collins acquisition on November 26, 2018, at which point he transitioned to the role of President & Chief Operating Officer of the combined Collins Aerospace business. Since Mr. Gitlin led the UTAS business for most of the year, the Committee evaluated his performance relative to the performance of the pre-merger UTAS organization.

Base Salary. Mr. Gitlin’s base salary remained at $900,000 for 2018, an amount that is closely aligned with the CPG market median for his role.

Annual Bonus. The unadjusted UTC financial performance factor (129%, as discussed on page 43) and the UTAS factor (111%) resulted in a blended financial performance factor of 118% of target. The Committee subsequently adjusted the UTAS factor to 130% in recognition of the successful closing of the Rockwell Collins acquisition and the continued integration of the two businesses. Based on these results, along with the individual performance considerations noted here, the Committee awarded Mr. Gitlin an annual bonus of $1.3 million, an amount moderately above UTAS’ blended financial performance factor.

LTI. In consideration of Mr. Gitlin’s strong 2018 performance, the Committee approved a $4.1 million 2019 LTI award, an amount above the CPG market median for his role. As previously noted, due to differences in valuation methodologies, the grant date fair value of this award will be reported as $4.2 million in next year’s Summary Compensation Table.

  

INDIVIDUAL PERFORMANCE HIGHLIGHTS

Successful closing of the Rockwell Collins acquisition and his continued efforts in support of the integration of the merged Collins Aerospace business.
Met or exceeded all key financial and operational goals for the year, notwithstanding the significant additional challenges associated with the closing of the acquisition of Rockwell Collins and the ongoing integration process.
Leadership in driving substantial Collins Aerospace accomplishments, including:
Selection by Dassault Aviation to furnish an advanced nacelle system for its Falcon 6X business jet, providing for quieter and more fuel-efficient operations.
Achieved significant wins for wheel and brake systems in 2018, with more than 35 airlines selecting Collins Aerospace’s equipment, which represent commitments totaling more than $500 million.
Selection by Boeing to provide the ACES 5 ejection seat and fully integrated landing gear system for the U.S. Air Force’s new T-X jet trainer.
Contracted to develop state-of-the-art electric power generation system for South Korea’s KF-X fighter.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      53     


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Other Compensation Elements

Retirement and Deferred Compensation Benefits

Retirement and deferred compensation plans help UTC attract and retain talented executives. Over the years, the Committee has updated these programs to maintain a competitive position within an evolving market. We believe the overall design of our retirement and deferred compensation programs is currently consistent with compensation practices in the marketplace and provides participating executives with benefits that approximate the Compensation Peer Group market median.

Below are brief descriptions of each retirement and deferred compensation arrangement we offer. See the Pension Benefits and the Nonqualified Deferred Compensation sections on pages 63-66 for more details.

Plan    Description
UTC Employee
Retirement Plan
Employees hired prior to January 1, 2010, are eligible to participate in this tax-qualified pension plan. Effective December 31, 2014, participants who had been covered by the original final average earnings (“FAE”) formula of this plan transitioned to a more modest cash balance formula, which was already in effect for newer participants. See page 63 for details on these formulas.
UTC Pension
Preservation Plan
An unfunded, nonqualified retirement plan utilizing the same benefit formula, compensation recognition, retirement eligibility and vesting provisions as the tax-qualified UTC Employee Retirement Plan. For employees hired prior to January 1, 2010, it provides pension benefits not provided under the tax-qualified pension plan because of Internal Revenue Code limits.
UTC Employee
Savings Plan
A tax-qualified plan where employees receive a matching contribution in the form of UTC stock units with a value equal to 60% of the first 6% of pay (consisting of base salary plus annual bonus) contributed by the employee. Salaried employees hired on or after January 1, 2010, who are not eligible to participate in the UTC Employee Retirement Plan receive an additional age-based Company contribution (ranging from 3% to 5.5% of earnings) to their UTC Employee Savings Plan account.
UTC Savings
Restoration Plan
An unfunded, nonqualified plan that matches the executive’s contributions with Company contributions in UTC stock units at the same rate as the UTC Employee Savings Plan, to the extent such contributions exceed Internal Revenue Code limits.
UTC Company
Automatic Contribution
Excess Plan
An unfunded, nonqualified plan for which salaried employees hired on or after January 1, 2010, may receive an additional age-based Company automatic contribution (ranging from 3% to 5.5% of earnings) for amounts above the Internal Revenue Code limits applicable to the qualified UTC Employee Savings Plan. Participants receiving benefits under this plan are ineligible to accrue a benefit under the UTC Pension Preservation Plan described above.
UTC Deferred
Compensation Plan
An unfunded, nonqualified, deferred compensation plan that offers executives the opportunity to defer up to 50% of base salary and up to 70% of annual bonus.
UTC PSU Deferral Plan An unfunded, nonqualified, deferred compensation plan that allows executives to defer between 10% and 100% of their vested PSU awards. Upon vesting, the deferred portion of each PSU award is converted into deferred stock units that accrue dividend equivalents.

