LOGO  

United Technologies Corporation

One Financial Plaza

Hartford, CT 06103

View as a PDF

 

February 22, 2008

 

NOTICE OF ANNUAL MEETING OF SHAREOWNERS

 

Dear Fellow Shareowner:

 

We are pleased to invite the shareowners of United Technologies Corporation to attend the 2008 Annual Meeting of Shareowners. The meeting will be held on April 9, 2008 in the South Atrium of Pratt & Whitney Canada’s main facility located at 1000 Marie-Victorin Boulevard, Longueuil, Quebec, Canada. The doors will open at 1:30 p.m. and the meeting will begin at 2:00 p.m. The meeting will address the following matters:

 

1.   Election of twelve directors.

 

2.   Appointment of a firm of independent registered public accountants to serve as Independent Auditors for 2008.

 

3.   Approval of a proposed amendment to the 2005 Long-Term Incentive Plan.

 

4.   The shareowner proposals described in the accompanying Proxy Statement.

 

5.   Other business if properly raised.

 

Shareowners of record of UTC Common Stock at the close of business on February 12, 2008, the record date for the meeting, and their authorized representatives by proxy will be entitled to attend and vote at the meeting.

 

Since seating is limited, please request a ticket in advance in order to attend. Please refer to page 3 of the enclosed Proxy Statement for further information concerning tickets.

 

YOUR VOTE IS VERY IMPORTANT. PLEASE SUBMIT YOUR PROXY OR VOTING INSTRUCTIONS AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. Most shareowners have a choice of voting over the Internet, by telephone or by using a traditional proxy card. Please refer to the enclosed proxy materials or the information forwarded by your bank, broker or other holder of record to see which voting methods are available to you.

 

George David

  Louis R. Chênevert

Chairman and Chief Executive Officer

  President and Chief Operating Officer

 

PLEASE CONFIRM YOUR PREFERENCE FOR ELECTRONIC DELIVERY OF FUTURE ANNUAL MEETING MATERIALS. You can expedite delivery of your annual meeting materials and avoid costly mailings by confirming in advance electronic delivery as your preferred method of delivery. For further information on how to take advantage of this cost-saving service, please see page 42 of the enclosed Proxy Statement.

 

 

TABLE OF CONTENTS

 

 

General Information Regarding the Annual Meeting

PROPOSAL 1: Election of Directors

General Information Concerning the Board of Directors

Nominees

Committees of the Board

Attendance

Security Ownership of Directors, Executive Officers and Certain Beneficial Owners

Executive Compensation

Compensation Discussion and Analysis

Report of the Committee on Compensation and Executive Development

Summary Compensation Table

Grants of Plan-Based Awards

Outstanding Equity Awards at Fiscal Year-End

Option Exercises and Stock Vested

Pension Benefits

Nonqualified Deferred Compensation

Potential Payments on Termination or Change-in-Control

Director Compensation

Report of the Audit Committee

PROPOSAL 2: Appointment of a Firm of Independent Registered Public Accountants to Serve as Independent Auditors for 2008

PROPOSAL 3: Amendment of the 2005 Long-Term Incentive Plan

Equity Compensation Plan Information

PROPOSAL 4: Shareowner Proposal Concerning Principles for Health Care Reform

PROPOSAL 5: Shareowner Proposal Concerning Global Set of Corporate Standards

PROPOSAL 6: Shareowner Proposal Concerning Pay for Superior Performance

PROPOSAL 7: Shareowner Proposal Concerning Offsets for Foreign Military Sales

Additional Meeting Information

Other Matters

Corporate Governance Information and Code of Ethics

Transactions With Related Persons

Section 16(a) Beneficial Ownership Reporting Compliance

Appendix A - Independence of Directors

Appendix B - Proposed Amendment to the UTC 2005 Long-Term Incentive Plan

 

 

UNITED TECHNOLOGIES CORPORATION

 

PROXY STATEMENT

 

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the Annual Meeting, please submit your proxy or voting instructions as soon as possible so that your shares can be voted at the meeting in accordance with your instructions.

 

Our Board of Directors is soliciting proxies for the 2008 Annual Meeting of Shareowners of United Technologies Corporation (“UTC”, the “Corporation” or the “Company”) to be held on April 9, 2008. We began making this Proxy Statement available to shareowners on or about February 22, 2008.

 

Important Notice Regarding the Availability of Proxy Materials for the Shareowner Meeting to be held on April 9, 2008. UTC’s 2008 Proxy Statement and UTC’s Annual Report for 2007 are available at www.edocumentview.com/utx.

 

GENERAL INFORMATION REGARDING THE ANNUAL MEETING.

 

How does the Board of Directors recommend that I vote on the matters to be considered at the meeting?

The following proposals will be considered at the meeting:

 

1.   Election of Directors.

 

2.   Appointment of PricewaterhouseCoopers LLP as Independent Auditors for 2008.

 

3.   Amendment of the 2005 Long-Term Incentive Plan.

 

4.   Shareowner Proposal Concerning Principles for Health Care Reform.

 

5.   Shareowner Proposal Concerning Global Set of Corporate Standards.

 

6.   Shareowner Proposal Concerning Pay for Superior Performance.

 

7.   Shareowner Proposal Concerning Offsets for Foreign Military Sales.

 

The Board recommends that you vote:

 

FOR each of the Board’s nominees for election as directors,

FOR the appointment of PricewaterhouseCoopers LLP as Independent Auditors for 2008,

FOR approval of the amendment to the 2005 Long-Term Incentive Plan, and

AGAINST each of the shareowner proposals.

 

Who is entitled to vote? You are entitled to vote the shares of UTC Common Stock (“Common Stock”) you owned at the close of business on February 12, 2008, which is referred to as the record date. We will make available a list of registered shareowners entitled to vote. The list will be available at UTC’s offices, One Financial Plaza, Hartford, CT, for ten days prior to the meeting and at the meeting location during the meeting.

 

How can I vote my shares? If your shares are registered directly in your name with UTC’s stock registrar and transfer agent, Computershare Trust Company, N.A. (“Computershare”), you are considered the registered shareowner for those shares. As the registered shareowner, you have the right to vote those shares and we will send you the proxy materials and a proxy card (or provide electronic access as described below in the response to the question “Can I vote by telephone or via the Internet?”).

 

Most UTC shareowners hold their shares through a broker, bank, trustee or another nominee, rather than shares registered directly in their name. In that case, you are considered the beneficial owner of shares held in street name, and the proxy materials are being forwarded to you by your broker, bank, trustee or nominee, together with a voting instruction card. As the beneficial owner, you are entitled to direct the voting of your shares by your intermediary. Because a beneficial owner is not a registered shareowner, you may not vote those shares in person at the meeting unless you obtain a “legal proxy” from the broker, bank, trustee or nominee that holds your shares, giving you the right to vote the shares directly. Accordingly, to vote in person, you will need to contact your broker, bank, trustee or nominee to obtain a legal proxy, and present the proxy at the meeting in order to receive a ballot to vote at the meeting.

 

We recommend that you vote your shares in advance of the meeting, using one of the voting methods described below.

 

How can I vote my shares held in the UTC Employee Savings Plan? You can direct the voting of your shares in the ESOP Fund and the Common Stock Fund under the UTC Employee Savings Plan by returning a voting instruction card or by providing voting instructions by telephone or via the Internet. If you do not provide voting instructions (or if your instructions are incomplete or unclear) as to one or more of the matters to be voted on, the trustee will vote all of your uninstructed ESOP Fund shares for the voting choice for which the trustee casts the greatest number of votes pursuant to voting instructions received from ESOP Fund participants who do submit voting instructions. The trustee also will vote your uninstructed Common Stock Fund shares for the voting choice for which the trustee casts the greatest number of votes pursuant to instructions from Common Stock Fund participants who do submit voting instructions. The trustee will vote all unallocated Common Stock in the ESOP Fund for the voting choice for which the trustee casts the greatest number of votes pursuant to instructions from ESOP Fund participants who do submit voting instructions.

 

IMPORTANT NOTICE TO PARTICIPANTS IN THE UTC SAVINGS PLAN FOR EMPLOYEES IN THE UNITED STATES: Computershare must receive your voting instructions by 1:00 PM, Eastern Daylight Saving Time, on April 8, 2008 in order to tabulate voting instructions of Savings Plan Participants and communicate those instructions to the Savings Plan trustee, who will vote your shares.

 

What voting methods are available? We send proxy cards and offer electronic voting to all registered shareowners to enable them to vote their shares. For those registered shareowners who previously have elected to receive electronic access to their proxy materials (rather than receiving mailed copies) and many active U.S. employees who participate in the UTC Employee Savings Plan, we will send you email notification as to how to submit your proxies or voting instructions. Brokers, banks and nominees typically offer telephonic or electronic means by which the beneficial owners of shares held by them can submit voting instructions, in addition to the traditional mailed voting instruction cards. Shareowners who submit a proxy card or voting instructions need not vote at the meeting. However, we will pass out written ballots to any registered shareowner or holder of a legal proxy who wishes to vote in person at the meeting.

 

Can I vote by telephone or via the Internet? Yes. When voting by telephone or via the Internet, you should refer to the proxy card mailed to you (or the email message you receive with instructions on how to vote), which has the proxy access number you will need to authenticate your vote.

 

   

Registered shareowners and participants in the UTC Employee Savings Plan in the United States may submit proxies or voting instructions by telephone by dialing 1-800-652-VOTE or 1-800-652-8683 and following the voice prompts.

 

   

Registered shareowners outside the United States, Canada or Puerto Rico may submit proxies or voting instructions by telephone by dialing 1-781-575-2300.

 

   

Registered shareowners and participants in the UTC Employee Savings Plan may also submit proxies or voting instructions via the Internet by accessing the following website and marking the appropriate boxes: www.envisionreports.com/utx.

 

   

Beneficial owners of shares held through a broker, bank, trustee or nominee may submit voting instructions by telephone or via the Internet if the firm holding the shares for your account offers either of these voting methods. You should refer to the instructions on how to vote provided by that firm.

 

Please note that the facilities for telephone and Internet voting cannot accommodate cumulative voting for the election of directors, and therefore if you wish to exercise cumulative voting rights you must submit a proxy card or voting instructions by mail.

 

How will the proxy holders vote my shares? The proxy holders designated on the Proxy Card will vote your shares in accordance with your instructions given on the Proxy Card, by telephone or via the Internet. If you sign and return your Proxy Card but do not indicate voting instructions on one or more of the matters listed, the proxy holders will vote your uninstructed shares:

 

   

for each of the Board’s nominees for election as a director,

 

   

for the appointment of PricewaterhouseCoopers LLP as Independent Auditors for 2008,

 

   

for the amendment to the 2005 Long-Term Incentive Plan, and

 

   

against each of the shareowner proposals.

 

If you hold your shares through a broker and do not provide your broker with specific voting instructions, under the rules that govern brokers in such circumstances, your broker will have the discretion to vote such shares on routine matters, but not on non-routine matters. As a result:

 

   

Your broker will have the authority to exercise discretion to vote your shares with respect to the election of directors and the appointment of Independent Auditors, because those items are matters that are considered routine under rules of the New York Stock Exchange (“NYSE”).

 

   

Your broker will not have the authority to exercise discretion to vote your shares with respect to the amendment of the 2005 Long-Term Incentive Plan and each of the shareowner proposals, because they involve matters that are considered non-routine.

 

As the proposals to be acted upon at the Annual Meeting include both routine and non-routine matters, we anticipate that brokers may turn in a proxy card that votes uninstructed shares “FOR” the election of directors and appointment of Independent Auditors, but expressly states that the broker is NOT voting on the remaining proposals. The broker’s instructions with respect to the remaining proposals in this case are referred to as “broker non-votes.” In tabulating the voting result for any particular proposal, shares that constitute broker non-votes are not considered.

