The Director Compensation Project: United Technologies

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2009’s Fortune 100 and using information found in their 2009 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $120,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii). This is a looser restriction than the equivalent NASDAQ Rule, 5605(a)(2), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also know as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from the United Technologies Corporation (UTX-NYSE) 2009 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	All Other Compensation ($)	Total ($)
Louis R. Chênevert	0	0	0	0	0
George David	0	0	0	0	0
John V. Faraci	0	281,648	0	1,768	283,416
Jean-Pierre Garnier	0	230,000	0	1,768	231,768
Jamie S. Gorelick	0	220,000	0	14,219	234,219
Edward A. Kangas	0	126,477	0	0	126,477
Charles R. Lee	92,000	138,000	0	1,738	231,738
Richard D. McCormick	0	260,000	0	26,403	286,403
Harold McGraw III	0	227,677	6,867	1,738	236,282
Richard B. Myers	100,000	168,281	0	1,738	270,019
H. Patrick Swygert	0	250,000	0	18,271	268,271
André Villeneuve	0	250,000	0	13,563	263,563
Christine T. Whitman	92,000	145,677	6,867	2,389	246,933

Director Compensation. UTC’s Board met seven times during 2008. Each director attended 75% or more of the aggregate number of meetings of the Board and committees on which he or she served. Only three of the thirteen directors received cash compensation for 2008, and no amount was over $100,000. Stock awards ranged from $126,477 awarded to Mr. Kangas to $281,648 awarded to Mr. Faraci. In 2008, five directors received a one-time $100,000 restricted share unit award that is made upon election to the Board.

Director Tenure. Mr. Gutierrez, the former U.S. Secretary of Commerce, is the newest director. He was elected a UTC director in February 2009. Mr. David has the longest tenure, having served on the board since 1992. Several directors also sit on other boards. Mr. Lee, a director since 1994, is also a director of United States Steel Corporation, Marathon Oil Corporation, The Procter & Gamble Company and The DIRECTV Group, Inc. Ms. Whitman, a director since 2003, is also a director of Texas Instruments Incorporated, S.C. Johnson & Son, Inc. and the Council on Foreign Relations. In addition, she served as Administrator of the U.S. Environmental Protection Agency from January 2001 through June 2003 and was Governor of the State of New Jersey from 1994 through 2001.

CEO Compensation. Louis R. Chênevert serves as President and CEO. In 2008, he earned a salary of $1,318,974 and a bonus of $3,000,000. His total compensation for 2008 was $18,009,832, which also included a stock award of $4,376,921 and an option award of $6,208,773. Included in his total compensation is his personal use of corporate aircraft, lease vehicle payments, cash allowances, insurances premiums and other benefits, all of which total $266,726.