     54      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Perquisites and Other Benefits

We provide the following benefits to our senior executives, which the Committee believes are consistent with market practice and contributes to recruitment and retention.

Perquisite/Benefits*    Description
ELG Life Insurance ELG members appointed prior to January 31, 2015, may receive company-funded life insurance coverage up to three times their base salary at age 62 (projected or actual). This benefit is not available to Ms. Marks and Mr. Ortberg, who were appointed to the ELG after January 31, 2015.
ELG Long-Term
Disability
The ELG long-term disability program provides an annual benefit upon disability that is equal to 80% of base salary plus target annual bonus.
Healthcare ELG members are eligible to participate in 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 ELG members with an annual allowance toward the costs of a leased vehicle. The value of the allowance varies by ELG appointment date. Any costs above the annual allowance are paid directly by the executive.
Financial Planning ELG members are eligible to receive an annual financial planning benefit.
Personal Aircraft
Usage
Our CEO is allowed personal use of the Corporate aircraft for up to 50 hours per year. The Committee believes this optimizes the efficient use of Mr. Hayes’ time. Under this policy, Mr. Hayes also may fly commercially, subject to review by UTC security personnel. No other UTC employees are permitted to use the Corporate aircraft for personal reasons.
Security Arrangements The Committee approved a security system benefit for Mr. Hayes’ personal residence after a third-party security assessment was performed in 2017.

* See footnote (5) to the Summary Compensation Table on page 59 for more details on these perquisites/benefits.

Severance and Change-in-Control Arrangements

ELG members participate in severance and change-in-control arrangements similar to programs in effect at the majority of the companies within our Compensation Peer Group. The Committee believes such arrangements are part of a competitive executive compensation program. Our severance program incorporates post-employment restrictive covenants designed to protect UTC’s interests, including non-competition, non-solicitation and non-disclosure obligations.

Severance and change-in-control benefits are contingent upon certain future events that may never occur. The Committee, therefore, does not consider these contingent benefits when setting other compensation elements or measuring total direct compensation.

For specific details on our severance and change-in-control arrangements, and how these programs have evolved over time, see the Potential Payments on Termination or Change-in-Control section on pages 66-69.

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      55     


Table of Contents

COMPENSATION DISCUSSION AND ANALYSIS

Other Executive Compensation Policies and Practices

Succession Planning

On an annual basis, the Chairman & CEO and the Executive Vice President & Chief Human Resources Officer provide the Board with information about the succession planning for key senior leadership roles, including the CEO. Succession plans include a readiness assessment, biographical information and future career development plans. The Board’s views are incorporated into succession plans which are updated annually based on this feedback.

Employment Agreements

The Committee does not believe fixed-term executive employment contracts that guarantee minimum levels of compensation over multiple years enhance shareowner value. Accordingly, our U.S.-based executives do not have employment contracts, except for certain agreements with employees from acquired businesses (such as Mr. Ortberg’s agreement described on page 67). We also have agreements with non-U.S.-based executives where local regulations and practices require employment contracts.

Post-Employment Restrictive 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 or engaging in competitive activities. Violations can result in a clawback of annual and long-term incentive awards.

Clawback Policy

UTC has a comprehensive policy on recoupment (“clawback”) of executive compensation, which applies to both our annual and long-term incentive compensation programs. 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 NEOs) involved in activities that caused the restatement or recalculation. 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, violations of post-employment restrictive covenants, or the exposure of UTC to excessive risk as determined under our Enterprise Risk Management program (for additional details on this program refer to page 21). In addition, the Company has the right to recover compensation when an executive’s negligence (including negligent supervision of a subordinate) causes significant harm to UTC. If required or otherwise appropriate, the Company may publicly disclose the circumstances surrounding the Committee’s decision to seek recoupment.