 

Who can attend the Annual Meeting and how can I request tickets? If you were a registered or beneficial shareowner of UTC Common Stock at the close of business on February 12, 2008, you or your authorized proxy may attend. Since seating is limited, we ask that you request tickets in advance to attend. If your shares are registered in your name on the records of Computershare, or if you are a beneficial owner of shares through a UTC employee savings plan, you can request tickets by sending an email request to the Corporate Secretary at corpsec@corphq.utc.com or by returning the Ticket Request Card provided with the mailed Annual Meeting materials. If you forget to bring a ticket, you will be admitted to the meeting only if you provide proof that you were a registered shareowner or beneficial owner of shares through a UTC employee savings plan as of February 12, 2008 and provide proof of identification. If you hold shares through a broker, bank, trustee or nominee you may request a ticket by writing to the Corporate Secretary and including a copy of an account statement or a legal proxy from the broker, bank, trustee or nominee, in either case showing your ownership of shares as of February 12, 2008.

 

PROPOSAL 1:    ELECTION OF DIRECTORS.

 

General Information Concerning the Board of Directors. Our entire Board is elected annually by the shareowners. The Board, upon the recommendation of the Committee on Nominations and Governance, has nominated for election as directors at the Annual Meeting the twelve nominees listed below, each of whom is a current director. Current directors Frank P. Popoff and H.A. Wagner are not standing for re-election this year and will retire from the Board on April 9, 2008, because each is 72 years of age. UTC’s Corporate Governance Guidelines require that directors retire from the Board as of the next annual meeting following the attainment of age 72.

 

The Board has adopted independence standards for directors that conform to the independence requirements set forth in NYSE listing standards. Copies of these independence standards are available on UTC’s website at http://investors.utc.com/downloads/principles.pdf and are included in Appendix A to this Proxy Statement.

 

The Board has affirmatively determined that each person who served as a director of UTC in 2007, other than Messrs. David and Chênevert, is independent in accordance with these standards. Specifically, none of the nominees that qualify as independent has a business, financial, family or other type of relationship with UTC (other than as a director and shareowner of UTC), except for any relationships that are immaterial under UTC’s independence standards. In determining that each such director is independent, the Board considered that UTC and its subsidiaries in the ordinary course of business sell products and services to, or purchase products and services from, companies at which some of the nominees are or have been employed as officers or serve as directors. Directors Faraci, Garnier, McGraw, Swygert, Villeneuve and Wagner serve as officers and/or directors of entities that purchase products or services from UTC. Directors Faraci, Garnier, McGraw and Swygert serve as officers and/or directors of entities that provide products or services to UTC. In each case, the amounts paid to, or received by, UTC annually from these companies were well below the 2% of total revenue threshold in UTC’s independence standards. The Board also considered charitable contributions that UTC gave to organizations with which Directors McGraw and Swygert are or have been associated, but which do not conflict with UTC’s independence standards since the director did not serve as an executive officer of the organization or the amounts contributed by UTC did not exceed the thresholds in UTC’s independence standards. The Board determined that none of these relationships impaired the independence of the directors.

 

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

 

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

 

LOGO    LOUIS R. CHÊNEVERT, President and Chief Operating Officer, United Technologies Corporation. Mr. Chênevert was elected President and Chief Operating Officer on March 8, 2006. He previously served as President of the Pratt & Whitney division of UTC from April 1999 through March 2006. In 2005, he was inducted as a Fellow of the American Institute of Aeronautics and Astronautics (AIAA). Mr. Chênevert serves on the Board of Directors of the Friends of HEC Montreal, the Board of Overseers for the Bushnell Center for the Performing Arts in Hartford, Connecticut and the Director’s Advisory Board for the Yale Cancer Center. Mr. Chênevert is 50 and has been a UTC director since 2006.
LOGO    GEORGE DAVID, Chairman and Chief Executive Officer, United Technologies Corporation. Mr. David was elected Chief Executive Officer in 1994 and Chairman in 1997. He also served as UTC’s President from 2002 to 2006 and from 1992 to 1999. Mr. David is a board member of BP and Citigroup. He is also a member of The Business Council and The Business Roundtable, and Vice Chairman of the Peterson Institute for International Economics. Mr. David was awarded the Order of Friendship from the Russian Federation in 1999 and in May 2002 France named him to its Legion of Honor. Mr. David is 65 and has been a UTC director since 1992.

 

LOGO    JOHN V. FARACI has been Chairman and Chief Executive Officer of International Paper (paper, packaging and wood products) since 2003. Earlier in 2003 he was elected President and a director of International Paper, and previously served as Executive Vice President and Chief Financial Officer, with additional corporate responsibility for the company’s former majority-owned New Zealand subsidiary, Carter Holt Harvey. He joined International Paper in 1974. He serves on the boards of the American Forest & Paper Association, the Grand Teton National Park Foundation and the National Park Foundation. He is a member of The Business Roundtable, Citigroup International Advisory Board, the American Enterprise Institute and the Denison University Board of Trustees. Mr. Faraci is 58 and has been a UTC director since 2005.
LOGO    JEAN-PIERRE GARNIER, Ph.D., has served as Chief Executive Officer and Executive Member of the Board of Directors of GlaxoSmithKline plc (pharmaceuticals) since 2000. Dr. Garnier served as Chief Executive Officer of SmithKline Beecham plc in 2000 and as Chief Operating Officer and Executive Member of the Board of Directors of SmithKline Beecham plc from 1996 to 2000. He served as Chairman, Pharmaceuticals, SmithKline Beecham from 1994 to 1995. Dr. Garnier is a director of the Committee to Encourage Corporate Philanthropy and the Eisenhower Exchange Fellowships. In 2007, he was promoted from Chevalier to Officier de la Légion d’Honneur of France. In 2006, he was named to the global list of top 20 CEOs by the Best Practice Institute. He is currently a board member of the Stanford Advisory Council on Interdisciplinary Biosciences and the Weill Cornell Medical College, serves on UK Prime Minister Gordon Brown’s International Business Advisory Council and is a member of the advisory board of Dubai International Capital’s Global Strategic Equities Fund. Dr. Garnier is 60 and has been a UTC director since 1997.
LOGO    JAMIE S. GORELICK is a partner at the international law firm, WilmerHale, having joined the firm in 2003. Ms. Gorelick represents companies on regulatory, compliance, governance and enforcement issues. She has held numerous positions in the U.S. Government, serving as Deputy Attorney General of the United States, as General Counsel of the Department of Defense, as Assistant to the Secretary of Energy, and most recently as a member of the bipartisan National Commission on Terrorist Threats Upon the United States. She also served as Vice Chair of Fannie Mae from 1997 to 2003. She is currently a member of the boards of Schlumberger, Ltd., the John D. and Catherine T. MacArthur Foundation, the Carnegie Endowment for International Peace, the Washington Legal Clinic for the Homeless, and The Urban Institute. She is a member of the Council on Foreign Relations. Ms. Gorelick is 57 and has been a UTC director since 2000.

 

LOGO    CHARLES R. LEE served as the Non-Executive Chairman of the Board of Directors of Verizon Communications (telecommunications) from April 2002 until his retirement in December 2003. He was Chairman and Co-Chief Executive Officer of Verizon Communications from June 2000 to March 2002. Prior to the merger of GTE Corporation and Bell Atlantic Corporation to form Verizon Communications, Mr. Lee served as Chairman and Chief Executive Officer of GTE Corporation from 1992 to 2000. He is a director of United States Steel Corporation, Marathon Oil Corporation, The Procter & Gamble Company and The DIRECTV Group, Inc. Mr. Lee is also a member of the Board of the American Institute for Research (AIR), Project GRAD and the Stamford Hospital Foundation. He is also a Trustee Emeritus and Presidential Councilor of Cornell University. In addition, he serves on the Board of Overseers for the Weill Cornell Medical College and is a member of The Business Council. Mr. Lee is 68 and has been a UTC director since 1994.
LOGO    RICHARD D. MCCORMICK served as Chairman of the Board of U S WEST, Inc. (telecommunications) from June 1998 until his retirement in May 1999. He was Chairman, President and Chief Executive Officer of U S WEST, Inc. from May 1992 until June 1998. He is also a director of Wells Fargo and Company, Nortel Networks Corporation and Nortel Networks Limited. In addition, he is a former Chairman and Honorary Chairman of the International Chamber of Commerce, Vice Chairman of the United States Council for International Business, a trustee of the Denver Art Museum, Vice President of the Denver Art Museum Foundation and Director Emeritus of Creighton University. Mr. McCormick is 67 and has been a UTC director since 1999.
LOGO    HAROLD MCGRAW III has been Chairman of the Board of The McGraw-Hill Companies (global information services) since 1999 and President and Chief Executive Officer of McGraw-Hill since 1998. Mr. McGraw was President and Chief Operating Officer of McGraw-Hill from 1993 to 1998. He is also a director of ConocoPhillips, Chairman of the Emergency Committee for American Trade, The Business Roundtable and the Committee Encouraging Corporate Philanthropy, and a member of The Business Council, the State Department’s Advisory Committee in Transformational Diplomacy and the U.S. Trade Representative’s Advisory Committee for Trade, Policy and Negotiations (ACTPN). He also serves on the boards of Carnegie Hall, the National Council on Economic Education, The New York Public Library, National Organization on Disability, National Academy Foundation, Partnership for New York City, the Council for Industry and Higher Education in London and Prep for Prep. Mr. McGraw is 59 and has been a UTC director since 2003.
LOGO    RICHARD B. MYERS, Ret. U.S. Air Force General, served as Chairman of the U.S. Joint Chiefs of Staff from 2001 to 2005. He was the principal military adviser to President George W. Bush, Secretary of Defense Donald Rumsfeld, and the National Security Council. Gen. Myers previously served as Vice Chairman, which included acting as Chairman of the Joint Requirements Oversight Council, Vice Chairman of the Defense Acquisition Board, and member of the National Security Council Deputies Committee and the Nuclear Weapons Council. He also serves on the boards of Aon Corporation, Deere & Company, and Northrop Grumman. Gen. Myers is the Foundation Professor of Military History at Kansas State University and holds the Colin Powell Chair for Leadership, Ethics and Character at the National Defense University. He is a member of the Defense Policy Board and the Department of State’s Transformation Diplomacy Advisory Board. Gen. Myers is 65 and has been a UTC director since 2006.

 

LOGO    H. PATRICK SWYGERT has served as President of Howard University since 1995. Mr. Swygert served as President of the University at Albany, State University of New York from 1990 to 1995, and as Executive Vice President of Temple University from 1987 to 1990. He also serves on the boards of Fannie Mae and The Hartford Financial Services Group Inc. Mr. Swygert is a member of the Central Intelligence Agency’s External Advisory Board, the Advisory Council for the Smithsonian Institution’s National Museum of African American History and Culture, the D.C. Emancipation Commemoration Commission, the U.S. National Commission for the United Nations Educational, Scientific and Cultural Organization (UNESCO) and the Commission on Presidential Debates. Mr. Swygert is 64 and has been a UTC director since 2001.
LOGO    ANDRÉ VILLENEUVE has been the Non-Executive Chairman of LIFFE (now part of NYSE Euronext group), the London futures and derivatives exchange, since 2003. He was an executive director of Reuters from 1989 to 2000. He was Chairman of Instinet Corp., an electronic brokerage subsidiary of Reuters, from 1990 to 1999, and Executive Chairman from 1999 to 2002. He is Chairman, City of London EU Advisory Group and a member of the UK Chancellor’s High Level Financial Services Group. Mr. Villeneuve was Chairman of Promethee, the French think tank, from 1998 to 2002 and non-executive director of Aviva PLC from 1996 to 2006. He is currently a non-executive director of IFRI (Institut Francais des Relations Internationales), International Financial Services London and EuroArbitrage. Mr. Villeneuve is 63 and has been a UTC director since 1997.
LOGO    CHRISTINE TODD WHITMAN served as Administrator of the U.S. Environmental Protection Agency from January 2001 through June 2003. She was Governor of the State of New Jersey from 1994 through 2001. She has served as President of The Whitman Strategy Group (environment and public policy consulting) since December 2004. She is a director of Texas Instruments Incorporated, S.C. Johnson & Son, Inc. and the Council on Foreign Relations. In addition, she serves on the Steering Committee of The Cancer Institute of New Jersey, the board of trustees of the Eisenhower Fellowships, the Governing Board of the Park City Institute, and is a member of the National Council of the National Parks Conservation Association and the BP America Inc. External Advisory Board. She is also a member of the Center for Civic Engagement and Volunteerism Advisory Board at Raritan Valley Community College. Gov. Whitman is 61 and has been a UTC director since 2003.

