(The following report by Stacie Hamel appeared on the Omaha World-Herald website on March 21.)
OMAHA — Union Pacific Corp. Chairman and Chief Executive Dick Davidson’s 2003 salary was $1.26 million, 6 percent more than in 2002. He also received a one-time payment of nearly $8 million that was applied to a stock loan he received as part of a long-term incentive plan.
The compensation figures were reported in the company’s annual proxy statement to shareholders in advance of its annual meeting April 17 in Salt Lake City.
The total value of Davidson’s 2003 package rose 15 percent to $18.7 million, though nearly half was in forms of compensation tied to the value of Union Pacific stock and is off-limits until future years. Public companies must report values for compensation such as restricted stock awards as of the dates their proxy statements are filed.
Davidson, 62, received stock options worth an estimated $4.6 million. In lieu of a bonus, he opted for restricted stock awards with a three-year vesting period but which pay dividends. Those awards were valued at $4.5 million.
The total package also included reimbursement for Medicare tax, the use of corporate transportation and tax and financial counseling services.
Davidson’s $8 million payment that was applied to a stock loan was part of an incentive program started in 1999. Executives received payments for about two-thirds of their loan balances because the company met some goals set by the program. The executives have repaid the remainder of the loans.
Union Pacific, which is based in Omaha and operates the nation’s largest railroad, spun off trucking subsidiary Overnite Corp. last fall in an initial public offering that generated $620 million in cash.
The corporation said in its proxy statement that executives are paid in relation to company performance.
“Mr. Davidson’s leadership through a challenging economic environment enabled the company to lead the United States rail industry in key 2003 financial measures,” the statement said.
The financial performance resulted in a 30 percent dividend increase for shareholders – the second year in a row the dividend has risen – and contributed to a two-year, 22 percent increase in the price of Union Pacific stock, the company said.
Union Pacific’s stock price closed Friday at $61.18 a share, down 11.9 percent so far this year
A new stock incentive plan is the subject of a company proposal to shareholders to be voted on at the annual meeting April 17. The plan would allow up to 21 million shares of stock to be granted as options, appreciation rights, retention shares, stock units or incentive bonuses.
Two proposals by shareholders will be presented for votes at the annual meeting, including one on executive compensation by the Brotherhood of Locomotive Engineers. The union, headquartered in Cleveland, owns 100 shares of U.P. stock.
The union’s proposal requests that stock options no longer be awarded as incentives for senior executives.
Instead, the proposal states, incentive plans should use restricted shares that vest over a period of at least three years, that are awarded based on operational performance measures disclosed to shareholders, that yield no dividends or proxy voting rights before vesting, and that must be retained for the executive’s tenure with the company.
U.P.’s board of directors recommended shareholders vote against the proposal in part because:
o Executive compensation is performance-based, and from 20 percent to 75 percent of an executive’s compensation is at risk.
o Incentive plans include restricted shares that vest over a minimum of three years, as well as retention guidelines that range from one to seven times salary.
o Many companies use stock options not tied to operational performance, and eliminating them could hurt U.P.’s retention and recruitment efforts.
The board also recommended against a proposal by Central Laborers’ Pension, Welfare & Annuity Funds, which owns 1,600 shares. The proposal would require that the company issue a report to shareholders twice a year disclosing monetary and nonmonetary contributions to political candidates, parties, committees and other political entities.
The report would include a business rationale for each contribution and the names of those in the company who participated in the decision to contribute.
The proposal also would require an annual report to shareholders disclosing the company’s policies for direct and indirect political contributions made with corporate funds.
Union Pacific’s board recommended against the proposal, according to the proxy statement, because the directors believe contributions to political parties and candidates ultimately educate public officials about the company’s position on significant issues, and thus are in the shareholders’ best interests.
The majority of political contributions are not from company funds but from employee donations to the company’s Fund for Effective Government, according to the proxy statement. Those funds are subject to federal regulation and disclosure requirements.
Two board members will retire at this year’s annual meeting:
— Elbridge T. Gerry Jr., a partner in banking firm Brown Brothers Harriman & Co. in New York City, has served on the board for 18 years.
— Richard J. Mahoney, retired chairman and chief executive of Monsanto Co. in St. Louis, has been a board member for nearly 13 years.
Shareholders will be asked to re-elect 10 members of the board, including Michael W. McConnell, 60, who was appointed in January. He is a managing partner of Brown Brothers Harriman & Co.
Shareholders also will be asked to approve the continued use of Deloitte & Touche LLP as independent certified public accountants.