No Short Sales, Pledging or Hedging of UTC Securities and No Underwater Option Buyouts

UTC does not allow its directors, officers or executives to enter into short sales of UTC Common Stock. Similarly, directors and executive officers may not pledge or assign an interest in UTC Common Stock or other equity interests as collateral for a loan. Additionally, transactions in put options, call options or other derivative securities that have the effect of hedging the value of UTC securities are also prohibited, whether or not those securities were granted to or held, directly or indirectly, by the director, officer or employee. UTC’s LTIP prohibits buyouts of underwater stock options and stock appreciation rights.

Tax Deductibility of Incentive Compensation

To the extent consistent with other compensation objectives, the Committee has sought to minimize UTC’s compensation-related tax burden. For 2018, Internal Revenue Code section 162(m) limited UTC’s deduction to $1 million for annual compensation paid to our NEOs, as defined in section 162(m).

     56      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

 
REPORT OF THE

Compensation Committee

The Compensation Committee 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 have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in UTC’s Proxy Statement for the 2019 Annual Meeting.

COMPENSATION COMMITTEE

 
 

Jean-Pierre Garnier, Chair

Ellen J. Kullman

Denise L. Ramos

John V. Faraci

Harold W. McGraw III

Brian C. Rogers


United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      57     


Table of Contents

 
COMPENSATION

Tables

SUMMARY COMPENSATION TABLE    
 
Year Salary ($) Bonus ($)(1)  Stock
Awards ($)(2)
Option
Awards ($)(3)
Change
in Pension
Value and
Nonqualified
Deferred
Compensation
Earnings ($)(4)
All Other
Compensation ($)(5)
Total ($) Total
Without
Change in
Pension
Value ($)
 
GREGORY J. HAYES • Chairman & Chief Executive Officer
2018   $1,575,000   $3,500,000   $8,878,810   $3,165,260   $829,344   $469,901   $18,418,315   $17,599,694
2017 $1,500,000 $3,300,000 $7,877,818 $2,589,650 $1,277,981 $482,044 $17,027,493 $15,759,799
2016 $1,450,000 $3,000,000 $4,960,217 $3,706,560 $2,392,716 $321,842 $15,831,335 $13,448,390
 
AKHIL JOHRI • Executive Vice President & Chief Financial Officer
2018 $890,000 $1,200,000 $2,950,834 $1,051,810 $0 $361,924 $6,454,568 $6,454,568
2017 $851,250 $1,100,000 $2,674,030 $883,225 $198,047 $356,512 $6,063,064 $5,865,017
2016 $766,667 $1,100,000 $1,609,731 $1,207,440 $151,840 $259,356 $5,095,034 $4,943,194
 
ROBERT K. ORTBERG • Chief Executive Officer, Collins Aerospace(6)
2018 $112,240 $140,300 $9,875,022 $0 $30,107 $147,381 $10,305,050 $10,274,943
 
JUDITH F. MARKS • President, Otis
2018 $868,750 $1,400,000(7) $2,950,834 $1,051,810 $0 $241,555 $6,512,949 $6,512,949
 
DAVID L. GITLIN • President & Chief Operating Officer, Collins Aerospace
2018 $900,000 $1,300,000 $2,950,834 $1,051,810 $0 $239,548 $6,442,192 $6,442,192
2017 $812,500 $1,100,000 $6,855,052 $943,250 $385,996 $181,970 $10,278,768 $9,892,772

(1)

Bonus. Cash bonuses provided under the UTC Annual Executive Incentive Compensation Plan. Payments are primarily based on measured performance against pre-established goals. However, the Committee retains discretion to adjust annual bonus amounts based on its assessment of overall performance. Consequently, we report annual bonuses in the Bonus column rather than in the Non-Equity Incentive Plan Compensation column. For Mr. Ortberg, the amount shown reflects a pro-rata target bonus paid for the period between November 26, 2018 (the closing date of the Rockwell Collins acquisition) and the end of the calendar year.