 

Committees of the Board. The standing committees of the Board consist of the Audit Committee, the Committee on Nominations and Governance, the Committee on Compensation and Executive Development, the Finance Committee and the Public Issues Review Committee. Each committee, other than the Finance Committee, is composed solely of directors determined by the Board to be independent in accordance with NYSE listing standards. Copies of the charters of each committee are available on UTC’s website at http://investors.utc.com/charters.cfm.

 

The Audit Committee assists the Board in its oversight of the integrity of UTC’s financial statements and the qualifications and independence of the Independent Auditors. The Committee also nominates, for appointment by shareowners, an accounting firm to serve as Independent Auditors and is responsible for the compensation, retention and oversight of the Independent Auditors. Directors Faraci, McCormick, Myers, Popoff (Chairman), Swygert, Villeneuve and Wagner are members of the Committee. The Board has determined that Directors Faraci, McCormick, Popoff, Villeneuve and Wagner are audit committee financial experts within the meaning of the rules of the Securities and Exchange Commission (“SEC”). During 2007, the Committee held eight meetings.

 

The Committee on Nominations and Governance recommends criteria for service as a director and, when there is a vacancy on the Board, identifies, evaluates and recommends for nomination by the Board candidates for election as a director. The Committee also reviews and recommends appropriate governance practices and compensation for directors. Directors Faraci, Garnier, Lee, McCormick (Chairman), Swygert, Wagner and Whitman are members of the Committee. The Committee has determined that candidates for the Board should have the following qualifications:

 

   

the ability to exercise objectivity and independence in making informed business decisions;

 

   

extensive knowledge, experience and judgment;

 

   

the highest integrity;

 

   

loyalty to the interests of UTC and its shareowners;

 

   

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

 

   

the ability to contribute to the diversity of perspectives present in board deliberations; and

 

   

an appreciation of the role of the corporation in society.

 

The Committee considers candidates meeting these criteria who are suggested by directors, management and shareowners. UTC from time to time engages one or more search firms to assist in the identification and evaluation of qualified candidates. The Committee will consider director candidates recommended by shareowners, who may submit recommendations by letter addressed to the Corporate Secretary. During 2007, the Committee held four meetings.

 

The Committee on Compensation and Executive Development is responsible for review and oversight of executive compensation and development programs, approval of corporate goals and objectives relevant to Chief Executive Officer (“CEO”) compensation, setting the CEO’s compensation based on an evaluation of performance in light of these goals and objectives, and review of long-term incentive plans and annual incentive compensation. The Committee makes compensation decisions affecting the executive officers and members of UTC’s Executive Leadership Group (the “ELG”). The CEO, Chief Operating Officer (“COO”) and the Senior Vice President, Human Resources and Organization (“SVP, HR”) determine other executives’ compensation and oversee program administration. The Committee also reviews management development policies and programs.

 

Directors Garnier, Lee, McCormick, McGraw, Popoff and Wagner (Chairman) are members of the Committee. UTC has engaged Towers Perrin, an outside human resources consulting firm, to provide peer company compensation data. Management also provides information and proposals for the Committee’s consideration. While the CEO, COO and SVP, HR attend Committee meetings regularly by invitation, the Committee, subject to Board oversight, is the final decision maker regarding the compensation paid to each of the named executive officers listed in the Summary Compensation Table on page 19, the members of the ELG and other executive officers. The Committee considers certain matters in executive session. The Committee’s Chairman reports to the Board on actions taken at each meeting. During 2007, the Committee held six meetings. The Committee has authority to retain, approve fees for and terminate independent advisers to assist in fulfillment of its responsibilities.

 

The Finance Committee reviews and makes recommendations to the Board on the management of the financial resources of UTC and major financial strategies and transactions. Directors Chênevert, David, Gorelick, Lee (Chairman), McGraw, Myers, Popoff and Villeneuve are members of the Committee. During 2007, the Committee held seven meetings.

 

The Public Issues Review Committee reviews UTC’s charitable contributions program, community relations programs, political action committee, and responses to public issues such as equal employment opportunity, the environment, and safety in the workplace. The Committee also reviews UTC’s annual Corporate Responsibility Report. Directors Garnier (Chairman), Gorelick, McGraw, Swygert, Villeneuve and Whitman are members of the Committee. During 2007, the Committee held four meetings.

 

Attendance. The Board met seven times during 2007. Each director attended 75% or more of the aggregate number of meetings of the Board and committees on which he or she served. The non-management directors meet in regularly scheduled executive sessions. Currently Mr. Wagner serves as Presiding Director at executive sessions. In view of Mr. Wagner’s retirement, the non-management directors will select a successor from among themselves to preside at executive sessions following the 2008 Annual Meeting. The Board’s policy is that directors standing for re-election should attend the Annual Meeting of Shareowners if their schedules permit. All of the current directors were present at the last Annual Meeting held in April 2007.

 

Security Ownership of Directors, Executive Officers and Certain Beneficial Owners. The following table shows, as of February 12, 2008, the shares of Common Stock beneficially owned by each director, each of the six named executive officers listed in the Summary Compensation Table on page 19 of this Proxy Statement and all directors and executive officers as a group. Each director and executive officer beneficially owned less than 1% of the outstanding shares of Common Stock. The directors and executive officers as a group beneficially owned approximately 1.5% of the outstanding Common Stock. Unless otherwise indicated in the notes to the table, each of the persons listed had sole voting power and investment power with respect to the shares shown as beneficially owned.

 

Name

   Class of
Securities
   Shares Beneficially
Owned
 

Louis R. Chênevert

   Common    1,437,194 (1)(2)

George David

   Common    8,064,871 (1)(2)

John V. Faraci

   Common    0 (3)(4)

Jean-Pierre Garnier

   Common    60,200 (1)(4)

Jamie S. Gorelick

   Common    76,227 (1)(4)

Charles R. Lee

   Common    113,430 (1)(4)

Richard D. McCormick

   Common    71,500 (1)(4)

Harold McGraw III

   Common    14,000 (1)(3)(4)

Richard B. Myers

   Common    0 (3)(4)

Frank P. Popoff

   Common    68,700 (1)(4)

H. Patrick Swygert

   Common    27,000 (1)(3)(4)

André Villeneuve

   Common    58,200 (1)(4)

H. A. Wagner

   Common    79,894 (1)(4)

Christine T. Whitman

   Common    13,000 (1)(3)(4)

Ari Bousbib

   Common    1,229,425 (1)

Geraud Darnis

   Common    1,040,021 (1)

James E. Geisler

   Common    268,574 (1)

Gregory J. Hayes

   Common    118,644 (1)(5)

Directors & Executive Officers as a Group (27 in total)

   Common    14,882,576 (1)(2)(6)

 

(1)   The shares shown as beneficially owned by the listed persons include the following number of shares as to which the listed persons (i) had the right to acquire beneficial ownership within 60 days after February 12, 2008 through exercise of stock options or otherwise, or (ii) had sole voting but no investment power due to restrictions on transfer or vesting conditions.

 

Name

   Shares as to which listed person has right
to acquire beneficial ownership within 60 days by

exercise of stock options
   Shares as to which listed
person has sole voting but
no investment power

L. Chênevert

   1,325,000    5,434

G. David

   6,110,000    107,599

J. Garnier

   44,700    6,400

J. Gorelick

   54,320    4,000

C. Lee

   55,630    8,000

R. McCormick

   44,700    3,200

H. McGraw III

   13,000    0

F. Popoff

   6,000    8,000

H. Swygert

   26,000    0

A. Villeneuve

   53,400    4,800

H. Wagner

   61,860    8,000

C. Whitman

   13,000    0

A. Bousbib

   1,179,000    5,727

G. Darnis

   991,000    11,809

J. Geisler

   265,600    2,974

G. Hayes

   114,500    3,270

Directors & Executive Officers as a
group (27 in total)

   12,297,710    326,154

 

(2)   Messrs. David and Chênevert have pledged approximately 600,000 and 38,586 shares, respectively, to secure personal loans.

 

(3)   The shares shown as beneficially owned do not include the following number of non-voting restricted stock units acquired under the Directors’ Restricted Stock Unit Plan. Each unit is valued by reference to one share of UTC Common Stock.

 

J. Faraci

   1,810     

H. Swygert

   3,027

H. McGraw III

   2,417     

C. Whitman

   2,417

R. Myers

   1,597        

 

(4)   The shares shown as beneficially owned do not include the following number of vested, non-voting deferred stock units acquired by the non-employee directors under the Directors Deferred Stock Unit Plan. Each unit is valued by reference to one share of Common Stock.

 

J. Faraci

   6,415     

R. Myers

   4,765

J. Garnier

   35,752     

F. Popoff

   41,252

J. Gorelick

   17,162     

H. Swygert

   22,177

C. Lee

   35,514     

A. Villeneuve

   31,828

R. McCormick

   30,731     

H. Wagner

   38,828

H. McGraw III

   15,305     

C. Whitman

   8,792

 

(5)   Includes 1,889 shares as to which G. Hayes shares voting and investment power with his spouse.

 

(6)   Includes 1,889 shares as to which G. Hayes shares voting and investment power with his spouse and 1,440 shares as to which C. Gill shares such powers with his spouse.

 

In a filing made with the SEC, State Street Bank & Trust Company, acting in various fiduciary capacities, reported that it held as of December 31, 2007 sole voting power with respect to 37,348,324 shares of UTC Common Stock, shared voting power with respect to 65,761,775 shares of UTC Common Stock, and shared dispositive power with respect to 103,110,099 shares of UTC Common Stock. State Street Bank & Trust Company serves as Trustee for UTC’s Employee Savings Plan and disclaims beneficial ownership of the reported shares.

 

Executive Compensation.

 

Compensation Discussion and Analysis

 

Executive Summary

 

This Compensation Discussion and Analysis (“CD&A”) reviews the compensation policies and decisions of the Committee on Compensation and Executive Development (the “Committee”) with respect to UTC’s named executive officers listed in the Summary Compensation Table (the “NEOs”).

 

Under the oversight of the Committee, UTC maintains an executive compensation program for its senior executives, including its NEOs, that is heavily focused on performance. The design and operation of the program reflect the following objectives:

 

   

Recruiting and retaining talented leadership;

 

   

Implementing measurable performance targets;

 

   

Correlating compensation directly with shareowner value;

 

   

Progressively weighting at-risk and performance-based compensation opportunities with increasing levels of responsibility; and

 

   

Promoting adherence to high ethical and environment, health and safety standards.

 

To accomplish these objectives, the Committee’s approach emphasizes:

 

  (i)   fixed compensation elements of base salary and benefits with values targeted approximately at the median of UTC’s Compensation Peer Group (“CPG”); and

 

  (ii)   above-median variable compensation opportunities contingent on performance.

 

Each of the NEOs is a member of the Executive Leadership Group (“ELG”), consisting of approximately 30 of the Company’s most senior executives. ELG members participate in the same compensation programs as other UTC executives, but also receive enhanced life insurance and disability benefits, a perquisite allowance, and severance protection. These additional elements provided under the ELG program are designed, in the aggregate, to provide fringe and employee benefits comparable to those of senior executives at other CPG companies.

 

UTC provides the following compensation elements to ELG members. Material variations between target and actual values for the NEOs are discussed under “Named Executive Officer Compensation.”

 

 

Compensation Element

   Target vs. Market*

Fixed

    

Base Salary

   Median

Pension

   Median

Health & Welfare Benefits

   Median

Perquisites

   Median

Variable

    

Annual Incentives

   Median

Long-Term Incentives

   65th percentile

Other

    

Severance Benefits

   Median

Change-in-Control Benefits

   Median
  *   Benchmark comparisons may vary due to differences in valuation methodologies, timing, and availability of data.

 

In addition to the compensation elements outlined above, the ELG program includes share ownership guidelines, standards of conduct, and protective covenants discussed under “Protecting UTC’s Interests.”

 

Peer Group Benchmarking

The CPG consists of 25 major U.S. companies that have characteristics similar to UTC such as revenues, global scope of operations and diversified product lines, which the Committee believes makes them comparable to UTC for purposes of compensation benchmarking. Of the 25 companies listed below, 14 are included in the Dow Jones Industrial Average (as is UTC). Because of the compensation opportunities available and management skill sets required, the CPG companies are likely to be competitors of UTC for executive talent. Designing a compensation package that is competitive with the CPG therefore promotes UTC’s recruitment and retention objectives.

 

3M*

   Honeywell*    Motorola

Alcoa*

   Intel*    Northrop Grumman

Boeing*

   IBM*    Pfizer*

Caterpillar*

   International Paper    Raytheon

Dow Chemical

   Johnson & Johnson*    Textron

Du Pont*

   Johnson Controls    Tyco International

General Dynamics

   Lockheed Martin    Verizon*

General Electric*

   Merck*    Wyeth

Hewlett-Packard*

         
*   Part of the Dow Jones Industrial Average as of 12/31/2007.

 

In addition to the CPG data, the Committee utilizes general industry data drawn from approximately 370 companies. While the Committee tends to rely more heavily on CPG data, it supplements its analysis with such general industry data to diversify its compensation benchmarks. The broader data set also provides a reference for specific business units where the relevance of the CPG data may be limited.

 

The data for the CPG and general industry comes from Towers Perrin. This data is objective, available to others who engage Towers Perrin, and used generally by companies comparable to UTC. Towers Perrin does not make recommendations to the Committee on the form or amount of executive compensation, nor does the Committee currently retain its own consultant. At present, Towers Perrin serves the limited role of providing data relevant to the Committee’s decision-making process. Should the Committee engage a consultant in the future for the purpose of making executive compensation recommendations, it would select a consultant with no other material relationship with UTC.

 

The Committee generally uses the same benchmark data for each form of compensation and for each executive position. Individual compensation will vary from program targets based on factors such as performance, job scope, abilities, tenure, and retention risk. Compensation decisions specific to the NEOs are discussed under “Named Executive Officer Compensation.”

 

Pay Mix

The Committee designs executive compensation packages for the NEOs and other ELG members to emphasize performance-based compensation. Fixed compensation elements, although essential to a market competitive program, are not the focal point of UTC’s executive compensation program and are aimed generally at the median of the CPG. Performance metrics selected by the Committee reflect the overall goal of aligning actual compensation values with shareowner value. Base salary comprises approximately 20% of the pay mix for the ELG (including the NEOs), significantly less than for the rest of the executive population. Approximately 15% of total pay is allocated to annual bonus compensation, and 65% is allocated to long-term incentive compensation, higher than for the balance of the executive population.

 

The program targets total cash compensation (i.e., base salary and bonus) at the 50th percentile of the CPG. Cash above this percentile will generally result from earned increases in base salary and above-target performance in the annual bonus program. The program targets long-term incentive compensation at the 65th percentile of the CPG for the ELG. This above-median target value for long-term awards reflects the program’s emphasis and demonstrated record on compensation supporting shareowner value creation.

 

Allocation of long-term incentive awards between stock appreciation rights (“SARs”) and performance share units (“PSUs”) also varies with executive level. Reflecting the ELG’s ability to affect performance relative to PSU vesting targets, half of the value of ELG long-term incentive awards is allocated to PSUs.

 

Fixed Compensation

The principal elements of the NEOs’ fixed compensation consist of base salary, pension, benefits (e.g., health, life, and disability insurance), and perquisites. UTC targets the aggregate value of fixed compensation generally at the median of the CPG to promote recruitment and retention.

 

Base Salary. Base salaries for senior executives are targeted at approximately the 50th percentile of the CPG, with individual variations based on job scope, tenure, retention risk, performance, and other factors relevant to the Committee. Base salary decisions with respect to the NEOs are discussed under “Named Executive Officer Compensation.”

 

Pension. The Pension Benefits table on page 24 details retirement benefits for the NEOs. Pension benefits for executives under the cash balance plan fall below the median. The previous final average pay formula which covers executives hired before 2003 (including the NEOs) is approximately at the median. An unfunded program, with the same service formula applicable to salaried employees generally, provides defined benefit pension benefits in excess of Internal Revenue Code (the “Code”) limits for tax qualified plans. UTC does not match 401(k) contributions in excess of Code limits, resulting in below median values for executives (most CPG companies provide savings plan matching contributions in excess of Code limits).

 

Health and Welfare Benefits. While actively employed, ELG members receive life insurance coverage equal to three times their projected age 62 base salary. Upon retirement, this benefit is reduced to two times age 62 (projected or actual) base salary. Mr. David participates in a predecessor life insurance plan discussed in footnote (6)(d) to the Summary Compensation Table and not in this ELG benefit. The ELG long-term disability plan protects 100% of base salary for one year following disability and thereafter grades down 5% per year until the permanent 80% level is reached.

 

Perquisites. ELG members receive a perquisite allowance equal to 5% of annual base salary in lieu of in-kind perquisites. This perquisite allowance may be allocated in part to a company leased vehicle or paid in cash. During 2007, in response to a trend toward reduced perquisites, the Committee reduced the ELG perquisite allowance from 8% of salary (and from 12% for executives who joined the ELG prior to December 2005) to 5% with a one-time corresponding increase in base salary. The perquisite allowance reduction reflects the Committee’s objective of fixed compensation benefits at the market median. Footnote (6)(c) to the Summary Compensation Table provides the amount of each NEO’s perquisite allowance. Additionally, the Chief Executive and Chief Operating Officers have access to corporate aircraft for personal travel in accordance with UTC’s security policy.

 

Variable Compensation

Incentive compensation programs relate directly to UTC’s results. There are three forms of awards:

 

 

Type of Award

   Performance Period    Performance Metrics

Annual Bonus

   1 year    10% earnings growth and free cash flow equaling net income (12% for the Corporate Office and therefore 4 of the 6 NEOs)

Performance Share Units

   3 years    10% earnings per share (“EPS”) growth and total shareowner return (“TSR”)* relative to the S&P 500

Stock Appreciation Rights

   3-year vesting; 10-year term    Stock price appreciation
*   TSR equals the change in share price over the three-year performance period (including reinvested dividends), divided by the share price at the beginning of the three-year period. The TSR calculation uses the trailing November/December average share price for the beginning and end of the three-year period, as calculated by Standard & Poors.

 

Investors focus on earnings growth and cash flow as reliable indicators of overall near term performance. Relative TSR accurately ranks the Company’s performance among other companies competing for capital. The S&P 500 provides a broad-based and widely-accepted benchmark for purposes of this relative measurement. Long-term share price appreciation generally corresponds with long-term corporate performance and therefore provides an appropriate form of compensation directly related to superior corporate results.

 

Annual Bonuses. The Committee annually establishes bonus pools for each of UTC’s business units and the Corporate Office. The size of each pool depends on performance relative to pre-established and quantitative targets for the year, subject to adjustments the Committee may make to account for other factors that may have enhanced or detracted from the quantitative results achieved relative to the established target metrics. While bonus amounts are substantially established by performance measured against the pre-established targets, the Committee does not limit its performance assessment to a strictly formulaic calculation. It therefore retains discretion to adjust both bonus pools and the amount of individual awards. Material individual variation from bonus amounts calculated directly by the performance metrics are discussed under “Named Executive Officer Compensation.”

 

The pre-established targets for 2007 were:

 

  (i)   earnings growth measured as EPS for the Corporate Office and segment operating income for the business units; and

 

  (ii)   free cash flow (cash flow from operations less capital expenditures).

 

Baseline performance targets for 2007 were as follows:

 

 

Metric

   Corporate Office    Business Units

Earnings growth

   12%    10%

Free cash flow

   100% of net income    100% of net income

 

Baseline performance is intended to result in annual bonuses approximately at the median of the CPG. While the baseline bonus amount is benchmarked against the CPG, the Committee sets the performance targets independently of CPG performance. The Committee believes that earnings growth in the 10-12% range conforms to investor expectations for companies of UTC’s size and scope. The Committee also believes that free cash flow as a percentage of earnings reflects the quality and sustainability of reported earnings and supports the important goal of cash returns to shareowners.

 

Baseline performance targets for the Corporate Office and business units remain the same for 2008. The Committee believes that these earnings growth targets, with corresponding cash flow performance, reliably reflect UTC’s annual performance for shareowners and, as calibrated, justify above-median payouts for exceeding these targets.

 

The Committee determines individual awards paid from the established pools utilizing the same metrics that determine the size of the award pools, with adjustments for individual performance. The following baseline award targets as percentages of base salaries reflect median bonus targets for similar roles at CPG companies:

 

Chief Executive Officer

   135%

Chief Operating Officer

   100%

Other ELG participants

   55-85%

 

Baseline performance relative to the financial targets results in an award pool sufficient to pay bonuses at these levels. Awards are not generally payable if earnings growth times free cash flow content in net income falls below 70% of baseline. Award pools are capped at 160% of baseline. The annual bonus program offers the opportunity for above-median total cash compensation for above-median performance relative to the established targets. Actual NEO bonuses for 2007 performance are discussed under “Named Executive Officer Compensation.”

 

Performance Share Units. Annual long-term incentive awards consist of PSUs and SARs. The value of a PSU equals a share of UTC Common Stock. PSUs do not earn dividends. Upon vesting, PSUs convert to shares of UTC Common Stock. Performance relative to pre-established, three-year cumulative performance targets determines the vesting result. The Committee established two performance targets for PSUs awarded in 2007 and 2008, with vesting calculated independently for each target. Vesting of 50% of PSUs awarded is contingent on EPS growth with vesting for the other 50% contingent on TSR relative to the S&P 500 as follows:

 

    

EPS Growth

(50% of award)

   

TSR

(50% of award)

 
   Level of
Performance
Achieved
    Percent of
EPS portion
Vesting
   

Level of

Performance
            Achieved            

   Percent of
TSR portion
Vesting
 

Minimum

   7 %   0 %   37.5th percentile    0 %

Target

   10 %   100 %   50th percentile    100 %

Maximum

   13 %   200 %   75th percentile    200 %

 

The Committee selected UTC’s TSR target relative to companies within the S&P 500 because this index provides a well-recognized, independent and external metric to measure the equity performance of a large cap company like UTC. The CPG, by contrast, provides a benchmark specifically focused on measuring the competitiveness of UTC’s compensation packages. The S&P 500 more effectively aligns the interests of management and shareowners by measuring UTC’s performance relative to a broader universe of companies.