(2)

Stock Awards. 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 fair value of these awards are set forth in Note 12: Employee Benefit Plans, to the Consolidated Financial Statements in Exhibit 13 to UTC’s 2018 Annual Report on Form 10-K (“2018 Form 10-K”). PSU awards are discussed in the Compensation Discussion and Analysis and in footnote (2) of the Grants of Plan-Based Awards table on page 60 of this Proxy Statement. The grant date fair values shown for PSU awards granted in 2018 to our NEOs assume target-level performance. If the highest level of performance is achieved, the grant date fair values would be: Mr. Hayes, $10,453,351; Mr. Johri, $3,470,081; Ms. Marks, $3,470,081; and Mr. Gitlin, $3,470,081. Mr. Ortberg did not receive PSUs in 2018. Following the close of the Rockwell Collins acquisition, UTC entered into an agreement with Mr. Ortberg to waive his rights and benefits under his Rockwell Collins change-in-control agreement. In exchange, he was granted a one-time retention RSU award which includes various post-termination restrictive covenants that protect UTC’s interests. Additional details concerning this award can be found on page 67.

(3)

Option Awards. Grant date fair value of 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 2018 Form 10-K.

(4)

Change in Pension Value and Nonqualified Deferred Compensation Earnings. The amounts in this column reflect the change, if any, in the year-over-year actuarial present value of each executive’s accrued benefit under UTC’s defined benefit plans and above-market earnings (if any) under UTC’s deferred compensation 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 2018 Form 10-K. The actuarial value of pension benefits normally increases each year with the value of additional pension benefits earned (if applicable) and age, which reduces the time required to retire with an unreduced benefit. This year there was a net reduction in actuarial value for Mr. Johri and Mr. Gitlin because the discount rate used to determine the present value of these benefits increased from 3.59% in 2017 to 4.28% in 2018. In accordance with SEC rules, no amount is reported for the NEOs with a negative value. The total year-over-year decrease in pension benefits for Mr. Johri was -$54,011 and for Mr. Gitlin was -$39,886. UTC’s deferred compensation plans do not provide above-market rates of return. 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 Corporation in 1999. Mr. Hayes accrued $10,723 in above-market earnings under this plan in 2018.


     58      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION TABLES

(5)

All Other Compensation. The 2018 amounts in this column consist of the following items:


Name    Personal
Use of
Corporate
Aircraft(a)
   Leased
Vehicle(b)
   Insurance
Premiums(c)
   Company
Contributions
to 401(k)
Plans(d)
   Company
Contributions to
Non-Qualified
Retirement
Plans(e)
   Relocation
Benefits(f)
   Financial
Planning(g)
  
Healthcare
Benefits(h)
  
Misc.
   Total
G. Hayes $85,401 $44,598 $143,741 $9,900 $165,600 $0 $0 $18,574 $2,087 $469,901
A. Johri $0 $31,371 $129,963 $25,025 $156,065 $0 $4,900 $13,465 $1,135 $361,924
R. Ortberg $0 $2,100 $0 $0 $9,904 $133,984 $0 $1,116 $277 $147,381
J. Marks $0 $16,780 $0 $15,125 $55,719 $124,006 $16,000 $13,502 $423 $241,555
D. Gitlin $0 $33,388 $63,604 $9,900 $62,100 $36,309 $16,000 $17,113 $1,134 $239,548

  (a)

Incremental variable operating costs incurred for personal air travel which includes 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 and catering and hourly maintenance contract charges, when applicable. Because fleet-wide aircraft utilization is primarily for business purposes (approximately 99% in 2018), capital and other fixed expenditures are not treated as an incremental cost.

(b)

Annual costs incurred by UTC in connection with a leased vehicle provided to the executive. Mr. Ortberg’s amount reflects a monthly vehicle allowance under the legacy Rockwell Collins car program.

(c)

Premiums paid on behalf of the executive under the ELG life insurance program. This benefit was eliminated for ELG members appointed after January 31, 2015, thereby excluding Ms. Marks and Mr. Ortberg. Under this program, UTC pays the premiums on a cash value life insurance contract owned by the executive. Life insurance benefits equal up to three times the executive’s actual or projected base salary at age 62. Once vested (age 55 or older with three years of service as an ELG member), UTC funds the policy to maintain coverage following retirement.

(d)

Dollar value of Company matching contributions made into the UTC Employee Savings Plan, which includes an additional Company automatic contribution for employees hired on or after January 1, 2010 (e.g., Mr. Johri and Ms. Marks) who do not participate in UTC’s pension plans which were closed to new participants. Mr. Johri does have a benefit under the UTC pension plans with respect to his service before January 1, 2010, but due to his break in UTC service no longer accrues additional benefits. For further details on this Plan refer to page 54.