 

Stock Appreciation Rights. SARs have an exercise price equal to market price at date of grant, have a ten-year term, and become exercisable after three years. Value realized upon exercise is settled in shares of UTC Common Stock. The Committee views share price appreciation as the most relevant measure of long-term performance since it directly parallels shareowner value creation. UTC’s TSR over the ten-year period ending December 31, 2007 was 388%, substantially exceeding the Dow Jones Industrials (105%) and the S&P 500 (78%). The Committee believes prior SAR and stock option awards led to management’s successful execution of productivity, innovation, growth, and business balance objectives aligned with shareowners’ interests.

 

Other Programs

ELG members participate in separate change-in-control and non-change-in-control severance arrangements. Intended to address different risks and circumstances, each arrangement provides different benefits and terms and conditions, as discussed below. Because market competitive executive compensation programs provide financial protection in the event of severance, these severance protection programs are relevant for purposes of recruitment and retention. A substantial majority of CPG companies provide such benefits. While there are variations in types and amounts of benefits, eligibility requirements, and other terms and conditions, the Committee believes that the aggregate potential value of UTC’s severance and change-in-control programs does not differ substantially from other companies. Executives will not receive both change-in-control and non-change-in-control severance benefits.

 

Severance Protection. The ELG program provides a potential severance benefit of up to 2.5 times base salary in the event of involuntary termination (other than for misconduct) after three years as an ELG member. Payment of ELG severance requires acceptance of and adherence to protective covenants, including non-compete and non-disclosure obligations. For individuals who joined the ELG before December 2005 (including each of the NEOs), this benefit is payable at retirement and serves as a retention mechanism. The Committee has since replaced this benefit at retirement with a stock-based award that vests at age 62 for executives appointed to the ELG after December 2005, as discussed under “Retention.”

 

Retention. To retain ELG members through retirement, executives who joined the ELG after December 2005 receive a restricted share retention grant equal to two times base salary at the date of grant. These shares may not be sold, pledged, or assigned prior to vesting on retirement at age 62 or later. The shares are forfeited if the executive terminates or retires before age 62. Recipients of this award are not eligible for the ELG severance benefit if retirement occurs on or after age 62. Executives who joined the ELG before December 2005 do not receive the restricted share retention grant, but are eligible for the ELG retirement benefit after age 62. The Committee believes that the restricted share grant has significant retention value and, as with the severance arrangement, imposes restrictive covenants. In changing this post-age 62 benefit, the Committee enhanced shareowner alignment by linking value to share price rather than salary.

 

Change-in-Control Benefits. The current change-in-control benefits reflect a reduction in benefits in 2003 to more closely align with market practice, providing for a cash payment equal to 2.99 times base salary and bonus, plus acceleration of long-term incentive awards. For those covered by the program before December 2003, change-in-control payments equal 3 times base salary and bonus and also include three years of benefits continuation and additional credited service for pensions, with each of these elements reduced by 1/36th for each month termination occurs after age 62. These benefits help to assure continuity of management under circumstances that reduce or eliminate job security and might otherwise lead to immediate departures. Unlike the ELG severance benefit, change-in-control benefits are payable in the event of voluntary termination following a change-in-control (i.e., a “single trigger” mechanism). The long standing single trigger mechanism has been maintained because the current program design adequately addresses the objective of management continuity through a change-in-control since executives must remain with the Company through completion of any such event to qualify for benefits. Senior executive redundancy in the event of a change-in-control typically leads to a significant number of departures, an outcome that is unlikely to vary materially under either the current single trigger mechanism or a program that imposes some restrictions on benefit eligible voluntary terminations. For these reasons, the Committee did not modify these provisions at the time it prospectively adopted the reduced benefit levels. The aggregate values of benefits, covenants, and other terms and conditions under each program remain within market norms for a company of UTC’s size.

 

The Termination Payment tables on pages 25 and 26 set forth the estimated values and details of change-in-control and non-change-in-control termination benefits for each of the NEOs.

 

Named Executive Officer Compensation

The executive compensation programs and policies discussed above apply to each of the NEOs. Individual compensation amounts can and do vary from program benchmarks. Material variations from benchmark targets affecting the NEOs’ compensation in 2007 are discussed in this section.

 

Base Salary. The NEOs received salary increases in 2007, consistent with annual market movement, performance, and to offset the reduced perquisite allowance (see “Fixed Compensation – Perquisites”). Mr. David’s salary is at approximately the 75th percentile of the CPG. Mr. David has been UTC’s Chief Executive Officer since 1994, longer than any other Dow Jones Industrials company CEO. His base salary percentile rank reflects his leadership and performance, particularly as reflected by UTC’s sustained and top quartile TSR ranking over the past ten years relative to the Dow Jones Industrials and the S&P 500 indices. Mr. Chênevert’s salary is at approximately the median of the CPG for his position. Messrs. Geisler and Hayes share the responsibility of Chief Financial Officer, resulting in somewhat below-median salaries for a CFO position.

 

Messrs. Bousbib and Darnis lead business units whose competitors vary widely by size and consist of both stand-alone companies and subsidiaries of larger companies. Each of their salaries is at approximately the 75th percentile of market data which only reflect sector heads within large companies. Inclusion of independent companies would likely reduce the percentile rank for their base salaries. Messrs. Bousbib and Darnis run large industry leading businesses that, if independent, would each rank within the S&P 500. Otis and Carrier generated $11.9 billion and $14.6 billion in revenues, respectively in 2007. Because CEOs of independent companies are compensated substantially more than internal business unit heads, the Committee believes above-median salaries relative to UTC’s peer group (which contains no independent competitors of Otis or Carrier) are appropriate for these key positions.

 

Annual Bonus. Actual bonuses for each of the NEOs are shown in the Summary Compensation Table on page 19. Messrs. David, Chênevert, Geisler, and Hayes participated in the 2007 Corporate Office incentive compensation award pool. Mr. Bousbib participated in the Otis pool, and Mr. Darnis participated in the Carrier pool.

 

The Corporation’s 2007 earnings per share grew 15% and free cash flow was 99% of net income, resulting in an above-target pool of 132% for the Corporate Office. Otis fell below its baseline earnings growth target but exceeded its free cash flow target, resulting in a pool equal to 92% of baseline. However, in recognition of Otis’ outstanding operating margin performance relative to all of its competitors worldwide in 2007, the Committee established a pool equal to 125% of baseline. Carrier fell below its earnings growth target but exceeded its free cash flow target, resulting in a pool equal to 79% of baseline. However, three of Carrier’s four operating units delivered results well above baseline. The Committee determined that this strong performance combined with the significantly adverse impact of the U.S. housing recession on Carrier’s North American Residential business, warranted adjustment of Carrier’s award pool to 92% of baseline.

 

The determination of actual bonus amounts awarded to Messrs. Bousbib, Darnis, Geisler and Hayes, as shown in the Summary Compensation Table on page 19, aligns with the award pool factors described above, with minor adjustments based on the Committee’s subjective overall assessment of performance. The Committee adjusted the awards for Messrs. Chênevert and David in recognition of additional factors relevant to the assessment of their performance and leadership jointly in the Office of the CEO. UTC delivered exceptional financial performance in 2007, achieving 15% EPS growth, 14% revenue growth (9% organic), and 24% TSR in a challenging economic environment. Over the past 10 years, UTC’s TSR ranks first among the Dow Jones Industrials.

 

In addition to the foregoing financial performance, the Committee favorably assessed progress toward CEO transition. Working effectively together, Messrs. Chênevert and David ensured continuation of UTC’s record of superior financial performance as Mr. Chênevert’s corporate-wide responsibilities expanded in 2007. Mr. David’s tenure as CEO is the longest of any current Dow Jones Industrials company. Under his leadership, UTC’s cumulative TSR has exceeded the S&P 500 and Dow Jones Industrials indices by more than three times. Mr. David’s leadership has also been recognized independently of UTC. Barron’s magazine included him for a second time in 2007 among the world’s 30 best CEOs. Institutional Investor magazine named him best CEO for the aerospace and defense electronics sector again in 2007. Barron’s, Forbes, and BusinessWeek included UTC in their best companies lists last year, and Fortune magazine named UTC “most admired” among aerospace/defense companies for the seventh year running. These factors underscore the importance of a successful and orderly leadership transition at UTC. The Committee determined that the breadth and extent of financial performance in combination with a successfully functioning CEO transition plan warranted upward adjustments to Messrs. David and Chênevert’s calculated bonuses. Mr. David’s calculated award of $3.4 million was increased to $4.0 million. Mr. Chênevert’s award was adjusted from $1.5 million to $2.0 million, which is above his calculated award as UTC’s President but consistent with his joint incumbency in the Office of the CEO.

 

Long-Term Incentive Awards. The Grants of Plan-Based Awards table on page 21 shows long-term incentive awards. Awards to each of the NEOs did not differ materially from UTC’s stated 65th percentile LTIP target.

 

Under the prior long-term incentive plan (the Continuous Improvement Incentive Program or “CIIP”), the Committee granted performance-based dividend equivalents rather than PSUs. CIIP awards were last granted in 2005 with a three-year earnings per share growth target range of 7-13% annually. Actual earnings per share growth for this performance cycle reached 17% annually, resulting in a 200% vesting rate for the NEOs, as detailed in footnote (4) to the Summary Compensation Table.

 

The Committee generally issues long-term incentive awards at the beginning of each year to align grant dates with calendar year performance measurement periods. Out-of-cycle awards are granted on an ad hoc basis reflecting recruitment, promotion, or retention needs. The timing of such out-of-cycle awards aligns with the applicable event. No out-of-cycle awards were granted to the NEOs in 2007.

 

Deductibility and Dilution

The 2005 Long-Term Incentive Plan (“LTIP”) approved by UTC’s shareowners limits shares that may be awarded and their associated dilution. Total shares prospectively issuable under PSU and SAR awards in 2007 were approximately 1% of UTC Common Shares outstanding, below the CPG median. Total shares potentially issuable under all current and prior PSU, SAR, and stock option awards are approximately 9% of UTC Common Shares outstanding at the end of 2007, in the bottom quartile of the CPG. Diluted earnings per share reflect all such shares, and both percentages are within applicable LTIP limitations.

 

Annual bonuses and long-term incentive awards are provided pursuant to shareowner approved plans and performance targets. Amounts paid under these programs are intended to qualify for the performance-based compensation exception under Internal Revenue Code Section 162(m) and are therefore not subject to the Section 162(m) $1 million deductibility limitation.

 

Program Administration

The Committee has approved the design and functioning of UTC’s executive compensation program as outlined here, specifically including determination of benchmark targets, performance metrics, and the composition and variability of pay by executive level. While substantially guided by the stated performance metrics and formulae, the Committee retains the authority to exercise its judgment when approving pool and individual awards.

 

UTC’s executives do not have employment agreements that guaranty compensation amounts or length of employment. The Committee specifically determines annual bonus, PSU, and SAR total award amounts for business units and the Corporate Office, and determines awards individually for ELG participants each year. As part of the annual compensation process, the Committee reviews all elements of compensation for the NEOs and other ELG participants, including realized and unrealized long-term award values. The Committee does not adjust, either negatively or positively, current or future compensation opportunities on the basis of accrued or realized gains attributable to prior awards and prior service.

 

The Committee conducts an overall review annually to ensure that the program meets its intended goals. The Committee’s review for 2007 indicated that, as intended, variable and performance-based compensation constitutes the substantial majority of pay for senior executives. Values realized by executives above the CPG medians are substantially attributable to UTC’s earnings and stock price performance in excess of initial and challenging projections and of market indices. As stated earlier, UTC’s total shareowner return over the 1998-2007 decade was 388%, as compared with 105% for the Dow Jones Industrials and 78% for the S&P 500.

 

The Committee does not and has not permitted backdating or re-pricing of stock options or SARs. Grant dates are on or shortly after the date the Committee approves awards. Exercise price equals the closing price for UTC Common Stock on the grant date. UTC’s regular cycle awards account for the great majority of total awards and are made on a consistent basis within the first week of each calendar year, coincident with the beginning of the three-year measurement period for performance-based awards. Recruitment, retention, and promotion needs occasionally result in out-of-cycle awards. The underlying event drives the timing of such awards, and they are not related in any way to the timing of disclosure of material non-public information.

 

Protecting UTC’s Interests

The executive compensation program imposes certain requirements intended to protect UTC’s interests:

 

   

forfeiture of awards and “clawback” of gains realized from long-term incentive awards in the event of misconduct as defined in the LTIP;

   

post-employment covenants for ELG participants restricting proprietary information disclosure, solicitation of UTC employees, and competitive activities; and

   

mandatory share ownership guidelines of 5 times base salary for the Chief Executive Officer and 3 times base salary for other ELG participants.

 

Report of the Committee on Compensation and Executive Development

 

The Committee on Compensation and Executive Development establishes and oversees the design and functioning of UTC’s executive compensation program. We have reviewed and discussed the foregoing Compensation Discussion and Analysis with the management of the Company and recommend to the Board of Directors that the Compensation Discussion and Analysis be included in UTC’s Proxy Statement for the 2008 Annual Meeting.

 

Committee on Compensation and Executive Development

 

  H. A. Wagner, Chairman    Richard D. McCormick   
 

Jean-Pierre Garnier

Charles R. Lee

  

Harold McGraw III

Frank P. Popoff

  

 

Summary Compensation Table

 

Name and

Principal Position

  Year   Salary ($)   Bonus
($) (1)
  Stock
Awards
($) (2)
  Option
Awards
($) (3)
  Non-Stock
Incentive Plan
Compensation
($) (4)
  Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($) (5)
  All Other
Compensation

($) (6)
  Total ($)

George David

Chairman and Chief Executive Officer

  2007

2006

  $1,883,333

$1,791,667

  $4,000,000

$3,800,000

  $11,636,640

$7,675,200

  $8,144,480

$7,217,233

  $3,480,455

$3,034,287

  $8,285,295

$2,733,737

  $643,023

$922,708

  $38,073,226

$27,174,832

Gregory Hayes

Vice President, Accounting and Finance

  2007

2006

  $429,583

$391,667

  $475,000

$425,000

  $917,532

$304,876

  $1,213,360

$932,186

  $21,282

$11,576

  $253,513

$226,837

  $102,620

$112,769

  $3,412,890

$2,404,911

James Geisler

Vice President, Finance

  2007

2006

  $429,583

$386,667

  $475,000

$425,000

  $917,532

$304,876

  $1,213,360

$932,186

  $49,737

$37,169

  $128,696

$130,580

  $72,164

$83,002

  $3,286,072

$2,299,480

Louis Chênevert

President and Chief Operating Officer

  2007

2006

  $1,012,500

$808,333

  $2,000,000

$1,400,000

  $5,533,440

$665,184

  $9,690,531

$3,744,569

  $858,030

$652,894

  $1,487,702

$336,664

  $246,574

$212,668

  $20,828,777

$7,820,312

Ari Bousbib

President,

Otis Elevator

  2007

2006

  $749,167

$676,250

  $900,000

$850,000

  $1,880,064

$665,184

  $2,948,333

$2,848,458

  $689,514

$545,223

  $317,451

$207,335

  $121,534

$140,117

  $7,606,063

$5,932,567

Geraud Darnis

President, Carrier Corporation

  2007

2006

  $749,167

$676,250

  $600,000

$350,000

  $1,880,064

$665,184

  $2,948,333

$2,848,458

  $266,175

$144,460

  $412,904

$362,697

  $115,100

$132,867

  $6,971,743

$5,179,916

 

(1)   The calculation of annual bonuses reflects 2007 growth in earnings and free cash flow as a percentage of net income, plus other discretionary factors applied by the Committee in the determination of the actual awards shown in this column.

 

(2)   Amounts in this column reflect the expense recognized by UTC for accounting purposes calculated in accordance with FASB Statement of Financial Accounting Standards No. 123 (revised 2004) (“FAS 123R”) with respect to performance share units (“PSUs”) granted in 2007 and 2006. The assumptions made in the valuation of these awards are set forth in Note 10, Employee Benefit Plans, to the Consolidated Financial Statements in Exhibit 13 to UTC’s 2007 Annual Report on Form 10-K (available at www.edocumentview.com/utx). Under FAS 123R, PSUs are amortized over 36 months, except for retirement-eligible executives whose awards are amortized over 12 months. Accordingly, amounts in this column reflect the full value of Mr. David’s and Mr. Chênevert’s January 2007 PSU awards. Mr. Chênevert became retirement-eligible in 2007 and therefore the expense for his prior unvested awards was accelerated to 2007. In addition, the amounts for all NEOs reflect a higher accrual amount for the 2006 PSU awards based on performance during the first two years of the three-year performance period, but are subject to change based on performance in the third year. PSUs are discussed in the CD&A and in the Grants of Plan-Based Awards table on page 21 of this Proxy Statement.

 

19

(3)   Amounts in this column reflect the expense recognized by UTC for accounting purposes calculated in accordance with FAS 123R with respect to stock appreciation rights (“SARs”) granted in 2007 and 2006 and stock options granted in prior years. The assumptions made in the valuation of these awards are set forth in Note 10, Employee Benefit Plans, to the Consolidated Financial Statements in Exhibit 13 to UTC’s 2007 Annual Report on Form 10-K. Under FAS 123R, SARs and options are amortized over 36 months, except for retirement-eligible executives whose awards are amortized over 12 months. Accordingly, amounts in this column reflect the full value of Mr. David’s and Mr. Chênevert’s January 2007 SAR awards. Mr. Chênevert became retirement-eligible in 2007 and therefore the expense for his prior unvested awards was accelerated to 2007. SARs are discussed in the CD&A and in the Grants of Plan-Based Awards table.

 

(4)   Amounts in this column reflect 2007 earnings received as a result of achievement of pre-established three-year performance targets under the Continuous Improvement Incentive Program (the “CIIP”), a prior cash-based long-term incentive program. Under this program, vesting results in quarterly payments determined by the number of units vested and the dividend paid on UTC Common Stock. These cash payments continue for a maximum of seven years following vesting. Awards made in 2004 vested or were forfeited in 2007, as determined by performance relative to the pre-established performance targets. Corporate and business unit performance targets have included return on sales, working capital turnover, TSR and earnings per share. The last awards under the CIIP were made in 2005. Based on cumulative EPS growth over the three-year period ended December 31, 2007, these awards vested at 200% of target and will be payable beginning in 2008.

 

(5)   Amounts in this column reflect the increase in the actuarial value of defined benefit plans during 2007. Actuarial value computations are based on FASB Statement No. 87 assumptions discussed in Note 10, Employee Benefit Plans, to the Consolidated Financial Statements in Exhibit 13 to UTC’s 2007 Annual Report on Form 10-K. UTC does not provide above-market rates of return under its Deferred Compensation Plan. However, above-market interest is provided under a frozen Sundstrand Corporation deferred compensation plan assumed by UTC upon the acquisition of Sundstrand in 1999. Mr. Hayes accrued $6,600 in above-market earnings under this plan in 2007.

 

(6)   All Other Compensation amounts in the Summary Compensation Table consist of the following items:

 

Name

   Year    Personal
Use of
Corporate
Aircraft
(a)
   Leased
Vehicle
Payments
(b)
   Cash
Flexible
Perquisite
Allowances
(c)
   Insurance
premiums
(d)
   401(k)
Company
Match
   Miscellaneous
(e)
    Total

G. David

   2007    $380,744    $36,948    $123,135    $90,839    $8,100    $3,257        $643,023

G. Hayes

   2007    $0    $13,946    $22,569    $46,979    $8,100    $11,026     $102,620

J. Geisler

   2007    $0    $7,641    $28,874    $25,554    $8,100    $1,995     $72,164

L. Chênevert

   2007    $91,297    $31,899    $54,164    $60,000    $8,100    $1,114     $246,574

A. Bousbib

   2007    $0    $29,049    $34,630    $44,869    $8,100    $4,886     $121,534

G. Darnis

   2007    $0    $29,781    $33,898    $40,789    $8,100    $2,532     $115,100

 

(a)   The Chief Executive and Chief Operating Officers use corporate aircraft for personal travel in accordance with UTC’s security policy. Amounts in this column reflect incremental variable operating costs incurred in connection with personal travel. Variable operating costs include fuel, calculated on the basis of aircraft-specific average consumption rates and fleet average fuel costs, fleet average landing and handling fees, additional crew lodging and meal allowances, catering, and where applicable, hourly maintenance contract charges. Because fleet-wide aircraft utilization is primarily for business purposes, capital and other fixed expenditures are not treated as variable operating costs relative to personal use.

 

(b)   Consists of annual leased vehicle depreciation and interest costs deducted from the flexible perquisite allowance shown in the adjoining column.

 

(c)   This column shows the ELG cash perquisite allowance which equals 12% of base salary (8% for executives who joined the ELG after December 2005) for the first half of 2007. Effective July 1, 2007, the perquisite allowance was reduced to 5% of base salary less the amount utilized for leased vehicle payments. The ELG perquisite allowance is provided in lieu of in-kind perquisites, as discussed in the CD&A.

 

(d)   Consists of life insurance premium payments. Mr. David participates in the Executive Estate Preservation Program (a program closed to new participants since 1989) that provides term life insurance equal to seven times base salary. Post-termination benefits under this program are discussed in footnote (2) to the Termination/No Change-in-Control table on page 25 of this Proxy Statement. The other NEOs participate in the ELG life insurance program. Under this program, UTC pays the premiums shown above on permanent cash value life insurance contracts owned by the executive. The ELG life insurance benefit equals three times projected age 62 base salary.

 

(e)   Consists of additional vehicle-related costs and other incidental benefits, including $4,194 for executive health benefits for Mr. Hayes.

 

Grants of Plan-Based Awards

 

Name

  Grant
Date
  Approval
Date (1)
  Estimated Future
Payouts Under Non-Equity
Incentive Plan Awards
  Estimated Future
Payouts Under Equity
Incentive Plan Awards (2)
  All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)
  All Other
Option
Awards:
Number of
Securities
Underlying
Options (#) (3)
  Exercise
or Base
Price of
Option
Awards
($/Sh)
  Grant Date
Fair Value of
Stock and
Option

Awards ($) (4)
      Thre-
shold
($)
  Target
($)
  Maxi-
mum
($)
  Thre-
shold
(#)
  Target
(#)
  Maxi-
mum
(#)
       

G. David

  1/3/2007   12/13/2006         0   118,000   236,000         $8,411,040
  1/3/2007   12/13/2006                 436,000   $62.81   $8,144,480

G. Hayes

  1/3/2007   12/13/2006         0   15,000   30,000         $1,069,200
  1/3/2007   12/13/2006                 55,500   $62.81   $1,036,740

J. Geisler

  1/3/2007   12/13/2006         0   15,000   30,000         $1,069,200
  1/3/2007   12/13/2006                 55,500   $62.81   $1,036,740

L. Chênevert

  1/3/2007   12/13/2006         0   47,200   94,400         $3,364,416
  1/3/2007   12/13/2006                 174,500   $62.81   $3,259,660

A. Bousbib

  1/3/2007   12/13/2006         0   27,600   55,200         $1,967,328
  1/3/2007   12/13/2006                 102,000   $62.81   $1,905,360

G. Darnis

  1/3/2007   12/13/2006         0   27,600   55,200         $1,967,328
  1/3/2007   12/13/2006                 102,000   $62.81   $1,905,360

 

(1)   The Committee approves annual long-term incentive awards for the following year at its December meeting. The Committee specifies an award effective date of the first business day of the calendar year to coincide with calendar-year-based performance measurement periods. Other awards are generally effective on the date of approval or the next following day that the NYSE is open. Award grant procedures are discussed in the CD&A.