(e)

Dollar value of Company contributions to the UTC Savings Restoration Plan (“SRP”) and the UTC Company Automatic Contribution Excess Plan (“CACEP”). Under the SRP, participants are credited with a benefit equal to the Company matching contribution that the executive did not receive under the UTC Employee Savings Plan due to IRC limits. For executives hired on or after January 1, 2010, including Mr. Johri and Ms. Marks, the CACEP provides an additional age-based Company automatic contribution for compensation earned over IRC limits. The amounts shown for Mr. Ortberg represent matching and retirement contributions made under the legacy Rockwell Collins Non-Qualified Retirement Savings Plan for the period between November 26, 2018 and December 31, 2018. For additional details on these UTC Plans, see page 65 of this Proxy Statement.

(f)

Costs associated with relocation expenses, which include tax reimbursement payments of $11,418 for Mr. Ortberg and $26,400 for Ms. Marks.

(g)

Costs associated with a financial planning benefit available to ELG members.

(h)

Costs incurred by the Company associated with annual executive physicals and Company-covered healthcare benefits.

(6)

All values shown in the Summary Compensation Table for Mr. Ortberg reflect compensation earned as a UTC employee for the period between November 26, 2018 (the closing date of the Rockwell Collins acquisition) and December 31, 2018.

(7)

Includes a cash sign-on bonus of $500,000 paid in the first quarter of 2018 to offset compensation forfeited from Ms. Marks’ former employer.


United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      59     


Table of Contents

COMPENSATION TABLES

GRANTS OF PLAN-BASED AWARDS  

 
 
Estimated Future Payouts under
Equity Incentive Plan Awards(2)
All Other
Stock Awards:
Number of
Shares of Stock
or Units (#)(3)
All Other
Option Awards:
Number of
Securities
Underlying
Options (#)(4)
Exercise or
Base Price of
Option Awards
($/Sh)(5)
Grant Date Fair
Value of Stock
and Option
Awards ($)(6)
Grant Date(1)    Threshold (#)    Target (#)    Maximum (#)            
 
G. HAYES
1/2/2018 3,880 48,500 97,000 $6,379,690
1/2/2018 161,000 $128.16 $3,165,260
1/2/2018 19,500 $2,499,120
 
A. JOHRI
1/2/2018 1,288 16,100 32,200 $2,117,794
1/2/2018 53,500 $128.16 $1,051,810
1/2/2018 6,500 $833,040
 
R. ORTBERG
12/3/2018(7) 79,895 $9,875,022
 
J. MARKS
1/2/2018 1,288 16,100 32,200 $2,117,794
1/2/2018 53,500 $128.16 $1,051,810
1/2/2018 6,500 $833,040
 
D. GITLIN
1/2/2018 1,288 16,100 32,200 $2,117,794
1/2/2018 53,500 $128.16 $1,051,810
1/2/2018 6,500 $833,040

(1)

The Committee approved the 2018 annual long-term incentive awards at its December 2017 meeting, specifying the first business day of the next calendar year as the award grant date.

(2)

Number of PSUs granted under the LTIP, which vest based on performance relative to three-year EPS growth and ROIC goals (each weighted at 35%) and a three-year relative TSR goal (weighted at 30%), except in certain limited circumstances as detailed in footnotes (2), (4) and (6) on pages 68-69. Vesting ranges from a payout of 8% of target if threshold performance is achieved for the least weighted metric (relative TSR) to a maximum payout of 200% if maximum performance is achieved for all three metrics. If UTC’s three-year TSR is negative, the payout for the TSR portion of the award is capped at 100% regardless of UTC’s relative TSR performance versus the companies within the S&P 500. Each PSU corresponds to one share of UTC Common Stock. Unvested PSUs do not accrue dividend equivalents. Vested PSUs are settled in unrestricted shares of UTC Common Stock at the end of the performance period following the Committee’s review and approval of performance achievement levels.

(3)

Number of RSUs granted under the LTIP, which vest three years from the grant date subject to the executive’s continued employment, except in certain limited circumstances as detailed in footnotes (2), (4) and (6) on pages 68-69. Each RSU corresponds to one share of UTC Common Stock. When UTC pays a dividend to shareowners, RSUs earn dividend equivalents during the vesting period that are reinvested as additional RSUs. The reinvested RSUs vest on the same date as the underlying RSUs.