 

(2)

 

Consists of PSUs subject to three-year performance vesting targets. The value of an unvested PSU is equivalent to the value of a share of UTC Common Stock. As discussed in the CD&A, 50% of PSUs are subject to an EPS growth target and 50% are subject to a TSR target. The vesting range is between 0 and 200%. Non-vested PSUs do not receive dividends. PSUs are forfeited upon termination except in the case of retirement, where PSUs remain eligible to vest at the end of the three-year performance measurement period. Accelerated vesting occurs only upon death or a change-in-control. Upon vesting, PSUs convert to unrestricted shares of UTC Common Stock. No vesting occurs on the portion of the award contingent upon EPS growth if growth is at or below 7%. No vesting occurs on the portion of the award contingent upon TSR if UTC’s TSR relative to the S&P 500 is below the 37.5th percentile.

 

(3)   Consists of SARs with an exercise price equal to the NYSE closing price of UTC Common Stock on the date of grant and a ten-year term. SARs become exercisable after three years of service from the grant date or, if earlier, upon retirement (if the SARs have been held for at least one year from the grant date) or death of the recipient.

 

(4)   Reflects grant date fair value of PSU awards at target described in footnote (2) above, and grant date fair value of SARs described in footnote (3) above, calculated in accordance with FAS 123R.

 

Outstanding Equity Awards at Fiscal Year-End

 

    Option Awards (1)   Stock Awards

Name

  Number of
Securities
Underlying
Unexercised
Options (#)

Exercisable
  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
  Option
Exercise
Price

($) (2)
  Option
Expiration Date
  Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
  Market Value
of Shares or
Units of
Stock That
Have Not
Vested ($)
  Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#) (3)
    Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested ($)(4)

G. David

  –     436,000 (5)   –     $62.81   1/2/2017   –     –     118,000 (5)   $9,031,720
  –     390,000 (6)   –     $56.53   1/2/2016   –     –     120,000 (6)   $9,184,800
  –     1,000,000 (9)   –     $50.09   2/6/2015   –     –     –       –  
  –     570,000 (7)   –     $51.50   1/2/2015   –     –     –       –  
  540,000   –       –     $46.76   1/8/2014   –     –     –       –  
  650,000   –       –     $31.71   1/1/2013   –     –     –       –  
  700,000   –       –     $32.17   1/1/2012   –     –     –       –  
  600,000   –       –     $37.63   1/1/2011   –     –     –       –  
  650,000   –       –     $31.25   1/2/2010   –     –     –       –  
  600,000   –       –     $36.22   4/29/2009   –     –     –       –  
  800,000   –       –     $27.00   1/3/2009   –     –     –       –  

G. Hayes

  –     55,500 (5)   –     $62.81   1/2/2017   –     –     15,000 (5)   $1,148,100
  –     50,000 (8)   –     $57.84   3/7/2016   –     –     –       –  
  –     46,500 (6)   –     $56.53   1/2/2016   –     –     14,300 (6)   $1,094,522
  –     76,000 (7)   –     $51.50   1/2/2015   –     –     –       –  
  21,400   –       –     $46.76   1/8/2014   –     –     –       –  
  11,800   –       –     $37.63   1/1/2011   –     –     –       –  
  5,300   –       –     $31.25   1/2/2010   –     –     –       –  

J. Geisler

  –     55,500 (5)   –     $62.81   1/2/2017   –     –     15,000 (5)   $1,148,100
  –     50,000 (8)   –     $57.84   3/7/2016   –     –     –       –  
  –     46,500 (6)   –     $56.53   1/2/2016   –     –     14,300 (6)   $1,094,522
  –     76,000 (7)   –     $51.50   1/2/2015   –     –     –       –  
  21,400   –       –     $46.76   1/8/2014   –     –     –       –  
  30,000   –       –     $31.71   1/1/2013   –     –     –       –  
  25,600   –       –     $32.17   1/1/2012   –     –     –       –  
  79,000   –       –     $38.50   4/25/2011   –     –     –       –  
  15,200   –       –     $37.63   1/1/2011   –     –     –       –  
  16,400   –       –     $31.25   1/2/2010   –     –     –       –  
  2,000   –       –     $27.00   1/3/2009   –     –     –       –  

L. Chênevert

  –     174,500 (5)   –     $62.81   1/2/2017   –     –     47,200 (5)   $3,612,688
  –     400,000 (8)   –     $57.84   3/7/2016   –     –     –       –  
  –     101,500 (6)   –     $56.53   1/2/2016   –     –     31,200 (6)   $2,388,048
  –     151,000 (7)   –     $51.50   1/2/2015   –     –     –       –  
  140,000   –       –     $46.76   1/8/2014   –     –     –       –  
  170,000   –       –     $31.71   1/1/2013   –     –     –       –  
  170,000   –       –     $32.17   1/1/2012   –     –     –       –  
  400,000   –       –     $38.50   4/25/2011   –     –     –       –  
  144,000   –       –     $37.63   1/1/2011   –     –     –       –  
  150,000   –       –     $31.25   1/2/2010   –     –     –       –  

A. Bousbib

  –     102,000 (5)   –     $62.81   1/2/2017   –     –     27,600 (5)   $2,112,504
  –     200,000 (8)   –     $57.84   3/7/2016   –     –     –       –  
  –     101,500 (6)   –     $56.53   1/2/2016   –     –     31,200 (6)   $2,388,048
  –     151,000 (7)   –     $51.50   1/2/2015   –     –     –       –  
  140,000   –       –     $46.76   1/8/2014   –     –     –       –  
  160,000   –       –     $31.71   1/1/2013   –     –     –       –  
  140,000   –       –     $32.17   1/1/2012   –     –     –       –  
  400,000   –       –     $38.50   4/25/2011   –     –     –       –  
  108,000   –       –     $37.63   1/1/2011   –     –     –       –  
  80,000   –       –     $31.25   1/2/2010   –     –     –       –  

 

Outstanding Equity Awards at Fiscal Year-End (continued)

 

    Option Awards (1)   Stock Awards

Name

  Number of
Securities
Underlying
Unexercised
Options (#)

Exercisable
  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
  Option
Exercise
Price

($) (2)
  Option
Expiration Date
  Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
  Market Value
of Shares or
Units of
Stock That
Have Not
Vested ($)
  Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#) (3)
    Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested ($)(4)

G. Darnis

  –     102,000 (5)   –     $62.81   1/2/2017   –     –     27,600 (5)   $2,112,504
  –     200,000 (8)   –     $57.84   3/7/2016   –     –     –       –  
  –     101,500 (6)   –     $56.53   1/2/2016   –     –     31,200 (6)   $2,388,048
  –     151,000 (7)   –     $51.50   1/2/2015   –     –     –       –  
  140,000   –       –     $46.76   1/8/2014   –     –     –       –  
  160,000   –       –     $31.71   1/1/2013   –     –     –       –  
  140,000   –       –     $32.17   1/1/2012   –     –     –       –  
  400,000   –       –     $38.50   4/25/2011   –     –     –       –  

 

(1)   Under the current long-term incentive plan, approved by shareowners in 2005, SARs are granted for 2006 and subsequent years instead of nonqualified stock options. Stock options were utilized prior to 2006. All awards with expiration dates before 2016 consist of nonqualified stock options.

 

(2)   The exercise price of an option and a SAR is the grant date NYSE closing price of a share of UTC Common Stock.

 

(3)   Reflects the target level of PSUs as described in the CD&A and footnote (2) to the Grants of Plan-Based Awards table. PSUs vest following a three-year performance period to the extent targets are achieved.

 

(4)   Amounts in this column reflect the December 31, 2007 year-end UTC Common Stock closing price on the NYSE of $76.54.

 

(5)   Scheduled to vest on January 3, 2010.

 

(6)   Scheduled to vest on January 3, 2009.

 

(7)   Scheduled to vest on January 3, 2008.

 

(8)   Scheduled to vest on March 8, 2009.

 

(9)   Scheduled to vest on February 7, 2008.

 

Option Exercises and Stock Vested

 

     Option Awards (1)    Stock Awards

Name

   Number of Shares
Acquired on
Exercise (#)
   Value
Realized

on
Exercise
($) (2)
   Number of
Shares
Acquired

on
Exercise or
Vesting

(#)
   Value
Realized
Upon
Exercise
or
Vesting

($)

G. David

   1,000,000    $54,709,550    –      –  

G. Hayes

   –      –      –      –  

J. Geisler

   21,000    $769,171    –      –  

L. Chênevert

   190,000    $8,126,817    –      –  

A. Bousbib

   160,000    $8,770,370    –      –  

G. Darnis

   62,000    $1,869,610    –      –  

 

(1)   Information relates to stock option exercises during 2007.

 

(2)   Calculated by multiplying the number of shares purchased by the difference between the exercise price and the market price of UTC Common Stock on the date of exercise.

 

Pension Benefits

 

Name

  

Plan Name

   Number of Years
Credited Service (#)
   Present Value of
Accumulated
Benefit ($) (1)

G. David

   UTC Employee Retirement Plan    33    $937,642
   UTC Pension Preservation Plan    33    $32,504,158

G. Hayes

   UTC Employee Retirement Plan    18    $239,672
   UTC Pension Preservation Plan    18    $639,502

J. Geisler

   UTC Employee Retirement Plan    15    $143,151
   UTC Pension Preservation Plan    15    $363,880

L. Chênevert

   UTC Employee Retirement Plan    11    $245,621
   UTC Pension Preservation Plan(2)    15    $2,752,841

A. Bousbib

   UTC Employee Retirement Plan    11    $144,907
   UTC Pension Preservation Plan    11    $1,035,130

G. Darnis

   UTC Employee Retirement Plan    24    $316,042
   UTC Pension Preservation Plan    24    $1,806,162

 

(1)   Calculation of present value reflects FASB Statement No. 87 pension expense assumptions described in Note 10, Employee Benefit Plans, to the Consolidated Financial Statements in Exhibit 13 to UTC’s 2007 Annual Report on Form 10-K.

 

(2)   For Mr. Chênevert, this plan provides a pension benefit under the formula applicable to U.S. salaried employees, based on his UTC service from date of hire, offset by benefits payable separately under the Pratt & Whitney Canada pension plan.

 

Retirement benefits are provided through defined benefit retirement plans that provide an annual benefit payment equal to 2% of earnings for each year of service up to a maximum of 20 years, plus 1% of earnings for each year thereafter, minus 1.5% of Social Security benefits for each year of service up to a maximum of 50%. Earnings recognized under this formula consist of base salary and bonus averaged over the highest five consecutive-year period. The formula does not recognize long-term incentive compensation. Normal retirement age is 65; unreduced retirement benefits are available at age 62 for retirements with at least ten years of service (only Mr. David qualifies for unreduced retirement benefits as of fiscal year-end). Early retirement benefits are available at age 55 with at least ten years of service, reduced by .2% for each month between the early retirement date and age 62. Vesting requires five years of service. There are no supplementary service recognition or benefit enhancement provisions. Benefits for Messrs. David, Darnis, and Hayes include amounts accrued under different formulas of Otis, Carrier, and Sundstrand predecessor plans that have since been merged into UTC retirement plans.

 

The UTC Employee Retirement Plan is a tax-qualified plan subject to Internal Revenue Code provisions that, as of fiscal year-end, limit recognized annual compensation to $225,000 and the annual retirement benefit to $180,000. This Plan does not offer a lump sum distribution option. The Pension Preservation Plan (the “PPP”) is an unfunded, non-tax qualified retirement plan utilizing the same benefit formula, compensation recognition, retirement eligibility and vesting provisions as the tax-qualified UTC Employee Retirement Plan. The PPP restores the benefits not provided under the qualified plan due to the Internal Revenue Code limitations previously described. Because amounts payable under the PPP are unfunded and unsecured, a lump sum distribution option is available. Unlike distributions from qualified plans, a PPP lump sum distribution is immediately fully taxable as ordinary income. To approximate actuarial equivalence to a pension annuity in light of the disparate tax treatment, the lump sum calculation uses a discount rate equal to the Lehman Brothers Municipal Bond Index averaged over five years.

 

Nonqualified Deferred Compensation

 

Name

   Executive
contributions
in last FY
($) (1)
   Registrant
contributions
in last FY ($)
   Aggregate
earnings
in last FY
($) (2)
   Aggregate
withdrawals/
distributions
($)
   Aggregate
balance at
last FYE
($) (3)

G. David

   $0    $0    $303,626    $0    $2,718,643

G. Hayes

   $212,500    $0    $85,988    $0    $728,045

J. Geisler

   $0    $0    $0    $0    $0

L. Chênevert

   $0    $0    $177,509    $0    $1,134,412

A. Bousbib

   $1,127,795    $0    $168,416    $446,432    $3,542,814

G. Darnis

   $0    $0    $0    $0    $0

 

(1)   Amounts in this column equal the deferred portion of base salary, bonus and the annual ELG perquisite allowance. These amounts are also reported in the Summary Compensation Table.

 

(2)   Amounts credited do not constitute above-market earnings except for $6,600 credited to Mr. Hayes under a frozen Sundstrand Corporation program.

 

(3)   Amounts in this column include deferrals in prior years of $200,000, $267,082, $431,680 and $2,597,000 for Messrs. David, Hayes, Chênevert and Bousbib, respectively.

 

The UTC Deferred Compensation Plan offers the opportunity to defer up to 75% of annual base salary and up to 100% of annual bonus. For 2007, up to 50% of the ELG perquisite allowance may be deferred under the Plan. The minimum deferral period is five years. Distribution options are a lump sum payment or annual installment payments (2 to 15). If a participant terminates prior to retirement eligibility, all balances are paid as a lump sum the following April 1. Amounts deferred can be allocated to accounts that may be credited with one of the following hypothetical investment returns: (i) a fixed rate of interest equal to the average yield on a ten-year Treasury bond during the first ten months of the preceding calendar year, plus 1%; (ii) the return on the S&P 500 Index; or (iii) the return on UTC Common Stock with dividend reinvestment. Amounts may be re-allocated among investment accounts once per calendar year.

 

Potential Payments on Termination or Change-in-Control

 

Termination/No Change-in-Control

 

Name

  Salary
Continuation or
Severance (1)
  Benefits or
Perquisites (2)
  Pension
Benefit (3)
  Enhanced
Pension
Benefit
  Accelerated
Option/SAR
Vesting
  Accelerated
Share/Unit
Vesting
  Accelerated
Dividend
Equivalent Rights
Vesting
  Total

G. David

  $4,750,000   $3,132,067   $33,377,969   $0   $0   $0   $0   $41,260,036

G. Hayes

  $1,137,500   $0   $1,046,801   $0   $0   $0   $0   $2,184,301

J. Geisler

  $1,137,500   $0   $978,971   $0   $0   $0   $0   $2,116,471

L. Chênevert

  $2,750,000   $0   $5,341,455   $0   $0   $0   $0   $8,091,455

A. Bousbib

  $2,000,000   $0   $1,963,405   $0   $0   $0   $0   $3,963,405

G. Darnis

  $2,000,000   $0   $3,193,822   $0   $0   $0   $0   $5,193,822

 

(1)   Amounts in this column reflect estimated amounts that may be paid under the ELG separation arrangement assuming termination occurred on December 31, 2007. The ELG separation benefit equals 2.5 times base salary and is provided in the event of a mutually-agreeable separation. A mutually-agreeable separation occurs when (i) the ELG participant’s position with UTC has been eliminated or diminished by a divestiture, restructuring, shift in priorities or similar event or (ii) the executive retires at age 62 or older. Voluntary terminations or terminations related to misconduct do not qualify as mutually-agreeable. Receipt of the ELG separation benefit is contingent upon execution of an agreement with UTC containing the following protective covenants: (i) three-year non-compete; (ii) three-year employee non-solicitation; (iii) non-disparagement; (iv) protection of confidential, sensitive and proprietary information; and (v) post-termination cooperation obligations. This severance benefit is not treated as compensation for purposes of any of UTC’s pension or benefit programs. This benefit is payable as a lump sum or installments with credited interest equal to the yield on a Treasury bond of maturity comparable to the installment period, plus 1%. Distributions are subject to certain restrictions imposed by Internal Revenue Code Section 409A. Benefit plan participation and fringe benefits are not continued following termination under the ELG separation arrangement.

 

(2)  

Amounts in this column reflect the estimated value of post-retirement (e.g., age 55 or later) life insurance benefits. Mr. David participates in a life insurance program established prior to the ELG program and closed to new participants in 1989. This program provides in-service term life insurance equal to seven times base salary and 15 annual post-retirement payments as required to maintain this life insurance on a permanent basis, grossed-up for federal and state income taxes. The amount shown for Mr. David equals the estimated present value of these 15 payments if retirement occurred at December 31, 2007. The annual payment would equal $307,640 for estimated insurance premiums and $165,652 for tax gross-up.

  

(3)   Pension benefits under the standard retirement benefit formula that exceed Internal Revenue Code limits for tax-qualified plans may be paid as a lump sum. Amounts in this column reflect the estimated lump sum payment of the nonqualified portion of the retirement benefit, assuming retirement or termination on December 31, 2007, payable as of such date or attainment of age 55, if later.

 

Termination/Change-in-Control (1)

 

Name

  Salary
Continuation
or Severance
    Benefits and
Perquisites
    Enhanced
Pension
Benefit
(2)
  Accelerated
Option/SAR
Vesting
(3)
  Accelerated
Share/Unit
Vesting
(3)
  Accelerated
Dividend
Equivalent
Rights
Vesting

(4)
  Section
280G
Gross-up

(5)
  Total

G. David(6)

  $4,750,000 (7)   $3,132,067 (8)   $0   $0   $18,217,000   $4,252,000   $0   $30,351,067

G. Hayes(9)

  $2,631,200     $0     $0   $843,000   $2,243,000   $567,000   $2,923,964   $9,208,164

J. Geisler(9)

  $2,631,200     $0     $0   $843,000   $2,243,000   $567,000   $3,069,173   $9,353,373

L. Chênevert(6)

  $7,500,000     $325,000 (10)   $7,501,000   $0   $6,001,000   $1,127,000   $12,149,811   $34,603,811

A. Bousbib(6)

  $4,950,000     $297,800 (10)   $2,192,000   $2,157,000   $4,501,000   $1,127,000   $7,948,298   $23,173,098

G. Darnis(6)

  $3,855,000     $285,600 (10)   $7,290,000   $2,157,000   $4,501,000   $1,127,000   $9,381,507   $28,597,107

 

(1)   This table includes estimated amounts payable as a result of a termination following a change-in-control. Change-in-control benefits are provided in accordance with the Senior Executive Severance Plan (the “SESP”) effective July 1, 1981, as amended. Acquisition of 20% of UTC’s voting securities by a person or a group, or a change in the majority of the Board of Directors, constitutes a change-in-control. SESP benefits are provided in the event of a voluntary or involuntary termination of employment within two years following a change-in-control. Receipt of SESP benefits is subject to an on-going obligation to protect confidential company information. An executive may receive the greater of SESP or ELG separation benefits, but not both. SESP benefits are reduced by 1/36th for each month that termination occurs after age 62 and completely phased out at age 65. Estimated payments assume termination on December 31, 2007.

 

(2)   In addition to the pension benefit shown in the preceding table, the SESP provides supplemental pension credits. Messrs. Chênevert, Bousbib and Darnis are eligible to receive enhanced pension and savings plan benefits equal to the value calculated by adding three additional years of service credited under UTC’s retirement plans to the actual years of credited service. Present value calculations utilize the same assumptions discussed in footnote (5) to the Summary Compensation Table.

 

(3)   Reflects the increase in the present value of these awards resulting from acceleration of the vesting date and elimination of the risk of forfeiture calculated in accordance with Internal Revenue Code Section 280G.

 

(4)   In the event of a change-in-control, the present value of unvested performance-based dividend equivalents (“DEs”) is paid in a lump sum. The amount shown in this column equals the current dividend rate multiplied by the number of unvested DEs outstanding times the number of quarterly payments between the assumed change-in-control date (December 31, 2007 for purposes of this estimate) and the DE expiration date, discounted using 120% of the Applicable Federal Rate for December 2007. Messrs. David, Hayes, Geisler, Chênevert, Bousbib, and Darnis also have outstanding DEs that vested following the achievement of prior performance targets. These earned DEs would result in estimated lump sum payments of $11,584,000, $157,000, $349,000, $4,149,000, $3,536,000, and $1,780,000, respectively.

 

(5)   Compensation and benefits in excess of three times compensation may be subject to a non-deductible 20% excise tax under Internal Revenue Code 280G, with variable impact on SESP participants. To assure that the actual economic value of SESP benefits is equivalent for all participants, the program provides for a gross-up of this tax. Amounts in this column estimate the tax gross-up assuming a change-in-control date of December 31, 2007 at a stock price of $76.54 per share.

 

(6)   SESP benefits for these executive officers, who were covered by the SESP prior to December 2003 consist of the following: (i) a cash payment equal to three times base salary and bonus, utilizing the highest base salary and bonus within the preceding three years (reduced by 1/36th for each month that termination occurs after age 62); (ii) a supplemental retirement benefit determined as if the executive had participated in the UTC Employee Retirement Plan, the UTC Pension Preservation Plan and the UTC Employee Savings Plan for three additional years (reduced by 1/36th for each month that termination occurs after age 62); (iii) continued coverage under other employee benefit plans and fringe benefit programs for three years (reduced by 1/36th for each month that termination occurs after age 62); (iv) accelerated vesting of all outstanding long-term incentive awards; and (v) a tax gross-up payment to the extent any change-in-control benefits are subject to the excise tax under Internal Revenue Code Section 280G.

 

(7)   As of December 31, 2007, Mr. David has attained age 65 and is no longer eligible for SESP benefits. As a result, he would receive the ELG separation benefit in lieu of the SESP cash severance payment.

 

(8)   Reflects the estimated value of post-retirement life insurance benefits. Mr. David participates in a life insurance program established prior to the ELG program and closed to new participants in 1989, as described in footnote (2) to the preceding table.

 

(9)   SESP benefits for these executives, who became covered by the SESP after December 2003, consist of: (i) a cash payment equal to 2.99 times the most recent base salary and bonus (reduced by 1/36th for each month that termination occurs after age 62); (ii) accelerated vesting of outstanding long-term incentive awards; and (iii) a tax gross-up payment to the extent any change-in-control benefits are subject to the excise tax under Internal Revenue Code Section 280G.

 

(10)   Consists of three years of medical and life insurance coverage and ELG perquisite allowance.

 

Director Compensation.