(4)

Number of SARs granted under the LTIP, which vest and become exercisable three years from the grant date subject to the executive’s continued employment, except in certain limited circumstances as detailed in footnotes (2), (4) and (6) on pages 68-69.

(5)

The SAR exercise price equals the NYSE closing price of UTC Common Stock on the grant date.

(6)

Grant date fair value of awards granted in 2018, with vesting assumed at 100% of target for performance-based awards. Values are calculated in accordance with the Compensation – Stock Compensation Topic of the FASB ASC, but excluding the effect of estimated forfeitures.

(7)

One-time retention RSU award granted to Mr. Ortberg in accordance with his agreement to waive his rights and benefits under his Rockwell Collins change-in-control agreement and to assume certain post-employment restrictive covenants. This award vests on the third anniversary of the acquisition of Rockwell Collins, subject to continued UTC employment, except in certain circumstances as detailed in footnotes (2), (4) and (6) on pages 68-69.


     60      United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement


Table of Contents

COMPENSATION TABLES

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END  

Option Awards Stock Awards
Grant Date    Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
   Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
   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
1/2/2018 161,000(6) $128.16 1/1/2028 19,936(9) $2,122,785 97,000 $10,328,560
1/3/2017 151,000(7) $110.83 1/2/2027 21,454(10) $2,284,422 101,000 $10,754,480
1/4/2016 264,000(8) $95.57 1/3/2026 61,480 $6,546,390
1/2/2015 165,500 $115.04 1/1/2025
1/2/2014 71,500 $112.49 1/1/2024
1/2/2013 107,000 $84.00 1/1/2023
1/3/2012 122,000 $74.66 1/2/2022
1/3/2011 103,000 $78.99 1/2/2021
1/4/2010 86,000 $71.63 1/3/2020
 
A. JOHRI
1/2/2018 53,500(6) $128.16 1/1/2028 6,645(9) $707,560 32,200 $3,428,656
1/3/2017 51,500(7) $110.83 1/2/2027 7,221(10) $768,892 34,400 $3,662,912
1/4/2016 86,000(8) $95.57 1/3/2026 19,952 $2,124,489
1/2/2015 134,600 $115.04 1/1/2025
1/2/2015 40,500 $115.04 1/1/2025
1/2/2015 13,422(11) $1,429,175
1/3/2012 30,500 $74.66 1/2/2022
1/3/2011 22,500 $78.99 1/2/2021
1/4/2010 7,250 $71.63 1/3/2020
 
R. ORTBERG
12/3/2018 79,895(12) $8,507,220
11/13/2017 30,341(13) $3,230,710
11/13/2017 20,228(14) $2,153,877
 
J. MARKS
1/2/2018 53,500(6) $128.16 1/1/2028 6,645(9) $707,560 32,200 $3,428,656
11/1/2017 17,129(11) $1,823,896
11/1/2017 8,564(15) $911,895

United Technologies Notice of 2019 Annual Meeting of Shareowners and Proxy Statement      61     


Table of Contents

COMPENSATION TABLES

Option Awards Stock Awards
Grant Date    Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
   Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
   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)
 
D. GITLIN
1/2/2018 53,500(6) $128.16 1/1/2028 6,645(9) $707,560 32,200 $3,428,656
10/11/2017 34,957(16) $3,722,221
1/3/2017 55,000(7) $110.83 1/2/2027 7,744(10) $824,581 36,600 $3,897,168
1/4/2016 79,000(8) $95.57 1/3/2026 18,328 $1,951,565
1/2/2015 46,000 $115.04 1/1/2025
1/2/2014 24,500 $112.49 1/1/2024
11/12/2013 15,753(11) $1,677,379
1/2/2013 18,900 $84.00 1/1/2023
8/1/2012 45,036 $74.79 7/31/2022

(1)

The exercise price of each SAR is equal to the NYSE closing price of UTC Common Stock on the grant date.

(2)

RSUs which include dividend equivalents (if applicable) earned during the vesting period which are reinvested as additional RSUs each time UTC pays a dividend to shareowners. The reinvested RSUs vest on the same date as the underlying RSUs.

(3)

Calculated by multiplying the number of unvested RSUs by $106.48, the NYSE closing price of UTC Common Stock on the last trading day of 2018.

(4)